As filed with the Securities and Exchange Commission on April 17, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GART SPORTS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 5941 84-1242802
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
1000 Broadway
Denver, Colorado 80203
(303) 861-1122
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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John Douglas Morton
Chairman of the Board, President and
Chief Executive Officer
Gart Sports Company
1000 Broadway
Denver, Colorado 80203
(303) 861-1122
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
Nesa E. Hassanein Anthony T. Iler John B. Clutterbuck
Gart Sports Company Irell & Manella LLP Mayor, Day, Caldwell &
1000 Broadway 1800 Avenue of the Keeton, L.L.P.
Denver, Colorado 80203 Stars, Suite 900 700 Louisiana, Suite 1900
(303) 861-1122 Los Angeles, California Houston, Texas 77002
90067 (713) 225-7000
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(310) 277-1010
Approximate date of commencement of proposed sale to the public: Upon the
completion of the merger described herein.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title Of Each Class Of Aggregate
Securities To Be Amount To Proposed Maximum Offering Price Amount Of
Registered Be Registered (1) Offering Price Per Unit (2) Registration Fee
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Common Stock, $.01 par
value.................. 3,667,653 N/A $36,343,102 $9,086
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(1) Based upon the estimated number of shares of common stock of the
registrant to be issued pursuant to the merger described herein,
calculated as the product of (a) 6,668,459, which is the sum of (i) the
aggregate number of shares of Oshman's Sporting Goods, Inc. common stock
that were outstanding on April 10, 2001 and (ii) the aggregate number of
shares of Oshman's Sporting Goods, Inc. common stock that are issuable
pursuant to outstanding options prior to the date on which the merger is
expected to be completed, and (b) an assumed exchange ratio of 0.55
shares of the registrant's common stock for each share of Oshman's
Sporting Goods, Inc. common stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act. Pursuant to Rule
457(f)(1) under the Securities Act, the proposed maximum aggregate
offering price of the registrant's common stock was calculated in
accordance with Rule 457(c) under the Securities Act as the product of
(a) the result of (i) $12.45, which is the average of the high and low
prices per share of Oshman's Sporting Goods, Inc. common stock on April
10, 2001, as reported on the American Stock Exchange, minus (ii) $7.00,
which is the assumed amount of cash to be paid by the registrant for each
share of Oshman's Sporting Goods, Inc. common stock pursuant to the
merger, and (b) 6,668,459, which is the maximum number of shares of
Oshman's Sporting Goods, Inc. common stock as computed as described in
clause (a) of Note (1).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
, 2001
Dear Fellow Stockholders:
After careful consideration, the board of directors of Gart has approved a
merger between Gart Sports Company and Oshman's Sporting Goods, Inc. If the
merger is completed, each share of Oshman's common stock will be exchanged for
$7.00 in cash and 0.55 shares of Gart common stock, subject to adjustment
depending on the price of Gart common stock on the date of the merger.
The merger cannot be completed unless a quorum of the outstanding shares of
Gart common stock are represented in person or by proxy at the annual meeting
described below, and a majority of the shares represented at the annual meeting
vote in favor of the issuance of Gart common stock in the merger. Approval of
the merger by the stockholders of Oshman's also will be required in order for
the merger to be completed.
In addition to the proposal to issue Gart shares in the merger, the annual
meeting will be devoted to proposals relating to the election of six directors
of Gart, the approval of an amendment to Gart's 1994 Management Equity Plan,
the ratification of Gart's independent auditors, and any other matters that may
properly come before the annual meeting or any adjournments or postponements of
the meeting.
The attached joint proxy statement-prospectus provides detailed information
concerning Gart, Oshman's, the merger, and the proposals to be considered at
the annual meeting. Please give all of the information contained in the joint
proxy statement-prospectus your careful attention. In particular, you should
consider carefully the discussion in the section entitled "Risk Factors." You
also can obtain information about Gart and Oshman's from publicly available
documents that have been filed with the Securities and Exchange Commission.
After careful consideration, the board of directors of Gart has determined
the merger to be in the best interests of Gart stockholders. The board of
directors of Gart recommends that Gart stockholders approve each of the
proposals that are presented for their consideration at the annual meeting.
You are cordially invited to attend the annual meeting of Gart stockholders,
to be held on , 2001 at a.m. local time at the executive offices of
Gart, located at 1000 Broadway, Denver, Colorado 80203. Only stockholders who
hold shares of Gart common stock at the close of business on , 2001 will
be entitled to vote at the annual meeting.
Whether or not you plan to attend the annual meeting, please complete, sign,
date and return the accompanying proxy card in the enclosed self-addressed
stamped envelope. If your shares are held in the name of your broker, bank or
other record holder, the record holder will instruct you on how to vote those
shares. Returning the proxy card does not deprive you of your right to attend
the annual meeting and to vote your shares in person. Your vote is very
important!
Officers of Gart will be present to help host the annual meeting and to
respond to any questions you may have.
John Douglas Morton
President, Chief Executive Officer and
Chairman of the Board
This joint proxy statement-prospectus is dated , 2001
and was first mailed to stockholders on or about , 2001
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this joint proxy statement-prospectus. Any
representation to the contrary is a criminal offense.
Notice of 2001 Annual Meeting of Stockholders
The 2001 Annual Meeting of Stockholders of Gart Sports Company will be held
at the executive offices of Gart, located at 1000 Broadway, Denver, Colorado
80203 at a.m., local time, on , 2001, for the following purposes:
1. To approve the issuance of shares of Gart common stock in the proposed
merger of Oshman's Sporting Goods, Inc. with and into GSC Acquisition
Corp., a wholly owned subsidiary of Gart, as contemplated by the
Agreement and Plan of Merger, dated as of February 21, 2001, by and
among Gart, GSC Acquisition and Oshman's.
2. To elect six directors of Gart to serve until the next annual meeting
of stockholders.
3. To approve an amendment to Gart's 1994 Management Equity Plan to
increase the maximum number of shares of common stock that may be
issued under the plan.
4. To ratify the selection of Deloitte & Touche LLP as independent
auditors of Gart for the fiscal year ending February 2, 2002.
5. To transact any other business that properly comes before the annual
meeting or any adjournments or postponements of the meeting.
The accompanying joint proxy statement-prospectus describes the proposed
merger and the other proposals in more detail. We encourage you to read the
entire document carefully.
We have fixed the close of business on , 2001 as the record date for
the determination of our stockholders entitled to vote at the annual meeting.
By Order of the Board of Directors of Gart Sports Company,
Nesa E. Hassanein
Secretary
Denver, Colorado
, 2001
Whether or not you expect to be present at the annual meeting, to assure
that your shares are represented at the annual meeting, please mark, date and
sign the enclosed proxy card and return it in the envelope that has been
provided. No postage is required for mailing in the United States. In the event
that you are able to attend the annual meeting, you may revoke your proxy and
vote your shares in person.
[OSHMAN'S LOGO]
, 2001
Dear Fellow Stockholders:
The board of directors of Oshman's Sporting Goods, Inc. has, after careful
consideration, unanimously approved and recommended a merger between our
company and Gart Sports Company that would result in each share of Oshman's
common stock being exchanged for $7.00 in cash and 0.55 shares of Gart common
stock, subject to a possible adjustment depending on the price of Gart common
stock on the date of the merger.
The merger cannot be completed unless a quorum consisting of a majority of
the outstanding shares of Oshman's common stock are represented in person or by
proxy at the special meeting described below, and a majority of the outstanding
shares vote in favor of the merger. As a result, the failure to vote your
shares will have the same effect as a vote against the merger. Approval by
Gart's stockholders of the issuance of the Gart common stock to stockholders of
Oshman's also will be required in order for the merger to be completed.
The attached joint proxy statement-prospectus provides detailed information
concerning Oshman's, Gart, the merger, and other proposals to be considered by
Gart's stockholders at the meeting. Please give all of the information
contained in the joint proxy statement-prospectus your careful attention. In
particular, you carefully should consider the discussion in the section
entitled "Risk Factors." You also can obtain information about Oshman's and
Gart from publicly available documents that have been filed with the Securities
and Exchange Commission.
After careful consideration, the board of directors of Oshman's has
determined the merger to be fair to the stockholders of Oshman's and in their
best interests. The board of directors of Oshman's recommends that Oshman's
stockholders adopt the merger agreement and approve the merger at the special
meeting.
You are cordially invited to attend the special meeting of Oshman's
stockholders, to be held on , 2001 at a.m. local time at , located at
Houston, Texas . Only stockholders who hold shares of Oshman's
common stock at the close of business on , 2001 will be entitled to vote
at the meeting.
Whether or not you plan to attend the meeting, please complete, sign, date
and return the accompanying proxy card in the enclosed self-addressed stamped
envelope. If your shares are held in the name of your broker, bank or other
record holder, the record holder will instruct you on how to vote those shares.
Not returning your card or not instructing your broker how to vote your "street
name" shares will have the same effect as a vote against the merger. Returning
the proxy card does not deprive you of your right to attend the special meeting
and to vote your shares in person. Your vote is very important!
Directors and officers of Oshman's will be present to help host the meeting
and to respond to any questions you may have.
/s/ Marilyn Oshman /s/ Alvin Lubtkin
Marilyn Oshman Alvin Lubetkin
Chairman of the Board Vice Chairman of the Board,
Chief Executive Officer and President
This joint proxy statement-prospectus is dated , 2001
and was first mailed to stockholders on or about , 2001
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this joint proxy statement-prospectus. Any
representation to the contrary is a criminal offense.
[OSHMAN'S LOGO]
Notice of 2001 Special Meeting of Stockholders
A Special Meeting of Stockholders of Oshman's Sporting Goods, Inc. will be
held at , located at , Houston, Texas at a.m.,
local time, on , 2001, for the following purposes:
1. To adopt the Agreement and Plan of Merger, dated as of February 21,
2001, by and among Gart Sports Company, GSC Acquisition Corp. and
Oshman's, and approve the merger of Oshman's with and into GSC
Acquisition, a wholly owned subsidiary of Gart.
2. To transact any other business that properly comes before the meeting
or any adjournments or postponements of the meeting.
The accompanying joint proxy statement-prospectus describes the proposed
merger and the other proposals in more detail. We encourage you to read the
entire document carefully.
We have fixed the close of business on , 2001 as the record date
for the determination of our stockholders entitled to vote at the meeting.
By Order of the Board of Directors:
/s/ Steven U. Rath
Steven U. Rath
Secretary
Houston, Texas
, 2001
Whether or not you expect to be present at the special meeting, to assure
that your shares are represented at the special meeting, please mark, date and
sign the enclosed proxy card and return it in the envelope that has been
provided. No postage is required for mailing in the United States. In the event
that you are able to attend the special meeting, you may revoke your proxy and
vote your shares in person.
TABLE OF CONTENTS
Page
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Questions and Answers For Gart Stockholders and Oshman's Stockholders..... 1
Summary of the Joint Proxy Statement-Prospectus........................... 4
Forward Looking Statements.............................................. 4
The Companies........................................................... 4
Summary of the Merger................................................... 5
Gart Selected Consolidated Financial Data............................... 9
Oshman's Selected Consolidated Financial Data........................... 11
Selected Unaudited Pro Forma Combined Financial Data.................... 12
Comparative Per Share Data.............................................. 13
Comparative Per Share Market Price Data................................. 14
Risk Factors.............................................................. 15
Risks Related to the Merger............................................. 15
Risks Related to Gart and Oshman's...................................... 17
The Annual Meeting of Gart Stockholders................................... 22
General................................................................. 22
Purpose of the Meeting.................................................. 22
Record Date for the Annual Meeting...................................... 22
Quorum and Voting....................................................... 22
Proxies................................................................. 23
Revocation of Proxies................................................... 23
Solicitation of Proxies................................................. 24
Communications by Gart Stockholders With Gart........................... 24
The Special Meeting of Oshman's Stockholders.............................. 25
General................................................................. 25
Purpose of the Meeting.................................................. 25
Record Date for the Special Meeting..................................... 25
Quorum and Voting....................................................... 25
Proxies................................................................. 26
Revocation of Proxies................................................... 26
Solicitation of Proxies................................................. 26
Communications by Oshman's Stockholders With Oshman's................... 26
The Merger and Related Transactions....................................... 27
General................................................................. 27
Background of the Merger................................................ 27
Gart's Reasons for the Merger........................................... 30
Oshman's Reasons for the Merger......................................... 31
Recommendation of Gart's Board of Directors............................. 32
Recommendation of Oshman's Board of Directors........................... 32
Opinion of Oshman's Financial Advisor................................... 33
Interests of Certain Persons in the Merger.............................. 38
Financing for the Merger................................................ 41
Completion and Effectiveness of the Merger.............................. 43
Structure of the Merger................................................. 43
United States Federal Income Tax Consequences of the Merger............. 45
Accounting Treatment of the Merger...................................... 47
Regulatory Filings and Approvals Required to Complete the Merger........ 47
Restrictions on Sales of Shares by Affiliates of Gart and Oshman's...... 48
Listing on the Nasdaq National Market of Gart Common Stock to be Issued
in the Merger.......................................................... 48
Delisting and Deregistration of Oshman's Common Stock After the Merger.. 48
i
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Dissenters' and Appraisal Rights........................................ 48
The Merger Agreement.................................................... 51
Voting Agreements....................................................... 63
Indemnification Agreements.............................................. 64
Registration Rights Agreement........................................... 65
Operations After the Merger............................................. 65
Description of Gart Capital Stock......................................... 66
General................................................................. 66
Common Stock............................................................ 66
Preferred Stock......................................................... 66
Comparison of Rights of Holders of Gart Common Stock and Oshman's Common
Stock.................................................................... 66
Classes of Common Stock................................................. 67
Voting.................................................................. 67
Board of Directors...................................................... 67
Removal of Directors.................................................... 67
Filling Vacancies on The Board of Directors............................. 67
Stockholder Action by Written Consent Permitted......................... 67
Ability to Call Special Meetings........................................ 68
Advance Notice Provisions for Stockholder Nominations and Proposals..... 68
Preferred Stock......................................................... 69
Amendment of Certificate of Incorporation............................... 69
Amendment of Bylaws..................................................... 70
Provisions Relating To Acquisitions and Business Combinations........... 70
Limitation of Liability of Directors.................................... 72
Indemnification of Directors and Officers............................... 72
Market Price and Dividend Information..................................... 73
Market Price Information................................................ 73
Dividend Information.................................................... 74
Unaudited Pro Forma Combined Condensed Financial Statements............... 75
Gart's Unaudited Pro Forma Combined Condensed Statement of Operations... 76
Gart's Unaudited Pro Forma Combined Condensed Balance Sheet............. 77
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.... 78
Additional Annual Meeting Matters for Gart................................ 80
Election of Directors of Gart........................................... 80
General............................................................... 80
Voting................................................................ 80
Nominees.............................................................. 80
Information About Gart's Board of Directors and its Committees.......... 81
Committees and Meetings of the Board of Directors..................... 81
Audit Committee....................................................... 82
Compensation Committee................................................ 82
Compensation of Directors............................................. 82
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions............................................... 83
Executive Officers of Gart.............................................. 83
Compensation of Executive Officers of Gart.............................. 85
Report of the Compensation Committee.................................. 87
Compensation and Severance Agreements and Plans....................... 89
Report of the Audit Committee of Gart's Board of Directors.............. 89
Gart's Relationship with Independent Public Accountants................. 90
Audit Fees............................................................ 90
ii
Page
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Financial Information Systems Design and Implementation.............. 90
All Other Fees....................................................... 90
Changes in Accountants............................................... 90
Performance Graph of Gart.............................................. 91
Section 16(a) Beneficial Ownership Reporting Compliance of Gart........ 91
Certain Relationships and Related Transactions Relating to Gart........ 92
Amendment to the 1994 Management Equity Plan of Gart................... 95
Ratification of the Appointment of Gart's Independent Auditors......... 101
Submission of Proposals by Gart's Stockholders......................... 101
Other Matters Presented at the Annual Meeting of Gart Stockholders..... 101
Security Ownership of Certain Beneficial Owners and Management of Gart... 102
Security Ownership of Certain Beneficial Owners and Management of
Oshman's................................................................ 104
Legal Opinion............................................................ 106
Tax Opinions............................................................. 106
Experts.................................................................. 106
Where You Can Find More Information...................................... 107
Annex A--Agreement and Plan of Meger..................................... A-1
Annex B--Forms of Voting Agreements...................................... B-1
Annex C--Form of Registration Rights Agreement........................... C-1
Annex D--Opinion of Financo.............................................. D-1
Annex E--Section 262 of the Delaware General Corporation Law............. E-1
Annex F--Audit Committee Charter of Gart's Board of Directors............ F-1
Annex G--Gart's 1994 Management Equity Plan.............................. G-1
iii
QUESTIONS AND ANSWERS FOR GART STOCKHOLDERS AND OSHMAN'S STOCKHOLDERS
Q: Why are the companies proposing to merge? (See pages 30 and 31)
A: Gart and Oshman's are proposing to merge because we believe the resulting
combination will create a stronger, more competitive company capable of
achieving greater financial strength, earnings power, operational
efficiencies and growth potential than either company would have on its
own.
We also believe the complementary geographical presence of the two
companies will provide an opportunity to accelerate the revenue growth of
the combined company and extend its position in the sporting goods retail
industry.
Q: What will be the effect of the merger on the stockholders of Gart and
Oshman's? (See page 27)
A: At the effective time of the merger, Oshman's will merge with and into GSC
Acquisition Corp., which is a wholly owned subsidiary of Gart. GSC
Acquisition will survive the merger as a wholly owned subsidiary of Gart,
and its name will be changed to Oshman's Sporting Goods, Inc. After the
merger, the current stockholders of Gart will own approximately 69% of Gart
common stock outstanding and the former stockholders of Oshman's will own
approximately 31% of Gart common stock outstanding.
Q: What will Oshman's stockholders receive in the merger? (See page 43)
A: When the merger is completed, holders of Oshman's common stock will receive
$7.00 in cash and 0.55 shares of Gart common stock in exchange for each
outstanding share of Oshman's common stock. The mix between cash and Gart
common stock is subject to adjustment if the closing sales price of Gart
common stock is less than $9.50 on the closing date of the merger. As of
the date of this joint proxy statement-prospectus, the most recent closing
sales price of Gart common stock was $ . No fractional shares of Gart
common stock will be issued. Oshman's stockholders that otherwise would
receive fractional shares will instead receive cash in an amount based on
the closing sales price of Gart common stock on the closing date of the
merger.
Q: Does the board of directors of Gart recommend voting in favor of the
issuance of Gart shares in the merger? (See page 32)
A: Yes. After careful consideration, the board of directors of Gart recommends
that Gart stockholders vote in favor of the issuance of Gart common stock
to the stockholders of Oshman's in the merger.
Q: Does the board of directors of Oshman's recommend voting in favor of the
merger? (See page 33)
A: Yes. After careful consideration, the board of directors of Oshman's
recommends that Oshman's stockholders vote in favor of the adoption of the
merger agreement and the approval of the merger.
Q: Have any Gart stockholders agreed to vote in favor of the issuance of Gart
common stock in the merger? (See page 64)
A: Yes. Green Equity Investors, L.P., which holds approximately 64% of the
outstanding shares of Gart common stock, has agreed to vote all of its
shares in favor of the issuance of Gart common stock in the merger.
Q: Have any Oshman's stockholders agreed to vote in favor of the merger? (See
page 63)
A: Yes. Certain directors, executive officers and stockholders of Oshman's and
their affiliated entities have agreed to vote shares totaling approximately
50% of the outstanding shares of Oshman's common stock in favor of the
adoption of the merger agreement and the approval of the merger.
Q: Are there risks that I should consider in deciding how to vote? (See page
15)
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors."
1
Q: As a Gart stockholder, am I being asked to vote on any other proposals?
(See pages 80, 95 and 101)
A: Yes. The meeting of Gart stockholders will be an annual meeting. In
addition to being asked to approve the issuance of Gart shares in the
merger, Gart stockholders will be asked to vote on (1) the election of six
directors of Gart to serve until the next annual meeting, (2) an amendment
to Gart's 1994 Management Equity Plan to increase the number of shares of
Gart common stock that may be issued under the plan and (3) the
ratification of Gart's independent auditors.
The board of directors of Gart recommends that Gart stockholders vote in
favor of each of these proposals.
Q: What do I need to do now? (See pages 23 and 26)
A: You need to mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares may be represented at your stockholder
meeting. If you do not include instructions on how to vote your properly
signed proxy card, your common stock will be voted "FOR" approval of each
of the proposals on the proxy card.
Oshman's stockholders, please do NOT send your Oshman's stock certificates
at this time.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me? (See pages 22 and 25)
A: Brokers cannot vote your shares without instructions from you on how to
vote. Therefore, it is important that you follow the directions provided by
your broker regarding how to instruct your broker to vote your shares. If
Oshman's stockholders fail to provide their broker with instructions, it
will have the same effect as a vote against the merger.
Q: What if I don't vote? (See pages 23 and 26)
A: For both Oshman's and Gart stockholders, if you sign, date and mail your
proxy card without indicating how you want to vote, your proxy will be
voted in favor of each of the proposals listed on the card. For Oshman's
stockholders only, if you fail to mail your proxy card, or if you fail to
instruct your broker how to vote shares held for you in the broker's name,
the effect will be the same as a vote against the merger.
Q: What do I do if I want to change my vote? (See pages 23 and 26)
A: If you want to change your vote, send the secretary of your company, a
later-dated, signed proxy card before your stockholder meeting or attend
the meeting and vote in person. You may also revoke your proxy by sending
written notice to the applicable secretary before the meeting or by
attending the meeting and voting in person.
Q: As an Oshman's stockholder, should I send in my Oshman's stock certificates
now? (See page 44)
A: No. After the merger is completed, Gart will send you written instructions
for exchanging your Oshman's stock certificates for Gart stock certificates
and the cash consideration.
Q: When do you expect the merger to be completed? (See page 43)
A: Gart and Oshman's are working toward completing the merger as quickly as
possible. We hope to complete the merger late in the second calendar
quarter or early in the third calendar quarter of 2001.
Q: Are Oshman's stockholders entitled to dissenters' or appraisal rights? (See
page 48)
A: Yes. Oshman's stockholders have the opportunity to assert dissenters'
rights relating to the merger. In order to claim these rights, Oshman's
stockholders must comply with the requirements of Delaware law. You should
read the section entitled "Dissenters' and Appraisal Rights."
2
Q: Are Gart stockholders entitled to dissenters' or appraisal rights? (See
page 48)
A: No.
Q: Whom should I call with questions?
A: Gart stockholders should call Nesa E. Hassanein, senior vice president,
secretary and general counsel, at (303) 861-1122 with any questions about
the merger.
Oshman's stockholders should call Steven A. Martin, senior vice president
and chief financial officer, at (713) 928-3171 with any questions about the
merger.
3
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS
This joint proxy statement-prospectus pertains to the merger of Oshman's
with and into a wholly owned subsidiary of Gart, and it is being sent to the
holders of Gart common stock and the holders of Oshman's common stock. This
summary may not contain all of the information that is important to you. You
should read carefully this entire document, including the merger agreement and
the other documents attached to this joint proxy statement-prospectus and other
documents referenced in it for a more complete understanding of the merger. In
particular, you should read the merger agreement, which is attached as Annex A,
the forms of voting agreements, which are attached as Annex B, the form of
registration rights agreement, which is attached as Annex C, the opinion of
Financo, Inc., which is attached as Annex D, Section 262 of the Delaware
General Corporation Law relating to dissenters' rights, which is attached as
Annex E, the charter of the audit committee of Gart's board of directors, which
is attached as Annex F, and Gart's 1994 Management Equity Plan, which is
attached as Annex G. You also should read Gart's Annual Report on Form 10-K for
the fiscal year ended February 3, 2001 and Oshman's Annual Report on Form 10-
K/A for the fiscal year ended February 3, 2001, copies of which are being
delivered to you together with this joint proxy statement-prospectus. In
addition, Gart and Oshman's incorporate by reference important business and
financial information about Gart and Oshman's into this joint proxy statement-
prospectus. You may obtain the information incorporated by reference into this
joint proxy statement-prospectus without charge by following the instructions
in the section entitled "Where You Can Find More Information" on page 107.
Forward Looking Statements
This joint proxy statement-prospectus and the documents incorporated by
reference into this joint proxy statement-prospectus contain forward-looking
statements (as such term is defined in Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended) and information relating to Gart and Oshman's that are based on the
beliefs of the management of Gart and Oshman's as well as assumptions made by,
and information currently available to, the management of Gart and Oshman's. In
addition, when used in this document, the words "likely," "will," "suggests,"
"may," "would," "could," "anticipate," "expect," "intend," "plan," "believe,"
"seek," "estimate," "predict" and similar expressions and their variants, as
they relate to Gart or Oshman's, or to the management of either company, may
identify forward-looking statements. These statements reflect the judgment of
the management of Gart or Oshman's as of the date of this joint proxy
statement-prospectus with respect to future events, the outcome of which is
subject to certain risks, including the risk factors set forth herein, which
may have a significant impact on the business, operating results or financial
conditions of Gart, Oshman's or the combined company. Stockholders are
cautioned that these forward-looking statements are inherently uncertain.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described in this joint proxy statement-prospectus.
Neither Gart nor Oshman's undertakes any obligation to update forward-looking
statements.
The Companies
GART SPORTS COMPANY
1000 Broadway
Denver, Colorado 80203
(303) 861-1122
http://www.gartsports.com
Gart is the second largest, publicly traded, full-line sporting goods
retailer in the United States and the leading full-line sporting goods retailer
in the Rocky Mountain region. Gart offers a comprehensive high-quality
assortment of brand name sporting goods footwear, apparel and equipment at
competitive prices. Gart currently operates 120 stores in 16 states under the
Gart Sports and Sportmart names.
4
OSHMAN'S SPORTING GOODS, INC.
2302 Maxwell Lane
Houston, Texas 77023
(713) 928-3171
http://www.oshmans.com
Oshman's currently operates 58 sporting goods specialty stores, including 44
SuperSports USA stores and 14 traditional stores, and offers a full line of
sporting goods equipment, sportswear and athletic footwear focusing on middle-
to high-end products. Oshman's operates a large number of stores in Texas and
California as well as in Arizona, Florida, Kansas, Louisiana, Michigan,
Minnesota, New Mexico, Oklahoma, South Carolina, Tennessee, Utah and
Washington. Oshman's SuperSports USA stores utilize interactive merchandising
by offering sports test-play areas, including basketball courts, batting cages,
golf simulators and tennis courts.
Summary of the Merger
The Merger (See page 27)
In the merger, Oshman's will merge with and into GSC Acquisition Corp.,
which is a wholly owned subsidiary of Gart. GSC Acquisition will survive the
merger as a wholly owned subsidiary of Gart, and its name will be changed to
Oshman's Sporting Goods, Inc. Oshman's stockholders will receive, in exchange
for each of their shares, $7.00 in cash and 0.55 shares of Gart common stock.
The mix between cash and Gart common stock is subject to adjustment if the
closing sales price of Gart common stock is less than $9.50 on the closing date
of the merger.
Vote Required for Approval (See pages 22 and 25)
The holders of a majority of the shares of Gart common stock present in
person or represented by proxy at Gart's annual meeting must approve the
issuance of Gart common stock in the merger. Gart stockholders are entitled to
cast one vote per share of Gart common stock owned as of Gart's record date. As
of March 30, 2001, Gart's directors and executive officers held 570,277 shares
of Gart common stock (excludes shares subject to options and 4,713,200 shares
held by Green Equity Investors, L.P.), which represented approximately 8% of
all outstanding shares of Gart common stock entitled to vote at Gart's annual
meeting.
The holders of a majority of the outstanding shares of Oshman's common stock
must adopt the merger agreement and approve the merger. Oshman's stockholders
are entitled to cast one vote per share of Oshman's common stock owned as of
the Oshman's record date. As of March 30, 2001, Oshman's directors and
executive officers held 1,627,961 shares of Oshman's common stock (excludes
shares subject to options), which represented approximately 28% of all
outstanding shares of Oshman's common stock entitled to vote at Oshman's
special meeting.
Voting Agreements (See page 63)
Green Equity Investors, L.P., which holds approximately 64% of the
outstanding shares of Gart common stock, has agreed to vote all of its shares
in favor of the issuance of Gart common stock in the merger.
Certain directors, executive officers and stockholders of Oshman's and their
affiliated entities have agreed to vote shares totaling approximately 50% of
the outstanding shares of Oshman's common stock in favor of the adoption of the
merger agreement and the approval of the merger.
5
Conditions to the Completion of the Merger (See page 59)
Gart and Oshman's will complete the merger only if a number of conditions
are satisfied or waived, including, but not limited to, the following:
. the merger agreement must have been adopted and the merger must have
been approved by the Oshman's stockholders;
. the issuance of Gart common stock in connection with the merger must
have been approved by the Gart stockholders;
. Gart and Oshman's must have obtained all legally required permits and
approvals;
. no events or circumstances have occurred after the date of the merger
agreement that have had, or are reasonably expected to have, a material
adverse effect on Gart or Oshman's;
. no law, regulation or order prohibits the completion of the merger;
. the closing sales price of a share of Gart common stock on the closing
date of the merger must be at least $7.00; and
. the financing for the transactions contemplated by the merger agreement
must have been completed.
Termination of the Merger Agreement (See page 61)
Gart and Oshman's mutually may agree to terminate the merger agreement at
any time. In addition, either party may terminate the merger agreement if,
among other things:
. a court or other governmental entity issues a final order or ruling that
restrains or prohibits the merger;
. the merger is not completed on or before August 21, 2001 (other than
because the terminating party breached the merger agreement);
. certain conditions set forth in the merger agreement become incapable of
fulfillment (other than because the terminating party breached the
merger agreement);
. the other party is in material breach of any of its covenants contained
in the merger agreement and the breach is not cured within 20 business
days; or
. the other party is in breach of any of its representations or warranties
contained in the merger agreement, and the breach is reasonably expected
to have a material adverse effect on the party and is not cured within
20 business days.
In addition, Gart may terminate the merger agreement if the board of
directors of Oshman's fails to recommend, or withdraws its recommendation of,
the merger agreement or approves a "superior proposal," whether or not in
accordance with the merger agreement. Oshman's may terminate the merger
agreement if its board of directors withdraws its recommendation or approves a
"superior proposal," in either case in accordance with the merger agreement.
Oshman's also may terminate the merger agreement if Gart is notified in
writing by The CIT Group/Business Credit, Inc. of its withdrawal of its
commitment letter related to the financing of the merger, or of its inability
or unwillingness to provide the financing, and, within 60 days following the
date of the notification, Gart does not either cause the commitment letter to
be reinstated or secure a new commitment letter with one or more alternative
financial institutions on terms and conditions at least as favorable to Gart
and Oshman's as those contained in the commitment letter.
Under certain circumstances set forth in the merger agreement, Oshman's must
pay Gart a $3 million termination fee if Gart or Oshman's terminates the merger
agreement. In addition, under certain circumstances set forth in the merger
agreement, Gart or Oshman's must pay all fees and expenses (up to $1.5 million)
of the other party and its representatives.
6
Directors and Executive Officers of Gart Following the Merger (See page 65)
Following the merger, the board of directors of Gart will consist of the
directors elected at the annual meeting. In addition, following the annual
meeting, two directors designated by the board of directors of Oshman's,
Marilyn Oshman, the chairman of the board of Oshman's, and Alvin N. Lubetkin,
the vice chairman, chief executive officer and president of Oshman's, will be
appointed or elected to Gart's board of directors in accordance with the
merger agreement.
Following the merger, the current executive officers of Gart will continue
to serve as its executive officers.
Opinion of Oshman's Financial Advisor (See page 33)
In connection with the merger, Oshman's board of directors considered the
opinion it received from its financial advisor, Financo, Inc., as to the
fairness, from a financial point of view, of the merger consideration to be
received by Oshman's stockholders. The full text of the written opinion of
Financo is attached to this document as Annex D and should be read carefully
in its entirety to understand the procedures followed, the assumptions made,
the matters considered and the limitation on the review undertaken in
providing the opinion. The opinion of Financo is directed to the Oshman's
board of directors, and the opinion does not address the price at which Gart's
common stock will trade after the proposed merger and does not constitute a
recommendation to any stockholder as to how to vote with respect to any matter
relating to the proposed merger.
United States Federal Income Tax Consequences of the Merger (See page 45)
It is a condition to the completion of the merger that both Gart and
Oshman's receive opinions from their respective accounting firms to the effect
that the merger will be treated as a reorganization described in Section
368(a) of the Internal Revenue Code.
If the merger is treated as a reorganization under the Internal Revenue
Code, in general, for federal income tax purposes:
. no gain or loss will be recognized by the holders of Gart common stock;
and
. a gain, if any, but not a loss, will be recognized by the holders of
Oshman's common stock to the extent of the lesser of (1) the fair market
value of Gart common stock, plus the amount of cash received, less such
stockholder's tax basis in the Oshman's common stock surrendered and (2)
the amount of cash received. Such gain ordinarily will be a capital
gain.
Holders of Oshman's common stock also may recognize a gain or loss by
reason of cash received in lieu of fractional shares or upon the exercise of
appraisal rights. See "United States Federal Income Tax Consequences of the
Merger" for a more detailed description of the above matters and for
information with respect to certain taxpayers subject to special treatment
under the Internal Revenue Code.
Regulatory Filings and Approvals (See page 47)
The merger is subject to pre-acquisition review under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Gart and Oshman's both have
made the required filings with the Department of Justice and the Federal Trade
Commission. Early termination with respect to the waiting periods was granted
on March 19, 2001. However, the Department of Justice or the Federal Trade
Commission, as well as a state agency, a government agency or private persons,
may still challenge the merger.
7
Interests of Certain Persons in the Merger (See page 38)
When considering the recommendation of Gart's board of directors, you should
be aware that two of Gart's directors are partners of a merchant banking firm
that will be paid $4 million by Gart upon the completion of the merger. As a
result, these directors may have an interest in the merger that is different
from, or in addition to, yours.
When considering the recommendations of Oshman's board of directors, you
should be aware that certain Oshman's directors, executive officers and
stockholders have interests in the merger that are different from, or are in
addition to, yours. These interests include consulting arrangements between
Gart and two of Oshman's directors and executive officers that take effect
after the merger, the acceleration of stock option vesting, severance payments
to certain officers, rights associated with shares of restricted stock held by
an Oshman's executive officer, the election of two Oshman's officers and
directors to Gart's board of directors following the merger, registration
rights for certain Oshman's officers and directors with respect to Gart common
stock, and the indemnification of directors and officers of Oshman's against
certain liabilities both before and after the merger.
Dissenters' and Appraisal Rights (See page 48)
Under Delaware law, stockholders of Oshman's are entitled to dissenters'
rights in connection with the merger, provided that they follow the proper
procedures to perfect their dissenters' rights.
Stockholders of Gart are not entitled to dissenters' rights in connection
with the merger.
Restrictions on the Ability to Sell Gart Common Stock (See page 48)
All Gart common stock received by Oshman's stockholders in connection with
the merger will be freely transferable unless the holder is considered an
affiliate of either Oshman's or Gart under the Securities Act of 1933, as
amended. Shares of Gart common stock held by affiliates may be sold only
pursuant to a registration statement or an exemption from the registration
requirements of the Securities Act. In connection with the merger, Gart granted
to certain Oshman's stockholders who may be considered affiliates of Oshman's
rights to have their shares of Gart common stock registered for resale under
the Securities Act.
8
Gart Selected Consolidated Financial Data
In the table below, Gart provides you with summary historical consolidated
financial data of Gart. Gart has prepared the statement of operations data and
balance sheet data using the consolidated financial statements of Gart for the
53 weeks ended February 3, 2001, the 52 weeks ended January 29, 2000, the 52
weeks ended January 30, 1999, the 28-day period ended January 31, 1998, the 52
weeks ended January 3, 1998 and the 52 weeks ended January 4, 1997. The
consolidated financial statements for the 53 weeks ended February 3, 2001 have
been audited by Deloitte & Touche LLP, independent auditors, and the
consolidated financial statements for the 52 weeks ended January 29, 2000, the
52 weeks ended January 30, 1999, the 28-day period ended January 31, 1998, the
52 weeks ended January 3, 1998 and the 52 weeks ended January 4, 1997 have been
audited by KPMG LLP, independent auditors.
When you read this summary historical data, it is important that you read it
along with the historical consolidated financial statements and related notes
in Gart's annual reports, as well as the sections of Gart's annual reports
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which have been filed with the Securities and
Exchange Commission and incorporated into this joint proxy statement-prospectus
by reference.
28 days
Fiscal Years (1) ended Fiscal Years (1)
----------------------------------- January 31, ----------------------
2000 1999 1998 1998 1997 1996
---------- ---------- ---------- ----------- ---------- ----------
(dollars in thousands, except per share amounts)
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 751,124 $ 680,995 $ 658,047 $ 38,825 $ 228,379 $ 204,126
Cost of goods sold,
buying, distribution
and occupancy.......... (559,778) (517,405) (503,379) (31,924) (164,289) (148,420)
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 191,346 163,590 154,668 6,901 64,090 55,706
Operating expenses...... (164,830) (150,985) (148,348) (11,360) (52,721) (47,604)
Merger integration
costs.................. -- -- (2,923) (3,377) (395) --
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 26,516 12,605 3,397 (7,836) 10,974 8,102
Interest expense........ (11,071) (10,615) (9,302) (525) (983) (1,601)
Other income, net....... 246 779 302 38 776 637
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 15,691 2,769 (5,603) (8,323) 10,767 7,138
Income tax benefit
(expense).............. 7,405 (996) 2,185 318 (4,083) (2,681)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 23,096 $ 1,773 $ (3,418) $ (8,005) $ 6,684 $ 4,457
---------- ---------- ---------- ---------- ---------- ----------
Basic earnings (loss)
per share.............. $ 3.13 $ 0.23 $ (0.45) $ (1.11) $ 1.21 $ 0.81
========== ========== ========== ========== ========== ==========
Weighted average shares
of common stock
outstanding............ 7,380,529 7,632,696 7,676,816 7,212,267(2) 5,501,673 5,512,886
========== ========== ========== ========== ========== ==========
Diluted earnings (loss)
per share.............. $ 2.99 $ 0.23 $ (0.45) $ (1.11) $ 1.19 $ 0.81
========== ========== ========== ========== ========== ==========
Weighted average shares
of common stock and
common stock
equivalents
outstanding............ 7,729,601 7,701,427 7,676,816 7,212,267 5,596,823 5,512,886
========== ========== ========== ========== ========== ==========
OTHER DATA:
Number of stores at
beginning of period.... 127 125 123 63 60 60
Number of stores opened
or acquired............ -- 7 6 60(3) 5 5
Number of stores
closed................. (7) (5) (4) -- (2) (5)
---------- ---------- ---------- ---------- ---------- ----------
Number of stores at end
of period.............. 120 127 125 123 63 60
========== ========== ========== ========== ========== ==========
Total gross square feet
at end of period....... 4,517,122 4,600,738 4,361,335 4,206,197 1,605,963 1,453,520
Comparable store sales
increase
(decrease)(4).......... 6.4% (0.6%) (4.5%) 10.0% 5.6% 4.4%
EBITDA(5)............... $ 41,538 $ 27,577 $ 15,043 $ (6,633) $ 15,040 $ 12,396
Net cash provided by
(used in):
Operating activities... 24,053 1,326 16,289 (15,395) 7,838 21,416
Investing activities... (12,385) (8,806) (15,561) 483 (3,720) (2,717)
Financing activities... (11,404) 4,544 (6,321) 18,326 40 (16,820)
BALANCE SHEET DATA (at
end of period):
Working capital........ $ 113,324 $ 104,853 $ 94,439 $ 108,844 $ 39,886 $ 34,133
Total assets........... 335,128 344,085 335,119 319,435 121,291 96,435
Long-term debt......... 95,900 105,900 100,000 105,600 -- --
Redeemable common
stock, net............ -- -- -- -- 1,904 860
Stockholders' equity... 88,886 65,894 63,466 68,757 42,613 36,883
9
--------
(1) During 1995, Gart adopted an annual fiscal reporting period that ends on
the first Saturday in January. Accordingly, fiscal 1997 began on January 5,
1997 and ended on January 3, 1998 and included 52 weeks of operations; and
fiscal 1996 began on January 7, 1996 and ended on January 4, 1997 and
included 52 weeks of operations. During 1998, Gart adopted an annual fiscal
reporting period that ends on the Saturday closest to the end of January.
Accordingly, fiscal 2000 began on January 30, 2000 and ended on February 3,
2001 and included 53 weeks of operations; fiscal 1999 began on January 31,
1999 and ended on January 29, 2000 and included 52 weeks of operations; and
fiscal 1998 began on February 1, 1998 and ended on January 30, 1999 and
included 52 weeks of operations.
(2) Gart acquired Sportmart, Inc. on January 9, 1998 in a transaction involving
the issuance of 2,180,656 shares of Gart common stock in exchange for all
of the outstanding common stock of Sportmart.
(3) Represents the 59 Sportmart stores acquired on January 9, 1998 and one new
store opened in January 1998.
(4) Stores enter the comparable store sales base at the beginning of their 14th
month of operation. The 59 Sportmart stores acquired on January 9, 1998,
are included in comparable store sales bases utilizing historical Sportmart
comparable store data.
(5) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. Gart believes
that, in addition to cash flows from operations and net income (loss),
EBITDA is a useful financial performance measure for assessing operating
performance as it provides an additional basis to evaluate the ability of
Gart to incur and service debt and to fund capital expenditures. In
evaluating EBITDA, Gart believes that consideration should be given, among
other things, to the amount by which EBITDA exceeds interest costs for the
period, how EBITDA compares to principal repayments on debt for the period
and how EBITDA compares to capital expenditures for the period. To evaluate
EBITDA, the components of EBITDA such as revenue and operating expenses and
the variability of such components over time should also be considered.
EBITDA should not be construed, however, as an alternative to operating
income (loss) (as determined in accordance with accounting principles
generally accepted in the United States of America ("GAAP")) as an
indicator of Gart's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. Gart's method of calculating EBITDA may differ from methods used
by other companies, and as a result, EBITDA measures disclosed herein may
not be comparable to other similarly titled measures used by other
companies.
10
Oshman's Selected Consolidated Financial Data
In the table below, Oshman's provides you with summary historical
consolidated financial data of Oshman's. The consolidated financial statements
have been audited by Grant Thornton LLP, independent auditors.
When you read this summary historical data, it is important that you read it
along with the historical consolidated financial statements and related notes
in Oshman's annual reports, as well as the sections of Oshman's annual reports
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which have been filed with the Securities and
Exchange Commission and incorporated into this joint proxy statement-prospectus
by reference.
For the year ended
or as of the year end
----------------------------------------------------------------
February 3, January 29, January 30, January 31, February 1,
2001 2000 1999 1998 1997
(53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
STATEMENT OF OPERATIONS
DATA:
Consolidated sales...... $330,470 $306,492 $309,057 $342,609 $365,879
Cost of goods sold...... 215,913 201,572 203,277 244,620 250,784
-------- -------- -------- -------- --------
Gross profit............ 114,557 104,920 105,780 117,989 115,095
Operating expenses
Selling and
administrative
expenses.............. 100,534 105,140 106,396 117,264 128,517
Pre-opening expenses... 571 722 -- 1,525 3,459
Impairment of long-
lived assets.......... -- -- 3,000 -- 1,298
Store closing
provision............. (751) -- (499) (836) 6,212
Miscellaneous
income(1)............. (6,953) (322) (4,263) (6,046) (773)
-------- -------- -------- -------- --------
Operating income
(loss)................. 21,156 (620) 1,146 6,082 (23,618)
Interest expense, net... 1,920 3,011 3,241 3,711 3,821
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes........... 19,236 (3,631) (2,095) 2,371 (27,439)
Income tax benefit...... 795 1 744 4,001 189
-------- -------- -------- -------- --------
Earnings (loss) before
cumulative effect of
change in accounting
principle.............. 20,031 (3,630) (1,351) 6,372 (27,250)
Cumulative effect of
change in accounting
principle.............. 972(2) -- -- (1,299)(3) --
-------- -------- -------- -------- --------
Net earnings (loss)..... $ 21,003 $ (3,630) $ (1,351) $ 5,073 $(27,250)
======== ======== ======== ======== ========
Earnings (loss) before
cumulative effect of
change in accounting
principle
Basic earnings (loss)
per share............ $ 3.47 $ (.62) $ (.23) $ 1.09 $ (4.67)
Diluted earnings
(loss) per share..... $ 3.30 $ (.62) $ (.23) $ 1.07 $ (4.67)
Cumulative effect of
change in accounting
principle
Basic earnings (loss)
per share............ $ .17(2) $ -- $ -- $ (.22)(3) $ --
Diluted earnings
(loss) per share..... $ .16(2) $ -- $ -- $ (.22)(3) $ --
Net earnings (loss) per
share
Basic earnings (loss)
per share............ $ 3.64 $ (.62) $ (.23) $ .87 $ (4.67)
Diluted earnings
(loss) per share..... $ 3.46 $ (.62) $ (.23) $ .85 $ (4.67)
Weighted average shares
of common stock
outstanding............ 5,770 5,827 5,827 5,827 5,827
Weighted average shares
of common stock and
common stock
equivalents
outstanding............ 6,063 5,827 5,827 5,937 5,827
BALANCE SHEET DATA (at
end of period):
Total assets............ $119,443 $132,665 $126,004 $148,350 $160,734
Long-term debt.......... 557 37,463 28,679 35,953 42,397
--------
(1) Includes principally the gain on disposition of real estate. Gain from real
estate activities was $7,524, $0, $3,914, $5,616, and $0 for the fiscal
years ended in 2001, 2000, 1999, 1998 and 1997, respectively.
(2)Effect of change from retail to cost method of accounting for inventory.
(3)Effect of change in accounting method for pre-opening expenses.
11
Selected Unaudited Pro Forma Combined Financial Data
(dollars in thousands, except per share amounts)
The following table presents selected unaudited pro forma combined financial
data of Gart, which are derived from the unaudited pro forma combined condensed
financial statements that are presented elsewhere in this joint proxy
statement-prospectus. The data has been prepared giving effect to the merger
under the purchase method of accounting. This information should be read in
conjunction with the unaudited pro forma statements and related notes. The
selected unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have been achieved had the merger been
completed as of the dates indicated or that may be achieved in the future.
Statement of Operations Data
53 Weeks Ended
February 3, 2001
----------------
Net sales..................................................... $1,081,594
Operating income.............................................. 46,297
Income from continuing operations............................. $ 39,035(1)
Earnings per share
Basic earnings per share..................................... $ 3.67(1)
==========
Diluted earnings per share................................... $ 3.55(1)
==========
Weighted average shares of common stock outstanding
Basic........................................................ 10,639,449
==========
Diluted...................................................... 10,988,521
==========
Balance Sheet Data
As of February 3, 2001
Working capital........................................................ $147,401
Total assets........................................................... 495,448
Long-term debt......................................................... 154,960
Stockholders' equity................................................... 124,735
--------
(1) Includes significant tax benefits realized in fiscal 2000 for both Oshman's
and Gart. Had statutory tax rates been utilized, the unaudited pro forma
combined income from continuing operations would have been approximately
$17.2 million, with corresponding basic earnings per share of $1.62 and
diluted earnings per share of $1.57.
12
Comparative Per Share Data
The following table shows (1) the historical net income and book value per
share of Gart common stock and the historical net income and book value per
share of Oshman's common stock in comparison with the unaudited pro forma net
income and book value per share after giving effect to Gart's proposed merger
with Oshman's and (2) the equivalent historical net income and book value per
share attributable to $7.00 in cash and 0.55 shares of Gart common stock, which
will be received for each share of Oshman's common stock. The mix between cash
and Gart common stock is subject to adjustment if the closing sales price of
Gart common stock is less than $9.50 on the closing date of the merger.
The historical book value per share data is computed by dividing
stockholders' equity by the number of shares of Gart common stock or Oshman's
common stock outstanding at the end of each period. The pro forma book value
per share data is computed by dividing pro forma stockholders' equity by the
pro forma number of shares of Gart common stock outstanding at the end of each
period. Oshman's equivalent pro forma combined net income per share and book
value per share amounts are calculated on the basis of an exchange ratio of
0.55 shares of Gart common stock for each outstanding share of Oshman's common
stock. The cash portion of the merger consideration is not reflected in the
calculations. All per share information reflects basic, rather than diluted,
shares outstanding.
The following information should be read in conjunction with (1) the
separate historical consolidated financial statements and related notes of Gart
and Oshman's incorporated by reference in this joint proxy statement-prospectus
and (2) the unaudited pro forma condensed combined financial information and
related notes of Gart and the selected consolidated financial data included
elsewhere in this joint proxy statement-prospectus. The pro forma information
is presented for illustrative purposes only and is not necessarily indicative
of the operating results or financial position that would have occurred if the
merger with Oshman's had been completed as of the beginning of the earliest
period presented, nor is it necessarily indicative of the future operating
results or financial position of the combined company. No cash dividends have
been declared or paid on Gart common stock or Oshman's common stock for the
last five fiscal years of each respective company.
Gart Oshman's
-------------- -------------------
Net Income Per Share:
Fiscal Year ended February 3, 2001 $ 3.13 $3.47
Book Value Per Share:
As of February 3, 2001 $12.07 $9.89
Gart Pro Forma Oshman's Equivalent
Combined Pro Forma Combined
-------------- -------------------
Net Income Per Share:
Fiscal Year ended February 3, 2001 $ 3.67 $2.02
Book Value Per Share:
As of February 3, 2001 $11.72 $6.45
13
Comparative Per Share Market Price Data
Gart common stock is traded on the Nasdaq National Market under the symbol
"GRTS." Oshman's common stock is traded on the American Stock Exchange under
the symbol "OSH."
The following table sets forth the closing sales prices per share of Gart
common stock and the closing sales prices per share of Oshman's common stock,
as reported on the Nasdaq National Market and the American Stock Exchange,
respectively, on (1) February 21, 2001, the business day preceding the public
announcement that Gart and Oshman's had entered into the merger agreement and
(2) , 2001, the last full trading day for which closing sales prices were
available at the time of the printing of this joint proxy statement-prospectus.
The table also includes the equivalent price per share of Oshman's common
stock on those dates. This equivalent per share price reflects the value of the
merger consideration that Oshman's stockholders would receive for each share of
Oshman's common stock if the merger was completed on the specified dates by
multiplying the closing sales price of Gart common stock on those dates by the
exchange ratio of 0.55 and adding $7.00. The mix between cash and Gart common
stock is subject to adjustment if the price of Gart common stock is less than
$9.50 on the closing date of the merger. Please review the description of this
adjustment procedure under "The Merger and Related Transactions--Structure of
the Merger--Adjustment in Mix of Merger Consideration."
Gart Common Stock
Closing Sales Oshman's Common Stock Oshman's Equivalent
Price Closing Sales Price Price per Share
----------------- --------------------- --------------------
February 21,
2001............. $11.00 $9.35 $13.05
, 2001.. $ $ $
Because the market price of Gart common stock may increase or decrease
before the completion of the merger, Oshman's stockholders are urged to obtain
current market quotations.
14
RISK FACTORS
Both the merger and an investment in Gart common stock involve a high degree
of risk. By voting in favor of the merger, current Oshman's stockholders will
be choosing to invest in Gart common stock, and current Gart stockholders will
be choosing to combine Oshman's business with Gart's business and to dilute
their percentage ownership interest in Gart. In addition to the other
information contained in, or incorporated by reference into, this joint proxy
statement-prospectus, you should consider carefully the following risk factors
in deciding whether to vote in favor of the merger or the related issuance of
shares of Gart common stock.
Risks Related to the Merger
The value of the merger consideration to be received by Oshman's
stockholders in the merger for each share of Oshman's common stock will not be
adjusted for changes in the market price of Gart common stock or Oshman's
common stock.
In the merger, Oshman's stockholders are entitled to receive $7.00 in cash
and 0.55 shares of Gart common stock in exchange for each share of Oshman's
common stock. However, the merger agreement provides that if the market price
per share of Gart common stock is less than $9.50 on the closing date of the
merger, then the allocation of the merger consideration between cash and shares
of Gart common stock will be adjusted in accordance with a formula set forth in
the merger agreement. Although the allocation of the merger consideration
between cash and stock will be adjusted, the aggregate value of the merger
consideration to be received by Oshman's stockholders for each share of
Oshman's common stock will not be adjusted. In other words, in the event of an
adjustment in the allocation of the merger consideration, Oshman's stockholders
will continue to be entitled to receive merger consideration having an
aggregate value equal to the sum of (1) $7.00 and (2) 0.55 multiplied by the
market price per share of Gart common stock, although the mix between the
amount of cash and the number of shares of Gart common stock will be adjusted.
However, any reduction in the market price of Gart common stock will result in
Oshman's stockholders receiving merger consideration of less value in the
merger.
