SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
THE SPORTS AUTHORITY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[_] Fee paid previously with preliminary materials:
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[_] 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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THE SPORTS AUTHORITY, INC.
3383 North State Road 7
Ft. Lauderdale, Florida 33319
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 27, 1999
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To the Stockholders of
THE SPORTS AUTHORITY, INC.
Notice is hereby given that the Annual Meeting of Stockholders of The
Sports Authority, Inc., a Delaware corporation (the "Company"), will be held at
9:00 a.m. on Thursday, May 27, 1999, at the Company's corporate headquarters
located at 3383 North State Road 7, Fort Lauderdale, Florida 33319. Stockholders
who desire to attend the Meeting should mark the appropriate box on the enclosed
proxy. Persons who do not indicate attendance at the Meeting on the proxy will
be required to present acceptable proof of stock ownership for admission to the
Meeting.
The Meeting will be held for the following purposes:
1. To elect three Class II Directors of the Company, each to serve for a
term of three years, and to elect one Class I Director to serve a term
of two years;
2. To act on a proposal to approve the amendment and restatement of the
1994 Stock Option Plan;
3. To act on a proposal to approve the Performance Unit Plan;
4. To act on a proposal to ratify the appointment of Ernst & Young LLP as
the Company's independent public accountants for the 1999 fiscal year;
and
5. To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on March 29, 1999 are
entitled to notice of and to vote at the Meeting and at any and all adjournments
or postponements thereof. A list of stockholders entitled to vote at the Meeting
will be available for inspection at the office of the Secretary of the Company,
3383 North State Road 7, Fort Lauderdale, Florida for at least ten days prior to
the Meeting, and will also be available for inspection at the Meeting.
By Order of the Board of Directors,
Ft. Lauderdale, Florida FRANK W. BUBB
April 26, 1999 Secretary
YOUR VOTE IS IMPORTANT
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM ATTENDING THE
MEETING AND VOTING IN PERSON, IF YOU SO DESIRE.
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THE SPORTS AUTHORITY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 27, 1999
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PROXY STATEMENT
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This Proxy Statement is being mailed on or about April 23, 1999, and is
furnished to the stockholders of The Sports Authority, Inc., a Delaware
corporation (the "Company"), for the solicitation of proxies by the Board of
Directors (the "Board") of the Company for use at the Annual Meeting of
Stockholders of the Company (the "Meeting") to be held at 9:00 a.m. on Thursday,
May 27, 1999, at the Company's corporate headquarters located at 3383 North
State Road 7, Fort Lauderdale, Florida 33319, and at any and all adjournments or
postponements thereof. Action will be taken at the Meeting upon (i) the election
of three Class II Directors to serve for a term of three years and to elect one
Class I Director to serve a term of two years; (ii) a proposal to approve the
amendment and restatement of the 1994 Stock Option Plan, (iii) a proposal to
approve the Performance Unit Plan, and (iv) a proposal to ratify the appointment
of Ernst & Young LLP as the Company's independent public accountants for the
Company's fiscal year ending January 23, 2000 (the "1999 fiscal year").
VOTING AND SOLICITATION OF PROXIES
Only holders of record of the Company's common stock, par value $.01 per
share ("Common Stock"), at the close of business on March 29, 1999 (the "Record
Date") are entitled to notice of and to vote at the Meeting. At the Record Date,
there were 31,899,431 shares of Common Stock ("Shares") outstanding. The
presence, either in person or by proxy, of the holders of a majority of the
Shares outstanding on the Record Date and entitled to vote at the Meeting is
necessary to constitute a quorum at the Meeting. If a quorum is not present at
the Meeting, the stockholders entitled to vote at the Meeting, present in person
or by proxy, will have the power to adjourn the Meeting from time to time,
without notice other than announcement at the Meeting, until a quorum is present
or represented. At such adjourned Meeting at which a quorum is present or
represented, any business may be transacted which might have been transacted at
the Meeting as originally noticed. All abstentions and broker non-votes will be
included as Shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the Meeting.
Each stockholder will be entitled to one vote per share, in person or by
proxy, for each Share held in such stockholder's name as of the Record Date on
any matter submitted to a vote of stockholders at the Meeting. Shares
represented by properly executed proxies received in time for voting at the
Meeting will, unless such proxy has previously been revoked, be voted in
accordance with the instructions indicated thereon. In the absence of specific
instructions to the contrary, the persons named in the accompanying proxy intend
to vote all properly executed proxies received by them (i) FOR the election of
the Board's nominees as Directors, (ii) FOR approval of the amendment and
restatement of the 1994 Stock Option Plan, (iii) FOR approval of the Performance
Unit Plan, and (iv) FOR the ratification of Ernst & Young LLP as the Company's
independent public accountants for the 1999 fiscal year. No business other than
as set forth in the accompanying Notice of Annual Meeting is expected to come
before the Meeting, but should any other matter requiring a vote of stockholders
be properly brought before the Meeting, the persons named in the enclosed proxy
will vote such proxy in accordance with their best judgment.
Execution of the enclosed proxy will not prevent a stockholder from
attending the Meeting and voting in person. Any proxy may be revoked at any time
prior to the exercise thereof by delivering in a timely manner a written
revocation or a new proxy bearing a later date to the Secretary of the Company,
3383 North State Road 7, Fort Lauderdale, Florida 33319, or by attending the
Meeting and voting in person. Attendance at the Meeting will not, however, in
and of itself constitute a revocation of a proxy.
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This solicitation is being made by the Board and its cost will be borne by
the Company. Solicitation will be made by mail, and may be made personally or by
telephone by officers and other employees of the Company who will not receive
additional compensation for such solicitation. In addition, the Company has
retained Corporate Investor Communications, Inc. to aid in the solicitation of
proxies for a fee of $5,000. The Company will reimburse banks, brokerage firms,
voting trustees and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to beneficial owners of
Shares.
For information with respect to advance notice requirements applicable to
stockholders who wish to propose any matter for consideration or nominate any
person for election as a Director at an annual meeting, see "Stockholder
Proposals and Nominations" on page 24.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board is divided into three classes, designated Class I, Class II and
Class III, each serving three-year terms. The Company's Certificate of
Incorporation requires that such classes be as nearly equal in number of
Directors as possible. There are currently eight Directors, of whom two are in
Class I, three are in Class II and three are in Class III.
The terms of the Company's three current Class II Directors, Nicholas
Buoniconti, Cynthia Cohen and Steve Dougherty, expire at the Meeting. Ms. Cohen
was elected to the Board effective December 1, 1998 to fill a vacancy created by
the resignation in August 1998 by Harold Toppel. At the Meeting, three Class II
Directors are to be elected to serve three-year terms commencing at the Meeting
and ending in 2002 or until their respective successors are elected and
qualified or until their earlier death, resignation or removal. Each of the
current Class II Directors is being nominated by the Board to serve again as a
Class II Director.
Of the four Class I Directors elected by the stockholders at the 1998
Meeting, two have resigned. W. Mitt Romney resigned in March 1999 to devote his
full attention to his new role as President and Chief Executive Officer of the
Salt Lake Organizing Committee for the Olympic Winter Games of 2002. Jack A.
Smith resigned in April 1999 to devote full time to other interests, and in
connection therewith entered into an agreement with the Company which is
described under "Employment and Severence Agreements" on page 11. Mr. Smith
founded the Company in 1987, served as its Chief Executive Officer until
September 15, 1998 and served as its Chairman until his resignation. The Board
has nominated Charles H. Moore to serve as a Class I Director to fill one
vacancy and has reduced the number of Class I Director positions to three. The
additional Class I Director is to be elected to serve a two-year term commencing
at the Meeting and ending in 2001 or until his successor is elected and
qualified or until his earlier death, resignation or removal.
Each of the four nominees has consented to serve as a Director if elected
at the Meeting and, to the best knowledge of the Board, each of such nominees is
and will be able to serve if so elected. If any such nominee is unavailable to
stand for election at the Meeting, the persons named in the accompanying proxy
intend to vote for such other person, if any, as may be designated by the Board,
in the place of any nominee unable to serve.
The Board recommends that stockholders vote "FOR" the Company's nominees as
Directors. The election of the Directors nominated will require the affirmative
vote of a plurality of the Shares represented and voting in person or by proxy
and entitled to vote at the Meeting. Abstentions and broker non-votes will not
be counted as votes cast in connection with determining the plurality required
to elect a Director and will have no effect on the outcome of that vote.
Set forth below is a brief biography of each nominee and of all other
Directors who will continue in office after the Meeting.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
Term Expiring in 2002
Nicholas A. Buoniconti, age 58. Mr. Buoniconti has served as a Director of
the Company since January 1996. Mr. Buoniconti serves as a national spokesman
and fundraiser for The Miami Project to Cure Paralysis, as co-host of "Inside
the NFL" on the HBO cable network, and as a consultant to Columbia Laboratories
(pharmaceutical research and development), after having served as Vice Chairman,
Chief Operating Officer and a
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director of that company from 1992 through 1998. Mr. Buoniconti is also a
director of American Bankers Insurance Group (insurance).
Cynthia R. Cohen, age 46. Ms. Cohen has served as a Director of the Company
since December 1998. She is the founder of Strategic Mindshare, a strategic
management consulting firm serving the retail, distribution, and commercial
development industries, and has served as its President since the company's
inception in 1990. Prior to that, Ms. Cohen was a partner in management
consulting with Deloitte & Touche. Ms. Cohen is a director of Loehmann's (a
clothing retailer) and Office Depot (an office supply retailer). In addition,
Ms. Cohen serves on the Executive Advisory Board for the Center for Retailing
Education at the University of Florida and is a director of the New World
Symphony.
Steve Dougherty, age 51. Mr. Dougherty has served as a Director of the
Company since March 1995. Mr. Dougherty is currently President, General Partner
and a director of SLD Properties, Inc., a real estate concern based in Boca
Raton, Florida, a position he has held since January 1993. Mr. Dougherty
co-founded Office Depot, Inc., an office supply superstore retailer, and Mr. How
Warehouse, a retail home improvement chain. He served as President, Chief
Operating Officer and a director of Office Depot from March 1986 until his
retirement in July 1990 and prior thereto served as an executive officer and a
director of Mr. How Warehouse.
NOMINEE FOR ELECTION AS A CLASS I DIRECTOR
Term Expiring in 2001
Charles H. Moore, age 69. Mr. Moore is the Director of Athletics at Cornell
University, a position he has held since 1994. Mr. Moore has also served as the
Chairman and Chief Executive Officer of Xpander Pak, Inc., a manufacturer of
protective packaging, since 1992. Previously, Mr. Moore served as Executive Vice
President of Illinois Tool Works, Inc. in 1991 and 1992, and as President and
Chief Executive Officer of Ransburg Corporation from 1988 to 1992. Mr. Moore is
a director of Turner Corporation (construction) and Elcotel, Inc.
(telecommunications). In addition, Mr. Moore serves as the President of the
Intercollegiate Association of Amateur Athletics of America (the IC4A); as a
Public Sector Director of the United States Olympic Committee and as Chairman of
that organization's Audit Committee; as a Governor of the National Art Museum of
Sport, of which he is the former Chairman and Chief Executive Officer; and as a
Regent of Mercersburg Academy.
INCUMBENT CLASS I DIRECTORS
Term Expiring in 2001
Julius W. Erving, age 49. Mr. Erving has served as a Director of the
Company since May 1997. Since June 1997, Mr. Erving has served as Vice President
of RDV Sports and as Executive Vice President of its division, the Orlando Magic
Basketball Club. Mr. Erving engages in various product endorsements and
promotions, which are managed by the Erving Group, Inc., of which he is the
founder and President, a position he has held since 1979. Mr. Erving is a
director of Converse, Inc. (athletic shoes), Saks Holdings Inc. (retail
department stores), Darden Restaurants, Inc. and Clark Atlanta University.
Martin E. Hanaka, age 49. Mr. Hanaka was elected as Vice Chairman and as a
Director of the Company in February 1998, and was elected as Chief Executive
Officer on September 15, 1998. From August 1994 until October 1997, Mr. Hanaka
served as President and Chief Operating Officer and a director of Staples, Inc.,
an office supply superstore retailer. Mr. Hanaka's extensive retail career has
included serving as Executive Vice President of Marketing and as President and
Chief Operating Officer of Lechmere, Inc. from September 1992 through July 1994,
and serving in various capacities for 20 years at Sears Roebuck & Co., most
recently as Vice President in charge of Sears Brand Central. Mr. Hanaka is also
a director of Wil-Mar Industries, Inc. (marketing and distributing repair and
maintenance products), Trans-World Entertainment (movie and video retail chain
under several brands) and Nature's Heartland (food retailing).
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INCUMBENT CLASS III DIRECTORS
Term Expiring in 2000
A. David Brown, age 56. Mr. Brown has served as a Director of the Company
since December 1998. Mr.Brown has served as the Managing Director of Pendleton
James Associates since May 1997, after having served as Vice President of the
Worldwide Retail/Fashion Specialty Practice at Korn/Ferry International from
June 1994 to May 1997, as Senior Vice President for Human Resources at R. H.
Macy & Co. from 1983 to June 1994, and as a director of R. H. Macy & Co. from
1987 to 1992. Mr. Brown also is a director of Zale Corporation (a jewelry
retailer), and Selective Insurance Group, Inc. (insurance). Mr. Brown is also a
member of the Board of Trustees of Drew University.
Carol Farmer, age 54. Ms. Farmer has served as a Director of the Company
since January 1995. She is the founder of Carol Farmer Associates, Inc., a trend
forecasting and retail consulting firm, and has served as its President since
the company's inception in 1984. Prior to that, Ms. Farmer was Executive Vice
President of Lerner Stores and Vice President of American Can Company (now
Primerica). She is also a director of The Lowes Companies, Inc. (home
improvement retailing).
Jack F. Kemp, age 63. Mr. Kemp has served as a Director of the Company
since March 1997. Mr. Kemp was the Republican Party's candidate for Vice
President of the United States in the 1996 general election. Mr.Kemp is a
co-director of Empower America, a public policy and advocacy organization he
co-founded in 1993. Prior to founding Empower America, he served for four years
as Secretary of Housing and Urban Development. From 1971 to 1989, Mr. Kemp
represented the Buffalo and western New York area in the United States House of
Representatives, and for seven of those years he served as Chairman of the House
Republican Conference. Mr.Kemp is also a director of American Bankers Insurance
Group (insurance), Oracle Corporation (software), Everen Capital Corporation
(securities brokerage), and Carson, Inc. (ethnic personal care products).
Board of Directors Meetings and Committees
During the fiscal year ended January 24, 1999 (the "1998 fiscal year") the
Board held seven Board meetings and the committees of the Board held a total of
nine meetings. The membership and functions of the committees of the Board are
as follows.
