<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GART SPORTS COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Jeffrey M. Knetsch
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Suite 2200
Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
<TABLE>
<S> <C>
GART SPORTS COMPANY John Douglas Morton
1000 BROADWAY Chairman, President and
DENVER, COLORADO 80203 Chief Executive Officer
</TABLE>
May 15, 1998
Dear Fellow Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Gart Sports Company (the "Company") to be held at 10:00 a.m. on Wednesday,
June 17, 1998 at the Denver Marriot City Center, located at 1701 California
Street, Denver, Colorado.
The 1998 Annual Meeting will be devoted to: (1) the election of Directors
of the Company who will hold office until the next Annual Meeting and (2) such
other matters that may properly come before the meeting or adjournment thereof.
Your vote is important! Be sure that your shares are represented and voted
at the Annual Meeting, whether or not you plan to attend in person. If your Gart
Sports shares are registered in your name, you may vote your shares by
completing, signing and mailing your proxy card in the enclosed postage paid
envelope. If your shares are held in the name of your broker, bank or other
record holder, the record holder will instruct you how to vote those shares.
The Company's 1997 Annual Report on Form 10-K, which is being sent to you
along with the accompanying Proxy Statement, contains information about the
Company and its financial performance.
Directors and officers of the Company will be present to help host the
Annual Meeting and to respond to any questions you may have. By attending the
Annual Meeting, you will have the opportunity to hear the plans for our
Company's future and to meet our officers. Be sure to visit the Gart Sports web
site at http://www.gartsports.com for news about the Company.
Kind Regards,
/s/ John Douglas Morton
John Douglas Morton
<PAGE> 3
GART SPORTS COMPANY
1000 BROADWAY
DENVER, COLORADO 80203
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of Stockholders of Gart Sports Company, a Delaware
corporation, will be held at the Denver Marriot City Center, located at 1701
California Street, Denver, Colorado at 10:00 a.m., local time, on Wednesday,
June 17, 1998, for the following purposes:
1. To consider and act upon the re-election of seven Directors of the
Company to the Board of Directors to serve until the next annual meeting of
Stockholders and until their successors are elected and qualified; and
2. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.
Stockholders of record of the Company's Common Stock, $.01 par value, at
the close of business on May 1, 1998, are entitled to notice of and to vote at
the meeting or any adjournment thereof.
You are cordially invited to attend the Annual Meeting in person. All
Stockholders, whether or not they plan to attend the Annual Meeting, are
requested to complete, date and sign the enclosed proxy card and return it
promptly in the envelope provided for that purpose. If you are present in person
at the Annual Meeting you may revoke your proxy and vote in person as set forth
in the Proxy Statement.
By Order of the Board of Directors,
/s/ Thomas B. Nelson
Thomas B. Nelson
Secretary
May 15, 1998
<PAGE> 4
GART SPORTS COMPANY
1000 BROADWAY
DENVER, COLORADO 80203
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1998
------------------------
INTRODUCTION
This proxy statement is furnished to stockholders of Gart Sports Company in
connection with the solicitation of proxies by the Board of Directors for the
1998 Annual Meeting. Proxy materials, including this proxy statement and a proxy
card, are being mailed to Stockholders on or about May 15, 1998. All costs
incurred in connection with this proxy solicitation will be borne by the
Company.
INFORMATION ABOUT VOTING
Record Date. The record date for the 1998 Annual Meeting to be held on June
17, 1998 is May 1, 1998. As of the Record Date, 7,679,550 shares of Common Stock
of Gart Sports Company were outstanding, each of which is entitled to one vote
on each matter to be voted upon at the Annual Meeting. Only Stockholders of
record at the close of business on the Record Date will be entitled to notice of
and to vote at the Annual Meeting or any adjournment thereof.
Quorum. The presence at the Annual Meeting, in person or by proxy, of
stockholders holding a majority of the shares outstanding as of the Record Date
will constitute a quorum.
Proxy Voting. If you mark your voting instructions on your proxy card and
sign and return it, the proxies, who are identified on the proxy card, will vote
your shares as you instruct. If you sign and return your proxy card, but do not
specify how your shares are to be voted, the proxies will vote your shares FOR
the election of the seven Director nominees.
Other than the election of Directors, the Board of Directors does not know
of any other matter that may be presented at the meeting. By signing and
returning your proxy card, you authorize the proxies to exercise their
discretion in voting on any other matter that may be presented for a vote.