Both Gart and Oshman's are entitled to terminate the merger agreement if the
market price per share of Gart common stock is less than $7.00 on the closing
date of the merger. However, neither Gart nor Oshman's is obligated to
terminate the merger agreement due to such an event, and, if the market price
of Gart common stock is greater than $7.00, then neither Gart nor Oshman's may
terminate the merger agreement solely because of changes in the market price of
Gart common stock. In addition, neither Gart nor Oshman's may terminate the
merger agreement solely because of changes in the market price of Oshman's
common stock. At the time of the special meeting of Oshman's stockholders,
Oshman's stockholders will not know either the market price of the Gart common
stock that would be issued to them in the merger or the exact value of the
aggregate merger consideration that they would receive in the merger.
The market price of Gart common stock may vary significantly from time to
time. The seasonal nature of Gart's business, unanticipated fluctuations in
demand, and inventory imbalances could cause Gart's operating results to vary
significantly from quarter to quarter, which could lead to volatility or
significant declines in the market price of Gart common stock. In addition, in
recent years, the stock market has experienced extreme price and volume
fluctuations that have been disproportionate, or unrelated to, the operating
performance of companies. Accordingly, the market price of Gart common stock
may fluctuate significantly before the completion of the merger.
Gart will face significant challenges in integrating Gart and Oshman's and,
as a result, may not realize the expected benefits of the merger.
Integrating the operations and personnel of Gart and Oshman's will be a
complex process, and Gart cannot be certain that the integration will be
completed in a timely manner or that the anticipated benefits of the merger
will be achieved. The successful integration of Gart and Oshman's will require,
among other things, the integration of their finance, human resources, store
operations and marketing groups and the coordination of their information
systems. The diversion of the attention of Gart's management and any
difficulties encountered in
15
the process of combining the companies could cause the disruption of, or a loss
of momentum in, the activities of Gart's business. Furthermore, the process of
combining Gart and Oshman's could negatively affect employee morale and the
ability of Gart to retain some of Oshman's key employees after the merger.
Gart's officers and directors have conflicts of interest that may influence
them to support or approve the merger.
Two of Gart's current directors are partners of Leonard Green & Partners,
L.P., a merchant banking firm that will receive transaction fees in the amount
of $4 million from Gart upon the completion of the merger. As a result of this
relationship, these directors may be deemed to have an interest in the merger
that is different from, or in addition to, the interests of Gart stockholders.
Accordingly, these directors may have been more likely to vote to adopt the
merger agreement and to approve the merger than if they did not have this
interest. Gart stockholders should consider whether this interest may have
influenced these directors to support the merger and to recommend the issuance
of Gart common stock in the merger. You should read more about these interests
under "The Merger and Related Transactions--Interests of Certain Persons in the
Merger."
Oshman's officers and directors have conflicts of interest that may
influence them to support or approve the merger.
The officers and directors of Oshman's are participating in arrangements and
have continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or in addition to, those of
other Oshman's stockholders, including the following:
. Gart has agreed that it and the surviving corporation in the merger will
indemnify any Oshman's officer or director against liabilities with
respect to all acts and omissions arising out of such person's services
as an officer or director, and Gart and the surviving corporation have
agreed to cause to be maintained in effect for the next six years
directors' and officers' liability insurance to cover any such
liabilities for the next six years;
. the vesting of stock options to acquire shares of Oshman's common stock
will be accelerated as a result of the merger;
. certain officers of Oshman's are entitled to certain benefits, including
severance payments, if their employment is terminated after the merger;
. rights associated with shares of restricted stock held by an executive
officer are accelerated, including the payment of an amount related to a
tax benefit;
. Gart has agreed to enter into consulting agreements with two executive
officers and directors of Oshman's that will take effect upon the
completion of the merger;
. two of the Oshman's officers and directors will be appointed to Gart's
board of directors following the merger; and
. Gart has agreed to enter into a registration rights agreement with
certain Oshman's officers and directors who hold Oshman's common stock
that provides them with the right following the completion of the merger
to cause Gart to register the shares of Gart common stock received by
them in the merger under the Securities Act.
Accordingly, the directors and officers of Oshman's may have been more
likely to vote to adopt the merger agreement and to approve the merger than if
they did not have these interests. Oshman's stockholders should consider
whether these interests may have influenced these directors and officers to
support or recommend the merger. You should read more about these interests
under "The Merger and Related Transactions -- Interests of Certain Persons in
the Merger."
16
Uncertainties associated with the merger may cause Oshman's to lose key
personnel.
Current Oshman's employees have experienced, and may experience in the
future, uncertainty about their future roles with Gart. This uncertainty may
adversely affect Oshman's ability to attract and retain key personnel. In
addition, Gart's ability to successfully integrate the two companies may be
adversely affected if a significant number of key Oshman's personnel depart
prior to the completion of the merger, which would adversely affect the
business and results of operations of the combined company.
Risks Related to Gart and Oshman's
Except as otherwise specified, the following risk factors relate to the
businesses of Gart and Oshman's prior to the merger. If the merger is not
completed for any reason, each company expects to continue to be subject to
such risks. If the merger is completed, the combined company will be subject to
the risks of each of Gart and Oshman's.
Intense competition in the sporting goods industry could limit the growth of
Gart and Oshman's and reduce their profitability.
The market for sporting goods retailers is highly fragmented and intensely
competitive. Current and prospective competitors of Gart and Oshman's include
many large companies that have substantially greater market presence, name
recognition, financial, marketing and other resources than Gart and Oshman's do
separately or on a combined basis. Gart and Oshman's compete directly or
indirectly with the following categories of companies:
. established companies, including large format sporting goods stores,
such as The Sports Authority, Galyan's Trading Company, Dick's Sporting
Goods, and Sport Chalet;
. traditional sporting goods stores and chains, such as Big 5 and Hibbett
Sporting Goods;
. specialty sporting goods shops and pro shops, such as The Athlete's
Foot, Champs, Finish Line, Foot Locker, REI, Bass Pro Shops, Pro Golf
Discount and Nevada Bob's;
. mass merchandisers, discount stores, department stores and warehouse
clubs, such as Target, Kmart, Wal-Mart, Costco, JC Penney and Sears; and
. catalog and Internet-based retailers, such as ShopSports.com, Global
Sports Interactive, LL Bean, Eddie Bauer, Land's End and Cabela's.
Increased competition in markets in which Gart or Oshman's have stores, the
adoption by competitors of innovative store formats, pricing strategies and
retail sale methods, such as the Internet, or the entry of new competitors or
the expansion of operations by existing competitors in Gart's or Oshman's
markets could cause the affected company to lose market share and could have a
material adverse effect on its business, financial condition and results of
operations.
Rising real estate costs and other factors could adversely affect the
ability of Gart and Oshman's to secure additional retail store sites and could
severely limit their growth opportunities.
If additional retail store sites are unavailable, Gart and Oshman's may not
be able to carry out a significant part of their growth strategies. Any plans
by Gart and Oshman's to increase the number of their retail stores will depend
in part on the availability of existing retail stores or store sites. Gart and
Oshman's cannot assure you that stores or sites will be available to them for
purchase or lease, or that they will be available on terms acceptable to the
companies. Rising real estate costs and construction and development costs
could also inhibit their ability to grow. If Gart or Oshman's is unable to grow
its retail business, its financial performance and prospects could be adversely
affected.
17
If Gart and Oshman's are unable to predict or react to changes in consumer
demand, the companies may lose customers and their sales may decline.
The success of Gart and Oshman's depends on their ability to anticipate and
respond in a timely manner to changing consumer demand and preferences
regarding sporting goods. The companies' products must appeal to a broad range
of consumers whose preferences cannot be predicted with certainty and are
subject to change. Gart and Oshman's often make commitments to purchase
products from their vendors several months in advance of the proposed
delivery. If Gart or Oshman's misjudges the market for its merchandise, it may
overstock unpopular products and be forced to take significant inventory
markdowns, which could have a negative impact on its profitability.
Gart has a significant amount of debt that could adversely affect its
business and growth prospects, and, if the merger is completed, the combined
company would have a significant amount of debt under the new credit facility.
As of February 3, 2001, Gart had approximately $96 million of long-term
debt. If the merger is completed, the combined company will enter into a new
credit facility, and, on a pro forma combined basis, would have had
approximately $155 million of long-term debt at February 3, 2001. This debt
could have significant adverse effects on the business of Gart or, if the
merger is completed, on the business of the combined company. This debt:
. makes it more difficult for Gart or the combined company to obtain
additional financing on favorable terms;
. requires Gart or the combined company to dedicate a substantial portion
of its cash flows from operations to the repayment of its debt and the
interest on its debt;
. limits the ability of Gart or the combined company to capitalize on
significant business opportunities;
. makes Gart or the combined company more vulnerable to economic
downturns;
. limits the ability of Gart or the combined company to exploit business
opportunities and to withstand competitive pressures; and
. contains covenants that restrict the ability of Gart or the combined
company to operate its business.
If Gart or the combined company is unable to generate sufficient cash flows
from operations in the future, it may have to refinance all or a portion of
its debt and/or obtain additional financing. Gart and Oshman's cannot assure
you that refinancing or additional financing on favorable terms could be
obtained or that Gart or the combined company will be able to operate at a
profit.
Gart is subject to an income tax contingency that could have a material
adverse impact on its liquidity.
In July 1997, the Internal Revenue Service proposed adjustments to Gart's
1992 and 1993 consolidated federal income tax returns and the returns of
Gart's former parent, formerly known as Thrifty PayLess Holdings, Inc., in
conjunction with an Internal Revenue Service examination of Thrifty. Thrifty
PayLess Holdings, Inc. is currently owned by Rite Aid Corporation. The
proposed adjustments relate to the manner in which last in first out ("LIFO")
inventories were characterized on Thrifty's tax returns. Gart was a wholly
owned indirect subsidiary of Thrifty until April 20, 1994 and was responsible
for its share of taxes on a separate return basis under a tax sharing
agreement with Thrifty. In 1992 and 1993, Gart recorded approximately $9.7
million as a long-term net deferred tax liability for the tax effect of the
LIFO inventory basis difference. The Internal Revenue Service has asserted
that this basis difference should be reflected in taxable income in 1992 and
1993. Gart believes that the inventory acquired in connection with the
acquisition of Thrifty was appropriately allocated to its inventory pools. The
Internal Revenue Service has asserted that the inventory was acquired at a
bargain purchase price and that it should be allocated to a separate inventory
pool and liquidated as inventory turns.
18
Based on Gart's discussions with Thrifty, Gart believes that the potential
accelerated tax liability, which could have a negative effect on Gart's
liquidity in the near term, ranges from approximately $2.5 million to $9.7
million. The loss from possible assessed interest charges resulting from
proposed adjustments by the Internal Revenue Service ranges from approximately
$580,000 to $3.3 million. Gart has accrued approximately $1.2 million for
potential interest charges in its consolidated financial statements. Gart does
not expect any penalties to be assessed relating to this matter. As of February
3, 2001, the LIFO inventory and other associated temporary differences continue
to be classified as long-term net deferred tax liabilities.
Gart believes that it has adequately provided for any liability that may
result from this matter. In the opinion of Gart's management, any additional
liability beyond the amounts recorded, that may arise as a result of the IRS
examination, will not have a material adverse effect on Gart's business,
financial condition and operating results.
Gart and Oshman's may be subject to product liability claims, and their
insurance may not be sufficient to cover damages related to those claims.
Gart and Oshman's may be subject to lawsuits resulting from injuries
associated with the use of sporting goods equipment that the companies sell or
rent. In addition, Gart and Oshman's sell firearms, which are products that are
associated with an increased risk of injury and related lawsuits. There is a
risk that claims or liabilities will exceed the insurance coverage of the
affected company. In addition, Gart and Oshman's may be unable to retain
adequate liability insurance in the future. Although Gart and Oshman's have
entered into product liability indemnity agreements with many of their vendors,
the companies cannot assure you that they will be able to collect payments
sufficient to offset product liability losses. In addition, Gart and Oshman's
are subject to regulation by the Consumer Product Safety Commission and similar
state regulatory agencies. If Gart or Oshman's fails to comply with government
and industry safety standards, it may be subject to claims, lawsuits, fines and
adverse publicity that could have a material adverse effect on its business and
results of operations.
If the suppliers and distributors of Gart and Oshman's do not provide the
companies with sufficient quantities of products, the sales and profitability
of the companies will suffer.
Each of Gart and Oshman's purchases merchandise from over 1,000 vendors. In
fiscal 2000, purchases from Nike represented approximately 12% of Gart's total
purchases and approximately 10% of Oshman's total purchases. Although purchases
from no other vendor represented more than 10% of the total purchases of either
Gart or Oshman's, the dependence of Gart and Oshman's on their principal
suppliers involves risk. If there is a disruption in supply from a principal
supplier or distributor, Gart and Oshman's may be unable to obtain the
merchandise that they desire to sell and that consumers desire to purchase.
Moreover, many of the suppliers of Gart and Oshman's provide the companies with
incentives, such as return privileges, volume purchasing allowances and
cooperative advertising. A decline or discontinuation of these incentives could
reduce the profits of Gart or Oshman's.
In addition, Gart and Oshman's believe that a significant portion of the
products that the companies purchase, including those purchased from domestic
suppliers, are manufactured abroad. Interruptions or delays in imports could
cause shortages in the inventory of Gart and Oshman's and a decline in their
sales.
Gart's and Oshman's business is seasonal, and the companies' annual results
are highly dependent on the success of their winter selling season.
Gart's and Oshman's business is highly seasonal in nature. The highest sales
and operating profitability of Gart and Oshman's historically occurs during the
fourth fiscal quarter, which is due, in part, to the holiday selling season
and, in part, to the companies' strong sales of cold weather sporting goods and
apparel. Fourth quarter sales comprised approximately 31% of Gart's net sales
and approximately 51% of Gart's operating income for the 2000 fiscal year, and
approximately 32% of Oshman's net sales and approximately 29% of Oshman's
operating income for the 2000 fiscal year. Excluding the impact on operating
income of the gain on sale of real estate and fixed assets of approximately
$7.0 million realized prior to the fourth quarter, Oshman's
19
fourth quarter results would have represented approximately 43% of operating
income for the 2000 fiscal year. Any decrease in fourth quarter sales for Gart
or Oshman's, whether because of a slow holiday selling season, poor snowfall in
ski areas near the affected company's markets (principally in the case of
Gart), or otherwise, could have a material adverse effect on the company's
business, financial condition and operating results for the entire fiscal year.
Adverse weather and general economic conditions could have a significant
adverse effect on Gart's and Oshman's business.
Because Gart's and Oshman's business is subject to weather conditions in the
companies' retail markets, the companies' results may be unexpectedly and
adversely affected by adverse weather conditions. Poor mountain snowfall in the
winter months could have a material adverse effect on the companies' sales and
earnings.
In addition, general economic factors in the regions in which Gart and
Oshman's operate are beyond the companies' control and could have a material
adverse effect on their performance. These economic factors include:
. interest rates and inflation;
. the impact of an economic recession;
. consumer credit availability;
. consumer debt levels;
. tax rates and tax policy;
. unemployment trends; and
. other matters that influence consumer confidence and spending.
Increasing volatility in financial markets may cause the above factors to
change with an even greater degree of frequency and magnitude.
Gart faces competition from Internet retailers, which may have a cost
advantage and reach a broader market.
Gart does not have an Internet-based sales channel and faces growing
competition from Internet-based retailers. Because Internet-based retailers do
not operate retail stores, they may enjoy an operating cost advantage over
Gart. If Gart fails to develop an Internet-based sales channel and the Internet
continues to expand, Gart's market share may decline and its operating results
may suffer.
Labor conditions and wage rates may have a material adverse impact on the
operations and financial performance of Gart and Oshman's.
Many of the employees of Gart and Oshman's are in entry-level or part-time
positions that historically have high rates of turnover. Gart and Oshman's may
be unable to meet their labor needs and control their costs due to external
factors such as unemployment levels, minimum wage legislation and wage
inflation. If Gart or Oshman's cannot attract and retain quality employees, its
business will suffer.
In addition, three class action complaints have been filed against Gart in
California, alleging certain wage and hour claims in violation of California
law. All of the complaints seek compensatory damages, punitive damages and
penalties. The California courts recently have denied motions to dismiss two of
the three complaints. Gart intends to defend these claims vigorously but a
judgment adverse to Gart could have a material adverse effect on Gart.
20
Because Gart's principal stockholder owns a substantial interest in Gart,
other Gart stockholders may be unable to exercise control over major corporate
decisions.
As of March 30, 2001, Green Equity Investors, L.P. holds approximately 64%
of the outstanding shares of Gart common stock. If the merger is completed,
immediately following the completion of the merger, Green Equity Investors
will hold approximately 44% of the outstanding shares of Gart common stock
(assuming a conversion ratio in the merger of 0.55 shares of Gart common stock
for each outstanding share of Oshman's common stock). Whether or not the
merger is completed, Green Equity Investors will continue to be able to have
substantial influence over all matters that require the approval of Gart
stockholders. Green Equity Investors may influence the adoption of amendments
to Gart's certificate of incorporation, the designation of members of Gart's
board of directors, and decisions relating to Gart's business strategy. Other
Gart stockholders may disagree with the business decisions of Green Equity
Investors. Because of its substantial interest, Green Equity Investors also
will be able to influence the approval or rejection of significant corporate
matters, such as mergers, acquisitions and other change in control
transactions. Green Equity Investors' ownership interest could make it more
difficult for a third party to acquire Gart, even if the acquisition would be
beneficial to other Gart stockholders.
Anti-takeover provisions in Gart's organizational documents and Delaware
law may prevent Gart stockholders from realizing a premium return.
Anti-takeover provisions in Gart's certificate of incorporation and bylaws
and Delaware law may deter unfriendly offers or other efforts to obtain
control over Gart. This could make Gart less attractive to a potential
acquirer and deprive Gart stockholders of the opportunity to sell their common
stock at a premium price.
Gart's economic interests may conflict with those of former Sportmart
officers.
Gart leases properties from various entities that are owned by Larry
Hochberg, Andrew Hochberg and other former directors, officers and principal
stockholders of Sportmart. Larry Hochberg also is a director of Gart, and
Andrew Hochberg is a former director of Gart. Gart has advanced funds to these
entities, and, in connection with its acquisition of Sportmart, Gart
guaranteed Sportmart's obligations under these leases. These guarantees could
result in conflicts of interest for Gart, Larry Hochberg, Andrew Hochberg and
other former officers of Sportmart in situations where the interests of the
parties differ.
The value of shares of Gart common stock may decrease if other Gart
stockholders sell their shares.
Future sales of a substantial number of shares of Gart common stock or the
perception that such sales could occur could adversely affect the market price
of Gart common stock. Several Gart stockholders, including Green Equity
Investors and members of the Hochberg family, have the right to require Gart
to register their shares of Gart common stock. If the merger is completed,
additional Gart stockholders, including members of the Oshman family, will
receive such rights. In addition, Gart has granted a significant number of
stock options and restricted stock awards to its employees in order to reward
performance and encourage retention. Gart plans to issue additional stock
options and restricted stock awards in the future. To the extent that
employees exercise their stock options, Gart stockholders will experience
dilution in the market value and earnings per share of their Gart common
stock.
The loss of key Gart executives, especially John Douglas Morton, its
Chairman of the Board, President and Chief Executive Officer, could have a
material adverse effect on Gart's business.
Gart's success depends on the continued services of its senior management,
particularly John Douglas Morton, Gart's chairman of the board, president and
chief executive officer. Gart does not have employment agreements with any of
its senior executives. If Gart were to lose any key senior management, its
business could be materially adversely affected. In addition, Gart does not
maintain "key man" life insurance on any of its officers.
21
THE ANNUAL MEETING OF GART STOCKHOLDERS
General
This joint proxy statement-prospectus is furnished in connection with the
solicitation of the enclosed proxy by the board of directors of Gart for use at
the annual meeting of stockholders of Gart to be held at Gart's executive
offices located at 1000 Broadway, Denver, Colorado 80203 on , 2001,
beginning at a.m., local time, and at any adjournment or postponement of the
meeting, pursuant to the accompanying Notice of Annual Meeting. This joint
proxy statement-prospectus is expected to be mailed to stockholders on or about
, 2001.
Purpose of the Meeting
The annual meeting will be held for the following purposes:
1. To approve the issuance of shares of Gart common stock in the proposed
merger of Oshman's with and into GSC Acquisition Corp., a wholly owned
subsidiary of Gart, as contemplated by the Agreement and Plan of Merger,
dated as of February 21, 2001, by and among Gart, GSC Acquisition and
Oshman's. A copy of the agreement is attached as Annex A to this joint proxy
statement-prospectus. We encourage you to read this document in its
entirety.
2. To elect six directors of Gart to serve until the next annual meeting of
stockholders.
3. To approve an amendment to Gart's 1994 Management Equity Plan to increase
the maximum number of shares of common stock that may be issued under the
plan.
4. To ratify the selection of Deloitte & Touche LLP as independent auditors of
Gart for the fiscal year ending February 2, 2002.
5. To transact any other business that properly comes before the annual meeting
or any adjournments or postponements of the meeting.
Record Date for the Annual Meeting
Gart's board of directors has fixed the close of business on , 2001, as
the record date. Only stockholders of record of Gart common stock on the books
of Gart as of the close of business on the record date will be entitled to
notice of, and to vote at, the annual meeting and any postponements or
adjournments of the meeting. On March 30, 2001, Gart had 7,366,150 shares of
Gart common stock issued and outstanding and 209 stockholders of record. Each
share of Gart common stock outstanding on the record date is entitled to one
vote at Gart's annual meeting on each matter to be voted on.
Quorum and Voting
Gart has appointed Wells Fargo Shareowner Services to function as the
inspector of elections of the annual meeting, to tabulate votes, to ascertain
whether a quorum is present and to determine the voting results on all matters
presented to Gart's stockholders. A majority of all shares of Gart common stock
outstanding on the record date, represented in person or by proxy, constitutes
a quorum for the transaction of business at Gart's annual meeting. Abstentions
and broker non-votes are included in the determination of the number of shares
present and voting. However, abstentions and broker non-votes are tabulated
separately. Abstentions are counted in tabulations of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes will not be counted as votes cast for or against a particular
proposal and therefore will have no effect in determining the outcome of the
vote on a particular matter.
If a quorum is not obtained, or if fewer shares of Gart common stock are
voted in favor of the matters presented for consideration and approval at
Gart's annual meeting than the number of shares necessary to
22
approve the matters, Gart expects that the annual meeting will be postponed or
adjourned for the purpose of allowing additional time for obtaining additional
proxies or votes. At any subsequent reconvening of Gart's annual meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the annual meeting, except for any proxies that
have been effectively revoked or withdrawn prior to the subsequent annual
meeting.
Each holder of Gart common stock will be entitled to one vote, in person or
by proxy, for each share of Gart common stock registered in the holder's name
on the books of Gart as of the record date on any matter submitted for the vote
of the Gart stockholders. The six persons who receive the highest number of
votes will be elected to Gart's board of directors. The proposal to issue Gart
common stock in the merger, the proposal to amend Gart's 1994 Management Equity
Plan to increase the number of shares of Gart common stock available for
issuance under the plan, and the ratification of Gart's independent auditors
will each be approved if the number of shares voted in favor of the applicable
proposal exceeds the number of shares voted in opposition.
Green Equity Investors, L.P. has entered into a voting agreement with
Oshman's, pursuant to which Green Equity Investors has agreed to vote its
shares in favor of (1) the issuance of Gart common stock in connection with the
merger and (2) any other matter necessary to complete the transactions
contemplated by the merger agreement. As of March 30, 2001, Green Equity
Investors held 4,713,200 shares of Gart common stock, which represented
approximately 64% of all outstanding shares of Gart common stock entitled to
vote at Gart's annual meeting. As of March 30, 2001, Gart's directors and
executive officers held 570,277 shares of Gart common stock (excludes shares
subject to stock options and 4,713,200 shares held by Green Equity Investors,
L.P.), which represented approximately 8% of all outstanding shares of Gart
common stock entitled to vote at Gart's annual meeting.
Proxies
Shares of Gart common stock represented by proxies properly executed and
received by Gart in time to be voted at Gart's annual meeting will be voted in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, the shares will be voted:
. ""FOR'' the approval of the issuance of Gart common stock in the merger;
. ""FOR'' each of the six candidates named in this joint proxy statement-
prospectus at the annual meeting or any adjournment or postponement of
the meeting;
. ""FOR'' the approval of the amendment to Gart's 1994 Management Equity
Plan; and
. ""FOR'' the ratification of Gart's independent auditors.
All proxies voted "FOR" the approval of the issuance of Gart common stock in
the merger, "FOR" each of the six director nominees, "FOR" the approval of the
amendment to Gart's 1994 Management Equity Plan, and "FOR" the ratification of
Gart's independent auditors may, at the discretion of the proxy holder, be
voted "FOR" a motion to adjourn or postpone Gart's annual meeting to another
time and/or place for the purpose of soliciting additional proxies or
otherwise.
Gart's board of directors currently is not aware of any business to be acted
upon at the annual meeting other than as described in this joint proxy
statement-prospectus. If, however, other matters are properly brought before
the annual meeting, in the absence of instructions to the contrary, persons
appointed as proxies will have discretion to vote or act on the matters in
their best judgment.
Revocation of Proxies
The presence of a Gart stockholder at the annual meeting, or at any
adjournment or postponement, will not automatically revoke the stockholder's
proxy. However, a Gart stockholder may revoke a proxy at any time prior to its
exercise by:
. delivery to the secretary of Gart of a written notice of revocation
prior to the annual meeting (or, if the annual meeting is adjourned or
postponed, prior to the time the adjourned or postponed meeting is
actually held);
23
. delivery to the secretary of Gart prior to the annual meeting (or, if
the annual meeting is adjourned or postponed, prior to the time the
adjourned or postponed meeting is actually held) of a duly executed
proxy bearing a later date; or
. attending the annual meeting (or, if the annual meeting is adjourned or
postponed, by attending the adjourned or postponed meeting) and voting
in person at the annual meeting.
Solicitation of Proxies
Proxies may be solicited by mail, personal interview, telephone and telecopy
by directors, officers and employees of Gart and its subsidiaries on a part-
time basis and for no additional compensation. Gart will bear the costs it
incurs in the solicitation of proxies under this joint proxy statement-
prospectus, including amounts paid in reimbursement to banks, brokerage firms,
custodians, nominees and others for its expenses in forwarding soliciting
material to the beneficial owners of Gart common stock.
Communications by Gart Stockholders with Gart
Any written revocation of proxy or other communications in connection with
this joint proxy statement-prospectus and requests for additional copies of
this joint proxy statement-prospectus or the proxy card should be addressed to
Nesa Hassanein, senior vice president, general counsel and secretary, Gart
Sports Company, 1000 Broadway, Denver, Colorado 80203. If you have any
questions or need further assistance in voting your shares, please call Ms.
Hassanein at (303) 861-1122.
24
THE SPECIAL MEETING OF OSHMAN'S STOCKHOLDERS
General
This joint proxy statement-prospectus is furnished in connection with the
solicitation of the enclosed proxy by the board of directors of Oshman's for
use at the special meeting of stockholders of Oshman's to be held at
located at , Houston, Texas on , 2001, beginning at a.m.,
local time, and at any adjournment or postponement of the meeting, pursuant to
the accompanying Notice of Special Meeting. This joint proxy statement-
prospectus is expected to be mailed to stockholders on or about , 2001.
Purpose of the Meeting
The special meeting will be held for the following purposes:
1. To adopt the Agreement and Plan of Merger, dated as of February 21, 2001, by
and among Oshman's, Gart Sports Company, GSC Acquisition Corp., and approve
the merger contemplated thereby. A copy of the agreement is attached as
Annex A to this joint proxy statement-prospectus. We encourage you to read
this document in its entirety.
2. To transact any other business that properly comes before the meeting or
any adjournments or postponements of the meeting.
Record Date for the Special Meeting
Oshman's board of directors has fixed the close of business on , 2001,
as the record date. Only stockholders of record of Oshman's common stock on the
books of Oshman's as of the close of business on the record date will be
entitled to notice of, and to vote at, the special meeting and any
postponements or adjournments of the meeting. On March 30, 2001, Oshman's had
5,825,309 shares of Oshman's common stock issued and outstanding and
approximately 529 stockholders of record. Each share of Oshman's common stock
outstanding on the record date is entitled to one vote at Oshman's special
meeting on each matter to be voted on.
Quorum and Voting
Oshman's has appointed Ray Miller, treasurer and assistant secretary, to
function as the inspector of elections of the special meeting, to tabulate
votes, to ascertain whether a quorum is present and to determine the voting
results on all matters presented to Oshman's stockholders. A majority of all
shares of Oshman's common stock outstanding on the record date, represented in
person or by proxy, constitutes a quorum for the transaction of business at
Oshman's special meeting. Abstentions and broker non-votes are included in the
determination of the number of shares present and voting. However, abstentions
and broker non-votes are tabulated separately. Abstentions are counted in
tabulations of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes will not be counted as
votes cast for or against a particular proposal and therefore will have no
effect in determining the outcome of the vote on a particular matter.
If a quorum is not obtained, or if fewer shares of Oshman's common stock are
voted in favor of the matters presented for consideration and approval at
Oshman's special meeting than a majority of the shares eligible to vote at the
special meeting in person or by proxy, Oshman's expects that the special
meeting will be postponed or adjourned for the purpose of allowing additional
time for obtaining additional proxies or votes. At any subsequent reconvening
of Oshman's special meeting, all proxies will be voted in the same manner as
such proxies would have been voted at the original convening of the special
meeting, except for any proxies that have been effectively revoked or withdrawn
prior to the subsequent special meeting.
Each holder of Oshman's common stock will be entitled to one vote, in person
or by proxy, for each share of Oshman's common stock registered in the holder's
name on the books of Oshman's as of the record date on any matter submitted for
the vote of the Oshman's stockholders. The proposal to approve the merger
agreement will be approved if a majority of the outstanding shares of Oshman's
common stock are voted in favor of the merger.
25
The following stockholders of Oshman's have entered into voting agreements
with Gart, pursuant to which they have agreed to vote their shares in favor of
the merger: Marilyn Oshman, individually and as a trustee; Alvin N. Lubetkin;
Judy O. Margolis, individually, as a custodian and as a trustee; Karen
Desenberg, individually, as a custodian and as a trustee; Jay Douglas
Desenberg; Edward C. Stanton, III, as a trustee; and Barry M. Lewis, as a
trustee. As of March 30, 2001, these stockholders collectively held
approximately 2,914,543 shares of Oshman's common stock, which represented
approximately 50% of all outstanding shares of Oshman's common stock entitled
to vote at Oshman's special meeting. As of March 30, 2001, Oshman's directors
and executive officers held approximately 1,627,961 shares of Oshman's common
stock, which represented approximately 28% of all outstanding shares of
Oshman's common stock entitled to vote at Oshman's special meeting.
Proxies
Shares of Oshman's common stock represented by proxies properly executed and
received by Oshman's in time to be voted at Oshman's special meeting will be
voted in accordance with the instructions indicated on the proxies. If no
instructions are indicated, the shares will be voted "FOR" the adoption of the
merger agreement and the approval of the merger contemplated thereby;
All proxies voted "FOR" the merger may, at the discretion of the proxy
holder, be voted "FOR" a motion to adjourn or postpone Oshman's special meeting
to another time and/or place for the purpose of soliciting additional proxies
or otherwise.
Oshman's board of directors currently is not aware of any business to be
acted upon at the special meeting other than as described in this joint proxy
statement-prospectus. If, however, other matters are properly brought before
the special meeting, in the absence of instructions to the contrary, persons
appointed as proxies will have discretion to vote or act on the matters in
their best judgment.
Revocation of Proxies
The presence of an Oshman's stockholder at the special meeting, or at any
adjournment or postponement, will not automatically revoke the stockholder's
proxy. However, an Oshman's stockholder may revoke a proxy at any time prior to
its exercise by:
. delivery to the secretary of Oshman's of a written notice of revocation
prior to the special meeting (or, if the special meeting is adjourned or
postponed, prior to the time the adjourned or postponed meeting is
actually held);
. delivery to the secretary of Oshman's prior to the special meeting (or,
if the special meeting is adjourned or postponed, prior to the time the
adjourned or postponed meeting is actually held) of a duly executed
proxy bearing a later date; or
. attending the special meeting (or, if the special meeting is adjourned
or postponed, by attending the adjourned or postponed meeting) and
voting in person at the special meeting.
Solicitation of Proxies
Proxies may be solicited by mail, personal interview, telephone and telecopy
by directors, officers and employees of Oshman's and its subsidiaries on a
part-time basis and for no additional compensation. Oshman's will bear the
costs it incurs in the solicitation of proxies under this joint proxy
statement-prospectus, including amounts paid in reimbursement to banks,
brokerage firms, custodians, nominees and others for their expenses in
forwarding soliciting material to the beneficial owners of Oshman's common
stock.
Communications by Oshman's Stockholders with Oshman's
Any written revocation of proxy or other communications in connection with
this joint proxy statement-prospectus and requests for additional copies of
this joint proxy statement-prospectus or the proxy card should be addressed to
Steven U. Rath, executive vice president and secretary, Oshman's Sporting
Goods, Inc., 2302 Maxwell Lane, Houston, Texas 77023. If you have any questions
or need further assistance in voting your shares, please call Mr. Rath at (713)
928-3171.
26
THE MERGER AND RELATED TRANSACTIONS
This section of the joint proxy statement-prospectus describes material
aspects of the proposed merger, including the merger agreement, the voting
agreements and the registration rights agreement. Although we believe that the
following description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the merger and the
related transactions.
General
On February 22, 2001, Gart, GSC Acquisition Corp., a newly formed, wholly
owned subsidiary of Gart, and Oshman's entered into a merger agreement, which
provides for the merger of Oshman's with and into GSC Acquisition. GSC
Acquisition will survive the merger as a wholly owned subsidiary of Gart, and
its name will be changed to Oshman's Sporting Goods, Inc. The discussion of the
merger in this joint proxy statement-prospectus and the description of the
principal terms of the merger agreement are subject to and qualified in their
entirety by reference to the merger agreement that is attached as Annex A.
Background of the Merger
As a result of Gart and Oshman's both being significant companies in the
retail sporting goods industry, members of the senior management of Gart and
Oshman's have been familiar with each other for several years. In early July
2000, John Douglas Morton, chief executive officer of Gart, contacted Alvin
Lubetkin, chief executive officer of Oshman's, by telephone, and the parties
raised the possibility that Gart and Oshman's might explore a business
combination. The companies executed a confidentiality agreement dated July 18,
2000. Mr. Morton flew to Houston on July 25, 2000 to discuss with Mr. Lubetkin
the possibility of commencing an exchange of information about the companies
that might lead to negotiations for a combination of Gart and Oshman's.
Mr. Lubetkin informed the members of the Oshman's board of directors that he
had commenced preliminary discussions with Gart. Mr. Lubetkin received informal
approval from the Oshman's board to proceed with further discussions and to
gather information regarding the possible engagement of an investment banking
firm to serve as financial advisor to the company.
Subsequent to the execution of the confidentiality agreement, Gart's
representatives requested financial information from Oshman's in order to
perform a valuation of Oshman's and to propose a purchase price. Oshman's
furnished certain of the requested information, and representatives of Gart
conducted a due diligence investigation of Oshman's. Gart also furnished
certain information to Oshman's.
On August 6, 2000, Gart delivered an offer letter to Oshman's in which Gart
proposed to combine with Oshman's in exchange for a combination of cash and
shares of Gart common stock with a combined value of $10.00 for each share of
Oshman's common stock. Gart did not propose a precise mix of cash and stock.
At a meeting on August 16, 2000, the Oshman's board of directors reviewed
the Gart proposal and received a presentation from Financo, Inc. The board
authorized the retention of Financo as financial advisor to Oshman's and
authorized Mr. Lubetkin and other appropriate members of the company's
management to explore further the Gart proposal.
During September 2000, members of Gart's and Oshman's management and their
respective financial advisors held meetings and continued to exchange and
review financial and other information about the companies. Gart and Oshman's
executed an exclusivity letter in which both parties agreed that they would not
negotiate a business combination with any third parties through September 30,
2000.
At a meeting on September 19, 2000, the Oshman's board of directors reviewed
the progress of discussions with Gart and authorized management and Financo to
continue with their efforts.
27
On October 4, 2000, Gart delivered an offer letter to Oshman's in which Gart
proposed to combine with Oshman's in exchange for a combination of cash and
shares of Gart common stock with a combined value of $12.00 for each share of
Oshman's common stock. Gart did not propose a precise mix of cash and stock,
but it did indicate that at least 50% would be in cash. Gart proposed, as part
of the offer letter, that Oshman's would agree not to enter into any agreement
or other commitment, or participate in any discussions or negotiations,
relating to a business combination or other similar transaction with any party
other than Gart, until after November 15, 2000. Oshman's did not agree to an
exclusivity arrangement, but did continue discussions with Gart with respect to
the possible transaction.
In the course of further discussions between members of Gart's and Oshman's
management and financial advisors, Oshman's made several counter proposals to
Gart's offer letter, proposing various transaction structures at various
purchase prices above $12.00 per share of Oshman's common stock.
Gart responded to Oshman's counter proposals through a letter, dated October
12, 2000, in which Gart reaffirmed its proposed purchase price of $12.00 per
share of Oshman's common stock and provided a detailed analysis of the
transaction and integration expenses in support of its proposed purchase price.
On October 23, 2000, Oshman's responded to Gart's October 12 letter with its
own analysis of the transaction and integration expenses and stated that Mr.
Lubetkin hoped to meet with Mr. Morton to discuss whether negotiations for a
business combination between Gart and Oshman's would continue.
On October 30, 2000, Mr. Lubetkin and Financo made a presentation to Gart's
management and to Leonard Green and Partners, L.P., a financial advisor to
Gart, that discussed Oshman's strengths and the potential benefits that a
combination of the companies might bring to stockholders. Mr. Lubetkin
encouraged Gart to increase the value of its proposal and set forth several
options for structuring a possible transaction.
On November 2, 2000, Gart sent a letter to Oshman's, increasing the proposed
consideration to $7.00 in cash plus 0.55 shares of Gart common stock for each
share of Oshman's common stock. Using the average closing price of Gart common
stock during the previous thirty days, the letter stated that the combined
value would be $13.86 per share of Oshman's common stock. Shortly thereafter,
Financo notified Gart that Oshman's was not prepared to agree to the revised
purchase price. Gart responded with a letter dated November 7, 2000 in which it
indicated that the proposed purchase price, as set forth in the November 2,
2000 letter, would remain open until after the meeting of the Oshman's board of
directors scheduled for November 14, 2000.
On November 14, 2000, Mr. Morton and Thomas Hendrickson, chief financial
officer of Gart, made a presentation to Oshman's board of directors in Houston,
Texas, outlining the terms of the proposed transaction between Gart and
Oshman's, and the benefits of the transaction to both Gart and Oshman's.
At a meeting on November 14th, following the Gart presentation, the Oshman's
board of directors discussed the current Gart proposal and reviewed a
presentation from Financo. The board then unanimously authorized management to
continue serious negotiations with Gart, with a view toward negotiating a
definitive merger agreement for submission to the board for its consideration.
Following Oshman's communication to Gart that it was willing to proceed with
negotiations, the parties requested financial and other additional
documentation from each other to complete their respective due diligence
investigations. On November 20, 2000, the parties executed an exclusivity
letter that would continue until December 31, 2000. During the course of the
due diligence investigation of Oshman's, Gart representatives made several
trips to Houston to complete the financial, legal and business due diligence.
Oshman's likewise traveled to Denver and worked to complete its due diligence
investigation of Gart.
In early December 2000, Gart presented Oshman's with a draft of a proposed
merger agreement and other related documents, reflecting the parties' tentative
agreement at that time on merger consideration consisting of $7.00 in cash and
0.55 shares of Gart common stock. Management and legal counsel for both Gart
and Oshman's exchanged preliminary comments and made revisions to the drafts
during December.
28
Following the expiration on December 31, 2000 of the exclusivity letter
between the parties, Gart delivered a letter to Oshman's on January 3, 2001
proposing a renewed exclusivity period of 30 days and conditioned its continued
work toward a possible transaction on receiving Oshman's agreement by the end
of business on January 5, 2001.
On January 5, 2001, Oshman's delivered a letter to Gart that requested an
increase in Gart's proposed purchase price to $7.00 in cash plus 0.67 shares of
Gart common stock for each share of Oshman's common stock. The letter also
proposed an exclusivity period through January 18, 2001 and requested Gart's
agreement by January 9, 2001.
On January 5, 2001, Gart responded to Oshman's letter with a letter stating
that it would cease doing any further work on a possible business combination
between the two companies.
During the first week of January 2001, all members of the Oshman's board of
directors were kept apprised of the course of negotiations with Gart and other
developments. At the request of Mr. Lubetkin and the Oshman's board, Financo
had discussions with another sporting goods retailer to explore its interest in
pursuing a possible transaction with Oshman's. That company indicated that it
was not interested in pursuing discussions at the purchase price levels then
being discussed with Gart.
During the second week of January 2001, Mr. Lubetkin and Mr. Morton agreed
to reinstate negotiations for a definitive merger agreement premised upon
merger consideration of $7.00 in cash and 0.55 shares of Gart common stock for
each share of Oshman's common stock. The two companies agreed to continue
efforts to finalize their respective due diligence investigations and to
complete drafts of agreements that could be considered by their respective
boards of directors.
From the second week of January 2001 through February 21, 2001, Gart and
Oshman's negotiated the terms of the definitive merger agreement and related
documents, including: voting agreements between Gart and certain stockholders
of Oshman's; a voting agreement between Oshman's and Green Equity Investors,
L.P., the holder of approximately 64% of Gart's outstanding common stock;
indemnification agreements between Gart and certain stockholders of Oshman's
who would execute voting agreements; a registration rights agreement between
Gart and certain stockholders of Oshman's whose shares of Gart common stock
were not expected to be freely tradable; drafts of consulting and non-
competition agreements with Gart to be executed at closing by Mr. Lubetkin and
Marilyn Oshman, chairman of Oshman's board of directors; and certain other
documents necessary for the completion of the merger.
Gart's board of directors met on 4 different occasions between August 2000
and February 21, 2001, and reviewed all material aspects of the proposed
business combination, including the draft documents, issues that arose in
negotiations with Oshman's, the report by Gart's management's on its valuation
of Oshman's, and due diligence reports on Oshman's.
During 2001, Oshman's board of directors met on three different occasions,
January 17, February 2, and February 21, and reviewed all material aspects of
the proposed business combination, including the draft documents, issues that
arose in negotiations with Gart, due diligence reports on Gart, and
presentations from Oshman's legal counsel, financial advisors and accounting
firm.
On February 21, 2001, Gart and the current lender for both Gart and
Oshman's, The CIT Group/Business Credit, Inc., entered into a commitment letter
for a $300 million revolving credit facility to be implemented prior to the
closing of the potential combination of the two companies. A copy of the
commitment letter was delivered to Oshman's.
At the February 21 meeting of the Oshman's board of directors, Financo
delivered its opinion to the board as to the fairness, from a financial point
of view, of the consideration to the holders of Oshman's common stock. After
deliberation, the Oshman's board unanimously approved the merger agreement and
recommended that the Oshman's stockholders adopt the merger agreement and
approve the merger.
29
Gart and Oshman's executed the merger agreement and certain related
documents on the evening of February 21, 2001 and finalized the execution and
delivery of additional documents the next day. The parties formally delivered
all agreements and issued a press release after the markets closed on February
22, 2001.
Gart's Reasons for the Merger
On February 9, 2001, Gart's board of directors voted to enter into the
merger agreement and to recommend that Gart's stockholders approve the issuance
of Gart common stock in the merger. In evaluating the merger, Gart's board of
directors considered all relevant factors and information, including the
following positive factors:
. the strategic fit between Gart and Oshman's, including the opportunity
for synergies and cost savings;
. the complementary geographical locations of the stores operated by Gart
and Oshman's;
. Gart's ability to enjoy significant future expansion and growth as a
result of the combination with Oshman's;
. Gart's ability to access the greater resources of the combined company
after the merger;
. the fact that the merger would enable the combined company to realize
significant operating synergies, including increased purchasing power
with its vendors, reduced corporate overhead as a percentage of sales,
and the consolidation of sales and marketing organization;
. the increased growth potential that may result from a combination of
Gart and Oshman's, including as a result of the combined company's
superior asset base, geographic diversification, portfolio of growth
opportunities, operating skills, financial stability and strength;
. the opportunity for Gart's stockholders to participate in the potential
for growth of the combined company after the merger;
. the anticipated increased liquidity of Gart common stock after the
merger due to expected increases in trading in Gart common stock as a
result of the combined company's expanded stockholder base;
. the board's understanding of conditions currently affecting the retail
sporting goods industry, including recent trends towards consolidation
of the generally fragmented industry;
. the fact that Green Equity Investors, L.P., the largest holder of Gart
common stock, agreed to support the merger;
. the advice provided to the Gart board by Stephens Inc., which acted as a
financial advisor to Gart in connection with the merger;
. the terms and conditions of the merger agreement, including:
. the nature of the parties' representations, warranties, covenants
and agreements, which Gart's board believed would provide a
reasonable degree of certainty that the merger would be completed;
and
. the provisions that restrict the ability of Oshman's, subject to the
conditions and procedures described in the merger agreement, to
enter into transactions with other potential acquirors; and
. reports from management and advisors to Gart as to the results of their
due diligence investigation of Oshman's.
Gart's board of directors also considered a variety of potentially negative
factors concerning the merger, including the following:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the fact that as a result of the merger, the benefits of Gart's long-
term strategic plan would be shared by stockholders of Oshman's rather
than enjoyed solely by Gart's stockholders;
30
. the potential adverse effects on Gart's business, operations and
financial condition if the merger is not completed following public
announcement of the merger agreement;
. the costs associated with the merger, including merger-related
transaction costs;
. the difficulties of integrating Gart with Oshman's and the management
effort and costs required to complete the integration following the
merger;
. the fact that, as a result of the merger, Gart's debt-to-equity ratio
would increase and the combined company would therefore be subject to
risks associated with increased leverage in the short term; and
. the other applicable risks described in this joint proxy statement-
prospectus under "Risk Factors."
Gart's board considered these negative factors together with its consideration
of the continued operation of Gart as an independent company, but concluded
that, on balance, the potential benefits to Gart and its stockholders of the
merger outweighed the risks associated with the merger. One of the Gart
directors, Larry J. Hochberg, disagreed. He voted against the proposed
transaction based upon several considerations, including the price paid for
Oshman's, Gart's recent financial performance and the level of indebtedness to
be incurred in the transaction.
The discussion above is not intended to be exhaustive, but Gart believes
that it includes all significant factors considered by Gart's board of
directors in connection with its evaluation of the merger. In light of the
number of factors and the variety of information that Gart's board of directors
considered, the board did not find it practicable to, and did not, assign any
specific or relative weights to the factors listed above. In addition,
individual directors may have given differing weights to different factors.
Oshman's Reasons for the Merger
In evaluating the merger, Oshman's board of directors considered all
relevant factors and information, including the following positive factors:
. the strategic fit between Oshman's and Gart, including the opportunity
for synergies and cost savings;
. the complementary geographical locations of the stores operated by
Oshman's and Gart;
. the ability of Oshman's to have access to the greater resources of the
combined company after the merger, including financing necessary for
future development;
. the increased growth potential that may result from a combination of
Oshman's and Gart, including as a result of the combined company's
superior asset base, geographic diversification, portfolio of growth
opportunities, operating skills, financial stability and strength;
. the opportunity for Oshman's stockholders to participate in the
potential for growth of the combined company after the merger;
. the fact that the consideration of $7.00 cash and 0.55 shares of Gart
common stock to be received for each share of Oshman's common stock in
the merger represented a premium of approximately 42.9% over the closing
sales price of a share of Oshman's common stock on January 31, 2001;
. the board's understanding of conditions currently affecting the retail
sporting goods industry, including recent trends towards consolidation
of the generally fragmented industry;
. the opinion of Financo to Oshman's board of directors as to the
fairness, from a financial point of view, of the consideration to the
holders of Oshman's common stock, as described below under "--Opinion of
Oshman's Financial Advisor";
. the anticipated increased liquidity to Oshman's stockholders after the
merger due to expected increases in trading in Gart common stock as a
result of the combined company's expanded stockholder base;
31
. the fact that certain members of the Oshman's founding family, who are
some of the largest holders of Oshman's common stock, agreed to support
the merger;
. the terms and conditions of the merger agreement, including:
. the nature of the parties' representations, warranties, covenants
and agreements, which the board believed would provide a reasonable
degree of certainty that the merger would be completed; and
. the provisions that permit Oshman's, subject to the conditions and
procedures described in the merger agreement, (1) to consider
superior third party offers to acquire Oshman's, (2) to provide
information and to negotiate with third parties in response to those
offers and (3) to terminate the merger agreement with Gart to accept
a superior proposal, subject to the payment to Gart of a $3 million
termination fee plus up to $1.5 million for expenses; and
. reports from management and advisors to Oshman's as to the results of
their due diligence investigation of Gart.
Oshman's board of directors also considered a variety of potentially
negative factors concerning the merger, including the following:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the fact that the merger agreement limits the ability of Oshman's
directors, officers, employees and representatives to pursue alternative
transactions;
. the fact that as a result of the merger, the benefits of Oshman's long-
term strategic plan would be shared by stockholders of Gart, rather than
enjoyed solely by Oshman's stockholders;
. the potential adverse effects on Oshman's business, operations and
financial condition if the merger is not completed following public
announcement of the merger agreement; and
. the fact that, as a result of the merger, the existing obligations and
liabilities of Gart, whether contingent or otherwise, would be borne in
part by the Oshman's stockholders as a result of becoming stockholders
of the combined company.
The board considered these negative factors together with its consideration of
the continued operation of Oshman's as an independent company, but decided that
the merger provided a more advisable alternative in light of the positive
factors set forth above.
The discussion above is not intended to be exhaustive, but Oshman's believes
that it includes all significant factors considered by Oshman's board of
directors in connection with its evaluation of the merger. In light of the
number of factors and the variety of information that Oshman's board of
directors considered, the board did not find it practicable to, and did not,
assign any specific or relative weights to the factors listed above. In
addition, individual directors may have given differing weights to different
factors.
Recommendation of Gart's Board of Directors
After careful consideration, Gart's board of directors determined the merger
to be in the best interests of Gart's stockholders. Gart's board of directors
approved the merger agreement and recommends that Gart stockholders vote in
favor of the approval of the issuance of Gart common stock to Oshman's
stockholders in the merger.
In considering the recommendation of Gart's board of directors, Gart's
stockholders should be aware that certain directors of Gart have interests in
the merger that are different from, or are in addition to, the interests of
Gart stockholders generally. Gart's board of directors recognized these
interests and determined that they neither supported nor detracted from the
advisability to Gart stockholders of the issuance of Gart common stock in the
merger. For a discussion of these interests, see "--Interests of Certain
Persons in the Merger."
32
Recommendation of Oshman's Board of Directors
After careful consideration, Oshman's board of directors unanimously
determined the merger to be fair to the stockholders of Oshman's and in their
best interest. Oshman's board of directors unanimously approved the merger
agreement and unanimously recommends that Oshman's stockholders vote in favor
of the adoption of the merger agreement and the approval of the merger.
In considering the recommendation of Oshman's board of directors, Oshman's
stockholders should be aware that certain directors and officers of Oshman's
have interests in the merger that are different from, or are in addition to,
the interests of Oshman's stockholders generally. Oshman's board of directors
recognized these interests and determined that they neither supported nor
detracted from the advisability of the merger to Oshman's stockholders. For a
discussion of these interests, see "--Interests of Certain Persons in the
Merger."
Opinion of Oshman's Financial Advisor
Oshman's engaged Financo, Inc. to act as its financial advisor in connection
with the proposed transaction and to render an opinion to the Oshman's board as
to the fairness, from a financial point of view, to the holders of Oshman's
common stock of the consideration to be received by such stockholders in the
merger. Oshman's selected Financo to be its financial advisor in connection
with the merger because Financo has expertise in the specialty retail industry
and is a prominent investment banking and financial advisory firm with
experience in the valuation of businesses in connection with mergers and
acquisitions and for general corporate and other purposes. On February 21,
2001, Financo delivered its written opinion to the Oshman's board that, as of
the date of such opinion, the consideration to be received by the Oshman's
stockholders in the merger with Gart was fair from a financial point of view to
the holders of Oshman's common stock.
The full text of the written opinion of Financo, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is attached to this joint proxy statement-
prospectus as Annex D and is incorporated herein by reference. Financo's
opinion is addressed to the Oshman's board of directors and relates only to the
fairness of the merger consideration from a financial point of view. The
opinion does not address any other aspect of the proposed merger and does not
constitute a recommendation to any stockholder as to any matters relating to
the merger. The summary of Financo's opinion described below is qualified in
its entirety by reference to the full text of its opinion. Holders of Oshman's
common stock are urged to read the opinion carefully in its entirety.