The Audit Committee was established for the purpose of reviewing and making
recommendations regarding the Company's engagement of independent public
accountants, the annual audit of the Company's financial statements and the
Company's internal controls, accounting practices and policies. The Audit
Committee held three meetings during the 1998 fiscal year. The current Directors
on the Audit Committee are Messrs. Dougherty (Chair), Kemp and Brown.
The Compensation Committee was established for the purpose of determining
the nature and amount of compensation for executive officers of the Company. The
Compensation Committee also administers certain of the Company's employee
benefit plans. The Compensation Committee held five meetings during the 1998
fiscal year. The current Directors who served on the Compensation Committee
during the 1998 fiscal year are Ms.Cohen (Chair), Mr. Buoniconti and Ms. Farmer.
In November 1998, the Board combined its Governance and Nominating
Committees into the Governance Committee. Prior to November 1998, the Governance
Committee, which had been established for the purpose of considering issues
relating to the governance of the Board and other matters prescribed by the
Board, consisted of all outside Directors. The Nominating Committee, which had
been established for the purpose of nominating individuals for election as
Directors by the Company's stockholders, consisted of the following Directors
currently on the Board: Messrs. Buoniconti and Erving. The Governance Committee
held one meeting during the 1998 fiscal year. The current Directors on the
Governance Committee are Ms. Farmer (Chair) and Messrs. Buoniconti and Erving.
The Executive Committee was established for the purpose of acting in the
stead of the entire Board during the periods between regular Board meetings. The
Board has delegated to the Executive Committee the power to act in lieu of and
with the powers and authority granted to the Board in the management and
direction of the Company, except as may be limited by Delaware General
Corporation Law. The Executive Committee held no meetings
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during the 1998 fiscal year. Prior to November 1998, the Executive Committee
consisted of Mr. Smith and all outside Directors. The current Directors on the
Executive Committee are Messrs. Hanaka (Chair) and Dougherty.
During the 1998 fiscal year, all of the Directors attended more than 75% of
the meetings of the Board and the committees on which they served, except Mr.
Erving, who missed three of eight meetings, and Mr. Kemp, who missed five of ten
meetings.
Compensation of Directors
Each Director who is neither an employee nor a former employee of the
Company (an "outside Director") receives an annual retainer and meeting fees. On
February 1, 1999, the Board amended the Director Stock Plan (the "Plan") and on
April 1, 1999, the Board approved changes in the annual retainer and meeting
fees and the method of paying them. The changes are effective for the Plan's
plan year beginning on the day after the Meeting. In addition, on February 1,
1999, the Compensation Committee, acting under the Director Stock Plan as
amended on that date, granted an option to purchase 3,600 Shares at $4.0625 per
share, the closing price of the Shares on the preceding business day, to each
outside Director who served on the Board during 1998, Messrs. Buoniconti,
Dougherty, Erving and Kemp, and Ms. Farmer, as compensation for their attendance
at several special meetings and availability for consultation on merger
activities and management changes during that period. Under the Plan as in
effect through the day of the meeting, each outside Director receives his or her
entire annual retainer for the plan year in the form of restricted Shares valued
at $25,000 on the first day of the plan year, unless the Director elects in
advance to receive his or her retainer in the form of options to purchase Shares
("Options") at their fair market value on the first day of the plan year. The
restrictions on restricted Shares lapse on the earlier of the end of the plan
year or proportionally on the date the grantee ceases being a Director, in which
case the remaining restricted Shares are forfeited. The Options, which are
nonqualified stock options under the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), become exercisable at the end of the plan year
for which they are granted and terminate on the earlier of ten years after the
date of grant or three months after the grantee ceases being a Director. If a
grantee ceases being a Director due to death or disability, or if a change in
control of the Company occurs, the restrictions on the restricted Shares will
lapse and the Options will be fully vested and exercisable. No outside Director
elected to receive Options for the plan year which began in May 1998.
In addition, under the Plan as in effect through the day of the meeting,
each outside Director receives $1,000 worth of unrestricted Shares for each
Board meeting attended and $500 worth of unrestricted Shares for each Committee
meeting attended, paid at the end of the calendar quarter in which the meetings
occurred. No Shares granted or purchased under the Plan may be sold until at
least six months after the date of grant or purchase.
Effective with the plan year beginning on the day after the Meeting, each
outside Director will receive an annual retainer payable in the form of
restricted Shares valued at $25,000 in the manner described above, and a grant
of options to purchase 1,500 Shares. The alternative of electing to receive
Options in lieu of restricted stock has been eliminated. In addition, each
outside Director who serves as chair of a Board committee will receive an
additional retainer payable in the form of restricted Shares valued at $2,500 in
the manner described above. Finally, each outside Director will receive the
following meeting fees payable in cash: $2,500 for each Board meeting attended
in person, $500 for each Board meeting attended telephonically, and $500 for
each committee meeting attended.
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EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee") is composed of three
independent, non-employee Directors who have no "interlocking" relationships as
defined by the Securities and Exchange Commission. The Committee's goal is to
ensure the establishment and administration of executive compensation policies
and practices that will enable the Company to attract, retain and motivate the
management talent necessary to achieve the Company's goals and objectives.
The Committee's executive compensation philosophy includes the following
considerations:
o A competitive mix of short-term (base salary and annual incentive
bonus) and long-term (stock options and restricted stock) compensation
opportunities which facilitate the Company's ability to attract and
retain executive talent;
o An emphasis on total cash compensation wherein base salaries generally
reflect competitive industry levels and, when combined with annual
incentive bonus opportunities, may produce total compensation at or
above competitive levels if performance against predetermined
objectives exceeds expectations;
o Share ownership opportunities that align the interests of Company
executives with the long term interests of stockholders; and
o Recognition that, as an executive's level of responsibility increases,
a greater portion of the total compensation opportunity should be based
upon Share ownership and other incentives and less upon base salary.
The primary components of the Company's 1998 executive compensation program
are: (a) base salary; (b) annual cash incentive opportunities provided through
the Annual Incentive Bonus Plan; and (c) long-term incentive opportunities
provided through the grant of stock options and restricted stock. Each of these
components is discussed separately in this report.
In determining 1998 compensation, the Committee compared total cash
compensation levels for executive officers to compensation paid to executives at
other retail companies with annual sales between $1 billion and $3 billion. The
companies chosen for compensation comparisons in the most recent competitive
study are not the same companies that comprise the published industry index in
the stock price performance graph shown in "Comparative Stockholder Return" on
page 13. The Committee believes that the most direct competitors for executive
talent are not necessarily all of the companies that would be included in a
published industry index for comparing total stockholder returns.
Base Salary. Base salaries for Company executive officers are subject to annual
review and adjustment on the basis of individual and Company performance, level
of responsibility and competitive, inflationary, and internal equity
considerations. The Committee generally attempts to set base salaries of
executive officers at a level which is proximate to the "market" rate, as that
rate is determined from information gathered from published surveys and
independent compensation consulting firms. With respect to the $666,750 base
salary established for Mr. Smith in March 1998 (a 5% increase from his previous
base salary determined in March 1997), the Committee took into account the
factors described above. When Martin Hanaka was hired as the Company's Vice
Chairman on February 1, 1998, his base salary was set at $500,000, and when he
became Chief Executive Officer on September 15, 1998, his base salary was raised
to $666,750 for the period through February 1, 2000. The Committee took into
account the factors described above and Mr. Hanaka's responsibilities in setting
these base salary levels.
Annual Cash Incentives. Under the Company's Annual Incentive Bonus Plan (the
"Bonus Plan"), which is administered by the Committee, executive officers and
certain other employees are eligible to receive cash bonuses based upon the
Company's attainment of specific performance goals. The performance goals may be
different from year to year, and expressed in either quantitative and/or
qualitative terms, and to the extent applicable, performance against these goals
must be determined in accordance with generally accepted accounting principles
and reported upon by the Company's independent public accountants. Target
incentive bonus opportunities are established at the beginning of the fiscal
year for each executive officer and expressed as a percentage of the executive
officer's competitive salary range midpoint. The Bonus Plan requires that a
threshold level of
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performance be established, below which no bonus award would be made, levels of
performance at which specified percentages of the target bonus would be paid,
and a maximum level of performance above which no additional bonus would be
paid. The Bonus Plan specifies that the maximum bonus payable to the Chief
Executive Officer of the Company is limited to three times the salary range
midpoint for the position. All other executive officers are limited to a maximum
bonus payment of two times their salary range midpoint.
The Bonus Plan is coordinated with the 1996 Stock Option and Restricted
Stock Plan (the "1996 Stock Plan") to enable the Company's executives to elect
in advance to forego a portion of their cash bonuses and to receive stock
options in lieu thereof. If the proposal to amend and restate the 1994 Stock
Option Plan (see page 17) is approved, the Company's executives would also be
able to receive stock options under that plan in lieu of a portion of their cash
bonuses. See "Long-Term Incentives" below.
For the 1998 fiscal year, the Company's performance fell short of the
threshold level of performance and, as a result, no bonuses were paid to any of
the Company's executives.
Long-Term Incentives. The Company intends to foster an ownership culture that
will encourage superior performance by its executives. Both the 1994 Stock
Option Plan and the 1996 Stock Plan are intended to align the executive's
interests with the long-term interests of the Company's stockholders by
providing incentives that focus attention on managing the Company from the
perspective of an owner. As noted on page 17, the Board is seeking stockholder
approval of the amendment and restatement of the 1994 Stock Option Plan
primarily in order to enable options granted under it to qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code, as amended ("Section 162(m)"), so that the plan would again be available
for option grants to the Company's executives.
Both Plans provide for the grant at fair market value of stock options with
such vesting and exercise periods as the Committee may determine. In determining
the number of Shares in a stock option grant, the Committee takes into
consideration the individual's performance, the level of his or her position, as
well as the individual's present and potential contribution to the success of
the Company. The Committee intends to make periodic grants of stock options to
the Company's management personnel including its executive officers. The 1996
Stock Plan also provides for the grant of restricted Shares.
In addition, to encourage further equity ownership by its executives at the
Vice President level and higher, the 1996 Stock Plan provides for the grant of
bonus replacement options, under which these executives may elect in advance to
forego a portion of their annual cash bonuses under the Bonus Plan and to
receive options to purchase Shares at their fair market value on the date of
grant, which is the same date the Committee determines bonuses under the Bonus
Plan. Since no bonuses were granted to the Company's executives for the 1998
fiscal year, no bonus replacement options were granted.
Finally, the Board has adopted a Performance Unit Plan for years beginning
with fiscal 1999, subject to stockholder approval, as discussed beginning on
page 20. The Committee's reasons for supporting the Performance Unit Plan are
contained in that discussion.
Policy with Respect to the $1 Million Deduction Limit. Section 162(m) generally
limits the corporate deduction for compensation paid to executive officers named
in the proxy statement to $1 million, unless certain requirements are met. The
Committee intends to consider carefully any plan or compensation arrangement
that would result in the disallowance of compensation deductions. It will use
its best judgment in such cases, however, taking all factors into account,
including the materiality of any deductions that may be lost. In the exercise of
that judgment, the Committee granted options to purchase 50,000 Shares to Mr.
Hanaka outside of any previously approved stock option plan in November 1998, as
additional compensation for his having become Chief Executive Officer on
September 15, 1998.
Cynthia Cohen (Chair)
Nicholas Buoniconti
Carol Farmer
7
<PAGE>
Executive Compensation for Last Three Fiscal Years
The following table shows the compensation for each of the last three
fiscal years awarded to, earned by or paid to those persons who, for the 1998
fiscal year, (i) served as Chief Executive Officer of the Company at any time
during the year, (ii) were executive officers at the end of the 1998 fiscal year
and whose annual compensation during the 1998 fiscal year exceeded $100,000, and
(iii) served as executive officers during 1998 fiscal year and who would have
been included in this table as an executive officer if they had been serving in
such capacity at the end of the 1998 fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------- -----------------------
Shares
Fiscal Restricted Underlying All Other
Name and Principal Position Year Salary Bonus Stock Awards Options(#) Compensation(8)
- -------------------- ----- ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jack A. Smith (1) ............. 1998 $534,881(1) $-0- $-0- 100,000 $332,494(1)
Chairman of the Board 1997 635,000 -0- -0- 35,000 20,938
and Chief Executive 1996 550,000 396,710(5) 1,335,000(6) 67,500(5) 24,710
Officer
Martin E. Hanaka (2) .......... 1998 550,671 -0- 618,750(7) 350,000 -0-
Vice Chairman
And Chief Executive
Officer
Richard J. Lynch, Jr. (3) ..... 1998 308,416(3) -0- -0- 20,000 181,129(3)
President and Chief 1997 375,000 -0- -0- 20,000 15,237
Operating Officer 1996 325,000 230,368(5) -0- 40,000(5) 13,691
Robert J. Timinski (4) ........ 1998 230,877 -0- -0- 15,000 109,662(4)
Executive Vice President 1997 250,000 -0- -0- 10,000 9,184
and Chief Merchandising 1996 220,000 184,383(5) -0- 19,200(5) 6,459
Officer
Anthony F. Crudele ............ 1998 198,692 -0- -0- 7,000 9,190
Senior Vice President 1997 180,000 -0- -0- 7,000 4,736
and Chief Financial 1996 160,000 105,609(5) -0- 14,307(5) 6,180
Officer
Samuel G. Allen ............... 1998 189,000 -0- -0- 7,000 6,928
International 1997 180,000 -0- -0- 7,000 2,605
President 1996 160,000 104,484(5) -0- 15,445(5) -0-
</TABLE>
- ----------
(1) Mr. Smith served as Chief Executive Officer until September 15, 1998, at
which time his employment terminated. See "Employment and Severance
Agreements" on page 11 for a description of the termination agreement
between the Company and Mr. Smith pursuant to which he received severance
payments totalling $311,308 in the 1998 fiscal year.
(2) Mr. Hanaka became Vice Chairman on February 2, 1998 and became Chief
Executive Officer on September 15, 1998.
(3) Mr. Lynch's employment terminated on September 28, 1998. See "Employment
and Severance Agreements" on page 11 for a description of the termination
agreement between the Company and Mr. Lynch pursuant to which he received
severance payments totalling $176,662 in the 1998 fiscal year.
(4) Mr. Timinski's employment terminated on October 21, 1998. See "Employment
and Severance Agreements" on page 11 for a description of the termination
agreement between the Company and Mr. Timinski pursuant to which he
received severance payments totalling $99,462 in the 1998 fiscal year.
