GART SPORTS CO, POS AM, 1998-04-30

GART SPORTS CO
POS AM, 1998-04-30
MISCELLANEOUS SHOPPING GOODS STORES

Previous: G&L REALTY CORP, DEF 14A, 1998-04-30

Next: FRANKLIN REAL ESTATE SECURITIES TRUST, 497, 1998-04-30

<PAGE> 1

As filed with the Securities and Exchange Commission on April __, 1997
Registration No. 333-42355

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------

POST-EFFECTIVE AMENDMENT NO. 1 TO

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

------------------

GART SPORTS COMPANY
(Exact name of Registrant as specified in its charter)

<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 5941 84-1242802
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

1000 BROADWAY
DENVER, COLORADO 80203
(303) 861-1122
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)

JOHN DOUGLAS MORTON
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GART SPORTS COMPANY
1000 BROADWAY
DENVER, COLORADO 80203
(303) 861-1122
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

------------------

Copies to:
JEFFREY M. KNETSCH
BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
410 SEVENTEENTH STREET, 22ND FLOOR
DENVER, COLORADO 80202
TELEPHONE: (303) 534-6335
FACSIMILE: (303) 623-1956

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time following effectiveness of this Registration Statement.

If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box. [X]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

- ----------------

If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ___________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

<PAGE> 2

PRELIMINARY PROSPECTUS DATED APRIL 28, 1998

[GART LOGO]

GART SPORTS COMPANY
PROSPECTUS

This Prospectus is being used in connection with the offering from time
to time of up to 1,019,430 shares (the "Shares") of common stock, par value $.01
per share (the "Common Stock"), of Gart Sports Company (the "Company" or "Gart
Sports") by certain stockholders who may be deemed to be affiliates ("Selling
Stockholders") of the Company.
The Company will not receive any of the proceeds from the sale of the Shares.

The Shares may be sold from time to time by the Selling Stockholders or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made on the Nasdaq National Market System ("Nasdaq"), in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices or at negotiated prices. The
Shares may be sold in transactions involving broker-dealers, including: (a) a
block trade in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Stockholders may arrange for other
brokers or dealers to participate. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Act") in connection with
such sales. All discounts, commissions or fees incurred in connection with the
sale of the Shares will be paid by the Selling Stockholders or by the purchasers
of the Shares, except that the expenses of preparing and filing this Prospectus
and the related Registration Statement with the Securities and Exchange
Commission, and of registering or qualifying the shares, will be paid by the
Company.

The Common Stock of the Company is listed on Nasdaq under the symbol
GRTS.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

---------------

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY.

---------------

The date of this Prospectus is
April __, 1998

---------------------

<PAGE> 3

No person is authorized to give any information or to make any
representations, other than as contained herein, in connection with the offer
made in this Prospectus, and any information or representation not contained
herein must not be relied upon as having been authorized by the Company or the
Selling Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Shares offered by
this Prospectus, nor does it constitute an offer to sell or a solicitation of
any offer to buy any Shares offered hereby to any person in any jurisdiction
where it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that information contained herein is
correct as of any time subsequent to the date hereof.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY .........................................................................................................3

RISK FACTORS......................................................................................................5

MARKET PRICE OF COMMON STOCK......................................................................................9

DIVIDEND POLICY..................................................................................................10

SELECTED FINANCIAL DATA..........................................................................................10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................................13

BUSINESS ........................................................................................................20

MANAGEMENT.......................................................................................................34

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................40

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................43

DESCRIPTION OF CAPITAL STOCK.....................................................................................44

TRANSFER AGENT AND REGISTRAR ....................................................................................46

SELLING STOCKHOLDERS.............................................................................................46

PLAN OF DISTRIBUTION.............................................................................................48

LEGAL MATTERS....................................................................................................48

EXPERTS ........................................................................................................49

AVAILABLE INFORMATION............................................................................................49
</TABLE>

<PAGE> 4

SUMMARY

The following is a summary of certain information contained elsewhere
in this Prospectus. Capitalized terms used and not defined in this summary have
the meanings ascribed thereto elsewhere in this Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Prospectus.

THE COMPANY

Gart Sports Company (the "Company" or "Gart Sports") is one of the
leading sporting goods retailers in the midwest and western United States and
the leading full-line sporting goods retailer in the Rocky Mountain region in
terms of sales and number of stores. The Company's business strategy is to
provide its customers with an extensive selection of high quality, brand name
merchandise at competitive prices with exceptional customer service. The Company
operated 63 sporting goods stores in eight states as of January 3, 1998, the end
of its 1997 fiscal year. In fiscal 1997, the Company had sales of approximately
$228.4 million, an 11.9% increase over fiscal 1996 with a 5.6% increase in
comparable store sales. The Company's executive offices are located at 1000
Broadway, Denver, Colorado 80203, and its telephone number is (303) 861-1122.
The Company's web site is http://www.gartsports.com. This web site is not part
of this Prospectus.

The Company acquired Sportmart, Inc. ("Sportmart") on January 9, 1998
in a transaction involving the issuance of 2,180,656 shares of the Company's
Common Stock, par value $.01 (the "Common Stock"), in exchange for all the
outstanding common stock of Sportmart. At the time of the Sportmart acquisition,
Sportmart operated 59 stores in the midwest and western United States, none of
which overlapped with markets served by Gart Sports stores. With the Sportmart
acquisition, the Company became the second largest full-line sporting goods
retailer in the United States based upon revenues.

Between November 2, 1993 (the opening of the first Gart Sports
superstore) and January 8, 1998, while Gart Sports increased its net store base
from 58 to 64 stores, it increased total square footage by 64.2% from 992,000
square feet to 1,629,000 square feet. The 59 stores acquired in the Sportmart
acquisition added an additional 2,577,000 square feet. In February 1998, the
Company closed the 45,000 square foot Sportmart store in Tukwila, Washington.
Founded in 1928, the Company operates 122 stores under the Gart Sports and
Sportmart names in Colorado, California, Illinois, Utah, Idaho, Minnesota,
Washington, Ohio, Wyoming, Montana, Oregon, Wisconsin, Indiana, Iowa, Nevada and
New Mexico. The Company was incorporated in Delaware in 1993 and operates
through its wholly-owned subsidiaries, Gart Bros. Sporting Goods Company ("Gart
Bros.") and Sportmart.

SPECIAL NOTES REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These factors include, but are not limited to, the effect of
economic conditions generally, and retail and sporting goods business conditions
specifically, the impact of competition in existing and future markets, the
exercise of control over the Company by certain stockholders and the conflicts
of interest that might arise among the Company, such stockholders and their
affiliates, the inherent uncertainties relating to the integration of Sportmart,
the Company's ability to successfully anticipate merchandising and market trends
and customers' purchasing preferences, the impact of seasonality and weather
conditions, and other risks detailed in this Prospectus. These factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships

<PAGE> 5

and Related Transactions." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

---------------------

Gart Sports(R), Gart Sports Superstores(R), Gart Bros. Sporting Goods
Company(R), Sportmart(R), Sniagrab(R), Sportscastle(R), Gart Sports Company(R)
and SWAT(R) are federally registered trademarks of the Company . In addition,
the Company claims common law rights to its trademarks listed above and various
other trademarks and service marks. All other trademarks or registered
trademarks appearing in this Prospectus are trademarks or registered trademarks
of the respective companies that utilize them.

<PAGE> 6

RISK FACTORS

In addition to the other information set forth in this Prospectus,
investors should consider carefully the information set forth below before
making an investment in the Common Stock offered hereby.

COMPETITION

The market for sporting goods retailers is highly fragmented and
intensely competitive. The Company currently competes with a number of
established companies including large format sporting goods stores (such as The
Sports Authority, Oshman's and Jumbo Sports), traditional sporting goods stores
and chains (such as Big 5), specialty sporting goods shops and pro shops (such
as Pro Golf Discount, Foot Locker and REI), and mass merchandisers (discount
stores, department stores and warehouse clubs such as Kmart, Wal-Mart and
Price/Costco). Several of these companies have substantially greater resources
and better name recognition than the Company. Increased competition in markets
in which the Company has stores, the adoption by competitors of innovative store
formats and retail sales methods or the entry of new competitors or the
expansion of operations by existing competitors in the Company's markets could
have a material adverse effect on the Company's business, financial condition
and operating results. See "Business--Competition."

CONTROL BY SIGNIFICANT STOCKHOLDER

Green Equity Investors, L.P. ("GEI") currently holds approximately 61%
of the issued and outstanding shares of the Common Stock. Accordingly, GEI has
the power to elect the Company's Board of Directors and to approve most actions
requiring stockholder approval, including adopting amendments to the Company's
Certificate of Incorporation and approving or disapproving additional sales of
Common Stock by the Company and mergers or sales of all or substantially all of
the assets of the Company. As a result, GEI is able to control all of the
Company's major policy decisions. See "Certain Relationships and Related
Transactions--Relationship with GEI--Control by GEI" and "Description of Common
Stock."

INHERENT UNCERTAINTIES RELATING TO THE SPORTMART ACQUISITION

The success of the Company's acquisition of Sportmart on January 9,
1998 in enhancing long-term stockholder value will depend, in part, on achieving
cost savings and other benefits that could be expected to be realized as a
result of the Sportmart acquisition. Cost savings and other benefits are
expected to be approximately $6.7 million annually beginning in fiscal 1999 and
consist of enhanced purchasing power and lower administrative costs. The
anticipated benefits of the Sportmart acquisition may not be achieved unless
Sportmart's business operations are successfully integrated in a timely manner.
The Company expects to incur approximately $3.2 million of integration costs in
fiscal 1998, which will consist primarily of systems reengineering and certain
incentives to retain employees during the integration period. The difficulties
of such integration may initially be increased by the necessity of coordinating
geographically separated organizations and integrating personnel with disparate
corporate cultures. As in every business integration, achieving the benefits
will require the dedication of management resources that will temporarily
detract from attention to the daily business of the Company. This integration
process may cause an interruption of, or a loss of, momentum in the activities
of the Company, which could have a material adverse effect on the revenues and
operating results, at least in the near term. There can be no assurance that the
Company will not incur additional charges to reflect costs associated with the
Sportmart acquisition, nor can there be any assurance that the Company will be
able to realize the anticipated benefits of the Sportmart acquisition, or to do
so within any particular period.

<PAGE> 7

POTENTIAL IMPACT ON LIQUIDITY OF INCOME TAX CONTINGENCY

On July 24, 1997, the Internal Revenue Service ("IRS") proposed
adjustments to the 1992 and 1993 consolidated federal income tax returns of the
Company and its former parent, TCH Corporation, now Thrifty PayLess Holdings,
Inc. ("Thrifty Payless"), in conjunction with Thrifty's IRS examination. The
proposed adjustments relate to the manner in which LIFO inventories were
characterized on such returns. The Company was a wholly-owned indirect
subsidiary of Thrifty Payless until April 20, 1994 and responsible for its share
of taxes on a separate return basis under a tax sharing agreement with Thrifty
Payless. The Company recorded approximately $9.7 million as a long-term net
deferred tax liability for the tax effect of the LIFO inventory basis
difference. The IRS has asserted that this basis difference should be reflected
in taxable income in 1992 and 1993. The Company has taken the position that the
inventory acquired in connection with the acquisition of Thrifty Payless was
appropriately allocated to its inventory pools. The IRS has asserted the
inventory was acquired at a bargain purchase price and should be allocated to a
separate inventory pool and liquidated as inventory turns.

Based on the Company's discussions with Thrifty Payless, the Company
believes the potential accelerated tax liability, which could have a negative
effect on liquidity in the near term, ranges from approximately $2.5 million to
$9.7 million. The range of loss from possible assessed interest charges
resulting from proposed adjustments by the IRS range from approximately $580,000
to $3.3 million. As the Company believes that no amount is more probable than
another within the range, the minimum interest exposure of $580,000 has been
accrued in the Company's consolidated financial statements. No penalties are
expected to be assessed relating to this matter. At January 31, 1998, the LIFO
inventory and other associated temporary differences continue to be classified
as long-term net deferred tax liabilities as the Company does not believe the
matter will be resolved within a year.

While the Company believes that it has adequately provided for any
liability that may arise from this matter, there can be no assurance that any
additional liability beyond the amounts recorded will not arise as a result of
the IRS examination. The actual liability that may arise from the matter could
have a material adverse effect on the Company's liquidity, which could have a
material adverse effect on the Company's business, financial condition and
operating results. See Note 19 to the Consolidated Financial Statements.

SUBSTANTIAL LEVERAGE

Following the Sportmart acquisition, the Company has consolidated
indebtedness that is substantial in relation to its stockholders' equity and
significantly greater than the Company's previous indebtedness prior to
consummation of the Sportmart acquisition. On January 31, 1998, the Company had
$105.6 million of total debt and $68.8 million of stockholders' equity. The
Company has refinanced the combined indebtedness of the Company and Sportmart
with an asset-based credit facility of $175 million. This level of indebtedness
has several important consequences, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service
requirements, will not be available for other purposes and will decrease its
profitability; (ii) the Company's ability to obtain additional financing for
working capital, capital expenditures or acquisitions may be impaired; (iii) the
Company's leverage may increase its vulnerability to economic downturns and
limit its ability to withstand competitive pressures; and (iv) the Company's
ability to capitalize on significant business opportunities may be limited.

The Company believes that its cash flow from operations, together with
its other available sources of liquidity, will be adequate to make required
payments of principal and interest on its indebtedness, to permit anticipated
capital expenditures and to fund working capital requirements. If the Company is
unable to generate sufficient cash flow from operations in the future, it may be
required to refinance all or a portion of its existing indebtedness or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing could be obtained on terms that are
acceptable to the Company.

<PAGE> 8

POTENTIAL ADVERSE EFFECTS OF FAILURE TO RESPOND TO MERCHANDISING TRENDS

The Company's success depends to a large degree on its ability to
provide a merchandise selection that appeals to its customers' changing desires
and that appropriately reflects geographical differences in merchandise
preferences. The Sportmart acquisition will provide the added challenge of the
combined organization learning to buy for different geographic markets. The
Company often makes commitments to its vendors to purchase merchandise several
months in advance of the proposed delivery date and therefore must anticipate
and respond to changing merchandise trends and consumer demand in a timely
manner. Accordingly, any failure by the Company to identify and respond to
emerging trends, or to obtain high-demand sporting goods products, could
adversely affect consumer acceptance of the merchandise in the Company's stores,
which, in turn, could have a material adverse effect on the Company's business,
financial condition and operating results. If the Company miscalculates either
the market for the merchandise in its stores or its customers' purchasing
preferences and market trends, the Company may be faced with a significant
amount of unsold inventory, which could have an adverse effect on the Company's
business, financial condition and operating results. See "--Potential Adverse
Effect of Changes in Vendor Relationships" and "Business--Merchandising."

POTENTIAL ADVERSE EFFECT OF CHANGES IN VENDOR RELATIONSHIPS

The Company purchases merchandise from over 1,400 vendors and has no
long-term purchase commitments. During fiscal 1997 on a pro forma basis, Nike,
the Company's largest vendor, represented approximately 17.3% of Gart Sports'
and Sportmart's combined purchases. No other vendor represented more than 5% of
total purchases by the Company or Sportmart. Although the Company believes that
current relationships with its vendors are generally good, there can be no
assurance that these relationships will not change following consummation of the
Sportmart acquisition. Moreover, certain merchandise for which there is
significant demand may be allocated by vendors based upon the vendors' internal
criteria, which is beyond the Company's control. Any disruption in the Company's
relationship with its vendors, particularly those whose sporting goods products
are in high demand, or any inability to obtain merchandise from existing or new
vendors in the future, could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business--Business
Strategy."

SEASONALITY; DEPENDENCE ON WINTER SELLING SEASON

The Company's business is seasonal in nature, with its highest sales
levels and operating profitability historically occurring during the fourth
fiscal quarter, which includes the holiday selling season. This seasonality is
also due, in part, to the Company's strong sales of cold weather sporting goods
and apparel. For fiscal years 1997 and 1996, the fourth quarter contributed
33.8% and 32.7% respectively, of net sales, and 80% and 80.2%, respectively, of
operating income. In fiscal 1997 and 1996, sales and rentals of winter sports
equipment and apparel accounted for 23.0% and 23.2%, respectively, of the
Company's net sales for these fiscal years. Any decrease in sales for such
period, whether due to a slow holiday selling season, poor snowfall in ski areas
near the Company's markets or otherwise, could have a material adverse effect on
the Company's business, financial condition and operating results for the entire
fiscal year. Further, as a result of the seasonality of the Company's revenue,
the Company may experience net losses in the second and third fiscal quarters of
each year for the foreseeable future. Inventory levels, which gradually increase
beginning in April, generally reach their peak in November and then fall to
their lowest level following the December holiday season. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

POTENTIAL FLUCTUATIONS IN COMPARABLE STORE SALES

A variety of factors could affect the Company's comparable store sales,
including actions of competitors (such as the opening of additional stores in
the Company's markets), the retail sales environment, general economic
conditions, weather conditions and the Company's ability to execute its business
strategy effectively. Also, opening additional stores in market areas where the
Company has existing stores may reduce sales at those stores. Factors such as
increased competition and economic trends in the Company's markets may result in
future comparable store sales increases lower than those experienced in fiscal
1997. Moreover, there can be no assurance that comparable store sales

<PAGE> 9

for any particular period will not decrease in the future. As is the case with
many retailers, the Company's comparable store sales results could cause the
price of the Common Stock to fluctuate substantially.

POTENTIAL CONFLICTS OF INTEREST

Certain of Sportmart's former directors, officers and principal
stockholders own interests in various entities from which Sportmart leases
certain properties. Two of these individuals, Larry J. Hochberg and Andrew S.
Hochberg, are currently directors of the Company. In connection with the
Sportmart acquisition, the Company has guaranteed Sportmart's obligations under
those leases. See "Certain Relationships and Related Transactions." Such
ownership could result in conflicts of interest for such former directors,
officers and stockholders in situations where Sportmart's and the Company's
interests and those of such other entities are not identical.

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS

Over the last five years the Company has installed new management
information systems, including sales reporting, financial reporting and
inventory management systems. Prior to the Sportmart acquisition, Sportmart used
many of the same management information systems and vendors. However, although
major platforms and significant vendors are the same, there remain significant
risks to the integration of Sportmart's management information systems into
those of the Company. The Company expects that by mid-1998 the host systems for
the Company's two operating subsidiaries will be fully integrated on the AS400
host system located in Denver.

The Company will need to continually evaluate the adequacy of its
management information systems and in the future may need to upgrade such
systems to support the integration of Sportmart stores into the Company's
operating systems and to be prepared for necessary systems conversion for Year
2000 compliance. All management information systems have been recently assessed
for Year 2000 compliance. The costs of such compliance are estimated to be
$50,000 to $75,000. This cost estimate for the Year 2000 project and the
schedule for completion of Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans.

In addition, certain of the Company's suppliers may also be impacted by
Year 2000 compliance, which, in turn, could impact the Company. No assurance can
be given that the steps necessary for such compliance will not be disruptive to
the Company's operations or that they will not have a material adverse effect on
the Company's business, financial condition or operating results. The Company
also currently relies on a small number of outside vendors for the software and
support of its management information systems. While the Company has taken a
number of precautions against certain events that could disrupt the operation of
its management information systems, there can be no assurance that the Company
will not experience systems failures or interruptions, which could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Management Information Systems" and "--Year
2000 Compliance."

DEPENDENCE ON KEY PERSONNEL

The Company believes that the loss of the services of John Douglas
Morton, its Chairman of the Board, President and Chief Executive Officer, or any
of the Company's other executive officers, could have a material adverse effect
on the Company's business, financial condition and operating results. The
Company does not have employment agreements with Mr. Morton or any other senior
executive other than Thomas T. Hendrickson, the Company's Executive Vice
President and Chief Financial Officer, nor does the Company maintain "key man"
life insurance on any of its officers.

<PAGE> 10

POTENTIAL IMPACT OF PRODUCT LIABILITY

The Company may be exposed to potential losses arising from product
liability claims with respect to the sporting goods equipment and other products
that the Company sells. Although the Company currently believes its insurance
coverage is adequate, there can be no assurance that the Company will not be
forced to bear substantial losses from such claims in excess of its liability
coverage. The Company has entered into indemnity agreements with many of its
vendors with respect to certain product liability claims; however, there can be
no assurance that the Company will be able to collect sufficient payments under
these indemnity agreements to offset losses suffered as a result of product
liability claims. Substantial claims resulting from product liability suits
could have a material adverse effect on the Company's business, financial
condition and operating results.

POTENTIAL DILUTIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Immediately following the consummation of the Sportmart acquisition,
the Company had outstanding approximately 7,680,000 shares of Common Stock. A
significant number of such shares, including shares held by certain holders of
Common Stock prior to the Sportmart acquisition, will be eligible for sale
without restriction under the Securities Act in the public market after the
consummation of the Sportmart acquisition by persons other than affiliates of
the Company. Sales of shares by former affiliates of Sportmart will be subject
to Rule 145 of the Securities Act (or Rule 144 in the case of such persons who
become affiliates of the Company) or as otherwise permitted under the Securities
Act. In addition, certain stockholders of the Company will have rights to
require the Company to register the sale of such holders' shares of Common Stock
under the Securities Act or, in some cases, to register the sale of shares in
other registration statements filed by the Company in respect of sales of shares
by it or by others.

POSSIBLE ANTI-TAKEOVER EFFECT OF CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions allow the Company to issue
authorized but unissued shares of preferred stock without any vote or further
action by the stockholders. These provisions could have the effect of diluting
current stockholders' ownership interests in the Company, may make it more
difficult for stockholders to take certain corporate actions, including
replacing incumbent management, and could have the effect of delaying or
preventing a change in control of the Company. Moreover, certain provisions of
Delaware law applicable to the Company could also delay or make more difficult a
merger, tender offer or proxy contest involving the Company. Such provisions
include Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain conditions
are met. See "Description of Common Stock." In addition, so long as GEI is the
majority stockholder of the Company, third parties will not be able to obtain
control of the Company through purchases of Common Stock not owned by GEI. See
"Certain Relationships and Related Transactions--Relationship with GEI."

MARKET PRICE OF COMMON STOCK

The Common Stock began trading on the Nasdaq National Market on January
9, 1998 under the symbol "GRTS." As of April 14, 1998, there were approximately
304 holders of record of Common Stock. The number of holders of Common Stock
does not include the beneficial owners of Common Stock whose shares are held in
the name of banks, brokers, nominees or other fiduciaries. The reported high and
low closing sales prices of the Common Stock on the Nasdaq National Market
during the period from January 9, 1998 through April 14, 1998 were $12.50 and
$17.25, respectively. The last reported sales prices of the Common Stock on the
Nasdaq National Market on April 14, 1998 was $15.75 per share.

<PAGE> 11

DIVIDEND POLICY

The Company has never declared or paid any dividends on its Common
Stock. The Company plans to retain earnings to finance future growth and has no
current plans to pay cash dividends to stockholders. The payment of any future
cash dividends will be at the sole discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, capital
requirements, the general financial condition of the Company and general
business conditions. In addition, the Company's revolving line of credit limits
the payment of dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

SELECTED FINANCIAL DATA

The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for and as of the end of each of the
fiscal years in the three-year period ended January 3, 1998, and for and as of
the 28 day period ended January 31, 1998, are derived from the Company's audited
consolidated financial statements included elsewhere in this report and should
be read in conjunction therewith. The "Statement of Operations Data" and
"Balance Sheet Data" for and as of the end of each of the fiscal years in the
two-year period ended December 31, 1994 are derived from audited consolidated
financial statements not included in this Prospectus. The results of operations
for the 28 days ended January 31, 1998 are not necessarily indicative of results
of operations to be expected for the entire fiscal year due to the effects of
seasonality and cost associated with the Sportmart acquisition. This data should
be read in conjunction with the consolidated financial statements of the
Company, the notes thereto and other financial information of the Company
included elsewhere in this Prospectus.

<PAGE> 12

<TABLE>
<CAPTION>
FISCAL YEARS (1)
28 Days Ended --------------------------------------------------------------------------
January 31, 1998 1997 1996 1995 1994 1993
---------------- ----------- ----------- ----------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $ 38,825 $ 228,379 $ 204,126 $ 176,829 $ 171,866 $ 141,744
----------- ----------- ----------- ----------- ----------- -----------
Cost of goods sold, buying,
distribution and occupancy ......... (31,924) (164,289) (148,420) (131,455) (124,892) (104,236)
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ......................... 6,901 64,090 55,706 45,374 46,974 37,508
Operating expenses ................... (11,360) (52,721) (47,604) (42,876) (39,949) (30,684)
Merger integration costs ............ (3,377) (395) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) .............. (7,836) 10,974 8,102 2,498 7,025 6,824
Interest expense ..................... (525) (983) (1,601) (2,281) (1,746) (187)
Other income ......................... 38 776 637 576 490 1,002
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes .............................. (8,323) 10,767 7,138 793 5,769 7,639
Income tax (expense) benefit ......... 318 (4,083) (2,681) (285) (2,209) (3,070)
Net income (loss) .................... $ (8,005) $ 6,684 $ 4,457 $ 508 $ 3,560 $ 4,569
=========== =========== =========== =========== =========== ===========
Basic earnings (loss) per share ...... $ (1.11) $ 1.21 $ 0.81 $ 0.09 $ 0.62 $ 0.78
=========== =========== =========== =========== =========== ===========
Weighted average shares of common
stock outstanding .................. 7,212,267 5,501,673 5,512,886 5,681,811 5,784,918 5,845,220
=========== =========== =========== =========== =========== ===========
OTHER DATA:
Number of stores at beginning of
period ............................. 63 60 60 61 58 48
Number of stores opened or acquired .. 60(4) 5 5 5 5 11
Number of stores closed .............. -- (2) (5) (6) (2) (1)
----------- ----------- ----------- ----------- ----------- -----------
Number of stores at end of
period ............................. 123 63 60 60 61 58
=========== =========== =========== =========== =========== ===========
Total gross square feet at end of
period ............................. 4,206,197 1,605,963 1,453,520 1,326,158 1,210,003 1,046,760
Comparable store sales increase
(decrease)(2) ...................... 10.0% 5.6% 4.4% (4.1%) (2.8%) 4.6%
EBITDA(3) ............................ (6,633) 15,040 $ 12,396 $ 6,568 $ 10,115 $ 8,478
Net cash provided by (used in):
Operating activities ............... (15,395) 8,548 22,076 11,541 (3,108) (3,431)
Investing activities ............... 483 (4,430) (3,377) (3,615) (5,349) (9,693)
Financing activities ............... 18,326 40 (16,820) (3,289) 8,061 13,636
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital .................... 111,845 39,886 $ 34,133 $ 44,806 $ 49,415 $ 21,059
Total assets ....................... 319,982 121,291 96,435 93,658 95,666 77,573
Long-term debt ..................... 105,600 -- -- 17,000 19,672 9,039
Redeemable common stock, net ....... -- 1,904 860 554 -- --
Stockholders' equity ............... 68,757 42,613 36,883 32,502 32,761 31,253
</TABLE>

11
<PAGE> 13

- ----------
(1) During 1995, Gart Sports adopted an annual fiscal reporting period that
ends on the first Saturday in January. Accordingly, fiscal 1997 began
on January 5, 1997 and ended on January 3, 1998 and included 52 weeks
of operations; fiscal 1996 began on January 7, 1996 and ended on
January 4, 1997 and included 52 weeks of operations; and fiscal 1995
began on January 1, 1995 and ended on January 6, 1996 and included 53
weeks of operations. During 1998, the Company adopted an annual fiscal
reporting period that ends on the last Saturday in January.
Accordingly, fiscal 1998 began on February 1, 1998 and will end on
January 30, 1999 and will include 52 weeks of operations.