In arriving at its opinion, Financo reviewed and analyzed such materials and
considered such financial and other factors that it deemed relevant under the
circumstances, including the following:
. the financial terms and conditions of the merger agreement between
Gart and Oshman's;
. certain publicly available historical financial and operating data
concerning Oshman's, including Oshman's annual reports to
stockholders on Form 10-K for the fiscal years ended January 2000,
1999 and 1998, and the quarterly reports on Form 10-Q for the fiscal
quarters ended April 29, 2000, July 29, 2000 and October 28, 2000;
. certain publicly available historical financial and operating data
concerning Gart, including Gart's annual reports to stockholders on
Form 10-K for the fiscal years ended January 2000 and 1999, and the
quarterly reports on Form 10-Q for the fiscal quarters ended April
29, 2000, July 29, 2000 and October 28, 2000;
. certain internal financial analyses and forecasts of Oshman's and
Gart related to the business, earnings, cash flow, assets and
prospects of Oshman's and Gart provided to Financo by the management
of Oshman's and Gart, respectively;
. discussions with members of senior management of Oshman's and Gart
concerning their respective businesses, operations, assets, present
condition and future prospects;
33
. publicly available financial, operating and stock market data
concerning certain companies engaged in businesses that Financo
deemed relatively and reasonably comparable to Oshman's or otherwise
relevant to its inquiry;
. a trading history of the common shares of Oshman's and Gart from
January 5, 1996 to the present and January 16, 1998 to the present,
respectively;
. a comparison of the financial terms of the merger with the terms of
certain other recent transactions that Financo deemed relevant and
comparable; and
. such other financial studies, analyses and investigations Financo
deemed appropriate.
In rendering its opinion, Financo relied, without independent investigation
or verification, upon the accuracy and completeness of all information publicly
available, supplied or otherwise communicated to it by Oshman's and Gart.
Financo expressed no opinion as to Oshman's and Gart's underlying valuation,
future performance or long-term viability, or the price at which Gart common
stock would trade upon or after announcement or consummation of the merger.
With respect to the financial forecasts provided to Financo by Oshman's and
Gart, Financo has assumed, with the acknowledgment of the Oshman's board, that
such forecasts have been reasonably and accurately prepared and represent
management's best currently available judgments and estimates as to the future
financial performance of Oshman's and Gart, respectively, and Financo expresses
no opinion with respect to such forecasts or the assumptions upon which they
are based. Financo has further relied upon the assurances of senior management
of Oshman's and Gart that they are not aware of any facts that would make such
financial or other information relating to Oshman's or Gart, respectively,
inaccurate or misleading. In connection with its engagement, Financo held
discussions, at Oshman's request, with a third party other than Gart regarding
a possible business combination or similar transaction with Oshman's, but
Financo was not requested to, and it did not, solicit, generally, third party
indications of interest in the possible acquisition of all or part of Oshman's.
Financo's opinion is necessarily based upon economic, financial and market
conditions as they exist and can be evaluated only as of the date of the
written opinion letter, and Financo assumes no responsibility to update or
revise its opinion based upon events or circumstances occurring after the date
of such written opinion. Further, Financo expressed no opinions on matters of a
legal, regulatory, tax or accounting nature relating to or arising out of the
merger.
In rendering its opinion, Financo has assumed that the merger will be
consummated on the terms described in the merger agreement, without any waiver
of any material terms or conditions by Oshman's or Gart.
The summary set forth below describes the material analyses performed by
Financo in connection with providing its written opinion to the board of
Oshman's on February 21, 2001. It does not purport to be a complete description
of the analyses underlying Financo's opinion or the presentation made by
Financo to the board of Oshman's and is qualified in its entirety by reference
to the full text of the opinion. The preparation of a fairness opinion is a
complex process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analysis or summary description. Accordingly, Financo
believes its analyses must be considered as a whole and that selecting portions
of its analyses, without considering all analyses, would create an incomplete
view of the process underlying the Financo opinion.
In performing its analyses, Financo considered industry performance, general
business, economic, market and financial conditions and other matters existing
as of the date of its opinion, many of which are beyond Oshman's and Gart's
control. No company, transaction or business used in the analyses as a
comparison is identical to Oshman's, Gart or the merger, and an evaluation of
the results of those analyses is not entirely mathematical. Rather, the
analyses involve complex considerations and judgments concerning financial and
34
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the companies, business segments or
transactions analyzed. The estimates contained in Financo's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, Financo's analyses and estimates are inherently
subject to substantial uncertainty.
The type and amount of consideration payable in the merger was determined
through negotiation between Oshman's and Gart and their respective advisers and
the decision to enter into the merger was solely that of the Oshman's board.
Financo's opinion and financial analyses were only one of many factors
considered by the Oshman's board in its evaluation of the merger and should not
be viewed as determinative of the views of the Oshman's board or management
with respect to the merger or the consideration provided for in the merger.
The following is a summary of the material financial analyses underlying
Financo's opinion to the Oshman's board in connection with the merger. The
financial analyses summarized below include information presented in bullet
point format. In order to fully understand Financo's financial analyses, the
bullet points must be read together with the text of each summary. The bullet
points alone do not constitute a complete description of the financial
analyses. Considering the data in the bullet points below without considering
the full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Financo's financial analyses.
Selected Precedent Transaction Analysis
Financo reviewed selected precedent transactions involving sporting goods
retailers. Due to the lack of comparable situations, Financo did not believe
that such precedent transactions were appropriate for direct comparison to the
merger, and, accordingly, these analyses were not applied to arrive at a
valuation of Oshman's, but were presented to the Oshman's board for its review.
Furthermore, Financo reviewed and analyzed certain publicly available
information relating to nine selected precedent transactions in the non-apparel
specialty store industry since September 1996, which are referred to as the
"selected precedent transactions," and compared the financial terms of such
transactions to those of the merger. The nine selected precedent transactions
include:
. Best Buy Co., Inc. acquisition of Musicland Stores Corporation
. Leonard Green & Partners, L.P. acquisition of Petco Animal Supplies,
Inc.
. Zale Corporation acquisition of Piercing Pagoda, Inc.
. Zany Brainy, Inc. acquisition of Noodle Kidoodle, Inc.
. Barnes & Noble, Inc. acquisition of Funco, Inc.
. Claire's Stores, Inc. acquisition of Afterthoughts, Inc.
. Leonard Green & Partners, L.P. acquisition of Hechinger Company
. Leonard Green & Partners, L.P. acquisition of Leslie's Poolmart, Inc.
. Sears, Roebuck and Co. acquisition of Orchard Supply Hardware Stores
Corp.
Financo's analysis was based on the closing sales price for Gart's common stock
on January 31, 2001 and indicated that for the selected precedent transactions:
. the enterprise value as a multiple of latest twelve months, commonly
referred to as "LTM," sales ranged from 0.25x to 1.18x with a median
multiple of 0.60x, as compared to 0.33x for the enterprise value of the
merger as a multiple of Oshman's LTM sales;
35
. the enterprise value as a multiple of LTM earnings before interest,
taxes, depreciation and amortization, commonly referred to as "EBITDA,"
ranged from 4.3x to 10.1x with a median multiple of 7.0x, as compared to
6.4x for the enterprise value of the merger as a multiple of Oshman's
LTM EBITDA;
. the enterprise value as a multiple of LTM earnings before interest and
taxes, commonly referred to as "EBIT," ranged from 6.1x to 15.5x with a
median multiple of 11.4x, as compared to 10.2x for the enterprise value
of the merger as a multiple of Oshman's LTM EBIT;
. the equity value as a multiple of LTM net income ranged from 7.0x to
28.3x with a median multiple of 21.6x, as compared to 19.2x for the
equity value of the merger as a multiple of Oshman's LTM net income
excluding extraordinary and non-recurring items and assuming a 40% tax
rate; and
. the equity value as a multiple of book value ranged from 0.3x to 4.3x
with a median multiple of 2.7x, as compared to 1.8x for the equity value
of the merger as a multiple of Oshman's book value.
Comparable Company Analysis
Financo reviewed and compared selected historical, financial and operating
data, projections of future financial performance that reflected a composite of
equity research analyst's estimates, and stock market performance data based on
closing stock prices as of January 31, 2001 to the corresponding data of seven
selected publicly traded companies that for purposes of this analysis may be
considered comparable to Oshman's, which are referred to as the "selected
comparable companies." The multiples and ratios for Oshman's were based on
information provided by Oshman's management and the multiples and ratios of
each of the selected comparable companies were based on the most recent
publicly available information.
The seven selected comparable companies were:
. Finish Line, Inc.
. Footstar, Inc.
. Gart Sports Company
. Hibbett Sporting Goods, Inc.
. Sport Chalet, Inc.
. The Sports Authority, Inc.
. Venator Group, Inc.
Financo's analysis based on Gart's closing stock price at January 31, 2001
indicated that for the selected comparable companies:
. the enterprise value as a multiple of LTM sales ranged from 0.23x to
1.16x with a median multiple of 0.30x, as compared to 0.33x for the
enterprise value of the merger as a multiple of Oshman's LTM sales;
. the enterprise value as a multiple of LTM EBITDA ranged from 3.3x to
10.8x with a median multiple of 4.7x, as compared to 6.4x for the
enterprise value of the merger as a multiple of Oshman's LTM EBITDA;
. the enterprise value as a multiple of LTM EBIT ranged from 4.4x to 13.7x
with a median multiple of 6.6x, as compared to 10.2x for the enterprise
value of the merger as a multiple of Oshman's LTM EBIT;
. the equity value as a multiple of LTM net income ranged from 7.6x to
22.3x with a median multiple of 13.0x, as compared to 19.2x for the
equity value of the merger as a multiple of Oshman's LTM net income
excluding extraordinary and non-recurring items and assuming a 40% tax
rate;
36
. the equity value as a multiple of projected calendar 2000 net income
ranged from 7.2x to 20.8x with a median multiple of 12.7x, as compared
to 11.8x for the equity value of the merger as a multiple of Oshman's
projected calendar 2000 net income excluding extraordinary and non-
recurring items and assuming a 40% tax rate;
. the equity value as a multiple of projected calendar 2001 net income
ranged from 6.3x to 17.0x with a median multiple of 11.5x, as compared
to 9.2x for the equity value of the merger as a multiple of Oshman's
projected calendar 2001 net income excluding extraordinary and non-
recurring items and assuming a 40% tax rate; and
. the equity value as a multiple of book value ranged from 0.7x to 3.6x
with a median multiple of 1.1x, as compared to 1.8x for the equity value
of the merger as a multiple of Oshman's book value.
Discounted Cash Flow Analysis
Financo performed a discounted cash flow, commonly referred to as "DCF,"
analysis of the projected unlevered free cash flows of Oshman's for the fiscal
years 2001 to 2005, based upon financial forecasts provided to Financo by the
management of Oshman's and modified by Financo to incorporate potential
uncertainties in the operations and financial forecasts of Oshman's. Financo
calculated equity value per share ranges utilizing discount rates reflecting a
weighted average cost of capital ranging from 12.0% to 13.0% and Oshman's
terminal value multiples of projected fiscal year 2005 EBITDA of 5.0x to 6.0x.
This DCF analysis resulted in equity values ranging from $16.01 to $19.29 per
Oshman's share.
Financo also performed a DCF analysis of the projected unlevered free cash
flows of the merged entity for the fiscal years 2001 to 2005, based upon
financial forecasts provided to Financo by the management of Gart and modified
by Financo to incorporate potential uncertainties in the operations and
financial forecasts of the merged entity. Financo calculated equity value per
Oshman's share ranges utilizing discount rates reflecting a weighted average
cost of capital ranging from 12.0% to 13.0% and Oshman's terminal value
multiples of projected fiscal year 2005 EBITDA of 5.0x to 7.0x. This DCF
analysis resulted in equity values ranging from $19.34 to $26.91 per Oshman's
share assuming each share of Oshman's common stock will be converted into the
right to receive an amount equal to (1) $7.00 plus (2) 0.550 shares of common
stock of Gart (subject to adjustment as provided by the merger agreement).
Financo noted that the DCF analysis is highly sensitive to assumptions
regarding revenue and earnings growth. Financo also noted that the DCF analysis
values for the merged entity were higher than the values for Oshman's as a
stand-alone entity.
Historical Stock Trading Analysis
Financo reviewed the history of trading prices for shares of Oshman's common
stock and Gart's common stock in relation to each other and to select other
publicly traded specialty retail companies over the period from January 16,
1998 to January 31, 2001. Financo noted that the implied consideration in the
merger of $13.29 on January 31, 2001 represented a 42.9% premium to the closing
sales price of Oshman's common stock on January 31, 2001 of $9.30.
Other Analyses
Financo conducted other analyses as it deemed necessary, including but not
limited to reviewing historical and projected financial results of Oshman's and
Gart, pro forma merger analysis, contribution analysis and premium analysis.
37
Fee Arrangements
Pursuant to an engagement letter between Oshman's and Financo, dated August
16, 2000, Oshman's has agreed to pay Financo a transaction fee in connection
with the merger of $600,000, of which $75,000 became payable to Financo upon
Financo's engagement, $250,000 became payable to Financo upon delivery of the
Financo fairness opinion on February 21, 2001, and the balance will be payable
upon consummation of the merger. Oshman's has also agreed to reimburse Financo
for its out-of-pocket expenses, including the fees and expenses of legal
counsel and other advisors. In addition, Oshman's has agreed to indemnify
Financo and certain related persons against certain liabilities in connection
with its engagement, including liabilities under the federal securities laws.
Margaret A. Gilliam, a member of the Oshman's board of directors, is a
consultant to Financo, receives a monthly retainer from Financo in connection
therewith, and, in certain cases, receives fees in connection with referrals
she may make to Financo. Although Ms. Gilliam referred Oshman's to Financo, she
did not and will not receive any referral fee in connection with Financo's
engagement by Oshman's. Ms. Gilliam's position as a Financo consultant was
generally known to the Oshman's board and was specifically and expressly
disclosed to the board in connection with its evaluation of potential financial
advisors. The board determined that Ms. Gilliam's interest did not detract from
the experience and knowledge that Financo would provide as Oshman's financial
advisor, and the board voted unanimously, with Ms. Gilliam abstaining, to
retain Financo in that capacity.
Interests of Certain Persons in the Merger
Interests of Gart's Directors and Officers in the Merger
Jonathan D. Sokoloff and Jonathan A. Seiffer are current directors of Gart,
and also are being nominated for re-election to Gart's board of directors. Mr.
Sokoloff and Mr. Seiffer may be deemed to have an interest in the merger that
is different from, or in addition to, the interest of Gart stockholders. Gart's
board of directors recognized this interest and determined that it did not
detract from the advisability to Gart stockholders of the issuance of Gart
common stock in the merger.
Upon the completion of the merger, Gart will pay to Leonard Green &
Partners, L.P. transaction fees in the amount of $4 million. Mr. Sokoloff and
Mr. Seiffer are partners of Leonard Green & Partners, L.P. As a result of their
relationship with Leonard Green & Partners, L.P., Mr. Sokoloff and Mr. Seiffer
will receive a benefit from the merger that is in addition to the benefits that
will be received by Gart stockholders.
Interests of Oshman's Directors and Officers in the Merger
General. Some of the members of the Oshman's board and management team may
be deemed to have interests in the merger that are different from or in
addition to the interests of Oshman's stockholders. The Oshman's board
recognized these interests and determined that these interests did not detract
from the fairness of the merger to Oshman's stockholders.
38
Indemnification. Gart has agreed in the merger agreement that it and the
surviving corporation in the merger will indemnify any Oshman's officer or
director against liabilities with respect to all acts and omissions arising out
of such person's services as an officer or director of Oshman's. Gart and the
surviving corporation also have agreed to cause to be maintained in effect for
the next six years directors' and officers' liability insurance to cover any
such liabilities for the next six years.
Acceleration of Vesting of Stock Options. Under Oshman's 1994 Omnibus Plan
and 1993 Non-Employee Director Stock Option Plan, all outstanding options to
acquire shares of Oshman's common stock are anticipated to become vested upon a
"change in control" as a result of Oshman's stockholders approving the merger.
As of the date of this joint proxy statement-prospectus, Oshman's directors and
officers together hold options to acquire 576,000 shares of Oshman's common
stock. The vesting of options to acquire 340,700 of these shares is anticipated
to be accelerated in connection with the merger.
Severance or Bonus Payments Related to Change of Control. Oshman's has two
executive severance policies: a Statement of Policy Regarding Key Executive
Severance Pay Bonus Program and a Statement of Policy Regarding Executive
Severance Pay Bonus Program.
Under the policy for key executives, Marilyn Oshman, chairman of the board,
Alvin N. Lubetkin, vice chairman of the board, chief executive officer and
president, Marvin Aronowitz, director and former chief executive officer, and
Steven U. Rath, executive vice president and secretary, are entitled to be paid
an amount equal to the lesser of 299% of the person's "base amount" as defined
in the Internal Revenue Code, which is generally the same as such person's
average annual compensation, or the maximum amount of additional compensation
that may be paid to such person without Oshman's losing any federal income tax
deduction for such payments or the key executive being subjected to a federal
excise tax on such payments.
Under the policy for executives, Steven A. Martin, senior vice president and
chief financial officer, Richard L. Randall, senior vice president, and Thomas
J. McVey, senior vice president, are entitled to be paid an amount equal to the
lesser of $125,000 or the maximum amount of additional compensation that may be
paid to such person without Oshman's losing any federal income tax deduction
for such payments or the employee being subjected to a federal excise tax on
such payments; provided that the maximum compensation payable to each executive
cannot exceed 200% of the compensation paid in the fiscal year immediately
preceding his termination.
The executives are entitled to receive the severance or bonus payments if
either (1) they continue to be employed by Oshman's for more than six months
after a "change of control" or (2) within six months after a change of control,
they are terminated for any reason other than for "cause" as defined in the
policies, by the executive for "good reason" as defined in the policies, or by
reason of death or disability.
It is anticipated that Oshman's executive officers together will receive
severance or bonus payments under these plans equal to approximately
$2,500,000.
39
Termination of Restrictions on Restricted Stock and Early Payment of Federal
Tax Benefit. In 1994, Alvin N. Lubetkin, Oshman's vice chairman of the board,
chief executive officer and president, received a grant of 100,000 shares of
restricted stock under Oshman's 1994 Omnibus Plan. The restrictions on these
shares terminate upon a "change in control."
The restricted stock grant also provides that Oshman's will pay to Mr.
Lubetkin the U.S. federal tax benefit, if any, realized by Oshman's from the
tax deduction for compensation resulting from the grant. In connection with
entering into the merger agreement, and with the consent of Gart, Oshman's
amended the tax benefit payment provisions of the grant in order to address
certain U.S. federal income tax issues that the parties determined were
necessary to resolve before the merger agreement could be executed. The grant
was amended to provide that Mr. Lubetkin will be paid an estimated amount of
$413,651 immediately following the completion of the merger rather than at an
indeterminable time in the future. In addition, if Oshman's realizes tax
benefits earlier than forecasted, Mr. Lubetkin potentially could receive an
additional payment of up to $21,842 after January 31, 2003.
Consulting and Non-Competition Agreements. Ms. Oshman and Mr. Lubetkin each
have agreed with Gart to enter into a Consulting and Non-Competition Agreement
following the completion of the merger and their termination of employment with
Oshman's. Mr. Lubetkin's agreement will last for two and one-half years with
annual compensation of $400,000 during the first year and $350,000 per year
during the remainder of the term of the agreement. He also will receive an
option to purchase 50,000 shares of Gart common stock with an exercise price
equal to the market price on the date the merger is completed and vesting at
the rate of 10,000 shares every six months. Ms. Oshman's agreement will last
for one year with annual compensation of $175,000. She also will receive an
option to purchase 20,000 shares of Gart common stock with an exercise price
equal to the market price on the date the merger is completed and vesting at
the rate of 10,000 shares every six months. Both Mr. Lubetkin and Ms. Oshman
will agree not to compete with Gart for a period of two years after termination
of their agreements. The agreements also provide for continued use of their
offices, expense reimbursements and health care benefits on the same bases as
executive employees of Gart.
Election of Two Directors to the Board of Directors of Gart. Consistent with
the merger agreement, Gart will appoint two persons designated by the Oshman's
board of directors to serve on the Gart board of directors following the
merger, and Gart will nominate those persons for election at the 2002 annual
meeting of Gart stockholders. Green Equity Investors, L.P. has agreed to vote
in favor of those nominees. Green Equity Investors, L.P. holds approximately
64% of the outstanding shares of Gart common stock. If the merger is completed,
immediately following the completion of the merger, Green Equity Investors,
L.P. will hold approximately 44% of the outstanding shares of Gart common
stock, assuming a conversion ratio in the merger of 0.55 shares of Gart common
stock for each outstanding share of Oshman's common stock. The Oshman's board
of directors has designated Ms. Oshman and Mr. Lubetkin to serve on the Gart
board of directors. Although neither Ms. Oshman nor Mr. Lubetkin will receive
any additional compensation for their service on the Gart board during the
terms of their respective consulting agreements with Gart, after the
termination of their agreements, Ms. Oshman and Mr. Lubetkin each would receive
compensation as non-employee directors. Currently, Gart grants non-employee
directors options to purchase 10,000 shares of Gart common stock upon joining
the board of directors, grants them options for an additional 5,000 shares each
year, and pays them $25,000 per year, payable quarterly either in cash or in
restricted shares, at the election of each director. In addition, each director
is paid $1,500 for attendance at each meeting of the board or of a committee.
Directors also are reimbursed for the expenses they incur in attending
meetings. See the discussion under "Information About Gart's Board of Directors
and Its Committees--Compensation of Directors."
Registration Rights for Gart Common Stock. Gart has agreed to enter into a
registration rights agreement with Ms. Oshman, Judy O. Margolis, a significant
stockholder of Oshman's common stock and Ms. Oshman's sister, their affiliated
trusts, and certain other Oshman's stockholders whose shares of Gart common
stock received in the merger may not be freely tradable. For a description of
this agreement, see "The Merger and Related Transactions--Registration Rights
Agreement."
40
Financing for the Merger
General
Pursuant to a letter agreement, The CIT Group/Business Credit, Inc. has
committed to enter into a new secured credit facility providing for loans to
Gart and its subsidiaries of up to $300 million. The letter agreement
contemplates that:
. the new credit facility will be executed in connection with the
consummation of the merger; and
. concurrently with such execution, each of the Financing Agreement, by
and among The CIT Group/Business Credit, Inc., Gart Bros. Sporting Goods
Company and Sportmart, Inc., dated January 9, 1998 (the "Gart Financing
Agreement"), and the Amended and Restated Financing Agreement, by and
among The CIT Group/Business Credit, Inc. and Oshman's subsidiaries,
dated December 15, 1997, as amended (the "Oshman's Financing
Agreement"), will be terminated.
The consummation of the merger is subject to, among other things, the
condition that the financing to be provided under the new credit facility will
have been consummated on terms reasonably consistent with those contained in
the letter agreement, and that the Gart Financing Agreement and the Oshman's
Financing Agreement each will have been terminated.
Revolving Line of Credit; Letters of Credit
The credit facility will provide for loans of up to the lesser of: (1) the
result of a borrowing base formula, generally the lesser of (A) 70% of eligible
inventory, except for two 90-day periods (to be mutually agreed upon by Gart
and CIT) during the first loan year and one 90-day period in each subsequent
loan year when the advance rate may, at Gart's discretion, increase to 75% of
eligible inventory or (B) 85% of the liquidation value of inventory; or (2)
$300 million, to Gart on a revolving basis and also will provide for the
lenders to assist Gart in obtaining documentary or standby letters of credit.
Up to a maximum amount of $25 million of obligations under documentary or
standby letters of credit may be outstanding at any time.
Interest Rate Elections
Gart will be able to elect one of two interest rate options:
. the annual rate of interest announced by The Chase Manhattan Bank (or
any successor) as its prime rate in effect at its principal office in
New York City (the "Chase Bank Rate"); or
. the London Interbank Offered Rate paid in London by The Chase Manhattan
Bank (or any successor) on one month, two month, three month, six month
or nine month dollar deposits, plus 2.0% (the "LIBOR Rate").
After the one year anniversary of the closing of the financing, the interest
rate will be reduced or increased quarterly, based on Gart's EBITDA for the
four fiscal quarters most recently ended. The margin for the interest rate will
range from 0.0% to 0.25% over the Chase Bank Rate and from 1.50% to 2.25% over
the LIBOR Rate.
Fees and Expenses
Gart will pay a line of credit fee of 0.375% per annum on the unused portion
of the line of credit, payable at the end of each month. For letters of credit,
the lenders will receive fees in an amount equal to 1.25% per annum of the face
amount of each outstanding letter of credit, less all amounts previously drawn
under the letters of credit. Any charges imposed on the lenders by the banks
issuing the letters of credit will be borne by Gart.
CIT will receive a collateral management fee, payable on the date of the
closing of the financing and on each subsequent anniversary of the closing. In
addition, CIT will receive at closing a facility fee and a syndication fee. CIT
will receive a commitment fee if the merger is consummated but the financing
with CIT is not consummated.
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Gart will reimburse CIT for all of its out-of-pocket expenses incurred in
connection with the line of credit, including reasonable attorneys' fees.
Collateral
To secure its obligations under the credit facility, Gart will give the
lenders a first and exclusive lien on all of its present and future accounts
receivable, inventory, trademarks, patents, general intangibles, equipment,
future owned real estate and issued and outstanding stock of any of Gart's
subsidiaries, as well as the proceeds of the foregoing.
Guarantees
Gart will guarantee the line of credit.
Use of Proceeds
The proceeds of the new credit facility will be used for the following
purposes:
. to pay all necessary cash payments to be made by Gart and the surviving
corporation in connection with the merger and the other transactions
contemplated by the merger agreement;
. to pay fees and expenses related to the merger; and
. to provide working capital financing.
Conditions to Financing; Covenants
The funding of the new credit facility will be subject to the following
conditions and other customary closing conditions:
. the successful completion of, and compliance with, the terms of the
commitment letter, including an inventory appraisal in CIT's discretion
and payment of fees and expenses;
. the execution and delivery of legal documentation, satisfactory in form
to Gart and CIT and their respective counsels;
. the absence of a material adverse effect on:
. Gart's business, as now conducted or proposed to be conducted; its
results of operations; its financial or other condition; its assets
or liabilities, contingent or otherwise; or its prospects; or
. Gart's ability to perform its obligations pursuant to the commitment
letter or pursuant to the transactions contemplated by the
commitment letter;
. CIT's receipt of legal opinions from Gart's counsel that are
satisfactory to CIT, including to the effect that federal and state
securities laws and the Hart-Scott-Rodino Antitrust Improvements Act
have been fully complied with;
. Gart's excess revolving loan availability must be at least $20 million;
and
. CIT's receipt of, and satisfaction with, the merger agreement.
In connection with the new credit facility, Gart also will make customary
representations, warranties and covenants. Gart's financial covenants will be
limited to covenants regarding Gart's net worth and its minimum interest
coverage ratio. In addition, Gart will be required to provide the lenders with
monthly interim financial statements and fiscal year-end audited financial
statements.
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Term of Credit Facility; Termination
The new credit facility will have an initial term of four years, and will be
renewable automatically for additional one-year terms, unless terminated by the
lenders after the initial term upon 60 days' written notice. In addition, the
lenders will be allowed to terminate the credit facility upon the occurrence of
certain events of default. Gart will be able to terminate the credit facility
at any time, with 60 days' prior written notice to CIT, but Gart will be
required to pay an early termination premium if such termination is before the
end of the expiration of the initial term. The early termination premium will
be calculated by multiplying the revolving line of credit by (1) 0.50%, if the
credit facility is terminated on or prior to two years after closing, or (2)
0.25%, if the credit facility is terminated on or prior to three years after
closing.
Completion and Effectiveness of the Merger
Gart and Oshman's will complete the merger when all of the conditions to the
completion of the merger are satisfied or waived, including approval of the
merger agreement by Oshman's stockholders and approval of the issuance of Gart
common stock in connection with the merger by Gart stockholders. The merger
will become effective upon the filing of a certificate of merger with the State
of Delaware.
Gart and Oshman's are working towards completing the merger as quickly as
possible. Gart and Oshman's currently plan to complete the merger late in the
second calendar quarter or early in the third calendar quarter of 2001.
Structure of the Merger
Conversion of Oshman's Common Stock
At the effective time of the merger, each share of Oshman's common stock
issued and outstanding immediately prior to the effective time of the merger
(except for shares held in Oshman's treasury, shares held by Gart or GSC
Acquisition, or shares held by stockholders who have properly perfected their
rights as dissenting stockholders under Delaware law) will be cancelled and
automatically converted into the right to receive $7.00 in cash plus 0.55
shares of Gart common stock upon surrender of the certificate representing the
share of Oshman's common stock in the manner provided in the merger agreement.
The mix between cash and Gart common stock is subject to adjustment pursuant to
the merger agreement as described in "Adjustment in Mix of Merger
Consideration" below.
Adjustment in Mix of Merger Consideration
The merger agreement provides that, if the closing sales price of a share of
Gart common stock is equal to or greater than $9.50 on the closing date of the
merger, then each share of Oshman's common stock will be converted into the
right to receive an amount equal to $7.00 in cash (as adjusted, the "Cash
Consideration") and 0.55 (as adjusted, the "Conversion Ratio") shares of Gart
common stock (as adjusted, the "Stock Consideration"). In the event that the
closing sales price of a share of Gart common stock is less than $9.50 on the
closing date of the merger, then the merger agreement provides that the amount
of the Cash Consideration, the Conversion Ratio and the Stock Consideration
will be adjusted automatically as follows:
. first, the dollar value per share of the merger consideration (the
"Dollar Value Per Share") will be determined by adding (A) the Cash
Consideration (before giving effect to any adjustment) to (B) the
result of multiplying the Conversion Ratio (before giving effect to
any adjustment) by the closing sales price of a share of Gart common
stock on the closing date of the merger;
. next, the amount of the Cash Consideration will be adjusted to equal
the result of multiplying 0.57 by the Dollar Value Per Share;
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. next, the Conversion Ratio will be adjusted to equal the result of
dividing (A) the amount equal to (1) the Dollar Value Per Share
minus (2) the Cash Consideration (after giving effect to the above
adjustment) by (B) the closing sale price of a share of Gart common
stock on the closing date of the merger; and
. finally, the amount of the Stock Consideration will be adjusted
using the Conversion Ratio (after giving effect to the above
adjustment).
For example, if the closing sales price of a share of Gart common stock is
$9.00 on the closing date of the merger, then the mix of cash consideration and
Gart common stock will be adjusted so that each share of Oshman's common stock
will be converted into the right to receive $6.8115 in cash and 0.5709 shares
of Gart common stock. As a result, the equivalent price per share of Oshman's
common stock on the closing date would be $11.9496. If the closing sales price
of a share of Gart common stock is $8.00 on the closing date of the merger,
then the mix of cash consideration and Gart common stock will be adjusted so
that each share of Oshman's common stock will be converted into the right to
receive $6.498 in cash and 0.6128 shares of Gart common stock. As a result, the
equivalent price per share of Oshman's common stock on the closing date would
be $11.4004.
Under the merger agreement, Gart and Oshman's each will have the right to
terminate the merger agreement if the closing sales price of a share of Gart
common stock is less than $7.00 on the closing date of the merger.
Exchange of Oshman's Stock Certificates for Gart Stock Certificates
When the merger is completed, the exchange agent will mail to Oshman's
stockholders instructions for surrendering their Oshman's stock certificates in
exchange for Gart stock certificates. If an Oshman's stock certificate is lost,
stolen or destroyed, the Oshman's stockholder will have to deliver an affidavit
and, if required, a bond. When Oshman's stockholders deliver their Oshman's
stock certificates to the exchange agent along with any required documents, the
Oshman's stock certificates will be cancelled and the stockholders will receive
Gart stock certificates representing the number of full shares of Gart common
stock to which they are entitled under the merger agreement. No fractional
shares of Gart common stock will be issued in connection with the merger.
Instead, Oshman's stockholders will receive cash, without interest, in lieu of
a fraction of a share of Gart common stock.
Oshman's stockholders should not submit their Oshman's stock certificates
for exchange until they receive instructions from the exchange agent.
Oshman's stockholders are not entitled to receive any dividends or other
distributions on Gart common stock until the merger is completed and they have
surrendered their Oshman's stock certificates in exchange for Gart stock
certificates. Oshman's stockholders will receive payment for any dividend or
other distribution on Gart common stock with a record date after the merger and
a payment date prior to the date they surrender their Oshman's stock
certificates promptly after their Gart stock certificates are issued. Oshman's
stockholders will receive payment for any dividend or other distribution on
Gart common stock with a record date after the merger and a payment date after
the date they surrender their Gart stock certificates promptly after the
payment date.
Gart only will issue a Gart stock certificate or a check in lieu of a
fractional share in a name other than the name in which a surrendered Oshman's
stock certificate is registered if the unregistered stockholder presents the
exchange agent with all documents required to show and effect the unrecorded
transfer of ownership and show that the stockholder paid any applicable stock
transfer taxes. If an Oshman's stock certificate has been lost, stolen or
destroyed, the stockholder may need to deliver an affidavit or bond prior to
receiving the Gart stock certificate.
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United States Federal Income Tax Consequences of the Merger
This section of this joint proxy statement-prospectus summarizes the
material United States federal income tax considerations relevant to the merger
that apply to certain holders of Oshman's common stock and Gart common stock.
This discussion is based upon provisions of the Internal Revenue Code, Treasury
regulations, and administrative rulings and court decisions in effect as of the
date of this document, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax consequences to
holders of Oshman's common stock or Gart common stock as described in this
joint proxy statement-prospectus.
This summary does not discuss all United States federal income tax
considerations that may be relevant to particular Oshman's stockholders or Gart
stockholders in light of their individual investment circumstances. Factors
that could alter the tax consequences of the merger to individual stockholders
include:
. if a stockholder is a dealer in securities, foreign person or entity,
partnership, tax-exempt organization, financial institution, or
insurance company;
. if a stockholder is subject to the alternative minimum tax provisions of
the Internal Revenue Code;
. if a stockholder does not hold his, her or its shares as capital assets;
. if a stockholder acquired his, her or its shares in connection with
stock option or stock purchase plans or in other compensatory
transactions;
. if a stockholder holds stock as part of an integrated investment,
including a "straddle," "hedge," or "conversion transaction," comprised
of shares of Oshman's or Gart common stock and one or more other
positions;
. if a stockholder holds Oshman's common stock subject to the constructive
sale provisions of Section 1259 of the Internal Revenue Code; or
. if a stockholder holds Oshman's common stock and, in addition, holds
Gart common stock, actually or constructively within the meaning of the
Internal Revenue Code, at the time of the merger.
In addition, this summary does not describe the tax consequences of the
merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
merger, whether or not any such transactions are undertaken in connection with
the merger, including, without limitation, any transaction in which shares of
Oshman's common stock are acquired or shares of Gart common stock are disposed
of, or the tax consequences to holders of options, warrants or similar rights
to acquire Oshman's common stock. Accordingly, Gart and Oshman's urge each
stockholder to consult the stockholder's own tax advisor as to the specific tax
consequences of the merger, including the applicable federal, state, local and
foreign tax consequences to the stockholder of the merger.
The completion of the merger is conditioned upon receipt by Gart and
Oshman's of opinions from their respective accountants, Deloitte & Touche LLP
and Grant Thornton LLP, that the merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code. The tax opinions
will be rendered on the basis of facts, representations and assumptions set
forth or referred to in those opinions, including factual representations
contained in certificates of officers of Gart and Oshman's. These tax opinions
also will be based upon the Internal Revenue Code, Treasury regulations and
administrative rulings and court decisions in effect on the date of the
opinions, all of which are subject to change.
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One of the requirements that must be satisfied in order for the merger to
qualify as a reorganization under the Internal Revenue Code is the continuity
of stockholder interest requirement. This requirement will be satisfied if
Oshman's stockholders exchange a substantial portion of their proprietary
interests in Oshman's for proprietary interests in Gart. The Internal Revenue
Service takes the position for advance ruling purposes that the continuity of
stockholder interest requirement is satisfied in a reorganization if the value
of the acquiring corporation's stock received in the reorganization by the
acquired corporation's stockholders equals or exceeds 50% of the total
consideration paid for the stock of the acquired corporation in the
reorganization. In the opinion of the companies' respective accountants, the
continuity of stockholder interest requirement will be satisfied under
applicable case law if the value of the Gart common stock received in the
reorganization by Oshman's stockholders equals or exceeds 40% of the total
consideration paid for the stock of Oshman's in the reorganization.
Assuming the merger qualifies as a section 368 reorganization, it will have
the following consequences to the corporations and their shareholders.
Tax Consequences to Parties Other Than Holders of Oshman's Common Stock
Gart, GSC Acquisition, holders of Gart common stock and Oshman's will not
recognize a gain or loss solely as a result of the merger.
Treatment of Holders of Oshman's Common Stock
With respect to Oshman's stockholders who hold their Oshman's common stock
as a "capital asset" (generally, property held for investment) under the
Internal Revenue Code, qualification of the merger as a reorganization within
the meaning of Section 368 of the Internal Revenue Code will result in the
federal income tax consequences described below.
Each Oshman's stockholder will recognize capital gain, if any, realized in
the transaction but will not recognize any loss realized in the transaction.
The amount of capital gain that is recognized will be calculated separately for
each block of Oshman's common stock surrendered, in an amount equal to the
lesser of (1) the amount of gain realized in respect of such block (i.e., the
excess of (a) the sum of the amount of cash and fair market value of Gart
common stock received that is allocable to such block of Oshman's common stock
over (b) the adjusted tax basis of such block) and (2) the amount of cash
received that is allocable to such block. Based upon the mix of merger
consideration, a recognized gain will not have the effect of the distribution
of a dividend under a judicially developed test. Such capital gain will
constitute long-term capital gain, subject to a tax rate of 20% in the case of
an individual stockholder, if such block of Oshman's stock has been held for
more than one year at the time of the merger. For this purpose, all of the cash
and Gart common stock received by an Oshman's stockholder will be allocated
proportionately among the blocks of Oshman's common stock surrendered by such
holder. The adjusted tax basis of the new Gart common stock received in
exchange for a block of Oshman's common stock will be equal to the adjusted tax
basis of such surrendered block of Oshman's common stock, decreased by the
amount of cash received in respect of such block and increased by the amount of
gain recognized in respect of such block. The holding period of the Gart common
stock will include the holding period of such block of Oshman's common stock
surrendered.
Cash payments received by an Oshman's stockholder for a fractional share of
Gart common stock will be treated as if such fractional share had been issued
in the merger and then redeemed by Gart. A stockholder will recognize a gain or
loss with respect to such cash payment, measured by the difference, if any,
between the amount of cash received and the tax basis of such fractional share,
and this gain or loss generally will be a capital gain or loss.
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Even if the merger qualifies as a reorganization, an Oshman's stockholder
could recognize a gain to the extent that shares of Gart common stock are
considered to be received in exchange for services or property, other than
solely for Oshman's common stock. All or a portion of such gain may be taxable
as ordinary income. A gain also may have to be recognized to the extent that
Oshman's stockholders are treated as receiving, directly or indirectly,
consideration other than Gart common stock in exchange for Oshman's common
stock.
No rulings have been or will be requested from the Internal Revenue Service
with respect to any matters discussed herein. There can be no assurance that
the Internal Revenue Service will not take positions contrary to those
described above or, if challenged by the Internal Revenue Service, that a court
will not sustain the Internal Revenue Service's position.
If the Internal Revenue Service successfully challenges the status of the
merger as a reorganization, each Oshman's stockholder will recognize taxable
gain or loss with respect to each share of Oshman's common stock surrendered
equal to the difference between the adjusted tax basis of such share and the
sum of the fair market value, as of the completion of the merger, of the Gart
common stock and the amount of cash received by the stockholder in exchange
therefor. In such event, the aggregate adjusted tax basis of the Gart common
stock so received would equal its fair market value at the time of the merger,
and the holding period for such stock would begin the day after the merger.
Such gain or loss will generally be a capital gain or loss. A gain or loss must
be calculated separately for each block of stock held by a stockholder.
In addition, if the merger is not viewed as a reorganization, Oshman's would
be deemed to have sold its assets to GSC Acquisition and will recognize gain
equal to the difference between the adjusted tax basis of the Oshman's assets
and the sum of (1) the consideration given to the Oshman's stockholders, which
includes (a) the fair market value, as of the completion of the merger, of the
Gart common stock and (b) the amount of cash received by the Oshman's
stockholders in the exchange and (2) the liabilities of Oshman's. The resulting
tax liability will be assumed by GSC Acquisition under the merger. In such
event, the adjusted tax basis of the former Oshman's assets will be increased
by the gain recognized and the related tax liability.
Accounting Treatment of the Merger
Gart and Oshman's intend to account for the merger using the purchase method
of accounting.
Regulatory Filings and Approvals Required to Complete the Merger
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
requires the ultimate parent entities of each of Gart and Oshman's to file
Notification and Report Forms with the Bureau of Competition of the Federal
Trade Commission and the Antitrust Division of the Department of Justice
containing information relating to the parties to the merger agreement and the
transactions contemplated by the merger agreement. Gart and Oshman's are
required to observe a waiting period after the filings have been made before
completing the merger. In compliance with the Hart-Scott-Rodino Antitrust
Improvements Act, Gart and Oshman's both filed their Notification and Report
Forms on March 9, 2001. Under the merger agreement, a condition to the
completion of the merger is the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Early
termination was granted on March 19, 2001.
The Federal Trade Commission or the Department of Justice may challenge the
merger on antitrust grounds either before or after the expiration or
termination of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the Federal Trade Commission or the Department
of Justice could take action under the antitrust laws as it deems necessary or
desirable in the public interest. In addition,
47
state antitrust authorities or private persons or entities could take certain
actions, including seeking to enjoin the merger under the antitrust laws at any
time prior to the completion of the merger or compelling rescission or
divestiture subsequent to the merger. There can be no assurance that a
challenge to the merger will not be made or that, if a challenge is made, Gart
and Oshman's will prevail and the merger will be completed.
Restrictions on Sales of Shares by Affiliates of Gart and Oshman's
The shares of Gart common stock to be issued in connection with the merger
will be registered under the Securities Act and will be freely transferable
under the Securities Act, except for shares of Gart common stock issued to any
person who is deemed to be an "affiliate" of either Gart or Oshman's. Persons
who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control of either Gart or
Oshman's and may include some of their respective officers and directors as
well as the principal stockholders of Gart and Oshman's. Affiliates may not
sell their shares of Gart common stock acquired in connection with the merger
except pursuant to:
. an effective registration statement under the Securities Act covering
the resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act;
or
. any other applicable exemption under the Securities Act.
In accordance with the merger agreement, Gart has agreed to enter into a
registration rights agreement with certain Oshman's stockholders who may be
deemed to be affiliates of Oshman's. The registration rights agreement will
grant to these stockholders certain demand and "piggyback" registration rights
with respect to shares of Gart common stock received by them in the merger. The
registration rights agreement also will set forth certain limitations on the
ability of these stockholders to sell their shares.
Gart's registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of shares of Gart
common stock to be received by affiliates of Gart or Oshman's in the merger.
Listing on the Nasdaq National Market of Gart Common Stock to be Issued in the
Merger
Gart has agreed to cause the shares of Gart common stock to be issued in the
merger to be listed on the Nasdaq National Market before the completion of the
merger.
Delisting and Deregistration of Oshman's Common Stock After the Merger
When the merger is completed, Oshman's common stock will be delisted from
the American Stock Exchange and will be deregistered under the Exchange Act.
Dissenters' and Appraisal Rights
The following summary of Section 262 of the Delaware General Corporation Law
is qualified in its entirety by Section 262, which is reprinted as Annex E to
this joint proxy statement-prospectus. Although we believe that the following
summary describes the material aspects of Section 262 and the law relating to
dissenters' and appraisal rights, the summary may not contain all of the
information that is important to Oshman's stockholders. Oshman's stockholders
should read carefully this summary and the attached Section 262 for a more
complete understanding of dissenters' and appraisal rights.
Under the Delaware General Corporation Law, holders of Oshman's common stock
will be entitled to assert appraisal rights (sometimes referred to as
"dissenters' rights") in connection with the proposed merger. Oshman's
stockholders who elect to exercise appraisal rights must comply with the
procedures described in Section 262 of the Delaware General Corporation Law.
Any Oshman's stockholder who is eligible to exercise
48
appraisal rights and properly does so will be paid in cash the "fair value" of
the stockholder's shares of Oshman's common stock. Fair value takes into
account all relevant factors but excludes any appreciation or depreciation in
anticipation of the merger.
This joint proxy statement-prospectus is being sent to holders of record of
Oshman's common stock as of the record date for the special meeting of Oshman's
stockholders and constitutes notice of the appraisal rights available to
Oshman's stockholders under Section 262. The statutory right of appraisal
granted by Section 262 is complex and requires strict compliance with the
procedures contained in Section 262. Failure by any Oshman's stockholder to
follow any of these procedures may result in a termination or waiver of the
appraisal rights available to the stockholder under Section 262.
If an Oshman's stockholder elects to exercise appraisal rights under Section
262, the stockholder must comply with the following procedures:
. Prior to the vote on the merger at the special meeting of Oshman's
stockholders, the Oshman's stockholder must deliver to Oshman's a
written demand for appraisal of the shares of Oshman's common stock held
by the stockholder. The written demand must (1) identify the Oshman's
stockholder as a stockholder of record and (2) state the stockholder's
intention to demand appraisal of the shares of Oshman's common stock
held by the stockholder. Merely voting against adoption of the merger
agreement, abstaining from voting or failing to vote with respect to
adoption of the merger agreement will not constitute a demand for
appraisal within the meaning of Section 262. A demand for appraisal must
be executed by or for the Oshman's stockholder as a holder of record,
fully and correctly, as the stockholder's name appears on the stock
certificate(s) representing shares of Oshman's common stock. If an
Oshman's stockholder owns Oshman's common stock in a fiduciary capacity,
such as a trustee, guardian or custodian, the stockholder must disclose
the fact that the stockholder is signing the demand in that capacity. If
an Oshman's stockholder owns Oshman's common stock jointly with one or
more persons, all of the joint owners must sign the demand for
appraisal. The written demand for appraisal by an Oshman's stockholder
should be delivered to: Attention: Steven U. Rath, secretary, Oshman's
Sporting Goods, Inc., 2302 Maxwell Lane, Houston, Texas 77023.
. The Oshman's stockholder must refrain from voting for the adoption of
the merger agreement and the approval of the merger. If an Oshman's
stockholder votes, by proxy or in person, in favor of the adoption of
the merger agreement and the approval of the merger, the stockholder's
right to appraisal will terminate. In addition, the right to appraisal
of an Oshman's stockholder will terminate if the stockholder returns a
signed proxy and (1) fails to vote against the adoption of the merger
agreement and the approval of the merger or (2) fails to note that the
stockholder is abstaining from voting. With respect to items (1) and
(2), the appraisal rights of an Oshman's stockholder will be terminated
even if the stockholder previously filed a written demand for appraisal.
. The Oshman's stockholder must continuously hold the stockholder's shares
of Oshman's common stock from the date on which the Oshman's stockholder
makes the demand for appraisal through the completion of the merger. If
a stockholder is the record holder of Oshman's common stock on the date
on which the stockholder makes the written demand for appraisal, but
prior to the merger the stockholder transfers the shares owned by the
stockholder, the stockholder will lose any right to appraisal with
respect to those shares.
Any beneficial owner who is not a record owner and who intends to exercise
appraisal rights should instruct the applicable record owner to comply with the
statutory requirements with respect to the exercise of appraisal rights before
the date of the Oshman's special meeting.
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Shares of Oshman's common stock that are outstanding immediately prior to
the effective time of the merger, with respect to which appraisal shall have
been properly demanded in accordance with Section 262, will not be converted
into the right to receive shares of Gart common stock in the merger unless and
until the holder of the shares withdraws the demand for appraisal or the shares
become ineligible for appraisal.
Within 10 days after the effective time of the merger, GSC Acquisition, the
surviving corporation in the merger, is required to send notice of the
effectiveness of the merger to each stockholder of Oshman's that, prior to the
completion of the merger, has complied with the requirements of Section 262.
Within 120 days after the effective date of the merger, GSC Acquisition or
any Oshman's stockholder that has complied with the requirements of Section 262
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the shares of Oshman's common stock held by all Oshman's
stockholders seeking appraisal. A dissenting Oshman's stockholder must serve a
copy of the petition on GSC Acquisition. If no petition is filed by either GSC
Acquisition or any dissenting Oshman's stockholder within the 120-day period
after the effective date of the merger, the rights of all dissenting Oshman's
stockholders to appraisal will cease. Oshman's stockholders seeking to exercise
appraisal rights should not assume that GSC Acquisition will file a petition
with respect to the appraisal of the fair value of their shares or that GSC
Acquisition will initiate any negotiations with respect to the fair value of
those shares. GSC Acquisition is under no obligation, and has no present
intention, to take any action in this regard. Accordingly, Oshman's
stockholders that wish to seek appraisal of their shares should initiate all
necessary action with respect to the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Failure to
file the petition with the Delaware Court of Chancery on a timely basis will
cause the right to an appraisal of an Oshman's stockholder to cease.
Within 120 days after the effective time of the merger, any Oshman's
stockholder who has complied with subsections (a) and (d) of Section 262 is
entitled, upon written request, to receive from GSC Acquisition a statement
setting forth (1) the total number of shares of Oshman's common stock not voted
in favor of the merger with respect to which demands for appraisal have been
received and (2) the number of holders of those shares. The statement must be
mailed within 10 days after Oshman's has received the written request for the
statement or within 10 days after the time for delivery of demands for
appraisal under subsection (d) of Section 262 has expired, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on that petition, the Delaware Court of Chancery will determine which Oshman's
stockholders are entitled to appraisal rights and will appraise the shares of
Oshman's common stock owned by those stockholders. The court will determine the
fair value of the shares of Oshman's common stock, exclusive of any element of
value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the fair value. The
Delaware Court of Chancery may require Oshman's stockholders that have demanded
appraisal rights for their shares of Oshman's common stock and that hold
certificates representing the shares to submit the certificates to the Register
in Chancery for notation thereon of the pendency of the appraisal proceedings.
The Delaware Court of Chancery may dismiss the proceedings as to any Oshman's
stockholder that fails to comply with any such directions.
Oshman's stockholders that consider seeking appraisal should consider that
the fair value of their shares under Section 262 could be more than, the same
as, or less than, the value of the consideration provided for in the merger
agreement without the exercise of appraisal rights. The Delaware Court of
Chancery may determine the cost of the appraisal proceeding and assess it
against the parties as the court deems equitable. Upon application of a
dissenting Oshman's stockholder, the Delaware Court of Chancery may order that
all or a portion of the expenses incurred by any dissenting Oshman's
stockholder in connection with the appraisal proceeding, including reasonable
attorney's fees and the fees and expenses of experts, be charged pro rata
against the value of all shares of Oshman's common stock entitled to appraisal.
In the absence of a court determination or assessment, each party will bear its
own expenses.
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Any Oshman's stockholder who has demanded appraisal in compliance with
Section 262 will not, after the effective date of the merger, be entitled to
vote the stock for any purpose or to receive payment of dividends or other
distributions, if any, on the Oshman's common stock, except for dividends or
distributions, if any, payable to Oshman's stockholders of record on a date
prior to the effective date of the merger.
An Oshman's stockholder may withdraw a demand for appraisal and accept the
merger consideration in accordance with the merger agreement at any time within
60 days after the effective date of the merger. After this 60-day period, an
Oshman's stockholder may withdraw a demand for appraisal only with the written
approval of GSC Acquisition. If an appraisal proceeding is properly instituted,
it may not be dismissed as to any Oshman's stockholder without the approval of
the Delaware Court of Chancery, and this approval may be conditioned on the
court's deeming the terms to be just. If, after the completion of the merger, a
holder of Oshman's common stock that had demanded appraisal for its shares
fails to perfect or loses its right to appraisal, then those shares will be
treated under the merger agreement as if they were converted into the right to
receive the merger consideration at the effective time of the merger.
Because of the complexity of these provisions of Section 262 of the Delaware
General Corporation Law, any Oshman's stockholder that is considering
exercising appraisal rights should consult a legal advisor.
The Merger Agreement
Representations and Warranties
Gart and Oshman's made a number of representations and warranties in the
merger agreement regarding aspects of their respective businesses, financial
condition, structure and other facts pertinent to the merger.