(5) The amount of the 1996 bonus shown is the amount of cash paid in March
1997. Each of these executive officers elected in advance to forego a
portion of his 1996 bonus and to receive an option to purchase Shares in
lieu thereof under the 1996 Stock Plan. See the discussion of bonus
replacement options in the Compensation Committee Report on page 6. The
option exercise price is $19.25 per share, the fair market value of a Share
on the date of grant, and the amount of bonus foregone in exchange for an
option to purchase one Share was $4.71.
8
<PAGE>
The amount of bonus foregone by each such executive officer, which is
excluded from the 1996 bonus shown in the table, and the number of Shares
underlying options granted in lieu thereof, which is included in the number
of Shares underlying options shown in the table, are as follows: Mr. Smith,
$70,650 and 15,000 Shares; Mr. Lynch, $47,100 and 10,000 Shares; Mr.
Timinski, $28,260 and 6,000 Shares; Mr. Crudele, $24,996 and 5,307 Shares;
and Mr. Allen $26,121 and 5,545 Shares.
(6) This amount represents the value of the 66,750 restricted Shares granted to
Mr. Smith under the 1996 Stock Plan on May 30, 1996. These restricted
Shares have fully vested, as described under "Employment and Severance
Agreements" on page 11. Restricted Shares receive dividends at the same
rate as all other Shares. As of January 24, 1999, the value (based on the
closing price of the Shares of $4.5625 on that date) of these 66,750
restricted Shares was $304,547.
(7) This amount represents the value of the 50,000 restricted Shares granted to
Mr. Hanaka under the 1996 Stock Plan on February 2, 1998 which vest on
February 2, 2001. As of January 24, 1999, the value (based on the closing
price of the Shares of $4.5625 on that date) of these 50,000 restricted
Shares was $228,125.
(8) "All Other Compensation" in the 1998 fiscal year includes the severance
payments described in notes (1), (3) and (4), with the remaining amounts
consisting of Company contributions credited under the 401(k) Savings and
Profit Sharing Plan and the Supplemental 401(k) Savings and Profit Sharing
Plan.
Stock Options
The following table sets forth certain information with respect to stock
options granted during the 1998 fiscal year to the executive officers named in
the Summary Compensation Table on page 8. These option grants are also included
under the heading "Shares Underlying Options" in that table. The hypothetical
realizable values for each option grant are shown based on compound annual rates
of Share price appreciation of 0%, 5% and 10% from the grant date to the
expiration date for each option. The assumed rates of appreciation are for
illustration purposes only and are not intended to predict future Share prices,
which will depend upon market conditions and the Company's future performance
and prospects.
Stock Options Granted in the 1998 Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number Annual Rates
Number of of Options of Share Price
Shares Granted to Appreciation
Underlying Employees Exercise For Option Term ($)
Options in 1998 Price Expiration ----------------------------------
Name Granted(1) Fiscal Year ($/Share) Date 0% 5% 10%
- ---- -------- -------- ------- -------- ---- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack A. Smith ............. 35,000 2.66% $10.75 9/15/01(2) -0- $73,089(2) $156,233(2)
65,000 4.95% 15.81 9/15/01(2) -0- 199,659(2) 426,785(2)
Martin E. Hanaka .......... 250,000 19.02% 12.38 2/2/08 -0- 1,945,643 4,930,641
100,000 7.61% 7.13 11/17/08 -0- 448,087 1,135,542
Richard J. Lynch, Jr. ..... 20,000 1.52% 10.75 9/28/02(2) -0- 55,069(2) 120,824(2)
Robert Timinski ........... 15,000 1.14% 10.75 2/1/00(2) -0- 16,528(2) 33,863(2)
Anthony F. Crudele ........ 7,000 .53% 10.75 1/28/08 -0- 47,324 119,929
Samuel G. Allen ........... 7,000 .53% 10.75 1/28/08 -0- 47,324 119,929
</TABLE>
- ----------
(1) All options granted in the 1998 fiscal year are exercisable at a price
equal to the fair market value of a Share on the date of grant. All such
options become exercisable January 28, 2001 if the executive remains in the
employ of the Company through that date, except that Mr. Smith's options
became exercisable on September 15,1998, Mr. Lynch's options are scheduled
to become exercisable on September 28, 1999 (subject to certain
conditions), and Mr. Timinski's options are scheduled to become exercisable
on November 1, 1999 (subject to certain conditions). See "Employment and
Severance Agreements" on page 11. Exercisability is accelerated upon death,
total and permanent disability, a change in control of the Company, or
termination of employment after the executive reaches age 65 and has ten
years of employment.
(2) The expiration dates and potential realizable values shown for Messrs.
Smith, Lynch and Timinski reflect the terms of their respective termination
agreements. See "Employment and Severance Agreements" on page 11.
9
<PAGE>
The following table shows for the executive officers named in the Summary
Compensation Table on page 8 the number and value of all stock options exercised
during the 1998 fiscal year and the stock options held at the end of the fiscal
year.
Aggregated Option Exercises in the 1998 Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value at End of 1998 Fiscal Year at End of 1998 Fiscal Year
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- -------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Jack A. Smith .................... -0- -0- 390,936/-0-(2) $-0-/$-0-
Martin E. Hanaka ................. -0- -0- -0-/350,000 -0-/-0-
Richard J. Lynch, Jr. ............ -0- -0- 141,032/40,000 -0-/-0-
Robert J. Timinski ............... -0- -0- 65,509/38,200 -0-/-0-
Anthony F. Crudele ............... -0- -0- 28,197/23,000 -0-/-0-
Samuel G. Allen .................. -0- -0- 14,545/23,900 -0-/-0-
</TABLE>
- -----------
(1) Calculated based on the closing price of the Shares of $4.5625 on January
24, 1999, less the option exercise price.
(2) See "Employment and Severance Agreements" on page 11.
Retirement Benefits
The Company has an unfunded Supplemental Executive Retirement Plan for its
senior executives, including the executives named in the Summary Compensation
Table on page 8. Under the plan, Messrs. Smith and Lynch are entitled to receive
a monthly benefit starting at age 65 of $2,220 and $372, respectively, in
respect of their service while the Company was a wholly-owned subsidiary of
Kmart Corporation. In addition, the following table shows the annual retirement
benefits that a plan participant (other than Mr. Smith), would receive without
offset for Social Security or other benefits for a period of twenty years,
assuming he or she had retired at age 65 with twenty years of service effective
February 1, 1999.
Pension Plan Table
Annual Retirement Benefits
Years of Service (1)
<TABLE>
<CAPTION>
Average Final
Compensation(2) 5 10 15 20
------------ ------- -------- -------- --------
<S> <C> <C> <C> <C>
$200,000 $17,500 $35,000 $52,500 $70,000
300,000 26,250 52,500 78,750 105,000
400,000 35,000 70,000 105,000 140,000
500,000 43,750 87,500 131,250 175,000
600,000 52,500 105,000 157,500 210,000
</TABLE>
- ----------
(1) For purposes of calculating years of service, only the period after June
1990 during which the executive served at the level of Vice President or
higher is included. No more than twenty years of service is used to
calculate retirement benefits. As of February 1, 1999, Messrs. Lynch,
Crudele and Allen had 9, 8 and 4 years of service, respectively, as defined
in the plan.
(2) Average final compensation under the plan is the average of compensation
for the three complete calendar years out of the executive's last five
complete calendar years of service during which his or her compensation was
highest. Compensation includes base salary and annual bonus (including the
amount of bonus foregone in exchange for bonus replacement options) in the
year received.
10
<PAGE>
Employment and Severance Agreements
The Company has entered into employment agreements with Mr. Smith and Mr.
Hanaka, and has entered into severance or change in control agreements with each
of the other executives named in the Summary Compensation Table on page 8. In
connection with the termination of the employment of each of Messrs. Smith,
Lynch and Timinski, the Company also entered into termination agreements with
each of them. Each of these agreements is described below.
Jack A. Smith
The Company entered into an employment agreement with Mr. Smith on August
29, 1996, which required him to continue to render services for the Company as
its Chief Executive Officer until June 30, 2000, subject to the provisions of
the agreement. The agreement provides that, if Mr. Smith's employment is
terminated other than for cause (as defined in the agreement) or is terminated
by death, the Company will pay Mr. Smith (or his estate) through June 30, 2000
monthly payments equal to his monthly base salary at the time of termination
(which was at the annual rate of $666,750), plus one-twelfth of the "on plan"
bonus amount targeted for him under the Bonus Plan for the fiscal year in which
termination occurs (which target bonus amount was $345,000), and will provide
certain medical and dental benefits for Mr. Smith and his wife. In addition, the
agreement provides that all of Mr. Smith's unvested stock options, restricted
Shares and restricted share units granted under the Management Stock Purchase
Plan (but not the restricted Shares granted under the 1996 Stock Plan) would
vest on the termination of his employment. The agreement also provided that, if
Mr. Smith had terminated his employment between March 31, 1997 and June 30,
2000, he would have received the benefits described above, except that the
period during which payments in respect of salary and bonus would have been
payable could not exceed one year and the unvested restricted Shares and
restricted share units would not vest on termination. The agreement also
provided that, if there had been a change in control (as defined in the
agreement) of the Company while Mr. Smith was employed, and if Mr. Smith's
employment had been terminated (i) by the Company other than for cause (as
defined in the agreement), (ii) at his election for good reason (as defined in
the agreement), or (iii) by his death, in each case within two years after the
change in control, the Company would pay Mr. Smith a lump sum cash payment equal
to 2.99 times the sum of his annual rate of base salary at the time of
termination or immediately prior to the change in control, whichever is greater,
and the "on plan" bonus amount targeted for him under the Bonus Plan for the
fiscal year of such termination or the fiscal year immediately prior to the
change in control, whichever bonus amount is greater. Finally, the agreement
obligates Mr. Smith not to compete against the Company, solicit its employees or
disclose confidential information about the Company before June 30, 2000.
Mr. Smith's employment terminated on September 15, 1998, at which time Mr.
Smith retained the role of Chairman of the Board and Mr. Hanaka became Chief
Executive Officer. In connection with this termination, the Company and Mr.
Smith entered into an agreement pursuant to which the Company agreed that the
16,687 restricted Shares scheduled to vest in June 1999 and the 16,688
restricted Shares scheduled to vest in June 2000 would not be forfeited unless
the Compensation Committee determines that Mr. Smith has not fulfilled his
obligations under his employment agreement. Such restricted Shares were
restricted from transfer until June 2000. In Mr. Smith's termination agreement,
the Company also agreed to pay his reasonable expenses of leasing and operating
an office until June 30, 2000 to enable him to discharge his duties as Chairman
of the Board.
In connection with his resignation as a Director on April 16, 1999, the
Company and Mr. Smith entered into an agreement terminating the abovementioned
agreements. Pursuant to the April 1999 agreement, the Company paid Mr. Smith
$525,000 in full satisfaction of the remaining amounts owed to him under the
abovementioned agreements, the Company fully vested Mr. Smith's remaining 33,375
unvested restricted Shares (valued at $269,086 as of April 14, 1999) and removed
the restriction on transfer on all 66,750 restricted Shares, Mr. Smith agreed
not to compete against the Company, and the Company and Mr.Smith executed mutual
general releases.
Martin E. Hanaka
The Company entered into an employment agreement with Mr. Hanaka on
February 2, 1998. The agreement provided for the base salary, stock option grant
and restricted stock grant described above, as well as the reimbursement of
reasonable expenses for temporary living in South Florida, commuting and
relocation. In addition, it provided that Mr. Hanaka would become a Director on
the date of the agreement, that certain executive responsibilities would be
transitioned to him over the course of the year, and that he would become Chief
Executive Officer on February 1, 1999 if he was still employed by the Company.
During 1998, Mr. Hanaka assumed responsibility for real estate in May,
operations in June, merchandising and marketing in September, and was
11
<PAGE>
elected Chief Executive Officer on September 15. The agreement also provides
that, if his employment is terminated by the Company other than for cause (as
defined in the agreement), or if his employment is terminated by death, the
Company will pay to him or his estate through June 30, 2000 monthly payments
equal to his monthly base salary at the time of termination, plus one-twelfth of
the "on plan" bonus amount targeted for him under the Bonus Plan for the fiscal
year in which termination occurs. In addition, the agreement provides that all
of Mr.Hanaka's unvested stock options would vest on the termination of his
employment.
The agreement also provided that, if there is a change in control (as
defined in the agreement) of the Company, and if Mr. Hanaka's employment is
terminated (i) by the Company other than for cause (as defined in the
agreement), (ii) at his election for good reason (as defined in the agreement),
or (iii) by his death, in each case within two years after the change in
control, the Company would pay Mr. Hanaka a lump sum cash payment equal to 2.99
times the sum of his annual rate of base salary at the time of termination or
immediately prior to the change in control, whichever is greater, and the "on
plan" bonus amount targeted for him under the Bonus Plan for the fiscal year in
which termination occurs or the fiscal year immediately prior to the change in
control, whichever bonus amount is greater. The agreement also provides that, if
Mr. Hanaka terminates his employment with the Company (other than for good
reason) within one year after a change in control, the Company will pay him
through the earlier of one year after his termination or June 30, 2000 monthly
payments equal to his monthly base salary at the time of termination, plus
one-twelfth of the "on plan" bonus amount targeted for him under the Bonus Plan
for the fiscal year in which termination occurs. Finally, the agreement
obligates Mr. Hanaka not to compete against the Company, solicit its employees
or disclose confidential information about the Company before June 30, 2000.
Richard J. Lynch, Jr.
The pre-existing agreement between the Company and Mr. Lynch provided that
if his employment is terminated other than for cause or disability (as defined
in the agreement) or at his election for good reason (as defined in the
agreement), he would be entitled to severance benefits. These severance benefits
include monthly payments equal to his monthly base salary at the time of
termination, plus one-twelfth of the "on plan" bonus amount targeted for him
under the Bonus Plan for the fiscal year in which termination occurs. Such
monthly severance payments commence in the month of termination and continue for
12 full calendar months, unless termination occurs within two years after a
change in control (as defined in the agreement) of the Company, in which case
severance payments would continue for 24 full calendar months and are equal to
his monthly base salary at the time of termination or immediately prior to the
change in control, whichever is greater, plus one-twelfth of the "on plan" bonus
amount targeted for him under the Bonus Plan for the fiscal year in which
termination occurs or the fiscal year immediately prior to the change in
control, whichever bonus amount is greater.