(2) Stores enter the comparable store sales base at the beginning of their
14th month of operations. The 59 Sportmart stores acquired on January
9, 1998 are included in comparable store bases utilizing historical
Sportmart comparable store data.

(3) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. Gart Sports
believes that, in addition to cash flows from operations and net income
(loss), EBITDA is a useful financial performance measurement for
assessing operating performance as it provides an additional basis to
evaluate the ability of Gart Sports to incur and service debt and to
fund capital expenditures. In evaluating EBITDA, Gart Sports believes
that consideration should be given, among other things, to the amount
by which EBITDA exceeds interest costs for the period, how EBITDA
compares to principal repayments on debt for the period and how EBITDA
compares to capital expenditures for the period. To evaluate EBITDA,
the components of EBITDA such as revenue and operating expenses and the
variability of such components over time should also be considered.
EBITDA should not be construed, however, as an alternative to operating
income (loss) (as determined in accordance with generally accepted
accounting principles (GAAP)) as an indicator of Gart Sports' operating
performance or to cash flows from operating activities (as determined
in accordance with GAAP) as a measure of liquidity. Gart Sports' method
of calculating EBITDA may differ from methods used by other companies,
and as a result, EBITDA measures disclosed herein may not be comparable
to other similarly titled measures used by other companies.

(4) Represents the 59 Sportmart stores acquired on January 9, 1998 and one
Gart Sports store opened in January 1998.

12
<PAGE> 14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with "Selected Financial Data" and the notes thereto and the Company's
consolidated financial statements and notes thereto, included elsewhere in this
Prospectus.

In May 1995, the Company shifted its pricing strategy from an everyday
low price strategy that had resulted in a five year low in gross margins of
25.7% to a promotional advertising and pricing strategy that had been in place
prior to 1994. The resulting change in strategy, in addition to the management
change that resulted in John Douglas Morton becoming the President and Chief
Executive Officer, resulted in an increase in gross margins of 1.6% points for
1996 to 27.3% and 0.8% points for 1997 to 28.1%.

During 1995, the Company adopted an annual fiscal reporting period that
ends on the first Saturday in January. Accordingly, fiscal 1997 began on January
5, 1997 and ended on January 3, 1998 and included 52 weeks of operations. Fiscal
1996 began on January 7, 1996 and ended on January 4, 1997 and included 52 weeks
of operations. Fiscal 1995 began on January 1, 1995 and ended on January 6, 1996
and included 53 weeks of operations. In conjunction with the acquisition of
Sportmart in January 1998, which had an annual fiscal period ending on the last
Sunday in January, the Company adopted an annual fiscal reporting period that
ends on the last Saturday in January. Accordingly, fiscal 1998 began on February
1, 1998 and will end on January 30, 1999 and will include 52 weeks of
operations. The 28 day period following the end of fiscal 1997 through January
31, 1998 has been reported as a transition period.

Management does not believe that the results of operations for the
transition period are necessarily indicative of future results, due to the
effects of seasonality and costs associated with the Sportmart acquisition.
Therefore, the results of operations for the transition period are not
comparable to other presented periods.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain income
and expense items expressed as a percentage of net sales and the number of
stores open at the end of each period:

<TABLE>
<CAPTION>
FISCAL
28 DAYS ENDED --------------------------------------------------------------------
JANUARY 31, 1998 1997 1996 1995
------------------ -------------------- -------------------- --------------------
DOLLARS % DOLLARS % DOLLARS % DOLLARS %
------- ----- -------- ----- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 38.8 100.0% $ 228.4 100.0% $ 204.1 100.0% $ 176.8 100.0%
Cost of goods sold, buying,
distribution and occupancy (31.9) (82.2) (164.3) (71.9) (148.4) (72.7) (131.4) (74.3)
------- ----- -------- ----- -------- ----- -------- -----
Gross profit 6.9 17.8 64.1 28.1 55.7 27.3 45.4 25.7
Operating expenses (11.4) (29.4) (52.7) (23.2) (47.6) (23.4) (42.9) (24.3)
Merger integration costs (3.4) (8.8) (0.4) (0.2) -- -- -- --
------- ----- -------- ----- -------- ----- -------- -----
Operating income (loss) (7.9) (20.4) 11.0 4.7 8.1 3.9 2.5 1.4
Interest expense, net (0.5) (1.3) (1.0) (0.4) (1.6) (0.8) (2.3) (1.3)
</TABLE>

13
<PAGE> 15

<TABLE>
<CAPTION>
FISCAL
28 DAYS ENDED -------------------------------------------------------------
JANUARY 31, 1998 1997 1996 1995
------------------ ------------------ ----------------- ------------------
DOLLARS % DOLLARS % DOLLARS % DOLLARS %
------- ----- -------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other income 0.1 0.3 0.8 0.4 0.6 0.4 0.6 0.4
-------- ----- -------- --- -------- --- ------- ---
Income (loss) before income
taxes (8.3) (21.4) 10.8 4.7 7.1 3.5 0.8 0.5
Income tax (expense) benefit 0.3 0.8 (4.1) (1.8) (2.7) (1.3) (0.3) (0.2)
-------- ----- -------- --- -------- --- ------- ---
Net income (loss) $ (8.0) (20.6)% $ 6.7 2.9% $ 4.4 2.2% $ 0.5 0.3%
======== ===== ======== === ======== === ======= ===
Number of stores at end of period 123 63 60 60
</TABLE>

Newly opened stores enter the comparable store sales base at the
beginning of their 14th month of operation. The 59 Sportmart stores acquired on
January 9, 1998 are included in comparable store sales bases utilizing
historical Sportmart comparable store data.

Inventories are stated at the lower of last-in, first-out (LIFO) cost
or market. The Company considers cost of goods sold to include the direct costs
of merchandise, plus certain internal costs associated with procurement,
warehousing, handling and distribution. In addition to the full cost of
inventory, cost of goods sold includes certain other occupancy costs and
amortization and depreciation of leasehold improvements and rental equipment.
Operating expenses include both controllable and non-controllable store expenses
(except occupancy), non-store expenses and depreciation and amortization not
associated with cost of goods sold.

TRANSITION PERIOD ENDED JANUARY 31, 1998

The Company's transition period consists of the 28 days of operations
for Gart Sports, which includes 22 days of operations for Sportmart (from the
date of acquisition on January 9, 1998) (the "Transition Period").

Net Sales. Net sales were $38.8 million for the Transition Period. Net
sales were evenly distributed between the Gart Sports stores and the Sportmart
stores. Gart Sports stores were bolstered by licensed promotional apparel sales
related to the Denver Broncos' winning of the Super Bowl, contributing to a
31.8% increase in comparable Gart Sports store sales offset by a 3.6% decline in
comparable Sportmart stores sales subsequent to the acquisition. The Sportmart
acquisition added an additional 59 superstores to the Company's sales base.

Gross Profit. Gross profit was $6.9 million during the Transition
Period or 17.8% of net sales. The month of January is an historically slow sales
period for Sportmart in which promotional clearance events are held. Such events
generally result in higher cost of sales as a percentage of net sales and
correspondingly lower gross profit margins.

Operating Expenses. Operating expenses for the period ended January 31,
1998 were $11.4 million, or 29.4% of net sales. Operating expenses associated
with the Sportmart stores increased as a percentage of net sales primarily due
to the decline in net sales while fixed costs remained constant.

Merger Integration Costs. Merger integration costs were $3.4 million.
These costs consist primarily of $653,000 of professional fees, $700,000 of stay
bonuses to employees at the Sportmart corporate headquarters,

14
<PAGE> 16

$63,000 of travel expense, $1,153,000 of lease buyouts, $220,000 of obsolete
equipment write down, $78,000 of debt fee expense, $505,000 of severance, moving
and employee welfare costs, and $5,000 of other costs.

Operating Loss. As a result of the factors described above, the
operating loss for the Transition Period was $(7.9) million.

Interest Expense. Interest expense for the four week period ended
January 31, 1998 was 1.3% of net sales or $0.5 million. In conjunction with the
Sportmart acquisition, the Company refinanced the Sportmart debt of
approximately $86.2 million under the Credit Agreement.

Income Taxes. The Company's income tax benefit for the Transition
Period was $0.3 million. The Company's effective tax rate was 3.8% primarily due
to the Company recording a valuation allowance against the deferred tax assets
generated by the operations of Sportmart for the Transition Period.

FISCAL 1997 AS COMPARED TO FISCAL 1996

Net Sales. Net sales increased $24.3 million to $228.4 million or 11.9%
in fiscal year 1997 compared to $204.1 million in fiscal year 1996. The increase
in net sales is attributable to comparable store sales increase of 5.6% and an
increase of 6.1% from new stores opened offset by $0.6 million in lost sales
from closed stores. Comparable store sales increases were partly due to strong
sales in golf equipment, snowboards, athletic hardlines and activewear. During
the year, the Company opened four superstores and one freestanding store and
closed two freestanding stores.

Gross Profit. Gross profit for fiscal 1997 was $64.1 million or 28.1%
of net sales as compared to $55.7 million, or 27.3% of net sales for fiscal
1996. This increase as a percentage of net sales was primarily the result of
improved margins in hardlines and apparel and lower depreciation expense related
to rental goods included in cost of goods sold, buying, distribution and
occupancy.

Merger Integration Costs. Merger integration costs of $0.4 million were
recognized in the third and fourth quarters of fiscal 1997. These costs
consisted primarily of $309,000 of professional fees and $84,000 of travel
expenses related to the Sportmart acquisition.

Operating Expenses. Operating expenses in fiscal 1997 were $52.7
million, or 23.2% of net sales compared to $47.6 million, or 23.4% of net sales
for the period ended January 4, 1997. The decrease as a percentage of net sales
is due primarily to a decrease in corporate overhead expenses offset by
increases in store payroll and advertising costs.

Operating Income. As a result of the factors described above, operating
income for fiscal year 1997 increased 35.8% to $11.0 million or 4.7% of net
sales, from $8.1 million, or 3.9% of net sales in the fiscal year 1996.

Interest Expense. Interest expense for the 52 week period ending
January 3, 1998 decreased 37.5% to $1.0 million or 0.4% of net sales from $1.6
million, or 0.8% of net sales in the 52 week period ended January 4, 1997. The
decrease is primarily due to a decrease in average outstanding debt for the
year, combined with more favorable interest rates.

Other Income. Other income for the 52 weeks ended January 3, 1998
increased $0.2 million or 33.3% over the 52 week period ended January 4, 1997 of
$0.6 million. The increase was primarily due to proceeds received in connection
with a lessor's buy-out of one of the Company's store leases.

Income Taxes. The Company's income tax expense for the fiscal year 1997
was $4.1 million compared to $2.7 million for fiscal year 1996. The Company's
effective tax rate increased to 37.9% from 37.6% in fiscal year 1996.

15
<PAGE> 17

FISCAL 1996 AS COMPARED TO FISCAL 1995

Net Sales. Net Sales increased 15.4% to $204.1 million in fiscal 1996
as compared to $176.8 million in fiscal 1995. This growth is attributable to a
comparable store increase of 4.4% and increase of $35.6 million in sales from
new stores, offset by $12.8 million in lost sales from closed stores. Comparable
store sales increases were partly attributable to strong sales in apparel
categories. During fiscal 1996, the Company opened five superstores and closed
four freestanding stores and one mall store as compared to opening four
superstores and one freestanding store and closing four freestanding stores and
two mall stores in fiscal 1995. The Company operated 60 stores at the end of
both fiscal 1996 and fiscal 1995.

Gross Profit. Gross profit in fiscal 1996 was $55.7 million, or 27.3%
of net sales as compared to $45.4 million, or 25.7% of net sales in fiscal 1995.
This increase as a percentage of net sales is primarily attributable to reduced
inventory shrinkage and higher gross profit margins due to the change in pricing
from an everyday low price strategy to a promotional price strategy. The
promotional pricing strategy was reinstated in late fiscal 1995.

Operating Expenses. Operating expenses in fiscal 1996 were $47.6
million, or 23.4% of net sales as compared to $42.9 million, or 24.3% of net
sales in fiscal 1995. This decrease as a percentage of net sales was the result
of lower store payroll expenses and lower corporate overhead expenses due in
part to the absence of a non-recurring severance charge of $0.8 million for
termination costs of several executives in fiscal 1995 and to various cost
containment programs initiated in fiscal 1996.

Operating Income. As a result of the factors described above, operating
income in fiscal 1996 increased 224.3% to $8.1 million, or 3.9% of net sales,
from $2.5 million, or 1.4% of net sales in fiscal 1995.

Interest Expense. Interest expense in fiscal 1996 decreased 29.8% to
$1.6 million, or 0.8% of net sales, from $2.3 million, or 1.3% of net sales, in
fiscal 1995. This decrease is primarily due to a decrease in borrowings under
the Company's credit agreement.

Income Taxes. The Company's income tax expense in fiscal 1996 was $2.7
million as compared to $0.3 million in fiscal 1995. The Company's effective tax
rate in fiscal 1996 increased to 37.6% as compared to 35.9% in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary capital requirements are for inventory, capital
improvements, and pre-opening expenses to support the Company's expansion plans,
as well as for various investments in store remodeling, store fixtures and
ongoing infrastructure improvements. In conjunction with the Sportmart
acquisition, the Company issued 2,180,656 shares of Common Stock. See Note 3 to
the Consolidated Financial Statements.

The Company had working capital of $111.8 million, $39.9 million and
$34.1 million as of January 31, 1998, January 3, 1998, and January 4, 1997,
respectively.

Historically, the Company's liquidity and capital needs have been met
by cash from operations and borrowings under a revolving line of credit with
CIT/Business Credit, Inc. ("CIT"). In connection with the Sportmart acquisition,
this agreement was replaced with a new revolving line of credit facility (the
"Credit Agreement") with a group of lenders including CIT as agent. The long
term debt currently consists of the Credit Agreement, which allows the Company
to borrow up to 70% of its eligible inventories (as defined in the Credit
Agreement) during the year and up to 75% of its eligible inventories for any
consecutive 90 day period in a fiscal year. Borrowings are limited to the lesser
of $175 million or the amount calculated in accordance with the

16
<PAGE> 18

borrowing base, and are secured by substantially all trade receivables,
inventories and intangible assets. The lenders may not demand repayment of
principal absent an occurrence of default under the Credit Agreement prior to
January 9, 2003. Loan interest is payable monthly at Chase Manhattan Bank's
prime rate plus a margin rate that cannot exceed 0.25% or, at the option of the
Company, at Chase Manhattan Bank's LIBOR rate plus a margin that cannot exceed
1.75%. The margin rate on prime and LIBOR borrowings can be reduced beginning in
February 1999 to as low as 0.0% and 1.50%, respectively, based upon certain
criteria. There was $105.7 million outstanding under the Credit Agreement at
April 4, 1998, and $19.1 million was available for borrowing (based upon 70% of
eligible inventories).

Net cash used in operating activities was $15.4 million in the
Transition Period. The primary use of funds was the loss of $8.0 million
combined with payments on trade accounts and other liabilities. Net cash
provided by investing activities was $0.5 million primarily due to $0.9 million
net cash acquired in the Sportmart acquisition, offset by $0.4 million of
purchases of property and equipment during the 28 days ended January 31, 1998.
Cash flows provided by financing activities was $18.3 million due to increased
borrowing in conjunction with the Sportmart acquisition. At January 31, 1998,
the Company had $105.6 million in outstanding borrowings, primarily related to
the refinancing of the Sportmart debt.

Net cash provided by operating activities decreased $13.6 million to
$8.5 million in fiscal 1997 from $22.1 million in fiscal 1996 primarily due to
an increase in inventories due to a net increase in selling square footage,
partially offset by an increase in accounts payable and higher net income. Net
cash used in investing activities, which primarily represents purchases of
property and equipment for new store openings, increased to $4.4 million for
fiscal 1997 from $3.4 million for fiscal 1996. Net cash provided by financing
activities decreased from $16.8 million in fiscal 1996 to $0.0 in fiscal 1997,
which was primarily due to decreased borrowings under the Company's revolving
credit facility. At January 3, 1998, the Company had no outstanding borrowings.

The Internal Revenue Service has proposed adjustments to the 1992 and
1993 consolidated federal income tax returns of the Company and its former
parent, now Thrifty PayLess Holdings, Inc., a subsidiary of RiteAid Corporation,
due to the manner in which LIFO inventories were characterized on such returns.
These adjustments could result in up to approximately $9.7 million of a
long-term deferred tax liability being accelerated, which would have a negative
impact on liquidity in the near term. See Note 19 to the Consolidated Financial
Statements.

During 1997, the Company opened four superstores. Capital expenditures
to support all of the Company's expansion plans as well as various investments
in store remodels, store fixtures, ski rentals and ongoing infrastructure
improvements are projected to be approximately $13.0 million in fiscal 1998.
These capital expenditures will be for new store openings, fixturing,
refurbishing Sportmart stores, remodeling of existing stores, information
systems and distribution center facilities. The Company leases all of its store
locations and intends to continue to finance its new stores with long-term
operating leases. Based upon historic data, newly constructed superstores
require a cash investment of approximately $1.8 million for a 45,000 square foot
store, consisting of $1.4 million for inventory net of vendor payables, $300,000
for capital improvements (including leasehold improvements, fixtures and
equipment) and $125,000 for pre-opening expenses. The cash investment for a
newly constructed 33,000 square foot store is approximately $1.5 million,
consisting of $1.1 million for inventory net of vendor payables, $250,000 for
capital improvements and $125,000 for pre-opening expenses. Superstores
constructed in existing retail space historically have required additional
capital investments of approximately $700,000 in leasehold improvements per
location. The level of capital improvements will be affected by the mix of new
construction versus renovation of existing retail space. Pre-opening costs,
which include grand opening advertising, are expensed on a straight-line basis
during the remaining periods of the fiscal reporting year in which the store
opens. The Company expects similar trends in new store investment for the
foreseeable future.

The Company believes that cash generated from operations, combined with
funds available under the credit facility, will be sufficient to fund
transaction fees and costs, severance and relocation costs, and integration
costs associated with the Sportmart acquisition (estimated to be approximately
$21 million in the aggregate), projected

17
<PAGE> 19

capital expenditures (estimated at approximately $13.0 million) and other
working capital requirements through fiscal 1998. The Company intends to utilize
the Credit Agreement to meet seasonal fluctuations in cash flow requirements.
Generally, the Company reaches its peak borrowing level in November.

FOREIGN CURRENCY AND INTEREST RATE RISK MANAGEMENT

In connection with the Sportmart acquisition, the Company acquired
contracts for certain off-balance sheet derivative financial instruments that
Sportmart had utilized to reduce interest rate and foreign currency exchange
risks. The Company does not use derivatives for speculative trading purposes.

The assumed contracts consist of one interest rate cap agreement and
various foreign currency option contracts. These agreements were transferred
from Sportmart's credit agreement to the Company's credit agreement.
The interest rate cap agreement is for a notional amount totaling $25.0
million, places an interest rate ceiling on LIBOR at 6.0% plus 1.75% and
expires in August 1999.

In connection with its Canadian operations (which were closed in 1997),
Sportmart entered into foreign currency contracts to hedge intercompany loans
and other commitments in currencies other than its Canadian subsidiary's
functional currency. Realized and unrealized gains and losses arising from these
foreign currency contracts are recognized in income as offsets to gains and
losses resulting from the underlying hedged transaction. Prior to its
acquisition by the Company, Sportmart had completed most of its liquidation of
this subsidiary. It is not anticipated that the Company will continue foreign
currency hedges once the existing contracts expire.

SEASONALITY AND INFLATION

The following table sets forth the Company's unaudited consolidated
quarterly results of operations for each of the quarters in fiscal 1996 and
1997. This information is unaudited, but is prepared on the same basis as the
annual financial information and, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The results of
operations for any quarter are not necessarily indicative of the results for any
future period.

<TABLE>
<CAPTION>
FISCAL 1997
-----------

First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales ............. $ 47.4 $ 48.0 $ 55.7 $ 77.3
% of full year ........ 20.8% 21.0% 24.4% 33.8%
Operating income ...... $ 1.8 $ 0.4 $ 0.0 $ 8.8
% of full year ........ 16.4% 3.6% 0.0% 80.0%
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1996
-----------

First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales .............. $ 44.3 $ 42.9 $ 50.3 $ 66.6
% of full year ......... 21.7% 21.0% 24.6% 32.7%
Operating income ....... $ 1.4 $ 0.2 $ 0.0 $ 6.5
% of full year ......... 17.3% 2.5% 0.0% 80.2%
</TABLE>

18
<PAGE> 20

The fourth quarter has historically been the strongest quarter for Gart
Sports. For fiscal 1997 and 1996, the fourth quarter contributed 33.8% and
32.7%, respectively, of net sales and 80.0% and 80.2%, respectively, of
operating income. The Company believes that two primary factors contributed to
this seasonality. First, Gart Sports' business is characterized by strong sales
of cold weather sporting goods, and its customers traditionally make purchases
of ski and snowboard merchandise during these quarters in anticipation of the
ski and snowboard season. In fiscal 1997 and 1996, sales and rentals of winter
sports equipment and apparel accounted for 23.0% and 23.2%, respectively, of net
sales for these fiscal years. Second, as is the case with most retailers,
holiday sales contribute significantly to the Company's operating results. As a
result of these factors, inventory levels, which gradually increase beginning in
April, generally reach their peak in November and then decline to their lowest
level following the December holiday season. Sportmart has historically strong
sales in the second and fourth quarters. The Company expects the Sportmart
acquisition to mitigate the Company's dependency on the fourth quarter for both
sales and operating income generation as a percentage of the full year.
Nevertheless, any decrease in sales for the fourth quarter, whether due to a
slow holiday selling season, poor snowfall in ski areas near Gart Sports'
markets or otherwise, could have a material adverse effect on the Company's
business, financial condition and operating results for the entire fiscal year.

Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has a material
impact on the Company's results of operations. The Company believes that it is
generally able to pass along any inflationary increases in costs to its
customers.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement No. 130"), effective for years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has not yet adopted Statement No. 130. The
Company will comply with the reporting and display requirements under this
statement when required.

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information ("Statement No. 131"), effective for years
beginning after December 15, 1997. Statement No. 131 establishes standards for
reporting information about operating segments and the methods by which such
segments were determined. The Company has not yet adopted Statement No. 131. As
the Company operates within one industry segment, the Company believes that the
disclosures required by this statement will not be significant.

In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits ("Statement No.
132"), effective for fiscal years beginning after December 15, 1997. Statement
No. 132 revises disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
Statement No. 132 standardizes the disclosure requirements and suggests combined
formats for presentation of such disclosures. The Company has not yet adopted
Statement No. 132. The Company will comply with the reporting requirements under
this statement when required.

In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-5 ("SOP 98-5") Reporting on the Costs of
Start-Up Activities, effective for fiscal years beginning after December 15,
1998 and encouraging earlier adoption. SOP 98-5 broadly defines start-up
activities as those one time activities related to, among other things, opening
a new facility. In general, SOP 98-5 requires the Company to expense as incurred
those costs such as pre-opening payroll and store supplies. Currently, the
Company capitalizes such costs and amortizes the balance over the entire fiscal
year in which it opens a new facility. Pursuant to SOP 98-5, the Company will
have to incur expenses prior to having available the sales generated to absorb
such costs.Generally, the Company incurs approximately $125,000 per new store of
pre-opening costs. The Company has not yet adopted SOP 98-5.

19
<PAGE> 21

BUSINESS
GENERAL

The Company acquired Sportmart on January 9, 1998 in a transaction
involving the issuance of 2,180,656 shares of Common Stock in exchange for all
the outstanding common stock of Sportmart. At the time of the Sportmart
acquisition, Sportmart operated 59 stores in the midwest and western United
States, none of which overlapped with markets served by Gart Sports stores. With
the Sportmart acquisition, the Company became the second largest full-line
sporting goods retailer in the United States based upon revenues.

INDUSTRY OVERVIEW

According to the National Sporting Goods Association (the "NSGA"),
total U.S. retail sales of sporting goods (including sporting equipment,
athletic footwear and apparel, but excluding recreational transportation
products) were approximately $41.6 billion in 1996, an increase from $39.2
billion in 1995. The NSGA reported that in 1997, sales of athletic footwear are
projected to grow 4%, sales of athletic apparel are projected to grow 2%, and
sales of athletic equipment are projected to grow 3%.

The retail sporting goods industry is comprised of four principal
categories of retailers: (i) large format sporting goods stores, which typically
range from 30,000 to 80,000 square feet in size and emphasize high sales volumes
and a large number of SKUs in a warehouse-style store, (ii) traditional sporting
goods stores, which typically range in size from 5,000 to 20,000 square feet and
carry a more limited assortment of merchandise and are often viewed by their
customers as convenient neighborhood stores, (iii) specialty sporting goods
stores, consisting of specialty stores and pro shops, generally specializing in
one product category of sporting goods, and (iv) mass merchandisers, including
discount retailers, warehouse clubs and department stores, which although
generally price competitive, have limited customer service and a more limited
selection.