Oshman's Representations and Warranties
Oshman's representations and warranties include representations as to:
. Oshman's corporate organization and its qualification to do business;
. Oshman's certificate of incorporation and bylaws;
. Oshman's capitalization;
. Oshman's subsidiaries;
. authorization of the merger agreement by Oshman's;
. Oshman's compliance with applicable laws;
. the effect of the merger on obligations of Oshman's and under applicable
laws;
. governmental approvals required to complete the merger;
. Oshman's filings and reports with the Securities and Exchange
Commission;
. Oshman's financial statements;
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. Oshman's liabilities;
. changes in Oshman's business since January 29, 2000;
. litigation involving Oshman's;
. Oshman's material contracts;
. Oshman's taxes;
. Oshman's title to the properties that it owns and leases;
. intellectual property used by Oshman's;
. information supplied by Oshman's in this joint proxy statement-
prospectus;
. Oshman's employee benefit plans;
. environmental laws that apply to Oshman's;
. Oshman's labor relations;
. transactions between Oshman's and its related parties;
. real estate owned or leased by Oshman's;
. Oshman's insurance coverage;
. the identity of Oshman's ten largest merchandise vendors and its
relationship with those vendors;
. the absence of disputes between Oshman's and its vendors or landlords;
. Oshman's store closings;
. the accuracy of the representations and warranties made by Oshman's;
. the inapplicability of state takeover statues;
. the fairness opinion received by Oshman's from its financial advisor;
. payments, if any, required to be made by Oshman's to brokers and agents
on account of the merger; and
. conditions related to the financing of the merger.
The representations and warranties of Oshman's expire upon the completion of
the merger.
Gart's Representations and Warranties
Gart's representations and warranties include representations as to:
. Gart's corporate organization and its qualification to do business;
. Gart's certificate of incorporation and bylaws;
. Gart's capitalization;
. Gart's subsidiaries;
. authorization of the merger agreement by Gart;
. Gart's compliance with applicable laws;
. the effect of the merger on obligations of Gart and under applicable
laws;
. governmental approvals required to complete the merger;
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. Gart's filings and reports with the Securities and Exchange Commission;
. Gart's financial statements;
. Gart's liabilities;
. changes in Gart's business since January 29, 2000;
. litigation involving Gart;
. Gart's material contracts;
. Gart's taxes;
. Gart's title to the properties it owns and leases;
. intellectual property used by Gart;
. information supplied by Gart in this joint proxy statement-prospectus;
. Gart's employee benefit plans;
. environmental laws that apply to Gart;
. Gart's labor relations;
. transactions between Gart and its related parties;
. real estate owned or leased by Gart;
. Gart's insurance coverage;
. Gart's relationship with its merchandise vendors;
. the absence of disputes between Gart and its vendors or landlords;
. Gart's store closings;
. the accuracy of the representations and warranties made by Gart;
. the inapplicability of state takeover statues;
. payments, if any, required to be made by Gart to brokers and agents on
account of the merger;
. financing for the merger; and
. the absence of liabilities of GSC Acquisition, Gart's subsidiary.
The representations and warranties of Gart expire upon the completion of the
merger.
The representations and warranties in the merger agreement are complicated
and are not easily summarized. You are urged to read carefully the sections of
the merger agreement entitled "Representations and Warranties of Company" and
"Representations and Warranties of Gart and MergerSub."
Conduct of Business by Oshman's Before the Completion of the Merger
Oshman's agreed that, until the completion of the merger, unless Gart
consents in writing, Oshman's will carry on its business in the ordinary and
usual course of business, consistent with past practices, and will use its
commercially reasonable best efforts to:
. preserve intact its present business organization;
. maintain in effect all permits required to carry on its business;
. keep available the services of its present employees and consultants;
and
. preserve its present relationships with its employees, consultants,
customers, lenders, suppliers, licensors, licensees, landlords and
others having significant business relationships with it.
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Oshman's also agreed that, until the completion of the merger, unless Gart
consents in writing, Oshman's would conduct its business in compliance with
some specific restrictions relating to the following:
. the modification of Oshman's certificate of incorporation or bylaws;
. the acquisition of assets or other entities;
. the incurrence of indebtedness;
. the incurrence of obligations to make certain expenditures;
. capital expenditures;
. the entrance into or modification of contracts;
. the sale, lease, assignment or disposition of its real property;
. the taking of an action that would render a representation or warranty
made by Oshman's untrue;
. the issuance of dividends or other distributions;
. the issuance and redemption of securities;
. employees and employee benefits, including severance and termination
payments;
. the revaluation of assets;
. the payment or settlement of liabilities;
. the making of tax elections;
. accounting policies and procedures;
. restricted stock and stock options;
. the liquidation or dissolution of Oshman's or its subsidiaries;
. changes to Oshman's corporate structure;
. Oshman's permits; and
. Oshman's intellectual property.
The agreements related to the conduct of Oshman's business in the merger
agreement are complicated and are not easily summarized. You are urged to read
carefully the section of the merger agreement entitled "Conduct of Business by
Company Pending the Merger."
Conduct of Business by Gart Before Completion of the Merger
Gart agreed that, until the completion of the merger, unless Oshman's
consents in writing, Gart will carry on its business in the ordinary and usual
course of business, consistent with past practices, and will use its
commercially reasonable best efforts to:
. preserve intact its present business organization;
. maintain in effect all permits required to carry on its business;
. keep available the services of its present employees and consultants;
and
. preserve its present relationships with its employees, consultants,
customers, lenders, suppliers, licensors, licensees, landlords and
others having significant business relationships with it.
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Gart also agreed that, until the completion of the merger, unless Oshman's
consents in writing, Gart would conduct its business in compliance with some
specific restrictions relating to the following:
. the modification of Gart's certificate of incorporation or bylaws;
. the acquisition of assets or other entities;
. the taking of an action that would render a representation or warranty
made by Gart untrue;
. the issuance of dividends or other distributions;
. the issuance and redemption of securities;
. the revaluation of assets;
. accounting policies and procedures;
. limitations on the issuance of stock and stock equivalents; and
. the liquidation or dissolution of Gart or its subsidiaries.
The agreements related to the conduct of Gart's business in the merger
agreement are complicated and are not easily summarized. You are urged to read
carefully the section of the merger agreement entitled "Conduct of Business by
Gart Pending the Merger."
Access and Information
Each of Gart and Oshman's has agreed that it will, and it will cause its
officers, directors, employees, auditors and agents to, afford to the other
party and to the other party's officers, employees and representatives
reasonable access during normal business hours to all of its books and records
and its properties, plants and personnel. This access will be afforded until
the effective time of the merger and will be subject to certain limitations.
Approvals from Governmental Entities and Third Parties
Each of Gart and Oshman's has agreed to use its reasonable best efforts to
take promptly all actions necessary under applicable laws and regulations to
complete the merger as soon as practicable. This includes using reasonable best
efforts to obtain all necessary consents and approvals from all applicable
governmental entities, effecting all necessary registrations, applications and
filings, and obtaining any required regulatory approvals and consents.
In addition, Oshman's has agreed to use its commercially reasonable best
efforts to secure waivers and/or consents from such third parties as may be
necessary in the judgment of Oshman's or Gart in order to complete the merger,
subject to certain limitations.
Financing
Gart has agreed to use good faith commercially reasonable efforts to obtain
the financing that is described in a letter agreement from The CIT
Group/Business Credit, Inc., on terms reasonably consistent with those
contained in the letter agreement. See the discussion under "The Merger and
Related Transactions--Financing for the Merger."
Directors' and Officers' Insurance and Indemnification
Gart and Oshman's have agreed that all rights to indemnification,
exculpation and advancement of expenses now existing in favor of any director
or officer of Oshman's or any Oshman's subsidiary ("the Indemnified Parties")
as provided in their respective charters or bylaws are contract rights and will
survive the merger. In addition, Gart has agreed to indemnify all Indemnified
Parties to the fullest extent permitted by applicable law with respect to all
acts and omissions arising out of such individuals' services as officers,
directors, employees or agents of Oshman's or its subsidiaries, or as trustees
or fiduciaries of any plan for the benefit of Oshman's employees, occurring at
or prior to the effective time of the merger, including the transactions
contemplated by the merger agreement. Gart also has agreed to pay legal and
other expenses of the Indemnified Parties in certain situations.
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In addition, Gart has agreed to cause to be maintained in effect for six
years from the effective time of the merger the current policies of the
directors' and officers' liability insurance maintained by Oshman's, subject to
certain limitations.
Directors Designated by Oshman's to Serve on Gart's Board of Directors
Gart has agreed to cause two directors that are designated by Oshman's to be
elected or appointed as members of Gart's board of directors. Gart has agreed
to use commercially reasonable efforts to cause its directors, subject to their
fiduciary duties, to ensure that each of the designated directors will be
appointed or nominated for election to Gart's board of directors following
Gart's 2001 annual meeting of stockholders and at Gart's 2002 annual meeting of
stockholders. Oshman's has identified that the designated directors are
Marilyn Oshman and Alvin N. Lubetkin.
Stockholder Meetings
Gart and Oshman's have agreed to hold meetings of their respective
stockholders as soon as practicable following the date of effectiveness of the
registration statement, of which this joint proxy statement-prospectus is a
part, for the purpose of voting: (1) in the case of Oshman's, to adopt the
merger agreement and to approve the merger; and (2) in the case of Gart, to
approve the issuance of Gart common stock in the merger. Gart and Oshman's have
agreed that their respective boards of directors would recommend, subject to
the exercise of their fiduciary duties, that the stockholders of the respective
companies approve the proposal presented to them.
Financial Statement Deliveries
Gart and Oshman's have agreed to provide their monthly financial statements,
and any Form 10-Q or Form 10-K filed by such party, to the other party.
Notification of Certain Matters
Gart and Oshman's have agreed to provide notice to the other party of: (1)
any notice or other communication received by such party relating to a default
under a material contract; or (2) any material adverse change in the condition,
properties, assets, business, results of operations, or prospects of such
party.
Further Assurances; Further Action
Gart and Oshman's have agreed that, at and after the effective time of the
merger, the officers, and directors of the surviving corporation in the merger
will be authorized: (1) to execute and deliver, in the name and on behalf of
Gart, Oshman's or GSC Acquisition, any deeds, bills of sale, assignments or
assurances; and (2) to take any other actions to vest, perfect or confirm of
record or otherwise in the surviving corporation all right, title and interest
in, to and under any of the rights, properties or assets of Oshman's that are
acquired by the surviving corporation in the merger. In addition, each of Gart,
Oshman's and GSC Acquisition has agreed to use its reasonable commercial
efforts to take all appropriate action, and to do all things necessary under
applicable laws, to complete the merger.
Tax-Free Reorganization Treatment
Gart, Oshman's and GSC Acquisition have agreed not to take any action,
whether before or after the effective date of the merger, that would reasonably
be expected to cause the merger to fail to qualify as a reorganization within
the meaning of Section 368 of the Internal Revenue Code.
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Nasdaq Listing
Gart has agreed to cause the listing on the Nasdaq National Market at the
effective time of the merger of the shares of Gart common stock issuable
pursuant to the merger agreement in the merger, subject to official notice of
issuance.
Registration Rights
Gart has agreed to enter into, as of the effective time of the merger, a
registration rights agreement with certain Oshman's stockholders. For a
description of the registration rights agreement see "Registration Rights
Agreement."
Real Estate Matters
Oshman's has agreed to cooperate with Gart in providing any notices of the
merger that are required to be delivered prior to the completion of the merger
under the terms of Oshman's leases to the applicable landlords.
No Solicitation by Oshman's
Oshman's has agreed that it, its subsidiaries and affiliates, and the
respective directors, executive officers, agents and representatives of any of
the foregoing, will cease and terminate, as of the date of the merger
agreement, any existing activities, discussions or negotiations with any
parties conducted prior to that date with respect to any Acquisition
Transaction.
An "Acquisition Transaction" refers to a transaction involving either:
. a merger, consolidation or other business combination involving Oshman's
or any of its subsidiaries; or
. the acquisition of all or any significant part of the assets or capital
stock of Oshman's or any of its subsidiaries.
Oshman's has further agreed that neither it nor any of its subsidiaries or
affiliates, nor any of the respective directors, executive officers, agents or
representatives of any of the foregoing, will, directly or indirectly (other
than in connection with the transactions with Gart and GSC Acquisition
contemplated by the merger agreement):
. solicit, initiate or encourage any inquiries or the making of any
proposals relating to an Acquisition Transaction;
. negotiate or otherwise engage in discussions with any party with respect
to an Acquisition Transaction, or engage in discussions that could
reasonably be expected to lead to a proposal for an Acquisition
Transaction, subject to limited exceptions in the event of a Superior
Proposal, as discussed below; or
. enter into an agreement, arrangement or understanding relating to any
Acquisition Transaction, subject to limited exceptions in the event of a
Superior Proposal, as discussed below.
A "Superior Proposal" refers to: (1) a bona fide, fully financed written
proposal or offer made by any party (other than Gart or any of its
subsidiaries) with respect to an Acquisition Transaction; or (2) a bona fide
written proposal or offer made by any party (other than Gart or any of its
subsidiaries) with respect to an Acquisition Transaction that would produce a
greater value per share of Oshman's common stock than the consideration that
would be paid under the merger agreement with Gart and GSC Acquisition. In
addition, in order to qualify as a Superior Proposal, the proposal or offer
must be on terms that Oshman's board of directors determines in good faith,
based on the advice of its independent financial advisors and legal counsel, to
be more favorable to Oshman's stockholders than the terms of the transactions
contemplated by the merger agreement.
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The merger agreement allows Oshman's to furnish information to, negotiate or
otherwise engage in discussions with a party in response to a proposal or
inquiry from the party that is unsolicited and received by Oshman's after the
date of the merger agreement if all of the following conditions are satisfied:
. Oshman's enters into a customary confidentiality agreement with the
party;
. the party makes, or indicates an intention or desire to make, a Superior
Proposal;
. Oshman's board of directors concludes in good faith, after consultation
with its financial advisor, that the party is capable of making a
Superior Proposal;
. Oshman's board of directors determines in good faith, after consultation
with its outside counsel, that the failure to furnish information,
negotiate or engage in discussions with the party would be inconsistent
with the fiduciary duties of the board of directors under applicable
law;
. the proposed Acquisition Transaction was not solicited by Oshman's in
breach of, or otherwise result from a breach of, the non-solicitation
provisions in the merger agreement; and
. Oshman's board of directors complies with the non-solicitation
provisions in the merger agreement.
The merger agreement also allows Oshman's board of directors to take and to
disclose to Oshman's stockholders a position contemplated by Rule 14e-2 under
the Exchange Act, comply with Rule 14d-9 under the Exchange Act, and make all
other disclosures required by applicable law. In addition, the merger agreement
provides that Oshman's may engage in discussions with, or provide information
to, any party that has made a proposal unsolicited after the date of the merger
agreement with respect to an Acquisition Transaction for the limited purpose of
determining whether the proposal is, or could lead to, a Superior Proposal.
Oshman's has agreed to promptly inform Gart of any inquiries, proposals,
information requested, or negotiations or discussions with any party (other
than Gart and its representatives) relating to an Acquisition Transaction, and
to provide to Gart a reasonable summary of the terms of the Acquisition
Transaction and the identity of the party. Oshman's has further agreed to
update Gart on an ongoing basis, or upon Gart's request, with respect to the
status of any inquiry, proposal, request, negotiations or discussions, unless
it would be inconsistent with the fiduciary duties of Oshman's board of
directors under applicable law.
Treatment of Oshman's Stock Options
Prior to the effective time of the merger, Oshman's will cause:
. all outstanding options under Oshman's 1993 Non-Employee Director Plan
to be cancelled, subject to the right of the holders of those options to
exercise the options during the 30-day period before the closing of the
merger; and
. all outstanding options and shares of restricted stock issued under
Oshman's 1994 Omnibus Plan to be transferred and delivered to Oshman's
in exchange for the value of the options and shares.
The merger agreement provides that Oshman's may:
. amend any of its stock option plans or stock option agreements in order
to permit outstanding options under the plans to be exercised
immediately before the effective time of the merger;
. amend its 1993 Non-Employee Director Plan in order to permit outstanding
options under the plan to be cancelled in the merger in exchange for
cash equal to the value of the options; and
. prior to the initial filing with the Securities and Exchange Commission
of the registration statement on Form S-4, of which this joint proxy
statement-prospectus is a part, amend its 1994 Omnibus Plan in order to
permit outstanding restricted shares under the plan to be cancelled and
converted into the right to receive the merger consideration at the
effective time of the merger in accordance with the merger agreement.
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The merger agreement also allows Oshman's to advance to any option holder
the amount of money necessary for the holder to exercise the holder's options.
Any advance will be effective as of the effective time of the merger and will
be contingent upon the completion of the transactions contemplated by the
merger agreement. If, at the effective time of the merger, any amounts advanced
to option holders remain unpaid, Gart will be permitted to withhold the unpaid
amounts from the cash consideration payable to the holders in the merger.
Oshman's Employee Benefit Plans
The merger agreement provides that, following the effective time of the
merger, Gart will:
. continue each Oshman's benefit plan until at least the earlier of (1) 60
days following the completion of the merger and (2) the date that Gart
makes a corresponding plan available to employees of the surviving
corporation in the merger who were employed by Oshman's or any of its
subsidiaries at the effective time; and
. cause to be provided, to each of the employees who was employed by
Oshman's or any of its subsidiaries at the effective time of the merger
and who continues to be employed by the surviving corporation in the
merger or any affiliate of the surviving corporation on the 60th day
following the completion of the merger ("Qualified Employee"), benefits
that are no less favorable to the Qualified Employee than the benefits
provided the Qualified Employee by Oshman's and its subsidiaries
immediately prior to the effective time, unless any of the benefits
provided to comparable employees by Gart would be significantly more
favorable to the Qualified Employee in which event these more favorable
benefits will be provided to the Qualified Employee as soon as
reasonably practicable.
Gart and its subsidiaries will credit Qualified Employees with any amounts
paid for the calendar year under Oshman's medical and dental plans prior to the
transition to a new medical or dental program toward satisfaction of the
applicable deductible amounts and copayment and deductible maximums under any
new medical or dental program. With respect to each Qualified Employee, Gart
and its subsidiaries will treat service considered by Oshman's or its
subsidiaries as service with Oshman's or its subsidiaries as service with Gart
or its subsidiaries for purposes of employee benefits and fringe benefits,
including vacation benefits, waiting periods, vesting requirements and pre-
existing conditions limitations.
Gart's agreements regarding employee benefit plans expire one year after the
closing of the merger. The merger agreement allows Gart to request that
Oshman's terminate the Oshman's 401(k) savings plan, effective as of the day
prior to the date of the completion of the merger.
Conditions to the Completion of the Merger
The obligations of Gart and Oshman's to complete the merger and the related
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before the
completion of the merger:
. no law, regulation or order will have been enacted or issued that has
the effect of prohibiting the completion of the transactions
contemplated by the merger agreement;
. all applicable waiting periods under applicable antitrust laws must have
expired or terminated;
. no proceedings by any governmental entity will be pending that seek to
restrain or prohibit the transactions contemplated by the merger
agreement;
. the merger agreement must be adopted and the merger must be approved by
the requisite vote of the holders of Oshman's common stock;
. the issuance of Gart common stock in connection with the merger must be
approved by the requisite vote of the holders of Gart common stock;
. the registration statement, of which this joint proxy statement-
prospectus is a part, must be effective, no stop order suspending its
effectiveness will be in effect and no proceedings for suspension of its
effectiveness will have been initiated by the Securities and Exchange
Commission;
59
. all regulatory approvals necessary to complete the merger and the
transactions related to the merger must have been obtained unless the
failure to obtain the approval would not have a material adverse effect
on Gart or Oshman's;
. Gart and Oshman's must obtain all permits and approvals legally required
for completion of the transactions contemplated by the merger agreement;
and
. the closing sales price of a share of Gart common stock on the closing
date must be at least $7.00.
Oshman's obligations to complete the merger and the related transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before the completion of the
merger:
. the representations and warranties of Gart and GSC Acquisition contained
in the merger agreement must be true and correct as of the date of the
merger agreement and at the effective time of the merger, except:
-- to the extent the representations and warranties of Gart and GSC
Acquisition address matters as of a particular date, they must be
true and correct as of that date; and
-- if any of the representations and warranties of Gart and GSC
Acquisition are not true and correct (it being understood that for
purposes of determining if a particular representation or warranty
is true and correct, such representation or warranty will be read as
if it were not qualified by any materiality qualifier) but the
failure of the representations and warranties to be true and correct
does not have a material adverse effect on Gart and its subsidiaries
taken as a whole, then the condition will be deemed satisfied;
. Gart and GSC Acquisition must have performed or complied in all material
respects with all of the covenants contained in the merger agreement or
in any agreement, certificate or instrument to be executed by Gart or
GSC Acquisition, as applicable, pursuant to the merger agreement, either
at or prior to the completion of the merger;
. events or circumstances will not have occurred after the date of the
merger agreement that, individually or in the aggregate, have had or are
reasonably expected to have a material adverse effect on Gart;
. Oshman's must have received from its accounting firm an opinion to the
effect that the merger will constitute a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code;
. Oshman's must have received from Gart's accounting firm customary
comfort letters dated (1) the date of the effectiveness of the
registration statement, of which this joint proxy statement-prospectus
is a part, and (2) shortly prior to the completion of the merger; and
. Gart must have received all consents from third parties, and must have
delivered in a timely manner all notices to third parties, that, if not
so received or delivered, as applicable, prior to the completion of the
merger, would be reasonably likely, individually or in the aggregate, to
have a material adverse effect on Gart or the surviving corporation in
the merger.
The obligations of Gart and GSC Acquisition to complete the merger and the
related transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
the completion of the merger:
. the representations and warranties of Oshman's contained in the merger
agreement must be true and correct as of the date of the merger
agreement and at the effective time of the merger, except:
-- to the extent the representations and warranties of Oshman's address
matters as of a particular date, they must be true and correct as of
that date; and
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-- if any of the representations and warranties of Oshman's are not
true and correct (it being understood that for purposes of
determining if a particular representation or warranty is true and
correct, such representation or warranty will be read as if it were
not qualified by any materiality qualifier) but the failure of the
representations and warranties to be true and correct does not have
a material adverse effect on Oshman's and its subsidiaries taken as
a whole, then the condition will be deemed satisfied;
. Oshman's must have performed or complied in all material respects with
all of the covenants contained in the merger agreement or in any
agreement, certificate or instrument to be executed by Oshman's pursuant
to the merger agreement either at or prior to the completion of the
merger;
. events or circumstances will not have occurred after the date of the
merger agreement that, individually or in the aggregate, have had or are
reasonably expected to have a material adverse effect on Oshman's;
. Gart must have received from its accounting firm an opinion to the
effect that the merger will constitute a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code;
. Gart must have received from Oshman's accounting firm customary comfort
letters dated (1) the date of the effectiveness of the registration
statement, of which this joint proxy statement-prospectus is a part, and
(2) shortly prior to the completion of the merger;
. the financing for the transactions contemplated by the merger agreement
must have been completed;
. Oshman's must have received all consents from third parties, and must
have delivered in a timely manner all notices to third parties, that, if
not so received or delivered, as applicable, prior to the completion of
the merger, would be reasonably likely, individually or in the
aggregate, to have a material adverse effect on Oshman's;
. the aggregate number of shares of Oshman's common stock with respect to
which Oshman's stockholders have effectively exercised their rights as
dissenting stockholders in accordance with the Delaware General
Corporation Law must not equal 6% or more of the outstanding shares of
Oshman's common stock as of the record date of the special meeting of
Oshman's stockholders or as of the effective time of the merger; and
. Oshman's must have obtained the cancellation of options to purchase
Oshman's common stock in accordance with the merger agreement and must
have received any necessary agreements, approvals or consents from the
holders of the options.
Termination of the Merger Agreement
The merger agreement may be terminated and the transactions contemplated by
the merger agreement may be abandoned at any time prior to the effective time
of the merger, whether before or after stockholder approval, as follows:
. Gart, GSC Acquisition and the Company mutually consent in writing to
terminate the merger agreement;
. By Gart, if any of the conditions set forth in Section 8.1 or 8.3 of the
merger agreement become incapable of fulfillment or if the board of
directors of Oshman's, or any committee of the board of directors, fails
to recommend, withdraws or modifies its recommendation of the merger
agreement or approves a Superior Proposal, as discussed above under "No
Solicitation by Oshman's," whether or not in compliance with Section 7.4
of the merger agreement;
. by Oshman's, if any of the conditions set forth in Section 8.1 or 8.2 of
the merger agreement become incapable of fulfillment or if the board of
directors of Oshman's withdraws its recommendation of the merger
agreement or approves a Superior Proposal, as discussed above under "No
Solicitation by Oshman's," in accordance with Section 7.4 of the merger
agreement;
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. by Oshman's, if Gart has been notified in writing by The CIT
Group/Business Credit, Inc. of its withdrawal of its commitment letter
relating to the financing of the transactions contemplated by the merger
agreement, or of its inability or unwillingness to provide the financing
contemplated by the commitment letter, and within 60 days following the
date of the notification Gart does not either (1) cause the commitment
letter to be reinstated or (2) secure a new financing letter with an
alternative financial institution on terms and conditions at least as
favorable to Gart and Oshman's as those contained in the commitment
letter;
. by Gart or Oshman's, if the transactions contemplated by the merger
agreement are not completed on or before August 21, 2001, but only if
the failure to complete the transactions did not result from the breach
of any representation, warranty or agreement in the merger agreement by
the party seeking termination (or any of its subsidiaries);
. by Gart or Oshman's, if the other party is in material breach of any of
its covenants contained in the merger agreement and the breach either is
incapable of cure or is not cured within 20 business days after notice
from the party wishing to terminate, but only if the party seeking
termination (or any of its subsidiaries) is not also in material breach
of the merger agreement;
. by Gart or Oshman's, if the other party is in breach of any of its
representations or warranties contained in the merger agreement, which
breach, individually or together with all other breaches, is reasonably
expected to have a material adverse effect on the breaching party and
either is incapable of cure or is not cured within 20 business days
after notice from the party wishing to terminate, but only if the party
seeking termination (or any of its subsidiaries) is not also in material
breach of the merger agreement;
. by Gart, if Oshman's is in material breach of the provisions of Section
7.4 of the merger agreement relating to non-solicitation, which breach
would entitle Gart to an immediate right to termination without any
notice or cure requirement; or
. by Gart or Oshman's, if any governmental entity issues a non-appealable
final order or takes any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement, subject to certain conditions.
Oshman's will be required to pay to Gart a termination fee in the amount of
$3 million if:
. Oshman's terminates the merger agreement based on (1) the failure of the
Oshman's stockholders to have adopted the merger agreement and approved
the transactions contemplated by the merger agreement, (2) the approval
by the Oshman's board of directors of a Superior Proposal in accordance
with the terms of Section 7.4 of the merger agreement or (3) the
withdrawal by the Oshman's board of directors of its recommendation of
the transactions contemplated by the merger agreement in accordance with
the terms of Section 7.4 of the merger agreement;
. Gart terminates the merger agreement based on (1) the failure of the
Oshman's stockholders to have adopted the merger agreement and approved
the merger or (2) the failure to recommend the merger agreement by the
Oshman's board of directors, or its withdrawal or modification of its
recommendation of the merger agreement and the transactions contemplated
by the merger agreement, or its approval of a Superior Proposal, whether
or not in compliance with the terms of Section 7.4 of the merger
agreement; or
. Gart terminates the merger agreement based on a material breach by
Oshman's of any of its covenants or representations or warranties
contained in the merger agreement, subject to the condition that
Oshman's enters into an agreement to complete an Acquisition Transaction
with any party (other than Gart or any of its affiliates) within twelve
months of the effective date of the termination and completes the
Acquisition Transaction thereafter.
In the event that Oshman's is required to pay Gart the termination fee,
Oshman's also will be required to pay to Gart all fees and expenses (up to $1.5
million) incurred by Gart, GSC Acquisition and their affiliates in connection
with the transactions contemplated by the merger agreement.
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Gart will be required to pay to Oshman's all fees and expenses (up to $1.5
million) incurred by Oshman's and its affiliates in connection with the
transactions contemplated by the merger agreement if:
. either (1) Gart terminates the merger agreement based on the failure of
the financing for the transactions contemplated by the merger agreement
to have been completed or (2) Oshman's terminates the merger agreement
based on Gart having been notified in writing by The CIT Group/Business
Credit, Inc. of its withdrawal of its commitment letter relating to the
financing of the transactions contemplated by the merger agreement or of
its inability or unwillingness to provide the financing contemplated by
the commitment letter, and in the case of either clause (1) or (2) the
failure or notification, as applicable, is due to events or
circumstances that have had a material adverse effect on Gart or is due
to a material adverse effect that was caused by Gart; or
. Oshman's terminates the merger agreement based on a material breach by
Gart of any of its covenants or representations or warranties contained
in the merger agreement.
Extension, Waiver and Amendment of the Merger Agreement.
Gart, GSC Acquisition and Oshman's may amend the merger agreement prior to
the effective time of the merger by mutual written consent, unless the
amendment requires the approval of the stockholders of Gart, GSC Acquisition or
Oshman's, in which case the applicable stockholder approval must be obtained
prior to amending the merger agreement.
Gart and GSC Acquisition, on the one hand, and Oshman's, on the other, may
extend the time for the performance of any of the other party's obligations or
other acts under the merger agreement, waive any inaccuracies in the other
party's representations and warranties, and waive compliance by the other party
with any of the agreements or conditions contained in the merger agreement that
legally may be waived.
Voting Agreements
Stockholders of Oshman's
In connection with the merger agreement, Gart and GSC Acquisition have
entered into voting agreements with each of the following stockholders of
Oshman's, which have agreed to vote shares (including, in certain cases, shares
held by affiliated family trusts) totaling approximately 50% of the outstanding
shares of Oshman's common stock: Marilyn Oshman, Alvin N. Lubetkin, Judy
Margolis, Karen Desenberg, Jay Douglas Desenberg, Edward C. Stanton III and
Barry M. Lewis. Pursuant to the voting agreements, each of these stockholders
has agreed, among other things:
. to vote in favor of the adoption of the merger agreement and the
approval of the merger;
. to vote against any competing acquisition transaction or other proposal
inconsistent with the merger agreement or that might delay or adversely
affect the likelihood of the completion of the merger;
. to vote against any change in a majority of the persons who constitute
Oshman's board of directors inconsistent with the merger agreement or
the merger;
. to vote against any change in Oshman's capitalization or any amendment
of Oshman's certificate of incorporation or bylaws inconsistent with the
merger agreement or the merger;
. to vote in favor of any other matter necessary for the completion of the
merger;
. not to sell, transfer, pledge, assign or otherwise dispose of any shares
of Oshman's capital stock, other than a transfer pursuant to a bona fide
charitable gift or by will or applicable laws of descent and
distribution or for estate planning purposes if the transferee agrees in
writing to be bound by the provisions of the voting agreement;
. not to restrict or take any action adversely affecting the stockholder's
ability to exercise the stockholder's voting rights with respect to
shares of Oshman's capital stock held by the stockholder;
. to refrain from directly or indirectly soliciting, initiating or
otherwise facilitating any inquiries, proposals or offers with respect
to the acquisition of Oshman's; and
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. not to take any action or fail to take any action that would make any
representation, warranty, covenant or other undertaking of the
stockholder in the voting agreement untrue or incorrect, or prevent or
materially delay the completion of the transactions contemplated by the
voting agreement.
These voting agreements will terminate at the earlier of the effective time
of the merger and the date on which the merger agreement is terminated in
accordance with its terms. For a more complete description of these voting
agreements, you should refer to the forms of voting agreements attached as
Annex B to this joint proxy statement-prospectus.
Stockholder of Gart
In connection with the merger agreement, Oshman's has entered into a voting
agreement with Green Equity Investors, L.P., which owns approximately 64% of
the outstanding shares of Gart common stock. Pursuant to the voting agreement,
Green Equity Investors has agreed, among other things:
. to vote in favor of the approval of the issuance of Gart common stock
contemplated by the merger agreement;
. to vote against any proposal inconsistent with the merger agreement or
that might delay or adversely affect the likelihood of the completion of
the merger;
. to vote against any change in a majority of the persons who constitute
Gart's board of directors inconsistent with the merger agreement or the
merger;
. to vote against any change in Gart's capitalization or any amendment of
Gart's certificate of incorporation or bylaws inconsistent with the
merger agreement or the merger;
. to vote in favor of any other matter necessary for the completion of the
merger;
. to vote in favor of the election of certain directors that are
designated by Oshman's to serve on Gart's board of directors following
the merger in accordance with the merger agreement;
. not to sell, transfer, pledge, assign or otherwise dispose of any shares
of Gart capital stock;
. not to restrict or take any action adversely affecting its ability to
exercise its voting rights with respect to its shares of Gart capital
stock; and
. not to take any action or fail to take any action that would make any of
its representations, warranties, covenants or other undertakings
contained in the voting agreement untrue or incorrect, or prevent or
materially delay the completion of the transactions contemplated by the
voting agreement.
This voting agreement will terminate at the earlier of the effective time of
the merger and the date on which the merger agreement is terminated in
accordance with its terms. For a more complete description of this voting
agreement, you should refer to the forms of voting agreement attached as Annex
B to this joint proxy statement-prospectus.
Indemnification Agreements
In connection with the merger agreement, Gart has entered into
indemnification agreements with certain stockholders of Oshman's. Pursuant to
the indemnification agreements, Gart has agreed to indemnify these stockholders
and their heirs, representatives, successors and assigns against any claims,
actions or proceedings giving rise to any losses, damages, judgments,
settlements, costs and expenses that are incurred by the indemnified party by
reason of the indemnification agreement, the voting agreement or any acts or
omissions by the indemnified party relating to the subject matter of the
indemnification agreement, the voting agreement or the merger agreement.
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Registration Rights Agreement
Under the merger agreement, Gart has agreed to enter into a registration
rights agreement with certain stockholders of Oshman's. The registration rights
agreement will provide that, among other things, these stockholders will have
the right to make:
. up to three demands that the Company register under the Securities Act
their shares of Gart common stock received in the merger; and
. a "piggyback" request to the Company that their shares of Gart common
stock received in the merger be included in any registration statement
relating to an offering of Gart's equity securities for Gart's own
account or for the account of others under the Securities Act.
These rights will be subject to certain conditions and limitations that are
set forth in the registration rights agreement. In addition, these rights will
terminate no later than five years from the date of the registration rights
agreement (subject to extension in certain situations). For a more complete
description of the registration rights agreement, you should refer to the
registration rights agreement attached as Annex C to this joint proxy
statement-prospectus.
Operations After the Merger
Following the merger, Oshman's will merge with and into GSC Acquisition. GSC
Acquisition will continue Oshman's operations as a wholly owned subsidiary of
Gart, and the name of GSC Acquisition will be changed to Oshman's Sporting
Goods, Inc. The board of directors of Gart will consist of the directors
elected at the annual meeting. In addition, following the annual meeting, two
directors designated by the board of directors of Oshman's, Marilyn Oshman, the
chairman of the board of Oshman's and Alvin Lubetkin, the vice chairman, chief
executive officer and president of Oshman's, will be appointed or elected to
Gart's board of directors in accordance with the merger agreement. Following
the merger, the current executive officers of Gart will continue to serve as
its executive officers.
The stockholders of Oshman's will become stockholders of Gart, and their
rights as stockholders of Gart will be governed by Gart's amended and restated
certificate of incorporation, Gart's amended and restated bylaws, and the laws
of the State of Delaware. See "Comparison of Rights of Holders of Gart Common
Stock and Oshman's Common Stock."
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DESCRIPTION OF GART CAPITAL STOCK
General
Gart's amended and restated certificate of incorporation authorizes the
issuance of up to 22,000,000 shares of common stock, $.01 par value per share,
and 3,000,000 shares of preferred stock, $.01 par value per share, the rights
and preferences of which may be established by Gart's board of directors. As of
March 30, 2001, 7,366,150 shares of Gart common stock were issued and
outstanding and held by 209 stockholders of record and no shares of preferred
stock were issued and outstanding.
Common Stock
The holders of Gart common stock are entitled to one vote for each share of
Gart common stock and are entitled to vote for the election of directors and on
all other matters requiring stockholder action. Subject to the rights of the
preferred stock, Gart's board of directors may declare dividends on Gart common
stock out of any assets or funds legally available for dividend payments. If
Gart liquidates, dissolves or winds up, the holders of Gart common stock will
be entitled to share ratably, in accordance with their rights and interests, in
the net assets of Gart. Holders of Gart common stock have no preemptive rights
or rights to convert their shares of Gart common stock into any other
securities. There are no redemption or sinking fund provisions applicable to
Gart common stock. All outstanding shares of Gart common stock are fully paid
and nonassessable.
For a summary of the provisions contained in Gart's amended and restated
certificate of incorporation that would have an effect of delaying, deferring
or preventing a change in control of Gart and that would operate only with
respect to extraordinary corporate transactions, such as a merger,
reorganization, tender offer, or sale or transfer of substantially all of
Gart's assets or liquidation, see "Comparison of Rights of Holders of Gart
Common Stock and Oshman's Common Stock--Provisions Relating to Acquisitions and
Business Combinations."
Preferred Stock
Gart's board of directors is authorized to issue, in one or more series, up
to an aggregate of 3,000,000 shares of preferred stock. The number of
authorized shares of preferred stock may be increased or decreased by the
affirmative vote of a majority of the holders of the capital stock of Gart
entitled to vote, without a separate vote of the preferred stock as a class.
Subject to any limitations prescribed by law, Gart's board of directors is
authorized to fix the designation of each series of preferred stock and the
powers, preferences, and rights of the series, including, but not limited to,
voting rights, dividend rights, conversion rights, redemption privileges,
liquidation preferences and sinking fund provisions, as well as to fix the
limitations or restrictions of the series.
The rights of Gart common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. Issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of Gart's
outstanding voting stock. Gart has no present plans to issue any shares of
preferred stock.
COMPARISON OF RIGHTS OF HOLDERS OF GART COMMON STOCK AND OSHMAN'S COMMON STOCK
The rights of Gart stockholders currently are governed by Gart's amended and
restated certificate of incorporation and Gart's amended and restated bylaws.
The rights of Oshman's stockholders currently are governed by Oshman's
certificate of incorporation, as amended, and Oshman's bylaws. Upon the
completion of the merger, the rights of Oshman's stockholders who become
stockholders of Gart in the merger will be governed by Gart's amended and
restated certificate of incorporation and Gart's amended and restated bylaws.
Gart and Oshman's are each incorporated under the laws of the State of
Delaware. Accordingly, the Delaware General Corporation Law will continue to
govern the rights of Oshman's stockholders after the completion of the merger.
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The following description summarizes the material differences between the
rights of holders of Gart common stock and the rights of holders of Oshman's
common stock. The description, however, is not a complete statement of all
those differences, nor is it a complete description of the specific provisions
referred to in this summary. The identification of specific differences is not
intended to indicate that other equally or more significant differences do not
exist. Stockholders should read carefully the relevant provisions of the
Delaware General Corporation Law, Gart's amended and restated certificate of
incorporation, Gart's amended and restated bylaws, Oshman's certificate of
incorporation, as amended, and Oshman's bylaws.
Classes of Common Stock
Gart and Oshman's each have one class of common stock issued and
outstanding.
Voting
Holders of Gart common stock and holders of Oshman's common stock are each
entitled to one vote for each share held.
Board of Directors
Gart's board of directors currently consists of six directors. The number of
directors may be changed exclusively by resolutions adopted by Gart's board of
directors, except as otherwise fixed in accordance with the rights of holders
of preferred stock to elect additional directors under specified circumstances.
However, no decrease in the number of directors may shorten the term of an
incumbent director.
Oshman's board of directors currently consists of seven directors. The
number of directors may be changed by resolution of Oshman's board of directors
or by the stockholders at Oshman's annual meeting.
Removal of Directors
Any of Gart's directors or the entire Gart board of directors, other than
directors who may be elected by the holders of any class or series of preferred
stock, may be removed from office by the affirmative vote of the holders of at
least a majority of the then outstanding shares of capital stock of Gart
entitled to vote in the election of directors.
Any of Oshman's directors may be removed with or without cause at any time
by the affirmative vote of the holders of a majority of all the shares of
Oshman's capital stock outstanding and entitled to vote.
Filling Vacancies on The Board of Directors
Any newly created directorships in Gart's board of directors resulting from
any increase in the number of authorized directors or vacancies may be filled
by the affirmative vote of a majority of the remaining directors, even though
less than a quorum, or by a sole remaining director, except as otherwise fixed
in accordance with the rights of holders of preferred stock to elect additional
directors under specified circumstances.
Any newly created directorships in Oshman's board of directors resulting
from any increase in the number of authorized directors or vacancies may be
filled by a majority of the remaining members of the board of directors, even
though less than a quorum, or by a sole remaining director. If the remaining
members of Oshman's board of directors who fill such vacancy are less than a
majority of the board (as constituted immediately prior to such increase), any
Oshman's stockholder holding at least ten percent of the outstanding shares of
Oshman's capital stock entitled to vote for such directors may request that the
Delaware Court of Chancery order an election to fill any such vacancies or
newly created directorships or to replace the directors chosen by the remaining
board members to fill such vacancies or newly created directorships.
Stockholder Action by Written Consent Permitted
Gart stockholders and Oshman's stockholders may take action at annual or
special meetings of stockholders or by written consent.
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Ability to Call Special Meetings
Special meetings of Gart stockholders may be called by: (1) Gart's chairman
of the board; (2) Gart's president; (3) a majority of Gart's board of
directors; or (4) the holders of at least a majority of the outstanding shares
of capital stock of Gart entitled to vote generally on the election of
directors.
Special meetings of Oshman's stockholders may be called by: (1) Oshman's
vice chairman of the board; (2) Oshman's chief executive officer; (3) Oshman's
president; (4) a majority of Oshman's board of directors; or (5) the holders
owning a majority of the outstanding shares of capital stock of Oshman's
entitled to vote.
Advance Notice Provisions for Stockholder Nominations and Proposals
Gart's amended and restated bylaws allow Gart stockholders who are entitled
to vote for the election of directors at a meeting of Gart stockholders to
nominate candidates for election to Gart's board of directors at such meeting.
In addition, Gart's amended and restated bylaws allow Gart stockholders who are
stockholders of record at the time at which notice of a stockholder meeting is
given and who are entitled to vote at the meeting to propose business to be
brought before the meeting. However, nominations and proposals only may be made
by a Gart stockholder who has complied with the applicable notice provisions.
Stockholder Nominations
Under Gart's amended and restated bylaws, to be timely, notices of
nominations for directors to be made at a meeting of Gart stockholders by a
Gart stockholder must be delivered to, or mailed and received at, Gart's
principal executive offices no less than 30 days or more than 75 days prior to
the meeting. However, if less than 40 days' notice or prior public disclosure
of the date of the meeting was given or made to Gart stockholders, the notice
by the Gart stockholder of the nomination must be received no later than 10
days following the day on which the notice of the date of the stockholder
meeting was mailed or public disclosure was made (whichever occurs first).
A notice to Gart by a Gart stockholder for the nomination of a director must
include:
. as to each person the Gart stockholder wishes to nominate for election
or reelection as director
-- the person's name, age, business address and residence address;
-- the person's principal occupation or employment;
-- the class and number of shares of Gart capital stock that are
beneficially owned by the person; and
-- any other information relating to the person that is required to be
disclosed in solicitations for proxies for the election of directors
under the Exchange Act;
. as to the Gart stockholder giving the notice
-- the name and record address of the Gart stockholder; and
-- the class and number of shares of Gart capital stock beneficially
owned by the stockholder.
Stockholder Proposals
Under Gart's amended and restated bylaws, to be timely, notices of proposals
to be made at a meeting of Gart stockholders by a Gart stockholder must be
delivered to, or mailed and received at, Gart's principal executive offices no
less than 50 days or more than 75 days prior to the meeting. However, if less
than 60 days' notice or prior public disclosure of the date of the meeting was
given or made to Gart stockholders, the notice of the Gart stockholder's
proposal must be received no later than 10 days following the day on which the
notice of the date of the stockholder meeting was mailed or public disclosure
was made (whichever occurs first).
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A notice to Gart by a Gart stockholder of a proposal to be brought before a
meeting of Gart stockholders must set forth, as to each matter that the Gart
stockholder proposes to bring before the meeting, the following:
. a brief description of the proposal that the Gart stockholder desires to
bring before the meeting, the reasons for bringing such proposal before
the meeting, and, if such proposal includes a proposal to amend any
document, the stockholder must include the language of the proposed
amendment;
. the name and address of the Gart stockholder making such proposal, as
they appear on Gart's corporate books;
. the class and number of shares of Gart's capital stock that are
beneficially owned by the stockholder; and
. any material interest that the Gart stockholder has in the proposal.
Gart stockholders also must comply with all of the applicable requirements
of the Exchange Act and the rules and regulations promulgated thereunder in
bringing stockholder proposals before a meeting of Gart stockholders.
No nomination or proposal by a Gart stockholder will be brought before any
meeting of Gart stockholders unless the nomination or proposal was brought
before the meeting in accordance with the applicable requirements of the
Exchange Act and the applicable provisions of Gart's amended and restated
bylaws.
Neither Oshman's certificate of incorporation nor its bylaws contain any
provisions with respect to stockholder nominations or stockholder proposals.
Preferred Stock
Both Gart's amended and restated certificate of incorporation and Oshman's
certificate of incorporation provide that the applicable company's board of
directors is authorized to provide for the issuance of shares of preferred
stock in one or more series, and to fix the designations, powers, preferences
and rights of the shares of each series and any qualifications, limitations or
restrictions of the series.
Amendment of Certificate of Incorporation
Under Delaware law, the certificate of incorporation of a Delaware
corporation may be amended by approval of the board of directors of the
corporation and the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote for the amendment, unless a higher vote is
required by the corporation's certificate of incorporation.
Gart's amended and restated certificate of incorporation contains the
following additional requirements for amendment of Gart's amended and restated
certificate of incorporation:
. an amendment to any provision of Article V (Board of Directors; Bylaw
Amendments) requires the vote of the holders of at least a majority of
the voting power of all of the then outstanding shares of Gart voting
stock, voting together as a single class; and
. an amendment to any provision of Article VI (Business Combinations)
requires the vote of at least 66 2/3% of the voting power of all of the
then outstanding shares of Gart voting stock, voting together as a
single class.
Oshman's certificate of incorporation does not contain any provisions
requiring a vote greater than that required by Delaware law to amend any
provision of Oshman's certificate of incorporation.
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Amendment of Bylaws
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its certificate of
incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal bylaws, even though the board
also may be delegated such power.
Gart's board of directors expressly is authorized to amend, supplement or
repeal Gart's amended and restated bylaws or to adopt new bylaws, except for
Section 7 of Article II (Meetings of Stockholders; Notice of Business) and
Section 3 of Article III (Directors; Election of Directors), which may not be
altered, amended or repealed without the affirmative vote of the holders of at
least a majority of the voting power of all of the then outstanding shares of
Gart voting stock, voting together as a class. Gart's stockholders also may
amend or repeal Gart's amended and restated bylaws or adopt new bylaws in
accordance with Delaware law.
Oshman's board of directors and stockholders expressly are authorized to
alter, amend or repeal Oshman's bylaws, or to adopt new bylaws.
Provisions Relating to Acquisitions and Business Combinations
Delaware "Business Combination" Statute
Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in any "business combination" with any person who
owns 15% or more of a corporation's voting stock, such as an interested
stockholder, for a period of three years following the time that person became
an interested stockholder, unless:
. the corporation's board of directors has approved, before the time at
which that person became an interested stockholder, either the business
combination or the transaction that resulted in the person becoming an
interested stockholder;
. upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owned at least 85% of
the corporation's voting stock outstanding at that time, excluding
shares owned by persons who are both directors and officers and shares
owned by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
. at or after the time at which that person became an interested
stockholder, the business combination is approved by the corporation's
board of directors and is authorized by the affirmative vote, at an
annual or special meeting and not by written consent, of at least 66
2/3% of the corporation's outstanding voting stock not owned by the
interested stockholder.
For purposes of determining whether a person is the "owner" of 15% or more
of a corporation's voting stock for purposes of Section 203 of the Delaware
General Corporation Law, ownership generally is defined to include the right,
directly or indirectly, to acquire the stock or to control the voting or
disposition of the stock.
A "business combination" generally is defined to include:
. mergers and sales or other dispositions of 10% or more of the assets of
a corporation with or to an interested stockholder;
. specific transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or any of its
subsidiaries;
. specific transactions that would result in an increase in the
proportionate share of the stock of a corporation or any of its
subsidiaries that is owned by the interested stockholder; and
. any receipt by the interested stockholder of the benefit, directly or
indirectly, except proportionately as a stockholder, of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any of its subsidiaries.
70
A Delaware corporation may elect not to be governed by Section 203 pursuant
to a provision contained in (1) its original certificate of incorporation, (2)
its bylaws or (3) an amendment to its original certificate of incorporation,
which amendment must be approved by a majority of the shares entitled to vote
and may not be further amended by the corporation's board of directors. The
respective certificates of incorporation and bylaws of Gart and Oshman's do not
exclude the companies from the restrictions imposed under Section 203.
"Business Combination" Provision in Gart's Amended & Restated Certificate of
Incorporation
Gart's amended and restated certificate of incorporation requires that, in
addition to any vote required by law, the required vote for the approval of
certain transactions between Gart and an "interested stockholder" or an
affiliate of an interested stockholder, must be 66 2/3% of the voting power of
the then outstanding voting stock not owned by the interested stockholder or an
affiliate of the interested stockholder. For purposes of Gart's amended and
restated certificate of incorporation, an "interested stockholder" is any
person or entity that:
. is the beneficial owner of, directly or indirectly, 10% or more of the
voting power of Gart's outstanding voting stock;
. is an affiliate of Gart and, at any time within the two-year period
immediately preceding the transaction, was the beneficial owner of 10%
or more of the voting power of Gart's then outstanding voting stock; or
. is an assignee of, or has otherwise succeeded to, any shares of Gart's
voting stock that were at any time within the two-year period
immediately preceding the transaction, beneficially owned by any
interested stockholder, unless the assignment or succession occurred in
a transaction or series of transactions involving a public offering.
A person or entity generally has "beneficial ownership" of any shares of
Gart's voting stock: (1) if it or any of its affiliates directly or indirectly
owns the stock; (2) if it or any of its affiliates has the right to acquire or
vote the stock pursuant to any agreement, arrangement, or understanding, or
upon the exercise of conversion or exchange rights, warrants or options; or (3)
that are beneficially owned, directly or indirectly, by any other person or
entity with which such person or entity or any of its affiliates has an
agreement for acquiring, holding, voting, or disposing of any shares of stock.
The following transactions require the special 66 2/3% vote described above:
. a merger or consolidation of Gart or any of its subsidiaries with any
interested stockholder or with any other corporation which immediately
prior to the merger or consolidation is an affiliate of the interested
stockholder;
. the sale, lease, transfer or other disposition of more than 20% of the
assets of Gart or any of its subsidiaries to an interested stockholder
or an affiliate of an interested stockholder;
. the issuance or transfer of any of the securities of Gart or any of its
subsidiaries to an interested stockholder or an affiliate of an
interested stockholder in exchange for cash or other property that has a
fair market value equal to or greater than 20% of Gart's assets, unless
the issuance or transfer of the securities is made ratably to all
stockholders of Gart;
. the adoption of a plan of liquidation or dissolution of Gart proposed by
or on behalf of an interested stockholder or an affiliate of an
interested stockholder; or
. any reclassification of securities, reorganization, merger or
consolidation of Gart or any other transaction that directly or
indirectly results in an increase of the proportionate share of the
outstanding stock of Gart or any of its subsidiaries held by an
interested stockholder or an affiliate of an interested stockholder.
71
Gart's amended and restated certificate of incorporation provides that the
transactions described above will not be subject to the special 66 2/3% vote
described above if: (1) the transaction is approved by majority of Gart's
disinterested directors and (2) the transaction meets the price and procedure
requirements described in the amended and restated certificate of
incorporation. A "disinterested director" is a director of Gart who either (1)
is not an affiliate of the interested stockholder and was a director of Gart
before the transaction was proposed or (2) succeeded a disinterested director
and is not an affiliate of the interested stockholder and was recommended to
succeed the interested director by a majority of the disinterested directors on
Gart's board of directors.
Oshman's certificate of incorporation does not contain a "business
combination" provision.
Limitation of Liability of Directors
The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. However, no provision can
eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
. for violations of Section 174 of the Delaware General Corporation Law
regarding unlawful payment of dividends or unlawful stock purchases or
redemptions;
. for any transaction from which the director derived an improper personal
benefit; or
. for any act or omission before the adoption of a provision eliminating
or limiting the liability of a director for breach of fiduciary duty in
the corporation's certificate of incorporation.
Gart's amended and restated certificate of incorporation and Oshman's
certificate of incorporation include the above provision.
Indemnification of Directors and Officers
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action that they had no
reasonable cause to believe was unlawful.