Mr. Lynch's employment was terminated by mutual consent with the Company on
September 28, 1998, when he also resigned as a Director. At that time, the
Company and Mr. Lynch entered into a termination agreement pursuant to which the
Company agreed that (i) the 30,000 options granted on March 26, 1996 (which had
been scheduled to vest on March 26, 1999) would vest immediately, (ii) all
restrictions on the 3,425 restricted Shares purchased by Mr. Lynch under the
Management Stock Purchase Plan in March 1996 (which were scheduled to lapse in
March 1999) would lapse immediately, (iii) the 20,000 options granted to Mr.
Lynch on March 11, 1997 and the 20,000 options granted to Mr. Lynch on January
28, 1998 (which had been scheduled to vest three years after the grant date)
would become fully exercisable on September 28, 1999, unless Mr. Lynch breaches
the termination agreement, and would remain exercisable for three years
thereafter, (iv) Mr. Lynch would receive the benefit of any option repricing
offered to certain named executive officers before September 28, 1999, and (v)
the Company would pay the cost of standard medical and dental benefits for Mr.
Lynch and his family during the one year period during which severance payments
are made. In the termination agreement, Mr. Lynch agreed not to compete with the
Company, solicit its employees or disclose confidential Company information
before September28, 1999.
Robert Timinski
The pre-existing severance and change in control agreement between the
Company and Mr. Timinski is identical to that described above for Mr. Lynch.
On October 6, 1998, Mr. Timinski's employment was terminated by mutual
consent with the Company. At that time, the Company and Mr. Timinski entered
into a termination agreement pursuant to which the Company agreed that (i) the
13,200 options granted on March 26, 1996 (which had been scheduled to vest on
March 26,
12
<PAGE>
1999) would vest immediately, (ii) all restrictions on the 4,021 restricted
Shares purchased by Mr. Timinski under the Management Stock Purchase Plan in
March 1996 (which were scheduled to lapse in March 1999) would lapse
immediately, (iii) the 10,000 options granted to Mr. Timinski on March 11, 1997
and the 15,000 options granted to Mr. Timinski on January 28, 1998 (which had
been scheduled to vest three years after the grant date) would become fully
exercisable on November 1, 1999, unless Mr. Timinski breaches the termination
agreement, and would remain exercisable for three months thereafter, (iv) all
other vested options held by Mr. Timinski would remain exercisable until June
30, 1999, and (v) the Company would pay the cost of standard medical and dental
benefits for Mr. Timinski and his family during the one year period during which
severance payments are made. In the termination agreement, Mr. Timinski agreed
not to compete with the Company, solicit its employees or disclose confidential
Company information before November 1, 1999.
Anthony F. Crudele
In June 1997, the Company entered into a change in control agreement with
Mr. Crudele. The agreement provides that, if there is a change in control (as
defined in the agreement) of the Company, and if Mr. Crudele's employment is
terminated within two years after the change in control (i) by the Company other
than for cause (as defined in the agreement) or (ii) at his election for good
reason (as defined in the agreement), the Company will pay Mr. Crudele a lump
sum cash payment equal to two times the sum of his annual rate of base salary at
the time of termination or immediately prior to the change in control, whichever
is greater, and the "on plan" bonus amount targeted for him under the Bonus Plan
for the fiscal year in which termination occurs or the fiscal year immediately
prior to the change in control, whichever bonus amount is greater.
Samuel G. Allen
The severance agreement with Mr. Allen is substantially similar to the
pre-existing agreement described above for Mr. Lynch, except that it contains no
change in control provisions.
Comparative Stockholder Return
The following line graph compares the cumulative total stockholder return
on the Shares from November 17, 1994, the date of the Initial Public Offering,
through January 24, 1999 with the cumulative total return on the Standard &
Poor's 500 Stock Index ("S&P 500 Index") and the Dow Jones Retailers -- All
Specialty Index ("DJ Retailers -- All Specialty Index") for the same period. In
accordance with the rules of the Securities and Exchange Commission, the returns
are indexed to a value of $100 at November 17, 1994 and assume reinvestment of
all dividends.
Comparison of Cumulative Total Stockholder Return
The Sports Authority, Inc., S&P 500 Index
and D J Retailers -- All Specialty Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Cumulative Total Return
-----------------------------------------------------------
Date The Sports Authority, Inc. S&P 500 Index DJ Retailers
---- -------------------------- ------------- ------------
11/17/94 100 100 100
1/20/95 92 100 95
1/26/96 97 139 101
1/24/97 140 176 120
1/23/98 88 223 183
1/22/99 36 296 318
13
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information concerning the
beneficial ownership of Shares by each stockholder who is known by the Company,
based on the most recent Schedules 13G filed with the Securities and Exchange
Commission, to own beneficially more than 5% of the outstanding Shares. This
information is shown as of December 31, 1998. The table also sets forth
information concerning the beneficial ownership of Shares by each Director, each
Director nominee and the executive officers named in the Summary Compensation
Table on page 8, and by all Directors, nominees and executive officers as a
group, as of March 29, 1999. Except as otherwise indicated, all persons listed
below have sole voting power and sole dispositive power with respect to the
number of Shares shown, except to the extent that power is shared by spouses
under applicable law.
Percent of Shares
Name and Address Number of Shares Outstanding (1)
- ---------------- ---------------- ---------------
JUSCO Co., Ltd .............................. 3,030,000 9.5%
51-1, 1-chome,
Nakase, Mihama-ku,
Chiba-shi, Chiba 261, Japan
Alliance Capital Management L.P ............. 2,849,515(2) 8.9%
135 W. 50th Street
New York, NY 10020
Jack A. Smith ............................... 656,927(3) 2.0%
Martin E. Hanaka ............................ 150,000(4) *
Richard J. Lynch, Jr ........................ 190,958(5) *
Robert J. Timinski .......................... 121,621(6) *
Anthony F. Crudele .......................... 56,085(7) *
Samuel G. Allen ............................. 28,526(8) *
A. David Brown .............................. 233(9) *
Nicholas A. Buoniconti ...................... 14,078(10) *
Cynthia R. Cohen ............................ 2,006 *
Steve Dougherty ............................. 137,621(10) *
Julius W. Erving ............................ 3,891 *
Carol Farmer ................................ 12,375(10) *
Jack F. Kemp ................................ 4,364 *
Charles H. Moore ............................ 0 *
All Directors, nominees and executive
officers as a group (19 persons) .......... 1,472,050 4.5%
- ----------
* Represents less than one percent.
(1) The percentage shown for each stockholder listed is calculated by including
in the total Shares outstanding the number of Shares, if any, which the
stockholder has the right to acquire before May 28, 1999 upon the
conversion of the Company's 5.25% Convertible Subordinated Notes due 2001
(at a conversion price of $32.635 per share) held by that stockholder or
upon the exercise of employee or Director stock options.
(2) Alliance Capital Management L.P. owns the Shares shown for investment
purposes on behalf of client discretionary investment advisory accounts.
Included in the total is 3,315 Shares owned by a related company, Wood,
Struthers & Winthrop Management Corporation. Voting power is shared as to
2,751,000 of the Shares shown.
(3) Includes 66,750 restricted Shares granted under the 1996 Stock Plan (see
"Employment and Severance Agreements" on page 11); 390,938 Shares with
respect to which employee stock options are exercisable or will become
exercisable on or before May 28, 1999; 3,677 Shares which Mr. Smith has the
right to acquire upon conversion of $120,000 principal amount of the
Company's 5.25% Convertible Subordinated Notes due 2001; and 195,562
unrestricted Shares.
(4) Includes 50,000 restricted Shares issued pursuant to the 1996 Stock Plan
and 100,000 unrestricted Shares.
14
<PAGE>
(5) Includes 3,658 Shares held under the 401(k) Savings and Profit Sharing
Plan; 141,033 Shares with respect to which employee stock options are
exercisable or will become exercisable on or before May 28, 1999; and
46,267 unrestricted Shares.
(6) Includes 3,787 Shares held under the 401(k) Savings and Profit Sharing
Plan; 78,709 Shares with respect to which employee stock options are
exercisable or will become exercisable on or before May 28, 1999; and
39,125 unrestricted Shares.
(7) Includes 1,863 Shares held under the 401(k) Savings and Profit Sharing
Plan; 37,197 Shares with respect to which employee stock options are
exercisable or will become exercisable on or before May 28, 1999; and
17,025 unrestricted Shares.
(8) Includes 2,585 Shares held under the 401(k) Savings and Profit Sharing
Plan; and 24,445 Shares with respect to which employee stock options are
exercisable or will become exercisable on or before May 28, 1999; and 1,494
unrestricted Shares.
(9) This number does not include the 1,773 restricted Shares granted to Mr.
Brown for his service during the Plan Year from May 1998 to May 1999 under
the Director Stock Plan, receipt of which he has elected to defer under the
terms of the Plan.
(10) Included in the number shown for each of these Directors is 5,607 Shares
with respect to which options were granted under the Director Stock Plan.
See "Compensation of Directors" on page 5.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers to file with the Securities and
Exchange Commission and the New York Stock Exchange initial reports of
beneficial ownership on Form 3 and reports of changes in beneficial ownership of
Shares on Form 4 or Form 5. Copies of all such Section 16(a) reports are
required to be furnished to the Company. These filing requirements also apply to
holders of more than ten percent of the Shares. To the Company's knowledge,
based solely on a review of the copies of Section 16(a) reports furnished to the
Company for the 1998 fiscal year, and on representations furnished to the
Company indicating that no Form 5 was due, all reports were filed on a timely
basis except that Mr. Smith failed to report the purchase in October 1998 of
$70,000 principal amount of the Company's Convertible Subordinated Notes due
2001 until his Form 5 for the year was filed in March 1999.
CERTAIN TRANSACTIONS
Jack A. Smith
The Company opened its store in the Kendallgate Center in Miami-Dade
County, Florida, in November 1990 pursuant to a lease executed in 1989. The
Company's store is one of three anchor tenants in this center. The Kendall lease
contained a restriction against the Company opening another store within ten
miles of the Kendall store. In 1994, the Company began negotiating with the
principal owner of the Kendallgate Center to lease another store less than ten
miles from the Kendall store, but was advised that the minority owner of the
Kendallgate Center would not agree to a waiver of the radius restriction. In May
1995, SMAT Corp., of which Mr. Smith is a 50% owner, bought the minority owner's
one-third limited partnership interest in the Kendallgate Center. The
restriction was then waived and a lease for the nearby store was signed by the
Company in May 1995.
Mr. Smith did not disclose his interest in the Kendallgate Center to the
Board or to any other officer of the Company. In May 1997, the Company adopted a
policy on conflicts of interest which prohibits any employee from owning an
interest in any privately owned vendor; vendors are defined to include
landlords. Mr. Smith signed a certificate affirming his compliance with this
policy in February 1998. The Company first became aware that Mr. Smith might
have an interest in the center in December 1998.
The Kendallgate Center's distributions to SMAT Corp. for 1995, 1996, 1997
and 1998 were $0, $269,000, $360,000 and $422,000, respectively. The Company has
been advised that SMAT Corp.'s distributions from the Kendallgate Center during
1999 are expected to be approximately $360,000.
15
<PAGE>
JUSCO CO., Ltd.
In 1995, the Company entered into a joint venture agreement with JUSCO Co.,
Ltd. ("JUSCO"), a major Japanese retailer, which owns 9.5% of the outstanding
Shares. In the joint venture agreement the Company and JUSCO agreed to develop
and operate The Sports Authority stores in Japan through a jointly owned
Japanese corporation, Mega Sports Co., Ltd. ("Mega Sports"), of which 51% was
owned by the Company and 49% by JUSCO. At the end of the 1998 fiscal year, Mega
Sports operated thirteen stores in Japan.
As contemplated by the joint venture agreement, the Company entered into a
license agreement and a services agreement with Mega Sports, and JUSCO entered
into a services agreement with Mega Sports. JUSCO's services agreement required
JUSCO to provide certain management and other services to Mega Sports in
exchange for a fee equal to 1% of Mega Sports' gross sales and reimbursement of
reasonable expenses. In the 1998 fiscal year, the total amount of this fee was
$849,000.
In March 1999, the Company and JUSCO agreed to a comprehensive
restructuring of their agreements and their ownership interests in Mega Sports.
JUSCO paid $1.1 million to the Company for 32% of Mega Sports' shares, reducing
the Company's ownership interest in Mega Sports to 19%. The Company has an
option to purchase additional shares of Mega Sports from JUSCO at the same price
per share in yen as the price received by the Company, escalated at 5% per year
for three years, and at market value thereafter. The option expires when Mega
Sports shares becomes publicly traded, or when the Company owns 30% of Mega
Sports' shares, whichever is earlier. The new joint venture agreement confirms
that the Company has no liability for Mega Sports' debt, but if the Company owns
30% of Mega Sports, it would have proportionate liability for such debt.
The Company entered into a new license agreement with Mega Sports which
permits the latter to use certain trademarks, technology and know-how in
operating stores in Japan. Mega Sports must pay royalties at the rate of 1.0% of
gross sales in 1999, 1.1% of gross sales in 2000 and 1.2% of gross sales in 2001
and thereafter until 2005. Mega Sports has the option of extending the new
license agreement for three ten-year periods expiring in 2035. JUSCO has
guaranteed Mega Sports' payments to the Company under the new license agreement.
The guaranty does not apply during any fiscal year for which Mega Sports' net
equity at the end of the prior fiscal year is positive, and terminates when the
Company purchases any additional shares of Mega Sports from JUSCO.
Under the Company's new services agreement with Mega Sports, the Company
has agreed to furnish certain purchasing, merchandising and information systems
services, and Mega Sports agreed to fully reimburse the Company for costs and
make two payments of $500,000 each to the Company in May 1999 and January 2000
for services provided under the prior services agreement. Under the new services
agreement between JUSCO and Mega Sports, JUSCO has agreed to provide certain
employee, management, real estate, financial and public relations services.
A. David Brown
On December 1, 1998, David Brown was elected as a Director of the Company.
In 1998, the Company paid Pendleton James Associates, of which Mr. Brown is the
Managing Director, $100,000 for its successful executive search work on behalf
of the Company. Pendleton James is currently engaged in additional executive
search work on behalf of the Company, for which its compensation, if successful,
will be less than $60,000.
16
<PAGE>
PROPOSAL 2
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF
THE 1994 STOCK OPTION PLAN
On April 1, 1999, upon the recommendation of its Compensation Committee,
the Board amended and restated the 1994 Stock Option Plan, subject to approval
by the Company's stockholders. The 1994 Stock Option Plan as in effect before
the amendment is referred to herein as the "Prior Plan," and as amended and
restated, it is referred to herein as the "Plan." The complete text of the Plan
is set forth in Exhibit A. APPROVAL OF THE PLAN WILL NOT RESULT IN ANY INCREASE
IN THE NUMBER OF SHARES FOR WHICH OPTIONS MAY BE GRANTED, NOR WILL IT EXTEND THE
TERM OF THE PRIOR PLAN. If the Company's stockholders do not approve the Plan,
the Prior Plan will remain in effect.