Green Equity Investors, L.P. ("GEI") owns a majority of the outstanding
Common Stock, approximately 61.4%. Therefore, GEI has sufficient voting power to
elect the nominees proposed by the Board of Directors and has indicated its
intention to vote its shares in favor of all proposals contained in the Proxy
Statement.
You may revoke your proxy at any time before it is voted by delivering to
the Secretary of Gart Sports Company, 1000 Broadway, Denver, Colorado 80203 a
written revocation notice, by submitting a subsequent valid proxy card or by
voting in person at the Annual Meeting. Any notice of revocation sent to the
Company must include the Stockholder's name.
Votes Required to Elect the Directors or Approve a Proposal. The seven
persons who receive the highest number of votes will be elected to the Board of
Directors of the Company. Any other matter properly presented for a vote at the
Annual Meeting will be approved if the number of shares voted in favor exceeds
the number of shares voted in opposition.
Abstentions and broker non-votes are each included in the determination of
the number of shares present and voting. Abstentions and broker non-votes are
tabulated separately. Abstentions are counted in tabulations of votes cast on
proposals presented to the Stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted as votes cast for
or against a particular proposal and therefore will have no effect in
determining the outcome of the vote on a particular matter.
<PAGE> 5
ANNUAL REPORT
The Company's 1997 Annual Report on Form 10-K is enclosed with these proxy
materials.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors currently consists of seven members, all of whom
have been nominated for re-election: John Douglas Morton, Jonathan D. Sokoloff,
Jennifer Holden Dunbar, Larry J. Hochberg, Andrew S. Hochberg, Gordon D. Barker
and Peter R. Formanek. The entire Board of Directors is elected to serve until
the next Annual Meeting of the Stockholders and until their successors have been
elected and qualified.
If any candidate nominated in this Proxy Statement should for any reason
become unavailable for election, Proxies may be voted with discretionary
authority for any substitute designated by the Board of Directors. Stockholders
will not be allowed to cumulate their votes in the election of Directors.
The Board of Directors recommends that you vote "FOR" the election of the
following seven nominees, all of whom are currently serving as Directors of the
Company. Certain information with respect to the Director nominees is set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John Douglas Morton........ 47 President, Chief Executive Officer and Chairman of the
Board
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.
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.
2
<PAGE> 6
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 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 of
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 J. Hochberg and Andrew S.
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.
3
<PAGE> 7
INFORMATION ABOUT THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES
BOARD OF DIRECTORS MEETINGS
During fiscal 1997, the Board of Directors met once and took action by
unanimous written consent on eight occasions. The Company was privately held
during fiscal 1997 and became a public company on January 9, 1998. Significant
matters were informally discussed among the Directors before the consents were
signed. The Company's management expects that in the future most significant
Board actions will be taken at duly convened meetings rather than by unanimous
written consent.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee
but does not currently have a nominating committee.
Audit Committee. The Audit Committee was formed in April 1998, and its
members are Jennifer Holden Dunbar, Gordon D. Barker, Larry J. Hochberg and
Andrew S. Hochberg. The functions of the Audit Committee are to recommend
annually to the Board of Directors the appointment of independent public
accountants of the Company, discuss and review the scope and the fees of the
prospective annual audit and review the results thereof with the independent
public accountants, review and approve non-audit services of the independent
public accountants, review compliance with existing major accounting and
financial policies of the Company, review the adequacy of the financial
organization of the Company and review management's procedures and policies
relative to the adequacy of the Company's internal accounting controls. Prior to
formation of the Audit Committee, the entire Board of Directors performed the
functions of the Audit Committee.
Compensation Committee. The current members of the Compensation Committee
are Jonathan D. Sokoloff, Jennifer Holden Dunbar and Peter R. Formanek. The
Compensation Committee establishes the compensation of the Company's executive
officers and is active in reviewing salaries, bonuses and other forms of
compensation for other officers and key employees of the Company. The
Compensation Committee also administers and interprets the Company's stock
option plans and has authority to determine which persons shall be granted
options thereunder and the terms and conditions of the stock options granted.
The Compensation Committee consisted of Mr. Sokoloff and Ms. Holden Dunbar in
fiscal 1997 and took action by unanimous written consent on two occasions in
fiscal 1997. Only non-employee Directors may be members of the Compensation
Committee.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no separate compensation
for serving as Directors. 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.