Gart's amended and restated certificate of incorporation and amended and
restated bylaws and Oshman's bylaws provide that any person who was or is a
party or is threatened to be a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative, because
that person is or was a director, officer, employee or agent of Gart or
Oshman's, or is or was serving at the request of either of Gart or Oshman's, as
applicable, as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, will be indemnified
against expenses, including attorney's fees, judgments, fines and amounts paid
in settlement and will be held harmless by each of Gart or Oshman's, as
applicable, to the fullest extent permitted by the Delaware General Corporation
Law.
72
The indemnification rights conferred by Gart and Oshman's are not exclusive
of any other right to which persons seeking indemnification may be entitled
under any statute, Gart's amended and restated certificate of incorporation or
Oshman's certificate of incorporation, as applicable, Gart's amended and
restated bylaws or Oshman's bylaws, as applicable, any agreement, any vote of
stockholders or disinterested directors, or otherwise.
Gart also is authorized to purchase and maintain insurance on behalf of its
directors and officers.
In addition, each of Gart and Oshman's may pay expenses incurred by its
respective directors or officers in defending a civil or criminal action, suit
or proceeding because that person is a director or officer, in advance of the
final disposition of that action, suit or proceeding. However, such payment
will be made only if Gart or Oshman's, as applicable, receives a written
undertaking by or on behalf of that director or officer to repay all amounts
advanced if it is ultimately determined that he or she is not entitled to be
indemnified by Gart or Oshman's, as applicable, as authorized by Gart's amended
and restated certificate of incorporation and amended and restated bylaws or
Oshman's certificate of incorporation and bylaws, as applicable.
MARKET PRICE AND DIVIDEND INFORMATION
Market Price Information
Gart common stock is traded on the Nasdaq National Market under the symbol
"GRTS." Oshman's common stock is traded on the American Stock Exchange under
the symbol "OSH."
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Gart common stock, as reported on the
Nasdaq National Market, and Oshman's common stock, as reported on the American
Stock Exchange.
Gart Oshman's
Common Stock Common Stock
--------------- -------------
Fiscal Year High Low High Low
----------- ------- ------- ------ ------
1998:
First Quarter............................... $17.250 $12.750 $ 6.75 $ 4.25
Second Quarter.............................. 18.000 12.500 9.38 5.63
Third Quarter............................... 16.375 6.750 8.69 3.88
Fourth Quarter.............................. 10.375 5.625 4.75 2.88
1999:
First Quarter............................... $ 8.125 $ 5.750 $ 3.38 $ 2.25
Second Quarter.............................. 7.750 5.625 3.13 2.50
Third Quarter............................... 7.000 4.500 2.63 1.88
Fourth Quarter.............................. 6.750 4.625 2.19 1.38
2000:
First Quarter............................... $ 6.875 $ 5.000 $ 2.88 $ 1.56
Second Quarter.............................. 9.250 4.750 4.00 2.00
Third Quarter............................... 13.500 8.625 8.00 3.50
Fourth Quarter.............................. 13.438 9.125 10.25 5.50
The following table sets forth the closing sales prices per share of Gart
common stock, as reported on the Nasdaq National Market, and Oshman's common
stock, as reported on the American Stock Exchange, on (1) February 21, 2001,
the business day preceding the public announcement that Gart and Oshman's had
entered into the merger agreement and (2) , 2001, the last full trading
day for which closing sales prices were available at the time of the printing
of this joint proxy statement-prospectus.
73
The table also includes the equivalent price per share of Oshman's common
stock on those dates. This equivalent per share price reflects the value of the
merger consideration that Oshman's stockholders would receive for each share of
Oshman's common stock if the merger was completed on the specified dates by
multiplying the closing sales price of Gart common stock on those dates by the
exchange ratio of 0.55 and adding $7.00. The mix between cash and Gart common
stock is subject to adjustment if the price of Gart common stock is less than
$9.50 on the closing date of the merger. Please review the description of this
adjustment procedure under "The Merger and Related Transactions--Structure of
the Merger--Adjustment in Mix of Merger Consideration."
Gart Oshman's
Common Stock Common Stock Oshman's
Closing Closing Equivalent Price
Sale Price Sales Price per Share
------------ ------------ ----------------
February 21, 2001.................... $11.00 $9.35 $13.05
, 2001.........................
Because the market price of Gart common stock may increase or decrease
before the completion of the merger, Oshman's stockholders are urged to obtain
current market quotations.
Dividend Information
Neither Gart nor Oshman's has declared or paid cash dividends on its capital
stock in its last five fiscal years. Pursuant to the merger agreement, each of
Gart and Oshman's has agreed not to pay cash dividends pending the completion
of the merger, without the written consent of the other. If the merger is not
completed, each of the Gart board of directors and the Oshman's board of
directors anticipates that it would continue to retain any and all earnings for
use in the operation and expansion of its business and would not pay any cash
dividends.
74
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined condensed balance sheet as of
February 3, 2001 reflects the financial position of Gart as if the acquisition
of Oshman's Sporting Goods, Inc. (the "Acquisition") had occurred on February
3, 2001.
The accompanying unaudited pro forma combined condensed statement of
operations for the 53 weeks ended February 3, 2001 presents the combined
condensed statement of operations of Gart as if the Acquisition had occurred on
January 30, 2000.
The unaudited pro forma combined condensed financial statements reflect the
Acquisition using the purchase method of accounting. The total cost of the
Acquisition has been allocated to the tangible and intangible assets acquired
and liabilities assumed based on their respective fair values. The allocation
of the purchase price assumed in the unaudited pro forma combined condensed
financial statements is preliminary. The actual allocation of the purchase
price and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein. These statements do
not purport to be indicative of the results of operations or financial position
of Gart that would have been achieved had the Acquisition actually occurred as
of the assumed dates and for the periods presented. The unaudited pro forma
combined condensed financial statements are based on the assumptions set forth
in the notes and should be read in conjunction with the separate historical
consolidated financial statements of Gart and Oshman's and related notes
thereto.
75
GART'S UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
Historical
53 Weeks Ended
February 3, 2001
--------------------
Reclass Pro Forma Pro Forma
Gart Oshman's Adjustments Adjustments Combined
--------- --------- ----------- ----------- ----------
Net sales............... $ 751,124 $ 330,470 $ -- $ -- $1,081,594
Cost of goods sold...... 559,778 215,913 25,164 G 1,739 D 802,594
--------- --------- -------- ---------- ----------
Gross profit............ 191,346 114,557 (25,164) (1,739) 279,000
Operating expenses...... 164,830 93,401 (25,164)G (364)E 232,703
--------- --------- -------- ---------- ----------
Operating income........ 26,516 21,156 -- (1,375) 46,297
Interest expense........ (11,071) (1,920) -- (5,333)F (18,324)
Other income............ 246 -- -- -- 246
--------- --------- -------- ---------- ----------
Income from continuing
operations before
income taxes........... 15,691 19,236 -- (6,708) 28,219
Income tax benefit
(expense) 7,405 795 -- 2,616 H 10,816
--------- --------- -------- ---------- ----------
Income from continuing
operations............. $ 23,096 $ 20,031 $ -- $ (4,092) $ 39,035
========= ========= ======== ========== ==========
Earnings per share
Basic earnings per
share................ $ 3.13 $ 3.47 $ 3.67
========= ========= ==========
Diluted earnings per
share................ $ 2.99 $ 3.30 $ 3.55
========= ========= ==========
Weighted average shares
of common stock
outstanding:
Basic................. 7,380,529 5,770,000 (2,511,080)B 10,639,449
========= ========= ========== ==========
Diluted............... 7,729,601 6,063,000 (2,804,080)B 10,988,521
========= ========= ========== ==========
76
GART'S UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
(dollars in thousands)
Historical February 3, 2001
---------------------------
Reclass Pro Forma Pro Forma
GART OSHMAN'S Adjustments Adjustments Combined
------------- -------------------------- ----------- ---------
ASSETS
Cash and equivalents.... $ 8,107 $ 356 $ -- $ -- $ 8,463
Accounts receivable,
net.................... 6,273 1,072 -- -- 7,345
Note receivable......... 181 -- 76 G -- 257
Inventories............. 230,800 81,412 -- -- 312,212
Prepaid expenses and
other assets........... 7,474 3,819 (2,243)G (364)A 8,686
Deferred income taxes... 2,033 -- 2,167 G 4,160 A 8,360
------------- ------------- ------- -------- --------
Total current assets.... 254,868 86,659 -- 3,796 345,323
Property and equipment.. 59,298 32,764 -- (6,059)A 86,003
Favorable leases
acquired, net.......... -- -- -- 20,000 A 20,000
Asset held for sale..... 1,671 -- -- -- 1,671
Deferred income taxes... 13,208 -- -- (5,437)A 7,771
Goodwill................ -- -- -- 26,327 A 26,327
Other assets, net....... 6,083 20 -- 2,250 C 8,353
------------- ------------- ------- -------- --------
Total assets............ $ 335,128 $ 119,443 $ -- $ 40,877 $495,448
============= ============= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable........ $ 105,395 $ 32,277 $ -- $ -- $137,672
Current portion of long
term obligations....... 470 461 -- -- 931
Accrued expenses........ 35,679 20,071 -- 3,569 A 59,319
------------- ------------- ------- -------- --------
Total current
liabilities............ 141,544 52,809 -- 3,569 197,922
Long-term debt.......... 95,900 557 (557)G 59,060 A 154,960
Capital lease
obligations, less
current................ 1,805 -- 557 G -- 2,362
Deferred rent and other
long term liabilities.. 6,993 8,476 -- -- 15,469
------------- ------------- ------- -------- --------
Total liabilities....... 246,242 61,842 -- 62,629 370,713
------------- ------------- ------- -------- --------
Stockholders' equity
Preferred stock........ -- -- -- -- --
Common stock........... 77 5,913 -- (5,880)B 110
Additional paid-in
capital............... 57,014 4,575 -- 31,241 B 92,830
Unamortized restricted
stock compensation.... (2,055) -- -- -- (2,055)
Accumulated other
comprehensive loss.... (226) -- -- -- (226)
Retained earnings...... 36,489 47,349 -- (47,349)B 36,489
Treasury stock......... (2,413) (236) -- 236 B (2,413)
------------- ------------- ------- -------- --------
Total stockholders'
equity................. 88,886 57,601 -- (21,752) 124,735
------------- ------------- ------- -------- --------
Total liabilities and
stockholders' equity... $ 335,128 $ 119,443 $ -- $ 40,877 $495,448
============= ============= ======= ======== ========
77
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands)
(A)
To record the acquisition of Oshman's, the purchase price and purchase price
allocation are summarized as follows:
Common stock (3,258,920 shares at $11.00)......................... $35,849
Cash consideration ($7.00 per share, 5,925,309 shares)............ 41,477
Cash paid for stock option buy out................................ 9,698
Less: stock option proceeds....................................... (2,965)
Direct costs of acquisition....................................... 8,600
-------
Total purchase consideration...................................... $92,659
Allocated to:
Historical book value of Oshman's assets and liabilities as of
February 3, 2001................................................. $57,601
Adjust Oshman's assets and liabilities to fair value and record
liabilities for store closings, severance, and relocation:
Prepaid expenses.................................................. (364)
Favorable leases acquired......................................... 20,000
Property and equipment............................................ (6,059)
Accrued expenses.................................................. (3,569)
-------
Total adjustments................................................. 10,008
Total allocation.................................................. $67,609
Less: Net current deferred income tax assets (calculated at a rate
of 39%).......................................................... (4,160)
Add: Net long term deferred income tax liability (calculated at a
rate of 39%)..................................................... 5,437
-------
Goodwill.......................................................... $26,327
=======
(B)
To reflect the elimination of Oshman's stockholders' equity and to reflect
the Gart common stock issued as partial consideration for the purchase.
(C)
To reflect the capitalization of deferred financing costs for borrowings
under the new line of credit to finance the Acquisition.
(D)
To reflect favorable lease amortization over the remaining terms of the
leases, ranging from 8 to 15 years, totaling $1,739.
(E)
To reflect the increase in goodwill amortization, offset by decreases in
fixed assets depreciation and compensation expense.
Goodwill amortization was calculated on a straight-line basis over 30 years,
totaling $878 per year. The decrease in fixed assets depreciation is due to the
write-off of certain Oshman's fixed assets that will be abandoned by Gart. The
useful lives of these assets range from 3 to 20 years, and therefore the write-
off will result in a decrease in depreciation of $905 per year. The decrease in
compensation expense reflects the impact of the compensation agreements entered
into as a result of the Acquisition, amounting to $575 less compensation paid
to these individuals by Oshman during 2000 totaling $912.
78
(F)
To reflect an increase in interest expense due to an increase in the line of
credit to finance the Acquisition. Interest expense was estimated using 8.5%.
In addition, interest expense was increased due to the amortization of the
deferred financing costs described in Note C.
(G)
To reflect adjustments to Oshman's balances to conform them to Gart's
presentation and adjustments to reclassify certain occupancy, procurement and
warehousing costs from operating expenses to cost of goods sold.
(H)
To record the tax effect on the net pro forma adjustments to a statutory
rate of 39%.
GENERAL:
. Oshman's records its inventory on the first-in first-out (FIFO) method
of accounting for inventory. This methodology is contrary to Gart's
method of recording inventory on the last-in first-out (LIFO) method
of accounting. The cumulative effect of this change is not presented
because it is not determinable.
. Additional adjustments to inventories will be necessary at the
Acquisition effective date to adjust inventories to fair value, based
upon an estimated selling price less selling costs and a normal profit
margin thereon. Due to uncertainty concerning this item, no adjustment
has been presented in the pro forma financial statements.
. The pro forma adjustments also do not include any adjustments related
to the estimated stock- based compensation that may arise as a part of
the Acquisition.
79
ADDITIONAL ANNUAL MEETING MATTERS FOR GART
Election of Directors of Gart
General
At Gart's annual meeting, Gart stockholders will be asked to vote on the
election of six directors who will constitute Gart's full board of directors.
Each director so elected will hold office until Gart's next annual meeting and
until his successor is elected and qualified.
There are no family relationships between any director, nominee or executive
officer of Gart and any other director, nominee or executive officer of Gart.
Except as described in this joint proxy statement-prospectus, there are no
arrangements or understandings between any director, nominee or executive
officer of Gart and any other person pursuant to which he or she has been or
will be selected as a director and/or executive officer of Gart.
Voting
The six persons who receive the highest number of votes at Gart's annual
meeting will be elected to Gart's board of directors. Each nominee has
consented to being named in this joint proxy statement-prospectus and to serve
if elected. Stockholders are not allowed to cumulate their votes in the
election of directors. An abstention will have the same effect as a vote
withheld for the election of directors. A broker non-vote will not be treated
as voting in person or by proxy on the proposal.
Each proxy received will be voted in accordance with the instructions
indicated on the proxy. If no instructions are indicated on the proxy, then the
proxy will be voted "FOR" the election of each of the nominees named below.
Although it is not contemplated that any nominee named below will decline or be
unable to serve as a director, in the event any nominee declines or is unable
to serve as a director, the proxies may be voted with discretionary authority
for any substitute designated by Gart's board of directors.
Nominees
The names of the nominees and related information as of March 30, 2001 are
set forth below.
Gart's board of directors recommends that Gart stockholders vote "FOR" the
election of the nominees listed below.
Name Age Position with Gart Director Since
---- --- ------------------ --------------
John Douglas Morton..... 50 President, Chief Executive Officer, and 1995
Chairman of the Board
Jonathan D. Sokoloff.... 43 Director 1993
Jonathan A. Seiffer..... 29 Director 1998
Gordon D. Barker........ 55 Director 1998
Peter R. Formanek....... 57 Director 1998
[Director to be supplied
by amendment]
John Douglas Morton. Mr. Morton became president, chief executive officer
and chairman of the board in May 1995. Mr. Morton joined Gart in 1986 as
division manager of Gart's Utah region. In 1988, he was promoted to division
vice president of that region, and, in 1990, he was promoted to vice president
of operations. In 1994, Mr. Morton was promoted to executive vice president
with responsibility for stores, distribution and marketing. Before joining
Gart, he served in various positions with Wolfe's Sporting Goods, a seven-store
sporting goods retailer, from 1972 to 1980. Mr. Morton's positions at Wolfe's
Sporting Goods
80
included merchandise manager--ski, camping, golf and tennis, store manager, and
operations manager. From 1980 until joining Gart, he served as a district
manager for Malone and Hyde's sporting goods division, a 40-store retail
sporting goods retailer. Mr. Morton has worked for over 30 years in the
sporting goods retail industry.
Jonathan D. Sokoloff. Mr. Sokoloff became a director of Gart in April 1993.
Since 1990, Mr. Sokoloff has been a partner of Leonard Green & Associates,
L.P., a merchant banking firm and the general partner of Green Equity
Investors, L.P., the holder of approximately 64% of the outstanding shares of
Gart common stock. Mr. Sokoloff was employed at Drexel Burnham Lambert
Incorporated from 1985 to 1990, most recently as a managing director. Mr.
Sokoloff has been an executive officer and equity owner of Leonard Green &
Partners, L.P., a merchant banking firm affiliated with Leonard Green &
Associates, L.P., since its formation in 1994. Mr. Sokoloff also is a director
of Twinlab Corporation, Rite Aid Corporation, Diamond Triumph Auto Glass, Inc.,
Dollar Financial Group, Inc. and several private companies.
Jonathan A. Seiffer. Mr. Seiffer became a director of Gart in December 1998.
Since January 1999, Mr. Seiffer has been a partner of Leonard Green & Partners,
L.P. From December 1997 to January 1999, Mr. Seiffer was a vice president of
Leonard Green & Partners, L.P., and, from October 1994 to December 1997, he was
an associate at Leonard Green & Partners, L.P. Before October 1994, Mr. Seiffer
was a member of the corporate finance department of Donaldson, Lufkin &
Jenrette Securities Corporation. Mr. Seiffer also is a director of several
private companies.
Gordon D. Barker. Mr. Barker became a director of Gart in April 1998. Mr.
Barker was the chief executive officer and a director of Thrifty Payless
Holdings, Inc., a subsidiary of Rite Aid Corporation, from 1996 until its
acquisition by Rite Aid Corporation in 1997. He previously served in various
capacities at Thrifty Payless since 1968, including as chief operating officer
from 1994 to 1996 and as president from 1994 to 1997. Mr. Barker also is a
director of United Natural Foods. Mr. Barker currently serves as chief
executive officer of Snyder Drug Stores, a mid-western chain of approximately
150 corporate and affiliate drug stores.
Peter R. Formanek. Mr. Formanek became a director of Gart in April 1998. Mr.
Formanek was co-founder of AutoZone Inc., a retailer of aftermarket automotive
parts, and served as president and chief operating officer of AutoZone Inc.
from 1986 until his retirement in 1994. He currently is a director of The
Perrigo Company and Borders Group, Inc.
[Additional Director]. [To be supplied by amendment.]
Information About Gart's Board of Directors and Its Committees
Committees and Meetings of the Board of Directors
Gart's board of directors has an Audit Committee and a Compensation
Committee, which are described below, but does not currently have a Nominating
Committee. During Gart's 2000 fiscal year, Gart's board of directors held 4
meetings, the Audit Committee held 5 meetings, and the Compensation Committee
held 1 meeting. During Gart's 2000 fiscal year, each of Gart's directors
attended at least 75% of the aggregate of: (1) the total number of meetings of
the board of directors (held during the period in which the director served as
a director of Gart) and (2) the total number of meetings held by all committees
of the board of directors on which the director served (during the periods in
which the director served on the committees).
81
Audit Committee
As of the date of this joint proxy statement-prospectus, the members of the
Audit Committee are Gordon D. Barker and Jonathan A. Seiffer. [Third member to
be supplied by amendment.] Mr. Barker is "independent" as that term is defined
in Rule 4200(a)(14) of the National Association of Securities Dealers' listing
standards. However, Mr. Seiffer may not be considered "independent," as a
result of that fact that he may be deemed to be an affiliate of Green Equity
Investors, L.P., Gart's principal stockholder. Notwithstanding Mr. Seiffer's
lack of independence, Gart's board of directors has resolved that Mr. Seiffer's
presence on the Audit Committee is beneficial to Gart and has identified
special circumstances as the basis for its determination. Mr. Seiffer, who is a
partner of a merchant banking firm, has extensive experience with respect to
sophisticated financial matters. In addition, Mr. Seiffer has developed a
thorough understanding of Gart's financial accounting as a result of his
several years of service as a director of Gart, and has additional experience
with other companies in the retail sporting goods industry. The Audit Committee
operates pursuant to a written charter, a copy of which is attached as Annex F
to this joint proxy statement-prospectus. The functions of the Audit Committee
are:
. to review Gart's audited annual financial statements prior to their
filing or distribution, which review includes discussions with Gart's
management and Gart's accounting firm of accounting principles,
practices and judgments as well as the adequacy of internal controls
that could affect Gart's financial statements;
.to discuss with Gart's accounting firm any significant changes to Gart's
accounting principles;
. to recommend annually to Gart's board of directors the appointment of
Gart's accounting firm;
. to review the independence and performance of Gart's accounting firm and
to review and approve the fees and other significant compensation to be
paid to Gart's accounting firm;
. to review Gart's existing major accounting and financial policies; and
. to consider, in consultation with management and with Gart's accounting
firm, the integrity of Gart's financial reporting processes and
controls.
Compensation Committee
As of the date of this joint proxy statement-prospectus, the members of the
Compensation Committee are Jonathan D. Sokoloff, Peter R. Formanek and Larry J.
Hochberg. The functions of the Compensation Committee are:
. to establish the compensation of Gart's executive officers and to
actively review the salaries, bonuses and other forms of compensation
for other officers and key employees of Gart; and
. to administer and interpret Gart's stock option plans, which includes
exercising its authority in determining which persons will be granted
options and the terms and conditions of the stock options granted.
Compensation of Directors
Directors who are employees or consultants of Gart receive no additional
compensation for serving as directors. Mr. Sokoloff and Mr. Seiffer, who are
non-employee directors, also do not receive any compensation for serving as
directors. All directors are reimbursed for the expenses they incur in
attending meetings.
In March 1999, Gart's board of directors approved the following compensation
for non-employee directors of Gart:
. the grant of options to purchase 10,000 shares of Gart common stock upon
joining the board of directors; and
. $25,000 per year, payable quarterly either in cash or in restricted
shares, at the election of the director (restricted shares are valued as
of the last day of the first fiscal quarter in which the director
attends at least one meeting of the board of directors).
82
In addition, on March 5, 2001, Gart's board of directors voted unanimously
to increase, effective as of the first fiscal quarter of 2001, the compensation
for non-employee directors of Gart as follows:
. $1,500, payable in cash, for attendance at each meeting of the board of
directors;
. $1,500, payable in cash, for attendance at each meeting of a committee
of the board of directors;
. $5,000 per year, payable in cash, for the chairperson of the Audit
Committee; and
. the grant of 5,000 options to purchase shares of Gart common stock,
granted annually.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During Gart's 2000 fiscal year, Mr. Sokoloff, a non-employee director, was a
member of the Compensation Committee. Mr. Sokoloff is a partner of Leonard
Green & Associates, L.P., an affiliate of Leonard Green & Partners, L.P., which
provides management, consulting and financial planning services to Gart. See
"Certain Relationships and Related Transactions Relating to Gart" and
"Interests of Certain Persons in the Merger--Interest of Gart's Directors and
Officers in the Merger" for a description of this arrangement and other
relationships between Gart and entities controlled by Mr. Sokoloff.
Executive Officers of Gart
The following table sets forth certain information with respect to the
executive officers of Gart. Each such executive officer serves at the pleasure
of Gart's board of directors.
Office Held
Name Age Position with Gart Since
---- --- --------------------------------------------------------------- -----------
John Douglas Morton..... 50 President, Chief Executive Officer, and Chairman of the Board 1995
Thomas T. Hendrickson... 46 Executive Vice President, Chief Financial Officer and Treasurer 1998
Greg Waters............. 40 Senior Vice President-Store Operations 1998
Arthur S. Hagan......... 62 Senior Vice President-Merchandising 1998
James M. Van Alstyne.... 40 Senior Vice President-Merchandising 2000
Michael McCaghren....... 41 Senior Vice President-Chief Information Officer 1999
Nesa E. Hassanein....... 48 Senior Vice President, General Counsel and Secretary 2000
Anthony Forde........... 45 Senior Vice President-Merchandise Allocation and Marketing 2000
John Douglas Morton. See "--Nominees" for information concerning Mr. Morton.
Thomas T. Hendrickson. Mr. Hendrickson became executive vice president,
chief financial officer and treasurer of Gart in January 1998. Mr. Hendrickson
previously served as the executive vice president and chief financial officer
of Sportmart since September 1996. He joined Sportmart in January 1993 as vice
president--financial operations. In March 1993, he was named chief financial
officer of Sportmart, and, in March 1995, he was named senior vice president
and chief financial officer of Sportmart. From 1987 until joining Sportmart,
Mr. Hendrickson was employed as the vice president and controller of Millers
Outpost Stores.
Greg Waters. Mr. Waters joined Gart in April 1998 as senior vice president--
Store Operations. Before joining Gart, Mr. Waters served as the western
regional vice president for The Sports Authority since 1994 and as a district
manager for The Sports Authority since 1991. Mr. Waters was employed by
Herman's World of Sporting Goods from 1983 until 1991, most recently as a
district manager.
Arthur S. Hagan. Mr. Hagan became senior vice president--merchandising of
Gart in January 1998. Mr. Hagan joined Gart in 1988 as Gart's division
merchandise manager for golf, tennis, ski clothing/equipment and garden
furniture and was promoted to vice president--store operations in 1995 and to
senior vice president--store operations in May 1997. He was president and owner
of Hagan Sports Ltd., a six-store sporting goods retailer acquired by Gart in
1987, and president and chief executive officer of Aspen Leaf of Colorado,
Inc., a 12-store ski equipment and apparel retailer. Mr. Hagan has over 30
years of retailing experience.
83
James M. Van Alstyne. Mr. Van Alstyne became senior vice president--
merchandising of Gart in April 2000. Mr. Van Alstyne joined Gart in 1986 as a
buyer and held that position until 1993. Mr. Van Alstyne returned to Gart in
1998 as vice president merchandising--hardlines and held that position until
April 2000. From 1993 to 1998, Mr. Van Alstyne served as Easton Sports, Inc.'s
western regional sales manager, national sales manager and vice president of
sales for the United States, Latin America and Australia.
Michael McCaghren. Mr. McCaghren became senior vice president--chief
information officer of Gart in February 1999. Before joining Gart, he was most
recently senior vice president--systems, merchandise planning, allocation and
replenishment, logistics and corporate administration at Jumbo Sports, a
sporting goods retailer, where he was employed from 1997 to 1999. Before
joining Jumbo Sports, for approximately one year Mr. McCaghren was national
director at GSI Outsourcing Inc., an information systems outsourcing subsidiary
of ADP, Inc. From 1991 to 1996, he was senior vice president and chief
information officer of Eli Witt Company, a grocery wholesaler.
Nesa E. Hassanein. Ms. Hassanein became senior vice president, general
counsel and secretary of Gart in June 2000. Ms. Hassanein joined Gart in July
1998 as vice president and corporate counsel. Before joining Gart, during 1997,
Ms. Hassanein served as senior vice president and general counsel for Atlas
Air, Inc. From 1995 to 1997, Ms. Hassanein was a partner of Morrison & Foerster
LLP, from 1992 to 1995, she was a shareholder of Brownstein Hyatt Farber &
Strickland P.C., and from 1982 to 1991, she was as an associate of Skadden,
Arps, Slate, Meagher & Flom LLP.
Anthony Forde. Mr. Forde became senior vice president--marketing &
merchandise allocations of Gart in June 2000. He joined Gart in January 1998 as
vice president--merchandise allocations. Before joining Gart, Mr. Forde was
vice president--merchandising allocations for Thrifty Payless. Since 1980, Mr.
Forde served as store manager, district manager, category manager and visual
director for Phar Mor Inc. and Giant Eagle, Inc. Mr. Forde has over 25 years of
retail experience.
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Compensation of Executive Officers of Gart
The following table sets forth information regarding the annual and long-
term compensation paid to the chief executive officer of Gart and the four
other most highly compensated executive officers of Gart receiving a total
annual salary and bonus of $100,000 or more.
Summary Compensation Table
Annual Compensation Long-Term Compensation
---------------------------------------- -------------------------------------
Awards
------------------------
Other
Annual Restricted Securities All Other
Name and Principal Fiscal Compensation Stock Underlying Compensation
Position Year Salary ($) Bonus ($) ($) Award(s) ($) Options(#) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
------------------------- ------ ---------- --------- ------------ ------------ ---------- ------------
John Douglas Morton...... 2000 418,268 578,256 -- 299,250(1) 60,000 3,150(2)
Chairman, President and 1999 407,492 214,038 -- 828,125(3) 25,000 3,000(2)
Chief Executive Officer 1998 400,000 -- -- -- 54,000 3,000(2)
Thomas T. Hendrickson.... 2000 272,038 322,365 -- 117,905(1) 45,000 --
Executive Vice
President, 1999 246,461 118,800 71,260(4) 409,094(3) 10,000 --
Chief Financial Officer
and 1998 240,000 -- 87,362(4) -- 64,916 118,341(5)
Treasurer
Greg Waters.............. 2000 220,961 218,199 -- 52,500(1) 30,000 --
Senior Vice President-
Store 1999 190,480 75,750 -- 165,625(3) 8,000 --
Operations 1998 151,675 -- 69,305(4) -- 40,000 --
Arthur S. Hagan.......... 2000 203,268 200,727 -- 31,500(1) 15,000 1,426(2)
Senior Vice President- 1999 174,422 69,375 -- 139,125(3) 2,000 1,200(2)
Merchandising 1998 170,000 -- -- -- 2,098(2)
Michael McCaghren (6).... 2000 197,307 194,840 -- 78,750(1) 5,000 --
Senior Vice President-
Chief 1999 179,038 75,000 39,569(4) -- 15,000 --
Information Officer
--------
(1) Represents the market value of restricted shares granted during Gart's 2000
fiscal year based on the closing sales price of $5.25 per share on June 27,
2000, the date of grant. These shares become 100% vested on June 27, 2005,
subject to the named executive officer's continued employment by Gart.
(2) Represents contributions made by Gart on behalf of the named executive
officer to his 401(k) Savings Plan.
(3) Represents the market value of restricted shares granted during Gart's 1999
fiscal year based on the closing sales price of $6.625 per share on March
16, 1999, the date of the grant. These shares become 100% vested on March
16, 2004, subject to the named executive officer's continued employment by
Gart.
(4) Represents the reimbursement of relocation expenses.
(5) Includes $2,991, which represents contributions made by Gart on behalf of
Mr. Hendrickson to his 401(k) Savings Plan. The balance of $115,350
represents a payment made to Mr. Hendrickson pursuant to a change in
control agreement between him and Sportmart. In addition, Mr. Hendrickson
received a payment of $258,757 in January 1998 pursuant to the same change
in control agreement.
(6) Mr. McCaghren became senior vice president--chief information officer in
February 1999.
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Option Grants in the Last Fiscal Year
The following table sets forth information with respect to the options
granted by Gart during the 2000 fiscal year to the named executive officers:
Option Grants in Last Fiscal Year
Potential Realizable Value At
Assumed Annual Rates Of
Stock Price Appreciation For
Individual Grants Option Term (2)
------------------------------------------------------------ ------------------------------
Number Of Percent Of Exercise
Securities Total Options Of Base
Underlying Granted To Employees Price Expiration
Name Options Granted (#) In Fiscal Year ($/Sh) Date 5% ($)
(a) (b) (1) (c) (d) (e) (f) 10% ($) (g)
------------------------ ------------------- -------------------- -------- ---------- -------------- ---------------
John Douglas Morton..... 60,000 15.8% $6.000 7/3/2010 $ 226,402 $ 573,747
Thomas T. Hendrickson... 45,000 11.9% $6.000 7/3/2010 $ 169,802 $ 430,310
Greg Waters............. 30,000 7.9% $6.000 7/3/2010 $ 113,201 $ 286,874
Arthur S. Hagan......... 15,000 4.0% $6.000 7/3/2010 $ 56,601 $ 143,437
Michael McCaghren....... 5,000 1.3% $6.000 7/3/2010 $ 18,867 $ 47,812
--------
(1) These options were granted under Gart's 1994 Management Equity Plan.
(2) Based upon the estimated fair value of a share of Gart common stock on the
date of grant and assumes appreciation over the term of the options at the
annual rates of stock appreciation shown. Potential gains are net of the
exercise price of the options but before taxes associated with the
exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent Gart's estimate or projection of the future
price of shares of Gart common stock. Actual gains, if any, on stock option
exercises depend on Gart's future financial performance and overall market
conditions. The actual value realized may be greater or less than the
potential realizable value set forth in the table.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information with respect to the
number and value of unexercised options held by the named executive officers at
February 3, 2001. The named executive officers did not exercise any options
during Gart's last fiscal year.
Aggregated Option Exercises in Last Fiscal Year and FY-End
Option Values
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options at Options at
Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercisable/ Unexercisable Exercisable/Unexercisable (1)
(a) (d) (e)
------------------------ -------------------------- -----------------------------
John Douglas Morton..... 190,600 144,400 $ 839,735 $ 478,460
Thomas T. Hendrickson... 36,916 83,000 $ 29,750 $ 316,500
Greg Waters............. 17,600 60,400 $ 27,800 $ 226,200
Arthur S. Hagan......... 36,200 24,800 $ 184,132 $ 111,958
Michael McCaghren....... 3,000 17,000 $ 14,625 $ 86,000
--------
(1) Represents the value of the shares of Gart common stock that are subject to
outstanding options based on the market value of $11.50 per share at
February 3, 2001 less the aggregate option price.
86
Report of the Compensation Committee
Notwithstanding anything to the contrary set forth in any of Gart's previous
filings under the Securities Act or the Exchange Act that might incorporate
future filings, including this joint proxy statement-prospectus, in whole or in
part, the following Report of the Compensation Committee and the Performance
Graph set forth on page 91 shall not be incorporated by reference into any such
filings.
The Compensation Committee of Gart's board of directors, composed of outside
directors of Gart's board of directors, reviews the performance of Gart's
executive officers, determines the compensation of Gart's executive officers
and is active in reviewing salaries, bonuses and other forms of compensation
for other officers and key employees of Gart. The Compensation Committee is
empowered by Gart's board of directors to award stock options, grants of
restricted shares of Gart common stock, and permitted purchases of Gart common
stock to key employees of Gart.
The Compensation Committee has access to independent compensation data and
is authorized, if determined appropriate in any particular case, to engage
outside compensation consultants.
The objectives of the Compensation Committee are to support the achievement
of desired standards of performance by Gart, to provide compensation and
benefits that will attract and retain superior talent and reward performance,
and to cause some portion of compensation to be based on Gart's performance.
Gart's executive compensation program generally is composed of base salary,
bonuses based upon Gart's achievement of a target level of earnings before
income taxes, interest expense and other financing costs, and depreciation and
amortization ("EBITDA"), and long-term incentives in the form of stock options,
restricted stock grants and permitted stock purchases.
Base Salaries
Base salaries for Gart's executive officers are competitively set relative
to salaries of officers of companies included in the Standard & Poor's Retail
Index that are comparable to Gart in business and size. In each instance, base
salary takes into account individual experience and performance specific to
Gart. The Compensation Committee generally attempts to provide compensation
approximating the median of comparable companies. Except for increases
associated with promotions or increased responsibility, increases in base
salaries for executive officers of Gart from year to year are limited to
adjustments to reflect increases in the rate of inflation.
The Compensation Committee is aware that the Internal Revenue Code treats
certain elements of executive compensation in excess of $1 million a year as an
expense not deductible by Gart for federal income tax purposes. For the fiscal
year ended February 3, 2001, no executive officer's compensation exceeded the
cap on deductibility. To the extent compensation to an executive officer
exceeds the cap in the future, the Compensation Committee will consider the
facts and circumstances at that time to reach a determination regarding the
impact of the cap on such compensation.
Bonus Plan
Bonuses for executive officers and certain other officers and members of
Gart's target bonus management team are paid pursuant to Gart's Bonus Plan. The
purpose of the Bonus Plan is to provide an incentive for executives and other
key employees of Gart and to reward them in relation to the degree to which
specified earnings goals are achieved. Under the Bonus Plan, eligible employees
are awarded cash bonuses based upon the extent to which Gart achieves a target
level of EBITDA (the "Target EBITDA") established each year by the Compensation
Committee. The amount of each employee's cash bonus, as determined by the
Compensation Committee, is a percentage of salary ranging from a maximum of 70%
(for the Chief Executive Officer) to 10% depending on position, if Gart
achieves 100% of the Target EBITDA. Bonuses also can be increased, at the
discretion of the Compensation Committee, if the Target EBITDA is exceeded.
Gart achieved 122.2% of the Target EBITDA for the 2000 fiscal year and bonuses
were awarded based on the percentage of the Target EBITDA that Gart achieved.
Gart's board of directors may choose to continue, amend or terminate the Bonus
Plan in future years after the 2000 fiscal year.
87
1994 Management Equity Plan
The Compensation Committee administers Gart's 1994 Management Equity Plan,
as amended. Under the terms of the 1994 Management Equity Plan, the
Compensation Committee may award key employees (including officers and
directors who are employees) of Gart or its subsidiaries (1) grants of Gart
common stock ("Grant Shares"'), (2) permitted purchases of Gart common stock
("Purchased Shares") or (3) options to purchase shares of Gart common stock, or
any combination of the foregoing as determined by the Compensation Committee.
1,750,000 shares of Gart common stock have been reserved for issuance pursuant
to awards that may be granted under the 1994 Management Equity Plan. Gart's
board of directors has approved an amendment to the 1994 Management Equity
Plan, which is subject to the approval of Gart stockholders, that would
increase the number of shares of Gart common stock that are reserved for
issuance to 2,500,000.
The Compensation Committee believes that employee equity ownership provides
significant additional motivation to maximize value for Gart's stockholders.
Therefore, the Compensation Committee periodically grants stock options to
Gart's employees, including executive officers. Stock options are granted
typically at the prevailing market price of Gart common stock and, therefore,
will only have value if the market price of Gart common stock increases over
the exercise price. The Compensation Committee believes that the grant of stock
options provides a long-term incentive to employees to contribute to the growth
of Gart and establishes a direct link between compensation and stockholder
return, measured by the same index used by stockholders to measure Gart's
performance. The terms of the stock options granted by Gart, including number
of shares, vesting, exercisability and stock option term, are determined by the
Compensation Committee, based upon the position and responsibilities of the
applicable employee, the historical and expected contributions of the
applicable employee, any previous option grants to the applicable employee and
a review of competitive equity compensation for executive officers of similar
rank in companies that are comparable to Gart's industry and size.
In the case of stock options, the Compensation Committee has the authority
to determine whether such stock options shall be intended as "incentive stock
options" or "non-incentive" or "nonqualified" stock options under Section 422
of the Internal Revenue Code. No more than an aggregate of 600,000 shares of
Gart common stock may be issuable upon the exercise of outstanding incentive
stock options at any time. Stock options may be transferred by an optionee
during his or her lifetime only to the extent permitted by the Compensation
Committee.
Compensation of Chief Executive Officer
The compensation package of John Douglas Morton, Gart's president and chief
executive officer, was determined in accordance with the principles described
above. In 2000, Mr. Morton received a base salary of $418,268 and a bonus of
$578,256. The Compensation Committee also approved grants of 60,000 stock
options and 57,000 shares of restricted stock to Mr. Morton in 2000. In
addition, Mr. Morton received certain other customary perquisites and benefits
in 2000. The Compensation Committee approved Mr. Morton's total compensation
based on the following factors, which are listed in the order of importance to
the Compensation Committee: (1) improvement in the financial performance of
Gart and (2) Gart's comparative performance with other companies in its
industry.
Compensation Committee Members:
Jonathan D. Sokoloff
Peter R. Formanek
Larry J. Hochberg
, 2001
88
Compensation and Severance Agreements and Plans
Change in Control Severance Agreements
Gart is party to a change in control severance agreement with most of its
officers, including Mr. Morton and each of the other executives officers named
in the Summary Compensation Table.
The severance agreements provide that an officer is entitled to a severance
payment if a transaction resulting in a change in control occurs and, within
one year from the date of the transaction, either the officer's employment is
terminated, other than for cause, or the officer resigns for "good reason" (as
defined in the severance agreements). The severance payments consist of: (1)
payment, in one lump sum, of an amount equal to the officer's base salary for a
specified severance period (three years for Gart's President, two years for the
executive vice president, one and one-half years for senior vice presidents,
and one year for vice presidents), (2) payment of the "on plan" bonus amount
for the fiscal year in which termination of employment occurs, multiplied by
the applicable severance period for the officer, (3) medical, dental, life and
other insurance benefits for the applicable severance period and (4) any
automobile provided by Gart to the officer. After a transaction resulting in a
change of control occurs, an officer of Gart may resign for "good reason" and
receive his or her severance payment if the officer's base salary or bonus is
reduced, the officer's responsibilities and position are reduced, or the
officer is required to work at a location more than 30 miles from Gart's
current executive offices.
In connection with entering into the severance agreements, Gart agreed to
accelerate the vesting of stock options or restricted shares granted to
officers, if the officer becomes entitled to receive a severance payment under
his or her severance agreement. The officer then would have one year in which
to exercise the stock options. After one year, the stock options would
terminate.
Employee Benefit Plan
Gart maintains a defined contribution profit sharing plan that includes a
401(k) plan feature for all eligible employees. The defined contribution profit
sharing plan allows eligible employees to make tax deferred contributions and
provides for discretionary matching contributions by Gart as determined by
Gart's board of directors. In the 2000 fiscal year, Gart's matching
contributions were in the amount of approximately $357,000.
Deferred Compensation Plan
During the 1999 fiscal year, Gart began a nonqualified deferred compensation
plan for some members of management. Eligible employees may contribute a
portion of their base salary or bonuses to the plan annually. The nonqualified
deferred compensation plan provides for additional matching contributions by
Gart, with limitations similar to those under Gart's 401(k) plan, as well as
discretionary contributions, in an amount determined by Gart before the end of
each plan year. Gart made no matching contributions to the deferred
compensation plan during the 2000 fiscal year.
Report of the Audit Committee of Gart's Board of Directors
The Audit Committee has reviewed and discussed Gart's consolidated financial
statements with management. The Audit Committee has discussed with Deloitte &
Touche LLP the matters required to be discussed by Statement on Auditing
Standards No. 61 (Codification of Statements on Auditing Standards, AU (S)
380). The Audit Committee has received the written disclosures and the letter
from Deloitte & Touche LLP required by Independence Standards Board Standard
No. 1 (Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees) and has discussed with Deloitte & Touche LLP that firm's
independence.
Based upon the Audit Committee's review and discussions referred to above,
the Audit Committee recommended that Gart's audited consolidated financial
statements be included in
89
Gart's Annual Report on Form 10-K for the fiscal year ended February 3, 2001
for filing with the Securities and Exchange Commission.
Audit Committee Members:
Gordon D. Barker
Jonathan A. Seiffer
, 2001
Gart's Relationship with Independent Public Accountants
Audit Fees
The aggregate fees billed to Gart by Deloitte & Touche LLP for professional
services rendered for the audit of Gart's consolidated financial statements for
the fiscal year ended February 3, 2001 and the reviews of Gart's consolidated
financial statements included in Gart's Quarterly Reports on Form 10-Q for the
fiscal quarters ended April 29, 2000, July 29, 2000 and October 28, 2000 were
$211,958.
Financial Information Systems Design and Implementation
There were no fees billed to Gart by Deloitte & Touche LLP for financial
information systems design and implementation for the fiscal year ended
February 3, 2001.
All Other Fees
The aggregate fees billed to Gart by Deloitte & Touche LLP for services
rendered, other than the services covered above under "Audit Fees" and
"Financial Information Systems Design and Implementation," for the fiscal year
ended February 3, 2001 were $369,425.
The Audit Committee has considered whether the provision of services other
than audit services to Gart by Deloitte & Touche LLP is compatible with
maintaining Deloitte & Touche LLP's independence.
Changes in Accountants
On May 16, 2000, Gart engaged Deloitte & Touche LLP as its independent
auditors for the fiscal year ending February 3, 2001 and dismissed its former
independent auditors, KPMG LLP, effective upon the appointment of Deloitte &
Touche LLP. The decision to engage Deloitte & Touche LLP was approved by the
Audit Committee.
During the fiscal years ended January 29, 2000 and January 30, 1999 and the
subsequent interim period preceding the date of change in independent auditors,
Gart did not consult Deloitte & Touche LLP regarding: (1) the application of
accounting principles to a completed or proposed transaction or (2) the type of
audit opinion that might be rendered on Gart's financial statements.
KPMG LLP's report on Gart's financial statements for the fiscal years ended
January 29, 2000 and January 30, 1999 did not contain an adverse opinion or a
disclaimer of opinion nor was the report modified as to uncertainty, audit
scope or accounting principles. For the two fiscal years ended January 29, 2000
and during the subsequent interim period preceding the date of the change in
independent auditor, there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure that would have caused KPMG LLP to make reference in their
report to such disagreements. KPMG LLP has furnished Gart with a letter
addressed to the Securities and Exchange Commission stating that KPMG LLP
agrees with the statements contained herein, except that KPMG LLP is not in a
position to agree or disagree with Gart's statement that the change was
approved by the Audit Committee of the board of directors, and KPMG LLP is not
in a position to agree or disagree with Gart's statement that Deloitte & Touche
LLP was not consulted regarding the application of accounting principles to be
completed or proposed transaction or the type of audit opinion that might be
rendered on Gart's financial statements.
90
Performance Graph of Gart
The following graph shows a comparison of cumulative total returns for Gart,
the Nasdaq Composite Index, the Standard & Poor's Retail Index and a peer group
of companies during the period commencing January 9, 1998 (the date that Gart
first become subject to the reporting requirements of the Exchange Act) and
ending on February 3, 2001. In reviewing this graph, you should keep in mind
the possible effect that the limited trading in Gart common stock may have had
on the price of Gart common stock.
The comparison assumes $100.00 was invested on January 9, 1998 and assumes
the reinvestment of all dividends, if any. The peer group consists of the
following publicly traded sporting goods retailers: Sport Chalet, Inc., Hibbett
Sporting Goods, Inc. and The Sports Authority, Inc. Oshman's Sporting Goods,
Inc. has been removed from the peer group used in this joint proxy statement-
prospectus as a result of the proposed merger. Gart did not replace Oshman's
Sporting Goods, Inc. in its peer group.
Section 16(a) Beneficial Ownership Reporting Compliance of Gart
Section 16(a) of the Exchange Act requires Gart's directors, executive
officers and persons who own more than 10% of a registered class of Gart's
equity securities to file reports of initial ownership and reports of changes
in ownership with the Securities and Exchange Commission. Such directors,
officers and 10% stockholders are required to furnish Gart with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such reports furnished to Gart,
Gart believes that during the 2000 fiscal year, all section 16(a) requirements
applicable to its directors, executive officers and 10% stockholders were
complied with.
91
Certain Relationships and Related Transactions Relating to Gart
Relationship with Green Equity Investors, L.P.
Ownership Interest of Green Equity Investors in Gart
Green Equity Investors, L.P. currently owns approximately 64% of the
outstanding shares of Gart common stock. Green Equity Investors, whose general
partner is Leonard Green & Associates, L.P., an affiliate of Leonard Green &
Partners, L.P., led the acquisition of Thrifty Corporation in 1992, at which
time Gart was a subsidiary of Thrifty. In 1994, Thrifty distributed all of the
shares of Gart's capital stock to the stockholders of Thrifty. Leonard Green &
Partners, L.P. is a private investment firm that initiates, structures and
invests in acquisitions and recapitalizations of established public and private
middle-market companies. If the merger is completed, Green Equity Investors
will own approximately 44% of the outstanding shares of Gart common stock
(assuming a conversion ratio in the merger of 0.55 shares of Gart common stock
for each outstanding share of Oshman's common stock).
Due to its ownership interest in Gart, Green Equity Investors currently is
able to control Gart, to elect the majority of Gart's board of directors, and
to approve any action requiring stockholder approval, including adopting
amendments to Gart's certificate of incorporation and approving or disapproving
mergers or sales of all or substantially all of the assets of Gart. As a result
of such control, Green Equity Investors is able effectively to control all of
Gart's policy decisions. If the merger is completed, Green Equity Investors, as
a stockholder with a substantial ownership interest in Gart, will continue to
be able to influence Gart's corporate actions and it will be difficult for
third parties to obtain control of Gart through purchases of Gart common stock.
Tax Sharing and Indemnification Agreements
Gart was a subsidiary of Thrifty, which was wholly owned by TCH Corporation,
until 1994, and was included in TCH's consolidated federal income tax returns
during that period. The successor to TCH is currently owned by Rite Aid
Corporation. Under federal tax law, if Gart is included in a consolidated
federal income tax return, it is severally liable for all the federal income
tax liabilities with respect to such return, including tax liabilities not
attributable to income of Gart ("Non-Company Taxes").
In order to allocate the tax liabilities among them, TCH and its
subsidiaries, including Gart Bros., Gart's predecessor, entered into a tax
sharing agreement, dated as of September 25, 1992. In general, the tax sharing
agreement provides that, as long as TCH is required to file consolidated
federal income tax returns that include Gart Bros., Gart Bros. will be
responsible for paying to TCH its Separate Tax Liability (as defined in the tax
sharing agreement) computed as a flat tax on its income at the highest marginal
rate applicable to corporations under the various income tax systems provided
under the Internal Revenue Code. Similarly, TCH will be required to reimburse
Gart Bros. for the use of its tax attributes (i.e., net operating losses,
capital losses or credits) to reduce federal income tax liability on a TCH
consolidated federal income tax return. Similar provisions apply with respect
to the filing of combined or consolidated state income or franchise tax returns
and the payment of tax. Under the tax sharing agreement, TCH will determine the
reporting of all items on the TCH consolidated federal income tax returns and
will be responsible for all audits and controversies. Separate Tax Liabilities
of each member will be adjusted to reflect adjustments resulting from resolved
audits or other controversies and appropriate payments or reimbursements will
be made.
On July 24, 1997, the Internal Revenue Service proposed adjustments to the
1992 and 1993 consolidated federal income tax returns of Gart Bros. and
Thrifty. The proposed adjustments relate to the manner in which last-in first-
out ("LIFO") inventories were characterized on such returns. Gart has recorded
approximately $9.7 million as a long-term net deferred tax liability for the
tax effect of the LIFO inventory basis difference. The Internal Revenue Service
has asserted that this basis difference should be reflected in taxable income
in 1992 and 1993. Gart has taken the position that the inventory acquired in
connection with the acquisition of Thrifty was appropriately allocated to its
inventory pools. The Internal Revenue Service has asserted that the inventory
was acquired at a bargain purchase price and should be allocated to a separate
inventory pool and liquidated as inventory turns.
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Based on Gart's discussions with Thrifty, Gart believes that the potential
accelerated tax liability, which could have a negative effect on liquidity in
the near term, ranges from approximately $2.5 million to $9.7 million. The loss
from possible assessed interest charges resulting from the proposed adjustments
ranges from approximately $580,000 to $3.3 million. Gart has accrued
approximately $1.2 million for potential interest charges in its consolidated
financial statements. No penalties are expected to be assessed relating to this
matter. At February 3, 2001, the LIFO inventory and other associated temporary
differences continue to be classified as long-term net deferred tax liabilities
because final settlement terms have not been negotiated.
Pacific Enterprises, the former parent company of Thrifty, TCH and Big 5
Corporation, entered into a tax indemnity agreement dated as of September 25,
1992, which sets forth the parties' agreements with respect to various tax
matters and provides that Pacific Enterprises will indemnify each member of the
affiliated group of which TCH is the common parent (collectively, the "Thrifty
Group") from specified liabilities and expenses imposed on, or incurred by, any
member of the Thrifty Group in respect of federal income tax for all tax
periods ending on or before September 25, 1992 and in respect of certain ERISA
liabilities. Gart Bros. was a member of the Thrifty Group at the time the tax
indemnity agreement was entered into and continues to be subject to such
agreement. Pursuant to the tax indemnity agreement, each member of the Thrifty
Group jointly and severally indemnified Pacific Enterprises and each member of
the Parent Group (as defined in the tax indemnity agreement) against
liabilities incurred as a result of a breach of the tax indemnity agreement by
TCH or any member of the Thrifty Group. Gart has not received any notices of
claims under the tax indemnity agreement, and is unaware of any pending claims
thereunder.
In connection with Thrifty's distribution to its stockholders of Gart's
capital stock in 1994 and Thrifty's simultaneous acquisition of PayLess
Drugstores Northwest, Inc., Gart and several other former subsidiaries of
Thrifty (the "Former Subsidiaries") entered into an indemnification and
reimbursement agreement with Thrifty whereby the Former Subsidiaries have
agreed to indemnify Thrifty for any tax-related expenses arising from Thrifty's
distribution of Gart's capital stock (in excess of $15 million) or from the
operation of the businesses of the Former Subsidiaries. The indemnification and
reimbursement agreement also provides that Thrifty will indemnify the Former
Subsidiaries for any expenses arising from the operation of Thrifty's business
on or before date of Thrifty's distribution of Gart's capital stock. Gart has
not received any notices of claims under the indemnification and reimbursement
agreement, and is unaware of any pending claims thereunder.