The Board recommends that stockholders vote "FOR" approval of the Plan. The
affirmative vote of the holders of a majority of the Shares present in person or
by proxy and entitled to vote at the Meeting is required to approve adoption of
the Plan. In determining whether this proposal has received the requisite number
of affirmative votes, abstentions will be counted and will have the same effect
as a vote against the proposal and broker non-votes will have no effect.
Reasons for Amending and Restating the Prior Plan
The Prior Plan was adopted immediately before the Company's initial public
offering in November 1994 and approved by the Company's then sole stockholder,
Kmart Corporation. At that time, options granted under the Prior Plan qualified
as "performance-based compensation" under Section 162(m) of the Internal Revenue
Code, as amended ("Section 162(m)"). Under Section 162(m), a public company's
deductions for employee compensation exceeding $1,000,000 per year for the chief
executive officer and the four other most highly compensated executive officers
are disallowed, except in the case of "performance-based compensation." Under
Section 162(m)'s transition rules, the Prior Plan's qualification expired in May
1997. Since that date, all options granted to the Company's senior executives
have been granted under the 1996 Stock Option and Restricted Stock Plan (the
"1996 Plan"), under which options granted qualify as "performance-based
compensation" under Section 162(m).
The primary reason for amending the Prior Plan and submitting it to the
Company's stockholders for approval is to enable options granted under it to
qualify as "performance-based compensation" under Section 162(m). In addition,
the amendment and restatement of the Prior Plan makes it substantially identical
to the 1996 Plan, with two exceptions noted below, thus eliminating minor
wording variations and allowing for more consistency in administering the
Company's stock option plans. The only material differences between the Plan and
the 1996 Plan are as follows: (i) the 1996 Plan provides for the grant of
restricted shares, while both the Prior Plan and the Plan do not; and (ii) the
1996 Plan limits the number of Shares on which options may be granted to any one
person during the ten-year term of that plan to 300,000 Shares, while the Plan
limits the number of Shares on which options may be granted to any one person
during any fiscal year of the Company to 250,000 Shares.
The only material differences between the Plan and the Prior Plan are as
follows: (i) the Plan limits the number of Shares on which options may be
granted to any one person during any fiscal year of the Company to 250,000
Shares, beginning with the 1999 fiscal year, while the Prior Plan limits the
number of Shares on which options may be granted to any one person during the
term of that plan to 569,275 Shares; (ii) the Plan, like the 1996 Plan, provides
a procedure for options to be granted in lieu of cash annual incentive bonuses;
and (iii) the Plan permits options to contain a vesting period of as little as
one year, while the Prior Plan required a three-year vesting period for all
options with a term greater than three years.
Description of the Plan
Purpose
The purpose of the Plan is (i) to attract and retain officers and other key
employees of the Company and its subsidiaries, (ii) to increase the proprietary
interest in the Company of such persons by providing further opportunity for
ownership of the Company's shares, and (iii) to increase the incentives to such
persons to contribute to the success of the Company's business.
17
<PAGE>
Effective Date, Effect on Previously Granted Options, and Term
The Plan, as amended and restated, will become effective on April 1, 1999,
subject to approval by the stockholders at the Meeting. Approval of the Plan
will not adversely affect any rights of holders of outstanding options under the
terms of the Prior Plan. The term during which grants may be made expires on
December 31, 2004, under both the Prior Plan and the Plan.
Administration
The Plan is administered by the Committee. No person may be a member of the
Committee if he or she would fail to be (i) a "Non-Employee Director" under Rule
16b-3, as amended from time to time ("Rule 16b-3"), under the Securities
Exchange Act of 1934, as amended, or (ii) an "outside director" under Section
162(m) and the regulations promulgated thereunder. The Committee has sole
discretion and authority to construe and interpret the Plan, to make factual
determinations and to establish and amend rules for the administration of the
Plan. The Committee has no obligation to treat persons uniformly, except to the
extent otherwise specifically provided in the Plan. All actions by the Committee
may be taken in its sole discretion and will be conclusive and binding on all
parties.
Shares Subject to the Plan; Adjustments
Approval of the Plan will not result in any increase in the number of
Shares for which options may be granted, compared to the Prior Plan. The number
of Shares originally authorized for issuance under the Prior Plan was 2,274,591,
as adjusted for the Company's stock split in 1996. Of these Shares, 250,808 have
been issued pursuant to the exercise of options, 1,769,160 are subject to
currently outstanding options, and 254,623 remain available for grants. Of the
Shares subject to currently outstanding options, 654,527 are subject to options
at an exercise price of $11.91 which are scheduled to expire in November 1999.
All Shares subject to options which expire or are cancelled, surrendered or
terminated for any reason will be available for new grants under the Prior Plan.
If all of the options scheduled to expire in November 1999 remain unexercised,
the number of Shares available for option grants under the Plan would be
910,050.
The Plan limits the number of Shares on which options may be granted to any
one person during any fiscal year of the Company to 250,000 Shares.
If there is any change in the number or class of Shares through the
declaration of Share dividends, or recapitalization, or combinations or
exchanges of such Shares or similar corporate transactions, or if the Committee
otherwise determines that, as a result of a corporate transaction involving a
change in the Company's capitalization, it is appropriate to effect adjustments,
the aggregate number or class of Shares on which options may be granted or which
may be issued under the Plan, the per-person limits on grants, the number or
class of Shares covered by each outstanding option, and the price per Share in
each option, shall all be appropriately adjusted by the Committee.
Amendment of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that no amendment which requires stockholder approval in order for the
exemptions available under Rule l6b-3 or Section 162(m) to be applicable to the
Plan will be effective unless the same is approved by the Company's
stockholders.
Eligibility
The Committee may grant options and restricted Shares to officers and other
key employees of the Company or its Subsidiaries, including Directors who are
full-time employees. The Company estimates that there are currently
approximately 700 such employees, 20 of whom are currently officers or
Directors. In making such grants, the Committee may consider the position and
responsibilities of the employee, the nature and value to the Company of his or
her services and accomplishments, his or her present and potential contribution
to the success of the Company, and such other factors as the Committee may deem
relevant, but the Committee is not required to treat employees uniformly.
18
<PAGE>
Stock Options
The Committee has sole discretion, in accordance with the Plan, to
determine to whom an option is granted, the number of Shares optioned, each
option's term and vesting and exercisability provisions, and all other terms and
conditions thereof. Each option will be a non-qualified stock option (a
"Non-Qualified" option) unless it is specifically designated by the Committee at
the time of grant as an incentive stock option (an "Incentive" option). An
Incentive option is intended to meet the requirements of Section 422 of the
Internal Revenue Code.
The Committee may grant Non-Qualified options to those employees otherwise
eligible to receive them wholly or partially in lieu of bonuses under any annual
bonus plan of the Company to which such employees might otherwise be entitled.
The Committee will have sole discretion to determine the method of valuing
options and bonuses for this purpose, and may grant options of equal, greater or
lesser value, as so determined, than the bonuses such options would replace. The
Committee will have sole discretion to vary such valuation methods among
individual optionees and from one grant to the next.
The option price of each option granted under the Plan may not be less than
the fair market value of a Share on the date of grant of such option, except
that options granted in lieu of a bonus may be granted at a price not less than
80% of the fair market value. The optionee may pay the option price in cash or
Shares (subject to any restrictions the Committee may impose), valued at their
fair market value on the date notice of exercise is received by the Company, or
a combination thereof.
The term of each option may not exceed ten years from the date of grant. No
option shall be exercisable, and no option which is not granted in lieu of a
bonus shall vest, until the optionee shall have completed one year as an
employee after the date of grant. Notwithstanding this limitation, vesting and
exercisability will be accelerated if termination of employment of the optionee
results from death or total and permanent disability, or if termination of
employment of the optionee occurs at or after age 65 and the optionee has ten or
more years of full-time service with the Company or a Subsidiary, or in the
event of a change in control (as defined in Section 5(b)(ii) of the Plan) of the
Company, or if and to the extent the Committee may so determine in its sole
discretion. An option may be exercised by an optionee only while such optionee
is in the employ of the Company or a Subsidiary or within three months
thereafter, or such longer period as the Committee may determine in its sole
discretion, and only if any limitation on the right to exercise such option has
been removed or has expired prior to termination of employment; provided that,
(i) if at the date of termination of employment, the optionee has ten or more
years of full-time service with the Company or a Subsidiary or if termination of
employment results from death or total and permanent disability, such three
month period will be extended to three years, and (ii) for then-vested options
granted in lieu of bonuses, such three month period shall be extended to three
months after the date such options were scheduled to first become exercisable.
No option will be subject to any debts or liabilities of an optionee or be
assignable or transferable except by will or the laws of descent and
distribution, except that Non-qualified options and related rights may be
transferred to one or more transferees during the optionee's lifetime, but only
if and to the extent then permissible without the loss of the exemption under
Rule 16b-3 and otherwise permitted by the Committee.
Certain Federal Income Tax Consequences
Tax Deductibility under Section 162(m)
Section 162(m) disallows a public company's deductions for employee
compensation exceeding $1,000,000 per year for the chief executive officer and
the four other most highly compensated executive officers, but contains an
exception for "performance-based compensation." The Plan has been drafted and is
intended to be administered to enable all stock options to qualify as
"performance-based compensation."
Tax Treatment of Options
No income will be realized by an optionee upon grant of a Non-qualified
option. Upon exercise of a Non-qualified option, the optionee will recognize
ordinary compensation income in an amount equal to the excess, if any, of the
fair market value of the Shares acquired over the option exercise price (the
"Spread") at the time of exercise. The Spread will be deductible by the Company
for federal income tax purposes (i) provided that applicable federal income tax
withholding requirements are satisfied and (ii) subject to the possible
limitations on
19
<PAGE>
deductibility under Section 162(m) of compensation paid to the executives
designated in that Section. The optionee's tax basis in the Shares acquired will
equal the exercise price plus the amount taxable as compensation to the
optionee. Upon a sale of the Shares acquired upon exercise, any gain or loss is
generally long-term or short-term capital gain or loss, depending on the holding
period. The required holding period for long-term capital gain is presently more
than one year. The optionee's holding period for Shares acquired upon exercise
will begin on the date of exercise.
Incentive option holders generally incur no federal income tax liability at
the time of grant or upon exercise of such options. However, the Spread will be
an "item of tax preference" which may give rise to "alternative minimum tax"
liability at the time of exercise. If the optionee does not dispose of the
Shares before the two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain or loss, as the
case may be. Assuming both holding periods are satisfied, no deduction will be
allowable to the Company for federal income tax purposes in connection with the
grant or exercise of the option. If, within two years of the date of grant or
within one year from the date of exercise, the holder of Shares acquired upon
exercise of an Incentive option disposes of such Shares, the optionee will
generally realize ordinary compensation at the time of such disposition equal to
the difference between the exercise price and the lesser of the fair market
value of the stock on the date of initial exercise or the amount realized on the
subsequent disposition, and the amount realized upon such disposition will be
deductible by the Company for federal income tax purposes, subject to the
possible limitations on deductibility under Section 162(m) of compensation paid
to executives designated in that Section.
The preceding discussion is based on the Internal Revenue Code as presently
in effect, which is subject to change, and does not purport to be a complete
description of the federal income tax aspects of options under the Plan.
Benefits Under the Plan
On April 1, 1999, the Committee made a grant of options to purchase 250,000
Shares to Martin Hanaka, subject to and effective upon stockholder approval of
the Plan, at an option price equal to the fair market value of a Share on the
date of such approval. Such options will vest on the third anniversary of the
date of such approval and will have a term of ten years from such date.
Market Price of Shares
The closing price of the Company's Shares, as reported in The Wall Street
Journal, New York Stock Exchange -- Composite Transactions, for April 14, 1999
was $8.0625.
PROPOSAL 3
APPROVAL OF THE SPORTS AUTHORITY, INC.
PERFORMANCE UNIT PLAN
On April 1, 1999, upon the recommendation of its Compensation Committee
(the "Committee"), the Board of Directors adopted The Sports Authority, Inc.
Performance Unit Plan (the "Plan"), subject to approval by the Company's
stockholders at the Meeting. The Plan is intended to serve as a qualified
performance-based compensation program under Section 162(m) of the Internal
Revenue Code ("Section 162(m)"). By so qualifying, the Company's tax deduction
for compensation paid under the Plan to the Chief Executive Officer and certain
other executive officers will not be restricted by Section 162(m). The Plan is
described below and the complete text of the Plan is set forth in Exhibit B.
The Board recommends that stockholders vote "FOR" approval of the Plan. The
affirmative vote of the holders of a majority of the Shares present in person or
by proxy and entitled to vote at the Meeting is required to approve the Plan. In
determining whether this proposal has received the requisite number of
affirmative votes, abstentions will be counted and will have the same effect as
a vote against the proposal and broker non-votes will have no effect.
20
<PAGE>
Reasons for the Plan
In September 1998, the Committee engaged HayGroup, an independent
compensation consulting firm, to review the Company's executive compensation
program. After a comparison of the Company's program with the executive
compensation programs of a group of high performing retailers, HayGroup
recommended to the Committee a mix of compensation elements it believed
necessary to attract and retain high caliber executives, including (i) base
salaries set at the 40th percentile of the comparison group, (ii) annual
incentive bonuses set at the 75th percentile of the comparison group if the
Company's performance targets are achieved, and (iii) long-term compensation set
at the 75th percentile of the comparison group if the Company's performance
targets are achieved. The Plan was recommended by HayGroup to the Committee, and
approved by the Committee and the Board, in order to implement the recommended
long-term compensation program in combination with grants under the Company's
stock option plans. The Committee and the Board believed that reliance entirely
on stock options to implement this program would have unduly diluted the
Company's stockholders.
Description of the Plan
Purpose
The purpose of the Plan is (i) to focus management's attention on creating
sustained growth in earnings per share; (ii) to promote teamwork and cooperation
by aligning management's economic interest toward accomplishing the same goal;
(iii) to facilitate the recruitment, retention and motivation of key employees;
and (iv) to provide management with total compensation opportunities that are
competitive with the market in which the Company competes for business or
talent.
Effective Date and Term
The Plan became effective on January 25, 1999, subject to approval by the
stockholders at the Meeting. If the stockholders vote not to approve the Plan,
the Plan will be automatically terminated and all outstanding units will be
forfeited.
No performance period under the Plan may begin later than the first day of
the Company's 2003 fiscal year. Under the Plan, each Company fiscal year is a
"plan year."