The sporting goods industry in the United States is characterized by
fragmented competition, limited assortments from traditional sporting goods
retailers, customer preference for one-stop shopping convenience and the growing
importance of delivering value to the customer through selection, service and
price. The Company believes that these characteristics of the sporting goods
industry make the Company's superstore format particularly well

20
<PAGE> 22

suited to grow and increase the Company's market share relative to traditional
sporting goods stores, specialty sporting goods retailers, mass merchandisers
and other large format sporting goods retailers.

BUSINESS STRATEGY

The Company's business strategy is to provide its customers with an
extensive selection of high quality, brand name merchandise at competitive
prices with exceptional customer service. The key elements of the Company's
business strategy are the following:

Broad Assortment of Quality, Brand Name Products. The Company
offers a wide selection of quality, brand name apparel and equipment at
competitive prices designed to appeal to both the casual sporting goods
customer and the sports enthusiast for its customers' complete sporting
goods needs. The Company carries over 60,000 active SKUs, including
popular brands such as Coleman, Columbia, K2, Nike, Rawlings, Reebok,
Rollerblade, Rossignol, Spalding, Speedo and Wilson. Gart Sports'
customer service, expert technicians and specialty store presentation
enable it to purchase directly from manufacturers full product lines
that are typically only available in specialty stores and pro shops,
such as Callaway, Cobra, Taylor Made and Tommy Armour golf clubs, The
North Face apparel and equipment, G. Loomis fishing equipment, Glock
and Weatherby firearms, Volkl and Volant ski equipment and Burton
snowboard equipment.

Exceptional Customer Service. The Company differentiates
itself by its company -wide culture of customer service that provides
the high level of service generally associated with specialty sporting
goods stores and pro shops. The Company's strategy is to hire sales
associates and sports technicians who are knowledgeable and
enthusiastic about the products they sell or service. The Company
supports its sales associates by providing ongoing training with
respect to the performance attributes and technical aspects of its
merchandise, including conducting regular manufacturers' clinics. The
Company provides full service in all departments, including shoe and
winter sports departments, and strives to maintain high in-stock levels
to ensure customer satisfaction. The Company also employs a "no-hassle"
merchandise return policy. Finally, the Company offers special customer
services such as special order capability, equipment rental, on-site
repair centers, instructional courses, discounted ski lift tickets and
hunting and fishing licenses.

Attractive Shopping Environment. The Company seeks to offer a
uniquely attractive shopping environment that showcases the breadth of
the Company's product offerings and reinforces the Company's
distinctive brand image. The Company's brightly lit stores are designed
to project a clean, upscale atmosphere, with a user-friendly layout
featuring wide aisles, well-organized merchandise displays and clearly
defined departments arranged in a logical and convenient floorplan. The
Company believes that this customer-oriented shopping environment helps
distinguish its stores from the warehouse format offered by many of its
competitors.

Customized Merchandise Mix. The Company tailors its product
mix to local demographics and lifestyles based on the Company's
experience and market research. Purchasing decisions are made on a
store by store basis, and store operations work directly with the
Company's buyers to revise the product mix in each store. Various
factors typically influence the product mix in a particular market,
such as disposable income, professional and amateur sports activities,
specific regional and seasonal activities, and recreational licenses.

Promotional Advertising and Marketing. The Company uses a
promotional pricing and advertising strategy focused on the creation of
"events" to drive traffic and sales in its stores. Each event is based
upon either a key shopping period such as the winter holidays, Father's
Day, and Back-to-School or a specific sales or promotional event,
including the annual Sniagrab ("bargains" spelled backwards) sale,
which the Company believes is the largest pre-season ski and snowboard
sale in the United States. The Company's

21
<PAGE> 23

strategy of clustering stores in major markets enables it to employ an
aggressive advertising strategy on a cost-effective basis, utilizing
newspaper, radio and television.

As part of the integration of the Sportmart stores, the Company has
established a four year store remodel schedule, increased store-level staffing,
expanded the brand name product mix in the stores and increased the frequency of
Sportmart's advertising.

MERCHANDISING

The Company offers its customers over 60,000 active SKUs of high
quality brand name merchandise in over 100 categories of sporting goods and
apparel. The Company provides an assortment of products typically found only in
a warehouse format sporting goods store with the presentation and service
typical of specialty stores and pro shops. As a result of its exceptional
customer service, expert technicians and specialty store presentation, Gart
Sports has direct vendor access to full lines of brands not typically found in
its warehouse format sporting goods competitors. The Company intends to
implement a similar merchandising strategy in the 58 Sportmart stores.

The merchandising strategy employed in the Sportmart stores has focused
on offering a broad and deep selection of quality, brand-oriented and private
label merchandise in a superstore format. Each store offers a wide variety of
sports equipment, apparel, footwear and accessories to meet the needs of the
casual sports participant as well as the sports enthusiast. The Company intends
to adjust the in-store merchandise mix to reflect the specific regional and
seasonal needs of each Sportmart store.

Historically, the largest percentage of Gart Sports stores have been
based in the Rocky Mountain region, resulting in a heavier concentration of
winter sporting equipment and apparel than a typical warehouse format sporting
goods store. The Company believes that the quality and breadth of its winter
sports merchandise has contributed to its strong reputation in the Rocky
Mountain region compared to other large format competitors with less experience
marketing winter sporting goods. In addition, the Company believes that its
ability to manage the complex inventory requirements of the winter product line,
which is characterized by a short selling season and peak selling periods at the
beginning and end of the selling season, gives it an important competitive
advantage.

The following table sets forth the percentage of total net sales for
each major product category for each of the last three fiscal years for Gart
Sports stores:

<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------
1997 1996 1995
----------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Hardlines......................... 49.4% 48.7% 50.7%
Softlines:
Apparel......................... 30.4 30.9 28.0
Footwear........................ 20.2 20.4 21.3
----- ----- -----
Subtotal....... 50.6 51.3 49.3
----- ----- -----
Total.......... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

22
<PAGE> 24

The Sportmart acquisition will reduce the Company's reliance on winter
sporting goods. The following table represents the Sportmart product mix as a
percentage of sales for its last three fiscal years:

<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------------
1997 1996 1995
------------ ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Hardlines........................... 42.2% 42.3% 46.3%
Softlines:
Apparel........................... 28.7 28.7 26.0
Footwear.......................... 29.1 29.0 27.7
----- ----- -----
Subtotal......... 57.8 57.7 53.7
----- ----- -----
Total............ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

The hardlines and softlines sold by the Company include the following
merchandise categories:

Winter Equipment and Apparel

The Company believes that its Gart Sport stores offer the widest
selection of ski and snowboard merchandise in the Rocky Mountain region. This
extensive selection consists of winter sports apparel, accessories and
equipment, including a broad selection of apparel and equipment for nordic
(cross country) skiing. Gart Sports has become a leader in the snowboard
industry, which began in the early 1990s, with its wide range of snowboard-
related products, including snowboards, boots, bindings and apparel. The Company
offers products from a wide variety of well-known winter sports equipment and
apparel suppliers, including the following:

Airwalk Elan Kombi Quiksilver Spyder
Atomic Fisher Lange RD Tecnica
Bogner Gordini Leki Rolffe The North Face
Burton Grandoe Marker Rossignol Thule
Columbia Head Morrow Salomon Tyrolia
Descente Helly Hansen Nils Santa Cruz Vans
Duofold K2 Nordica Scott Volant
Dynastar Karhu Obermeyer Skea Volkl

In addition to offering the most widely known and available popular
brands, Gart Sports stores carry full lines of winter equipment and apparel from
manufacturers that are typically only available in specialty stores, such as
Volkl, Volant, The North Face and Bogner.

Many Gart Sports stores also rent winter sports equipment, including
skis, snowboards, boots and poles. The rental equipment ranges from entry-level
products designed for beginners to advanced products for more accomplished
skiers and snowboarders. Other services offered in these stores include advanced
demo ski programs, custom boot fitting, complete ski and snowboard repair
facilities, each with specialized equipment, and the convenience of in-store
discounted lift ticket sales to area resorts.

The Company intends to strengthen the winter equipment and apparel
category in its Sportmart stores as appropriate, while recognizing that many
Sportmart stores are located in markets where winter sports are less dominant.
The Company plans to introduce a larger breadth and depth of merchandise,
additional quality name brands, and more specialized customer service to its
Sportmart stores.

23
<PAGE> 25

Footwear, In-line Skates and General Apparel

The Company stores carry a complete line of athletic footwear,
sportswear and apparel designed for a wide variety of activities and performance
levels. Footwear is available for such diverse activities as basketball,
baseball, football, soccer, tennis, golf, aerobics, running, walking, cycling,
hiking, cross-training, wrestling and snowshoeing. The Company is also a major
retailer of in-line skates and ice skates. The Company's wide variety of
sportswear and apparel include a broad selection of licensed apparel for
professional and college teams. Special services in this area include in-line
skate repair, bearing and wheel changes, and training and safety programs
designed to help new skate owners safely develop their in-line skating skills.
The Company's extensive variety of well-known apparel and footwear vendors
includes the following:

Adidas Converse Marika Pro Player Sorel
Antiqua Danner Merrill Puma Speedo
Asics Danskin Mitre Quiksilver Starter
Avia Fila Mizuno Reebok Tecnica
Bauer Hi-Tech Moving Comfort Rollerblade Teva
Birkenstock Izod Club New Balance Russell Thorlo
Browning K2 Nike Salomon Umbro
Champion K-Swiss No Fear Saucony Vans
Columbia Logo Athletic

Sportmart has historically had higher footwear sales as a percentage of
store sales than Gart Sports stores. The Company believes that this success is
partially attributable to Sportmart's self-service format and display of
footwear and plans to test a similar footwear format in its new Gart Sports
stores.

General Athletics, Exercise and Outdoor Recreation

General Athletics and Exercise. The Company offers a broad range of
brand name equipment for traditional team sports, including football, baseball,
basketball, hockey, volleyball and soccer, as well as equipment for activities
which have recently become more popular such as street hockey. The Company also
carries a variety of fitness equipment, including treadmills, stationary
bicycles, rowing machines, stair climbers, weight machines and free weights, and
equipment for recreational activities including ping pong, darts, badminton,
croquet and horseshoes. In addition, Gart Sports offers home delivery and
in-home set up on exercise equipment and outdoor equipment (such as basketball
hoops and trampolines).

The Company's stores carry brands such as:

Adams Franklin Mizuno Spalding
Bike Athletic Harvard Sport Nike Starter
Bio Dyne Hillerich & Bradsby Pro Form Timex
Easton Sports Hutch Rawlings Upper Deck
Everlast Life Fitness Reebok Weider
Fitness Quest Lifetime Products Riddell Wilson
Forster Louisville Russell

Sportmart has excelled in the general athletics category through its
presentation and selection of exercise and team sports equipment. The Company
intends to expand the product mix and presentation in this category in its Gart
Sports stores.

Golf and Tennis. The Company maintains a wide assortment of golf and
tennis apparel and equipment to cater to every type of sporting goods customer,
ranging from the recreational athlete to the most avid sports enthusiast. The
Company offers products from a wide variety of well-known golf and racquet
sports equipment and apparel suppliers, including the following:

24
<PAGE> 26

Callaway Head Odyssey Sun Mountain
Cleveland Izod Club Penn Taylor Made
Cobra Lynx Pinnacle Titleist
Datrex Maxfli Precept Tommy Armour
Ektelon McGregor Prince Wilson
Footjoy Nicklaus Reebok Yonex
Hogan Nike Spalding

In addition to offering the most widely known and available popular
brands, the Company has direct vendor access to full lines of prestigious brands
such as Callaway, Cobra, Taylor Made and Tommy Armour that are generally not
found in large format stores. All of the Company's Gart Sports Superstores have
their own golf club repair center and tennis stringing and re-gripping center
and several stores rent rackets. All Gart Sports Superstores feature indoor
putting greens and driving ranges, and one store features a rooftop tennis
court, enabling customers to try out equipment prior to purchase. The Company
plans to expand the product and service offerings in the golf departments of
most of the Sportmart stores, providing an opportunity for increased margins.
These plans include the introduction of a broader variety of merchandise,
including higher end products, and the installation of indoor putting greens and
driving ranges.

Cycling. In most of its stores, the Company offers a selection of
bicycles, including mountain bikes, cross country bikes and racing bikes, from
such manufacturers as Huffy, KHS and Nishiki. The Company's stores carry cycling
apparel, accessories and components from suppliers such as Bell, Descente, Nike,
Shimano and Specialized. The Company also offers all of the attachments
necessary for carrying bicycles on a Thule car roof rack. Most of the Company's
stores have their own bicycle repair facility where work can be performed on all
makes and models of bikes, including those purchased from other retailers.

Water Sports. The Company carries a broad array of products designed
for a variety of water sports, including recreational and competitive swimming,
water skiing, canoeing, knee boarding and surfing. Suppliers of these products
include HO, O'Brien and O'Neill. Swimsuits and accessories are available from
Jansen, Mossimo, Nike, Quiksilver, Sideout, Speedo and Tyr. In addition, the
Company carries snorkeling equipment and wet suits.

Hunting, Fishing and Camping Apparel and Equipment

Hunting. The Company carries a broad selection of hunting equipment and
accessories. Gart Sports stores provide a complete selection of sporting arms,
scopes, reloading supplies, clothing and hunting licenses. The Company also
offers the expertise of an in-house gunsmith. The Company carries such top brand
names as:

Beretta Colt Nikon Smith & Wesson
Browning Federal Pentax Walls
Bushnell Glock Redfield Weatherby
Carhartt Leupold Remington Winchester

The Company intends to selectively expand the hunting category in the
Sportmart stores with an increased merchandise mix in targeted markets.

Fishing. Gart Sports stores offer a broad range of freshwater and fly
fishing equipment, accessories and fishing licenses. To complement this
department, several stores offer instructional fly fishing courses on topics
such as fly tying, line winding and casting. The Company sells equipment and
accessories from widely known fishing equipment and accessory manufacturers
including the following:

Berkley Daiwa Hodgman Scientific Angler
Browning Eagle Claw Penn Shimano
Cortland G. Loomis Ross Stillwater

25
<PAGE> 27

Camping. Gart Sports stores carry a wide selection of outdoor products
for most types of camping and outdoor activity. The Company offers products from
a broad range of companies including the following:

American Camper Garmin Jansport Sierra Design
Camp Chef Gregory Kavu Slumberjack
Coleman/Peak1 Igloo Kelty Swiss Army Knife
Columbia Inside Edge Magellan The North Face
Eureka Jack Wolfskin Purchase Woolrich

Sportmart stores have typically carried less extensive lines of fishing
and camping merchandise than Gart Sports stores. The Company intends to expand
the fishing and camping departments in Sportmart stores as part of an increased
emphasis on marketing outdoor products in these stores.

THE COMPANY'S STORES

Store Design

The Company creates a dynamic shopping atmosphere that appeals broadly
to both the casual sporting goods customer and the sports enthusiast. Based on
almost 70 years of experience in the sporting goods retail industry, the Company
has developed two superstore prototypes designed to feature the quality and
variety of brand name merchandise, the breadth of product selection and the high
levels of customer service that are the foundation of the Company's strong
reputation. The Company typically penetrates larger, multiple store markets
primarily with its 45,000 square foot prototype superstore and smaller
single-store markets with its 33,000 square foot prototype superstore. The
Company has determined that these superstore formats provide the best
opportunity for growth.

The prototype superstore layout features a racetrack configuration with
apparel and specialty brand shops in the middle of the store and the specialty
hardgoods departments along the outside of the racetrack. The lighting, flooring
and color scheme is designed to enhance the presentation of the merchandise and
avoid a warehouse-type atmosphere. The apparel is displayed prominently to
showcase the quality brand names. In addition, many of the Company's stores
feature specialized brand shops for vendors such as Nike, Columbia, The North
Face and Adidas, which offer a broad array of vendor-specific products in
specialized, image-enhancing fixtures. The visibility of the branded apparel and
the feature shops emphasize the quality image and brand assortment of the
Company's stores.

Specialty departments are located adjacent to other related departments
and apparel assortments to increase customer convenience and to stimulate
cross-purchasing. The specialty departments display merchandise on low racking
to allow customers easy access to products and to promote store-wide visibility
and easy department identification. The specialty departments use the walls
effectively to display merchandise in order to convey the depth and breadth of
product selection. Department layouts are adjusted periodically to make room for
seasonal products.

Gart Sports' and Sportmart's Superstores average approximately 45,000
square feet in size. Each store is designed to provide ample space for the
store's customers to shop the Company's extensive depth of product. Generally,
80% of store space is dedicated to selling while 20% is used for office and
non-retail functions. The Company plans to modify the layout and design of the
Sportmart stores, on a store-by-store basis, over the next four years. While
maintaining some of the elements of these stores, the Company plans to improve
the shopping environment with clearer sight lines, warmer flooring and color
schemes and improved visual design. Department size and adjacencies will be
tailored to regional and seasonal needs to improve the stores' shopability.

The Company's 22 freestanding and strip center stores more closely
resemble traditional sporting goods stores and range in size from 9,000 to
38,000 square feet. The Company's 16 stores in enclosed shopping malls average
13,000

26
<PAGE> 28

square feet and carry a selection of merchandise that appeals to the
mall-oriented shopper, focusing on apparel and footwear. The Company's six
resort stores range in size from 7,000 to 27,000 square feet and provide a
broader merchandise selection and lower prices than typically available in
resort areas, while offering a high level of customer service.

Customer Service

The Company differentiates its stores by providing the exceptional
level of service generally associated with specialty sporting goods stores and
pro shops. The Company's strategy is to hire sales associates and sports
technicians who are knowledgeable and enthusiastic about the products they sell
or service. Sales associates are required to attend product training clinics
sponsored by individual vendors as well as Company sponsored seminars on topics
such as customer service and selling skills. The Company provides full service
in all departments, including shoe and winter sport departments, and strives to
maintain high in-stock levels to ensure customer satisfaction. The Company also
employs a "no-hassle" merchandise return policy. In addition, Gart Sports offers
services typically associated with smaller, specialty sporting goods shops,
including special order capability, equipment rental, on-site repair centers,
instructional courses, discounted ski lift tickets and hunting and fishing
licenses. The Company plans to increase the number of sales associates and
sports professionals (including golf teaching professionals) and technicians
(including in house winter sports and bicycle technicians) in most of the
Sportmart stores.

Operations and Training

Typically, the Company's superstores have 55 to 80 sales associates and
technicians, while its non-superstore stores employ a staff of approximately 20
to 25. Additional part-time sales associates are hired during the holiday season
and for the Sniagrab pre-season ski sale. Gart Sports stores sales associates
receive a commission for each item they sell. The Company plans to implement the
same commission structure in Sportmart stores. This system includes a base
commission on all products sold plus additional ("spiff") commissions on
targeted merchandise.

The Company employs a manager, at least two assistant managers and
several department managers in each store. Store managers report to a district
manager having responsibility for all stores in a limited geographic region.
There are currently 18 district managers and four regional managers. The
addition of Sportmart allows the Company to expand its internal training
programs for future management and sales associates as well as product-specific
training programs.

The Company's new store managers are either promoted internally or
hired as trainees. The Company places significant emphasis on the training of
store-level management. The training of new store managers is a two-step process
which involves participation in a formalized training program covering, among
other things, time management, staff selection, scheduling, employee training,
customer service and retail selling skills. The management trainee then becomes
a manager in training at one of the Company's stores for a period of six months
to one year. Upon completion of this program, management trainees are eligible
to be promoted to the position of assistant manager of operations or
merchandising and later to store manager.

The Company's stores are open seven days a week, generally from 9:00
a.m. to 9:00 p.m., Monday through Saturday; and 10:00 a.m. to 6:00 p.m. on
Sunday. Store hours are adjusted for individual markets as necessary.

Site Selection and Location

In choosing appropriate markets, the Company considers the market's
demographic and lifestyle characteristics, including, among other factors, the
following: levels of disposable income; local population and buying patterns;
enthusiasm for outdoor recreation; popularity of collegiate and professional
sports teams; and level of affinity for regional sports activities.

27
<PAGE> 29

The following table sets forth the location, by state, of the Company's
stores, as of April 15, 1998:

<TABLE>
<CAPTION>
STATE SUPERSTORES RESORT STORES OTHER STORES TOTAL NUMBER OF STORES
----- ----------- ------------- ------------ ----------------------
<S> <C> <C> <C> <C>
Colorado.................. 8 3 20 31
California................ 26 - - 26
Illinois.................. 15 - - 15
Utah...................... 4 2 9 15
Idaho..................... 1 - 6 7
Washington................ 5 - - 5
Minnesota................. 5 - - 5
Ohio...................... 4 - - 4
Wyoming................... - 1 3 4
Oregon.................... 2 - - 2
Wisconsin................. 2 - - 2
Montana................... 2 - - 2
New Mexico................ 1 - - 1
Nevada.................... 1 - - 1
Indiana................... 1 - - 1
Iowa...................... 1 - - 1
-- - -- ---
Total........... 78 6 38 122
== = == ===
</TABLE>

The Company plans to open new stores primarily in existing markets to
further leverage the Company's fixed cost structure, advertising program and
distribution system. The Company intends to open three to seven new stores in
1998.

MANAGEMENT INFORMATION SYSTEMS

Over the last five years the Company has installed sophisticated
management information systems which use JDA retail software operating on an IBM
AS/400 platform. The Company utilizes IBM 4680 and 4690 point-of-sale systems
which incorporate scanning, price look-up, zone pricing support and store level
access to the Company's merchandise information system. The Company's management
information systems fully integrate purchasing and sales reporting and inventory
information down to the SKU level and have allowed the Company to improve
overall inventory management by identifying individual SKU movement and
projecting trends and replenishment needs on a timely basis. These systems have
enabled the Company to increase margins and profitability by reducing inventory
investment, strengthening in-stock positions, reducing the Company's historical
shrinkage levels, and creating store level perpetual inventories and automatic
replenishment. The Company is continuing to invest in hardware and software, and
has hired additional systems staff to assist in the development of enhancements
such as data warehousing and electronic data interchange to improve the
Company's ability to systematically manage its inventory. In addition, the
Company has installed a frame relay data and voice communications system to
enhance the overall efficiency of the management information systems.

Prior to its acquisition by the Company, Sportmart was using a
compatible, older version of the same JDA retail software. Sportmart's data
systems are currently being merged into the Company's existing JDA system.
However, Sportmart brings to the combined entity many sophisticated add-on
software products, such as the Arthur Planning System, E3 Replenishment and
Allocation software, among others, which are being integrated into the Company's
JDA retail software. The combination of the more updated Year 2000 compliant JDA
core system that was previously in use at the Company with the state-of-art
add-on tools acquired in the Sportmart acquisition is expected to provide a more
efficient system. By mid 1998, all host systems are expected to be fully
integrated on the AS400 host system located in Denver.

28
<PAGE> 30

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Accordingly,
any of the Company's computer programs that have date sensitive software may
cause system failures or miscalculations if data entry of "00" is recognized as
the year 1900 rather than 2000.

Based upon a recent assessment, the Company has determined that it is
required to modify portions of its software and operating systems so that its
computer systems will properly utilize dates beyond December 31, 1999. The
Company believes that with upgrades or modifications to existing software and
conversion to new software, the impact of the Year 2000 Issue can be mitigated.
However, if such upgrades, modifications and conversions are not made, or are
not made in a timely manner, the Year 2000 Issue could have a material impact on
the Company's operations.

The Company will utilize both internal and external resources to
reprogram, or replace, and test software for Year 2000 compliance. The Company
has developed a comprehensive plan that addresses Year 2000 compliance for the
Company and its vendors. The Company expects that Year 2000 compliance will be
achieved by early 1999 for its primary management information systems from JDA
and that other operating systems will be updated for Year 2000 compliance or
replaced by Year 2000 compliant systems within the next 16 months. The total
Year 2000 project cost is estimated to be $50,000 to $75,000. Costs will be
expensed as incurred, unless new software is purchased, in which case such costs
will be capitalized. The Company has not incurred significant costs prior to
January 31, 1998 other than internal costs to evaluate the extent of Year 2000
compliance and to develop a remediation plan.

The costs of the Year 2000 project and the schedule for completion of
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.

ADVERTISING AND PROMOTION

The Company's comprehensive marketing program is designed to promote
the Company's quality image and extensive selection of brand name products at
competitive prices. The program is centered on extensive newspaper advertising
supplemented by television, radio and billboard ads. The advertising strategy is
focused on weekly newspaper advertising utilizing both four-page pre-printed
flyer inserts and standard run of press (ROP) advertising, with additional
emphasis on key shopping periods, such as the winter holidays, Father's Day and
Back-to-School, and on specific sales and promotional events, including the
annual Sniagrab sale, which the Company believes is the largest pre-season ski
and snowboard sales event in the United States.

The Company's strategy of clustering stores in major markets enables it
to employ an aggressive advertising strategy on a cost effective basis through
the use of newspaper, radio and television advertising. The Company's goal is to
be one of the dominant sporting goods advertisers in each of its markets. The
Company advertises in major metropolitan newspapers as well as regional
newspapers circulated in areas surrounding its store locations. Newspaper
advertising typically consists of weekly promotional ads with three-color
inserts on a semi-monthly basis. Television advertising is generally
concentrated three to four days prior to a promotional event or key shopping
period. Radio advertising is used primarily to publicize specific promotions in
conjunction with newspaper advertising or to announce a public relations
promotion or grand opening. Billboards emphasizing the Company's image and high
quality brand name merchandise are strategically located on high traffic
thoroughfares near store locations. Vendor payments under cooperative
advertising arrangements with the Company as well as vendor buy-ins to sponsor
sporting events and programs have significantly improved the Company's
advertising leverage.

The Company's advertising is designed to create an "event" in the
stores and to drive customer traffic with advertisements promoting a wide
variety of sale priced merchandise appropriate for the current holiday or event.
In addition to holidays, the Company's events include the Sniagrab sale,
celebrity autograph sessions, events related to local

29
<PAGE> 31

sports teams, race sponsorships and registrations, vendor demonstrations and
other activities that attract customers to Gart Sports stores. The marketing
program is administered by the Company's in-house staff, and the Company has
recently retained an outside advertising agency to help develop new advertising
programs.