Also in connection with Thrifty's distribution of Gart's capital stock, Gart
entered into an indemnification allocation agreement with Thrifty and Michigan
Sporting Goods Distributors, Inc., another subsidiary of Thrifty, whereby the
parties agreed to separate and allocate among themselves the economic benefits
of certain indemnification rights under the agreement pursuant to which Thrifty
was purchased from Pacific Enterprises. Gart has not received any notices of
claims under the indemnification and reimbursement agreement, and is unaware of
any pending claim thereunder.
Management Services Agreement
Gart has entered into a management services agreement with Leonard Green &
Associates, L.P., an affiliate of Leonard Green & Partners, L.P., pursuant to
which Leonard Green & Associates, L.P. receives an annual retainer fee of
$500,000 plus reasonable expenses for providing certain management, consulting
and financial planning services. The management services agreement terminates
on April 20, 2004. Gart believes that the contacts and expertise provided by
Leonard Green & Associates, L.P. in these areas enhance the opportunities of
Gart and the expertise of management in these matters and that the fees to be
paid to Leonard Green & Associates, L.P. fairly reflect the value of the
services to be provided by Leonard Green & Associates, L.P.
In addition to the annual retainer fee, the management services agreement
provides that Leonard Green & Associates, L.P. may receive reasonable and
customary fees and reasonable expenses from time to time for providing
financial advisory and investment banking services in connection with major
financial transactions that may be undertaken in the future. If the merger is
completed, Gart will pay Leonard Green & Partners, L.P. transaction fees in the
amount of $4 million.
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Property Leases
As of March 30, 2001, seven of Gart's Sportmart stores (Niles, Lombard,
Calumet City, Schaumburg, Chicago (Lakeview), Merrillville, and North
Riverside) and the No Contest stores in Ferguson, Missouri and Crestwood,
Missouri were leased from partnerships or land trusts in which a majority of
the beneficial interests are owned through various partnerships by Larry J.
Hochberg, Andrew S. Hochberg and members of their family. A partnership in
which members of the Hochberg family indirectly own the general partner and
hold up to a one-third interest as limited partners owns the property on which
the Chicago (River North), Illinois Sportmart store is located.
In fiscal 1995, Sportmart decided to discontinue the operation of its No
Contest division and to close its River North, Illinois location.
Notwithstanding the discontinuance of No Contest operations and the closing of
the River North location, Gart still is obligated on the leases for these
locations. In connection with Gart's acquisition of Sportmart, Gart Bros.
Sporting Goods Company, which is the operating subsidiary of Gart, has
guaranteed Sportmart's obligations under these leases. These locations
currently are being subleased to other parties.
The aggregate lease payments (net of utilities, insurance, taxes and other
common area costs) for the above locations paid by Gart during its 2000 fiscal
year were approximately $ 3.0 million. Gart received sublease payments of
approximately $0.5 million with respect to these locations during its 2000
fiscal year.
Other Agreements
Gart provides lifetime medical benefits to Larry J. Hochberg, formerly
Sportmart's chairman of the board, in accordance with a preexisting agreement
between Mr. Hochberg and Sportmart.
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Amendment to the 1994 Management
Equity Plan of Gart
General
At Gart's annual meeting, Gart stockholders will be asked to approve an
amendment to Gart's 1994 Management Equity Plan. The 1994 Management Equity
Plan commenced on September 30, 1994, and subsequently was amended by Gart's
board of directors on September 21, 1998 and March 16, 1999. The amendments
were ratified by Gart's stockholders in June 1999.
On February 9, 2001, Gart's board of directors approved an amendment to the
1994 Management Equity Plan to increase the maximum number of shares that are
available for issuance under the plan from 1,750,000 to 2,500,000.
Voting
This proposal will be approved if, at Gart's annual meeting, the number of
shares voted in favor of this proposal exceeds the number of shares voted
against this proposal. Abstentions will count as votes against this proposal
because they will be counted as present at the meeting and entitled to vote on,
but not for, this proposal. Broker non-votes will not be counted as votes cast
for or against this proposal and will not affect the outcome of the vote on
this matter.
Each proxy received will be voted in accordance with the instructions
indicated on the proxy. If no instructions are indicated on the proxy, then the
proxy will be voted "FOR" the amendment to Gart's 1994 Management Equity Plan.
Reasons for the Amendment to Gart's 1994 Management Equity Plan
Gart's board of directors believes that it is necessary to increase the
number of shares of Gart common stock available for issuance under the 1994
Management Equity Plan in order to ensure that Gart can continue to use the
plan to attract and retain highly qualified officers and other employees by
providing adequate incentives through the issuance of stock options or other
equity based awards. As of the date of this joint proxy statement-prospectus,
there are no shares available for issuance under the 1994 Management Equity
Plan. As a result, the proposed amendment increases the shares of Gart common
stock available for issuance to 2,500,000.
Summary of Gart's 1994 Management Equity Plan
The 1994 Management Equity Plan is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended, and is not
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. The principal features of the 1994 Management Equity Plan are
summarized below. However, this summary is not intended to be a complete
discussion of all the terms of the 1994 Management Equity Plan and is qualified
in its entirety by the full text of the 1994 Management Equity Plan, a copy of
which is attached to this joint proxy statement-prospectus as Annex G.
The 1994 Management Equity Plan commenced on September 30, 1994, and expires
on September 30, 2004, unless earlier terminated by Gart. The purpose of Gart's
1994 Management Equity Plan is to provide long term incentives to the key
employees responsible for the continued growth and success of Gart.
Administration of the 1994 Management Equity Plan
The 1994 Management Equity Plan is administered by Gart's board of
directors, or, in the discretion of the board of directors, a committee
appointed by Gart's board of directors that consists of two or more directors
of Gart (in either case, the "Committee"), except that Gart's board of
directors will administer the 1994 Management Equity Plan with respect to
awards granted to any non-employee member of the board of directors. Pursuant
to the 1994 Management Equity Plan, the Committee has sole and final authority
to construe
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and interpret the plan, to define the terms used in the plan, to prescribe,
amend and rescind rules and regulations relating to the plan, to determine when
and to whom to grant awards under the plan, to determine the number of shares
to be covered by the awards, to determine the types of awards to be granted and
the vesting and other terms of such awards, with respect to Stock Options, to
determine the type of Stock Options to be granted, and to make all other
determinations necessary or advisable for the administration of the 1994
Management Equity Plan.
All key employees of Gart and its subsidiaries, and each of the non-employee
and non-affiliate members of Gart's board of directors are eligible for
selection to participate in the 1994 Management Equity Plan. Gart's board of
directors will, in its sole discretion, determine those directors who are non-
affiliates of Gart. Participants are eligible to receive one or more awards
under the 1994 Management Equity Plan, as determined by the Committee.
The Committee, may, at any time, suspend or terminate the 1994 Management
Equity Plan and also may amend or revise the terms of the plan, except that the
Committee may not, without approval of the majority of the shares of Gart
common stock, increase the number of shares covered by the 1994 Management
Equity Plan, change the employees or class of employees eligible to participate
in the 1994 Management Equity Plan, or make any other change for which
stockholder approval is required pursuant to Section 162(m) of the Internal
Revenue Code.
Types of Stock Options and Other Equity-Based Awards
Under the terms of the 1994 Management Equity Plan, the Committee may award
key employees of Gart (including officers and directors who are employees of
Gart) and non-employee, non-affiliate members of Gart's board of directors:
. options to purchase shares of Gart common stock ("Stock Options");
. grants of shares of Gart common stock ("Grant Shares");
. permitted purchases of shares of Gart common stock ("Purchased Shares");
or
. a combination of the foregoing as determined by the Committee.
However, no participant will be entitled to be granted more than 250,000 Stock
Options in any year.
Two types of Stock Options may be granted under the 1994 Management Equity
Plan:
. Stock Options intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code ("ISOs"); and
. ""nonstatutory stock options" ("NSOs"), which are Stock Options not
qualified for favorable federal income tax treatment.
The Committee has the authority to determine whether Stock Options will be
intended as ISOs or NSOs. ISOs only may be granted to Gart employees, and no
more than an aggregate of 600,000 shares of Gart common stock may be issuable
upon the exercise of outstanding ISOs at any time.
Shares Subject to the 1994 Management Equity Plan
The shares allocated for issuance under the 1994 Management Equity Plan are
1,750,000 shares of Gart common stock. As of March 30, 2001, no shares remain
available for issuance under the 1994 Management Equity Plan. Under the 1994
Management Equity Plan, as amended by the amendment being proposed, the total
number of shares authorized for issuance under the plan would be increased from
1,750,000 to 2,500,000. Shares of Gart common stock issued pursuant to the 1994
Management Equity Plan that subsequently are reacquired by Gart will be
available for reissuance under the 1994 Management Equity Plan. Shares of Gart
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common stock that are subject to Stock Options or other equity based awards
that lapse or terminate without exercise also will be available to be subject
to new Stock Options or other equity based awards under the 1994 Management
Equity Plan. The 1994 Management Equity Plan provides that if the outstanding
shares of Gart Common Stock are increased, decreased or changed into or
exchanged for a different number or kind of shares or securities of Gart
through a reorganization, recapitalization, reclassification, stock dividend,
stock split or other similar transaction, an appropriate and proportionate
adjustment will be made in the maximum number and kind of shares that may be
awarded under the plan. Such adjustments will be made by the Committee, whose
determination as to the adjustments will be final.
As of March 30, 2001, Gart's chief executive officer and the four other
named executives in Gart's "Summary Compensation Table" have received a total
of 599,000 Stock Options, 343,208 awards of restricted shares and 47,000
Purchased Shares, as follows:
Options Restricted Shares Purchased Shares
------- ----------------- ----------------
John Douglas Morton.................. 335,000 182,000 32,000
Thomas T. Hendrickson................ 105,000 84,208 --
Greg Waters.......................... 78,000 35,000 --
Arthur S. Hagan...................... 61,000 27,000 15,000
Michael McCaghren.................... 20,000 15,000 --
------- ------- ------
Total................................ 599,000 343,208 47,000
Directors who are not executive officers of Gart and who are standing for re-
election at Gart's annual meeting have received a total of 20,000 Stock Options
and 16,200 awards of restricted shares. As of March 30, 2001, current employees
who are not executive officers of Gart have received a total of 396,750 Stock
Options, 81,000 awards of restricted shares and 18,300 Purchased Shares.
Stock Option Price and Exercisability; Duration of Stock Options and Other
Equity Based Awards
The exercise price for the shares of Gart common stock covered by each Stock
Option will be determined by the Committee. However, the purchase price for
Stock Options intended as ISOs may not be less than 100% of the fair market
value of the shares on the date of grant, or, if an ISO is granted to a Gart
stockholder owning more than 10% of the total combined voting power of all
classes of stock of Gart, the purchase price may not be less than 110% of the
fair market value of the shares of Gart common stock, determined on the date of
grant. The aggregate fair market value of shares of Gart common stock,
determined on the date of grant, that are exercisable for the first time by a
participant during any calendar year must not exceed $100,000. Any ISOs granted
in excess of this limitation will be NSOs. Each Stock Option granted will be
exercisable over a period of time as determined by the Committee.
Stock Options and other equity based awards will expire on the date set by
the Committee, except that in the case of ISOs, no Stock Option will have a
term exceeding 10 years from the date such Stock Option is granted, or five
years from the date such Stock Option is granted in the case of grants to Gart
stockholders owning more than 10% of Gart's combined voting power.
Termination of Employment; Death or Disability
In order for Stock Options to be entitled to ISO treatment under the
Internal Revenue Code, ISOs may not be exercised more than three months after a
participant's termination of employment with Gart or one of its subsidiaries,
unless the termination was a result of death or disability, in which case the
exercise period is extended to one year. Stock Options only may be transferred
by will or the laws of descent. In addition, a participant who is a party to a
severance agreement will have one year in which to exercise the participant's
Stock Options following termination or resignation for "good reason" after a
change in control transaction occurs. See "Compensation of Executive Officers
of Gart--Compensation and Severance Agreements and Plans" for a description of
such severance agreements. During such period, any vested unexercised portion
of the Stock Option may be exercised by the person to whom the optionee's
rights under the Stock Option will pass by will or the laws of descent and
distribution.
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Federal Income Tax Consequences
The following discussion is intended to be a general summary of the federal
income tax consequences of Stock Options and other equity based awards granted
under the 1994 Management Equity Plan. Tax consequences may vary depending on
each individual participant's circumstances. In addition, administrative and
judicial interpretations of the application of the federal income tax laws are
subject to change. Furthermore, no information is given with respect to state
or local taxes that may be applicable. Participants in the 1994 Management
Equity Plan who are residents of, or are employed in, a country other than the
United States may be subject to taxation in accordance with the tax laws of
that particular country in addition to, or in lieu of, United States federal
income taxes. Participants should consult their own tax advisor prior to
participating in the 1994 Management Equity Plan and prior to exercising any
awards under the plan or disposing of any shares acquired upon exercise of
awards under the plan.
Non-Qualified Stock Options. The grant of an NSO will result in no tax
consequences to an optionee or to Gart. Generally, an optionee will recognize
ordinary income in an amount equal to the excess of the fair market value of
the shares of stock at the time of exercise over the NSO exercise price. The
optionee's basis in the shares of stock will be equal to the exercise price
paid by the optionee plus the amount of ordinary income recognized upon the
exercise of the NSO. Upon any subsequent disposition of the stock, an optionee
generally will recognize capital gain or loss equal to the difference between
the sale proceeds and the optionee's basis in the stock. The applicable capital
gain tax rate will depend on the length of the optionee's holding period. Gart
will be allowed to take a deduction for federal income tax purposes in an
amount equal to the ordinary income recognized by the optionee upon the
exercise of an NSO.
Incentive Stock Options. The federal income tax consequences of ISOs
generally are more favorable to the optionee than those associated with NSOs,
provided that certain holding period requirements are met. The grant of an ISO
will result in no tax consequences to the optionee or to Gart. Similarly, at
the time an ISO is exercised, an optionee generally will have no taxable income
for regular tax purposes. The excess of the market value on the exercise date
over the option price is an adjustment to regular taxable income in determining
alternative minimum taxable income. This adjustment could cause the participant
to be subject to the alternative minimum tax, thereby in effect depriving the
participant of the tax benefits of ISO treatment. However, if an optionee
disposes of the option shares in the same year as the exercise of the option,
the maximum amount that will be included as alternative minimum taxable income
will be the excess, if any, of the amount realized for the shares over the
exercise price. An optionee's basis in the stock received upon exercise is the
exercise price of the ISO. When the optionee sells or otherwise disposes of
stock acquired upon exercise of an ISO, the federal income tax consequences
will depend on how long the optionee has held the stock. Generally, if the
optionee does not dispose of the stock prior to a date that is: (1) two years
from the date the ISO is granted and (2) one year from the date the ISO is
exercised, the optionee will recognize a capital gain (or loss) equal to the
amount by which the sale proceeds exceed (or are less than) the optionee's
basis in the stock. The applicable capital gain tax rate will depend on the
length of the optionee's holding period measured from the date the ISO was
exercised.
If the optionee sells or otherwise disposes of the stock prior to the date
that is: (1) two years from the date the ISO is granted or (2) one year from
the date the ISO is exercised, the optionee generally will recognize ordinary
income in the year of disposition equal to the lesser of (1) the excess of the
fair market value of the stock on the date of the exercise of the ISO over the
exercise price or (2) the excess of the proceeds of the sale of the stock over
the exercise price. Any additional gain (or loss) will be a capital gain (or
loss). The applicable capital gain tax rate will depend on the length of the
optionee's holding period measured from the date the ISO was exercised.
Other Equity Based Awards. If Gart makes an award of Grant Shares to a
participant, and the shares are not subject to forfeiture restrictions, the
participant will recognize ordinary income in an amount equal to the fair
market value of the Grant Shares at the time of the award, and Gart will be
entitled to a deduction in the same amount. A
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participant normally will not recognize taxable income upon an award of Grant
Shares that are subject to forfeiture restrictions ("Restricted Shares"), and
Gart will not be entitled to a deduction until the lapse of the applicable
restrictions. Upon the lapse of the restrictions, the participant will
recognize ordinary income in an amount equal to the fair market value, at the
time of such lapse, of the stock as to which the restrictions have lapsed, and
Gart will be entitled to a deduction in the same amount. Any gain or loss
subsequently recognized by the participant will be a capital gain or loss.
If Gart makes an award of Purchased Shares to a participant, and the shares
are not subject to forfeiture restrictions, the participant will recognize
ordinary income in an amount equal to the excess of the fair market value of
the Purchased Shares at the time of the award over the purchase price of the
Purchased Shares, and Gart will be entitled to a deduction in the same amount.
A participant normally will not recognize ordinary income upon an award of
Purchased Shares that are subject to forfeiture restrictions, and Gart will not
be entitled to a deduction until the lapse of the applicable restrictions. Upon
the lapse of the restrictions, the participant will recognize ordinary income
in an amount equal to the fair market value, at the time of such lapse, over
the purchase price of the Purchased Shares. Any gain or loss subsequently
recognized by the participant will be a capital gain or loss.
Election Under Section 83(b) of the Internal Revenue Code. A participant
may elect, under Section 83(b) of the Internal Revenue Code, to recognize
ordinary income in the year Grant Shares or Purchased Shares subject to
forfeiture restrictions are awarded, in an amount equal to the fair market
value of the shares at that time, determined without regard to the
restrictions. Similarly, a participant may make a Section 83(b) election, no
later than 30 days from the date of exercise, of a non-vested NSO to recognize
ordinary income in an amount equal to the excess of the fair market value of
the shares subject to the NSO on the date of exercise over the exercise price.
If a participant makes an 83(b) election, Gart will be entitled to a deduction
in the amount of the ordinary income recognized by the participant on the date
of exercise. Any gain or loss subsequently recognized by the participant will
be a capital gain or loss.
If any Purchased Shares are forfeited (i.e., repurchased by Gart), the
participant will be allowed to deduct-- as an ordinary deduction if no Section
83(b) election was made or as a capital loss if such an election was made -- an
amount equal to the difference, if any, between the purchase price paid for the
Purchased Shares and the amount received as a result of the forfeiture. If a
participant makes the Section 83(b) election and the Purchased Shares or Grant
Shares are later forfeited (i.e., repurchased by Gart), the participant will be
denied a deduction for the amount of any income recognized as a result of the
Section 83(b) election.
$1,000,000 Limit on Deductible Compensation. Section 162(m) of the
Internal Revenue Code provides that any publicly traded corporation will be
denied a deduction for compensation paid to certain executive officers to the
extent that the compensation exceeds $1,000,000 per officer, per year. However,
the deduction limit does not apply to "performance-based compensation," as
defined in Section 162(m). Compensation is performance-based compensation if:
. the compensation is payable on account of the attainment of one or more
performance goals;
. the performance goals are established by a compensation committee of
Gart's board of directors consisting solely of two or more "outside
directors;"
. the material terms of the compensation and the performance goals are
disclosed and approved by a majority vote of Gart's stockholders, in a
separate vote, before the issuance of stock options; and
. the compensation committee certifies that the performance goals have
been satisfied.
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Gart believes that, if Gart's stockholders approve the amendment to the 1994
Management Equity Plan, the Stock Options granted under the 1994 Management
Equity Plan will satisfy the requirements of Section 162(m). Accordingly, the
Stock Options will be treated as performance-based compensation, and will not
be subject to the deduction limit of Section 162(m) of the Internal Revenue
Code. Purchased Shares and Grant Shares will generally not be performance-based
compensation under Section 162(m).
Excess Parachute Payments. Under Section 4999 of the Internal Revenue Code,
certain Gart officers, stockholders, and highly compensated individuals
("Disqualified Individuals") will be subject to an excise tax (in addition to
federal income taxes) of 20% of the amount of certain "excess parachute
payments" that they receive as a result of a change in control of Gart.
Furthermore, Section 280G of the Internal Revenue Code prevents Gart from
taking a deduction for any "excess parachute payments." The acceleration of the
vesting of stock options for certain Gart executives who have entered into a
change of control severance agreement with Gart may cause the holders of such
stock options who are Disqualified Individuals to recognize certain amounts as
"excess parachute payments" on which they must pay the 20% excise tax, and for
which Gart will be denied a tax deduction.
Gart's board of directors recommends that Gart stockholders vote "FOR" the
amendment to Gart's 1994 Management Equity Plan.
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Ratification of the Appointment of Gart's Independent Auditors
General
At Gart's annual meeting, Gart stockholders will be asked to ratify the
selection by Gart's board of directors of Deloitte & Touche LLP, independent
auditors, to audit the consolidated financial statements of Gart for the fiscal
year ending February 2, 2002. Stockholder ratification of the selection of
Deloitte & Touche LLP as Gart's independent auditors is not required by Gart's
amended and restated bylaws or otherwise. However, Gart's board of directors is
submitting the selection of Deloitte & Touche LLP to the stockholders for
ratification as a matter of good corporate practice. In the event of a negative
vote on such ratification, Gart's board of directors will reconsider its
selection. Even if the selection is ratified, Gart's board of directors, in its
discretion, may direct the appointment of different independent auditors at any
time during the 2001 fiscal year if it determines that such change would be in
the best interests of Gart and its stockholders.
Deloitte & Touche LLP audited Gart's consolidated financial statements for
the fiscal year ended February 3, 2001. Representatives of Deloitte & Touche
LLP are expected to be present at Gart's annual meeting with the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions by Gart's stockholders.
Voting
This proposal will be approved if, at Gart's annual meeting, the number of
shares voted in favor of this proposal exceeds the number of shares voted
against this proposal. Abstentions will count as votes against this proposal
because they will be counted as present at the meeting and entitled to vote on,
but not for, this proposal. Broker non-votes will not be counted as votes cast
for or against this proposal and will not affect the outcome of the vote on
this matter.
Each proxy received will be voted in accordance with the instructions
indicated on the proxy. If no instructions are indicated on the proxy, then the
proxy will be voted "FOR" the ratification of the selection of Deloitte &
Touche LLP as Gart's independent auditors for the fiscal year ending February
2, 2002.
Gart's board of directors recommends that Gart stockholders vote "FOR" the
ratification of the selection of Deloitte & Touche LLP as Gart's independent
auditors for the fiscal year ending February 2, 2002.
Submission of Proposals by Gart's Stockholders
In order to be eligible for inclusion in Gart's proxy statement and proxy
card for the next annual meeting of Gart stockholders pursuant to Rule 14a-8
under the Exchange Act, stockholder proposals must be received by the secretary
of Gart at its principal executive offices no later than , 2002. However, in
order for such stockholder proposals to be eligible to be brought before the
Gart stockholders at the next annual meeting of Gart stockholders, the Gart
stockholder submitting the proposals also must comply with the procedures,
including the deadlines, required by Gart's amended and restated bylaws.
Stockholder nominations of directors are not stockholder proposals within the
meaning of Rule 14a-8 and are not eligible for inclusion in Gart's proxy
statement.
Other Matters Presented at the Annual Meeting of Gart Stockholders
Gart does not know of any other business to be presented at the annual
meeting of Gart stockholders and does not intend to bring any other matters
before the annual meeting. However, if any other matters properly come before
the annual meeting, the persons named in the accompanying proxy are empowered,
in the absence of instructions to the contrary, to vote according to their best
judgment.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GART
The shares of Gart common stock constitute the only outstanding class of
voting securities of Gart. As of March 30, 2001, there were 7,366,150 shares of
Gart common stock outstanding and entitled to vote and 209 stockholders of
record.
The following table lists any known Gart stockholders with beneficial
ownership of five percent or more of the outstanding shares of Gart common
stock and the beneficial ownership of shares of Gart common stock of all of
Gart's directors and executive officers and all of Gart's current executive
officers and directors as a group. Information regarding beneficial ownership
is based on Gart's records and data supplied to Gart by its stockholders as of
March 30, 2001.
Amount and Nature
of Beneficial
Name and Address of Beneficial Owner Ownership (1) Percent of Class
------------------------------------ ----------------- ----------------
Oshman's Sporting Goods, Inc. (2)......... 4,713,200 64.0%
2302 Maxwell Lane
Houston, Texas, 77023
Green Equity Investors, L.P. (3).......... 4,713,200 64.0%
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California, 90025
John Douglas Morton (4)................... 238,400 3.2%
Thomas T. Hendrickson (5)................. 54,292 *
Arthur S. Hagan (6)....................... 51,600 *
James M. Van Alstyne (7).................. 8,000 *
Greg Waters (8)........................... 23,200 *
Michael McCaghren (9)..................... 6,000 *
Nesa E. Hassanein (10).................... 6,000 *
Anthony Forde (11)........................ 8,000 *
Jonathan D. Sokoloff (3).................. -- --
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Jonathan A. Seiffer....................... 800 *
Gordon D. Barker (12)..................... 19,124 *
Peter R. Formanek (13).................... 74,267 1.0%
Larry J. Hochberg (14).................... 449,660 6.1%
1000 Broadway
Denver, Colorado 80203
Directors and Executive Officers as a
group.................................... 939,343 12.1%
--------
*Less than 1%.
(1) Applicable percentage of ownership is based on 7,366,150 shares of Gart
common stock outstanding as of March 30, 2001. Shares of Gart common stock
that a person has the right to acquire within 60 days of March 30, 2001 are
deemed outstanding for purposes of computing the percentage ownership of
the person holding such rights, but are not deemed outstanding for purposes
of computing the percentage ownership of any other person, except with
respect to the percentage ownership of all directors and executive officers
as a group.
(2) Oshman's Sporting Goods, Inc., which has the address of 2302 Maxwell Lane,
Houston, Texas 77023, reports beneficial ownership of these shares on a
Schedule 13D, filed on April 3, 2001. Pursuant to the voting agreements
discussed in "The Merger and Related Transactions--Voting Agreements,"
Green Equity Investors, L.P., which owns approximately 64% of the
outstanding Gart common stock, has entered into a voting agreement with
Oshman's. Pursuant to this voting agreement, Green Equity Investors, L.P.
has
102
agreed to vote its shares in favor of the issuance of Gart common stock in
the merger described in "The Merger and Related Transactions," and has
granted Oshman's an irrevocable proxy to vote its shares in favor of the
issuance of common stock in the merger.
(3) Green Equity Investors, L.P. is a Delaware limited partnership, and its
general partner is Leonard Green & Associates, L.P. The general partners
of Leonard Green & Associates, L.P. are (a) Verdi Group, Inc., a
California corporation, the capital stock of which is wholly owned by a
trust of which Leonard I. Green is the co-trustee, (b) Mr. Sokoloff, (c)
GANMAX, a California corporation the capital stock of which is
beneficially owned by Gregory J. Annick, and (d) John G. Danhakl. Mr.
Green, Mr. Sokoloff, Mr. Annick and Mr. Danhakl may be deemed to be
beneficial owners of the shares of Gart common stock held by Green Equity
Investors since they, or entities they control, are general partners of
Leonard Green & Associates, L.P. and also because they, whether through
ownership interest or position, may be deemed to control Leonard Green &
Associates, L.P..
(4) Includes 206,400 shares of Gart common stock issuable upon the exercise
of outstanding options.
(5) Includes 44,916 shares of Gart common stock issuable upon the exercise
of outstanding options.
(6) Includes 36,600 shares of Gart common stock issuable upon the exercise
of outstanding options.
(7) Includes 8,000 shares of Gart common stock issuable upon the exercise of
outstanding options.
(8) Includes 23,200 shares of Gart common stock issuable upon the exercise
of outstanding options.
(9) Includes 6,000 shares of Gart common stock issuable upon the exercise of
outstanding options.
(10) Includes 6,000 shares of Gart common stock issuable upon the exercise of
outstanding options.
(11) Includes 8,000 shares of Gart common stock issuable upon the exercise of
outstanding options.
(12) Includes 10,000 shares of Gart common stock issuable upon the exercise
of outstanding options.
(13) Includes 21,200 shares of Gart common stock held by Formanek Investment
Trust with Peter R. Formanek as beneficiary and trustee, 1,650 shares of
Gart common stock held by Peter R. Formanek as a minority trustee of the
Formanek Childrens Trust, and 10,000 shares of Gart common stock
issuable upon the exercise of outstanding options. Mr. Formanek
disclaims beneficial ownership of the shares held by the Formanek
Childrens Trust.
(14) Excludes 129,982 shares of Gart common stock held by AH Investment Trust
U/A/D 6/3/87 with Andrew S. Hochberg as beneficiary, of which shares
Larry J. Hochberg disclaims beneficial ownership. Excludes 18,158 shares
of Gart common stock held by AH Investment Trust II with Andrew S.
Hochberg as beneficiary, of which shares Larry J. Hochberg disclaims
beneficial ownership. Includes 425,635 shares of Gart common stock held
by Larry J. Hochberg as trustee and beneficiary of the Larry J. Hochberg
Trust U/A/D 6/12/81. Includes 3,216 shares of Gart common stock held by
Larry J. Hochberg as trustee of the Andrew S. Hochberg Sub-Trust U/A/D
1/3/90. Includes 8,275 shares of Gart common stock held by Larry J.
Hochberg as co-trustee of the Hochberg Annual Gift Trust U/A/D 4/27/94.
Includes 2,804 shares of Gart common stock held by Larry J. Hochberg as
trustee of the Amy H. Lowenstein Sub-Trust U/A/D 1/3/90. Includes 10,000
shares of Gart common stock issuable upon the exercise of outstanding
options.
103
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF OSHMAN'S
The shares of Oshman's common stock constitute the only outstanding class of
voting securities of Oshman's. As of March 30, 2001, there were 5,825,309
shares of Oshman's common stock outstanding and entitled to vote and
approximately 529 stockholders of record.
The following table lists any known Oshman's stockholders with beneficial
ownership of five percent or more of the outstanding shares of Oshman's common
stock and the beneficial ownership of shares of Oshman's common stock of all of
Gart's directors and executive officers and all of Oshman's current executive
officers and directors as a group. Information regarding beneficial ownership
is based on Oshman's records and data supplied to Oshman's by its stockholders
as of March 30, 2001.
Amount and Nature
of Beneficial
Name and Address of Beneficial Owner Ownership (1) Percent of Class
------------------------------------ ----------------- ----------------
Gart Sports Company................... 2,914,543(2) 50.0%
1000 Broadway
Denver Colorado 80203
Marilyn Oshman........................ 1,211,174(3) 20.8%
2302 Maxwell Lane
Houston, Texas 77056
Judy O. Margolis...................... 717,591(4) 12.3%
1400 Post Oak Blvd., Suite 808
Houston, Texas 77056
Alvin N. Lubetkin..................... 540,900(5) 8.6%
2302 Maxwell Lane
Houston, Texas 77023
Edward C. Stanton III, Trustee........ 422,300(6) 7.2%
1111 Hermann Drive, #7-D
Houston, Texas 77074
Dimensional Fund Advisors, Inc........ 353,500 6.0%
1299 Ocean Ave., 11th Floor
Santa Monica, California 90401
Vendamerica B.V....................... 300,000 5.1%
De Klencke 6 1083 HH
Amsterdam, Netherlands
Barry M. Lewis, Trustee............... 298,432(7) 5.1%
2000 West Loop South, Suite 1080
Houston, Texas 77027
Marvin Aronowitz...................... 28,441(8) *
Karen Desenberg....................... 164,146(9) 2.8%
Margaret A. Gilliam................... 10,000(10) *
Manuel A. Sanchez III................. 112,000(11) 1.9%
Dolph B.H. Simon...................... 20,000(12) *
Steven A. Martin...................... 60,000(13)(14) 1.0%
Thomas J. McVey....................... 45,000(14)(15) *
Ray Miller............................ 4,000(14)(16) *
Richard L. Randall.................... 45,000(14)(17) *
Steven U. Rath........................ 63,300(14)(18) 1.1%
Directors and Executive Officers as a
group (12 persons)................... 2,303,961(14)(19) 35.4%
--------
* Less than 1%
(1) The persons listed have the sole power to vote and to dispose of the shares
of Oshman's common stock beneficially owned by them except as otherwise
indicated. The 11,802 shares owned by the Oshman
104
Foundation, of which Mr. Aronowitz, Ms. Oshman and Mr. Lubetkin are three
of the six trustees, are not included. Such trustees are vested with the
power to vote and dispose of all assets of the Oshman Foundation, including
such shares. These persons disclaim all beneficial ownership of shares
owned by the Oshman Foundation. The number of shares includes all options
and restricted stock held by the persons listed, including vested options
and those that will likely become exercisable within 60 days as a result of
the merger.
(2) Gart and GSC Acquisition, each of which has the address of 1000
Broadway, Denver, Colorado 80203, report beneficial ownership of these
shares on a Schedule 13D, filed on March 5, 2001. Pursuant to the voting
agreements discussed in "The Merger and Related Transactions--Voting
Agreements," stockholders that own more than 50% of Oshman's outstanding
common stock have entered into voting agreements with Gart. Pursuant to
these voting agreements, the stockholders have agreed to vote their
shares in favor of the merger discussed in "The Merger and Related
Transactions" and have granted Gart an irrevocable proxy to vote their
shares in favor of the merger. The Form 8-K filed by Gart, dated
February 22, 2001, states that Green Equity Investors, L.P., which has
the address of 11111 Santa Monica Boulevard, Suite 2000, Los Angeles,
California 90025, controls 64% of the outstanding shares of Gart common
stock. By virtue of such ownership, Green Equity Investors, L.P. may be
deemed to control Gart and, therefore, may be deemed to have beneficial
ownership of the Oshman's common stock subject to the voting agreements
pursuant to which Gart has an irrevocable proxy to vote the shares in
favor of the merger.
(3) Includes 315,300 shares held by Ms. Oshman as trustee for the benefit of
her children. Does not include 422,300 shares held in trust for the
benefit of Ms. Oshman and her children.
(4) Includes 257,800 shares held by Ms. Margolis as trustee for the benefit
of her children. Does not include 298,432 shares held in trust by Mr.
Lewis as trustee for the benefit of Ms. Margolis and her children.
(5) Includes 100,000 shares of restricted Oshman's common stock and options
to purchase 330,000 shares of Oshman's common stock pursuant to Oshman's
1994 Omnibus Plan that have vested or will likely become exercisable
within 60 days as a result of the merger.
(6) These shares are held by Mr. Stanton as trustee for the benefit of Ms.
Oshman and her children.
(7) These shares are held by Mr. Lewis as trustee for the benefit of Ms.
Margolis and her children.
(8) Includes options to purchase 10,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan.
(9) Does not include 157,650 shares of Oshman's common stock held in trust
for the benefit of Ms. Desenberg. Includes 26,000 shares held by Ms.
Desenberg as trustee or custodian for her children and another person.
Includes 3,550 shares that are also held by Ms. Desenberg's husband.
Includes options to purchase 10,000 shares of Oshman's common stock
pursuant to Oshman's 1993 Non-Employee Director Stock Option Plan.
(10) Includes options to purchase 10,000 shares of Oshman's common stock
pursuant to Oshman's 1993 Non-Employee Director Stock Option Plan.
(11) Includes options to purchase 8,000 shares of Oshman's common stock
pursuant to Oshman's 1993 Non-Employee Director Stock Option Plan.
(12) Includes options to purchase 20,000 shares of Oshman's common stock
pursuant to Oshman's 1993 Non-Employee Director Stock Option Plan.
(13) Includes options to purchase 60,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan.
(14) Excludes 64,344 shares owned by Oshman's 401(k) Plan of which Messrs.
Randall, Rath, Martin, McVey and Miller are five of the six trustees.
Such trustees share voting and dispositive power over such shares. These
persons disclaim beneficial ownership of shares owned by the 401(k)
Plan, except to the extent of their respective interests as participants
in the 401(k) plan.
105
(15) Includes options to purchase 45,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan.
(16) Includes options to purchase 4,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan.
(17) Includes options to purchase 45,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan.
(18) Includes options to purchase 34,000 shares of Oshman's common stock
pursuant to Oshman's 1994 Omnibus Plan. Includes 4,000 shares held by Mr.
Rath as custodian for his children.
(19) Includes restricted stock and options to purchase 676,000 shares of
Oshman's common stock held by officers and directors pursuant to Oshman's
1993 Non-Employee Director Stock Option Plan and 1994 Omnibus Plan.
LEGAL OPINION
The validity of the shares of Gart common stock offered by this joint proxy
statement-prospectus will be passed upon for Gart by Irell & Manella LLP.
TAX OPINIONS
Certain of the tax consequences of the transaction are being passed upon for
Oshman's by Grant Thornton LLP.
Certain of the tax consequences of the transaction are being passed upon for
Gart by Deloitte & Touche LLP.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated into this joint proxy statement-prospectus by reference
from Oshman's Annual Report on Form 10-K/A for the year ended February 3, 2001
have been audited by Grant Thornton LLP, independent public accountants, as
stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon their report given upon their authority
as experts in accounting and auditing.
The consolidated balance sheet of Gart as of February 3, 2001 and the
related consolidated statements of operations, stockholder's equity and
comprehensive income and of cash flows for the 53 weeks then ended,
incorporated into this joint proxy statement-prospectus by reference from
Gart's Annual Report on Form 10-K for the fiscal year ended February 3, 2001
have been audited by Deloitte & Touche LLP, independent public accountants, as
stated in their report, which is incorporated into this joint proxy statement-
prospectus by reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
106
The consolidated financial statements of Gart as of January 29, 2000 and for
the 52 weeks ended January 29, 2000 and January 30, 1999 have been incorporated
herein by reference in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement-prospectus incorporates documents by reference
that are not presented in or delivered with this joint proxy statement-
prospectus.
All documents filed by Gart pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this joint proxy
statement-prospectus and before the date of the annual meeting of Gart
stockholders are incorporated by reference into and to be a part of this joint
proxy statement-prospectus from the date of filing of those documents. All
documents filed by Oshman's pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this joint proxy
statement-prospectus and before the date of the special meeting of Oshman's
stockholders are incorporated by reference into and to be a part of this joint
proxy statement-prospectus from the date of filing of those documents.
You should only rely on the information contained in this document. Gart and
Oshman's have not authorized anyone to provide you with information that is
different from the information contained in this joint proxy statement-
prospectus.
This joint proxy statement-prospectus is dated , 2001. You should not
assume that the information contained in this joint proxy statement-prospectus
is accurate as of any date other than , 2001 and neither the mailing of
this joint proxy statement-prospectus to Gart stockholders or Oshman's
stockholders nor the issuance of Gart common stock in the merger shall create
any implication to the contrary.
The following documents, which were filed by Gart with the Securities and
Exchange Commission, are incorporated by reference into this joint proxy
statement-prospectus:
. Gart's Annual Report on Form 10-K for the fiscal year ended February 3,
2001, filed on April 12, 2001.
. Gart's Current Report on Form 8-K, filed on March 1, 2001.
The following documents, which were filed by Oshman's with the Securities
and Exchange Commission, are incorporated by reference into this joint proxy
statement-prospectus:
. Oshman's Annual Report on Form 10-K/A for the fiscal year ended February
3, 2001, filed on April 17, 2001.
. Oshman's Current Report on Form 8-K, filed on February 26, 2001.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference into this joint proxy statement-prospectus will be
deemed to be modified or superseded for purposes of this joint proxy statement-
prospectus to the extent that a statement contained in this joint proxy
statement-prospectus or any other subsequently filed document that is deemed to
be incorporated by reference into this joint proxy statement-prospectus
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this joint proxy statement-prospectus.
The documents incorporated by reference into this joint proxy statement-
prospectus are available from Gart or Oshman's, as applicable, upon request.
Gart or Oshman's, as applicable, will provide a copy of any and
107
all of the information that is incorporated by reference in this joint proxy
statement-prospectus (not including exhibits to the information unless those
exhibits are specifically incorporated by reference into this joint proxy
statement-prospectus) to any person, without charge, upon written or oral
request. Any request for documents should be made by , 2001 to ensure
timely delivery of the documents.
Requests for documents
relating to Gart Requests for documents relating to Oshman's
should be directed to: should be directed to:
Gart Sports Company Oshman's Sporting Goods, Inc.
1000 Broadway 2302 Maxwell Lane
Denver, Colorado 80203 Houston, Texas 77023
Gart and Oshman's both file reports, proxy statements and other information
with the Securities and Exchange Commission. Copies of the reports, proxy
statements and other information relating to Gart and Oshman's may be inspected
and copied at the public reference facilities maintained by the Securities and
Exchange Commission at:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning Gart may be
inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Reports, proxy statements and other information concerning Oshman's may be
inspected at:
The American Stock Exchange
86 Trinity Place
New York, NY 10006
Copies of these materials also can be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, joint proxy statements and other
information regarding each of Gart and Oshman's. The address of the Securities
and Exchange Commission Website is http://www.sec.gov.
Gart has filed a registration statement on Form S-4 under the Securities Act
with the Securities and Exchange Commission with respect to Gart common stock
to be issued to Oshman's stockholders in the merger. This joint proxy
statement-prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted as provided by the rules and regulations of the Securities and Exchange
Commission. You may inspect and copy the registration statement at any of the
addresses listed above.
Gart stockholders should call Nesa E. Hassanein, senior vice president,
general counsel and secretary, at (303) 861-1122 with any questions about the
matters described in this joint proxy statement-prospectus.
Oshman's stockholders should call Steven A. Martin, senior vice president
and chief financial officer, at (713) 928-3171 with any questions about the
matters described in this joint proxy statement-prospectus.
108
This joint proxy statement-prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this joint
proxy statement-prospectus or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make this offer,
solicitation of an offer or proxy solicitation in that jurisdiction. Neither
the delivery of this joint proxy statement-prospectus nor any distribution of
securities pursuant to this joint proxy statement-prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth in, or incorporated by reference into, this joint proxy
statement-prospectus or in Gart's affairs since the date of this joint proxy
statement-prospectus. The information contained in this joint proxy statement-
prospectus with respect to Gart and its subsidiaries was provided by Gart. The
information contained in this document with respect to Oshman's and its
subsidiaries was provided by Oshman's.
109
ANNEX A
AGREEMENT AND PLAN OF MERGER
By and Among
GART SPORTS COMPANY,
a Delaware corporation,
GSC ACQUISITION CORP.,
a Delaware corporation
and
OSHMAN'S SPORTING GOODS, INC.,
a Delaware corporation
Dated as of February 21, 2001
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS................................................... A-1
1.1. CERTAIN TERMS................................................. A-1
1.2. DEFINITIONS................................................... A-2
ARTICLE 2. THE MERGER.................................................... A-9
2.1. THE MERGER.................................................... A-9
2.2. MERGER CONSIDERATION AND CONVERSION OF SHARES................. A-9
2.3. EXCHANGE PROCEDURES........................................... A-10
2.4. EXCHANGE OF STOCK CERTIFICATES................................ A-12
2.5. DISSENTING SHARES............................................. A-12
2.6. STOCK OPTIONS................................................. A-13
ARTICLE 3. CLOSING....................................................... A-13
3.1. CLOSING....................................................... A-13
ARTICLE 4. THE SURVIVING CORPORATION..................................... A-13
4.1. CERTIFICATE OF INCORPORATION AND BY-LAWS...................... A-13
4.2. DIRECTORS AND OFFICERS........................................ A-13
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-14
5.1. ORGANIZATION AND GOOD STANDING................................ A-14
5.2. CERTIFICATE OF INCORPORATION AND BY-LAWS...................... A-14
5.3. CAPITALIZATION................................................ A-14
5.4. COMPANY SUBSIDIARIES.......................................... A-15
5.5. CORPORATE AUTHORITY........................................... A-15
5.6. COMPLIANCE WITH APPLICABLE LAW................................ A-16
5.7. NON-CONTRAVENTION............................................. A-16
5.8. GOVERNMENT APPROVALS AND CONSENTS............................. A-16
5.9. SEC DOCUMENTS AND OTHER REPORTS............................... A-16
5.10. ABSENCE OF UNDISCLOSED LIABILITIES............................ A-17
5.11. ABSENCE OF CERTAIN CHANGES OR EVENTS.......................... A-17
5.12. ACTIONS AND PROCEEDINGS....................................... A-19
5.13. CONTRACTS..................................................... A-19
5.14. TAXES......................................................... A-20
5.15. TITLE TO PROPERTIES; ENCUMBRANCES............................. A-22
5.16. INTELLECTUAL PROPERTY......................................... A-22
5.17. PROVIDED INFORMATION.......................................... A-23
A-i
Page
----
5.18. COMPANY PLANS; ERISA......................................... A-23
5.19. ENVIRONMENTAL MATTERS........................................ A-25
5.20. LABOR MATTERS................................................ A-25
5.21. RELATED PARTY TRANSACTIONS................................... A-26
5.22. REAL ESTATE.................................................. A-26
5.23. INSURANCE.................................................... A-28
5.24. MERCHANDISE VENDORS.......................................... A-29
5.25. VENDORS AND LANDLORDS; CO-OPERATIVE ADVERTISING CONTRACTS.... A-29
5.26. STORE CLOSINGS............................................... A-29
5.27. DISCLOSURE................................................... A-29
5.28. TAKEOVER STATUTES............................................ A-29
5.29. OPINION OF FINANCIAL ADVISOR................................. A-29
5.30. BROKERS...................................................... A-29
5.31. FINANCING.................................................... A-29
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF GART AND MERGERSUB......... A-30
6.1. ORGANIZATION AND GOOD STANDING............................... A-30
6.2. CERTIFICATE OF INCORPORATION AND BY-LAWS..................... A-30
6.3. CAPITALIZATION............................................... A-30
6.4. GART SUBSIDIARIES............................................ A-31
6.5. CORPORATE AUTHORITY.......................................... A-31
6.6. COMPLIANCE WITH APPLICABLE LAW............................... A-31
6.7. NON-CONTRAVENTION............................................ A-31
6.8. GOVERNMENT APPROVALS AND CONSENTS............................ A-32
6.9. SEC DOCUMENTS AND OTHER REPORTS.............................. A-32
6.10. ABSENCE OF UNDISCLOSED LIABILITIES........................... A-32
6.11. ABSENCE OF CERTAIN CHANGES OR EVENTS......................... A-33
6.12. ACTIONS AND PROCEEDINGS...................................... A-34
6.13. CONTRACTS.................................................... A-35
6.14. TAXES........................................................ A-35
6.15. TITLE TO PROPERTIES; ENCUMBRANCES............................ A-36
6.16. INTELLECTUAL PROPERTY........................................ A-36
6.17. PROVIDED INFORMATION......................................... A-37
6.18. GART PLANS; ERISA............................................ A-37
6.19. ENVIRONMENTAL MATTERS........................................ A-38
A-ii
Page
----
6.20. LABOR MATTERS................................................ A-38
6.21. RELATED PARTY TRANSACTIONS................................... A-39
6.22. REAL ESTATE.................................................. A-39
6.23. INSURANCE.................................................... A-41
6.24. MERCHANDISE VENDORS.......................................... A-41
6.25. VENDORS AND LANDLORDS; CO-OPERATIVE ADVERTISING CONTRACTS.... A-41
6.26. STORE CLOSINGS............................................... A-41
6.27. DISCLOSURE................................................... A-41
6.28. TAKEOVER STATUTES............................................ A-41
6.29. BROKERS...................................................... A-42
6.30. FINANCING.................................................... A-42
6.31. NO PRIOR ACTIVITIES.......................................... A-42
ARTICLE 7. COVENANTS.................................................... A-42
7.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER........ A-42
7.2. CONDUCT OF BUSINESS BY GART PENDING THE MERGER............... A-44
7.3. ACCESS AND INFORMATION....................................... A-46
7.4. NO SOLICITATION.............................................. A-46
7.5. GOVERNMENTAL ENTITIES........................................ A-47
7.6. BEST EFFORTS................................................. A-47
7.7. CERTAIN FILINGS UNDER SECURITIES LAWS........................ A-47
7.8. STOCKHOLDERS MEETINGS........................................ A-48
7.9. HSR NOTIFICATION............................................. A-48
7.9.1. FILINGS............................................... A-48
7.9.2. COOPERATION........................................... A-48
7.10. FINANCIAL STATEMENT DELIVERIES............................... A-48
7.11. FINANCING.................................................... A-48
7.12. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION....... A-49
7.13. OPTIONS...................................................... A-49
7.14. EMPLOYEE BENEFITS............................................ A-50
7.15. ANTITAKEOVER STATUTES........................................ A-51
7.16. NOTIFICATION OF CERTAIN MATTERS.............................. A-51
7.17. FURTHER ASSURANCES........................................... A-51
7.18. FURTHER ACTION; REASONABLE COMMERCIAL EFFORTS................ A-51
7.19. TAX-FREE REORGANIZATION TREATMENT............................ A-52
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Page
----
7.20. DELIVERY OF OPINION OF FINANCIAL ADVISOR.................... A-52
7.21. PUBLIC ANNOUNCEMENTS........................................ A-52
7.22. TERMINATION OF 401(K) SAVINGS PLAN.......................... A-52
7.23. NASDAQ LISTING.............................................. A-52
7.24. BOARD OF DIRECTORS.......................................... A-52
7.25. REGISTRATION RIGHTS......................................... A-52
7.26. REAL ESTATE MATTERS......................................... A-53
ARTICLE 8. CONDITIONS OF MERGER........................................ A-53
8.1. GENERAL CONDITIONS.......................................... A-53
8.1.1. NO LAW OR ORDERS..................................... A-53
8.1.2. HSR ACT.............................................. A-53
8.1.3. LEGAL PROCEEDINGS.................................... A-53
8.1.4. STOCKHOLDER APPROVAL................................. A-53
8.1.5. REGISTRATION STATEMENT............................... A-53
8.1.6. REGULATORY APPROVAL.................................. A-53
8.1.7. PERMITS AND APPROVALS................................ A-53
8.1.8. CLOSING SALE PRICE................................... A-53
8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY...... A-54
8.2.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF OBLIGATIONS............................. A-54
8.2.2. DELIVERIES........................................... A-54
8.2.3. GART ADVERSE CHANGES................................. A-54
8.2.4. TAX OPINIONS......................................... A-54
8.2.5. COMFORT LETTERS...................................... A-54
8.2.6. THIRD PARTY CONSENTS................................. A-54
8.3. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF GART AND
MERGERSUB................................................... A-55
8.3.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF OBLIGATIONS............................. A-55
8.3.2. DELIVERIES........................................... A-55
8.3.3. COMPANY ADVERSE CHANGES.............................. A-55
8.3.4. TAX OPINIONS......................................... A-55
8.3.5. COMFORT LETTERS...................................... A-55
8.3.6. FINANCING............................................ A-55
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Page
----
8.3.7. THIRD PARTY CONSENTS.................................. A-56
8.3.8. DISSENTING SHARES..................................... A-56
8.3.9. CANCELLATION OF OPTIONS............................... A-56
ARTICLE 9. TERMINATION.................................................. A-56
9.1. TERMINATION.................................................. A-56
9.1.1. MUTUAL CONSENT........................................ A-56
9.1.2. BY GART............................................... A-56
9.1.3. BY THE COMPANY........................................ A-56
9.1.4. TERMINATION DATE...................................... A-56
9.1.5. BREACH OF COVENANT.................................... A-56
9.1.6. BREACH OF REPRESENTATIONS AND WARRANTIES.............. A-57
9.1.7. ORDER OR ACTION BY GOVERNMENTAL ENTITY................ A-57
9.2. MANNER AND EFFECT OF TERMINATION............................. A-57
9.3. CERTAIN PAYMENTS UPON TERMINATION............................ A-57
ARTICLE 10. MISCELLANEOUS................................................ A-58
10.1. CONFIDENTIALITY.............................................. A-58
10.2. EXPENSES..................................................... A-58
10.3. NOTICES...................................................... A-59
10.4. ENTIRE AGREEMENT............................................. A-59
10.5. COUNTERPARTS................................................. A-59
10.6. INVALID PROVISIONS........................................... A-60
10.7. THIRD PARTY BENEFICIARIES.................................... A-60
10.8. NO ASSIGNMENT; BINDING EFFECT................................ A-60
10.9. HEADINGS..................................................... A-60
10.10. GOVERNING LAW................................................ A-60
10.11. CONSTRUCTION................................................. A-60
10.12. SPECIFIC PERFORMANCE......................................... A-60
10.13. AMENDMENT AND MODIFICATION................................... A-60
10.14. WAIVER....................................................... A-60
10.15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................... A-61
A-v
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
February 21, 2001, by and among Gart Sports Company, a Delaware corporation
(together with its Subsidiaries from time to time (except as the context may
otherwise require), "Gart"), GSC Acquisition Corp., a Delaware corporation
("MergerSub"), and Oshman's Sporting Goods, Inc., a Delaware corporation
(together with its Subsidiaries from time to time (except as the context may
otherwise require), the "Company"), with respect to the facts and
circumstances set forth below. Capitalized terms used herein without
definition have the meanings set forth elsewhere in this Agreement.