Directors who are not employees of the Company are reimbursed for their expenses
incurred in attending meetings.
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.
4
<PAGE> 8
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the executive
officers of the Company other than Mr. Morton:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
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
</TABLE>
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 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 the Company's
Division Merchandise Manager for 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 -- 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.
5
<PAGE> 9
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 1991, most
recently as a District Manager.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual compensation for services
rendered to the Company during the 1997 fiscal year for each person serving as
an executive officer of the Company in 1997 (the " 1997 Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 ANNUAL 1997 LONG-TERM COMPENSATION
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 -- Logistics, Allocation
and Human Resources
</TABLE>
- ---------------
(1) Mr. Nace resigned as Executive Vice President, Chief Financial Officer and
Treasurer on January 29, 1998.
6
<PAGE> 10
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.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATE OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED 1997 PRICE DATE 5% 10%
---- ---------- ------------- --------- ---------- -------- ----------
<S> <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.
JANUARY 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JANUARY 31, 1998 FISCAL 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.
REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act of 1934, as amended, that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following Report of the Compensation
Committee and the Performance Graph shall not be incorporated by reference into
any such filing.
The Compensation Committee of the Board of Directors, composed of outside
directors of the Board of Directors of the Company, reviews the performance of
the Company's executive officers, determines the compensation of the Company's
executive officers and is active in reviewing salaries, bonuses and other forms
of compensation for other officers and key employees of the Company. The
Compensation Committee is empowered by the Board to award stock options, grants
of shares of Common Stock or permitted purchases of Common Stock to key
employees of the Company.
The Compensation Committee has access to independent compensation data and
is authorized, if determined appropriate in any particular case, to engage
outside compensation consultants.
7
<PAGE> 11
The objectives of the Compensation Committee are to support the achievement
of desired Company performance, to provide compensation and benefits that will
attract and retain superior talent and reward performance and to fix a portion
of compensation to the outcome of the Company's performance.
The executive compensation program is generally composed of base salary,
bonuses based upon the Company's achievement of a target level of pre-tax income
and long-term incentives in the form of stock options, stock grants and
permitted stock purchases.
Base Salaries. Base salaries for the Company's executive officers are
competitively set relative to salaries of officers of companies comparable in
business and size included in the Standard & Poor's Retail Stores Composite
Index. In each instance, base salary takes into account individual experience
and performance specific to the Company. The Compensation Committee generally
attempts to provide compensation approximating the median of comparable
companies. Except for increases associated with promotions or increased
responsibility, increases in base salaries for executive officers of the Company
from year to year are limited to adjustments to reflect increases in the rate of
inflation.
The Compensation Committee is aware that the Internal Revenue Code of 1986,
as amended (the "Code"), treats certain elements of executive compensation in
excess of $1 million a year as an expense not deductible by the Company for
federal income tax purposes. For the fiscal year ended. January 3, 1998, no
executive officer's compensation exceeded the cap on deductibility. To the
extent compensation to an executive officer exceeds the cap in the future, the
Compensation Committee will consider the facts and circumstances at that time to
reach a determination regarding the impact of the cap on such compensation.
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.
Management Equity Plan. The Compensation Committee administers the
Company's 1994 Management Equity Plan, as amended (the "Management Equity
Plan"). 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 865,400 shares are
outstanding as of May 1, 1998.
The Compensation Committee believes that employee equity ownership provides
significant additional motivation to maximize value for the Company's
stockholders and, therefore, periodically grants Stock Options to the Company's
employees, including executive officers. Stock Options are granted typically at
prevailing market price and, therefore, will only have value if the Company's
stock price increases over the exercise price. The Compensation Committee
believes that the grant of Stock Options provides a long-term incentive to such
persons to contribute to the growth of the Company and establishes a direct link
between compensation and stockholder return, measured by the same index used by
stockholders to measure Company performance. The terms of options granted,
including number of shares, vesting, exercisability and option term, are
determined by the Compensation Committee, based upon the position and
responsibilities of each
8
<PAGE> 12
employee, historical and expected contributions of each employee, previous
option grants to each employee and a review of competitive equity compensation
for executive officers of similar rank in companies that are comparable to the
Company's industry and size.
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.
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.