Administration
The Plan is administered by the Committee. The Committee has the authority
and sole discretion to administer the Plan, to construe and interpret the Plan,
to prescribe, amend and rescind any rules and to make all factual determinations
which it deems necessary or advisable for the proper administration of the Plan.
All decisions, actions and determinations of the Committee are conclusive and
binding on all parties.
Amendment or Termination of the Plan
The Board may from time to time amend or terminate the Plan, provided that
no amendment that requires stockholder approval in order to comply with Section
162(m) will be effective unless the amendment is approved by the Company's
stockholders.
Eligibility
The Committee will determine the employees who are eligible to participate
in the Plan. Each participant must be employed on a regular, full-time basis by
the Company or a subsidiary. In determining whether an employee may participate
in the Plan, the Committee will consider his or her present and potential
contribution to the success of the Company and any other factors the Committee
deems proper and relevant; in any event, the employee must be in a position that
has a direct impact on improving the Company's long-term earnings per share
performance.
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<PAGE>
Grant of Units; Performance Periods
At its discretion, the Committee will grant units to participants within 90
days after the start of each performance period. Each performance period will be
a period of three plan years, unless otherwise specified by the Committee. A
unit is an interest under the Plan, the value of which depends upon the
financial performance of the Company in comparison to the goal specified by the
Committee. The initial value for each unit will be $1.00. If the minimum
performance goal is not met, the unit will be worth nothing. The Committee will
also set one or more higher performance levels. As each of these higher
performance levels are met the value of the unit will increase by a specified
percentage to a maximum of $2.00.
The number of units to be granted to a participant will be determined by
the Committee based on the participant's role and responsibilities and
competitive levels of long-term compensation. No participant may receive more
than 1,000,000 units in any performance period nor more than $2,000,000 for such
performance period.
Performance Goal
The performance goal for each performance period will be based on growth in
earnings per share. If the Committee grants units for a performance period, the
Committee will determine the goal for the performance period and the associated
percentages that will determine the actual value of such units. Once the goal
has been specified for a performance period it will not be changed unless the
Committee determines, in good faith, that the Company's circumstances have so
changed due to an unusual set of events that the goal must be changed to reflect
the new circumstances. No such change will be made, however, if making such
change would result in the reduction of the Company's Federal income tax
deduction for compensation paid under the Plan by reason of Section 162(m). The
Committee will also determine levels of achievement of the goal which will
result in the participants receiving payments of from between zero and $2.00 for
each unit granted.
The Committee will determine and certify whether, and to what extent, the
performance goal has been met within 120 days after each performance period.
Vesting
A participant's right to the units awarded for any performance period will
vest on the last day of that performance period. In addition, if a participant
retires, becomes disabled or dies after the first plan year in any performance
period, his or her right to units for that performance period will vest on a pro
rata basis to the date of such event. If a participant's employment is
terminated involuntarily but not for cause after the first plan year in any
performance period, the Committee may provide in its discretion that such
participant's right to some or all of the units will vest on a pro rata basis to
the date of termination. If a participant's employment is terminated for any
other reason before the last day of the performance period, then the participant
will forfeit all of his or her units for that performance period. See "Change in
Control" below for a description of vesting upon a change in control of the
Company.
Redemption and Payment for Units
Upon completion of a performance period and the Committee's certification
of the extent to which the performance goal has been met, the Company will pay
each participant in cash the value of the participant's vested units determined
by multiplying $1.00 by the applicable percentage based on the achievement the
performance goal. The Committee may permit a participant to defer the receipt of
some or all of the payment due for vested units under the Plan and have the
amount of such payment credited to a deferred compensation plan maintained by
the Company.
Change in Control
If a change in control of the Company, as defined in the Plan, occurs
during one or more performance periods as to which performance goals have been
set and units have been granted, each such performance period shall be deemed to
have been completed, the actual unit value of each unit shall be deemed to equal
$1.00, and a pro rata portion of the units previously granted to each
participant for each such partial performance period will be redeemed
immediately by payment in cash to each such participant.
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<PAGE>
Federal Income Tax Treatment
The following discussion is based on the Internal Revenue Code as presently
in effect, which is subject to change, and does not purport to be a complete
description of the federal income tax aspects of grants under the Plan.
Tax Deductibility under Section 162(m)
Section 162(m) disallows a public company's deductions for employee
remuneration exceeding $1,000,000 per year for the chief executive officer and
the four other most highly compensated executive officers, but contains an
exception for "performance-based compensation." The Plan has been drafted and is
intended to be administered to enable payments in redemption of units to qualify
as "performance-based compensation."
Tax Treatment of Payment for Units
The participants will recognize ordinary compensation income in an amount
equal to the payment that they receive for units under the Plan. The Company
generally will be entitled to a corresponding federal income tax deduction at
the time of the payment.
Tax Withholding
The Company will deduct from all amounts paid in cash, any federal, state
or local taxes required by law to be withheld.
Benefits Under the Plan
If the Plan had been in effect for either a two-year or three-year
performance period ending with the Company's 1998 fiscal year, no benefits would
have been payable for such a performance period under the Plan.
The Committee has made the following grants of units under the Plan for the
first performance period, which consists of the 1999 and 2000 plan years, and
for the second performance period, which consists of the 1999, 2000 and 2001
plan years, to all employees eligible to participate in the Plan. If the Plan is
not approved at the Meeting, all such units will be forfeited.
<TABLE>
<CAPTION>
Units, Dollar Value (2)
-----------------------------
Name and Position 1999-2000 1999-2001
- ----------------- --------- ---------
<S> <C> <C>
Martin E. Hanaka .............................................. 175,000 175,000
Chief Executive Officer
Anthony F. Crudele ............................................ 45,000 45,000
Senior Vice President and
Chief Financial Officer
Samuel G. Allen ............................................... 0 0
International President
All current executive officers as a group (8 persons) ......... 550,000 550,000
All outside Directors as a group 0 0
All employees other than executive officers (11 persons) ...... 290,000 290,000
</TABLE>
- ----------
(1) Of the persons named in the Summary Compensation Table on page 8, Messrs.
Smith, Lynch and Timinski are not shown because they are no longer employed
by the Company and therefore are ineligible for grants under the Plan.
(2) The dollar value shown is the target unit value, which assumes that the
Company's earnings per share in the last plan year in the performance
period will exactly meet the goal.
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PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
On April 1, 1999, the Board, acting upon the recommendation of the Audit
Committee, voted to replace its independent public accountants,
PricewaterhouseCoopers LLP ("PwC"), which has served as the independent public
accountants of the Company since 1987. The reports of PwC on the 1997 and 1998
fiscal years did not contain any adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. During the 1997 and 1998 fiscal years and the period since the end
of the 1998 fiscal year, there were no disagreements between the Company and PwC
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of PwC, would have caused it to make a reference to the
subject matter of the disagreements in connection with its report. In addition,
during the 1997 and 1998 fiscal years and the period since the end of the 1998
fiscal year, there were no "reportable events" within the meaning of Item 304 of
the Securities and Exchange Commission's Regulation S-K.
On April 1, 1999, the Board, acting upon the recommendation of the Audit
Committee, appointed the firm of Ernst & Young LLP ("E&Y") as independent public
accountants to make an examination of the financial statements of the Company
for the 1999 fiscal year. The appointment of E&Y is subject to ratification by
the stockholders at the Meeting. One or more representatives of E&Y will be
present at the Meeting and will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The Board recommends that stockholders vote "FOR" such ratification.
Ratification will require the affirmative vote of the holders of a majority of
the Shares present in person or by proxy and entitled to vote at the Meeting. In
determining whether this proposal has received the requisite number of
affirmative votes, abstentions will be counted and will have the same effect as
a vote against the proposal and broker non-votes will have no effect.
STOCKHOLDER PROPOSALS AND NOMINATIONS
In accordance with Rule 14a-8 under the Exchange Act, any stockholder
proposals intended to be presented at the 2000 Annual Meeting of Stockholders
must be received by the Company no later than December 23, 1999 in order to be
considered for inclusion in the Proxy Statement and proxy relating to that
meeting.
Sections 8 and 9 of Article II of the Company's By-Laws provide that, in
order for a stockholder to nominate a person for election to the Board or to
propose any matter for consideration at an annual meeting of the Company, such
stockholder must be a stockholder of record on the date the notice described
below is given and on the record date for the annual meeting, and must have
given timely prior written notice to the Secretary of the Company of such
stockholder's intention to make such nomination or bring such matter before the
meeting. To be timely, notice must be received by the Company not less than 60
days nor more than 90 days prior to the date of the annual meeting; provided,
however, that in the event less than 70 days notice or prior public disclosure
of the date of the annual meeting is given to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
If such notice relates to a nomination, it must contain certain information
about the person whom the stockholder proposes to nominate and the stockholder
giving the notice, including the name, age, residence and business address,
occupation, and class and number of shares of capital stock owned beneficially
or of record by the proposed nominee and the name, record address and class and
number of shares of capital stock owned beneficially or of record by such
stockholder as well as a description of any arrangements or understandings
between such stockholder and the proposed nominee pursuant to which the
nomination is to be made. In addition, such notice must contain any other
information related to the proposed nominee or such stockholder that would be
required to be disclosed in a proxy statement. The notice must also contain a
representation that such stockholder intends to appear in person or by proxy at
the annual meeting to nominate the person named in such notice. Such notice must
be accompanied by a written consent of each proposed nominee to being named as a
nominee and to serve as a Director if elected.
If such notice relates to any matter other than a nomination, it must
contain certain information about such matter and the stockholder who proposes
to bring the matter before the annual meeting, including the name and
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record address of such stockholder, a brief description of the matter the
stockholder proposes to bring before the meeting, the reasons for bringing such
matter before the annual meeting, the class and number of Shares of capital
stock owned beneficially or of record by such stockholder, any material interest
of such stockholder in the matter so proposed, a description of all arrangements
or understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal by such stockholder and
a representation that such stockholder intends to appear in person or by proxy
at the annual meeting to bring such matter before the meeting.
WHEN IT BECOMES AVAILABLE, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY
PERSON FROM WHOM A PROXY IS SOLICITED BY THE BOARD, UPON WRITTEN REQUEST, A COPY
OF THE COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K, INCLUDING ITS FINANCIAL
STATEMENTS AND SCHEDULES (AS WELL AS EXHIBITS, IF SPECIFICALLY REQUESTED),
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN
REQUESTS SHOULD BE DIRECTED TO ANTHONY F. CRUDELE, SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, THE SPORTS AUTHORITY, INC., 3383 NORTH STATE ROAD 7,
FORT LAUDERDALE, FLORIDA 33319.
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EXHIBIT A
THE SPORTS AUTHORITY, INC.
1994 STOCK OPTION PLAN
(as amended and restated April 1, 1999, subject to shareholder approval)
1. Purpose. The Sports Authority, Inc. 1994 Stock Option and Restricted
Stock Plan, as amended and restated (the "Plan"), is intended (i) to attract and
retain officers and other key employees of The Sports Authority, Inc. (the
"Company") and its "Subsidiaries" (business entities which have a majority of
their equity interests owned directly or indirectly by the Company); (ii) to
increase the proprietary interest in the Company of such persons by providing
further opportunity for ownership of the Company's common shares, $.01 par value
(the "Shares"); and (iii) to increase the incentives to such persons to
contribute to the success of the Company's business.
2. Administration. The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors (the "Board") consisting of not
less than two directors of the Company appointed by the Board (the "Committee").
Members of the Committee shall be appointed by and serve at the pleasure of the
Board. No person may be a member of the Committee if he or she would fail to be
(i) a "Non-Employee Director " under Rule 16b-3, as amended from time to time
("Rule 16b-3"), under the Securities Exchange Act of 1934, as amended from time
to time (the "Exchange Act") or (ii) an "outside director" under Section 162(m)
of the Internal Revenue Code of 1986, as amended from time to time (the "Code"),
and the regulations promulgated thereunder.
The Committee shall have sole discretion and authority to construe and
interpret the Plan, to make factual determinations and to establish and amend
rules for the administration of the Plan. The Committee shall have no obligation
to treat persons uniformly, except to the extent otherwise specifically provided
in the Plan. All actions by the Committee may be taken in its sole discretion
and shall be conclusive and binding on all parties.
3. Shares. The number of Shares reserved for the grants under the Plan as
of April 1, 1999 shall be 2,023,783, which is the number of Shares originally
reserved under the Plan, as adjusted for stock splits and the issuance prior to
April 1, 1999 of Shares upon the exercise of options previously granted. The
number of Shares on which options may be granted to any one person under the
Plan during any fiscal year of the Company, beginning with the 1999 fiscal year,
shall not exceed 250,000. Shares to be issued under the Plan may be either
authorized and unissued shares or issued shares which shall have been reacquired
by the Company. In the event that any outstanding option, or portion thereof,
expires or is cancelled, surrendered or terminated for any reason, the Shares
allocable to the unexercised portion of such option may again be subjected to a
grant or be issued under the Plan.
4. Grant of Options.
(a) General Powers of Committee. The Committee may grant options to
purchase Shares to officers and other key employees of the Company or its
Subsidiaries, including directors who are full-time employees, if any. The
Committee shall have sole discretion, in accordance with the provisions of the
Plan, to determine to whom an option is granted, the number of Shares optioned
and the terms and conditions of the option, and shall have the authority to
accelerate the vesting or exercisability of any option. In making such
determinations, the Committee may consider the position and responsibilities of
the employee, the nature and value to the Company of his or her services and
accomplishments, his or her present and potential contribution to the success of
the Company, and such other factors as the Committee may deem relevant, but
shall not be required to treat employees uniformly.
(b) Types of Options. Each option granted under the Plan shall be a
non-qualified stock option (a "Non-Qualified" option) unless it is specifically
designated by the Committee at the time of grant as an incentive stock option
(an "Incentive" option). An Incentive option is intended to meet the
requirements of Section 422 of the Code. The aggregate Fair Market Value
(determined at the time the option is granted) of the Shares as to which
Incentive options are exercisable for the first time by the optionee during any
calendar year under the Plan and any other stock option plan of the Company year
shall not exceed $100,000 (as determined in accordance with the rules set forth
in Section 422 of the Code).
(c) Options Granted In Lieu of Bonuses.Pursuant to its powers under Section
4(a), the Committee may grant Non-Qualified options to those employees otherwise
eligible to receive them wholly or partially in lieu of
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bonuses under any annual bonus plan of the Company to which such employees might
otherwise be entitled. The Committee shall have sole discretion to determine the
method of valuing options and bonuses for this purpose, and shall be entitled to
grant options of equal, greater or lesser value, as so determined, than the
bonuses such options would replace. The Committee shall have sole discretion to
vary such valuation methods among individual optionees and from one grant to the
next.