In addition, the Company plans to continue various Sportmart marketing
events and expand some of these programs into its other markets. These programs
include the Sportmart Women's Advisory Team or "SWAT." SWAT is composed of five
Olympic champions including Janet Evans (four-time Olympic Gold Medalist in
swimming), Mia Hamm (Olympic Gold Medalist in soccer), Katrina McClain (two-time
Olympic Gold Medalist in basketball), Dot Richardson (Olympic Gold Medalist in
softball), and Willye White (two-time Olympic Silver Medalist in track and
field, and the first American to compete in five consecutive Olympics). This
stellar team of athletes, along with the prestigious Women's Sports Foundation,
guides the Company in the administration of a scholarship program that awards
eight scholarships to young women athletes entering college. Applications are
received from all of Sportmart's markets. SWAT also is featured in the Company's
advertising to communicate the importance and benefits of sports participation
for all women. SWAT will continue to advise the Company in its merchandising and
marketing to women.

Sportmart also sponsors tournaments and amateur competitive events in
an effort to align itself with both the serious sports enthusiast and the
recreational athlete. Sportmart is also recognized as a major sponsor of
professional sport teams in its markets, including, from time to time, the
Chicago Bulls, White Sox, Cubs, Blackhawks and Bears, the Los Angeles Dodgers,
the Seattle Supersonics, the Minnesota Twins and Vikings, the Milwaukee Brewers
and the San Francisco Giants.

PURCHASING AND DISTRIBUTION

The Company's purchasing department is composed of two Senior Vice
Presidents of Merchandising, four Vice Presidents and 19 buyers. The buying
group has an average of approximately 14 years of retail experience. In addition
to merchandise procurement, the buying staff is also responsible for determining
pricing and working with the allocation and replenishment groups to establish
stock levels and product mix. The buying staff also regularly communicates with
store operations to monitor shifts in consumer tastes and market trends.

The Company's merchandise allocation and control department (the "MAC
Group") is responsible for merchandise distribution, inventory control and the
establishment and expansion of the E3 Replenishment and Allocation System, and
acts as the central processing intermediary between the buying staff and the
Company's stores. The MAC Group also coordinates the inventory necessary for
each advertising promotion with the buying staff and the advertising department.
The MAC Group tracks the effectiveness of each ad to allow the buying staff and
the advertising department to refine each promotional program. In addition, the
MAC Group implements price changes and monitors and reorders basic merchandise,
determining minimum/maximum levels for individual stores on particular items.

The Company utilizes a "hub and spoke" distribution system in which
vendors ship directly to central distribution centers serving surrounding
regional stores. Management believes that its distribution system has the
following advantages as compared to a direct delivery (i.e., drop shipping)
system utilized by other warehouse store sporting goods chains: reduced
individual store inventory investment; more timely matching of store inventory
needs; better use of relatively higher cost store floor space; and easier
returns to vendors. This "hub and spoke" distribution system is utilized by many
major volume retailers such as Wal-Mart, Toys "R" Us and Circuit City.

With the acquisition of Sportmart, the Company has three regional
distribution centers: (1) a 240,000 square foot facility located in Denver,
Colorado, (2) a 202,500 square foot facility located in Fontana, California, and
(3) a 141,000 square foot facility located in Woodridge, Illinois. Inventory
arriving at the distribution centers is allocated

30
<PAGE> 32

directly to the stores or to the distribution center or to both. Seasonal and
limited purchase inventory is fully distributed to all stores. Inventory that is
purchased more frequently and is planned as part of a basic program is allocated
to the stores largely on a percentage basis with the balance remaining in the
distribution centers for future replenishment. An automated reorder system
regularly replenishes the stores by allocating merchandise from the distribution
center based on each store's sales. This system has significantly reduced the
need for back-stock in the stores. The Company plans to continue adding SKUs to
this automated re-order system.

The Company operates tractor trailers for delivering the merchandise
from its Denver distribution center to its Colorado stores and contracts with
common carriers to deliver merchandise to its stores outside a 400 mile radius
from Denver and to its stores receiving merchandise from the Company's Fontana,
California and Woodridge, Illinois distribution centers. The Company believes
this system is more efficient and cost-effective than drop-shipping goods sent
by vendors directly to the stores. By utilizing a central distribution system,
the Company believes it is better able to manage the inventory kept in stock at
each store and to reduce inventory shrinkage.

The Company completed a reconfiguration of the Denver distribution
center and upgrade of the equipment in the processing and receiving areas in the
first half of 1997 at a total cost of approximately $500,000, increasing
capacity for future expansion. With the additional two regional distribution
centers acquired as part of the Sportmart acquisition, the Company believes that
its three distribution centers are adequate to service the Company's current and
expansion needs for the foreseeable future.

COMPETITION

The retail sporting goods industry is highly fragmented and intensely
competitive. While the Company's competition differs by market, there are four
general categories of sporting goods retailers with which the Company competes:
large format sporting goods stores, traditional sporting goods stores, specialty
sporting goods stores and mass merchandisers.

Large Format and Warehouse Sporting Goods Stores. Stores in this
category, including warehouse stores such as Jumbo Sports and The Sports
Authority, and large format stores such as Sport Chalet and Oshman's, typically
range from 30,000 to 80,000 square feet in size and tend to be destination
(freestanding or strip shopping center anchor) locations. Most large format and
warehouse sporting goods stores emphasize high sales volumes and a large number
of SKUs.

Traditional Sporting Goods Stores. This category consists of
traditional sporting goods chains, such as Big 5 and Hibbetts, as well as local
independent sporting goods retailers. These stores typically range in size from
5,000 to 20,000 square feet and are frequently located in regional malls and
strip shopping centers. Traditional chains and local sporting goods stores often
carry a more limited assortment of merchandise and are commonly viewed by their
customers as convenient neighborhood stores.

Specialty Sporting Goods Stores. This category consists of specialty
stores and pro shops specializing in certain categories of sporting goods.
Examples include such national retail chains as The Athlete's Foot, Champs,
Finish Line, Foot Locker, Just for Feet, REI, Pro Discount Golf and Nevada
Bob's. These retailers are highly focused, selling generally only one product
category such as athletic footwear, ski or snowboard equipment, backpacking and
mountaineering, or golf and tennis equipment and apparel.

Mass Merchandisers. Stores in this category include discount retailers
such as Kmart and Wal-Mart, warehouse clubs such as Price/Costco, and department
stores such as JC Penney and Sears. These stores range in size from
approximately 50,000 to 200,000 square feet and are primarily located in
regional malls and strip shopping centers. Sporting goods merchandise and
apparel represent a small portion of the total merchandise in these stores and
the selection is often more limited than in other sporting goods retailers.
Although generally price competitive, the Company

31
<PAGE> 33

believes that discount and department stores have limited customer service
because the store personnel often lack product expertise in the selling of
sporting goods.

The Company believes that although it will continue to face competition
from retailers in each of these categories, the most significant competition
will be from the large format sporting goods stores. The Company faces direct
competition from warehouse format sporting goods stores, including The Sports
Authority in California, Illinois and Washington; Jumbo Sports in Colorado,
Illinois and Iowa; Dick's Clothing and Sporting Goods in Ohio; Galyans (a
subsidiary of The Limited) in Indiana, Minnesota and Ohio; and Oshman's in
California, Minnesota, New Mexico, Utah and Washington. The principal
competitive factors include store location and image, product selection, quality
and price, and customer service. Increased competition in markets in which the
Company has stores, the adoption by competitors of innovative store formats and
retail sales methods or the entry of new competitors or the expansion of
operations by existing competitors in the Company's markets could have a
material adverse effect on the Company's business, financial condition and
operating results. In addition, certain of the Company's competitors have
substantially greater resources than the Company. The Company believes that the
principal strengths with which it competes are its broad selection and
competitive prices combined with superior customer service and brand names
typically available only in specialty stores and pro shops.

PROPERTIES

The Company currently leases all of its store locations. Most leases
provide for the payment of minimum annual rent subject to periodic adjustments,
plus other charges, including a proportionate share of real estate taxes,
insurance and common area maintenance. The Company has identified certain
markets for strategic repositioning and plans to address the positioning of each
store as leases expire and as opportunities arise. Leases for eight of the
Company's non-superstore format stores have expired or are expiring by the end
of 1998 and the Company believes that it can continue to occupy such stores on a
month-to-month basis. In addition, the lease for one Sportmart store was
terminated by mutual agreement, and the Company is negotiating a lease for a
replacement site. As part of its repositioning strategy, the Company regularly
evaluates whether to renew store leases in existing locations or to
strategically relocate some of the stores to better locations and replace them
with larger stores. The Company believes that at store locations where it
chooses to remain and renew expired leases, the Company can do so on favorable
terms. Leases for the Company's 78 Superstores expire between 2000 and 2018. The
Company anticipates that all of its new stores will have long-term leases,
typically 15 years, with multiple five-year renewal options.

Seven of the leases for Sportmart stores are with partnerships, the
partners of which are certain former officers or directors of Sportmart
(including Messrs. Larry and Andrew Hochberg, currently directors of the
Company) and their family members. There are four leases with respect to stores
the Company no longer occupies, three of which are sublet, that are also leased
from partnerships, the partners of which include certain former officers or
directors of Sportmart (including Messrs. Larry and Andrew Hochberg) and their
family members. See "Certain Relationships and Related Transactions."

The Company has sublet two leased Sportmart properties in Missouri as a
result of the closing of Sportmart's No Contest division. In addition, as a
result of the closing of Sportmart's Canadian subsidiary, the Company remains
secondarily liable for two leases Sportmart has assigned in Canada and has a
contingent liability behind two other parties with respect to a portion of a
third location in Canada.

The Company owns two properties. One of these properties is a vacant
Sportmart store located in Edmonton, Canada, which is being marketed for sale.
The second property is an approximately five acre tract of land located in
Orland Park, Illinois, on which the Company is considering relocating the
current Orland Park, Illinois Sportmart store.

The Company also leases its three regional distribution centers. The
lease for the 240,000 square foot distribution center in Denver, Colorado,
expires in 2004 with a ten year renewal option. The lease for the 202,500 square
foot distribution center in Fontana, California expires in 2008, assuming all
options are exercised. The lease for the

32
<PAGE> 34

141,000 square foot distribution center in Woodridge, Illinois expires in 2007,
assuming all options are exercised. The Company believes that its distribution
centers are adequate to service the Company's current and expansion needs for
the foreseeable future.

The Company's corporate offices are located in its Denver Sportscastle
store and are included under that store's lease, which expires in 2017. In
January 1998, the Company entered into a lease for approximately 22,000 square
feet of additional corporate office space located adjacent to the Denver
Sportscastle store. This lease expires in 2017.

EMPLOYEES

At March 28, 1998, the Company employed 6,059 employees, 2,657 of whom
were employed on a full-time basis and 3,402 of whom were employed on a
part-time (less than 32 hours per week) basis. Of these, 544 were employed at
the executive and administrative level and 5,515 were employed at the store
level. Due to the seasonal nature of the Company's business, total employment
fluctuates during the year. The Company considers its employee relations to be
good. None of the Company's employees are covered by a collective bargaining
agreement.

TRADEMARKS AND TRADENAMES

The Company uses the Gart Sports(R), Gart Bros. Sporting Goods
Company(R), Gart Sports Superstore(R), Sniagrab(R), Sportscastle(R), Gart Sports
Company(R) and SWAT(R) trademarks and trade names, which have been registered
with the United States Patent and Trademark Office. Sportmart(R) and Sportmart's
corporate logo are federally registered servicemarks of the Company. The Company
also owns numerous other trademarks and servicemarks which involve the
manufacturing of soft goods, advertising slogans, promotional event names and
store names used in its business.

LEGAL PROCEEDINGS

The Company is from time to time involved in various legal proceedings
incidental to the conduct of its business. The Company believes that the outcome
of all such pending legal proceedings to which it is a party will not in the
aggregate have a material adverse effect on the Company's business, financial
condition, or operating results.

On July 24, 1997, the Internal Revenue System proposed adjustments to
the 1992 and 1993 consolidated federal income tax returns of the Company and its
former parent company, now Thrifty PayLess Holdings, Inc., a subsidiary of
RiteAid Corporation, and the manner in which LIFO inventories were characterized
on such returns. See Note 19 to the Consolidated Financial Statements.

33
<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John Douglas Morton................. 47 President, Chief Executive Officer
and Chairman of the Board
Thomas T. Hendrickson............... 43 Executive Vice President, Chief
Financial Officer and Treasurer
Thomas B. Nelson.................... 32 Senior Vice President --
Development and Administration,
Secretary
Arthur S. Hagan..................... 59 Senior Vice President --
Merchandising
Kenneth T. Snyder................... 52 Senior Vice President --
Merchandising
Robert M. Chessen................... 47 Senior Vice President -- Logistics,
Allocation and Human Resources
Greg Waters......................... 37 Senior Vice President --
Store Operations
Jonathan D. Sokoloff................ 40 Director
Jennifer Holden Dunbar.............. 35 Director
Gordon D. Barker.................... 52 Director
Peter R. Formanek................... 54 Director
Larry J. Hochberg................... 60 Director
Andrew S. Hochberg.................. 35 Director
</TABLE>

John Douglas Morton. Mr. Morton became President, Chief Executive
Officer and Chairman of the Board in May 1995. Mr. Morton joined Gart Sports in
1986 as Division Manager of Gart Sports' Utah region. In 1988 he was promoted to
Division Vice President of that region and in 1990 to Vice President of
Operations for Gart Sports. In 1994 Mr. Morton was promoted to Executive Vice
President of Gart Sports with responsibility for Stores, Distribution and
Marketing. Prior to joining Gart Sports, he served in various positions with
Wolfe's Sporting Goods (a seven-store sporting goods retailer) from 1972 to 1980
including Merchandise Manager -- Ski, Camping, Golf and Tennis, Store Manager,
and Operations Manager. From 1980 until joining Gart Sports, he served as a
District Manager for Malone and Hyde's sporting goods division (a 40-store
retail sporting goods retailer). Mr. Morton has worked for over 30 years in the
sporting goods retail industry.

Thomas T. Hendrickson. Mr. Hendrickson became Executive Vice President,
Chief Financial Officer and Treasurer of the Company in January 1998. Mr.
Hendrickson previously served as the Executive Vice President and Chief
Financial Officer of Sportmart which position he held since September 1996. He
joined Sportmart in January 1993 as Vice President -- Financial Operations. In
March 1993 he was named Chief Financial Officer of Sportmart and in March 1995
he was named Senior Vice President and Chief Financial Officer of Sportmart.
From 1987 until joining Sportmart, Mr. Hendrickson was employed as the Vice
President and Controller of Millers Outpost Stores.

Thomas B. Nelson. Mr. Nelson became Senior Vice President - Development
and Administration in January 1998. He joined the Company in 1986 as Director of
Management Information Systems. In 1988, he was

34
<PAGE> 36

promoted to Project Manager and Assistant to the President; and in 1991 to
Corporate Secretary. In 1993, he was promoted to Vice President - Real Estate
and Legal Affairs, and in 1995, his responsibilities were expanded to include
Construction and Store Design, Expense Control, Team Sales and Sports Services.
Mr. Nelson worked as a Sales Associate/Assistant Manager for the Company in
Denver, Colorado from 1979 until 1983.

Arthur S. Hagan. Mr. Hagan became Senior Vice President --Merchandising
in January 1998. Mr. Hagan joined the Company in 1988 as the Company's Division
Merchandise Manager for Golf, Tennis, Ski Clothing/Equipment and Garden
Furniture and was promoted to Vice President -- Store Operations in 1995 and to
Senior Vice President -- Store Operations in May 1997. He was President and
owner of Hagan Sports Ltd. (a six- store sporting goods retailer acquired by the
Company in 1987) and President and Chief Executive Officer of Aspen Leaf of
Colorado, Inc. (a 12-store ski equipment and apparel retailer). Mr. Hagan has
over 30 years retailing experience.

Kenneth T. Snyder. Mr. Snyder joined the Company in 1993 as a
Divisional Merchandise Manager of Footwear, Athletics and Exercise Equipment. In
1994, his responsibilities were expanded to include Licensed Products and
Accessories. In 1996, Mr. Snyder was promoted to Vice President -- Merchandise
Manager, and in 1998, he was promoted to Senior Vice President -- Merchandising.
Mr. Snyder's past experience includes Divisional Vice President
Textiles/Tabletop/Smallwares at May D&F in Denver, Colorado (a subsidiary of May
Department Stores Company) from 1989 to 1993; and prior to 1989, numerous
management positions at the Denver Dry Goods Company in Denver, Colorado.

Robert M. Chessen. Mr. Chessen became Senior Vice President --
Logistics, Allocation and Human Resources in May 1997. He joined the Company in
July 1993 as Vice President of Human Resources. Prior to that time, Mr. Chessen
was Senior Vice President of Meier & Frank (a division of The May Department
Stores Co.) from 1992 to June 1993, and Director of Executive Development at The
May Department Stores Co. from 1987 to 1992.

Greg Waters. Mr. Waters joined the Company in April 1998 as Senior Vice
President -- Store Operations. Prior to joining the Company, Mr. Waters served
as the western Regional Vice President for The Sports Authority since 1994 and
as a District Manager for The Sports Authority from 1991 until 1994. Mr. Waters
was employed by Herman's World of Sporting Goods from 1983 until 1998, most
recently as a District Manager.

Jonathan D. Sokoloff. Mr. Sokoloff became a Director of the Company in
April 1993. Mr. Sokoloff has been a partner of Leonard Green & Associates, L.P.
("LGA"), a merchant banking firm and the general partner of GEI, since 1990, and
was employed at Drexel Burnham Lambert Incorporated, from 1985-1990, most
recently as a managing director. He has been an executive officer and equity
owner of Leonard Green & Partners, L.P. ("LGP"), a merchant banking firm
affiliated with LGA, since its formation in 1994, and is also a director of
Carr-Gottstein Foods Co. (an Alaskan based chain of grocery stores), Twinlab
Corporation (a manufacturer and marketer of nutritional supplements) and several
private companies.

Jennifer Holden Dunbar. Ms. Holden Dunbar became a Director of the
Company in April 1993. Ms. Holden Dunbar joined LGA in 1989, became a principal
in 1993 and through a corporation became a partner in 1994. She has been an
executive officer and equity owner of LGP since its formation in 1994. Ms.
Holden Dunbar previously was an associate of Gibbons, Green, van Amerongen, a
merchant banking firm, and a financial analyst for Morgan Stanley & Co.,
Incorporated in its mergers and acquisitions department. Ms. Holden Dunbar is
also a director of Twinlab Corporation and several private companies.

Gordon D. Barker. Mr. Barker became a Director of the Company in April
1998. Mr. Barker was the Chief Executive Officer and a Director of Thrifty
Payless Holdings, Inc. ("Thrifty Payless"), a subsidiary of RiteAid Corporation,
from 1996 until its acquisition by RiteAid Corporation in 1997. He previously
served in various capacities at Thrifty Payless since 1968, including as Chief
Operating Officer from 1994 to 1996 and as President

35
<PAGE> 37

1994 to 1997. Mr. Barker is also a director of Consep Inc. (a manufacturer and
distributor of agricultural pest control products) and several private
companies.

Peter R. Formanek. Mr. Formanek became a Director of the Company in
April 1998. Mr. Formanek was co-founder of AutoZone Inc., a retailer of
aftermarket automotive parts, and served as President and Chief Operating
Officer of AutoZone, Inc. from 1986 until his retirement in 1994. He currently
is a director of The Perrigo Company, a manufacturer of store brand
over-the-counter drug and personal care products and vitamins, and Borders
Group, Inc., the second largest operator of book superstores and the largest
operator of mall-based bookstores in the United States.

Larry J. Hochberg. Mr. Hochberg became a Director of the Company in
April 1998. Mr. Hochberg served as a Director of Sportmart from the time he
co-founded it in 1970 until Sportmart's acquisition by Gart Sports in January
1998. Mr. Hochberg also co-founded Children's Bargain Town (now part of Toys "R"
Us) which he sold in 1969. He currently serves on the Executive Committee and
the Board of Directors of the International Mass Retailing Association.

Andrew S. Hochberg. Mr. Hochberg became a Director of the Company in
April 1998. Mr. Hochberg was Chief Executive Officer of Sportmart from September
1996 until Sportmart's acquisition by Gart Sports in January 1998. Mr. Hochberg
joined Sportmart in 1987 as Director of Real Estate. From 1990 to 1993 he was
Senior Vice President and Chief Financial Officer of Sportmart. From 1993 to
1995 he was Executive Vice President of Sportmart. He was promoted to President
of Sportmart in 1995 and to Chief Executive Officer in 1996. Mr. Hochberg served
as a director of Sportmart from 1986 until 1998.

Larry J. Hochberg is the father of Andrew S. Hochberg. Messrs. Hochberg
and Hochberg were elected as directors of the Company in accordance with the
terms of the merger agreement pursuant to which the Company acquired Sportmart
on January 9, 1998. The Sportmart merger agreement provided that two members
Sportmart's board of directors prior to the merger, designated by a majority of
such members, be elected to the Company's Board of Directors. The Company also
agreed in the Sportmart merger agreement that Larry Hochberg and Andrew Hochberg
will be nominated to serve as Directors for a one year term at the Company's
1998 annual meeting of stockholders and to use its best efforts to cause the
election thereof provided that the affiliates of the Hochberg family own at
least 75% of the Common Stock that they received in the Sportmart acquisition on
the date of mailing of the Proxy Statement and that one of them (in the
Company's discretion) will be nominated for election as a Director at the
Company's 1999 Annual Meeting of Stockholders provided that affiliates of the
Hochberg family own at least 50% of the Common Stock that they received in the
Sportmart acquisition on the date of mailing of the Company's proxy materials
with respect to such meeting. GEI has agreed to vote in favor of each of Messrs.
Hochberg and Hochberg and not to vote for or otherwise cause or cooperate in
their removal as Directors, other than for cause, during the periods referred to
above.

Gart Sports' Board of Directors serve for one year terms and are
elected annually at Gart Sports' annual meeting of its stockholders. The Audit
Committee of the Board of Directors consists of Ms. Holden Dunbar, Mr. Barker,
Mr. Larry Hochberg and Mr. Andrew Hochberg. The Compensation Committee of the
Board of Directors consists of Mr. Sokoloff, Ms. Holden Dunbar and Mr. Formanek.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Directors who are employees of the Company receive no separate
compensation for serving as directors. Directors who are not employees of the
Company are reimbursed for their expenses incurred in attending meetings. Mr.
Sokoloff and Ms. Holden Dunbar do not receive any compensation for serving as
Directors. The Company has not yet determined the compensation to be paid to
other Directors who are not employees of the Company.

36
<PAGE> 38

The following table sets forth the annual compensation for services
rendered to Gart Sports during the 1997 fiscal year for all of Gart Sports'
executive officers (the "1997 Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
1997 LONG-TERM COMPENSATION
1997 ANNUAL COMPENSATION --------------------------------------
----------------------------- RESTRICTED STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) AWARDS ($) COMPENSATION ($)
--------------------------- ---------- ---------- ---------------- -----------------
<S> <C> <C> <C> <C>
John Douglas Morton .............................. 287,500 242,358 -- --
President and Chief Executive Officer
David J. Nace .................................... 167,000 115,639 -- --
Executive Vice President -- Finance, Chief
Financial Officer and Treasurer(1)
Arthur S. Hagan .................................. 140,000 79,317 -- --
Senior Vice President -- Merchandising
Robert M. Chessen ................................ 130,000 73,652 -- --
Senior Vice President -- Human
Resources and Distribution
</TABLE>

- -------------------
(1) Mr. Nace resigned as Executive Vice President, Chief Financial Officer and
Treasurer in February 1998.

The following table summarizes the options granted during the 1997
fiscal year to the 1997 Executive Officers. All of these options were granted
under the Company's 1994 Management Equity Plan described below.

<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
NUMBER ANNUAL
OF PERCENT OF RATE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED 1997 ($/ SHARE) DATE 5% 10%
---- ---------- ------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John Douglas Morton...... 60,000 32.3% $14.00 12/01/2007 $528,271 $1,338,774
Arthur S. Hagan.......... 12,000 6.5% $14.00 12/01/2007 $105,654 $267,749
Robert M. Chessen........ 12,000 6.5% $14.00 12/01/2007 $105,654 $267,749
</TABLE>

- ----------

(1) Based upon the estimated fair value of the Common Stock on the date of
grant and assumed appreciation over the term of the options at the
respective annual rates of stock appreciation shown. Potential gains
are net of the exercise price but before taxes associated with the
exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future price of the Common Stock. Actual gains, if any, on stock
option exercises are dependent on the future financial performance of
the Company and overall market conditions. The actual value realized
may be greater or less than the potential realizable value set forth in
the table.

The following table sets forth certain information regarding the number
and value of unexercised options held by the 1997 Executive Officers at January
31, 1998.

37
<PAGE> 39

JANUARY 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JANUARY 31, 1998 AT JANUARY 31, 1998 (1)
------------------------------------ ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Douglas Morton...... 52,800 143,200 $ 468,336 $ 737,984
David J. Nace............ 22,200 24,800 $ 196,914 $ 219,976
Arthur S. Hagan.......... 12,400 20,800 $ 109,988 $ 78,056
Robert M. Chessen........ 4,800 23,200 $ 42,576 $ 99,344
</TABLE>

- ----------
(1) Represents the value of the shares of Common Stock subject to
outstanding options, based on an assumed value of $14.00 per share at
January 31, 1998, less the aggregate option exercise price.

COMPENSATION AGREEMENTS AND PLANS

Severance Agreement with John Douglas Morton. The Company is party to a
severance agreement with Mr. Morton, which provides that upon termination
without cause, he is entitled to continue to receive his annual base salary for
a period of one year following the termination.

Employment and Change in Control Agreement with Thomas T. Hendrickson.
The Company has assumed Sportmart's obligations under an Employment and Change
in Control Agreement with Mr. Hendrickson, which expires on October 31, 1999 and
provides that upon a termination without cause or a termination by Mr.
Hendrickson for Good Reason (as defined therein and described below), he is
entitled to continue to receive his annual base salary for a period of 18 months
following termination. A termination for Good Reason involves a termination by
Mr. Hendrickson in connection with a change in control of the Company whereby
(i) Mr. Hendrickson's position, duties or responsibilities are materially
diminished, (ii) Mr. Hendrickson's annual base salary is reduced by more than
five percent, or (iii) Mr. Hendrickson is required to move more than 50 miles
from his prior office.