Report on Repricing of Options. On December 2, 1997, the Compensation
Committee approved grants of a total of 185,500 Stock Options under the
Management Equity Plan to 28 employees, including the 1997 Executive Officers,
at an exercise of price of $15.00 per share. The Company's Common Stock was not
publicly traded at that time. The exercise price represented the Compensation
Committee's estimate of the fair market value of a share of Common Stock as of
the date such options were granted. On January 9, 1998, upon the closing of the
Company's acquisition of Sportmart, Inc., trading of the Common Stock commenced
on Nasdaq. The closing price of the Common Stock on January 9, 1998 was $14.00
per share. In order to reflect the Compensation Committee's intent that the
exercise price of these Stock Options be the fair market value of the Common
Stock on the date of grant, the Compensation Committee changed the exercise
price on these options from $15.00 per share to $14.00 per share on January 12,
1998.
OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE EXERCISE LENGTH OF ORIGINAL
SHARES OF COMMON PRICE AT NEW OPTION TERM
DATE OF UNDERLYING STOCK AT TIME TIME OF EXERCISE REMAINING AT DATE
NAME REPRICING OPTIONS REPRICED OF REPRICING REPRICING PRICE OF REPRICING
---- --------- ---------------- ------------- --------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
John Douglas Morton..... 1/12/98 60,000 $14.00 $15.00 $14.00 Options expire 12/2/07
Arthur S. Hagan......... 1/12/98 12,000 $14.00 $15.00 $14.00 Options expire 12/2/07
Robert M. Chessen....... 1/12/98 12,000 $14.00 $15.00 $14.00 Options expire 12/2/07
</TABLE>
9
<PAGE> 13
Compensation of Chief Executive Officer. The compensation package of Mr.
Morton, the Company's President and Chief Executive Officer, was determined in
accordance with the principles described above. In 1997 Mr. Morton received a
base salary of $287,500 and earned a bonus of $242,358 pursuant to the Bonus
Plan. The Compensation Committee also approved a grant of 60,000 Stock Options
to Mr. Morton in December 1997. In addition, Mr. Morton receives certain other
customary perquisites and benefits. The Compensation Committee approved Mr.
Morton's total compensation based on the following factors, in order of
importance to the Compensation Committee: (i) the Company's continuing improved
financial results since Mr. Morton became Chief Executive Officer, (ii) the
Company's comparative performance with other companies in its industry; and
(iii) Mr. Morton's efforts in connection with the Sportmart acquisition.
COMPENSATION COMMITTEE MEMBERS IN 1997
Jonathan D. Sokoloff
Jennifer Holden Dunbar
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 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.
Employee Benefit Plan. Gart Sports 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
Gart Sports as determined by the Board of Directors. In 1997, Gart Sports'
matching contributions were $134,000. Gart Sports also provided an additional
discretionary contribution of $166,000 to the Employee Plan during 1997.
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, the Nasdaq Composite Index, the Standard & Poors Retail Stores
Composite Index and a peer group of companies during the period commencing
January 9, 1998, the date that the Company's Common Stock began trading on
Nasdaq, and ending on May 1, 1998. In reviewing this graph, stockholders should
keep in mind the possible effect that the limited trading in the Common Stock
may have had on the price of the Common Stock.
The comparison assumes $100.00 was invested on January 9, 1998 and assumes
the reinvestment of all dividends, if any. The peer group consists of the
following publicly traded sporting goods retailers: JumboSports Inc., Just For
Feet, Inc., Oshman's Sporting Goods, Inc., Sports Chalet, Inc. and The Sports
Authority, Inc.