A. The board of directors of the Company and the board of directors of Gart
and MergerSub have each determined that it is advisable and in the best
interests of their respective stockholders to effect a merger of the Company
with and into MergerSub, with MergerSub as the surviving corporation, pursuant
to the Certificate of Merger and upon the terms and subject to the conditions
set forth herein.
B. Pursuant to the Merger, all shares of Company Common Stock (other than
Dissenting Shares, shares held by Gart or MergerSub, and shares held in the
Company's treasury) will be cancelled and converted automatically into the
right to receive shares of Gart Common Stock and an amount in cash per share,
without interest, as set forth in Section 2.2.1 of this Agreement.
C. In order to induce Gart and MergerSub to enter into this Agreement,
certain holders of Company Common Stock are entering into Voting Agreements in
the form attached hereto as Exhibit A (the "Company Voting Agreements"); and
in order to induce the Company to enter into this Agreement, a holder of Gart
Common Stock is entering into a Voting Agreement in the form attached hereto
as Exhibit B (the "Gart Voting Agreement" and, together with the Company
Voting Agreements, the "Voting Agreements"). Pursuant to the Voting
Agreements, among other things, such holders will agree to vote their shares
of Company Common Stock or Gart Common Stock, as applicable, in favor of
adoption of this Agreement and approval of the Merger.
D. For federal income tax purposes it is intended that the Merger shall
qualify as a tax-free reorganization under the provisions of Section 368 of
the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE 1.
Definitions
1.1. CERTAIN TERMS. For all purposes of this Agreement, except as otherwise
expressly provided:
1.1.1. the terms defined in this Article 1 have the meanings assigned to
them in this Article 1 and include the plural as well as the singular;
1.1.2. all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
1.1.3. all references in this Agreement to "Articles," "Sections,"
"Exhibits" and "Schedules" shall be deemed to be references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement, unless the
context shall otherwise require;
1.1.4. pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
1.1.5. the words "include," "includes" and "including" shall be deemed
in each case to be followed by the words "without limitation";
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1.1.6. the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
1.1.7. the term "party" or "parties" when used herein refer to Gart, the
Company and MergerSub; and
1.1.8. unless otherwise expressly provided herein, any agreement, plan,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, plan,
instrument or statute as may be from time to time amended, modified or
supplemented, including (in the case of agreements, plans or instruments)
by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes.
1.2. DEFINITIONS. As used in this Agreement and the exhibits and schedules
delivered pursuant to this Agreement, the following capitalized terms have the
meanings set forth below:
1.2.1. "Acquisition Transaction" has the meaning set forth in Section
7.4.1.
1.2.2. "Action" means any action, complaint, petition, investigation,
suit, audit, arbitration, litigation or other proceeding, whether civil or
criminal, in law or in equity, before any arbitrator or Governmental
Entity.
1.2.3. "Affiliate" means, as applied to any Person, (i) any other
Person directly or indirectly controlling, controlled by, or under common
control with, that Person, (ii) any other Person that owns or controls (a)
10% or more of any class of equity securities of that Person or any of its
Affiliates or (b) 10% or more of any class of equity securities (including
any equity securities issuable upon the exercise of any option or
convertible security) of that Person or any of its Affiliates, or (iii) as
to a corporation, each director and executive officer thereof, and, as to a
partnership, each general partner thereof, and, as to a limited liability
company, each managing member or similarly authorized person thereof
(including officers), and, as to any other entity, each Person exercising
similar authority to that of a director or officer of a corporation. For
the purposes of this definition, the term "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of that Person, whether through ownership of
voting securities, by Contract or otherwise.
1.2.4. "Agreement" means this Agreement, including (unless the context
otherwise requires) all exhibits and schedules attached or incorporated by
reference, as the same may be amended or supplemented from time to time in
accordance with the terms hereof.
1.2.5. "Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of Delaware are authorized or
obligated to close.
1.2.6. "Cash Consideration" has the meaning set forth in Section
2.2.1(a).
1.2.7. "Cash In Lieu" has the meaning set forth in Section 2.2.4.
1.2.8. "Certificate of Merger" has the meaning set forth in Section
2.1.2.
1.2.9. "Closing" has the meaning set forth in Section 3.1.
1.2.10. "Closing Date" means the date and time of the Closing.
1.2.11. "Closing Sale Price" has the meaning set forth in Section
2.2.1(b).
1.2.12. "COBRA" has the meaning set forth in Section 5.18.6.
1.2.13. "Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.2.14. "Company" has the meaning set forth in the preamble hereof.
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1.2.15. "Company Common Stock" means the common stock, par value $1.00
per share, of the Company.
1.2.16. "Company Credit Facility" means the Amended and Restated
Financing Agreement, by and among The CIT Group/Business Credit, Inc. and
the Company's Subsidiaries, dated December 15, 1997, as amended.
1.2.17. "Company Disclosure Schedule" means the schedules delivered to
Gart by, or on behalf of, the Company (concurrently with entering into this
Agreement), containing all lists, descriptions, exceptions, and other
information and materials that are required to be included therein in
connection with the representations and warranties made by the Company in
Article 5 or that are otherwise required to be included therein.
1.2.18. "Company ERISA Affiliate" has the meaning set forth in Section
1.2.28.
1.2.19. "Company Expenses" has the meaning set forth in Section 9.3.2.
1.2.20. "Company Financials" has the meaning set forth in Section 5.9.
1.2.21. "Company Improvements" has the meaning set forth in Section
5.22.7.
1.2.22. "Company Insurance Policies" has the meaning set forth in
Section 5.23.
1.2.23. "Company Intellectual Property Rights" has the meaning set
forth in Section 5.16.
1.2.24. "Company Interim Financial Information" has the meaning set
forth in Section 5.9.
1.2.25. "Company Leased Real Property" has the meaning set forth in
Section 5.22.2.
1.2.26. "Company Leases" has the meaning set forth in Section 5.22.2.
1.2.27. "Company Owned Real Property" has the meaning set forth in
Section 5.22.1.
1.2.28. "Company Plan" means (a) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of ERISA), of which any of the
Company, any Subsidiary, or any member of the same controlled group of
businesses as the Company or any Subsidiary of the Company within the
meaning of Section 4001(a)(14) of ERISA (a "Company ERISA Affiliate") is or
ever was a sponsor or participating employer or as to which the Company or
any Subsidiary of the Company or any of their Company ERISA Affiliates
makes contributions or is required to make contributions, and (b) any
similar employment, severance or other arrangement or policy of any of the
Company, any Subsidiary of the Company or any of their Company ERISA
Affiliates (whether written or oral) providing for health, life, vision or
dental insurance coverage (including self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation
or other forms of incentive compensation or post-retirement insurance,
compensation or benefits.
1.2.29. "Company Real Property" has the meaning set forth in Section
5.22.3.
1.2.30. "Company Real Property Permits" has the meaning set forth in
Section 5.22.8.
1.2.31. "Company SEC Documents" has the meaning set forth in Section
5.9.
1.2.32. "Company Stockholders Meeting" means the meeting of holders of
Company Common Stock to be held for the purpose of adopting this Agreement
and approving the Merger.
1.2.33. "Company Voting Agreements" means the Voting Agreements in the
form attached hereto as Exhibit A.
1.2.34. "Confidentiality Agreement" has the meaning set forth in
Section 10.1.
1.2.35. "Contract" means any loan, note, bond, mortgage, indenture,
lease, agreement, contract, instrument, concession, guarantee of
indebtedness or credit agreement, franchise, right or license.
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1.2.36. "Conversion Ratio" has the meaning set forth in Section
2.2.1(a).
1.2.37. "Designated Directors" has the meaning set forth in Section
7.24.
1.2.38. "DGCL" means the Delaware General Corporation Law and all
amendments and additions thereto.
1.2.39. "Dissenting Shares" has the meaning set forth in Section 2.5.
1.2.40. "Dollar Value Per Share" has the meaning set forth in Section
2.2.1(b)(i).
1.2.41. "Effective Time" has the meaning set forth in Section 2.1.2.
1.2.42. "Employee" has the meaning set forth in Section 7.14.
1.2.43. "Environmental Law" means any federal, state, local or foreign
environmental, health and safety, or other Law, in each case in existence
as of the Closing Date, relating to Hazardous Materials, including the
Comprehensive Environmental Response Compensation and Liability Act, the
Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste
Disposal Act, the Federal Insecticide, Fungicide and Rodenticide Act, and
the California Safe Drinking Water and Toxic Enforcement Act.
1.2.44. "Environmental Permit" means any permit, license, approval,
consent or authorization required under, or in connection with, any
Environmental Law and includes any and all orders, consent orders or
binding agreements issued by or entered into with a Governmental Entity.
1.2.45. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
1.2.46. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder.
1.2.47. "Exchange Agent" has the meaning set forth in Section 2.3.1.
1.2.48. "Exchange Fund" has the meaning set forth in Section 2.3.1.
1.2.49. "Financing" has the meaning set forth in Section 6.30.
1.2.50. "Financing Letter" has the meaning set forth in Section 6.30.
1.2.51. "GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
1.2.52. "Gart" has the meaning set forth in the preamble hereof.
1.2.53. "Gart Common Stock" means the common stock, par value $.01 per
share, of Gart.
1.2.54. "Gart Credit Facility" means the Financing Agreement, by and
among The CIT Group/Business Credit, Inc., Gart Bros. Sporting Goods
Company and Sportmart, Inc., dated January 9, 1998.
1.2.55. "Gart Disclosure Schedule" means the schedules delivered to the
Company by, or on behalf of, Gart (concurrently with entering into this
Agreement), containing all lists, descriptions, exceptions, and other
information and materials that are required to be included therein in
connection with the representations and warranties made by Gart in Article
6 or that are otherwise required to be included therein.
1.2.56. "Gart ERISA Affiliate" has the meaning set forth in Section
1.2.66.
1.2.57. "Gart Expenses" has the meaning set forth in Section 9.3.2.
1.2.58. "Gart Financials" has the meaning set forth in Section 6.9.
1.2.59. "Gart Improvements" has the meaning set forth in Section
6.22.7.
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1.2.60. "Gart Insurance Policies" has the meaning set forth in Section
6.23.
1.2.61. "Gart Intellectual Property Rights" has the meaning set forth
in Section 6.16.
1.2.62. "Gart Interim Financial Information" has the meaning set forth
in Section 6.9.
1.2.63. "Gart Leased Real Property" has the meaning set forth in
Section 6.22.2.
1.2.64. "Gart Leases" has the meaning set forth in Section 6.22.2.
1.2.65. "Gart Owned Real Property" has the meaning set forth in Section
6.22.1.
1.2.66. "Gart Plan" means (a) each of the "employee benefit plans" (as
such term is defined in Section 3(3) of ERISA), of which any of Gart, any
Subsidiary, or any member of the same controlled group of businesses as
Gart or any Subsidiary of Gart within the meaning of Section 4001(a)(14) of
ERISA (a "Gart ERISA Affiliate") is or ever was a sponsor or participating
employer or as to which Gart or any Subsidiary of Gart or any of their Gart
ERISA Affiliates makes contributions or is required to make contributions,
and (b) any similar employment, severance or other arrangement or policy of
any of Gart, any Subsidiary of Gart or any of their Gart ERISA Affiliates
(whether written or oral) providing for health, life, vision or dental
insurance coverage (including self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation
or other forms of incentive compensation or post-retirement insurance,
compensation or benefits.
1.2.67. "Gart Real Property" has the meaning set forth in Section
6.22.3.
1.2.68. "Gart Real Property Permits" has the meaning set forth in
Section 6.22.8.
1.2.69. "Gart SEC Documents" has the meaning set forth in Section 6.9.
1.2.70. "Gart Stockholders Meeting" means the meeting of holders of
Gart Common Stock to be held for the purpose of approving the issuance of
Gart Common Stock contemplated hereby.
1.2.71. "Gart Voting Agreement" means the Voting Agreement in the form
attached hereto as Exhibit B.
1.2.72. "Governmental Entity" means any government or any agency,
public or regulatory authority, instrumentality, ministry, bureau, board,
arbitrator, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether foreign or
domestic and whether national, federal, tribal, provincial, state,
regional, local or municipal, and shall include any stock exchange, any
quotation service and the NASD.
1.2.73. "Hazardous Material" means (a) any chemical, material,
substance or waste including, containing or constituting petroleum or
petroleum products, solvents (including chlorinated solvents), nuclear or
radioactive materials, asbestos in any form that is or could become
friable, radon, lead-based paint, urea formaldehyde foam insulation or
polychlorinated biphenyls, and (b) any other chemical, material, substance
or waste that is now defined as, or included in the definition of,
"hazardous substance(s)," "hazardous waste(s)," "hazardous material(s),"
"extremely hazardous waste(s)," "restricted hazardous waste(s)," "toxic
substance(s)," "toxic pollutant(s)" or words of similar import under or
pursuant to any Environmental Law.
1.2.74. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
1.2.75. "Income Tax" means (a) any income, alternative or add-on
minimum tax, gross income, gross receipts, franchise, profits, including
estimated taxes relating to any of the foregoing, or other similar tax or
other like assessment or charge of similar kind whatsoever, excluding any
Other Tax, together with any interest and any penalty, addition to tax or
additional amount imposed by any Taxing Authority
A-5
responsible for the imposition of any such Tax (domestic or foreign); or
(b) any liability of a Person for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treas. Reg. (S)1.1502-6 or comparable provisions of any
Taxing Authority in respect of a Tax Return of a Relevant Company Group or
Relevant Gart Group, as applicable, or any Contract.
1.2.76. "Indemnified Parties" has the meaning set forth in Section
7.12.1.
1.2.77. "Intellectual Property Rights" means all trademarks, trademark
registrations, trademark applications, service marks, service mark
registrations, service mark applications, trade names, trade dress, logos
and corporate names, all such existing worldwide, together with all
renewals, translations, adoptions, derivatives and combinations thereof and
including all goodwill associated therewith (collectively, "Trademark
Rights"), all worldwide patents, patent applications, and patent
disclosures together with all reissues, continuations, continuations-in-
part, revisions, extensions and reexaminations thereof, material
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice (collectively, "Patent Rights"), all
know how and trade secrets, all computer software, all copyrights,
copyright registrations and applications for the registration of copyrights
and all other material proprietary rights used by or held by the Company
(in the case of Company Intellectual Property Rights) or Gart (in the case
of Gart Intellectual Property Rights) or any other third Person whether or
not currently used thereby and all contracts and arrangements for licensing
the same to or from third parties.
1.2.78. "IRS" means the United States Internal Revenue Service or any
successor entity.
1.2.79. "Knowledge," "Known to" or any similar phrase means, with
respect to any matter in question, that, with respect to the Company and
its Subsidiaries, a Company Executive Officer, or, with respect to Gart and
its Subsidiaries, a Gart Executive Officer: (a) has actual knowledge of
such matter, or (b) would have actual knowledge of such matter after making
such inquiry, if any, as a reasonable Person would have made under the
circumstances applicable to such matter (provided, that such "inquiry
knowledge" as it relates to the inquiry of other employees of the Company
and its Subsidiaries or of Gart and its Subsidiaries, as applicable, shall
be limited to corporate-level employees and shall not extend to store-level
employees). For purposes of this Section 1.2.79, (i) a Company Executive
Officer shall mean any of Alvin N. Lubetkin, Steven Martin and Steven U.
Rath, and (ii) a Gart Executive Officer shall mean any of John Douglas
Morton, Thomas T. Hendrickson and Nesa E. Hassanein.
1.2.80. "Law" or "Laws" means any law, statute, order, decree, consent
decree, judgment, rule, regulation, ordinance or other pronouncement having
the effect of law whether in the United States, any foreign country, or any
domestic or foreign state, county, city or other political subdivision or
of any Governmental Entity.
1.2.81. "Liabilities" means all indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based
upon any contingency), known or unknown, fixed or otherwise, or whether due
or to become due.
1.2.82. "Liens" means any mortgage, deed of trust, pledge, assessment,
security interest, lease, lien, easement, license, covenant, condition,
adverse claim, levy, charge, option, equity, adverse restriction, or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing, except for any
restrictions on transfer generally arising under any applicable federal or
state securities law.
1.2.83. "Material Adverse Effect" means, with respect to any Person,
any event, circumstance, change, condition, development or occurrence
either individually or in the aggregate with all other events,
circumstances, changes, conditions, developments or occurrences, resulting
in or reasonably likely to result in a material adverse effect on (a) the
business (as now conducted or as now proposed by such Person to be
conducted), results of operations, condition (financial or otherwise),
assets or Liabilities (contingent or otherwise), or prospects of such
Person and its Subsidiaries, taken as a whole, (b) the legality or
enforceability of this Agreement, or (c) the ability of such Person to
perform its obligations and to consummate the transactions under this
Agreement. Where the defined term "Material Adverse Effect" is
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used in a particular representation or warranty in Article 5 or Article 6,
the reference to "all other events, circumstances, changes, conditions,
developments or occurrences" in the foregoing definition shall be deemed to
refer to all other events, circumstances, changes, conditions, developments
or occurrences that are within the same subject matter coverage as that
particular representation or warranty (i.e., excluding matters unrelated to
that particular representation or warranty); the foregoing convention shall
not apply where the defined term "Material Adverse Effect" is otherwise
used in this Agreement. In determining whether a "Material Adverse Effect"
has occurred with respect to a party's results of operations,
extraordinary, non-recurring income items will be disregarded.
Notwithstanding the foregoing, the parties hereto agree that any adverse
effect resulting from the following shall not be considered to be a
Material Adverse Effect: (i) this Agreement or the transactions
contemplated hereby or the public announcement of this Agreement and the
Merger; (ii) the economy or securities markets in general; or (iii) the
Company's or Gart's industry in general and not in whole or in any part
significantly related specifically to the Company or Gart, as applicable.
1.2.84. "Merger" has the meaning set forth in Section 2.1.1.
1.2.85. "Merger Consideration" has the meaning set forth in Section
2.2.1(a).
1.2.86. "MergerSub" has the meaning set forth in the preamble hereof.
1.2.87. "MergerSub Common Stock" means the common stock, par value $.01
per share, of MergerSub.
1.2.88. "NASD" means the National Association of Securities Dealers,
Inc.
1.2.89. "New Credit Facility" has the meaning set forth in Section 6.9.
1.2.90. "Options" means all options, warrants and similar securities or
rights enabling the holder thereof to purchase or acquire shares of Company
Common Stock (including, without limitation, all such Options issued
pursuant to the Stock Option Plans).
1.2.91. "Options Spread Value" has the meaning set forth in Section
2.6.1.
1.2.92. "Order" means any decree, judgment, ruling, arbitration award,
assessment, writ, injunction or similar order of any Governmental Entity
(in each such case whether preliminary or final).
1.2.93. "Oshman's Stock Value" has the meaning set forth in Section
2.6.1.
1.2.94. "Other Shares" has the meaning set forth in Section 2.2.1(a).
1.2.95. "Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, unclaimed property, value added, custom
duty, severance, windfall profit or license tax, governmental fee or other
similar assessment or charge, together with any interest and any penalty,
addition to tax or additional amount imposed by any Taxing Authority
responsible for the imposition of any such tax (domestic or foreign).
1.2.96. "Patent Rights" has the meaning set forth in Section 1.2.77.
1.2.97. "PBGC" means the Pension Benefit Guaranty Corporation
established under ERISA.
1.2.98. "Permit" means any license, permit, approval, consent,
exemption, franchise or authorization, and includes any Environmental
Permit.
1.2.99. "Permitted Investments" has the meaning set forth in Section
2.3.1.
1.2.100. "Permitted Liens" means: (a) liens disclosed in the Company
Disclosure Schedule or the Gart Disclosure Schedule; (b) liens,
encumbrances or imperfections of title that do not materially detract from
the value of, or materially interfere with, the present use or, in the case
of Company Owned Real Property or Gart Owned Real Property, the
marketability of the property affected thereby; (c) liens for taxes and
assessments, governmental charges, levies, mechanics liens or other
statutory liens, both special
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and general that are not yet due and payable or are being contested in good
faith pursuant to appropriate proceedings; (d) liens that are reserved on
the financial statements as required by GAAP, which such financial
statements were received prior to the date hereof by Gart (in the case of
the Company's liens) or by the Company (in the case of Gart's liens); or
(e) zoning, building, use and other governmental ordinances, if any.
1.2.101. "Person" means any natural person, corporation, general
partnership, limited partnership, limited liability company or partnership,
proprietorship, other business organization, trust, union, association or
Governmental Entity.
1.2.102. "Preferred Stock" means the Company's preferred stock, par
value $.01 per share.
1.2.103. "Proxy Statement" has the meaning set forth in Section 5.17.
1.2.104. "Registration Rights Agreement" has the meaning set forth in
Section 7.25.
1.2.105. "Registration Statement" has the meaning set forth in Section
5.17.
1.2.106. "Relevant Company Group" has the meaning set forth in Section
5.14.1.
1.2.107. "Relevant Gart Group" has the meaning set forth in Section
6.14.1.
1.2.108. "SEC" means the United States Securities and Exchange
Commission or any successor entity.
1.2.109. "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder.
1.2.110. "Share Certificates" has the meaning set forth in Section
2.3.2.
1.2.111. "Stock Consideration" has the meaning set forth in Section
2.2.1(a).
1.2.112. "Stockholders Meetings" means the Company Stockholders Meeting
and the Gart Stockholders Meeting.
1.2.113. "Stock Option Plans" means, collectively, the Company's 1994
Omnibus Plan and the Company's 1993 Non-Employee Director Stock Option
Plan.
1.2.114. "Subsidiary" of a company means any Person in which such
company, directly or indirectly through Subsidiaries or otherwise,
beneficially owns or owned at least 50% of either the equity interest in,
or the voting control of, such Person, whether or not existing on the date
hereof.
1.2.115. "Superior Proposal" has the meaning set forth in Section 7.4.2.
1.2.116. "Surviving Corporation" has the meaning set forth in Section
2.1.1.
1.2.117. "Surviving Corporation Common Stock" means the common stock,
par value $.01 per share, of the Surviving Corporation.
1.2.118. "Takeover Statute" has the meaning set forth in Section 7.15.
1.2.119. "Tax" or "Taxes" means Income Taxes and/or Other Taxes, as the
context requires.
1.2.120. "Tax Laws" means the Code, federal, state, county, local or
foreign laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
1.2.121. "Tax Returns" means any return, report, information return,
schedule, certificate, statement or other document (including any related
or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or
other document issued by, a Taxing Authority in connection with any Tax.
1.2.122. "Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state
or local jurisdiction or any foreign jurisdiction, having or purporting to
exercise jurisdiction with respect to any Tax.
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1.2.123. "Termination Fee" has the meaning set forth in Section 9.3.1.
1.2.124. "Trademark Rights" has the meaning set forth in Section 1.2.77.
1.2.125. "Voting Agreements" has the meaning set forth in the recitals
hereto.
ARTICLE 2.
The Merger
2.1. THE MERGER.
2.1.1. At the Effective Time, the Company shall be merged with and into
MergerSub in accordance with the DGCL and the terms and conditions hereof
(the "Merger"). Upon consummation of the Merger, the separate existence of
the Company shall cease and MergerSub shall be the surviving corporation
(the "Surviving Corporation").
2.1.2. As soon as practicable after satisfaction (or, to the extent
permitted hereunder, waiver) of all conditions to the Merger, MergerSub
will file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the DGCL and
will make all other filings or recordings required by applicable Law in
connection with the Merger. The Merger shall become effective at such time
as the Certificate of Merger is certified by the Secretary of State of the
State of Delaware or at such later time as is agreed to by the parties
hereto and is specified in the Certificate of Merger (such date and time
being referred to herein as the "Effective Time").
2.1.3. The Merger shall have the effects set forth in the DGCL.
2.2. MERGER CONSIDERATION AND CONVERSION OF SHARES. At the Effective Time,
pursuant to this Agreement and by virtue of the Merger and without any action
on the part of Gart, MergerSub, the Company or the holders of any of the
following securities:
2.2.1. (a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares
and shares to be cancelled pursuant to Section 2.2.2) shall be cancelled
and shall be converted automatically into the right to receive an amount
equal to $7.00 in cash, without interest (subject to adjustment as provided
in Section 2.2.1(b), the "Cash Consideration"), and 0.55 (subject to
adjustment as provided in Section 2.2.1(b), the "Conversion Ratio") validly
issued, duly authorized, fully paid and non-assessable shares of Gart
Common Stock (subject to adjustment as provided in Section 2.2.1(b), the
"Stock Consideration" and, together with the Cash Consideration and the
Cash In Lieu (as defined in Section 2.2.4), the "Merger Consideration"),
payable to the holder thereof upon surrender of the certificate formerly
representing such share of Company Common Stock in the manner provided in
Section 2.3 (the shares of Company Common Stock being converted into the
right to receive the Merger Consideration are hereinafter referred to as
the "Other Shares").
(b) In the event that the closing sale price of a share of Gart Common
Stock on the Closing Date (the "Closing Sale Price") is less than $9.50,
then the amount of the Cash Consideration, the Conversion Ratio and the
Stock Consideration shall be adjusted automatically as follows:
(i) first, the dollar value per share of the Merger Consideration
shall be determined by adding (A) the Cash Consideration (before giving
effect to this Section 2.2.1(b)) to (B) the result of multiplying the
Conversion Ratio (before giving effect to this Section 2.2.1(b)) by the
Closing Sale Price (such amount being referred to as the "Dollar Value
Per Share");
(ii) next, the amount of the Cash Consideration shall be adjusted to
equal the result of multiplying 0.57 by the Dollar Value Per Share;
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(iii) next, the Conversion Ratio shall be adjusted to equal the
result of dividing (A) the amount determined as (x) the Dollar Value
Per Share minus (y) the Cash Consideration (after giving effect to this
Section 2.2.1(b)) by (B) the Closing Sale Price; and
(iv) finally, the amount of the Stock Consideration shall be
adjusted using the adjusted Conversion Ratio determined in accordance
with clause (iii) immediately above.
2.2.2. Each share of Company Common Stock held in the treasury of the
Company or held by MergerSub or Gart, if any, immediately prior to the
Effective Time, shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto.
2.2.3. Each share of MergerSub Common Stock that is issued and
outstanding immediately prior to the Effective Time shall be converted into
one share of Surviving Corporation Common Stock.
2.2.4. No fractional shares of Gart Common Stock shall be issued
pursuant to this Agreement. All shares of Gart Common Stock to which a
holder of shares of Company Common Stock is entitled in connection with the
Merger shall be aggregated. If a fractional share results from such
aggregation, in lieu of the issuance of any such fractional share of Gart
Common Stock, a cash adjustment shall be paid to a Person in respect of any
such fractional share that otherwise would be issuable to such Person
pursuant to Section 2.2.1 or Section 2.6. The amount of such cash
adjustment (the "Cash In Lieu") shall be equal to a fractional proportion
of the Closing Sale Price.
2.2.5. If between the date of this Agreement and the Effective Time the
number of outstanding shares of Gart Common Stock shall have been changed
into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split-up,
combination, exchange of shares or the like other than pursuant to the
Merger, the Conversion Ratio shall be correspondingly adjusted.
2.3. EXCHANGE PROCEDURES.
2.3.1. Gart shall designate a bank or trust company reasonably
acceptable to the Company to act as exchange agent hereunder (the "Exchange
Agent"). At the Effective Time, Gart shall deliver or cause to be
delivered, in trust, to the Exchange Agent, for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with the
provisions in this Article 2, through the Exchange Agent, the Merger
Consideration (such Merger Consideration, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be paid pursuant to Section 2.2.1 and to be deposited
pursuant to this Section 2.3.1 in exchange for shares of Company Common
Stock. Pending distribution pursuant to Section 2.3.2 of the Exchange Fund
deposited with the Exchange Agent, all cash so deposited shall be held in
trust for the benefit of the holders of Other Shares and such cash shall
not be used for any other purposes; provided, however, that the Surviving
Corporation may direct the Exchange Agent to invest such cash, provided
that such investments (a) shall be (i) obligations of, or guaranteed by,
the United States of America, (ii) in commercial paper obligations
receiving the highest rating from either Moody's Investors Services, Inc.
or Standard & Poor's Corporation, or (iii) in certificates of deposit, bank
repurchase agreements or bankers acceptances of domestic commercial banks
with capital exceeding $250,000,000 (collectively, "Permitted Investments")
or shall be in money market funds that are invested solely in Permitted
Investments and (b) shall have maturities that will not prevent or delay
payments to be made pursuant to Section 2.3.2.
2.3.2. As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each Person who was, at the Effective Time, a
holder of record of Other Shares, (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates evidencing the Other Shares (the "Share
Certificates") shall pass, only upon proper delivery of a Share Certificate
to the Exchange Agent, and which shall be in such form and have such other
provisions as Gart and the Company may reasonably specify prior to the
Effective Time) and (ii) instructions for use in effecting the surrender of
Share Certificates pursuant to such letter of transmittal. Upon surrender
to the
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Exchange Agent of a Share Certificate, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant
to such instructions, the holder of such Share Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each
Other Share formerly represented by such Share Certificate, and the Share
Certificate so surrendered shall forthwith be cancelled. No interest shall
accrue or be paid on the Cash Consideration, the Cash In Lieu or any unpaid
dividends or distributions payable pursuant to Section 2.3.3 upon the
surrender of any Share Certificate for the benefit of the holder of such
Share Certificate. Until surrendered as contemplated by this Section 2.3,
each Share Certificate or other instrument shall, from and after the
Effective Time, be deemed to represent only the right to receive the Merger
Consideration (and any unpaid dividends or distributions payable pursuant
to Section 2.3.3), and, until such surrender, no cash or other
consideration or payment of any kind shall be paid to the holder of such
outstanding Share Certificate or other instrument in respect thereof.
2.3.3. No dividends or other distributions that are declared on or after
the Effective Time on Gart Common Stock, or are payable to the holders of
record thereof who became such on or after the Effective Time, shall be
paid to any Person entitled by reason of the Merger to receive certificates
representing shares of Gart Common Stock until such Person shall have
surrendered its Share Certificates as provided in Section 2.3.2 (or such
Person shall have complied with Section 2.3.5). Subject to applicable Law,
Gart shall cause to be paid to each person receiving a certificate
representing such shares of Gart Common Stock, (a) at the time of such
receipt the amount of any dividends or other distributions theretofore paid
with respect to the shares of Gart Common Stock represented by such
certificate and having a record date on or after the Effective Time, and
(b) at the appropriate payment date the amount of any dividends or other
distributions payable with respect to the shares of Gart Common Stock
represented by such certificate, which dividends or other distributions
have a record date on or after the Effective Time and a payment date on or
subsequent to such receipt. In no event shall the Person entitled to
receive such dividends or other distributions be entitled to receive
interest on such dividends or other distributions. If payment is to be made
to a Person other than the registered holder of the Other Shares
represented by the Share Certificate or other instrument so surrendered in
exchange therefor, it shall be a condition to such payment that the Share
Certificate or other instrument so surrendered shall be properly endorsed
or otherwise be in proper form for transfer and that the Person requesting
such payment shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a Person other than the registered
holder of such Other Shares or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable. Gart, the
Surviving Corporation or the Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Stock such amounts as Gart, the
Surviving Corporation or the Exchange Agent are required to deduct and
withhold under the Code or any provision of any applicable Law, with
respect to the making of such payment. To the extent that amounts are so
withheld by Gart, the Surviving Corporation or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Company Common Stock in respect of
whom such deduction and withholding was made by Gart, the Surviving
Corporation or the Exchange Agent.
2.3.4. After the Effective Time, there shall be no further transfers on
the stock transfer books of the Surviving Corporation of the Other Shares
that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Share Certificates representing Other Shares are
presented to the Surviving Corporation, they shall be cancelled and
exchanged for the Merger Consideration (and any unpaid dividends or
distributions) provided for, and in accordance with the procedures set
forth, in this Article 2.
2.3.5. In the event that any Share Certificate or other instrument
representing Other Shares shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Share
Certificate or other instrument to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such holder of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Share Certificate or other instrument, the Exchange Agent will issue
in exchange for and in lieu of such lost,
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stolen or destroyed Share Certificate or other instrument representing the
Other Shares, the Merger Consideration and any unpaid dividends or
distributions payable pursuant to Section 2.3.3.
2.3.6. If any portion of the Exchange Fund deposited with the Exchange
Agent for purposes of payment in exchange for Other Shares remains
unclaimed six months after the Effective Time, such portion of the Exchange
Fund shall be returned to the Surviving Corporation, upon demand, and any
such holder who has not surrendered such holder's Share Certificates in
compliance with this Article 2 prior to that time shall thereafter look
only to the Surviving Corporation for payment of the Merger Consideration
and any unpaid dividends or distributions pursuant to Section 2.3.3.
Notwithstanding the foregoing, the Surviving Corporation shall not be
liable to any holder of Other Shares for any amount paid to a public
official pursuant to applicable unclaimed property laws. Any amounts
remaining unclaimed by holders of Other Shares six (6) years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) shall, to the extent permitted by applicable Law, become the
property of the Surviving Corporation, free and clear of any claims or
interest of any Person previously entitled thereto.
2.3.7. Any portion of the Merger Consideration, together with all
interest and earnings thereon, made available to the Exchange Agent
pursuant to Section 2.5 to pay for shares of Company Common Stock for which
dissenters' rights have been perfected as provided in Section 2.5 shall be
returned to the Surviving Corporation upon demand.
2.4. EXCHANGE OF STOCK CERTIFICATES. Immediately after the Effective Time,
the Surviving Corporation shall deliver to the record holders of the
certificates that immediately prior to the Effective Time represented all of
the outstanding shares of MergerSub Common Stock that were converted into the
right to receive shares of Surviving Corporation Common Stock in accordance
with Section 2.2.3, in exchange for such certificates, duly endorsed in blank,
share certificates, registered in the names of such record holders,
representing the number of shares of Surviving Corporation Common Stock to
which such record holders are so entitled by virtue of Section 2.2.3.
2.5. DISSENTING SHARES. Notwithstanding any other provisions of this
Agreement, shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a holder who has
not voted such shares of Company Common Stock in favor of the Merger and who
has delivered a written demand in the manner provided by Section 262 of the
DGCL and who, as of the Effective Time, shall not have effectively withdrawn or
lost such right to relief as a dissenting stockholder ("Dissenting Shares")
shall not be converted into the right to receive the Merger Consideration. The
holders of such Dissenting Shares shall be entitled only to such rights as are
granted by Section 262 of the DGCL. Each holder of Dissenting Shares who
becomes entitled to payment for such Dissenting Shares pursuant to Section 262
of the DGCL shall receive payment therefor from the Surviving Corporation in
accordance with the DGCL; provided, however, that if any such holder of
Dissenting Shares (a) shall have failed to establish such holder's entitlement
to relief as a dissenting stockholder as provided in Section 262 of the DGCL,
(b) shall have effectively withdrawn such holder's demand for relief as a
dissenting stockholder with respect to such Dissenting Shares, (c) shall have
lost such holder's right to relief as a dissenting stockholder and payment
under Section 262 of the DGCL, or (d) shall have failed to file a complaint
with the appropriate court seeking relief as to determination of the value of
all Dissenting Shares within the time provided in Section 262 of the DGCL, such
holder shall forfeit the right to relief as a dissenting stockholder with
respect to such Dissenting Shares and each such Dissenting Share shall be
converted into the right to receive the Merger Consideration, without interest
thereon, from the Surviving Corporation as provided in Section 2.2.1. The
Company shall give Gart prompt notice of any demands made under Section 262 of
the DGCL received by the Company prior to the Effective Time, and Gart shall
have the right to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent
of Gart, make any payment with respect to, or settle or offer to settle, any
such demands.
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2.6. STOCK OPTIONS.
2.6.1. At the Effective Time, each Option, whether or not vested, that
has an exercise price that is equal to or greater than the Oshman's Stock
Value shall be cancelled, without any payment or other consideration
therefor. At the Effective Time, except as otherwise provided in Section
7.13, all other Options, whether or not vested, shall be cancelled and, as
soon as reasonably practicable after the Effective Time, each holder of
such Options shall receive in lieu of such Options an amount in cash,
without interest, equal to the Options Spread Value. For any holder of
Options, the "Options Spread Value" shall be equal to, with respect to such
Options, the difference, if positive, between (i) the product of the
Oshman's Stock Value multiplied by the number of shares of Company Common
Stock subject to such Options less (ii) the aggregate exercise price with
respect to such Options. The "Oshman's Stock Value" shall be equal to the
closing price of a share of Company Common Stock as reported on the
American Stock Exchange on the Business Day immediately prior to the
Effective Time.
2.6.2. Prior to the Effective Time, the Company (a) shall take all
reasonable steps necessary to make any amendments to the terms of the Stock
Option Plans, the individual Option agreements or the Options that are
necessary to give effect to the transactions contemplated by this
Agreement, and (b) shall take reasonable steps necessary to obtain at the
earliest practicable date all written consents (if necessary) from holders
of Options to effect the cancellation of such holders' Options at the
Effective Time in accordance with Section 2.6.1.
2.6.3. At or prior to the Effective Time, the Company shall take all
reasonable and necessary actions to advise the holders of Options of their
respective rights under this Agreement (including, without limitation, as
contemplated by Section 7.13), the Options, the respective Option
agreements and the respective Stock Option Plans, to facilitate the timely
exercise of such rights and obligations to effectuate the provisions of
this Section 2.6 and Section 7.13. From and after the Effective Time, no
holder of Options shall have any rights in respect of such Options, other
than to receive consideration in the manner described in Section 2.6.1
(except as otherwise contemplated by Section 7.13). The surrender of any
Options and the receipt of consideration therefor in accordance with
Section 2.6.1 shall be deemed a release of any and all rights the holder of
such Options had, or may have had, in respect of such Options.
ARTICLE 3.
Closing
3.1. CLOSING. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Irell & Manella LLP, 1800 Avenue of the Stars, Los Angeles,
California 90067 at 9:00 A.M. (Los Angeles time) on the Business Day that the
parties hereto designate as the closing date, which such date shall be a day
that securities are traded on The Nasdaq Stock Market and shall be no later
than five Business Days following the fulfillment or waiver of the conditions
set forth in Article 8 in accordance with this Agreement, or (ii) at such other
place and time and/or on such other date as the Company and Gart may agree.
ARTICLE 4.
The Surviving Corporation
4.1. CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation and the by-laws of the Surviving Corporation immediately after
the Effective Time shall be the certificate of incorporation and the by-laws of
MergerSub as in effect immediately prior to the Effective Time.
4.2. DIRECTORS AND OFFICERS. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law, (a) the directors of MergerSub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation and
(b) the
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officers of MergerSub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case to hold office in
accordance with the certificate of incorporation and the by-laws of the
Surviving Corporation.
ARTICLE 5.
Representations and Warranties of the Company
The Company represents and warrants to Gart and MergerSub that, except as
set forth in the Company Disclosure Schedule (provided, however, that each
disclosure set forth in the Company Disclosure Schedule shall not be deemed to
refer to any section other than (i) the specific section or sections referenced
in such disclosure and (ii) any other sections where the applicability of the
disclosed matter or circumstance to the representation or warranty in question
is reasonably obvious):
5.1. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to carry on its business as
it is now being conducted. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified or in good standing would not have a Material Adverse Effect,
individually or in the aggregate. Without limiting the generality of the
foregoing, the Company is qualified to do business in the states set forth on
Section 5.1 of the Company Disclosure Schedule.
5.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. Complete and correct copies
of the certificates of incorporation and by-laws or equivalent organizational
documents, each as amended as of the date hereof, of the Company and each of
its current Subsidiaries have been made available to Gart. The certificates of
incorporation, by-laws and equivalent organizational documents of the Company
and each of its current Subsidiaries are in full force and effect. Neither the
Company nor any of its current Subsidiaries is in violation of any provision of
its certificate of incorporation, by-laws or equivalent organizational
documents.
5.3. CAPITALIZATION.
5.3.1. As of the date hereof, the authorized capital stock of the
Company consists of 500,000 shares of Preferred Stock and 15,000,000 shares
of Company Common Stock. At the close of business on February 1, 2001, (a)
no shares of Company Preferred Stock were outstanding and (b) 5,825,309
shares of Company Common Stock were outstanding. Section 5.3.1 of the
Company Disclosure Schedule contains a true, complete and correct list as
of such date of all outstanding Options, warrants, rights and other
securities of the Company convertible into, or exercisable for, shares of
capital stock of the Company, the holders of such Options, warrants, rights
and other securities, and the exercise prices with respect to such Options,
warrants, rights and other securities. All outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully
paid, non-assessable and free of preemptive rights. No shares of Company
Common Stock are owned by any direct or indirect Subsidiary of the Company.
5.3.2. Except as described in this Section 5.3, set forth on Section
5.3.1 of the Company Disclosure Schedule and as contemplated by this
Agreement, (a) no shares of capital stock or other equity securities of the
Company are authorized, issued or outstanding, or reserved for issuance,
and there are no Options, warrants or other rights (including registration
rights), agreements, arrangements or commitments of any character to which
the Company or any of its current Subsidiaries is a party relating to the
issued or unissued capital stock or other equity interests of the Company
or any of its current Subsidiaries that require the Company or any of its
current Subsidiaries to grant, issue or sell any shares of the capital
stock or other equity interests of the Company or any of its current
Subsidiaries by sale, lease, license or otherwise; (b) neither the Company
nor any of its Subsidiaries have any obligation, contingent or otherwise,
to repurchase, redeem or otherwise acquire any shares of the capital stock
or other equity
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interests of the Company or any of its Subsidiaries; (c) neither the
Company nor any of its Subsidiaries, directly or indirectly, owns, or has
agreed to purchase or otherwise acquire, the capital stock or other equity
interests of, or any interest convertible into or exchangeable or
exercisable for such capital stock or such equity interests of, any
corporation, partnership, joint venture or other entity that would be
material in value to the Company; and (d) there are no voting trusts,
proxies or other agreements or understandings to which the Company or any
of its Subsidiaries is a party with respect to the voting of any shares of
capital stock or other equity interests of the Company or any of its
Subsidiaries.
5.4. COMPANY SUBSIDIARIES. Section 5.4 of the Company Disclosure Schedule
contains a list of the following information for each current Subsidiary of the
Company: (a) the name of such Subsidiary; (b) its authorized, issued and
outstanding capital stock or other equity interests, and the percentage of such
capital stock or other equity interests owned by the Company or any Subsidiary
of the Company, and the identity of such owner; and (c) any capital stock
reserved for future issuance pursuant to outstanding options or other
agreements, and the identity of all parties to any such option or other
agreement. Each current Subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each current Subsidiary of the
Company has all requisite corporate power and authority to carry on its
business as it is now being conducted. Each current Subsidiary of the Company
is duly qualified as a foreign corporation or organization authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Without
limiting the generality of the foregoing, the current Subsidiaries of the
Company are qualified to do business in the states set forth on Section 5.4 of
the Company Disclosure Schedule. All of the outstanding shares of capital stock
or other ownership interests in each of the Company's current Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable, and
are owned by the Company or another Subsidiary of the Company free and clear of
all Liens, and are not subject to preemptive rights created by statute, such
Subsidiary's certificate of incorporation, by-laws or equivalent organizational
documents, or any agreement to which such Subsidiary is a party.
5.5. CORPORATE AUTHORITY.
5.5.1. The Company has the requisite corporate power and authority to
execute and deliver this Agreement and, subject to the adoption of this
Agreement and the approval of the Merger by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution and delivery
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by its board of
directors and, except for the adoption of this Agreement and the approval
of the Merger by the Company's stockholders, no other corporate action on
the part of the Company is necessary to authorize the execution and
delivery by the Company of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with its
terms, except to the extent that (a) such enforcement may be subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought. The preparation of the Proxy Statement has been duly authorized
by the board of directors of the Company. The corporate records and minute
books or other applicable records of the Company and its Subsidiaries
reflect all material action taken and authorizations made at meetings of
such companies' boards of directors or any committees thereof and at any
stockholders' meetings thereof.
5.5.2. Prior to execution and delivery of this Agreement, the Company's
board of directors (at a meeting duly called and held) has (a) approved
this Agreement and the transactions contemplated hereby, (b) determined
that this Agreement and the transactions contemplated hereby are fair to,
advisable and in the best interests of the Company and the holders of
Company Common Stock and (c) determined to
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recommend the adoption of this Agreement and the approval of the Merger to
the Company's stockholders at the Company Stockholders Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock is the only vote of the holders of any class or series
of the Company's capital stock necessary to adopt this Agreement and to
approve the Merger.
5.6. COMPLIANCE WITH APPLICABLE LAW. The Company and each of its
Subsidiaries hold, and are in compliance with the terms of, all material
Permits that are required for the operation of the businesses of the Company
and its Subsidiaries, except for failures to hold or to comply with such
Permits that would not have a Material Adverse Effect on the Company. With
respect to material Permits of the Company and its Subsidiaries, to the
Knowledge of the Company, no action or proceeding is pending or threatened that
would reasonably be expected to have a Material Adverse Effect on the Company.
The businesses of the Company and its Subsidiaries are being conducted in all
material respects in compliance with all applicable material Laws of any
Governmental Entity. To the Knowledge of the Company, no material investigation
or review by any Governmental Entity with respect to the Company or its
Subsidiaries is pending or threatened.
5.7. NON-CONTRAVENTION. Except as set forth in Section 5.7 of the Company
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, (a) result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to the
loss of a material benefit under, or require the consent of any Person that is
a party to, any Company Lease or any other material Contract to which the
Company or any of its Subsidiaries is a party, or result in the creation of any
Lien (other than any Permitted Lien) upon any of the properties or assets of
the Company or any of its Subsidiaries, (b) conflict with or result in any
violation of any provision of the certificate of incorporation or the by-laws
or other equivalent organizational document, in each case as amended, of the
Company or any of its Subsidiaries, or (c) subject to the governmental filings
referenced in clause (a) of Section 5.8, conflict with or violate any Order or,
to the Knowledge of the Company, any Law applicable to the Company or any of
its Subsidiaries or any of their respective properties or assets, other than,
in the case of clauses (a) and (c), any such conflicts or violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
5.8. GOVERNMENT APPROVALS AND CONSENTS. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by
or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or is necessary for
the consummation of the transactions contemplated hereby (including, without
limitation, the Merger) except: (a) in connection, or in compliance, with the
rules of the American Stock Exchange, the provisions of the HSR Act, the
Securities Act, the Exchange Act and any state securities or blue sky law, (b)
for the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (c) such consents, approvals, authorizations, permits,
filings and notifications listed in Section 5.8 of the Company Disclosure
Schedule, and (d) such other consents, Orders, authorizations, registrations,
declarations and filings the failure of which to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
5.9. SEC DOCUMENTS AND OTHER REPORTS. The Company has filed on a timely
basis all documents required to be filed by it with the SEC since February 1,
1997 (all such documents filed since February 1, 1997 and prior to the date
hereof are referred to as the "Company SEC Documents"). Complete and correct
copies of the Company SEC Documents have been made available to Gart. As of
their respective dates, or if amended as of the date of the last such
amendment, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be
(including all applicable rules and regulations promulgated by the SEC relating
to the Company's audit committee), and none of the Company SEC Documents as of
the date thereof contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Complete and accurate copies of the unaudited
consolidated balance sheet, consolidated statements of operations, consolidated
statements of stockholders' equity and consolidated statements of cash flows
(together with any supplementary
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information thereto) of the Company, all as of and for the nine-month period
ended October 28, 2000 (the "Company Interim Financial Information") have been
provided to Gart. The consolidated financial statements of the Company included
in the Company SEC Documents and the Company Interim Financial Information
(collectively, the "Company Financials") fairly present, in all material
respects, the consolidated financial position of the Company and its
consolidated Subsidiaries, as of and for the respective dates thereof, and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the Company Interim
Financial Information, to normal year-end audit adjustments and to any other
adjustments described therein) in conformity with GAAP during the periods
involved (except as may be indicated therein or in the notes thereto). Since
January 29, 2000, the Company has not made any change in the accounting
practices or policies applied in the preparation of its financial statements,
except as may be required by GAAP.
5.10. ABSENCE OF UNDISCLOSED LIABILITIES. There are no Liabilities of the
Company or any of its Subsidiaries of any kind whatsoever that would be
required by GAAP to be reflected on a consolidated balance sheet of the Company
(including the notes thereto), other than:
(a) Liabilities incurred since January 29, 2000 in the ordinary course
of business consistent with past practices;
(b) reasonable and customary fees and expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement;
(c) payments required as a result of the consummation of the Merger
under the terms of any Company Plans, as identified in Section 5.10(c) of
the Company Disclosure Schedule; and
(d) Liabilities disclosed in the Company SEC Documents filed prior to
the date hereof or reserved against on the Company's most recent balance
sheet delivered to Gart prior to the date hereof.
5.11. ABSENCE OF CERTAIN CHANGES OR EVENTS.
5.11.1. Except as expressly contemplated or permitted by this Agreement,
and other than the reasonable and customary fees and expenses incurred in
connection with the transactions contemplated by this Agreement, since
January 29, 2000, the business of the Company and its Subsidiaries has been
conducted in all material respects in the ordinary course of business
consistent with past practices, neither the Company nor any of its
Subsidiaries has engaged in any transaction or series of related
transactions material to the Company or its Subsidiaries taken as a whole
other than in the ordinary course of business consistent with past
practices, and there has not been any event, occurrence or development
that, individually or in the aggregate, constitutes or would constitute a
Material Adverse Effect on the Company.
5.11.2. Without limiting the generality of the foregoing Section 5.11.1,
since January 29, 2000, except as set forth in Section 5.11.2 of the
Company Disclosure Schedule, there has not been:
(a) any damage, destruction or loss to any of the assets or
properties of the Company or any of its Subsidiaries that, individually
or in the aggregate, constitutes a Material Adverse Effect on the
Company;
(b) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, capital stock or property) or capital
return in respect of any shares of the Company's capital stock or any
redemption, purchase or other acquisition by the Company or any of its
Subsidiaries of any shares of the Company's capital stock, or any
repurchase, redemption or other purchase by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of
its Subsidiaries, or any amendment of any material term of any
outstanding security of the Company or any of its Subsidiaries;
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(c) any sale, assignment, transfer, lease or other disposition, or
agreement to sell, assign, transfer, lease or otherwise dispose of, any
of the assets of the Company or any of its Subsidiaries taken as a
whole other than in the ordinary course of business consistent with
past practices;
(d) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by the Company or any of its Subsidiaries of any
corporation, partnership or other business organization or division
thereof or any equity interest therein for consideration;
(e) any (i) incurrence of, (ii) guarantee with respect to, or (iii)
provision of credit support for, any indebtedness by the Company or any
of its Subsidiaries other than pursuant to (A) the Company Credit
Facility in the ordinary course of business or (B) lease financings for
equipment used in the operation of the businesses of the Company or any
of its Subsidiaries in the ordinary course of business; or any creation
or assumption by the Company or any of its Subsidiaries of any material
Lien, other than any Permitted Lien, on any material asset;
(f) any material change in any method of accounting or accounting
practice (whether for financial accounting or Tax purposes) used by the
Company or any of its Subsidiaries;
(g) (i) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any of its
Subsidiaries and any employee, in each case other than sales commission
agreements and product promotional agreements entered into in the
ordinary course of business consistent with past practices, (ii) any
increase in the compensation payable, or to become payable by it, to
any of its directors or officers or generally applicable to all or any
category of the Company's or any of its Subsidiaries' employees, (iii)
any increase in the coverage or benefits available under any vacation
pay, company awards, salary continuation or disability, sick leave,
deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any of the directors or officers of
the Company or any of its Subsidiaries or generally applicable to all
or any category of the Company's or any of its Subsidiaries' employees,
or (iv) severance pay arrangements made to, for, or with such
directors, officers or employees other than, in the case of (ii) and
(iii) above and only with respect to employees who are not officers or
directors of the Company or any of its Subsidiaries, increases in the
ordinary course of business consistent with past practices and that, in
the aggregate, have not resulted in a material increase in the benefits
or compensation expense of the Company or any of its Subsidiaries taken
as a whole;
(h) any revaluing in any material respect of any of the assets of
the Company or any of its Subsidiaries on the Company Financials,
including, without limitation, writing down the value of any assets or
inventory or writing off notes or accounts receivable other than in the
ordinary course of business consistent with past practices;
(i) any loan, advance or capital contribution made by the Company or
any of its Subsidiaries to, or investment in, any Person other than
loans, advances or capital contributions, or investments of the Company
made in the ordinary course of business consistent with past practices;
(j) any adoption or amendment of any Company Plan;
(k) any waiver, direct or indirect, by the Company or any of its
Subsidiaries of (i) any right or rights of material value or (ii) any
payment of any material debt, Liability or other obligation owed to the
Company or any of its Subsidiaries, except for non-material waivers and
payments made in the ordinary course of business consistent with past
practices;
(l) any change in or amendment to the Company's or any of its
Subsidiaries' certificate of incorporation, by-laws or other
organizational documents;
(m) any payment, loan or advance of any amount to or in respect of,
or the sale, transfer or lease of any properties or assets (whether
real, personal or mixed, tangible or intangible) to, or entering into
of any agreement, arrangement or transaction with or on behalf of, any
officer, director,
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or employee of the Company, any of its Subsidiaries, or any Affiliate of
any of them, or any business or entity in which the Company, any
Subsidiary or any Affiliate of any of them, or relative of any such
Person, has any material, direct or indirect, interest, except for (i)
directors' fees, (ii) compensation to the officers and employees of the
Company (including benefits received by such officers and employees as a
result of their participation in Company Plans) in the ordinary course
of business consistent with past practices, and (iii) advancement or
reimbursement of expenses in the ordinary course of business consistent
with past practices;
(n) any material modification or change in any Company Insurance
Policy that would result in a diminishment of coverage under such
Company Insurance Policy;
(o) any acquisition of a fee simple interest or a leasehold or
subleasehold interest in, or any sale, assignment, disposition,
transfer, pledge, mortgage or lease of, any real property owned or
leased by the Company or any of its Subsidiaries;
(p) any issuance, sale or disposition of any capital stock or other
equity interest in the Company, except upon the valid exercise of
Options in accordance with the terms thereof, or any issuance or grant
of any options, warrants or other rights to purchase any such capital
stock or equity interest, or any securities convertible into or
exchangeable for such capital stock or equity interest, or any other
change in the issued and outstanding capitalization of the Company;
(q) any amendment, alteration or modification in the terms of any
currently outstanding options, warrants or other rights to purchase any
capital stock or equity interest in the Company or any securities
convertible into or exchangeable for such capital stock or equity
interest, including, without limitation, any reduction in the exercise
or conversion price of any such rights or securities, any change to the
vesting or acceleration terms of any such rights or securities, or any
change to terms relating to the grant of any such rights or securities;
(r) any closure, shut down or other elimination of any of the
Company's stores or offices or any material change in the basic
character of its business, properties or assets, other than any store
closures effected or proposed to be effected as set forth in Section
5.11.2 of the Company Disclosure Schedule;
(s) any action that, if it had been taken after the date hereof,
would have required the consent of Gart under Section 7.1; and
(t) any agreement to take any actions specified in this Section
5.11.2, except for this Agreement.