COMPENSATION PLANS AND ARRANGEMENTS

Management Equity Plan. The Company's 1994 Management Equity Plan, as
amended (the "Management Equity Plan") was adopted in 1994. The purpose of the
Management Equity Plan is to provide long-term incentives to the key employees
responsible for the continued growth and success of the Company. Under the terms
of the Management Equity Plan, the Compensation Committee may award key
employees (including officers and directors who are employees) of the Company or
its subsidiaries (i) grants of Common Stock ("Grant Shares"), (ii) permitted
purchases of Common Stock ("Purchased Shares"), or (iii) options to purchase
Common Stock ("Stock Options"), or any combination of the foregoing as
determined by the Compensation Committee. 1,500,000 shares of Common Stock have
been reserved for issuance pursuant to awards that may be granted under the
Management Equity Plan. Awards covering 918,650 shares are outstanding.

In the case of Stock Options, the Compensation Committee has the
authority to determine whether such Stock Options shall be intended as
"incentive stock options" ("ISOs") or "non-incentive" or "nonqualified" Stock
Options under Section 422 of the Code. No more than 600,000 of the 1,500,000
aggregate shares allocated to awards under the Management Equity Plan shall be
subject to the ISOs outstanding at any time. Where the aggregate fair market
value of Common Stock or other capital stock exceeds $100,000 with respect to
which ISOs are exercisable for the first time during any calendar year, such
Stock Options shall be treated by the Compensation Committee as Stock Options
which are not ISOs. The exercise price for Stock Options intended as ISOs may
not be less than the fair market value (110% of fair market value in the case of
holders of 10% or more of the Common Stock ("10% Stockholders")) of the Common
Stock on the date the Stock Option is granted. No Stock Option may have a term
exceeding 10 years from the date such Stock Option is granted or five years in
the case of 10% Stockholders.

38
<PAGE> 40

No Stock Option may be transferred by an optionee during his or her
lifetime. Stock Options may not be exercised more than three months after an
employee's termination of employment with Gart Sports unless such termination
was a result of death, disability or retirement, in which case the exercise
period is extended to one year. During such period after death, any vested
unexercised portion of the Stock Option may be exercised by the person to whom
the Stock Option holder's rights under the Stock Option shall pass by will or
the laws of descent and distribution.

Bonus Plan. Bonuses for executive officers and certain other officers
and members of the Company's target bonus management team are paid pursuant to
the Company's Bonus Plan (the "Bonus Plan"). The purpose of the Bonus Plan is to
provide an incentive for executives and other key employees of the Company and
to reward them in relation to the degree to which specified earnings goals are
achieved. Under the Bonus Plan, eligible employees are awarded cash bonuses
based upon the Company's achievement of a target level of pre-tax income
("Target Income") established each year by the Compensation Committee. The
amount of each individual's cash bonus, as determined by the Compensation
Committee, is a percentage of salary ranging from a maximum of 70% (for the
Chief Executive Officer) to 10% depending on position, if the Company achieves
100% of Target Income. Bonuses can also be increased by up to 75% if Target
Income is exceeded. The Company achieved 110% of Target Income for fiscal 1997,
meaning that participants in the Bonus Plan received 126% of their respective
target bonuses, for an aggregate bonus payout by the Company of approximately
$1.3 million. The Board of Directors may choose to continue, amend or terminate
the Bonus Plan in future years after 1997.

Employee Benefit Plan. The Company maintains a defined contribution
profit sharing plan (the "Employee Plan") that includes a 401(k) plan feature
for all eligible employees. The Employee Plan permits eligible employees to make
tax deferred contributions and provides for discretionary matching contributions
by the Company as determined by the Board of Directors. In 1997, the Company's'
matching contributions were $134,000. Gart Sports also provided an additional
discretionary contribution of $166,000 to the Employee Plan during 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

During fiscal 1997 the Compensation Committee consisted of Mr. Sokoloff
and Ms. Holden Dunbar, each of whom is a non-employee Director. Mr. Sokoloff and
Ms. Holden Dunbar are each partners of LGA, which provides management,
consulting and financial planning services to the Company. See "Certain
Relationships and Related Transactions" for a description of this arrangement
and other relationships between the Company and entities controlled by Mr.
Sokoloff and Ms. Holden Dunbar.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation (the "Certificate") provides
that no director shall be liable personally to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a Director, provided that
the Certificate does not eliminate the liability of a Director for (i) any
breach of the Director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) acts or omissions in respect to certain
unlawful dividend payments or stock redemptions or repurchases; or (iv) any
transaction from which such Director derives improper personal benefit. The
effect of this provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a Director for breach of the fiduciary duty
of care as a Director (including breaches resulting from negligent to grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. The limitations summarized above, however, do not affect the ability
of the Company or its stockholders to seek non-monetary based remedies, such as
an injunction or rescission, against a Director for breach of his or her
fiduciary duty. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
Directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the

39
<PAGE> 41

opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

The Certificate and the Company's Bylaws (the "Bylaws") provide that
the Company shall indemnify and advance expenses to the currently acting and
former Directors, officers, employees and agents of the Company or another
corporation, partnership, joint venture, trust, association or other enterprise
if serving at the request of the Company arising in connection with their acting
in such capacities. In addition, Section 145 of the Delaware General Corporation
Law permits the Company to indemnify an officer or Director who was or is a
party or is threatened to be made a party to any proceeding because of his or
her position, if the officer or Director acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interest of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIP WITH GEI

Control by GEI. GEI currently owns approximately 61% of the outstanding
Common Stock. GEI, whose general partner is LGA, led the acquisition of Thrifty
Corporation ("Thrifty") in 1992, at which time the Company was a subsidiary of
Thrifty. In 1994, Thrifty distributed all of the capital stock of the Company to
Thrifty's stockholders. LGA is a private investment firm which initiates,
structures and invests in acquisitions and recapitalizations of established
public and private middle-market companies.

Due to GEI's stock ownership in Gart Sports, GEI will continue to be
able to control the Company, to elect the majority of the Board of Directors and
to approve any action requiring stockholder approval, including adopting
amendments to the Company's Certificate of Incorporation and approving or
disapproving mergers or sales of all or substantially all of the assets of the
Company. As a result of such control, GEI will be able to effectively control
all of the Company's policy decisions. As long as GEI is a majority stockholder
of the Company, third parties will not be able to obtain control of the Company
through purchases of Common Stock not owned by GEI.

Tax Sharing and Indemnification Agreements. The Company was a
subsidiary of Thrifty, which was wholly-owned by TCH Corporation ("TCH"), until
1994 and was included in TCH's consolidated federal income tax returns during
that period. Under federal tax law, if the Company is included in a consolidated
federal income tax return, it is severally liable for all the federal income tax
liabilities with respect to such return, including tax liabilities not
attributable to income of the Company ("Non-Company Taxes"). In order to
allocate the tax liabilities among them, TCH and its subsidiaries, including
Gart Bros., the Company's predecessor, entered into a Tax Sharing Agreement as
of September 25, 1992. In general, the Tax Sharing Agreement provides that, so
long as TCH is required to file consolidated federal income tax returns which
include Gart Bros., Gart Bros. will be responsible for paying to TCH its
Separate Tax Liability (as defined in the Tax Sharing Agreement) computed as a
flat tax on its income at the highest marginal rate applicable to corporations
under the various income tax systems provided under the Internal Revenue Code.
Similarly, TCH will be required to reimburse Gart Bros. for the use of its tax
attributes (i.e., net operating losses, capital losses or credits) to reduce
federal income tax liability on a TCH consolidated federal income tax return.
Similar provisions apply with respect to the filing of combined or consolidated
state income or franchise tax returns and the payment of tax. Under the Tax
Sharing Agreement, TCH will determine the reporting of all items on the TCH
consolidated federal income tax returns and will be responsible for all audits
and controversies. Separate Tax Liabilities of each member will be adjusted to
reflect adjustments resulting from resolved audits or other controversies and
appropriate payments or reimbursements will be made. On July 24, 1997, the IRS
proposed adjustments to the 1992 and 1993 consolidated federal income tax
returns of Gart Bros. and Thrifty. The proposed adjustments relate to the manner
in which LIFO inventories were characterized on such returns. The Company
recorded approximately $9.7 million as a long-term net deferred tax liability
for the tax effect of the LIFO inventory basis difference. The IRS has asserted
that this basis difference should be reflected in taxable

40
<PAGE> 42

income in 1992 and 1993. The Company has taken the position that the inventory
acquired in connection with the acquisition of Thrifty was appropriately
allocated to its inventory pools. The IRS has asserted the inventory was
acquired at a bargain purchase price and should be allocated to a separate
inventory pool and liquidated as inventory turns. Based on The Company's
discussions with Thrifty, the Company believes the potential accelerated tax
liability, which could have a negative effect on liquidity in the near term,
ranges from approximately $2.5 million to $9.7 million. The range of loss from
possible assessed interest charges resulting from the proposed adjustments range
from approximately $580,000 to $3.3 million. As the Company believes that no
amount is more probable than another within the range, the minimum interest
exposure of $580,000 has been accrued in the Company's consolidated financial
statements. No penalties are expected to be assessed relating to this matter. At
January 31, 1998, the LIFO inventory and other associated temporary differences
continue to be classified as long-term net deferred tax liabilities as the
Company does not believe the matter will be resolved within a year.

Pacific Enterprises ("PE"), the former parent company of Thrifty, TCH
and Big 5 Corporation, entered into a Tax Indemnity Agreement dated as of
September 25, 1992 which sets forth the parties' agreements with respect to
various tax matters and provides that PE will indemnify each member of the
affiliated group of which TCH is the common parent (collectively, the "Thrifty
Group") from specified liabilities and expenses imposed on or incurred by any
member of the Thrifty Group in respect of federal income tax for all tax periods
ending on or before September 25, 1992 and in respect of certain ERISA
liabilities. Gart Bros. was a member of the Thrifty Group at the time the Tax
Indemnity Agreement was entered into and continues to be subject to such
agreement. Pursuant to the Tax Indemnity Agreement, each member of the Thrifty
Group jointly and severally indemnified PE and each member of the Parent Group
(as defined in the Tax Indemnity Agreement) against liabilities incurred as a
result of a breach of the Tax Indemnity Agreement by TCH or any member of the
Thrifty Group.

In connection with the distribution of Common Stock to the stockholders
of Thrifty (the "Distribution") and Thrifty's simultaneous acquisition of
PayLess Drugstores Northwest, Inc. ("PayLess"), the Company and several other
former subsidiaries of Thrifty (the "Former Subsidiaries") entered into an
Indemnification and Reimbursement Agreement (the "Reimbursement Agreement") with
Thrifty whereby the Former Subsidiaries have agreed to indemnify Thrifty for any
tax-related expenses arising from the Distribution (in excess of $15 million) or
the operation of the Former Subsidiaries businesses. The Reimbursement Agreement
also provides that Thrifty will indemnify the Former Subsidiaries for any
expenses arising from the operation of Thrifty's business on or before date of
the Distribution. The Company has not received any notices of claims under the
Reimbursement Agreement, and is unaware of any pending claim thereunder.

Also in connection with the Distribution, the Company entered into an
Indemnification Allocation Agreement (the "Allocation Agreement") with Thrifty
and Michigan Sporting Goods Distributors, Inc. ("MC Sports"), another subsidiary
of Thrifty, whereby the parties agree to separate and allocate among themselves
the economic benefits of certain indemnification rights under the agreement
whereby Thrifty was purchased from PE. The Company has not received any notices
of claims under the Reimbursement Agreement, and is unaware of any pending claim
thereunder.

Management Services Agreement. The Company has entered into a
Management Services Agreement with LGA, pursuant to which LGA receives an annual
retainer fee of $500,000 plus reasonable expenses for providing certain
management, consulting and financial planning services (the "LGA Management
Fee"). The Company believes that the contacts and expertise provided by LGA in
these areas enhance the Company's opportunities and management's expertise in
these matters and that the fees to be paid to LGA fairly reflect the value of
the services to be provided by LGA. In addition to the LGA Management Fee, the
Management Services Agreement provides that LGA may receive reasonable and
customary fees and reasonable expenses from time to time for providing financial
advisory and investment banking services in connection with major financial
transactions that may be undertaken in the future. The Management Services
Agreement terminates on April 20, 2004.

41
<PAGE> 43

PROPERTY LEASES

As of April 30, 1998, seven of the Company's Sportmart stores (Niles,
Lombard, Calumet City, Schaumburg, Chicago (Lakeview), Merrillville, and North
Riverside) and the No Contest stores in Ferguson, Missouri and Crestwood,
Missouri as well as a vacant store in Wheeling, Illinois were leased from
partnerships or land trusts in which a majority of the beneficial interests are
owned through various partnerships by Larry J. Hochberg, Andrew Hochberg and
members of their family. A partnership in which members of the Hochberg family
indirectly own the general partner and hold up to a one-third interest as
limited partners owns the property on which the Chicago (River North), Illinois
Sportmart store is located.

In fiscal 1995, Sportmart decided to discontinue the operation of its
No Contest division and to close its River North and Wheeling, Illinois
locations. Notwithstanding the discontinuance of No Contest operations and the
closing of the two Sportmart locations, the Company is still obligated on the
leases for these locations. In connection with the Sportmart Acquisition, Gart
Sports's operating subsidiary, Gart Bros. Sporting Goods Company, has guaranteed
Sportmart's obligations under these leases. The No Contest locations are
currently subleased and the Company is actively marketing the remaining
locations to potential substitute tenants.

The aggregate lease payments (net of utilities, insurance, taxes and
other common area costs) for the above locations paid by Sportmart during its
1997 fiscal year were approximately $2.9 million. Sportmart received sublease
payments of approximately $0.4 million with respect to these locations during
its 1997 fiscal year.

Three of the Company's Gart Sports stores (Boulder, Colorado, the Salt
Lake City Sportscastle and Rock Springs, Wyoming) and its Denver distribution
center are leased from entities affiliated with Thrifty Payless. GEI was an
affiliate of Thrifty Payless until Thrifty Payless's sale to RiteAid Corporation
in February 1997. The aggregate lease payments made by the Company for the above
locations in fiscal 1997 were approximately $514,000 ($98,000 of such amount was
paid through February 1997).

The Company's Santa Fe Drive store in Englewood, Colorado was leased
from an affiliate of Arthur Hagan, Senior Vice President--Merchandising of the
Company, for part of fiscal 1997. This property was sold to a third party in
October 1997. The Company made lease payments on this property of approximately
$330,500 in fiscal 1997 ($275,000 of such amount was paid through October 1997).
The lease expires in May 1998 and the Company does not intend to seek a renewal
of the lease.

42
<PAGE> 44

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth certain information regarding beneficial
ownership of Common Stock as of April __, 1998, assuming the exercise of options
exercisable within 60 days of the date hereof, with respect to: (i) each person
or entity who owns of record or beneficially five percent or more of the Common
Stock, (ii) each Executive Officer and each Director and (iii) all executive
officers and Directors as a group. To the Company's knowledge, each of such
stockholders has sole voting and investment power as to the shares shown unless
otherwise noted.

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
---------------- ------ -------
<S> <C> <C>
Green Equity Investors, L.P.(1)............ 4,713,206 61.4%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
John Douglas Morton(2)..................... 97,600 1.3
Gart Sports Company
1000 Broadway
Denver, CO 80203
Arthur S. Hagan(3)......................... 27,400 *
Gart Sports Company
1000 Broadway
Denver, CO 80203
Robert M. Chessen(4)....................... 8,800 *
Gart Sports Company
1000 Broadway
Denver, CO 80203
Jonathan D. Sokoloff(1).................... -- --
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Jennifer Holden Dunbar(1).................. -- --
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Gordon D. Barker........................... 1,000 *
c/o Gart Sports Company
1000 Broadway
Denver, CO 80203
Peter R. Formanek.......................... 300 *
c/o Gart Sports Company
1000 Broadway
Denver, CO 80203
Larry J. Hochberg(5)(7).................... 529,135 6.9
One Northfield Plaza, Suite 210
Northfield, Illinois 60093
Andrew S. Hochberg(6)(7)................... 267,001 3.5
One Northfield Plaza, Suite 210
Northfield, Illinois 60093
All directors and executive officers as a
group (13 persons)......................... 931,236 12.0
</TABLE>

- ----------

* Less than 1%.

(1) GEI is a Delaware limited partnership, the general partner of which is
LGA. The general partners of LGA are (i) Tardy-Green, Inc., a Delaware
corporation the capital stock of which is wholly-owned by a trust of
which Leonard I. Green is the co-trustee, (ii) Mr. Sokoloff, (iii)
Willow III, Inc., a California corporation the capital stock of which
is beneficially owned by Ms. Holden Dunbar, (iv) GANMAX, a California
corporation the capital stock of which is beneficially owned by Gregory
J. Annick and (v) John G. Danhakl. Mr. Green, Mr. Sokoloff, Ms. Holden
Dunbar, Mr. Annick and Mr. Danhakl may be deemed to be beneficial
owners of the shares of Common Stock held by GEI since they (or
entities controlled by them) are general partners of LGA and also
because they (whether through ownership interest or position) may be
deemed to control LGA.

43
<PAGE> 45

(2) Includes 65,600 shares of Common Stock which are issuable upon the
exercise of outstanding options.

(3) Includes 12,400 shares of Common Stock which are issuable upon the
exercise of outstanding options.

(4) Includes 4,800 shares of Common Stock which are issuable upon the
exercise of outstanding options.

(5) Excludes 179,982 shares of Common Stock held by AH Investment Trust
U/A/D 6/3/87 with Andrew Hochberg as Beneficiary, of which shares Larry
Hochberg disclaims beneficial ownership. Excludes 18,158 shares of
Common Stock held by AH Investment Trust II with Andrew Hochberg as
beneficiary, of which shares Larry Hochberg disclaims beneficial
ownership. Includes 470,587 shares of Common Stock held by Larry
Hochberg as Trustee and Beneficiary of the Larry J. Hochberg Trust
U/A/D 6/12/81. Includes 38,563 shares of Common Stock held by Larry
Hochberg as Trustee and Beneficiary of the Barbara P. Hochberg Trust
U/A/D 12/17/88. Includes 3,216 shares of Common Stock held by Larry
Hochberg as Trustee of the Andrew S. Hochberg Sub-Trust U/A/D 1/3/90.
Includes 2,855 shares of Common Stock held by Larry Hochberg as
Co-Trustee of the Hochberg Annual Gift Trust U/A/D 4/27/94. Includes
2,804 shares of Common Stock held by Larry Hochberg as Trustee of the
Amy H. Lowenstein Sub-Trust U/A/D 1/3/90.

(6) Includes 179,982 shares of Common Stock held by AH Investment Trust
U/A/D 6/3/87 with Andrew Hochberg as Beneficiary. Includes 32,154
shares of Common Stock held by Andrew S. Hochberg as Trustee and
Beneficiary of the Andrew S. Hochberg Revocable Trust U/A/D 7/9/87.
Includes 3,216 shares of Common Stock held by Larry Hochberg as Trustee
of the Andrew S. Hochberg Sub-Trust U/A/D 1/3/90. Includes 2,855 shares
of Common Stock held by Andrew Hochberg's spouse as Co-Trustee of the
Hochberg Annual Gift Trust U/A/D 4/27/94. Includes 11,279 shares of
Common Stock held by the Andrew S. Hochberg 1995 Gift Trust, of which
Andrew Hochberg's children are the beneficiaries. Includes 825 and
1,976 shares of Common Stock, respectively, held by the spouse and
children of Andrew Hochberg.

(7) Includes 9,078 shares of Common Stock which are issuable upon the
exercise of outstanding options.

DESCRIPTION OF CAPITAL STOCK

The Company has authorized capital of 22,000,000 shares of Common Stock
and 3,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). As of April 14, 1998, 7,679,550 shares of Common Stock were
outstanding. No shares of Preferred Stock have been issued.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all
actions submitted to a vote of stockholders. Cumulative voting is not permitted.
Holders of Common Stock are entitled to receive cash dividends equally on a per
share basis as and when such dividends are declared by the Board of Directors
from funds legally available therefor, subject to preferential rights with
respect to any outstanding Preferred Stock. See "Dividend Policy."

In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share with each other on a
ratable basis as a single class in the remaining assets of the Company available
for distribution after payment of liabilities and satisfaction of any
preferential rights of holders of Preferred Stock. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.

PREFERRED STOCK

The Board of Directors has authority, without any further vote or
action by the stockholders, to provide for the issuance of Preferred Stock in
series, to establish from time to time the relative, participating, optional or
other special rights, qualifications or restrictions of the shares of each such
series and to determine the voting powers, if any, of such shares. The issuance
of Preferred Stock could adversely affect, among other things, the rights of
current stockholders. The issuance of Preferred Stock could decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, any such issuance could have the effect of delaying, deferring or
preventing a change in control of the Company and could make the removal of the
present management of the Company more difficult. The

44
<PAGE> 46

Company has no present plans to issue any Preferred Stock. See "Risk Factors --
Possible Anti-Takeover Effect of Charter, Bylaws and Delaware Law Provisions."

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

The Certificate and the Bylaws contain a number of provisions relating
to corporate governance and to the rights of stockholders. Certain of these
provisions may be deemed to have a potential "anti-takeover" effect in that such
provisions may delay, defer or prevent a change of control of the Company. These
provisions include the following:

Special Meetings of Stockholders; Stockholder Action by
Written Consent. The Certificate and the Bylaws require that any action
required or permitted to be taken by the Company's stockholders must be
effected at a duly called annual or special meeting of stockholders;
provided, however, that any action required or permitted to be taken at
any annual or special meeting of the Company's stockholders may be
taken without a meeting, without prior notice, and without a vote, if a
consent in writing, setting forth the action taken, is signed by the
holders of outstanding stock of the Company having not less than the
minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon
were present and voted, and the Company's Secretary has received at
least 24 hours prior written notice of the intent to take such action
which notice the Secretary has conveyed to each Director at least 24
hours prior to the taking of such action; provided that such notice may
be waived in writing by each Director entitled to receive such notice.
Additionally, the Certificate requires that special meetings of the
stockholders of the Company be called only by the Chairman of the
Board, the President, or the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors, and
shall be called by the Secretary or any Assistant Secretary, if there
be one, at the request in writing of holders of outstanding stock of
the Company having not less than a majority of the votes that would be
necessary to authorize such action.

Advance Notice Requirements for Stockholder Proposals and
Director Nominations. The Bylaws provide that stockholders seeking to
bring business before or to nominate directors at any meeting of
stockholders must provide timely notice thereof in writing. To be
timely, a stockholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Company not less
than 30 days nor more than 75 days prior to such meeting, or, if less
than 40 days' notice was given for the meeting, within 10 days
following the date on which such notice was given. The Bylaws specify
certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing
matters before the stockholders or from making nominations for
Directors.

Supermajority Vote for Business Combinations. The Certificate
includes a "fair price provision" which requires the affirmative vote
of two-thirds of the outstanding shares of capital stock entitled to
vote generally in the election of Directors held by persons who are not
interested stockholders (as defined below) and present in person or by
proxy to approve certain business combinations (including certain
mergers, security issuances, recapitalizations, liquidations and the
sale, lease or transfer of a substantial part of the Company's assets)
involving the Company or a subsidiary and an owner of 10% or more of
the outstanding Common Stock ("interested stockholder"), unless either
(i) such business combination is approved by a majority of the
directors unaffiliated with the interested stockholder or (ii) the
stockholders receive a "fair price" for their holdings and other
procedural requirements are met. A "fair price" for the holders of
outstanding stock entitled to vote generally in the election, including
Common Stock but excluding any class of Preferred Stock excluded by the
Board of Directors, in a business combination shall be at least equal
to the higher of the following: (i) the highest price per share paid by
the interested stockholder (a) within the two-year period immediately
prior to the first public announcement of the proposed business
combination, or (b) in the transaction in which the interested
stockholder became an interested stockholder, whichever is higher; (ii)
if applicable, the highest preferential amount per share to which the
holders of shares of such class of stock are entitled in the event of
any voluntary or involuntary liquidation, dissolution, or winding up of
the Company; or (iii) the Fair Market Value (as defined in the
Certificate) per share of such class of stock (a) on the date of the
first public

45
<PAGE> 47

announcement of the proposed business combination, or (b) on the date
on which the interested stockholder became an interested stockholder,
whichever is higher. The fair price provision of the Certificate can
only be amended by the affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock entitled to vote thereon.

The Company is subject to Section 203 of the DGCL which imposes
restrictions on business combinations (as defined therein) with interested
stockholders (being any person who acquired 15% or more of the Company's
outstanding voting stock). In general, the Company is prohibited from engaging
in business combinations with an interested stockholder, unless (i) before such
person became an interested stockholder, the Board of Directors approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the Company
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii) on
or subsequent to the date on which such person became an interested stockholder,
the business combination is approved by the Board of Directors and authorized at
a meeting of stockholders by the affirmative vote of the holders of two-thirds
of the outstanding voting stock of the Company not owned by the interested
stockholder. Under Section 203 of the DGCL, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the earlier of the announcement or notification of one of
certain extraordinary transactions involving the Company and a person who had
not been an interested stockholder during the previous three years or who became
an interested stockholder with the approval of the' Board of Directors, if such
extraordinary transaction is approved or not opposed by a majority of the
Directors who are Directors prior to any person becoming an interested
stockholder during the previous three years or who were recommended for election
or elected to succeed such directors by a majority of such Directors. By
restricting the ability of the Company to engage in business combinations with
an interested person, the application of Section 203 of the DGCL to the Company
may provide a barrier to hostile or unwanted takeovers.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American
Securities Transfer, Incorporated.