<TABLE>
<CAPTION>
S&P Retail
Stores Nasdaq
Measurement Period Gart Sports Peer Group Composite Composite
(Fiscal Year Covered) Company Index Index Index
- --------------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
1/09/98 100.00 100.00 100.00 100.00
1/16/98 98.21 94.84 103.64 103.97
1/23/98 91.96 92.39 104.00 104.84
1/30/98 94.64 101.06 105.40 107.73
2/06/98 93.75 107.44 111.90 112.71
2/13/98 94.64 110.28 114.18 113.78
2/20/98 97.77 109.59 117.33 114.96
2/27/98 98.21 113.51 117.03 117.78
3/06/98 100.00 125.62 122.63 116.65
3/13/98 105.36 129.17 126.42 117.86
3/20/98 113.39 135.10 125.77 119.02
3/27/98 121.88 134.32 124.20 121.31
4/03/98 117.86 134.21 127.55 123.43
4/09/98 114.29 137.48 125.75 121.09
4/17/98 112.50 141.02 127.23 124.17
4/24/98 117.86 135.72 123.08 124.33
5/01/98 116.07 153.68 124.99 124.63
</TABLE>
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of April 28, 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 1997 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
David J. Nace(3)............................................ 79,000 1.0
c/o Gart Company
1000 Broadway
Denver, CO 80203
Arthur S. Hagan(4).......................................... 27,400 *
Gart Sports Company
1000 Broadway
Denver, CO 80203
Robert M. Chessen(5)........................................ 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)................................... 2,500 *
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Gordon D. Barker............................................ 1,000 *
Gart Sports Company
1000 Broadway
Denver, CO 80203
Peter R. Formanek(6)........................................ 4,917 *
Gart Sports Company
1000 Broadway
Denver, CO 80203
Larry J. Hochberg(7)(9)..................................... 529,135 6.9
One Northfield Plaza, Suite 210
Northfield, Illinois 60093
Andrew S. Hochberg(8)(9).................................... 267,001 3.5
One Northfield Plaza, Suite 210
Northfield, Illinois 60093
All directors and executive officers as a group (13
persons).................................................. 978,012 12.5%
</TABLE>
- ---------------
* Less than 1%.
12
<PAGE> 16
(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.
(2) Includes 65,600 shares of Common Stock which are issuable upon the exercise
of outstanding options.
(3) Includes 47,000 shares of Common Stock which are issuable upon the exercise
of outstanding options.
(4) Includes 12,400 shares of Common Stock which are issuable upon the exercise
of outstanding options.
(5) Includes 4,800 shares of Common Stock which are issuable upon the exercise
of outstanding options.
(6) Includes 1,700 shares of Common Stock held by Formanek Investment Trust with
Peter R. Formanek as Beneficiary. Includes 1,650 shares of Common Stock held
by Peter R. Formanek as a minority Trustee of the Formanek Childrens Trust.
(7) 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.
(8) 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.
(9) Includes 9,078 shares of Common Stock which are issuable upon the exercise
of outstanding options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
the Company's Common Stock ("principal stockholders") to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Common Stock of the Company. Officers, directors and
principal stockholders are required to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all section 16(a) requirements applicable to
directors, executive officers and principal stockholders have been complied
with, except that the Forms 3 with respect to initial beneficial ownership of
the Common Stock for John Douglas Morton, David J. Nace, Kenneth T. Snyder,
Robert M. Chessen, Arthur S. Hagan, Thomas B. Nelson, Green Equity Investors,
L.P., Leonard I. Green, Jonathan D. Sokoloff, Jennifer Holden Dunbar, Gregory J.
Annick and John G. Danhakl were filed late.
13
<PAGE> 17
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 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
14
<PAGE> 18
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.
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 S. 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'
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.
15
<PAGE> 19
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 S. 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.
CONSULTING AGREEMENTS
The Company has entered into consulting agreements with two of its
Directors, Larry J. Hochberg, formerly Sportmart's Chairman of the Board, and
Andrew S. Hochberg, formerly Sportmart's Chief Executive Officer, whereby for a
period of one year following January 9, 1998, the date of the Company's
acquisition of Sportmart, they will be available to the Company for advice with
respect to strategic and operational issues. The Company has entered into a
similar consulting agreement with John A. Lowenstein, Larry J. Hochberg's
son-in-law and formerly Sportmart's Chief Operating Officer, except that for an
interim period from January 9, 1998 until terminated by either Mr. Lowenstein or
the Company upon two weeks' notice, Mr. Lowenstein will provide consulting
services to the Company on a full time basis. Following the interim period, Mr.
Lowenstein will be available to the Company for one year for advice with respect
to strategic and operational issues.
Larry J. Hochberg is compensated for these services at an annual rate of
$138,000 (50% of his annual base salary at Sportmart on September 26, 1997) and
will receive lifetime medical benefits for himself and his spouse pursuant to
the terms of his existing agreement with Sportmart. Andrew S. Hochberg is
compensated for these services at an annual rate of $150,000 (50% of his annual
base salary at Sportmart on September 26, 1997) and will receive paid family
medical insurance coverage during the one year term of the consulting agreement
and the six months following such term. Mr. Lowenstein is compensated for these
services during the interim consulting period at an annual rate of $250,000
(100% of his annual base salary at Sportmart on September 26, 1997) and receives
the same benefits he received on September 26, 1997. Following the interim
consulting period, Mr. Lowenstein will be compensated at an annual rate of
$125,000 and will receive paid family medical insurance coverage for 18 months.