(d) General Provisions. Options granted under the Plan shall be subject to
and governed by the provisions of the Plan, including the terms and conditions
set forth in this Section 4 and Section 5 hereof and by such other terms and
conditions, not inconsistent with the Plan, as shall be determined by the
Committee. The date on which an option shall be granted shall be the date that
the optionee, the number of Shares optioned and the terms and conditions of the
option are determined by the Committee, or as otherwise specified by the
Committee. Each option shall be evidenced by a Share Option Agreement in such
form as the Committee may from time to time approve.
5. Terms and Conditions of Options.
(a) Option Price. The option price of each option granted under the Plan
shall not be less than the Fair Market Value of a Share on the date of grant of
such option, except that options granted under Section 4(c) in lieu of a bonus
may be granted at a price not less than 80% of the Fair Market Value of a Share
on the date of grant of such option. Fair Market Value of a Share for purposes
of the Plan shall be deemed to be the closing price on the New York Stock
Exchange Composite Transactions Tape (or its equivalent if the Shares are not
traded on the New York Stock Exchange) of a Share for the trading day
immediately prior to the relevant valuation date.
(b) Period of Option, Vesting and When Exercisable.
(i) An option granted under the Plan may not be exercised after the earlier
of (A) the date specified by the Committee, which shall be a maximum of ten
years from date of grant, or (B) the applicable time limit specified in
paragraph (iii) of this Section 5(b). Any option not exercised within the
aforementioned time period shall automatically terminate at the expiration of
such period.
(ii) The time or times during which options may become nonforfeitable
("vest") or become exercisable and any conditions pertaining to the vesting or
exercisability thereof, shall be determined by the Committee at the time of
grant; provided that, except as set forth below, no option shall be exercisable,
and no option which is not granted in lieu of a bonus shall vest, until the
optionee shall have completed one year as an employee of the Company or its
Subsidiaries after the date of grant. Notwithstanding this limitation, vesting
and exercisability shall be accelerated (A) if termination of employment of the
optionee results from death or total and permanent disability, or (B) if
termination of employment of the optionee occurs at or after age 65 and the
optionee has ten or more years of full-time service with the Company or a
Subsidiary, or (C) in the event of a Change in Control of the Company, or (D) if
and to the extent the Committee may so determine in its sole discretion. A
Change in Control shall be deemed to have occurred if:
(a) the "beneficial ownership" (as defined in Rule l3d-3 under the
Exchange Act) of securities representing more than 20% of the combined
voting power of the Company is acquired by any "person" as defined in
section 13(d) or section 14(d) of the Exchange Act (other than the Company
or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company), or
(b) the stockholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to
sell or otherwise dispose of all or substantially all of its assets, or
adopt a plan of liquidation, or
(c) during any period of three consecutive years, individuals who at
the beginning of such period were members of the Board cease for any reason
to constitute at least a majority thereof (unless the election, or the
nomination for election by the Company's stockholders, of each new director
was approved by a vote of at least a majority of the directors then still
in office who were directors at the beginning of such period).
(iii) An option may be exercised by an optionee only while such optionee is
in the employ of the Company or a Subsidiary or within three months thereafter,
or such longer period as the Committee may determine in its sole discretion, and
only if any limitation upon the vesting of and the right to exercise such option
under Section 5(b)(ii) has been removed or has expired prior to termination of
employment and exercise is not otherwise
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precluded hereunder; provided that, (i) if at the date of termination of
employment, the optionee has ten or more years of full-time service with the
Company or a Subsidiary or if termination of employment results from death or
total and permanent disability, such three month period shall be extended to
three years, and (ii) for then-vested options granted in lieu of bonuses, such
three month period shall be extended to three months after the date such options
were scheduled to first become exercisable. Employment with a Subsidiary shall
be deemed terminated on the date a former Subsidiary ceases to be a Subsidiary
of the Company.
(iv) In the event of the disability of an optionee, an option which is
otherwise exercisable may be exercised by the optionee's legal representative or
guardian. In the event of the death of an optionee, either before or after
termination of employment, an option which is otherwise exercisable may be
exercised by the person or persons whom the optionee shall have designated in
writing on forms prescribed by and filed with the Committee ("Beneficiaries"),
or, if no such designation has been made, by the person or persons to whom the
optionee's rights shall have passed by will or the laws of descent and
distribution ("Successor(s)"). The Committee may require an indemnity and/or
such evidence or other assurances as it may deem necessary in connection with an
exercise by a legal representative, guardian, Beneficiary or Successor.
(c) Exercise and Payment.
(i) Subject to the provisions of Section 5(b), an option may be exercised
by notice (in the form prescribed by the Committee) to the Company specifying
the number of Shares to be purchased. Payment for the number of Shares purchased
upon the exercise of an option shall be made in full at the price provided for
in the applicable Share Option Agreement. Such purchase price shall be paid by
the delivery to the Company of cash (including check or similar draft) in United
States dollars or whole Shares (subject to any restrictions the Committee may
impose), or a combination thereof. Shares used in payment of the purchase price
shall be valued at their Fair Market Value as of the date notice of exercise is
received by the Company. Any Shares delivered to the Company shall be in such
form as is acceptable to the Company.
(ii) The Company may defer making delivery of Shares under the Plan until
satisfactory arrangements have been made for the payment of any tax attributable
to exercise of the option. The Committee may, in its sole discretion, permit an
optionee to elect, in such form and at such time as the Committee may prescribe,
to pay all or a portion of all taxes arising in connection with the exercise of
an option by electing to (a) have the Company withhold whole Shares, or (b)
deliver other whole Shares previously owned by the optionee having a Fair Market
Value not greater than the amount to be withheld; provided that the amount to be
withheld shall not exceed the total Federal, State and local tax withholding
obligations associated with the transaction.
(d) Termination of Option by Optionee. An optionee may at any time elect,
in a written notice filed with the Committee, to terminate a Non-Qualified
option with respect to any number of shares as to which such option shall not
have been exercised.
(e) Nontransferability. No option or any rights with respect thereto shall
be subject to any debts or liabilities of an optionee, nor be assignable or
transferable except by will or the laws of descent and distribution; provided
that Non-qualified options and related rights may be transferred to one or more
transferees during the optionee's lifetime, and such transferees may exercise
rights thereunder in accordance with the terms hereof, but only if and to the
extent then permissible without the loss of the exemption under Rule 16b-3 and
otherwise permitted by the Committee.
(f) Rights as a Stockholder. An optionee shall have no rights as a record
holder with respect to Shares covered by his or her option until the date of
issuance to him or her of a certificate evidencing such Shares after the
exercise of such option and payment in full of the purchase price. No adjustment
will be made for cash dividends for which the record date is prior to the date
such certificate is issued.
6. Limitations on Rights of Optionees.
(a) Employment. No provision of the Plan, nor any term or condition of any
grant of an option, nor any action taken by the Committee, the Company or a
Subsidiary pursuant to the Plan, shall give or be construed as giving an
optionee any right to be retained in the employ of the Company or of any
Subsidiary, or affect or limit in any way the right of the Company or any
Subsidiary to terminate the employment of any optionee.
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(b) Conditions. Notwithstanding anything contained herein to the contrary,
all rights with respect to all options are subject to the conditions that the
optionee not engage or have engaged in fraud, embezzlement, defalcation, gross
negligence in the performance or nonperformance of the optionee's duties (other
than as a result of total and permanent disability) or material failure or
refusal to perform the optionee's duties at any time while in the employ of the
Company or a Subsidiary, and all rights with respect to all options are subject
to the conditions that the optionee not engage or have engaged in activity
directly or indirectly in competition with any business of the Company or a
Subsidiary, or in other conduct inimical to the best interests of the Company or
a Subsidiary, following the optionee's termination of employment. If it is
determined by the Committee that there has been a failure of any such condition,
all options and all rights with respect to all options granted to such optionee
shall immediately terminate and be null and void.
7. Adjustments. If there is any change in the number or class of Shares
through the declaration of Share dividends, or recapitalization, or combinations
or exchanges of such Shares or similar corporate transactions, or if the
Committee otherwise determines that, as a result of a corporate transaction
involving a change in the Company's capitalization, it is appropriate to effect
the adjustments described in this section, the aggregate number or class of
Shares on which options may be granted or which may be issued under the Plan,
the per-person limits on grants, the number or class of Shares covered by each
outstanding option and the price per Share in each option shall all be
appropriately adjusted by the Committee; provided that any fractional Shares
resulting from such adjustment shall be eliminated. If a new option is
substituted for the option granted hereunder, or an assumption of the option
granted hereunder is made, by reason of a corporate merger, consolidation,
acquisition of property or stock, split-up, reorganization or liquidation (and
each option outstanding under the Plan shall be substituted for or assumed by
the surviving corporation in any such transaction, if the Company is not the
surviving corporation), the option granted hereunder shall pertain to and apply
to the securities to which a holder of the number of Shares subject to the
option would have been entitled.
8. Application of Funds. The proceeds received by the Company from the sale
of Shares pursuant to options granted under the Plan will be used for general
corporate purposes.
9. Effective Date, Effect on Previously Granted Options, and Term of Plan.
The Plan, as amended and restated, shall become effective on May 27, 1999,
subject to approval by the affirmative vote of the holders of a majority of the
Shares present or represented and entitled to vote at the 1999 annual meeting of
stockholders of the Company, and any grants made prior to stockholder approval
of the Plan shall be subject to such approval. The amendment and restatement of
the Plan shall not adversely affect any rights of holders of options outstanding
at the time of such amendment and restatement pursuant to the terms of the Plan
as previously in effect. The term during which options may be granted under the
Plan shall expire on December 31, 2004. The term of options granted prior
thereto, however, may extend beyond such date and the provisions of the Plan
shall continue to apply thereto.
10. Amendments. The Board may from time to time alter, amend, suspend or
discontinue the Plan; provided that no amendment which requires stockholder
approval in order for the exemptions available under Rule l6b-3 or Section
162(m) of the Code to be applicable to the Plan shall be effective unless the
same shall be approved by the stockholders of the Company entitled to vote
thereon.
The Plan, each option under the Plan and the grant and exercise thereof,
and the obligation of the Company to sell and issue shares under the Plan shall
be subject to all applicable laws, rules, regulations and governmental, stock
exchange and stockholder approvals, and the Committee may make such amendment or
modification thereto as it shall deem necessary to comply with any such laws,
rules and regulations or to obtain any such approvals.
11. Severability. If any provision of the Plan, any term or condition of
any option or Shares Option Agreement or form executed or to be executed
thereunder or any application thereof to any person or circumstance is invalid
or would result in an Incentive option failing to meet the requirements of
Section 422 of the Code, such provision, term, condition or application shall to
that extent be void (or, in the sole discretion of the Committee, such
provision, term or condition may be amended so as to avoid such invalidity or
failure), and shall not affect other provisions, terms or conditions or
applications thereof, and to this extent such provision, term or condition is
severable.
12. Governing Law. The Plan shall be applied and construed in accordance
with and governed by the laws of the State of Delaware without regard to the
conflict of laws principles thereof and applicable Federal law.
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EXHIBIT B
THE SPORTS AUTHORITY, INC.
PERFORMANCE UNIT PLAN
1. Purposes
The purposes of The Sports Authority, Inc. Performance Unit Plan (the
"Plan") are (i) to focus management's attention on creating sustained growth in
earnings per share; (ii) to promote teamwork and cooperation by aligning
management's economic interest toward accomplishing the same goal; (iii) to
facilitate the recruitment, retention and motivation of key employees; and (iv)
to provide management with total compensation opportunities that are competitive
with the market in which the Company competes for business or talent.
2. Definitions
The following terms, as used herein, shall have the following meanings:
"Account" means a bookkeeping account on the Company's books
established pursuant to Section 6. The Account shall initially reflect the
number of Units and the Target Unit Value of the Units granted to a
Participant pursuant to Section 5.
"Actual Unit Value" means, as of the end of each Performance Period,
the value, expressed in dollars, of each Unit issued under the Plan. The
Committee shall determine Actual Unit Value by multiplying Target Unit
Value by the percentage assigned to the level of the Company's actual
financial performance, based on the Goal and based on associated
percentages assigned to the various levels of performance of the Goal at
the beginning of the Performance Period.
"Beneficiary" means the person(s) designated in writing by a
Participant to receive any benefits payable under this Plan subsequent to
the Participant's death. In the event a Participant has not filed a
Beneficiary designation with the Company, or no Beneficiary survives the
Participant, the Beneficiary shall be the Participant's estate. "Board"
means the Board of Directors of the Company.
"Cause," as a grounds for termination of a Participant's employment by
the Company, means (i) conduct which is a material violation by the
Participant of Company policy (as in effect on the date the Participant's
employment is terminated, if it is terminated before a Change in Control,
and as in effect immediately before the Change in Control, if employment is
terminated within two years after a Change in Control), or which is
fraudulent or unlawful or which materially interferes with the
Participant's ability to perform his or her duties, (ii) misconduct which
damages or injures the Company or substantially damages the Company's
reputation, or (iii) gross negligence in the performance of, or willful
failure to perform, the Participant's duties and responsibilities.
"Change in Control" means the first to occur of the following:
(i) the "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of securities representing more than 20% of the combined voting
power of the Company is acquired by any "person," as defined in
sections 13(d) and 14(d) of the Exchange Act (other than the
Company or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company), or (ii) the
shareholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation
or to sell or otherwise dispose of all or substantially all of
its assets, or adopt a plan of liquidation, or (iii) during any
period of three consecutive years, individuals who at the
beginning of such period were members of the Board cease for any
reason to constitute at least a majority thereof (unless the
election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at
least a majority of the directors then still in office who were
directors at the beginning of such period).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and related Treasury regulations.
"Committee" means the Compensation Committee of the Board.
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"Company" means The Sports Authority, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
"Disability" means a physical or mental injury or condition that
qualifies an Employee for benefits under the Company's long-term disability
plan.
"Employee" means any individual employed by the Company or one of its
Subsidiaries on a regular, full-time basis (determined in accordance with
the personnel policies and practices of the Company); provided, however,
that "Employee" shall not include any individual with whom the Company has
entered into an independent contractor agreement, no matter how
characterized by a court, the Internal Revenue Service or other
administrative agency. In the event that an individual's status changes to
that of an "Employee," the individual shall be considered an "Employee" for
the purposes of this Plan only from the actual date of recharacterization
and not retroactively.
"Goal" means the financial criterion, expressed in growth in earnings
per share, which the Committee has set for the Company that will be used to
determine the Actual Unit Value of the Participant's Units at the end of
the Performance Period for which the Units were granted.