SELLING STOCKHOLDERS

The table below sets forth certain information regarding ownership of
Common Stock by the Selling Stockholders and the number of shares of Common
Stock ("Resale Shares") beneficially owned by them and to be sold by them under
this Prospectus:

46
<PAGE> 48

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING NUMBER AFTER OFFERING
---------------------------- OF SHARES ----------------------------
NAME OF SELLING STOCKHOLDER NO. OF SHARES(1) PERCENT OFFERED NO. OF SHARES PERCENT
--------------------------- ---------------- ------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
Laurie Hochberg............................. 825 * 825 -- --
Larry J. Hochberg Trust U/A/D 6/12/81....... 470,587 6.1% 470,587 -- --
Jacob Lowenstein under the IL UGMA.......... 1,121 * 1,121 -- --
Ariel Lowenstein under the IL UGMA.......... 1,459 * 1,459 -- --
Amy Lowenstein.............................. 487 * 487 -- --
Raphael Lowenstein under the IL UGMA........ 1,121 * 1,121 -- --
Joshua Lowenstein under the IL UGMA......... 1,121 * 1,121 -- --
John A. Lowenstein(3)....................... 12,853 * 4,600 8,253 *
AHL Investment Trust U/A/D 12/7/90.......... 57,181 * 57,181 -- --
Jessica Hochberg under the IL UGMA.......... 715 * 715 -- --
Abigail Lowenstein under the IL UGMA........ 1,015 * 1,015 -- --
Amy H. Lowenstein Revocable Trust U/A/D 42,255 42,255
8/29/91................................... * -- --
Andrew S. Hochberg Revocable Trust U/A/D
7/9/87.................................... 32,154 * 32,154 -- --
Abigail Lowenstein under the IL UGMA........ 913 * 913 -- --
The Lowenstein Annual Gift Trusts for
Ariel U/A/D 12/1/96 ...................... 371 * 371
The Lowenstein Annual Gift Trust for
Abigail U/A/D 12/1/96 .................... 371 * 371
AH Investment Trust II U/A/D 1/5/96......... 18,158 * 18,158
AHL Investment Trust II U/A/D 1/5/96........ 90,791 1.2% 90,791
AHL Investment Trust III U/A/D 9/19/97 ..... 44,745 * 44,745
Andrew S. Hochberg 1995 Gift Trust U/A/D
1/3/95 ................................... 11,279 * 11,279
---------
Total 1,019,430
=========
</TABLE>

- ----------

* Less than 1%.

(1) For each Selling Stockholder, the number of shares listed excludes any
shares of Common Stock held by any other Selling Stockholder which such
Selling Stockholder may be deemed to beneficially own.

(2) Includes 9,078 shares of Common Stock which are issuable upon exercise of
outstanding options.

(3) Includes 8,253 shares of Gart Common Stock which are issuable upon exercise
of outstanding options.

47
<PAGE> 49

PLAN OF DISTRIBUTION

The Registration Statement of which this Prospectus is a part relates
to and covers the reoffering and resale by the Selling Stockholders or their
pledgees, donees, transferees or distributees, or their respective
successors-in-interest (collectively, the "Selling Stockholders") of the Resale
Shares issued or issuable to them by the Company. Any Resale Shares owned by the
Selling Stockholders may be offered by them from time to time in transactions
(which may involve crosses and block transactions) on Nasdaq, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices or at negotiated prices. Selling
Stockholders may sell some or all of the shares in transactions involving
broker-dealers, including (i) block trades in which the brokers or dealers will
attempt to sell the Resale Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (ii) purchases by
brokers or dealers as principal and resale by such brokers or dealers for their
account pursuant to this Prospectus; (iii) ordinary brokerage transactions and
transactions in which the brokers solicit purchases; or (iv) one or more
underwritten offerings on a firm commitment or best efforts basis.
Broker-dealers, agents or underwriters participating in such transactions as
agent may receive commissions from the Selling Stockholders and, if they act as
agent for the purchaser of the shares, from the purchaser. Participating
broker-dealers may agree with the Selling Stockholders to sell a specified
number of shares at a stipulated price per share, and to the extent such
broker-dealer is unable to do so as agent for the Selling Stockholders, the
broker-dealer may purchase as principal any unsold shares at the price required
to fulfill the broker-dealer's commitment to the Selling Stockholders. In
addition, shares may be sold by Selling Stockholders by or through
broker-dealers in special offerings, exchange distributions or secondary
distributions, and in connection therewith commissions in excess of the
customary commissions prescribed by applicable rules may be paid to
participating broker-dealers or, in the case of certain secondary distributions,
a discount or concession from the offering price may be allowed to participating
broker-dealers in excess of such customary commissions. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions on Nasdaq, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices or at negotiated prices, and in connection with such resale may
pay to or receive commissions from the purchaser of such shares. A Selling
Stockholder may, from time to time, sell short the Common Stock, and in such
instances, this Prospectus may be delivered in connection with such short sales
and the Resale Shares offered hereby may be used to cover such short sales.
Sales of the Resale Shares may also be made pursuant to Rule 144 under the
Securities Act, as applicable. There is no assurance that the Selling
Stockholders will sell any or all of the shares offered hereby.

The Selling Stockholders and any underwriters, broker-dealers or agents
that participate in a distribution of such shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. Under applicable rules and regulations under the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended, any person engaged in the
distribution of the Resale Shares may not bid for or purchase Resale Shares
during a period which commences one business day (five business days, if the
Company's public float is less than $25 million or its average daily trading
volume is less than $100,000) prior to such person's participation in the
distribution, subject to exceptions for certain passive market making
activities. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which provisions may limit the timing of purchases and sales of Resale Shares
by the Selling Stockholders.

The Company will pay substantially all expenses incident to the
reoffering of the Resale Shares by the Selling Stockholders to the public, other
than commissions and discounts of underwriters, dealers or agents. The Company
will receive no proceeds from any sales of such shares under this Prospectus by
any Selling Stockholders.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby has
been passed upon for the Company by Brownstein Hyatt Farber & Strickland, P.C.,
Denver, Colorado.

48
<PAGE> 50

EXPERTS

The consolidated balance sheets of the Company and subsidiaries as of
January 31, 1998, January 3, 1998 and January 4, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the 28 days ended January 31, 1998, 52 weeks ended January 3, 1998 and January
4, 1997 and 53 weeks ended January 6, 1996 have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company with the
Commission may be inspected and copies at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at: 75
Park Place, 14th Floor, New York, New York 10007 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained upon written request addressed to the Commission at the
Public Reference Section, at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Such reports, proxy and
information statements and other information may be found at the Commission's
web site address, http://www.sec.gov. In addition, the Common Stock is listed on
Nasdaq and reports and other information concerning the Company may also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed a registration statement (the "Registration
Statement") on Form S-4 with respect to the Shares offered hereby with the
Commission under the Act. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and regulations
of the Commission. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Prospectus as to the contents of any agreement, instrument or other document
referred to are not necessarily complete. With respect to each such agreement,
instrument or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

49
<PAGE> 51

GART SPORTS COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of January 31, 1998, January
3, 1998 and January 4, 1997............................... F-3
Consolidated Statements of Operations for the 28 days ended
January 31, 1998, 52 weeks ended January 3, 1998 and
January 4, 1997 and 53 weeks ended January 6, 1996........ F-4
Consolidated Statements of Stockholders' Equity for the 28
days ended January 31, 1998, 52 weeks ended January 3,
1998 and January 4, 1997 and 53 weeks ended January 6,
1996...................................................... F-5
Consolidated Statements of Cash Flows for the 28 days ended
January 31, 1998, 52 weeks ended January 3, 1998 and
January 4, 1997 and 53 weeks ended January 6, 1996........ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 52

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Gart Sports Company:

We have audited the accompanying consolidated balance sheets of Gart Sports
Company and subsidiaries (Company) as of January 31, 1998, January 3, 1998 and
January 4, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the 28 days ended January 31, 1998, 52
weeks ended January 3, 1998 and January 4, 1997 and 53 weeks ended January 6,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gart Sports
Company and subsidiaries as of January 31, 1998, January 3, 1998 and January 4,
1997, and the results of their operations and their cash flows for the 28 days
ended January 31, 1998, 52 weeks ended January 3, 1998 and January 4, 1997 and
53 weeks ended January 6, 1996, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Denver, Colorado
April 3, 1998

F-2
<PAGE> 53

GART SPORTS COMPANY
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 3, JANUARY 4,
1998 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash of
$5,700 at January 31, 1998)............................. $ 16,372 $ 12,958 $ 8,800
Accounts receivable, net of allowance for doubtful
accounts of $345, $212 and $180, respectively........... 4,783 1,520 2,027
Note receivable........................................... 1,436 -- --
Inventories............................................... 214,814 88,849 70,699
Prepaid expenses.......................................... 3,136 1,852 1,436
Deferred income taxes..................................... 390 226 --
Assets held for sale...................................... 1,708 -- --
-------- -------- -------
Total current assets............................... 242,639 105,405 82,962
-------- -------- -------
Property and equipment, net................................. 55,990 14,266 12,935
Favorable leases acquired, net.............................. 19,111 -- --
Other assets, net of accumulated amortization of $147,
$1,067 and $778, respectively............................. 2,242 1,620 538
-------- -------- -------
$319,982 $121,291 $96,435
======== ======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 71,926 $ 44,250 $30,926
Current portion of capital lease obligations.............. 340 -- --
Accrued expenses.......................................... 56,163 18,057 15,558
Income taxes payable...................................... 2,365 3,212 1,828
Deferred income taxes..................................... -- -- 517
-------- -------- -------
Total current liabilities.......................... 130,794 65,519 48,829
Long-term debt.............................................. 105,600 -- --
Capital lease obligations, less current portion............. 3,069 -- --
Deferred rent............................................... 2,377 2,304 1,837
Deferred income taxes....................................... 9,385 8,951 8,026
-------- -------- -------
Total liabilities.................................. 251,225 76,774 58,692
-------- -------- -------
Redeemable common stock, 147,600 and 154,650 shares issued,
net of notes receivable from stockholders of $80,000 and
$207,000 at January 3, 1998 and January 4, 1997,
respectively.............................................. -- 1,904 860
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 3,000,000
shares at January 31, 1998 and 1,000,000 shares at
January 3, 1998 and January 4, 1997; none issued........ -- -- --
Common stock, $.01 par value. Authorized 22,000,000 shares
at January 31, 1998, 8,000,000 shares at January 3, 1998
and 5,000,000 shares at January 4, 1997; 8,025,876,
5,697,620 and 5,690,570 shares issued and 7,679,550,
5,351,294 and 5,351,294 shares outstanding,
respectively............................................ 80 57 57
Additional paid-in capital................................ 55,651 21,378 22,295
Unamortized restricted stock compensation................. (80) -- --
Retained earnings......................................... 15,038 23,043 16,359
-------- -------- -------
70,689 44,478 38,711
Treasury stock, 346,326, 346,326 and 339,276 common
shares, respectively, at cost........................... (1,865) (1,865) (1,828)
Notes receivable from stockholders........................ (67) -- --
-------- -------- -------
Total stockholders' equity......................... 68,757 42,613 36,883
Commitments and contingencies (notes 3, 11, 12, 13, 15, 19,
and 20)................................................... $319,982 $121,291 $96,435
======== ======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 54

GART SPORTS COMPANY
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
28 DAYS 52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 3, JANUARY 4, JANUARY 6,
1998 1998 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales....................................... $ 38,825 $ 228,379 $ 204,126 $ 176,829
Cost of goods sold, buying, distribution and
occupancy..................................... 31,924 164,289 148,420 131,455
---------- ---------- ---------- ----------
Gross profit.......................... 6,901 64,090 55,706 45,374
Operating expenses.............................. 11,360 52,721 47,604 42,876
Merger integration costs........................ 3,377 395 -- --
---------- ---------- ---------- ----------
Operating income (loss)............... (7,836) 10,974 8,102 2,498
---------- ---------- ---------- ----------
Nonoperating income (expense):
Interest expense.............................. (525) (983) (1,601) (2,281)
Other income.................................. 38 776 637 576
---------- ---------- ---------- ----------
(487) (207) (964) (1,705)
---------- ---------- ---------- ----------
Income (loss) before income taxes..... (8,323) 10,767 7,138 793
Income tax expense (benefit).................... (318) 4,083 2,681 285
---------- ---------- ---------- ----------
Net income (loss)..................... $ (8,005) $ 6,684 $ 4,457 $ 508
========== ========== ========== ==========
Earnings (loss) per share:
Basic......................................... $ (1.11) $ 1.21 $ 0.81 $ 0.09
========== ========== ========== ==========
Diluted....................................... $ (1.11) $ 1.19 $ 0.81 $ 0.09
========== ========== ========== ==========
Weighted average shares of common stock
outstanding................................... 7,212,267 5,501,673 5,512,886 5,681,811
========== ========== ========== ==========
Weighted average shares of common stock and
common stock equivalents outstanding.......... 7,212,267 5,596,823 5,512,886 5,681,811
========== ========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 55

GART SPORTS COMPANY
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
UNAMORTIZED NOTES
ADDITIONAL RESTRICTED STOCK RECEIVABLE TOTAL
COMMON PAID-IN COMPENSATION RETAINED TREASURY FROM STOCKHOLDERS'
STOCK CAPITAL AWARDS EARNINGS STOCK STOCKHOLDERS EQUITY
------ ---------- ---------------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994....... $57 $21,864 $ -- $11,394 $ (554) $ -- $32,761
Net income.......................... -- -- -- 508 -- -- 508
Purchase of 209,900 shares of
treasury stock.................... -- -- -- -- (1,162) -- (1,162)
Adjustment for redeemable common
stock purchased as treasury
shares............................ -- 594 -- -- -- -- 594
Increase in redemption amount of
redeemable common stock during the
year.............................. -- (199) -- -- -- -- (199)
--- ------- ---- ------- ------- ---- -------
BALANCES AT JANUARY 6, 1996......... 57 22,259 -- 11,902 (1,716) -- 32,502
Net income.......................... -- -- -- 4,457 -- -- 4,457
Purchase of 21,500 shares of
treasury stock.................... -- -- -- -- (112) -- (112)
Adjustment for redeemable common
stock purchased as treasury
shares............................ -- 112 -- -- -- -- 112
Increase in redemption amount of
redeemable common stock during the
year.............................. -- (76) -- -- -- -- (76)
--- ------- ---- ------- ------- ---- -------
BALANCES AT JANUARY 4, 1997......... 57 22,295 -- 16,359 (1,828) -- 36,883
Net income.......................... -- -- -- 6,684 -- -- 6,684
Purchase of 7,050 shares of treasury
stock............................. -- -- -- -- (37) -- (37)
Adjustment for redeemable common
stock purchased as treasury
stock............................. -- 37 -- -- -- -- 37
Increase in redemption amount of
redeemable common stock during the
year.............................. -- (954) -- -- -- -- (954)
--- ------- ---- ------- ------- ---- -------
BALANCES AT JANUARY 3, 1998......... 57 21,378 -- 23,043 (1,865) -- 42,613
Net loss............................ -- -- -- (8,005) -- -- (8,005)
Issuance of 2,180,656 shares to
acquire Sportmart................. 22 32,290 (80) -- -- -- 32,232
Redeemable common stock 147,600
shares reclassified to equity..... 1 1,983 -- -- -- (80) 1,904
Receipts on notes receivable........ -- -- -- -- -- 13 13
--- ------- ---- ------- ------- ---- -------
BALANCES AT JANUARY 31, 1998........ $80 $55,651 $(80) $15,038 $(1,865) $(67) $68,757
=== ======= ==== ======= ======= ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 56

GART SPORTS COMPANY
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
28 DAYS 52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 3, JANUARY 4, JANUARY 6,
1998 1998 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ (8,005) $ 6,684 $ 4,457 $ 508
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization............. 1,165 3,290 3,657 3,494
Provision for deferred income taxes....... 270 182 783 2,877
Loss on disposition of assets............. 2 98 47 45
Increase in deferred rent................. 73 467 671 246
Changes in operating assets and
liabilities:
Accounts receivable, net................ (762) 507 (8) 845
Inventories............................. 4,464 (18,150) (2,051) 3,586
Prepaid expenses........................ 1,450 (416) (305) (920)
Income taxes receivable................. -- -- 1,189 (1,189)
Other assets............................ 1,438 (1,321) -- --
Accounts payable........................ (9,604) 13,324 8,534 3,359
Accrued expenses........................ (5,305) 2,499 3,274 2,031
Income taxes payable.................... (581) 1,384 1,828 (3,341)
-------- -------- -------- --------
Net cash provided by (used in)
operating activities............... (15,395) 8,548 22,076 11,541
-------- -------- -------- --------
Cash flows from investing activities:
Net impact of acquisition on cash............ 916 -- -- --
Purchases of property and equipment.......... (437) (4,466) (3,634) (3,670)
Proceeds from sale of property and
equipment................................. 4 36 257 55
-------- -------- -------- --------
Net cash provided by (used in)
investing activities............... 483 (4,430) (3,377) (3,615)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt................. 105,600 67,850 60,400 58,135
Principal payments on long-term debt......... (86,285) (67,850) (77,400) (60,807)
Principal payments on capital lease
obligations............................... (27) -- -- --
Decrease in receivable from affiliate........ -- -- -- 506
Purchase of treasury stock................... -- (37) (112) (1,162)
Receipts on notes receivable from
stockholders.............................. 13 127 342 89
Payment of financing fees.................... (975) (50) (50) (50)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities............... 18,326 40 (16,820) (3,289)
-------- -------- -------- --------
Increase in cash and cash
equivalents........................ 3,414 4,158 1,879 4,637
Cash and cash equivalents at beginning of
period....................................... 12,958 8,800 6,921 2,284
-------- -------- -------- --------
Cash and cash equivalents at end of period..... $ 16,372 $ 12,958 $ 8,800 $ 6,921
======== ======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest..... $ 487 $ 473 $ 1,668 $ 2,356
======== ======== ======== ========
Cash paid during the period for income
taxes..................................... $ 2 $ 2,668 $ 1,212 $ 1,667
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 57

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, JANUARY 3, 1998 AND JANUARY 4, 1997

(1) DESCRIPTION OF BUSINESS AND BUSINESS COMBINATION

(a) Description of Business

Gart Sports Company (Company), a Delaware corporation, operates in one
business segment through its wholly owned subsidiary, Gart Bros. Sporting Goods
Company (Gart Bros.). As of January 31, 1998 the Company operated 123 retail
sporting goods stores throughout 16 states in the midwest, rocky-mountain, and
western United States.

(b) Purchase Business Combination

On January 9, 1998, Gart Bros. acquired all of the outstanding common stock
of Sportmart, Inc. (Sportmart), a sporting goods retailer operating in the
midwest and western United States.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Consolidation

The consolidated financial statements present the financial position,
results of operations and cash flows of Gart Sports Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

(b) Fiscal Year

The Company has a 52-53 week fiscal reporting year ending on the last
Saturday closest to the end of January. Prior to the acquisition effective date
of January 9, 1998, the Company ended its 52-53 week fiscal year on the first
Saturday in January. The fiscal years referred to in these consolidated
financial statements are the 52 weeks ended January 3, 1998 (fiscal 1997), 52
weeks ended January 4, 1997 (fiscal 1996) and 53 weeks ended January 6, 1996
(fiscal 1995). These consolidated financial statements also include the period
from January 4, 1998 through January 31, 1998 (the "transition period"). The
transition period represents results of operations for 28 days of Gart Bros. and
22 days of Sportmart.

The Company considers cash on hand in stores, bank deposits and highly
liquid investments as cash and cash equivalents.

At January 31, 1998 the Company had approximately $5.7 million cash on
deposit with Sportmart's former primary lender, Banker's Trust, which was
required in order to terminate the Sportmart lending relationship. The balance
constitutes collateral equal to 110% of outstanding Letters of Credit issued on
behalf of Sportmart prior to the acquisition. The cash is restricted as to
withdrawal and usage.

(d) Inventories

The Company accounts for inventories at the lower of cost or market. Cost
is determined using the average cost of items purchased and applying the dollar
value last-in, first-out (LIFO) inventory method. The Company's dollar value
LIFO pools are computed using the Inventory Price Index Computation (IPIC)
method. At January 31, 1998, January 3, 1998 and January 4, 1997, the
replacement cost of inventory approximated its carrying value.

F-7
<PAGE> 58
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Property and Equipment

Property and equipment are recorded at cost. Property under capital leases
is stated at the present value of future minimum lease payments. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets, which range from three to nine years for furniture, fixtures and
equipment, and three years for equipment held for rental, for financial
reporting purposes and on accelerated methods for income tax purposes. Property
held under capital leases and leasehold improvements is amortized on the
straight-line method over the shorter of the lease term or estimated useful life
of the asset. Maintenance and repairs which do not extend the useful life of the
respective assets are charged to expense as incurred.

The Company capitalizes the costs of major purchased software systems and
the external costs associated with customizing those systems; related training
costs and internal costs are expensed as incurred. Depreciation of purchased
software systems is calculated using the straight-line method over an estimated
useful life of five years.

(f) Accounting for Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews long-lived tangible and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(g) Other Assets

Other assets are amortized using the interest method. Loan origination
costs are amortized over the term of the related debt.

(h) Pre-Opening Expenses

Non-capital costs associated with the opening of a new store are deferred
prior to the opening and charged to expense ratably from the date the store is
opened through the end of the fiscal year in which the store is opened.

(i) Advertising Costs

Advertising costs are expensed in the period in which the advertising
occurs. The Company participates in various advertising and marketing
cooperative programs with its vendors, who, under these programs, reimburse the
Company for certain costs incurred. A receivable for cooperative advertising to
be reimbursed is recorded as a decrease to expense at the same time the
advertising costs are expensed. Advertising costs, which are included in
operating expenses, were $1,610,000 for the transition period ended January 31,
1998, $7,377,000, $5,877,000 and $5,941,000 for fiscal years 1997, 1996 and
1995, respectively.

(j) Income Taxes

The Company files a consolidated U.S. federal income tax return using a tax
year ending on the Saturday closest to the end of September. Income taxes are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are

F-8
<PAGE> 59
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.

(k) Earnings (Loss) Per Share

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
This statement replaces the presentation of primary earnings per share (EPS) and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
(loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period. Similar to fully diluted EPS, diluted EPS
reflects the potential dilution of securities that could share in earnings. This
statement has been adopted in the accompanying financial statements.

Common stock equivalents are excluded from the computation of diluted loss
per share for the transition period ended January 31, 1998 as their effect would
have been anti-dilutive.

(l) Stock Option Plans

During 1996, the Company chose to continue to use the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25), and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. As required by the
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company has provided pro forma net income (loss)
disclosures for employee stock option grants made in 1995 and later years as if
the fair-value-based method defined in SFAS 123 had been applied.

(m) Fair Value of Financial Instruments

The Company's financial instruments' carrying values approximate their fair
values.

(n) Derivative Financial Instruments

Derivative financial instruments are utilized by the Company to reduce
interest rate risk. The Company does not use derivatives for speculative trading
purposes.

(o) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ significantly from those estimates.

(p) Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

(3) ACQUISITION

The Company acquired Sportmart, Inc. on January 9, 1998. Sportmart operated
59 stores in the midwest and western United States. Subsequent to the
acquisition, the Company operates Sportmart as a wholly owned subsidiary. The
acquisition was accounted for as a purchase.

F-9
<PAGE> 60
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company issued 2,180,656 shares of common stock with an estimated
market value of $32,121,000 in exchange for 5,148,834 shares of voting and
7,817,394 shares of non-voting Sportmart, Inc. common stock and 250,000 shares
of restricted stock based upon a conversion ratio of 0.165014 to one. In
addition, the Company assumed all of the outstanding and unexercised stock
options under Sportmarts' existing stock option plans, with an estimated value
of approximately $191,000.

The aggregate purchase price was approximately $36,982,000 including direct
acquisition costs of $4,670,000. The direct acquisition costs include $3,000,000
paid to Leonard Green and Associates, L.P. (LGA), a related party, for financial
advisory and investment banking services related to the acquisition.

The following table sets forth the allocation of the purchase price for the
assets acquired and liabilities assumed (in thousands):

<TABLE>
<S> <C>
Current assets.............................................. $144,559
Property and equipment...................................... 42,284
Favorable leases............................................ 19,261
Other assets................................................ 944
--------
207,048
--------
Current liabilities......................................... 80,682
Long-term debt.............................................. 86,285
Other long-term liabilities................................. 3,099
--------
170,066
--------
Net assets acquired....................................... $ 36,982
========
</TABLE>

The Company recorded no excess of cost over the fair market value of net
assets acquired.

The Company plans to close Sportmart's corporate headquarters in Wheeling,
Illinois, consolidating all corporate functions into the Company's Denver,
Colorado corporate offices. As a result, the Company assumed liabilities at the
acquisition date of approximately $6,352,000 related to the following
obligations (in thousands):

<TABLE>
<S> <C>
Lease buy-out penalty....................................... $ 1,100
Employee severance costs.................................... 4,452
Employee relocation costs................................... 800
</TABLE>

The above liabilities assumed consist of the closure of duplicate
administrative functions, the reduction of corporate personnel, costs and losses
incurred to close the Wheeling facility and to move certain Sportmart personnel
from Wheeling to Denver.

Adjustments to any of the above amounts which occur due to: lease buy-out
penalty results in an amount different from management's estimate, fewer
individuals relocating than planned or costs different from amounts estimated
will be accounted for as adjustments to the respective accrual accounts and
adjustments to purchase price within one year of January 9, 1998. Any such
adjustments would impact the allocation of purchase price to long-lived assets.

The Company anticipates closing the Wheeling corporate office by May 1998
and expects all costs to be incurred by the end of the second quarter ended July
1998. Given the lack of store overlap, the Company does not anticipate any store
closings or store level employee displacement as a result of the acquisition.

F-10
<PAGE> 61
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma financial information presents the
combined results of operations of Gart Sports Company and Sportmart, Inc. as if
the acquisition had occurred as of the beginning of 1996, after giving effect to
certain adjustments, including amortization of favorable leases, depreciation
expense, and related income tax effects. No adjustments have been made in the
statement of operations to conform accounting policies and practices or
anticipated cost savings and synergies.

The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had Gart Sports Company and
Sportmart, Inc. constituted a single entity during such periods.

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1997(1) 1996(2)
-------- --------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
Net sales................................................... $687,542 $718,737
======== ========
Loss from continuing operations(3).......................... (22,506) (21,195)
======== ========
Basic loss per share from continuing operations(4).......... $ (2.95) $ (2.78)
======== ========
</TABLE>

- ---------------

(1) Includes the 52 weeks ended January 3, 1998 for Gart Sports Company and the
53 weeks ended November 2, 1997 for Sportmart, Inc., as a meaningful
comparable annual period for Sportmart, Inc. was not available due to the
business combination on January 9, 1998.

(2) Includes the 52 weeks ended January 4, 1997 for Gart Sports Company and the
53 weeks ended February 2, 1997 for Sportmart, Inc.

(3) The historical statement of operations of Sportmart for the 53 weeks ended
November 2, 1997 and February 2, 1997 includes a non-recurring pre-tax
charge for exit costs of approximately $33,200,000, primarily associated
with exiting the Canadian market and closing the stores in Canada. Costs
associated with closing the stores include severance costs, lease buy-out
costs, inventory write-downs, write-offs of unamortized leasehold
improvements, as well as other miscellaneous exit costs. The effect of such
exit costs was an increase to pro forma combined loss from continuing
operations by $20,584,000 and the pro forma loss per share from continuing
operations by $2.70.