The consulting agreements also provide that each consultant will receive a
severance benefit of 18 months' salary at his annual base salary on September
26, 1997, to be paid in equal monthly installments over 18 months. This
severance benefit is in lieu of the severance benefits each consultant would
have been entitled to under the Sportmart Severance Plan, which generally would
have provided for a lump sum payment on January 9, 1998 equal to 18 months'
salary at his annual base salary as in effect at that time.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP has served as the Company's independent public
accountants for the fiscal year ending January 3, 1998. A representative of KPMG
Peat Marwick LLP will be present at the Annual Meeting. Such representative will
have the opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions. The Board of Directors is
reviewing the appointment of independent public accountants for the fiscal year
ending January 30, 1999 in light of the Company's acquisition of Sportmart and
has not made a selection as of the date of this Proxy Statement.
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<PAGE> 20
SUBMISSION OF PROPOSALS BY STOCKHOLDERS
Any proposal that a stockholder may desire to present at the 1998 Annual
Meeting must be received in writing by the Company at its principal offices in
Denver, Colorado by the close of business on May 25, 1998.
PROXY SOLICITATION
In addition to soliciting Proxies by mail, directors, executive officers
and employees of the Company, without receiving additional compensation, may
solicit Proxies by telephone, by telecopy or in person. Arrangements will also
be made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of shares of the Common
Stock and the Company will reimburse such brokerage firms and other custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection with forwarding such materials.
OTHER BUSINESS
Management and the Board of Directors do not know of any business to be
presented for consideration at the Annual Meeting other than that stated in the
notice. It is intended, however, that the persons authorized under the Board's
proxies may, in the absence of instructions to the contrary, vote or act in
accordance with their judgment with respect to any other proposal properly
presented for action at such meeting.
NOTICE TO BANKS, BROKER-DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Company whether other persons are the beneficial owners
of the Shares for which proxies are being solicited from you, and, if so, the
number of copies of this Proxy Statement and other soliciting materials you wish
to receive in order to supply copies to the beneficial owners of the Shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS,
WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, ARE REQUESTED
TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED FOR THAT PURPOSE. BY RETURNING YOUR PROXY PROMPTLY YOU CAN
HELP THE COMPANY AVOID THE EXPENSE OF FOLLOW-UP MAILINGS TO ENSURE A QUORUM SO
THAT THE ANNUAL MEETING CAN BE HELD. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING
MAY REVOKE A PRIOR PROXY IN PERSON AS SET FORTH IN THIS PROXY STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Thomas B. Nelson
Thomas B. Nelson
Secretary
17
<PAGE> 21
GART SPORTS COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF GART SPORTS COMPANY
The undersigned hereby appoints John Douglas Morton and Thomas T.
Hendrickson, and each of them, as proxies for the undersigned, each with full
power of appointment and substitution, and hereby authorizes them to represent
and to vote, as designated below, all shares of the $0.01 par value Common Stock
of Gart Sports Company (the "Company") which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held on June 17, 1998
(the "Meeting"), or at any postponements, continuations or adjournments thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted (i)
FOR the election of John Douglas Morton, Jonathan D. Sokoloff, Jennifer Holden
Dunbar, Gordon D. Barker, Peter R. Formanek, Larry J. Hochberg and Andrew S.
Hochberg to the Board of Directors of the Company and (ii) on such other matters
as may properly come before the Meeting.
1. Election of Directors
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as marked to [ ] WITHHOLD AUTHORITY to vote for all
the contrary below) nominees listed below
John Douglas Morton Peter R. Formanek
Jonathan D. Sokoloff Larry J. Hochberg
Jennifer Holden Dunbar Andrew S. Hochberg
Gordon D. Barker
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Continued on other side)
(Continued from other side)
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or at any
postponements, continuations or adjournments thereof.
Please sign exactly as your name appears hereon. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign partnership name by authorized person. When signing as
trustee, please give full title as such.
Dated__________________________, 1998
-------------------------------------
Authorized Signature
-------------------------------------
Title
Please mark boxes [X] in ink. Sign, date and return this Proxy Card promptly
using the enclosed envelope.