"Grant Agreement" means a written document issued to a Participant
that shall specify the grant of Units to the Participant, the applicable
Goal set by the Committee and such other terms and conditions to which such
grant is subject.
"Participant" means an Employee who is designated by the Committee as
eligible to participate in the Plan under Section 4 and receives a grant of
Units. In the event of the incompetency of a Participant, the term shall
mean his or her personal representative or guardian.
"Performance Period" means the number of Plan Years over which the
Goal will be measured for purposes of determining the Actual Unit Value of
the Units granted to a Participant. The length of a Performance Period
shall be three Plan Years unless specified otherwise by the Committee.
"Plan" means the Sports Authority, Inc. Performance Unit Plan, as the
same is set forth herein and as it may be amended from time to time.
"Plan Year" means the Company's fiscal year, beginning with the 1999
fiscal year.
"Retirement" or "Retires" means the retirement of an Employee on or
after age 65, if the Employee then has ten or more years of full-time
service with the Company or a Subsidiary.
"Separates from Employment" or a "Separation from Employment" means
the Employee's termination of employment from the Company for any reason
other than Retirement, death or Disability. A "Separation from Employment"
shall be deemed to have occurred on the last day of the Employee's service
to the Company and shall be determined without reference to any
compensation continuation arrangement or severance benefit arrangement that
may be applicable.
"Subsidiary" means any subsidiary of the Company which is designated
by the Board or the Committee to have any one or more of its employees
participate in the Plan.
"Target Unit Value" means $1.00, for each Unit.
"Unit" means a unit of interest under the Plan the value of which
depends upon the financial performance of the Company in comparison to the
Goal specified for the applicable Performance Period.
3. Goals
(a) If the Committee determines to make a grant of Units for a Performance
Period, no later than 90 days after the commencement of such Performance Period
the Committee shall determine (i) the Goal for such Performance Period, and (ii)
the associated levels of achievement of the Goal that will determine the Actual
Unit Value of the Units awarded for such Performance Period, provided that in no
event shall such Actual Unit Value exceed $2.00. Once the Goal has been so
specified for a Performance Period it shall not thereafter be changed unless the
Committee determines, in good faith, that the Company's circumstances have so
changed due to an unusual set of events that the Goal must be changed
appropriately to reflect such new circumstances. In any event,
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no such change shall be made to the extent that such change would cause the
Company's Federal income tax deduction for compensation paid under the Plan to
be reduced by reason of Section 162(m) of the Code.
(b) The Committee shall use the Company's year end financial statements in
determining the extent to which the Goal was achieved during the relevant
Performance Period. The Committee shall certify in writing whether and the
extent to which the Goal for each Performance Period has been met within 120
days following the end of such Performance Period.
4. Participation
For each Performance Period, the Committee shall determine, within the
limitations of the Plan, each Employee who shall become a Participant, the
number of Units to be granted to each Participant and such other terms and
conditions relating to the Units if not otherwise specified herein. In
determining whether an Employee may become a Participant under the Plan, the
Committee shall take into consideration the Employee's present and potential
contribution to the success of the Company and such other factors as the
Committee may deem proper and relevant, but in any event the Employee must be
employed in a position that has a direct impact on improving the Company's
long-term earnings per share performance.
5. Grants
(a) For each Performance Period, the Committee shall determine whether to
grant any Units and, if Units are granted, the Committee shall notify those
Participants who are to receive grants, which shall be evidenced by a Grant
Agreement between the Company and the Participant. The number of Units to be
granted to a Participant shall be determined by the Committee based on the
Participant's role and responsibilities and competitive levels of long-term
compensation. Units shall be granted as of the first day of the first Plan Year
in the Performance Period, unless the Committee determines to grant Units at
some other time during the Performance Period; provided, however, that Units
shall be granted and communicated to Participants no later than 90 days after
the commencement of the Performance Period. The initial value of each Unit
granted to a Participant shall be the Target Unit Value. No fractional Units
shall be granted.
(b) Notwithstanding anything herein to the contrary, no Participant may
receive a grant of more than 1,000,000 Units during, nor a payment in excess of
$2,000,000 for, any Performance Period.
6. Interests of a Participant
The Company shall create the Accounts on its books to reflect the number of
Units credited to each Participant for a Performance Period and the Target Unit
Value of each such Unit. No Participant or any other person shall under any
circumstances acquire any property interest in any specific assets of the
Company. Nothing contained in this Plan and no action taken pursuant hereto
shall create or be construed to create a fiduciary relationship between the
Company, the Committee or the Board and any Participant or any other person. To
the extent that any person acquires a right to receive payment from the Company
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
7. Vesting
(a) Except as provided in this Section 7 and Section 9, each Participant's
right to the Units awarded for any Performance Period shall vest on the last day
of that Performance Period (the "Vesting Date"), if the Participant has not
Separated from Employment prior to the Vesting Date. Notwithstanding the
foregoing, if a Participant Retires, incurs a Disability or dies after the first
Plan Year in any Performance Period, the Participant's right to Units with
respect to that Performance Period shall vest on the date of such event on a
percentage basis, based on the number of months elapsed between the beginning of
the Performance Period and the date of such event. If a Participant Separates
from Employment involuntarily but not for Cause after the first Plan Year in any
Performance Period, the Committee may provide in its discretion that such
Participant's right to some or all of the Units awarded for an unexpired
Performance Period shall vest on a percentage basis, based on the number of
months elapsed between the beginning of the Performance Period and the date of
such event.
(b) If a Participant Separates from Employment (other than for the reasons
specifically described above) prior to being fully vested in any Units credited
to the Participant's Account, all unvested Units shall be immediately forfeited.
(c) Vested Units shall be redeemed only to the extent provided in Section 8
or Section 9.
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8. Redemption and Payment for Units
(a) Except as provided in Section 9, the Company shall redeem a
Participant's vested Units, as determined under Section 7, in accordance with
the provisions of this Section 8. The amount to be paid to the Participant shall
equal the Actual Unit Value of his or her Units. Except as provided in Section
9, the Actual Unit Value shall be determined by multiplying (i) the Target Unit
Value of the Units being redeemed by (ii) the applicable percentages specified
based on the achievement of the Goal set for the Performance Period for which
such Units were awarded, as determined by the Committee.
(b) After the end of each Performance Period and the Committee's
certification pursuant to Section 3(b), the Committee shall determine the Actual
Unit Value of the Units granted to each Participant for that Performance Period,
except as provided in Section 9. As soon as practicable following the
Committee's determination, payment shall be made to each Participant in cash
equal to the current Actual Unit Value so determined for each vested Unit being
redeemed. Notwithstanding the foregoing, the Committee may permit a Participant
to defer the receipt of some or all of the payment due under this Section and
have any such sum credited to a deferred compensation plan maintained by the
Company; in which case the Committee shall provide the timing and the election
period for making the election to each Participant permitted to elect such a
deferral.
(c) In the event a Participant incurs a Disability, dies or Retires, the
Company shall redeem from the Participant (or the Participant's Beneficiary or
personal representative, in the event of death), for unexpired Performance
Periods, the Units that the Committee specifies are vested, as provided in
Section 7(a), at the end of the Performance Period immediately after the Actual
Unit Value has been determined and make the required payment, in cash, as soon
as practicable thereafter.
9. Change in Control
Notwithstanding any other provision of the Plan to the contrary, (i) if a
Change in Control shall occur following a Performance Period as to which the
Committee has certified that the Goal has been met and has determined the Actual
Unit Value of each Participant's Units, such Units shall be redeemed immediately
by payment in cash, (ii) if a Change in Control shall occur following a
Performance Period as to which the Committee has not yet certified whether the
Goal has been met and determined the Actual Unit Value of each Participant's
Units, the Committee shall immediately certify whether the Goal has been met and
shall immediately determine the Actual Unit Value of each Participant's Units,
and such Units shall be redeemed immediately by payment in cash, and (iii) if a
Change in Control shall occur during one or more Performance Periods as to which
Goals have been set and Units have been granted, each such Performance Period
shall be deemed to have been completed, the Actual Unit Value shall be deemed to
equal the Target Unit Value, and a pro rata portion of the Units previously
granted to each Participant for each such partial Performance Period (based on
the number of full and partial months which have elapsed with respect to each
such Performance Period) shall be redeemed immediately by payment in cash to
each Participant to whom Units for each such Performance Period were granted.
10. Administration
(a) The Plan shall be administered by the Committee. The Committee shall
have the authority in its sole discretion, subject to and not inconsistent with
the express provisions and limitations contained in the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to construe and interpret the
Plan and any grant; to prescribe, amend and rescind rules and regulations
relating to the Plan; and to make all other determinations, including factual
determinations, deemed necessary or advisable for the administration of the
Plan. All decisions, determinations and interpretations of the Committee shall
be final and binding on all persons, including the Company, the Participant (or
any person claiming any rights under the Plan from or through any Participant)
and any shareholder.
(b) The Committee shall consist of two or more persons each of whom may be
an "outside director" within the meaning of Section 162(m) of the Code. The
Committee may appoint a chairperson and a secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings. All determinations of the Committee shall be
made by a majority of its members either present in person or participating by
conference telephone at a meeting or by unanimous written consent. The Committee
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem
B-4
<PAGE>
advisable, and the Committee or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
(c) No member of the Board or the Committee or agent thereof shall be
liable for any action taken or determination made in good faith with respect to
the Plan.
11. Amendment and Termination of the Plan.
The Board may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided, however, that no amendment
which requires shareholder approval in order for the Plan to continue to comply
with Section 162(m) of the Code shall be effective unless the same shall be
approved by the requisite vote of the shareholders of the Company. Additionally,
the Committee may make such amendments as it deems necessary to comply with
other applicable laws, rules and regulations. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any Participant, without
such Participant's consent, with respect to any Units theretofore granted under
the Plan.
12. Term and Effective Date
(a) The Plan shall become effective on January 25, 1999, subject to
approval by the affirmative vote of the holders of a majority of the Shares
present or represented and entitled to vote at the 1999 annual meeting of
shareholders of the Company. If shareholder approval is not so obtained, the
Plan shall automatically terminate and all Units shall be canceled.
(b) No Performance Period under the Plan shall begin later than the first
day of the Company's 2003 fiscal year.
13. General Provisions
(a) Nontransferability of Units. No Units issued under this Plan shall be
transferred, assigned, pledged or encumbered by any Participant, and a Unit may
be redeemed during the lifetime of a Participant only from such Participant.
(b) Compliance with Legal Requirements. The Plan and the granting of
Bonuses, and the other obligations of the Company under the Plan shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required.
(c) No Right To Continued Employment. Nothing in the Plan or in any grant
made hereunder shall confer upon any Participant the right to continue in the
employ of the Company or any of its Subsidiaries or to be entitled to any
remuneration or benefits not set forth in the Plan or to interfere with or limit
in any way the right of the Company to terminate such Participant's employment.
(d) Withholding Taxes. The Company or Subsidiary employing any Participant
shall deduct from all payments and distributions under the Plan any taxes
required to be withheld by federal, state or local governments.
(e) Governing Law The Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
Delaware without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by federal law.
(f) Interpretation. The Plan is designed and intended to comply with
Section 162(m) of the Code, to the extent applicable, and all provisions hereof
shall be construed in a manner to so comply.
(g) Other Benefits.Payments under the Plan shall not be taken into account
as compensation in determining or calculating other benefits under any other
plan or program of the Company which bases a benefit on compensation.
(h) Notices. Any notice hereunder to be given to the Company, the Committee
or the Board shall be in writing and shall be delivered in person to the
Company's Vice President -- Human Resources, or shall be sent by registered
mail, return receipt requested, to the Company's Vice President -- Human
Resources at the Company's executive offices, and any notice hereunder to be
given to a Participant shall be in writing and shall be delivered in person to
such Participant, or shall be sent by registered mail, return receipt requested,
to the Participant at his or her last address as shown in the employment records
of the Company. Any notice duly mailed in accordance with the preceding sentence
shall be deemed given on the date postmarked.
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<PAGE>
(i) Payments in Certain Cases. If the Company shall find that any person to
whom any payment is payable under this Plan is unable to care for such person's
affairs because of illness or accident, or is a minor, any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Company to have
incurred expense for such person otherwise entitled to payment, in such manner
and proportions as the Company may determine. Any such payment shall be a
complete discharge of the liabilities of the Company under this Plan.
(j) Plan Binding. This Plan shall be binding upon and inure to the benefit
of the Company, its successors and assigns and each Participant and each
Participant's heirs, executors, administrators and legal representatives.
B-6
<PAGE>
- ------------------------------FOLD AND DETACH HERE------------------------------
THE SPORTS AUTHORITY, INC.
PROXY
1999 ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints MARTIN E. HANAKA and FRANK W. BUBB and each
of them, the true and lawful attorneys, agents for and in the name of the
undersigned, with full power of substitution for and in the name of the
undersigned, to vote all shares of Common Stock the undersigned is entitled to
vote at the 1999 Annual Meeting of Stockholders of THE SPORTS AUTHORITY, INC. to
be held on May 27, 1999 at 9:00 A.M. at the Company's corporate headquarters
located at 3383 North State Road 7, Fort Lauderdale, Florida 33319, and at any
and all adjournments thereof, on the following matters:
1. The election of Nicholas A. Buoniconti, Cynthia R. Cohen and Steve
Dougherty as Class II Directors to serve until the Annual Meeting of
Stockholders in 2002 or until their successors are duly elected and
qualified and the election of Charles H. Moore to serve as a Class I
Director until the Annual Meeting of Stockholders in 2001 or until his
successor is duly elected and qualified; except vote withheld from the
following nominee(s):
|_| FOR |_| WITHHOLD VOTE
2. Approval of the amendment and restatement of the 1994 Stock Option Plan;
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of the Performance Unit Plan;
|_| FOR |_| AGAINST |_| ABSTAIN
4. Ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the 1999 fiscal year; and
|_| FOR |_| AGAINST |_| ABSTAIN
(see reverse side)
FOLD AND DETACH HERE
DO NOT PRINT IN THIS AREA
<PAGE>
SHAREHOLDER RECORD DATA (continued from other side)
5. In their discretion, on any other matters which may properly come before
the Annual Meeting or any adjournment or postponements thereof.
|_| I PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS.
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1, 2, 3 AND 4.
- --------------------------------------------------------------------------------
DO NOT PRINT IN THIS AREA
(Shareholder Name & Address Data) Dated: ____________, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as your name appears hereon. If stock is registered in more
than one name, each holder should sign. When signing as an attorney,
administrator, executor, guardian or trustee, please add your title as such. If
executed by a corporation or partnership, the proxy should be signed in full
corporate or partnership name by a duly authorized officer or partner as
applicable.