(4) Pro forma loss per share has been computed based on the pro forma net loss
and the pro forma weighted average common shares outstanding for the periods
presented. The pro forma weighted average common shares outstanding have
been computed by adjusting Gart's weighted average common shares outstanding
by the shares of Gart Common Stock to be issued to the stockholders of
Sportmart. The dilutive effect of outstanding options to purchase shares of
common stock of Gart Sports, outstanding stock options of Sportmart to be
converted into options to purchase Gart Common Stock, on the calculation of
pro forma earnings per share is not material.

Following the completion of the merger, approximately 72% of the common
stock of the Company is held by former Gart Sports Company stockholders and
approximately 28% is held by former Sportmart stockholders. Green Equity
Investors, whose general partner is LGA, owns approximately 61% of the
outstanding common stock of the Company.

(4) BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES

The Company recorded merger integration costs of $3,377,000 during the
transition period ended January 31, 1998 and $395,000 during the third and
fourth quarters of fiscal 1997. The costs relate to the acquisition of Sportmart
and are reported as merger integration costs in the consolidated statements of
operations. The largest component of such costs relates to the termination of
duplicate equipment leases.

F-11
<PAGE> 62
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

These expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
TRANSITION FISCAL
PERIOD 1997
---------- ------
<S> <C> <C>
Lease buy-out expenses...................................... $1,153 $ --
Stay on bonuses -- Sportmart employees...................... 700 --
Professional fees........................................... 653 309
Severance -- Gart employees................................. 505 --
Obsolete equipment write downs.............................. 220 --
Travel expenses............................................. 63 84
Other....................................................... 83 2
------ ----
$3,377 $395
====== ====
</TABLE>

(5) ACCOUNTS RECEIVABLE

Activity in the allowance for doubtful accounts is as follows (in
thousands):

<TABLE>
<CAPTION>
28 DAYS ENDED FISCAL YEARS
JANUARY 31, --------------------
1998 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts at beginning of
period.......................................... $212 $180 $269 $290
Additions......................................... 131 36 42 50
Amounts charged against the allowance............. (6) (4) (131) (71)
Recoveries of amounts previously charged.......... 8 -- -- --
---- ---- ---- ----
Allowance for doubtful accounts at end of
period.......................................... $345 $212 $180 $269
==== ==== ==== ====
</TABLE>

(6) NOTE RECEIVABLE

The Company has a note receivable from the landlord of the Northridge
Sportmart store, with an annual interest rate of 10.5%. Principal and interest
are due in monthly installments through July 1, 2005. The agreement contains a
right of offset provision.

(7) ASSETS HELD FOR SALE

At the effective date of the acquisition of Sportmart, the Company acquired
certain assets classified as Held for Sale. Assets held for sale relate to
discontinued Canadian operations and consist of land and buildings in Edmonton,
Alberta, Canada currently being marketed.

(8) FAVORABLE LEASES

Favorable leases acquired in the Sportmart acquisition are primarily the
result of net current market rents of Sportmart store locations exceeding the
contractual lease rates. The Company recorded approximately $19,261,000 of
favorable leases in connection with the purchase. The assigned amounts were
based upon independent appraisals. The Company is amortizing the identified
intangible amounts over the existing terms of the leases on a straight-line
basis.

F-12
<PAGE> 63
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 3, JANUARY 4,
1998 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Land................................................. $ 1,493 $ 118 $ 118
Buildings and leasehold improvements................. 30,841 6,868 6,361
Capitalized lease property........................... 1,936 -- --
Data processing equipment and software............... 2,367 1,837 1,822
Furniture, fixtures and office equipment............. 28,361 13,586 10,531
Equipment held for rental............................ 3,723 3,723 3,235
Less accumulated depreciation and amortization....... (12,731) (11,866) (9,132)
-------- -------- -------
Property and equipment, net........................ $ 55,990 $ 14,266 $12,935
======== ======== =======
</TABLE>

Depreciation expense for the transition period ended January 31, 1998 was
$1,139,000. Depreciation expense for fiscal years 1997, 1996 and 1995 was
$2,973,000, $3,390,000 and $3,227,000, respectively. Amortization of equipment
held for rental is included in cost of goods sold and was $39,000 for the
transition period ended January 31, 1998 and $432,000, $836,000 and $977,000 for
fiscal years 1997, 1996 and 1995, respectively.

Depreciation expense for purchased software systems totaled $37,000 for the
transition period ended January 31, 1998 and $407,000, $408,000 and $352,000 for
fiscal years 1997, 1996 and 1995, respectively. The net book value of computer
software was $643,000, $480,000 and $872,000 at January 31, 1998, January 3,
1998 and January 4, 1997, respectively.

(10) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 3, JANUARY 4,
1998 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Accrued compensation and benefits................. $ 8,576 $ 4,131 $ 4,185
Accrued sales and property taxes.................. 10,536 3,812 3,323
Accrued store closing reserve..................... 5,789 -- --
Accrued severance, relocation and stay bonus...... 7,052 -- --
Accrued advertising............................... 3,852 2,225 2,086
Other............................................. 20,358 7,889 5,964
------- ------- -------
Accrued expenses........................ $56,163 $18,057 $15,558
======= ======= =======
</TABLE>

(11) LONG-TERM DEBT

On January 9, 1998, the Company entered into a financing agreement with a
commercial finance company. The agreement includes a line of credit feature that
allows the Company to borrow up to $175,000,000 limited to an amount equal to
70% of eligible inventory (as defined in the agreement). The maximum percentage
may be increased, upon election by the Company, to 75% of eligible inventory for
one consecutive 90-day period each fiscal year. Borrowings are secured by
substantially all accounts receivables, inventories and intangible assets. The
commercial finance company may not demand repayment of principal, absent an
occurrence of default under the agreement, prior to January 9, 2003. Currently,
interest is payable monthly at prime (8.5% at January 31, 1998) plus .25% or
LIBOR (5.63% at January 31, 1998) plus 1.75%,

F-13
<PAGE> 64
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

per annum. Beginning February 1, 1999, if earnings before income taxes,
depreciation and amortization is greater than $25 million for the prior four
fiscal quarters, interest is payable monthly at prime or LIBOR plus 1.50%. The
terms of the agreement provide for an annual collateral management fee of
$100,000 and for a line of credit fee, payable monthly, of .375% per annum on
the unused portion of the line of credit. The agreement contains certain
covenants, including financial covenants which require the Company to maintain a
specified level of minimum net worth at all times and restricts the payment of
dividends on common stock. At January 31, 1998, $105,600,000 was outstanding
under the agreement and $34,142,000 was available for borrowing, as calculated
using 70% of eligible inventory. The Company's policy is to classify borrowings
under revolving credit facilities as long-term debt since the Company has the
ability, and the intent, to maintain these obligations for longer than one year.

Prior to January 9, 1998 the Company had a financing agreement with the
same commercial finance company. The agreement included a borrowing base feature
that allowed the Company to borrow up to 60% of its eligible inventories (as
defined in the agreement) for the period January through June and up to 65% of
its eligible inventories for the period July through December. Borrowings were
limited to the lesser of $50,000,000 or the amount calculated in accordance with
the borrowing base, and were secured by substantially all accounts receivables,
inventories, and intangible assets. The commercial finance company could not
demand repayment of principal, absent an occurrence of a default under the
agreement, prior to April 20, 2001. Loan interest was payable monthly at the
prime rate plus 0.25% or, at the option of the Company, at the LIBOR rate plus
1.5%. The other terms of the agreement mirrored the existing agreement regarding
fees and covenants. No amounts were outstanding under the financing agreement at
January 3, 1998 and January 4, 1997, and $50,000,000 and $40,586,000 were
available for borrowing, respectively.

The weighted average interest rate on the borrowings outstanding was 7.43%
at January 31, 1998.

The Company utilizes certain derivative financial instruments to hedge its
interest rate exposure. At January 31, 1998, the Company's borrowings consisted
of $100,000,000 tied to LIBOR and had an interest rate cap in effect for
$25,000,000 of its LIBOR borrowings.

The Company paid a one time fee of $875,000 to secure the credit facility,
and is amortizing the amount over the life of the contract on the interest
method.

(12) STORE CLOSING ACTIVITIES

The Company provides a provision for store closing when the decision to
close a retail unit is made. The provision consists of the incremental costs
which are expected to be incurred, including future net lease obligations,
utilities and property taxes, employee costs and other expenses directly related
to the store closing.

In connection with the acquisition of Sportmart, the Company acquired
certain discontinued operations that had been previously reserved for, including
Sportmart's Canadian subsidiary and four stores in the United States leased from
related parties. The Company does not anticipate any additional store closings
as a result of the acquisition.

F-14
<PAGE> 65
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity in the provision for closed stores is as follows (in thousands):

<TABLE>
<CAPTION>
28 DAYS
ENDED FISCAL YEARS
JANUARY 31, ------------
1998 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Provision for closed stores at beginning of period........ $ 211 $490 $ --
Additions................................................. -- -- 490
Assumption of provision due to acquisition................ 6,047 -- --
Decreases................................................. (469) (279) --
------ ---- ----
Provision for closed stores at end of period.............. $5,789 $211 $490
====== ==== ====
</TABLE>

(13) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative financial instruments were acquired in the merger with
Sportmart. The instruments were utilized to reduce interest rate risk on
Sportmart's variable borrowings and foreign currency exchange risks associated
with Sportmart's discontinued Canadian subsidiary. The interest rate cap
agreement has been transferred to the Company's borrowings, as it uses a similar
debt structure. The foreign currency exchange agreements have settled and no new
hedge contracts are planned.

The contract or notional amount of the interest rate cap agreement is the
underlying principal amount used in determining the interest payments exchanged
over the term of the contract. The notional amount does not represent exposure
to credit loss for the Company.

In order to reduce its exposure to fluctuations in interest rates,
Sportmart entered into a interest rate cap agreement for a notional amount
totaling $25.0 million prior to the acquisition. The contract expires in August
1999. The contract places a ceiling on LIBOR of 6.0%, and effectively limits the
Company's LIBOR based borrowings to a maximum interest rate of 6.0% plus 1.75%.
The Company pays a premium which is amortized over the effective life of the
contract.

The Company is exclusively a principal counterparty to the interest rate
cap agreement. The Company's exposure to credit risk due to nonperformance by
any of its counterparties is limited to any accrued interest receivable. The
Company considers the risk of default to be remote, and instead relies on its
credit policies when evaluating its counterparties. The Company does not hold
any collateral on the aforementioned agreement, and has not pledged any
collateral.

(14) INCOME TAXES

Prior to April 21, 1994, the Company's financial results were included in
the consolidated U.S. federal income tax returns of its former parent. Pursuant
to the tax sharing agreement between the Company and its former parent, which
was effective from September 25, 1992 up to and including April 20, 1994, the
Company recorded income taxes computed assuming the Company filed a separate
income tax return. The tax sharing agreement also provided for the treatment of
tax loss carrybacks, indemnifications, resolution of disputes, and other matters
that may arise as a result of its former parent's pending Internal Revenue
Service (IRS) examination.

F-15
<PAGE> 66
GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) consists of the following (in thousands):

<TABLE>
<CAPTION>
28 DAYS
ENDED FISCAL YEARS
JANUARY 31, ---------------------------
1998 1997 1996 1995
----------- ------ ------ -------
<S> <C> <C> <C> <C>
Current:
Federal................................... $(490) $3,247 $1,535 $(2,192)
State..................................... (98) 654 363 (400)
----- ------ ------ -------
(588) 3,901 1,898 (2,592)
----- ------ ------ -------
Deferred:
Federal................................... 127 217 785 2,474
State..................................... 143 (35) (2) 403
----- ------ ------ -------
270 182 783 2,877
----- ------ ------ -------
$(318) $4,083 $2,681 $ 285
===== ====== ====== =======
</TABLE>

The effective income tax rate on income (loss) before income taxes differs
from the U.S. federal statutory rate for the following reasons:

<TABLE>
<CAPTION>
28 DAYS ENDED FISCAL YEARS
JANUARY 31, --------------------
1998 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. federal statutory rate....................... 35.0% 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State and local taxes, net of federal benefit... 4.1 3.4 3.3 0.2
Effective rate change on deferred taxes......... (5.1) -- -- --
Valuation allowance............................. (30.2) -- -- --
Interest on tax contingency..................... -- 3.6 -- --
Other, net...................................... -- (3.1) 0.3 1.7
----- ---- ---- ----
3.8% 37.9% 37.6% 35.9%
===== ==== ==== ====
</TABLE>

F-16
<PAGE> 67

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented below
(in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS
------------------------
JANUARY 31, JANUARY 3, JANUARY 4,
1998 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Account receivables................................ $ 414 $ 79 $ 68
Property and equipment............................. -- 368 420
Tax credit carryforwards........................... 2,043 1,163 2,008
Net operating loss carryforwards................... 15,992 -- --
Accrued compensation and benefits.................. 3,846 873 558
Accrued occupancy.................................. 777 763 587
Other accrued expenses............................. 3,111 254 66
-------- -------- --------
26,183 3,500 3,707
-------- -------- --------
LIABILITIES
Property and equipment............................. (3,717) -- --
Inventories........................................ (7,522) (12,057) (11,721)
Prepaid expenses................................... (217) (168) (529)
-------- -------- --------
(11,456) (12,225) (12,250)
-------- -------- --------
Total asset (liability) before valuation
allowance........................................ 14,727 (8,725) (8,543)
less valuation allowance......................... (23,722) -- --
-------- -------- --------
Net deferred tax liability......................... $ (8,995) $ (8,725) $ (8,543)
======== ======== ========
</TABLE>

The noncurrent deferred tax liability consists primarily of basis
differences in property and equipment and differences between the tax and book
bases of LIFO inventories acquired in the business combination, net of
applicable alternative minimum tax credit carryforwards. The LIFO basis
difference is classified as noncurrent as this inventory is not expected to be
liquidated or replaced within one year.

The Company established a valuation allowance of $21,230,000 in connection
with the acquisition of Sportmart on January 9, 1998. In the transition period,
the Company incurred a loss, primarily relating to Sportmart operations and
established an additional valuation allowance of $2,492,000. The utilization of
pre-acquisition operating losses and tax credit carryforwards are subject to
limitations imposed by Internal Revenue Code Section 382. As a result,
management believes that uncertainties exist such that it is more likely than
not that the Company's deferred tax assets will not be realized in the future.

The Company has net operating loss carryforwards of approximately
$39,814,000 of which $15,754,000 will expire in 2012 and $24,060,000 will expire
in 2013. In addition, the Company also has tax credit carryforwards of
$2,043,000 which have no expiration date.

(15) LEASES

The Company is obligated for lease of two properties which are classified
as capital leases for financial reporting purposes. Both capital leases are with
partnerships substantially owned by certain directors of the Company and their
family members. The lease terms range from 15 to 21 years and provide for
minimum annual rental payments plus contingent rentals based upon a percentage
of sales in excess of stipulated amounts. The gross amount of capitalized lease
property and related accumulated amortization recorded under capital leases is
included in Property and Equipment.

F-17
<PAGE> 68

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has noncancelable operating leases primarily for stores,
distribution facilities and equipment, expiring at various dates from 1998 to
2017. These leases generally contain renewal options for periods ranging from
three to ten years and require the Company to pay all executory costs such as
real estate taxes, maintenance and insurance. Certain leases include contingent
rentals based upon a percentage of sales over a specified amount. Nine of the
leases, four of which relate to closed store locations, are with partnerships,
the partners of which are directors of the Company and their family members.
Minimum rentals include noncash rent expense related to the amortization of
deferred rent totaling $51,000 for the transition period ended January 31, 1998
and $466,000, $671,000 and $398,000 for fiscal years 1997, 1996, and 1995,
respectively.

Total rent expense under these lease agreements was as follows (in
thousands):

<TABLE>
<CAPTION>
28 DAYS
ENDED FISCAL YEARS
JANUARY 31, -----------------------------
1998 1997 1996 1995
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Base rentals.............................. $2,907 $12,250 $11,231 $ 8,583
Contingent rentals........................ 32 172 142 112
Sublease rental income.................... (5) (64) (64) (43)
------ ------- ------- -------
$2,934 $12,358 $11,309 $ 8,652
====== ======= ======= =======
</TABLE>

At January 31, 1998, future minimum lease payments under noncancelable
leases, with initial or remaining lease terms in excess of one year, were as
follows (in thousands):

<TABLE>
<CAPTION>
AMOUNTS TO
CAPITAL OPERATING BE PAID TO
LEASES LEASES TOTAL RELATED PARTIES
FISCAL YEARS: ------- --------- -------- ---------------
<S> <C> <C> <C> <C>
1998................................. $ 665 $ 38,155 $ 38,820 $ 2,688
1999................................. 665 38,241 38,906 2,688
2000................................. 665 37,338 38,003 2,349
2001................................. 674 35,560 36,234 2,195
2002................................. 685 33,601 34,286 2,231
Thereafter........................... 1,490 260,033 261,523 11,892
------ -------- -------- -------
Total minimum lease
payments................... 4,844 $442,928 $447,772 $24,043
======== ======== =======
Less imputed interest (at
rates ranging from 9.0% to
10.75%).................... 1,435
------
Present value of future
minimum rentals of which
$340 is included in current
liabilities, at January 31,
1998....................... $3,409
======
</TABLE>

The total future minimum lease payments include amounts to be paid to
related parties and are shown net of $4,206,040 of noncancellable sublease
payments and exclude estimated executory costs, which are principally real
estate taxes, maintenance, and insurance.

In connection with the transfer of certain leased stores to a former
affiliate in 1991, the Company remains liable as assignor on eight leases. The
former affiliate has agreed to indemnify the Company for any losses it may incur
as assignor, however, such indemnification is unsecured. In addition, the
Company remains liable as assignor on three leases as a result of the Sportmart
acquisition. The remaining future minimum lease

F-18
<PAGE> 69

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payments on these leases, exclusive of any variable rent or cost reimbursement
that might be required, were as follows at January 31, 1998 (in thousands):

<TABLE>
<S> <C>
Fiscal year:
1998............................................. $ 2,209
1999............................................. 1,906
2000............................................. 1,656
2001............................................. 1,581
2002............................................. 1,543
Thereafter....................................... 14,422
-------
Total minimum lease payments............. $23,317
=======
</TABLE>

In the event of default on the lease obligations, and failure by the
assignee to indemnify the Company, the Company would incur a loss to the extent
of any remaining obligations, less any obligation mitigated by the lessor
re-leasing the property.

(16) EMPLOYEE BENEFIT PLAN

During 1995, the Company amended its qualified defined contribution profit
sharing plan to include a 401(k) plan feature for all eligible employees. The
amended plan provides for tax deferred contributions by eligible employees and
for discretionary matching contributions by the Company. Participants vest in
the Company's contributions at a rate of 20% per year after the first year of
service. The Company contributed $-0- for the transition period ended January
31, 1998 and $134,000, $126,000 and $94,000 to the profit sharing plan in the
form of matching contributions in 1997, 1996 and 1995, respectively. The Company
provided an additional discretionary contribution of $-0-, $166,000, $174,000
and $250,000 to the profit sharing plan during the transition period ended
January 31, 1998 and the years ended 1997, 1996 and 1995, respectively. The plan
provides for discretionary contributions, if any, by the Company in amounts
determined annually by the Board of Directors.

Sportmart had a noncontributory profit sharing plan for eligible employees.
The plan was merged into the Sportmart Incentive Savings Plan and the merged
plan was terminated as of January 8, 1998. No contributions were made after
December 31, 1997. The Company will offer former Sportmart employees the
opportunity to enroll in its 401(k) plan in April 1998 based upon the Company's
eligibility criteria.

Stock Purchase Plan

Sportmart had an employee stock purchase plan, whereby employees could
purchase its stock through payroll deductions. All monies collected under this
plan for the purchase of stock have been refunded to the participants and all
common stock reserved under the plan has been canceled.

Health and Welfare Plan

Sportmart maintained a trust account whereby pretax dollars could be
withheld through payroll deductions and could be utilized for certain qualifying
expenses under Section 125 of the Internal Revenue Service code. The plan was
discontinued in March 1998 and all payroll contributions were ceased. Eligible
employees may enroll in the Company's Section 125 cafeteria plan in April 1998.
The trust account will be maintained through calendar 1998 to ensure maximum
reimbursement opportunity for plan participants.

F-19
<PAGE> 70

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Sportmart, Inc. Restricted Stock Plan

In July 1996 the Board of Directors of Sportmart, Inc. and its stockholders
adopted the 1996 Restricted Stock Plan. At the acquisition date, pursuant to the
Change in Control provisions of the plan, 250,000 shares of Sportmart common
stock reserved for four participants were converted to 41,252 shares of Gart
Sports' common stock. Of this amount, 28,876 shares were issued to former
Sportmart senior management who are no longer employed by the Company, and
therefore became fully vested with no restrictions on resale. The balance of
12,376 shares were issued to one individual who remained with the Company, and
will continue to vest under the terms of the plan. Until fully vested at August
1, 1999, these shares cannot be sold or transferred.

The Company recorded approximately $80,000 of unamortized compensation
expense as a reduction to stockholders' equity. This amount will be amortized to
compensation expense on a straight-line basis over the remaining vesting period.

(17) STOCK OPTION PLANS

Management Equity Plan

The Company has adopted a management equity plan (the Management Equity
Plan) which authorizes the issuance of common stock plus grants of options to
purchase shares of authorized but unissued common stock up to 1,500,000 combined
shares and options. As of January 31, 1998, 147,600 shares of common stock and
583,300 options have been issued and remain outstanding under the Management
Equity Plan. The purchased shares were paid for with a combination of cash and
notes that bear interest at 8% per annum, are secured by the common stock
purchased, and have full recourse to the makers. The notes are due October 17,
1999; however, 25% of any pre-tax bonus earned as an employee of the Company may
be used to reduce the employee's note. As of January 31, 1998, $67,000 remained
outstanding on the notes. Stock options are granted with an exercise price equal
to the estimated fair value of the underlying stock, as determined by the Board
of Directors, at the date of grant. All stock options have a ten-year term and
vest 20% per year over five years from the date of grant.

The holders of the Common Stock may "put" the common stock to the Company
upon death, disability, retirement, or involuntary termination at a price equal
to the greater of adjusted book value, as defined, or fair value for vested
shares, and adjusted book value for unvested shares. For purposes of the put
provisions, the common shares vest ratably over a five year period. The Company
may "call" such common stock upon an employee's voluntary or involuntary
termination, just-cause dismissal, death or disability. The "call" price shall
be the lower of adjusted book value or fair value in the event of an employee's
voluntary termination or just-cause dismissal and in the event of involuntary
termination, death or disability, the greater of the two for vested shares and
adjusted book value for unvested shares. The put and call features lapse and
terminate upon the earliest to occur of (1) the closing of the Sportmart
acquisition and the effectiveness of a registration statement on Form S-8
covering the sale of such shares of common stock; (2) the completion of the
first underwritten registered public offering of Common Stock; (3) the
consummation of the sale of substantially all of the assets or capital stock of
the Company; or (4) the date that is six years after the date of the respective
option grant. If the put and call features lapse pursuant to (1) or (2) above,
the call feature shall remain in effect for all shares that were unvested on
such date of lapse until the earlier of events (3) or (4) above. On January 9,
1998, the Sportmart acquisition closed and the appropriate Form S-8 became
effective; therefore, the put and call features have lapsed except for the call
feature with respect to all shares that were unvested on January 9, 1998.

The shares of common stock issued under the Management Equity Plan that are
subject to the put provisions are reflected as redeemable common stock in the
accompanying consolidated balance sheets.

F-20
<PAGE> 71

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Vested shares are recorded at the greater of the adjusted book value or fair
value. Unvested shares are recorded at the adjusted book value or, if greater,
the amount determined by increasing the adjusted book value to the fair value
ratably over the vesting period. At January 3, 1998 and January 4, 1997, related
notes receivable from stockholders totaling $80,000 and $207,000, respectively,
are reflected as a reduction of redeemable common stock. At January 31, 1998,
related notes receivable from stockholders of $67,000 are reflected as a
reduction of stockholders' equity.

Activity in redeemable common stock and related notes receivable from
stockholders for the periods indicated was as follows (dollars in thousands):

<TABLE>
<CAPTION>
REDEEMABLE NOTES TOTAL
COMMON STOCK RECEIVABLE REDEEMABLE
------------------ FROM COMMON
SHARES AMOUNT STOCKHOLDERS STOCK, NET
-------- ------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994...................... 292,124 $ 1,498 $(638) $ 860
Purchase of redeemable stock as treasury
stock........................................ (115,974) (594) -- (594)
Receipts on notes receivable from
stockholders................................. -- -- 89 89
Increase in redemption amount during the year... -- 199 -- 199
-------- ------- ----- -------
Balance at January 6, 1996........................ 176,150 1,103 (549) 554
Purchase of shares of redeemable common stock as
treasury stock............................... (21,500) (112) -- (112)
Receipts on notes receivable from
stockholders................................. -- -- 342 342
Increase in redemption amount during the year... -- 76 -- 76
-------- ------- ----- -------
Balance at January 4, 1997........................ 154,650 1,067 (207) 860
Purchase of shares of redeemable common stock as
treasury stock............................... (7,050) (37) -- (37)
Receipts on notes receivable from
stockholders................................. -- -- 127 127
Increase in redemption amount during the year... -- 954 -- 954
-------- ------- ----- -------
Balance at January 3, 1998........................ 147,600 1,984 (80) 1,904
Receipts on notes receivable from
stockholders................................. -- -- 13 13
Decrease in redemption amount during the
period....................................... -- (1) -- (1)
Reclassification of redeemable common stock to
equity....................................... (147,600) (1,983) 67 (1,916)
-------- ------- ----- -------
Balance at January 31, 1998....................... -- $ -- $ -- $ --
======== ======= ===== =======
</TABLE>

Substitute Company Options

In connection with the acquisition of Sportmart, options outstanding under
the 1992 Sportmart, Inc. Stock Option Plans were assumed by the Company. The
substitute options were modified to Gart options utilizing the same conversion
ratio of .165014 to one as the common stock and dividing the exercise price of
the previous options by the conversion ratio.

The holders of the substitute options will continue with the same vesting
periods as the original grants, except that those holders whose employment with
Sportmart is terminated within six months of the acquisition date have
accelerated vesting. All such persons immediately vest upon termination, and
have one year to exercise such options. As of January 9, 1998, 1,153,573
Sportmart options were exchanged for 190,457 Gart substitute options.

F-21
<PAGE> 72

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock option activity during the periods indicated for both of the
Company's plans was as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE OPTIONS
OPTIONS PRICE EXERCISABLE
--------- -------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994....................... 292,050 5.13 --
Granted.......................................... 64,000 5.13
Canceled......................................... (126,200) 5.13
--------
Balance at January 6, 1996......................... 229,850 5.13 33,170
Granted.......................................... 213,900 5.13
Canceled......................................... (11,200) 5.13
--------
Balance at January 4, 1997......................... 432,550 5.13 74,660
Granted.......................................... 185,500 14.00
Canceled......................................... (34,750) 5.13
--------
Balance at January 3, 1998......................... 583,300 7.95 149,000
Granted.......................................... -- --
Canceled......................................... -- --
Exchanged........................................ 190,457 30.91
--------
Balance at January 31, 1998........................ 773,757 13.60 310,894
========
</TABLE>

Canceled options are a result of employee terminations.

At January 31, 1998 and January 3, 1998, the weighted-average remaining
contractual life of outstanding options were 7.18 and 8.42 years, respectively.

The per share weighted-average fair value of stock options granted during
fiscal years 1997 and 1996 was $9.50 and $3.28 on the date of grant or exchange
using the Black Scholes option-pricing model (which incorporates a present value
calculation) with the following weighted-average assumptions used for grants
issued in fiscal years 1997, 1996 and 1995:

<TABLE>
<S> <C>
Expected volatility.................................. 45%
Risk free rates...................................... 5.47% to 6.66%
Expected life of options............................. 1 to 10 years
Expected dividend yield.............................. 0%
</TABLE>

The following table summarizes the status of outstanding stock options as
of January 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
REMAINING WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
RANGE OF OPTIONS LIFE (IN EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.13 397,800 7.65 $ 5.13 149,000 $ 5.13
12.12 - 19.79 270,768 8.13 15.23 68,458 18.19
20.45 - 30.30 45,790 4.00 26.95 37,340 27.18
37.12 - 93.93 59,399 2.13 52.63 56,096 53.20
------- ---- ------ ------- ------
$5.13 - 93.93 773,757 7.18 $13.60 310,894 $19.33
======= ==== ====== ======= ======
</TABLE>

F-22
<PAGE> 73

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company applies APB No. 25 in accounting for the Management Equity Plan
and Substitute Option Plan, accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's consolidated net
income would have been reduced, loss increased, to the pro forma amounts
indicated below (in thousands, except share amounts):

<TABLE>
<CAPTION>
28 DAYS ENDED FISCAL YEARS
JANUARY 31, ------------------------
1998 1997 1996 1995
------------- ------ ------ ----
<S> <C> <C> <C> <C>
Net income (loss), as reported............... $(8,005) $6,684 $4,457 $508
======= ====== ====== ====
Net income (loss), pro forma................. $(8,029) $6,477 $4,401 $494
======= ====== ====== ====
Earnings (loss) per share, pro forma:
Basic...................................... $ (1.11) $ 1.18 $ .80 $.09
======= ====== ====== ====
Diluted.................................... $ (1.11) $ 1.16 $ .80 $.09
======= ====== ====== ====
</TABLE>

The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted prior to January
1, 1995 is not considered.

(18) RELATED PARTY TRANSACTIONS

The Company has a management services agreement with LGA whereby LGA
receives an annual retainer fee plus reasonable expenses for providing certain
management, consulting and financial planning services. The management services
agreement also provides that LGA may receive reasonable and customary fees and
reasonable expenses from time to time for providing financial advisory and
investment banking services in connection with major financial transactions that
may be undertaken in the future. The management services agreement terminates
April 20, 2004. The minimum management fee is $500,000 per year for the
remaining term of the agreement. The Company paid a management fee to LGA of
approximately $42,000 for the transition period ended January 31, 1998 and
$250,000, $120,000 and $120,000 for fiscal years 1997, 1996 and 1995,
respectively.

The Company has noncancelable consulting agreements with certain former
Sportmart executives, who are now Directors or related to Directors of the
Company. The Company pays a fee equal to 50% of their base salary as in effect
at September 26, 1997 and reasonable expenses for a period of one year. The
consultants agree to be available, from time to time, to advise the Company on
strategic issues, planning, merchandising and operational issues related to the
acquisition of Sportmart. In addition, the Company is paying a severance benefit
in equal installments over eighteen months equal to 100% of the base salary as
of September 26, 1997, commencing on January 9, 1998.

The Company leases certain properties from related parties. Rent expense
under these lease agreements was as follows (in thousands):

<TABLE>
<CAPTION>
28 DAYS
ENDED FISCAL YEARS
JANUARY 31, --------------------
1998 1997 1996 1995
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Base rentals..................................... $167 $359 $651 $721
Contingent rentals............................... 9 15 -- --
---- ---- ---- ----
$176 $374 $651 $721
==== ==== ==== ====
</TABLE>

F-23
<PAGE> 74

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(19) CONTINGENCIES

Tax Contingency

Under the terms of the Company's tax sharing agreement with its former
parent, the Company is responsible for its share, on a separate return basis, of
any tax payments associated with proposed deficiencies or adjustments, and
related interest and penalties charged to the controlled group which may arise
as a result of an assessment by the IRS.

On July 24, 1997, the IRS proposed adjustments to the Company's and former
parent's 1992 and 1993 federal income tax returns in conjunction with the former
parent's IRS examination. The proposed adjustments related to the manner in
which LIFO inventories were characterized on such returns. The Company recorded
approximately $9,700,000 as a long-term net deferred tax liability for the tax
effect of the LIFO inventory basis difference. The IRS has asserted that this
basis difference should be reflected in taxable income in 1992 and 1993. The
Company has taken the position that the inventory acquired in connection with
the acquisition of its former parent was appropriately allocated to its
inventory pools. The IRS has asserted the inventory was acquired at a bargain
purchase price and should be allocated to a separate pool and liquidated as
inventory turns.

Based on management's discussions with the Company's former parent, the
Company believes the potential accelerated tax liability, which could have a
negative effect on liquidity in the near term, ranges from approximately
$2,500,000 to $9,700,000. The range of loss from possible assessed interest
charges resulting from the proposed adjustments range from approximately
$580,000 to $3,300,000. As the Company believes that no amount is more probable
than another within the range, the minimum interest exposure of $580,000 has
been accrued in the consolidated financial statements. No penalties are expected
to be assessed relating to this matter. At January 31, 1998, the LIFO inventory
and other associated temporary differences continue to be classified as
long-term net deferred tax liabilities as the Company does not believe the
matter will be resolved within a year.

The Company has reviewed the various matters that are under consideration
and believes that it has adequately provided for any liability that may result
from this matter. In the opinion of management, any additional liability beyond
the amounts recorded that may arise as a result of the IRS examination will not
have a material adverse effect on the Company's financial condition or results
of operations.

Legal Proceedings

The Company is a party to various legal proceedings and claims arising in
the ordinary course of business. Management believes that the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

(20) AUTHORIZATION OF STOCK AND COMMON STOCK SPLIT

On October 16, 1997, the stockholders approved an increase in the
authorized number of shares of common stock to 8,000,000. The Board of Directors
of the Company effected common stock splits on October 16, 1997 and December 1,
1997 resulting in a cumulative 2.0 for 1.0 stock split. In the accompanying
consolidated financial statements, all numbers of common shares and per share
amounts have been restated to reflect the common stock splits retroactively.

Upon the consummation of the Sportmart acquisition, the stockholders
approved an increase in the authorized number of shares to 22,000,000 shares of
Gart Common Stock, par value $.01 per share, and 3,000,000 shares of Gart
Preferred Stock, par value $.01 per share.

F-24
<PAGE> 75

GART SPORTS COMPANY
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1997
Net sales...................................... $47,357 $48,020 $55,675 $77,327
Gross profit................................... 13,446 11,787 13,348 25,509
Net income..................................... 1,150 125 48 5,361
Basic earnings per share....................... 0.21 0.02 0.01 0.97
Diluted earnings per share..................... 0.21 0.02 0.01 0.95
FISCAL 1996
Net sales...................................... $44,331 $42,888 $50,266 $66,641
Gross profit................................... 11,834 10,627 11,927 21,318
Net income (loss).............................. 653 (59) (159) 4,022
Basic and diluted earnings (loss) per share.... 0.12 (0.01) (0.03) 0.73
</TABLE>

(22) SUBSEQUENT EVENTS

On March 9, 1998 the Compensation Committee of the Board of Directors
revalued certain substitute options issued in conjunction with the acquisition.
All options to purchase shares for those employees staying with the Company,
with exercise prices greater than $14.00 were revalued to $14.00, the closing
price of the Company's common stock on that date.

Also on March 9, 1998, the Company issued 133,500 stock options under the
Management Equity Plan. The options were issued to certain employees with an
exercise price of $14.00.

F-25

<PAGE> 76
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the General Corporation Law of the State of
Delaware permits a Delaware corporation to limit the personal liability of its
directors in accordance with the provisions set forth therein. The Amended and
Restated Certificate of Incorporation of the Registrant provides that the
personal liability of its directors shall be limited to the fullest extent
permitted by applicable law.

Section 145 of the General Corporation Law of the State of Delaware
contains provisions permitting corporations organized thereunder to indemnify
directors, officers, employees or agents against expenses, judgments and fines
reasonably incurred and against certain other liabilities in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation. The
Amended and Restated Certificate of Incorporation and the Amended and Restated
Bylaws of the Registrant provide for indemnification of its directors and
officers to the fullest extent permitted by applicable law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

The following exhibits are filed pursuant to Item 601 of Regulation
S-K.

EXHIBIT
NO. DESCRIPTION
- ------- -----------

2.1 -- Amended and Restated Agreement of Merger, dated as of December 2,
1997 by and among the Registrant, Gart Bros. Sporting Goods
Company, GB Acquisition, Inc. and Sportmart, Inc. (incorporated by
reference to the Registrant's Registration Statement, File No.
333- 42355)

3.1 -- Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

3.2 -- Amended and Restated Bylaws of Registrant (incorporated by
reference to the Registrant's Registration Statement, File No.
333-42355)

4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Registrant's Registration Statement, File No. 333-42355)

10.1 -- Financing Agreement between The CIT Group/Business Credit, Inc.
(as Agent and a Lender) and Gart Bros Sporting Goods Company and
Sportmart, Inc., dated January 9, 1998 (incorporated by reference
to the Registrant's Report on Form 8-K filed January 13, 1998)

50
<PAGE> 77

10.2 -- Registration Rights Agreement between Registrant and certain
former shareholders of Sportmart, Inc. (incorporated by reference
to the Registrant's Registration Statement, File No. 333-42355)

10.3 -- Registration Rights Agreement between Registrant and Green Equity
Investors, L.P. (incorporated by reference to the Registrant's
Report on Form 8-K filed January 13, 1998)

10.4 -- Gart Sports Management Equity Plan (incorporated by reference to
the Registrant's Registration Statement, File No. 333-42355)

10.5 -- Gart Sports Employee Benefit Plan (incorporated by reference to
the Registrant's Registration Statement, File No. 333-42355)

10.6 -- Gart Sports Bonus Plan (incorporated by reference to the
Registrant's Registration Statement, File No. 33-69118)

10.7 -- Severance Agreement between Registrant and John Douglas Morton
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

10.8 -- Employment and Change in Control Agreement between Registrant and
Thomas T. Hendrickson (incorporated by reference to Sportmart,
Inc.'s Report on Form 10-K for the year ended February 2, 1997,
File No. 000-20672)

10.9 -- Consulting Agreements between Registrant and Larry J. Hochberg and
Andrew S. Hochberg (incorporated by reference to the Registrant's
Registration Statement, File No. 333-42355)

10.10 -- Consulting Agreement between Registrant and John A. Lowenstein
(incorporated by reference to the Registrant's Report on Form 8-K
filed January 13, 1998)

10.11 -- Management Services Agreement among Registrant, Gart Bros.
Sporting Goods Company and Leonard Green & Associates, L.P.
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

10.12 -- Tax Indemnity Agreement dated as of September 25, 1992 among
Pacific Enterprises, TCH Corporation, Thrifty Corporation and Big
5 Holdings, Inc. (incorporated by reference to the Registrant's
Registration Statement, File No. 33-69118)

10.13 -- Tax Sharing Agreement dated as of September 25, 1992 among TCH
Corporation and its then subsidiaries, including the Registrant
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

51
<PAGE> 78

10.14 -- Indemnification Allocation Agreement dated April 20, 1994 among
Thrifty Payless Holdings, Inc., the Registrant and MC Sports
Company (incorporated by reference to the Registrant's
Registration Statement, File No. 333-42355)

10.15 -- Indemnification and Reimbursement Agreement dated April 20, 1994
among Thrifty Payless Holdings, Inc., and its then subsidiaries,
including the Registrant (incorporated by reference to the
Registrant's Registration Statement, File No. 333-42355)

10.16 -- Sportmart, Inc. 1996 Restricted Stock Plan (as amended and
restated) (incorporated by reference to Sportmart, Inc.'s Report
on Form 10-Q for the quarter ended July 28, 1996, File No.
000-20672)

10.17 -- Sportmart, Inc. Stock Option Plan, as amended (incorporated by
reference to Sportmart, Inc.'s Registration Statement, File No.
33-50726)

10.18 -- Sportmart, Inc. Director's Plan (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.19 -- Tax Indemnification Agreement (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.20 -- Form of Indemnification Agreement between Sportmart, Inc. and each
of its former directors (incorporated by reference to Sportmart,
Inc.'s Registration Statement, File No. 33-50726)

10.21 -- Lease between Sportmart, Inc. and H-C Developers, as agent for the
beneficiaries of American National Bank and Trust Company Trust
No. 30426 for the Sportmart store in Niles, Illinois, as amended
(incorporated by reference to Sportmart, Inc.'s Registration
Statement, File No. 33-50726)

10.22 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company, as Trustee under Trust No. 32490 for the Sportmart store
in Calumet City, Illinois, as amended (incorporated by reference
to Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.23 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company, as Trustee under Trust No. 42371 for the Sportmart store
in Schaumburg, Illinois, as amended (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.24 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company, as Trustee under Trust No. 54277 for the Sportmart store
in Chicago (Lakeview), Illinois, as amended (incorporated by
reference to Sportmart, Inc.'s Registration Statement, File No.
33-50726)

10.25 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company, as Trustee under Trust No. 56691 for the Sportmart store
in

52
<PAGE> 79

Wheeling, Illinois, as amended (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.26 -- Lease between Sportmart, Inc. and Lake County Trust Company, as
Trustee under Trust No. 3737 for the Sportmart store in
Merrillville, Indiana, as amended (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.27 -- Lease between Sportmart, Inc. and North Riverside Limited
Partnership for the Sportmart facility in North Riverside,
Illinois, as amended (incorporated by reference to Sportmart,
Inc.'s Registration Statement, File No. 33-50726)

10.28 -- Lease between Sportmart, Inc. No Context division and North County
Associates, L.P. for the Sportmart No Contest store in Ferguson,
Missouri, as amended (incorporated by reference to Sportmart,
Inc.'s Registration Statement, File No. 33-50726)

10.29 -- Agency Agreement between Registrant and Hilco/Great American
Group, Inc. (incorporated by reference to Sportmart, Inc.'s Report
on Form 10-K for the year ended February 2, 1997, File No.
000-20672)

10.30 -- First Amendment to Lease between Sportmart, Inc. and Roosevelt
Associated Limited Partnership for the Sportmart store at Lombard,
Illinois (incorporated by reference to Sportmart, Inc.'s Report on
Form 10-K for the year ended February 2, 1997, File No. 000-20672)

10.31 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company of Chicago as Trustee under Trust No. 42371 for the
Sportmart store in Schaumburg, Illinois (incorporated by reference
to Sportmart, Inc.'s Report on Form 10-K for the year ended
February 2, 1997, File No. 000-20672)

10.32 -- Lease between Sportmart, Inc. and H-C Developers, as Agent for
American National Bank and Trust Company of Chicago, as Trustee
under Trust No. 30426 for the Sportmart store in Niles, Illinois
(incorporated by reference to Sportmart, Inc.'s Report on Form
10-K for the year ended February 2, 1997, File No. 000-20672)

10.33 -- First Amendment to lease between Sportmart, Inc. and Merrillville
Partners Limited Partnership for the Sportmart store in
Merrillville, Illinois (incorporated by reference to Sportmart,
Inc.'s Report on Form 10-K for the year ended February 2, 1997,
File No. 000-20672)

10.34 -- Second Amendment to Lease between Sportmart, Inc. and North
Riverside Associates Limited Partnership for the Sportmart store
in North Riverside, Illinois (incorporated by reference to
Sportmart, Inc.'s Report on Form 10-K for the year ended February
2, 1997, File No. 000-20672)

53
<PAGE> 80

10.35 -- Third Amendment to Lease between Sportmart, Inc. and Torrence
Properties for the Sportmart store in Calumet City, Illinois
(incorporated by reference to Sportmart, Inc.'s Report on Form 10-K
for the year ended February 2, 1997, File No. 000-20672)

10.36 -- Third Amendment to Lease between Sportmart, Inc. and North
Riverside Associates Limited Partnership for the Sportmart store in
North Riverside, Illinois (incorporated by reference to Sportmart,
Inc.'s Report on Form 10-K for the year ended February 2, 1997,
File No. 000-20672)

10.37 -- Post-Employment Medical Benefits Plan for Larry Hochberg
(incorporated by reference to Sportmart, Inc.'s Report on Form 10-K
for the year ended February 2, 1997, File No. 000-20672)

11.1 -- Statement re Computation of Per Share Earnings

21.1 -- Subsidiaries of Registrant

23.1 -- Consent of KPMG Peat Marwick LLP

27.1 -- Financial Data Schedule

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable and therefore have been omitted, or the
information required by the applicable schedule is included in the Notes to the
Consolidated Financial Statements.

ITEM 22. UNDERTAKINGS.

(a) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.

(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 0(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

54
<PAGE> 81

(c) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

55
<PAGE> 82

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on April 28,
1998 on its behalf by the undersigned, thereunto duly authorized.

GART SPORTS COMPANY

By: /s/ John Douglas Morton
--------------------------------
John Douglas Morton
President and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints each of J. Douglas Morton and
Thomas Hendrickson his/her true and lawful attorney-in-fact and agent, each with
full power of substitution and revocation, for him/her and in his/her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, the Securities and Exchange Commission, granting unto each such
attorney-in-fact and agent, full power and authority to do and perform such each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on April 28, 1998, by the following
persons in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>

/s/ John Douglas Morton Chairman of the Board of Directors, President and
- ------------------------------ Chief Executive Officer
John Douglas Morton

/s/ Thomas T. Hendrickson Executive Vice President, Chief Financial Officer
- ------------------------------ and Treasurer
Thomas T. Hendrickson

/s/ Jonathan D. Sokoloff Director
- ------------------------------
Jonathan D. Sokoloff

/s/ Jennifer Holden Dunbar Director
- ------------------------------
Jennifer Holden Dunbar

/s/ Gordon D. Barker Director
- ------------------------------
Gordon D. Barker

/s/ Peter R. Formanek Director
- ------------------------------
Peter R. Formanek

/s/ Larry J. Hochberg Director
- ------------------------------
Larry J. Hochberg

/s/ Andrew S. Hochberg Director
- ------------------------------
Andrew S. Hochberg
</TABLE>

56
<PAGE> 83

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 -- Amended and Restated Agreement of Merger, dated as of December 2,
1997 by and among the Registrant, Gart Bros. Sporting Goods
Company, GB Acquisition, Inc. and Sportmart, Inc. (incorporated by
reference to the Registrant's Registration Statement, File No.
333- 42355)

3.1 -- Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

3.2 -- Amended and Restated Bylaws of Registrant (incorporated by
reference to the Registrant's Registration Statement, File No.
333-42355)

4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Registrant's Registration Statement, File No. 333-42355)

<PAGE> 84

<TABLE>
<S> <C>
10.2 -- Registration Rights Agreement between Registrant and certain
former shareholders of Sportmart, Inc. (incorporated by reference
to the Registrant's Registration Statement, File No. 333-42355)

10.3 -- Registration Rights Agreement between Registrant and Green Equity
Investors, L.P. (incorporated by reference to the Registrant's
Report on Form 8-K filed January 13, 1998)

10.4 -- Gart Sports Management Equity Plan (incorporated by reference to
the Registrant's Registration Statement, File No. 333-42355)

10.5 -- Gart Sports Employee Benefit Plan (incorporated by reference to
the Registrant's Registration Statement, File No. 333-42355)

10.6 -- Gart Sports Bonus Plan (incorporated by reference to the
Registrant's Registration Statement, File No. 33-69118)

10.7 -- Severance Agreement between Registrant and John Douglas Morton
(incorporated by reference to the Registrant's Registration
Statement, File No. 333-42355)

10.9 -- Consulting Agreements between Registrant and Larry J. Hochberg and
Andrew S. Hochberg (incorporated by reference to the Registrant's
Registration Statement, File No. 333-42355)

10.10 -- Consulting Agreement between Registrant and John A. Lowenstein
(incorporated by reference to the Registrant's Report on Form 8-K
filed January 13, 1998)

<PAGE> 85

<TABLE>
<S> <C>
10.14 -- Indemnification Allocation Agreement dated April 20, 1994 among
Thrifty Payless Holdings, Inc., the Registrant and MC Sports
Company (incorporated by reference to the Registrant's
Registration Statement, File No. 333-42355)

10.17 -- Sportmart, Inc. Stock Option Plan, as amended (incorporated by
reference to Sportmart, Inc.'s Registration Statement, File No.
33-50726)

10.18 -- Sportmart, Inc. Director's Plan (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.19 -- Tax Indemnification Agreement (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

10.20 -- Form of Indemnification Agreement between Sportmart, Inc. and each
of its former directors (incorporated by reference to Sportmart,
Inc.'s Registration Statement, File No. 33-50726)

10.25 -- Lease between Sportmart, Inc. and American National Bank and Trust
Company, as Trustee under Trust No. 56691 for the Sportmart store
in
</TABLE>

<PAGE> 86

<TABLE>
<S> <C>
Wheeling, Illinois, as amended (incorporated by reference to
Sportmart, Inc.'s Registration Statement, File No. 33-50726)

<PAGE> 87

<TABLE>
<S> <C>
10.35 -- Third Amendment to Lease between Sportmart, Inc. and Torrence
Properties for the Sportmart store in Calumet City, Illinois
(incorporated by reference to Sportmart, Inc.'s Report on Form 10-K
for the year ended February 2, 1997, File No. 000-20672)

10.37 -- Post-Employment Medical Benefits Plan for Larry Hochberg
(incorporated by reference to Sportmart, Inc.'s Report on Form 10-K
for the year ended February 2, 1997, File No. 000-20672)

11.1 -- Statement re Computation of Per Share Earnings

21.1 -- Subsidiaries of Registrant

23.1 -- Consent of KPMG Peat Marwick LLP

27.1 -- Financial Data Schedule
</TABLE>

<PAGE> 1
EXHIBIT 11.1

GART SPORTS COMPANY
Statement re Computation of Per Share Earnings

<TABLE>
<CAPTION>
28 Days Ended
Fiscal Years January 31
---------------------------------------- --------------
1995 1996 1997 1998
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Earnings (loss) per share: $ 508 $ 4,457 $ 6,684 $ (8.005)
Net income (loss) attributable to common stock
Common and common equivalent shares outstanding:
Historical common shares outstanding at beginning of period 5,737,344 5,527,444 5,505,944 5,498,894
Effect of common stock and common stock equivalents issued -- -- -- --
within one year prior to initial public offering
Weighted average common equivalent shares issued -- -- 95,150 --
Weighted average treasury stock purchased (55,533) (14,558) (4,271) --
Weighted average shares of common stock -- -- -- 1,713,373
Weighted average shares of common and common equivalent
shares outstanding 5,681,811 5,512,886 5,596,823 7,212,267
Basic earnings (loss) per share $ 0.09 $ 0.81 $ 1.21 $ (1.11)
Diluted earnings (loss) per share $ 0.09 $ 0.81 $ 1.19 $ (1.11)
</TABLE>

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

1. Gart Bros. Sporting Goods Company is a wholly owned subsidiary of Gart
Sports Company.

2. Sportmart, Inc. is a wholly owned subsidiary of Gart Bros. Sports Goods
Company.

3. Colorado Wholesale Sporting Goods Company is a wholly owned subsidiary of
Gart Bros. Sporting Goods Company.

4. Sportdepot Stores Inc. is a wholly owned subsidiary of Sportmart, Inc.

5. Thaxton Corporation is a wholly owned subsidiary of Sportmart, Inc.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Gart Sports Company:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.

KPMG Peat Marwick LLP

Denver, Colorado
April 27, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> JAN-31-1998 JAN-03-1998
<PERIOD-START> JAN-04-1998 JAN-05-1997
<PERIOD-END> JAN-31-1998 JAN-03-1998
<CASH> 16,372 12,958
<SECURITIES> 0 0
<RECEIVABLES> 6,564 1,732
<ALLOWANCES> 345 212
<INVENTORY> 214,814 88,849
<CURRENT-ASSETS> 242,639 105,405
<PP&E> 68,721 26,132
<DEPRECIATION> 12,731 11,866
<TOTAL-ASSETS> 319,982 121,291
<CURRENT-LIABILITIES> 130,794 65,519
<BONDS> 0 0
0 0
0 0
<COMMON> 80 57
<OTHER-SE> 68,677 42,556
<TOTAL-LIABILITY-AND-EQUITY> 319,982 121,291
<SALES> 38,825 228,379
<TOTAL-REVENUES> 38,825 228,379
<CGS> 31,924 164,289
<TOTAL-COSTS> 46,661 217,405
<OTHER-EXPENSES> (38) (776)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 525 983
<INCOME-PRETAX> (8,323) 10,767
<INCOME-TAX> (318) 4,083
<INCOME-CONTINUING> (8,005) 6,684
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,005) 6,684
<EPS-PRIMARY> (1.11) 1.21
<EPS-DILUTED> (1.11) 1.19

</TABLE>