5.12. ACTIONS AND PROCEEDINGS. There are no outstanding Orders of any
Governmental Entity against the Company or any of its Subsidiaries, any of
their properties, assets or businesses, or, to the Knowledge of the Company,
any of the Company's or its Subsidiaries' current or former directors or
officers or any other Person whom the Company or any of its Subsidiaries has
agreed to indemnify that would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. Except as set
forth in Section 5.12 of the Company Disclosure Schedule, there are no Actions
pending or, to the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries, any of their properties, assets or businesses, or, to
the Knowledge of the Company, any of the Company's or its Subsidiaries'
current or former directors or officers or any other Person whom the Company
or any of its Subsidiaries has agreed to indemnify that would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company. To the Company's Knowledge, there are no facts or
circumstances specific to the Company that, if known to a third party, would
reasonably be expected to result in such an Action that could have a Material
Adverse Effect on the Company.
5.13. CONTRACTS. Each Contract to which the Company or any of its
Subsidiaries is a party is valid, binding and enforceable and in full force
and effect in accordance with its terms, except where the failure to be so
valid, binding and enforceable and in full force and effect would not
reasonably be expected to have a Material Adverse Effect on the Company, and
there are no defaults by the Company or any of its Subsidiaries
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or, to the Knowledge of the Company, another party thereto thereunder, except
any default that would not reasonably be expected to have a Material Adverse
Effect on the Company. Except as set forth in Section 5.13 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to, or is bound by, any non-competition agreement or any other agreement or
obligation that purports to limit in any material respect the manner in which,
or the localities in which, the Company or any such Subsidiary is entitled to
conduct all or any material portion of the business of the Company and its
Subsidiaries taken as a whole. Section 5.13 of the Company Disclosure Schedule
lists: (a) each Contract to which the Company or any of its Subsidiaries is a
party that is material to the business, financial condition, results of
operations or prospects of the Company and its Subsidiaries taken as a whole;
and (b) each Contract that is material to the business, financial condition,
results of operations or prospects of the Company and its Subsidiaries taken as
a whole and to which the Company or any of its Subsidiaries is a party with
respect to which a consent of any of the other parties thereto will be required
in connection with the transactions contemplated by this Agreement.
5.14. TAXES.
5.14.1. All Tax Returns required to have been filed by, or with respect
to, the Company, any of its Subsidiaries, or any affiliated, consolidated,
combined, unitary or similar group of which the Company or any of its
Subsidiaries is or was a member (a "Relevant Company Group") have been duly
and timely filed (including any extensions), except for such Tax Returns
where the failure to file such Tax Returns would not have a Material
Adverse Effect on the Company. All such Tax Returns are true, complete and
correct in all material respects. All material Taxes due and payable by the
Company, any of its Subsidiaries or any member of a Relevant Company Group,
whether or not shown on any Tax Return, or claimed to be due by any Tax
Authority, for periods (or portions of periods) covered by the Company
Financials, have been paid or accrued on the balance sheet included in the
Company Financials.
5.14.2. Neither the Company nor any of its Subsidiaries has incurred any
material liability for Taxes in the period after the date of the Company
Financials. The unpaid Taxes of the Company (a) did not, as of the most
recent fiscal quarter end, exceed by any material amount the reserve for
liability for Income Tax (other than the reserve for deferred taxes
established to reflect timing differences between book and tax income) or
Other Tax set forth on the face of the balance sheet included in the
Company Financials and (b) will not exceed by any material amount such
reserve as adjusted for operations and transactions in the ordinary course
of business through the Closing Date.
5.14.3. Neither the Company nor any of its Subsidiaries is a party to
any agreement extending the time within which to file any Tax Return.
Except for those claims listed in Section 5.14.3 of the Company Disclosure
Schedule, no claim has ever been made by a Taxing Authority of any
jurisdiction in which the Company or any member of any Relevant Company
Group does not file Tax Returns that the Company or such member is or may
be subject to taxation by that jurisdiction.
5.14.4. The Company, each of its Subsidiaries and each member of any
Relevant Company Group has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor or independent contractor.
5.14.5. The Company does not have Knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against, or in
respect of, it, any of its Subsidiaries, or any Relevant Company Group for
any past period. There is no dispute or claim concerning any Tax liability
of the Company or any of its Subsidiaries either (a) threatened, or to the
Company's Knowledge otherwise claimed or raised by any Taxing Authority or
(b) of which the Company is otherwise aware. There are no Liens for Taxes
upon the assets and properties of the Company or any of its Subsidiaries
other than Liens for Taxes not yet due. Section 5.14.5 of the Company
Disclosure Schedule indicates those Tax Returns, if any, of the Company,
each of its Subsidiaries and each member of any Relevant Company Group that
have been audited or examined since the fiscal year ended January 30, 1996
by Taxing Authorities, and indicates those Tax Returns of the Company, each
of its Subsidiaries and each member of any Relevant Company Group that
currently are the subject of audit or examination. The Company has made
available
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to Gart complete and correct copies of all federal, state, local and
foreign income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company,
each of its Subsidiaries and each member of any Relevant Company Group
since the fiscal year ended January 30, 1999.
5.14.6. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or that include or are treated as including, the Company or any
of its Subsidiaries or with respect to any Tax assessment or deficiency
affecting the Company, any of its Subsidiaries or any Relevant Company
Group.
5.14.7. Except for rulings and agreements listed in Section 5.14.7 of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has received any written ruling related to Taxes or entered
into any agreement with a Taxing Authority relating to Taxes.
5.14.8. Neither the Company nor any of its Subsidiaries has any
liability for the Taxes of any Person other than the Relevant Company Group
of which the Company is the parent (a) under Section 1.1502-6 of the
treasury regulations (or any similar provision of state, local or foreign
law), (b) as a transferee or successor, (c) by Contract or (d) otherwise.
5.14.9. Neither the Company nor any of its Subsidiaries (a) has agreed
to make or is required to make any adjustment under Section 481 of the Code
by reason of a change in accounting method or (b) are a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code.
5.14.10. Neither the Company nor any of its Subsidiaries is a party to,
or bound by, any obligations under any tax sharing, tax allocation, tax
indemnity, or similar agreement or arrangement.
5.14.11. Neither the Company nor any of its Subsidiaries is a partner in
any joint venture, partnership, Contract or other arrangement that is
treated as a partnership for federal, state, local or foreign Income Tax
purposes.
5.14.12. Neither the Company nor any of its Subsidiaries was included,
nor is it includible in, the Tax Return of any Relevant Company Group with
any corporation other than such a return of which the Company is the common
parent corporation.
5.14.13. Neither the Company nor any of its Subsidiaries has made any
payments since January 29, 2000, is obligated to make any payments, nor is
it a party to any Contract or arrangement covering any current or former
employee or consultant of the Company that under certain circumstances
could require it to make or give rise to any payments that are not
deductible as a result of the provisions set forth in Section 280G, 404 or
162(m) of the Code or the treasury regulations thereunder or that would
result in an excise tax to the recipient of any such payment under Section
4999 of the Code.
5.14.14. Neither the Company nor any of its Subsidiaries has been the
subject of an ownership change within the meaning of Section 382(g) of the
Code.
5.14.15. Each material election with respect to Income Taxes affecting
the Company and each of its Subsidiaries is set forth in Section 5.14.15 of
the Company Disclosure Schedule.
5.14.16. No interest in the Company is a United States real property
interest within the meaning of Section 897(c) of the Code.
5.14.17. None of the assets of the Company, any of its Subsidiaries, or
any member of any Relevant Company Group are tax exempt use property within
the meaning of Section 168(h) of the Code.
5.14.18. None of the Company, any of its Subsidiaries, or any member of
any Relevant Company Group has distributed the stock of any corporation in
a transaction satisfying the requirements of Section 355 of the Code since
April 16, 1997. The stock of none of the Company, any of its Subsidiaries,
or any member of any Relevant Company Group has been distributed in a
transaction satisfying the requirements of Section 355 of the Code since
April 16, 1997.
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5.14.19. The Company has filed an election with the IRS, effective for
the fiscal year ending February 3, 2001, to change the Company's inventory
method of accounting from the retail method to the cost method.
5.15. TITLE TO PROPERTIES; ENCUMBRANCES. Except as described in the
following sentence, each of the Company and its Subsidiaries has good, valid
and, in the case of real property, marketable title to, or a valid leasehold
interest in, all of its material properties and assets (real, personal,
tangible and intangible), including, without limitation, all such properties
and assets reflected in the consolidated balance sheet of the Company and its
Subsidiaries as of January 29, 2000 included in the Company SEC Documents
(except for properties and assets disposed of in the ordinary course of
business and consistent with past practices since such date), except for such
title or interest the failure of which to have would not have, individually or
in the aggregate, a Material Adverse Effect on the Company. Except as described
in Section 5.15 of the Company Disclosure Schedule, none of such properties or
assets are subject to any material Liens (whether absolute, accrued, contingent
or otherwise) other than Permitted Liens.
5.16. INTELLECTUAL PROPERTY. Section 5.16 of the Company Disclosure Schedule
sets forth a correct and complete list of all Intellectual Property Rights
(other than confidentiality and nondisclosure agreements, license agreements,
third-party software generally commercially available on a "shrink wrap"
license or similar basis and non-material copyright and trade secret items) now
used or presently proposed to be used in the business of the Company and its
Subsidiaries (the "Company Intellectual Property Rights"). The Company owns or
has the right to use (without the making of any payment to others or the
obligation to grant rights to others in exchange, except as set forth in
Section 5.16 of the Company Disclosure Schedule) all Company Intellectual
Property Rights in all material respects necessary to the conduct of its
business as presently being conducted. To the Knowledge of the Company, the
Company has no limitation by contract or imposed by any court on its ability to
use the Company Intellectual Property Rights in any jurisdiction inside or
outside the United States in which the Company is engaged in material business
activities to the extent of the manner in which such business is currently
conducted by the Company in such jurisdiction. Except as set forth in Section
5.16 of the Company Disclosure Schedule, the validity of the Company
Intellectual Property Rights, the title thereto of the Company, and the
authority of the Company to use the Company Intellectual Property Rights as
such Company Intellectual Property Rights are presently being used in any
material manner is not being challenged in any administrative or judicial
proceeding to which the Company is a party or, to the Knowledge of the Company,
is subject, nor has any such claim been threatened in writing to the Company or
any of its Subsidiaries within the preceding three years. To the Knowledge of
the Company, the conduct of the business of the Company as now conducted does
not infringe or conflict in any material respect with (a) the Trademark Rights
or Patent Rights of others, or (b) any other Intellectual Property Rights of
others. The Company has, as of the date hereof, and will have as of the
Effective Time, satisfied all current requirements necessary to maintain the
validity of all Company Intellectual Property Rights, and the right to use such
Company Intellectual Property Rights in all material respects, necessary to the
conduct of the Company's business as it is presently being conducted. The
Company has no Knowledge of any use of any Company Intellectual Property Rights
owned by or exclusively licensed to the Company that is now being made, except
(i) by the Company or (ii) by any Person duly licensed by it to use the same
under a Contract as described in Section 5.16 of the Company Disclosure
Schedule. Except as set forth in Section 5.16 of the Company Disclosure
Schedule, the Company has no Knowledge of any infringement by others of any
Company Intellectual Property Rights. To the Knowledge of the Company, all
licenses and other agreements pertaining to the Company Intellectual Property
Rights are in compliance in all material respects with all applicable laws and
regulations in all jurisdictions in which the Company conducts any business
operations, including, without limitation, those pertaining to remittance of
foreign exchange and taxation. The consummation of the transactions
contemplated hereby will not alter or impair the rights and interests of the
Company in the Company Intellectual Property Rights, and the Company will have
the same rights and interests in the Company Intellectual Property Rights
immediately after the Closing as it will have immediately prior to the Closing.
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5.17. PROVIDED INFORMATION. The information supplied, or to be supplied, by
the Company for inclusion in (a) the Registration Statement to be filed with
the SEC on Form S-4 under the Securities Act (the "Registration Statement") for
the purpose of registering the shares of Gart Common Stock to be issued in
connection with the Merger, (b) the joint proxy statement/prospectus to be
distributed in connection with the Stockholders Meetings to vote upon, as
applicable, the adoption of this Agreement, the approval of the Merger and the
issuance of Gart Common Stock contemplated hereby (the "Proxy Statement"), or
(c) any other filing required to be filed with the SEC, will not, (i) in the
case of the Registration Statement or such other required filing, as
applicable, on the date it is filed with the SEC, on the date each amendment or
supplement thereto is filed with the SEC, on the date it becomes effective, and
as of the Effective Time, and (ii) in the case of the Proxy Statement, on the
dates of the mailing of the Proxy Statement by the Company and Gart or on the
dates of the Stockholders Meetings, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
and any amendments or supplements thereto, on their respective dates of
mailing, and any other filing required to be filed with the SEC, as of the date
thereof, insofar as they relate to or are filed or are deemed to be filed by
the Company or any of its Affiliates, will comply in all material respects with
all applicable requirements of the Exchange Act. Notwithstanding the foregoing,
the Company makes no representations with respect to any statement in the
foregoing documents based upon, and conforming to, information supplied by Gart
or MergerSub for inclusion therein.
5.18. COMPANY PLANS; ERISA.
5.18.1. Except as disclosed in Section 5.18.1 of the Company Disclosure
Schedule, during the six-year period ending on the Closing Date, (a)
neither the Company nor any of the Company ERISA Affiliates maintains or
sponsors (or maintained or sponsored), or is or was required to make
contributions to, any Company Plans, (b) none of the Company Plans is or
was a "multi-employer plan", as defined in Section 3(37) of ERISA, (c) none
of the Company Plans is or was a "defined benefit pension plan" within the
meaning of Section 3(35) of ERISA, (d) none of the Company Plans provides
or provided post-retirement medical or health benefits, (e) none of the
Company Plans is or was a "welfare benefit fund," as defined in Section
419(e) of the Code, or an organization described in Sections 501(c)(9) or
501(c)(20) of the Code, (f) neither the Company nor any of the Company
ERISA Affiliates is or was a party to any collective bargaining agreement,
and (g) neither the Company nor any of the Company ERISA Affiliates have
announced or otherwise made any commitment to create or amend any Company
Plan. Except as disclosed in Section 5.18.1 of the Company Disclosure
Schedule, notwithstanding any statement or indication in this Agreement to
the contrary, there are no Company Plans (i) as to which Gart or MergerSub
will be required solely as a result of the execution of this Agreement or
the consummation of the transactions contemplated hereby to make any
contributions or with respect to which Gart or MergerSub shall have any
obligation or liability whatsoever, whether on behalf of any of the current
employees of the Company or any Subsidiary or on behalf of any other
Person, after the Closing, or (ii) that Gart or the Surviving Corporation
will not be able to terminate immediately after the Closing in accordance
with their terms and ERISA. With respect to each of such Company Plans, at
the Closing there will be no unrecorded material liabilities with respect
to the establishment, implementation, operation, administration or
termination of any such Company Plan, or the termination of the
participation in any such Company Plan by the Company or any of the Company
ERISA Affiliates. The Company has delivered or made available to Gart true
and complete copies of: (A) each of the Company Plans and any related
funding agreements thereto (including insurance Contracts) including all
amendments, and, to the best Knowledge of the Company, all of the documents
are legally valid and binding and in full force and effect and there are no
defaults thereunder, (B) the currently effective Summary Plan Description
pertaining to each of the Company Plans that are required to provide such
summaries, (C) all annual reports for each of the Company Plans (including
all related schedules) that are required to file such reports, (D) the most
recently filed PBGC Form 1 (if applicable), (E) the most recent IRS
determination letter, opinion, notification or advisory letter (as the case
may be) issued with respect to each Company Plan that is intended to
constitute a qualified plan under Section 401 of the Code, and (F) for each
unfunded Company Plan, any financial statements that are available as of
the Closing Date and that pertain
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to the most recently ended plan year and consist of (1) the consolidated
statement of assets and liabilities of such Company Plan as of the last day
of its recently ended plan year, and (2) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such Company Plan for the most recently-ended
plan year, which such financial statements shall fairly present the
financial condition and the results of operations of such Company Plan in
accordance with GAAP, consistently applied, as of such dates.
5.18.2. During the six-year period ending on the Closing Date, neither
the Company nor any of the Company ERISA Affiliates sponsored, maintained
or contributed to (or had an obligation to contribute to) any defined
benefit plan described in Section 3(35) of ERISA or Section 414(j) of the
Code, or any other pension benefit plan that is or was subject to (a) the
minimum funding standards of Section 302 of ERISA or Section 412 of the
Code or (b) Title IV of ERISA.
5.18.3. To the best Knowledge of the Company, neither the Company nor
any of the Company ERISA Affiliates is subject to any material liability,
Tax or penalty whatsoever to any person or agency whomsoever as a result of
engaging in a prohibited transaction under ERISA or the Code, and neither
the Company nor any of the Company ERISA Affiliates has any Knowledge of
any circumstances that reasonably might result in any material liability,
Tax or penalty, including a penalty under Section 502 of ERISA, as a result
of a breach of any duty under ERISA or under other applicable Laws. During
the six-year period ending on the Closing Date, no event has occurred that
could subject any Company Plan to tax under Section 511 of the Code.
5.18.4. Neither the Company nor any of the Company ERISA Affiliates has
any material unfunded liability under ERISA in respect of any of the
Company Plans. Each of the Company Plans that is intended to be a qualified
plan under Section 401(a) of the Code has received a favorable
determination letter, opinion, notification or advisory letter from the
IRS, and, to the best Knowledge of the Company, during the six-year period
ending on the Closing Date, has been operated in all material respects in
accordance with its terms and with the provisions of the Code. To the best
Knowledge of the Company, during the six-year period ending on the Closing
Date, all of the Company Plans have been administered and maintained in
substantial compliance with ERISA, the Code and all other applicable Laws.
To the best Knowledge of the Company, during the six-year period ending on
the Closing Date, all contributions required to be made to each of the
Company Plans under the terms of that Company Plan, ERISA, the Code or any
other applicable Laws have been timely made. Each Company Plan intended to
meet the requirements for tax-favored treatment under Subchapter B of
Chapter 1 of the Code is in all material respects in compliance with such
requirements. The Company Interim Financial Statements properly reflect all
amounts required to be accrued as liabilities to date under each of the
Company Plans.
5.18.5. Except as disclosed in Section 5.18.5 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby (whether alone
or upon the occurrence of any additional or further acts or events) will
(a) result in any obligation or liability (with respect to accrued benefits
or otherwise) on the part of the Company, Gart, the Surviving Corporation,
or any of their respective Subsidiaries, to any Company Plan, or to any
present or former employee, director, officer, stockholder, contractor or
consultant (or any of their dependents) of the Company, Gart, the Surviving
Corporation, or any of their respective Subsidiaries, (b) be a trigger
event under any Company Plan that will result in any payment (whether of
severance pay or otherwise) becoming due to any such present or former
employee, officer, director, stockholder, contractor, or consultant, or any
of their dependents, or (c) accelerate the time of payment or vesting, or
increase the amount, of any compensation theretofore or thereafter due or
granted to any employee, officer, director, stockholder, contractor, or
consultant of the Company or any of their dependents. With respect to any
insurance policy that provides, or has provided, funding for benefits under
any Company Plan, (i) there is and will be no liability of the Company,
Gart, the Surviving Corporation or any of their respective Subsidiaries in
the nature of a retroactive or retrospective rate adjustment, loss sharing
arrangement, or actual or contingent liability as of the Closing Date, nor
would there be any such liability if such insurance
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policy were terminated as of the Closing Date, and (ii) no insurance
company issuing any such policy is in receivership, conservatorship,
bankruptcy, liquidation, or similar proceeding, and, to the Knowledge of
the Company, no such proceedings with respect to any insurer are imminent.
5.18.6. With respect to each Company Plan that provides health care
coverage, during the six-year period ending on the Closing Date, the
Company and each Company ERISA Affiliate have complied in all material
respects with (a) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), and the applicable COBRA regulations and (b) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations thereunder, and neither the
Company nor any Company ERISA Affiliate has incurred any material liability
under Section 4980B or Section 4980C of the Code.
5.18.7. Other than routine claims for benefits under the Company Plans,
there are no pending, or, to the best Knowledge of the Company, threatened,
Actions or proceedings involving the Company Plans, or the fiduciaries,
administrators, or trustees of any of the Company Plans or the Company, any
of its Subsidiaries or any of their respective Company ERISA Affiliates as
the employer or sponsor under any Company Plan, with any of the IRS, the
Department of Labor, the PBGC, any participant in or beneficiary of any
Company Plan or any other person whomsoever. The Company knows of no
reasonable basis for any such claim, lawsuit, dispute or Action or
proceeding.
5.18.8. As of the date hereof, Section 5.18.8 of the Company Disclosure
Schedule completely and accurately identifies (by individual, in the case
of benefits to "key executives," "executives" and "key employees," as those
terms are used in the Company's severance plans, and, in an aggregate
amount, in the case of benefits to other employees of Oshman's Sporting
Goods, Inc.--Services on October 23, 2000 (it being understood that such
aggregate amount excludes (i) employees hired since October 23, 2000 and
employees in the warehouse and distribution centers and (ii) the effect of
employee raises since October 23, 2000)) the amount of all severance and/or
"stay bonus" benefits that may become payable as a result of the
consummation of the transactions contemplated by this Agreement.
5.19. ENVIRONMENTAL MATTERS. The Company and its Subsidiaries are and at all
times have been, and all real property currently or previously owned, leased,
occupied, used by or under the control of the Company or any of its
Subsidiaries and all operations or activities of the Company and its
Subsidiaries (including, without limitation, those conducted on or taking place
at any of such Company Real Property) are and have been, in compliance with and
not subject to any Liability or obligation under any applicable Environmental
Law or Environmental Permit except where any of the foregoing would not have a
Material Adverse Effect on the Company. There is no condition or circumstance
regarding the Company or any of its Subsidiaries or their business or any such
Company Real Property or the operations or activities conducted thereon, that,
to the Knowledge of the Company, could reasonably be expected to give rise to a
violation of, or Liability or obligation under, any applicable Environmental
Law or Environmental Permit which would have a Material Adverse Effect on the
Company. Neither the Company, any of its Subsidiaries nor, to the Knowledge of
the Company, any Person, the acts or omissions of which may be attributable to,
the responsibility of, or be the basis of a Liability to, the Company, has, or
has arranged to have, any Hazardous Material generated, released, treated,
stored or disposed of at, or transported to, any facility or property the
remediation or cleanup of which, or the response costs related thereto, could
reasonably be expected to become or result in a Material Adverse Effect on the
Company. The Company has not received written notice of any allegations,
claims, demands, citations, notices of violation, or orders of noncompliance
made against the Company relating or pursuant to any Environmental Law or
Environmental Permit except those that have been corrected or complied with or
that are not material to the Company, and, to the Knowledge of the Company, no
such allegation, claim, demand, citation, notice of violation or order of
noncompliance is threatened.
5.20. LABOR MATTERS. With respect to employees of the Company and its
Subsidiaries: (a) to the Knowledge of the Company, there are no pending or
threatened unfair labor practice charges or employee grievance charges; (b)
there is no request for union representation, labor strike, dispute, slowdown
or stoppage actually pending or, to the Knowledge of the Company, threatened
against the Company, and there has been no
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such event during the 18 months preceding the date hereof; (c) the Company is
not a party to any collective bargaining agreements; and (d) except as set
forth in Section 5.20 of the Company Disclosure Schedule, the employment of
each of the Company's employees is terminable at will (in accordance with
Company policy, irrespective of the effect of any applicable Laws of any state)
without cost to the Company except for payments required under the Plans and
the payment of accrued salaries or wages and vacation pay. No employee or
former employee has any contractual right pursuant to any oral or written
agreement to be rehired by the Company. The Company is, and since January 29,
2000 has been, in compliance in all material respects with all applicable Laws
respecting employment and employment practices and the terms and conditions of
employment, wages and hours, including, without limitation, any such Laws
respecting employment discrimination, occupational safety and health, and
unfair labor practices, except where such failure to comply would not have a
Material Adverse Effect on the Company. The Company is not delinquent in any
material respect in payments to its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them or any amounts required to be reimbursed to such employees. Section 5.20
of the Company Disclosure Schedule contains an accurate list of all employment
Contracts between the Company or any of its Subsidiaries and any employee of
the Company or any of its Subsidiaries.
5.21. RELATED PARTY TRANSACTIONS. Except as set forth in Section 5.21 of the
Company Disclosure Schedule or as contemplated by the transactions contemplated
hereby, no (a) beneficial owner of 10% or more of the Company's outstanding
capital stock, (b) officer or director of the Company or (c) any Person (other
than the Company) in which any such beneficial owner, officer or director owns
any beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 1% of the stock of which is beneficially owned by all such Persons)
has any interest in: (i) any Contract, arrangement or understanding with, or
relating to, the business or operations of, the Company or any of its
Subsidiaries; (ii) any loan, Contract, arrangement, understanding or agreement
for, or relating to, indebtedness of the Company or any of its Subsidiaries; or
(iii) any property (real, personal or mixed), tangible or intangible, used in
the business or operations of the Company or any of its Subsidiaries, excluding
any such Contract, arrangement or understanding constituting a Company Plan.
5.22. REAL ESTATE.
5.22.1. Section 5.22.1 of the Company Disclosure Schedule sets forth a
true, correct and complete list of all real property (including
improvements thereon) owned in fee simple by the Company (collectively, the
"Company Owned Real Property"). With respect to each such parcel of Company
Owned Real Property: (a) the Company owns fee simple marketable title to
such parcel, subject to no Liens other than any Permitted Liens or any
Liens set forth in Section 5.22.1 of the Company Disclosure Schedule; (b)
there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any person the right of use or occupancy of
any portion of such parcel; and (c) there are no outstanding actions,
rights of first refusal or options to purchase such parcel.
5.22.2. Section 5.22.2 of the Company Disclosure Schedule sets forth a
true, correct and complete list of all of the leases and subleases
("Company Leases") and each leased and subleased parcel of real property in
which the Company or any of its Subsidiaries is a tenant, subtenant,
landlord or sublandlord (collectively, the "Company Leased Real Property")
and for each Company Lease indicates: (a) whether or not the consent of
and/or notice to the landlord thereunder will be required in connection
with the transactions contemplated by this Agreement; (b) whether any third
party or the Company is the guarantor of the obligations of any Subsidiary
of the Company under the Company Lease and the identity of any such
guarantor; (c) its term and any options to extend the term; and (d) the
current rent payable as set forth on the rent roll report (it being
understood that such amount reported on the rent roll report may not
include percentage rent, common area maintenance, tax and insurance amounts
payable by the Company under the Company Lease). The Company (either
directly or through a Subsidiary) holds a valid and existing leasehold or
subleasehold interest or landlord or sublandlord interest as applicable in
the Company Leased Real Property, under each of the Company Leases
described in Section 5.22.2 of the
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Company Disclosure Schedule. Except as noted in Section 5.22.2 of the
Company Disclosure Schedule, the Company has delivered or made available to
Gart true, correct and complete copies of each of the Company Leases,
including, without limitation, all amendments, modifications, side
agreements, consents, subordination agreements and guarantees. With respect
to each Company Lease: (a) the Company Lease is legal, valid, binding,
enforceable and in full force and effect; (b) the Company Lease will
continue to be legal, valid, binding, enforceable and in full force and
effect on the same terms and conditions following the Effective Time; (c)
neither the Company (or its applicable Subsidiary), nor, to the Knowledge
of the Company, any other party to the Company Lease, is in any material
respect in breach or default under the Company Lease, and no event has
occurred that, with notice or lapse of time, would constitute a breach or
default in any material respect by the Company (or such Subsidiary) or
permit termination, modification or acceleration under the Company Lease by
any other party thereto; (d) the Company (or its applicable Subsidiary) has
performed and will continue to perform all of its obligations in all
material respects under the Company Lease; (e) the Company has not, and, to
the Knowledge of the Company, no third party has, repudiated any provision
of the Company Lease; (f) there are no disputes, oral agreements or
forbearance programs in effect as to the Company Lease other than those
that, individually or in the aggregate, do not constitute a Material
Adverse Effect on the Company; (g) the Company Lease has not been modified
in any respect, except to the extent that such modifications are set forth
in the documents previously delivered or made available to Gart; (h) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the Company Lease; and (i) each guaranty by
the Company is in full force and effect and no default has occurred
thereunder.
5.22.3. The Company Owned Real Property and the Company Leased Real
Property are referred to collectively herein as the "Company Real
Property." Except as disclosed on Section 5.22.1 or Section 5.22.2 of the
Company Disclosure Schedule, there is no Company Real Property used by the
Company or any of its Subsidiaries in their businesses. To the Knowledge of
the Company, each parcel of Company Real Property is in material compliance
with all existing Laws, including, without limitation, (a) the Americans
with Disabilities Act, 42 U.S.C. Section 12102 et seq., together with all
rules, regulations and official interpretations promulgated pursuant
thereto, and (b) all Laws with respect to zoning, building, fire, life
safety, health codes and sanitation. The Company and its Subsidiaries have
received no notice of, and have no Knowledge of, any condition currently or
previously existing on the Company Real Property or any portion thereof
that may give rise to any violation of, or require any remediation under,
any existing Law applicable to the Company Real Property if it were
disclosed to the authorities having jurisdiction over such Company Real
Property other than those (i) arising in the ordinary course of business or
(ii) that do not constitute, individually or in the aggregate, a Material
Adverse Effect on the Company.
5.22.4. The Company has not received written notice of any proceedings
in eminent domain, condemnation or other similar proceedings that are
pending, and, to the Knowledge of the Company, there are no such
proceedings threatened, affecting any portion of the Company Real Property.
The Company has not received written notice of the existence of any
outstanding writ, injunction, decree, Order or judgment or of any pending
proceeding, and, to the Knowledge of the Company, there is no such writ,
injunction, decree, Order, judgment or proceeding threatened, relating to
the ownership, lease, use, occupancy or operation by any person of the
Company Real Property.
5.22.5. To the Knowledge of the Company, the current use of the Company
Real Property does not violate in any material respect any instrument of
record or agreement affecting such Company Real Property. There are no
violations of any covenants, conditions, restrictions, easements,
agreements or Orders of any Governmental Entity having jurisdiction over
any of the Company Real Property that affect such Real Property or the use
or occupancy thereof other than those that do not, individually or in the
aggregate, constitute a Material Adverse Effect on the Company. No damage
or destruction has occurred with respect to any of the Company Real
Property that, individually or in the aggregate, has had or resulted in, or
is reasonably likely to have or result in, a Material Adverse Effect on the
Company.
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5.22.6. There are currently in effect such insurance policies for the
Company Real Property as are customarily maintained with respect to similar
properties. True, correct and complete copies of all insurance policies
maintained by the Company and its Subsidiaries with respect to the Company
Real Property have been delivered or made available to Gart. All premiums
due on such insurance policies have been paid by the Company, and the
Company will maintain such insurance policies from the date hereof through
the Effective Time or earlier termination of this Agreement. The Company
has not received, and has no Knowledge of, any notice or request from any
insurance company requesting the performance of, any work or alteration
with respect to the Company Real Property or any portion thereof. The
Company has received no notice from any insurance company concerning, nor
does the Company have any Knowledge of, any defects or inadequacies in the
Company Real Property that, if not corrected, would result in the
termination of insurance coverage or would increase its cost.
5.22.7. All buildings and other improvements included within the Company
Real Property (the "Company Improvements") are, in all material respects,
adequate to operate such facilities as currently used and all of the
Company's SuperSports USA stores are in good condition and repair, and, to
the Company's Knowledge, there are no facts or conditions affecting any of
the Company Improvements that would, individually or in the aggregate,
interfere in any significant respect with the current use, occupancy or
operation thereof, which interference would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. With respect to the Company Improvements, the Company has all
rights of access that are reasonably necessary for the operation of its
business.
5.22.8. All required or appropriate certificates of occupancy, permits,
licenses, franchises, approvals and authorizations (collectively, the
"Company Real Property Permits") of all Governmental Entities having
jurisdiction over the Company Real Property, the absence of which would be
reasonably likely to cause a Company store to cease its operations, have
been issued to the Company to enable the Company Real Property to be
lawfully occupied and used for all of the purposes for which it is
currently occupied and used have been lawfully issued and are, as of the
date hereof, in full force and effect. The Company has not received, or
been informed by a third party of the receipt by it of, any notice that
would be reasonably likely to cause a Company store to cease its operations
from any Governmental Entity having jurisdiction over the Company Real
Property threatening a suspension, revocation, modification or cancellation
of any Company Real Property Permit or requiring any remediation in
connection with maintaining any Company Real Property Permit, and, to the
Knowledge of the Company, there is no basis for the issuance of any such
notice or the taking of any such action.
5.23. INSURANCE. Each of the Company and its Subsidiaries maintains
insurance policies (the "Company Insurance Policies") against all risks of a
character and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Section 5.23 of the
Company Disclosure Schedule contains a complete and accurate list of all
Company Insurance Policies including those of the Company's Subsidiaries. Each
Company Insurance Policy is in full force and effect and is valid, outstanding
and enforceable, and, other than as set forth in Section 5.23 of the Company
Disclosure Schedule, all premiums due thereon have been paid in full. None of
the Company Insurance Policies will terminate or lapse (or be affected in any
other materially adverse manner) prior to the Effective Time by reason of the
transactions contemplated by this Agreement. Each of the Company and its
Subsidiaries has complied in all material respects with the provisions of each
Company Insurance Policy under which it is the insured party. No insurer under
any Company Insurance Policy has cancelled or generally disclaimed Liability
under any such policy or, to the Company's Knowledge, indicated any intent to
do so or not to renew any such policy. All material claims under the Company
Insurance Policies have been filed in a timely fashion. Since February 3, 1996,
there have been no historical gaps in insurance coverage of the Company and/or
its Subsidiaries. The Company has provided to Gart a schedule setting forth the
Company's general liability loss history for the Company's last five fiscal
years and the Company's workers' compensation loss history for the Company's
last two policy years.
A-28
5.24. MERCHANDISE VENDORS. Set forth in Section 5.24 of the Company
Disclosure Schedule is a list of the ten largest merchandise vendors of the
Company based on the dollar value of materials or products purchased by the
Company for the fiscal year ended January 29, 2000. Since such date, there has
not been, nor as a result of the Merger to the Company's Knowledge is there
anticipated to be, any change in relations with any of the major merchandise
vendors of the Company and its Subsidiaries that, individually or in the
aggregate, would have a Material Adverse Effect on the Company.
5.25. VENDORS AND LANDLORDS; CO-OPERATIVE ADVERTISING CONTRACTS. There are
no disputes or disagreements between the Company or any of its Subsidiaries, on
the one hand, and any vendor or landlord of the Company or any of its
Subsidiaries or any Person that is a party to a co-operative advertising
contract with the Company or any of its Subsidiaries, on the other hand, that
are pending or, to the Knowledge of the Company, threatened that, in the
aggregate and net of the reserve for such disputes and disagreements set forth
in the most recent balance sheet (including the notes thereto) included in the
Company SEC Documents, exceed $1,000,000; and the Company is not aware of any
basis on which any such material disputes or disagreements could reasonably be
expected to arise.
5.26. STORE CLOSINGS. Except as set forth in Section 5.26 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries have any
material Liability of any kind related to the closing of any store with respect
to which the Company or any of its Subsidiaries terminated, following January
1, 1990, its leasehold or subleasehold interest.
5.27. DISCLOSURE. Each representation and warranty made by the Company
contained in this Agreement, and the Company Disclosure Schedule and each
certificate prepared or delivered by, or on behalf of, the Company and
provided, or to be provided, to Gart in connection herewith, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading.
5.28. TAKEOVER STATUTES. The board of directors of the Company has approved
the Merger and this Agreement and such approval is sufficient to render
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby, the restrictions on business combinations set forth in Section 203 of
the DGCL. To the Company's Knowledge, no other Takeover Statute applicable to
the Company is applicable to the Merger or any of the other transactions
contemplated hereby.
5.29. OPINION OF FINANCIAL ADVISOR. Except as set forth in Section 5.29 of
the Company Disclosure Schedule, the Company has received a written opinion
from Financo, Inc. to the effect that, as of the date hereof, the Merger
Consideration to be received in the Merger by the holders of the shares of
Company Common Stock is fair to such holders from a financial point of view.
5.30. BROKERS. Except as set forth in Section 5.30 of the Company Disclosure
Schedule, except for fees, commissions and expenses payable to its financial
advisor, Financo, Inc., with respect to its work in connection with rendering a
fairness opinion with respect to the transactions contemplated by this
Agreement, no broker, finder or financial advisor retained by the Company is
entitled to any brokerage, finder's or other fee or commission from the Company
in connection with the transactions contemplated by this Agreement.
5.31. FINANCING. The Company has no reason to believe that any condition to
the Financing contemplated by the Financing Letter will fail to be satisfied in
accordance with its terms (it being understood that, in making such
representation, the Company is not assuming any responsibility for the
representations, warranties and covenants of Gart and MergerSub set forth in
this Agreement, which responsibility shall remain solely that of Gart and
MergerSub).
A-29
ARTICLE 6.
Representations and Warranties of Gart and MergerSub
Gart and MergerSub hereby represent and warrant to the Company that, except
as set forth in the Gart Disclosure Schedule (provided, however, that each
disclosure set forth in the Gart Disclosure Schedule shall not be deemed to
refer to any section other than (i) the specific section or sections referenced
in such disclosure and (ii) any other sections where the applicability of the
disclosed matter or circumstance to the representation or warranty in question
is reasonably obvious):
6.1. ORGANIZATION AND GOOD STANDING. Each of Gart and MergerSub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to
carry on its business as it is now being conducted. Each of Gart and MergerSub
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect, individually or in the aggregate.
Without limiting the generality of the foregoing, Gart is qualified to do
business in the states set forth on Section 6.1 of the Gart Disclosure
Schedule.
6.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. Complete and correct copies
of the certificates of incorporation and by-laws or equivalent organizational
documents, each as amended as of the date hereof, of Gart and MergerSub have
been made available to the Company. The certificates of incorporation, by-laws
and equivalent organizational documents of Gart and each of its current
Subsidiaries are in full force and effect. Neither Gart nor any of its current
Subsidiaries is in violation of any provision of its certificate of
incorporation, by-laws or equivalent organizational documents.
6.3. CAPITALIZATION.
6.3.1. As of the date hereof, the authorized capital stock of Gart
consists of 3,000,000 shares of Gart Preferred Stock, and 22,000,000 shares
of Gart Common Stock. At the close of business on December 30, 2000, (a) no
shares of Gart Preferred Stock were outstanding and (b) 7,354,864 shares of
Gart Common Stock were outstanding. Section 6.3.1 of the Gart Disclosure
Schedule sets forth the aggregate number (by type) as of such date of all
outstanding options, warrants, rights and other securities of Gart
convertible into, or exercisable for, shares of capital stock of Gart. All
outstanding shares of Gart Common Stock have been duly authorized and
validly issued and are fully paid, non-assessable and free of preemptive
rights. No shares of Gart Common Stock are owned by any direct or indirect
Subsidiary of Gart. All of the shares of MergerSub Common Stock, upon their
issuance, will be owned by Gart or an Affiliate of Gart.
6.3.2. Except as described in this Section 6.3, set forth on Section
6.3.1 of the Gart Disclosure Schedule and as contemplated by this
Agreement, (a) no shares of capital stock or other equity securities of
Gart are authorized, issued or outstanding, or reserved for issuance, and
there are no options, warrants or other rights (including registration
rights), agreements, arrangements or commitments of any character to which
Gart or any of its current Subsidiaries is a party relating to the issued
or unissued capital stock or other equity interests of Gart or any of its
current Subsidiaries that require Gart or any of its current Subsidiaries
to grant, issue or sell any shares of the capital stock or other equity
interests of Gart or any of its current Subsidiaries by sale, lease,
license or otherwise; (b) neither Gart nor any of its Subsidiaries have any
obligation, contingent or otherwise, to repurchase, redeem or otherwise
acquire any shares of the capital stock or other equity interests of Gart
or any of its Subsidiaries; (c) neither Gart nor any of its Subsidiaries,
directly or indirectly, owns, or has agreed to purchase or otherwise
acquire, the capital stock or other equity interests of, or any interest
convertible into or exchangeable or exercisable for such capital stock or
such equity interests of, any corporation, partnership, joint venture or
other entity that would be material in value to Gart; and (d) there are no
voting trusts, proxies or other agreements or understandings to which Gart
or any of its Subsidiaries is a party with respect to the voting of any
shares of capital stock or other equity interests of Gart or any of its
Subsidiaries.
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6.4. GART SUBSIDIARIES. Section 6.4 of the Gart Disclosure Schedule contains
a list of the following information for each current Subsidiary of Gart: (a)
the name of such Subsidiary; (b) its authorized, issued and outstanding capital
stock or other equity interests, and the percentage of such capital stock or
other equity interests owned by Gart or any Subsidiary of Gart, and the
identity of such owner; and (c) any capital stock reserved for future issuance
pursuant to outstanding options or other agreements, and the identity of all
parties to any such option or other agreement. Each current Subsidiary of Gart
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization. Each current
Subsidiary of Gart has all requisite corporate power and authority to carry on
its business as it is now being conducted. Each current Subsidiary of Gart is
duly qualified as a foreign corporation or organization authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect on Gart. Without
limiting the generality of the foregoing, the current Subsidiaries of Gart are
qualified to do business in the states set forth on Section 6.4 of the Gart
Disclosure Schedule. All of the outstanding shares of capital stock or other
ownership interests in each of Gart's current Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable, and are owned
by Gart or another Subsidiary of Gart free and clear of all Liens, and are not
subject to preemptive rights created by statute, such Subsidiary's certificate
of incorporation, by-laws or equivalent organizational documents, or any
agreement to which such Subsidiary is a party.
6.5. CORPORATE AUTHORITY. Each of Gart and MergerSub has the requisite
corporate power and authority to execute and deliver this Agreement and,
subject to the approval of Gart's stockholders with respect to the issuance of
Gart Common Stock contemplated hereby, to consummate the transactions
contemplated hereby. The execution and delivery by each of Gart and MergerSub
of this Agreement and the consummation by each of Gart and MergerSub of the
transactions contemplated hereby have been duly authorized by its respective
board of directors and, except for the approval and adoption of Gart's
stockholders with respect to the issuance of Gart Common Stock contemplated
hereby, no other corporate action on the part of Gart or MergerSub is necessary
to authorize the execution and delivery by Gart and MergerSub, respectively, of
this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of Gart and
MergerSub and constitutes a valid and binding agreement of each of Gart and
MergerSub and is enforceable against Gart and MergerSub in accordance with its
terms, except to the extent that (a) such enforcement may be subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
The preparation of the Registration Statement and the Proxy Statement has been
duly authorized by the board of directors of Gart. The corporate records and
minute books or other applicable records of Gart and MergerSub reflect all
material action taken and authorizations made at meetings of such companies'
boards of directors or any committees thereof and at any stockholders' meetings
thereof.
6.6. COMPLIANCE WITH APPLICABLE LAW. Gart and each of its Subsidiaries hold,
and are in compliance with the terms of, all material Permits required for the
operation of the businesses of Gart and its Subsidiaries, except for failures
to hold or to comply with such Permits that would not have a Material Adverse
Effect on Gart. With respect to material Permits of Gart and its Subsidiaries,
to the Knowledge of Gart, no action or proceeding is pending or threatened that
would reasonably be expected to have a Material Adverse Effect on Gart. The
businesses of Gart and its Subsidiaries are being conducted in all material
respects in compliance with all applicable material Laws of any Governmental
Entity. To the Knowledge of Gart, no material investigation or review by any
Governmental Entity with respect to Gart or its Subsidiaries is pending or
threatened.
6.7. NON-CONTRAVENTION. Except as set forth in Section 6.7 of the Gart
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, (a) result in any violation of, or default
(with or
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without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or require the consent of any Person that is a party
to, any Gart Lease or any other material Contract to which Gart or any of its
Subsidiaries is a party, or result in the creation of any Lien (other than any
Permitted Lien) upon any of the properties or assets of Gart or any of its
Subsidiaries, (b) conflict with or result in any violation of any provision of
the certificate of incorporation or the by-laws or other equivalent
organizational document, in each case as amended, of Gart or any of its
Subsidiaries, or (c) subject to the governmental filings referenced in clause
(a) of Section 6.8, conflict with or violate any Order, or to the Knowledge of
Gart, any Law applicable to Gart or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (a) and
(c), any such conflicts or violations that, individually or in the aggregate,
would not have a Material Adverse Effect on Gart.
6.8. GOVERNMENT APPROVALS AND CONSENTS. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by
or with respect to Gart or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Gart or MergerSub or is necessary
for the consummation of the transactions contemplated hereby (including,
without limitation, the Merger) except: (a) in connection, or in compliance,
with the rules of The Nasdaq Stock Market, the provisions of the HSR Act, the
Securities Act, the Exchange Act, and any state securities or blue sky law, (b)
for the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, and (c) such other consents, Orders, authorizations,
registrations, declarations and filings the failure of which to obtain or make
would not, individually or in the aggregate, have a Material Adverse Effect on
Gart.
6.9. SEC DOCUMENTS AND OTHER REPORTS. Gart has filed on a timely basis all
documents required to be filed by it with the SEC since January 4, 1997 (all
such documents filed since January 4, 1997 and prior to the date hereof are
referred to as the "Gart SEC Documents"). Complete and correct copies of the
Gart SEC Documents have been made available to the Company. As of their
respective dates, or if amended as of the date of the last such amendment, the
Gart SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be (including all
applicable rules and regulations promulgated by the SEC relating to Gart's
audit committee), and none of the Gart SEC Documents as of the date thereof
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Complete and accurate copies of the unaudited consolidated balance
sheet, consolidated statements of operations, consolidated statements of
stockholders' equity and consolidated statements of cash flows (together with
any supplementary information thereto) of Gart, all as of and for the nine-
month period ended October 28, 2000 (the "Gart Interim Financial Information")
have been provided to the Company. The consolidated financial statements of
Gart included in the Gart SEC Documents and the Gart Interim Financial
Information (collectively, the "Gart Financials") fairly present, in all
material respects, the consolidated financial position of Gart and its
consolidated Subsidiaries, as of and for the respective dates thereof, and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the Gart Interim
Financial Information, to normal year-end audit adjustments and to any other
adjustments described therein) in conformity with GAAP during the periods
involved (except as may be indicated therein or in the notes thereto). Since
January 29, 2000, Gart has not made any change in the accounting practices or
policies applied in the preparation of its financial statements, except as may
be required by GAAP.
6.10. ABSENCE OF UNDISCLOSED LIABILITIES. There are no Liabilities of Gart
or any of its Subsidiaries of any kind whatsoever that would be required by
GAAP to be reflected on a consolidated balance sheet of Gart (including the
notes thereto), other than:
(a) Liabilities incurred since January 29, 2000 in the ordinary course
of business consistent with past practices;
(b) reasonable and customary fees and expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement;
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(c) payments required as a result of the consummation of the Merger
under the terms of any Gart Plans, as identified in Section 6.10(d) of the
Gart Disclosure Schedule; and
(d) Liabilities disclosed in the Gart SEC Documents filed prior to the
date hereof or reserved against on Gart's most recent balance sheet
delivered to the Company prior to the date hereof.
6.11. ABSENCE OF CERTAIN CHANGES OR EVENTS.
6.11.1. Except as expressly contemplated or permitted by this Agreement,
and other than the reasonable and customary fees and expenses incurred in
connection with the transactions contemplated by this Agreement, since
January 29, 2000, the business of Gart and its Subsidiaries has been
conducted in all material respects in the ordinary course of business
consistent with past practices, neither Gart nor any of its Subsidiaries
has engaged in any transaction or series of related transactions material
to Gart or its Subsidiaries taken as a whole other than in the ordinary
course of business consistent with past practices, and there has not been
any event, occurrence or development that, individually or in the
aggregate, constitutes or would constitute a Material Adverse Effect on the
Company.
6.11.2. Without limiting the generality of the foregoing Section 6.11.1,
since January 29, 2000, except as set forth in Section 6.11.2 of the Gart
Disclosure Schedule, there has not been:
(a) any damage, destruction or loss to any of the assets or
properties of Gart or any of its Subsidiaries that, individually or in
the aggregate, constitutes a Material Adverse Effect on Gart;
(b) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, capital stock or property) or capital
return in respect of any shares of Gart's capital stock or any
redemption, purchase or other acquisition by Gart or any of its
Subsidiaries of any shares of Gart's capital stock, or any repurchase,
redemption or other purchase by Gart or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, Gart or any of its Subsidiaries, or any
amendment of any material term of any outstanding security of Gart or
any of its Subsidiaries;
(c) any sale, assignment, transfer, lease or other disposition, or
agreement to sell, assign, transfer, lease or otherwise dispose of, any
of the assets of Gart or any of its Subsidiaries taken as a whole other
than in the ordinary course of business consistent with past practices;
(d) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by Gart or any of its Subsidiaries of any corporation,
partnership or other business organization or division thereof or any
equity interest therein for consideration;
(e) any (i) incurrence of, (ii) guarantee with respect to, or (iii)
provision of credit support for, any indebtedness by Gart or any of its
Subsidiaries other than pursuant to (A) the Gart Credit Facility in the
ordinary course of business or (B) lease financings for equipment used
in the operation of the businesses of Gart or any of its Subsidiaries
in the ordinary course of business; or any creation or assumption by
Gart or any of its Subsidiaries of any material Lien, other than any
Permitted Lien, on any material asset;
(f) any material change in any method of accounting or accounting
practice (whether for financial accounting or Tax purposes) used by
Gart or any of its Subsidiaries;
(g) any revaluing in any material respect of any of the assets of
Gart or any of its Subsidiaries on the Gart Financials, including,
without limitation, writing down the value of any assets or inventory
or writing off notes or accounts receivable other than in the ordinary
course of business consistent with past practices;
(h) any loan, advance or capital contribution made by Gart or any of
its Subsidiaries to, or investment in, any Person other than loans,
advances or capital contributions, or investments of Gart made in the
ordinary course of business consistent with past practices;
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(i) any waiver, direct or indirect, by Gart or any of its
Subsidiaries of (i) any right or rights of material value or (ii) any
payment of any material debt, Liability or other obligation owed to Gart
or any of its Subsidiaries, except for non-material waivers and payments
made in the ordinary course of business consistent with past practices;
(j) any change in or amendment to Gart's or any of its Subsidiaries'
certificate of incorporation, by-laws or other organizational documents;
(k) any payment, loan or advance of any amount to or in respect of,
or the sale, transfer or lease of any properties or assets (whether
real, personal or mixed, tangible or intangible) to, or entering into of
any agreement, arrangement or transaction with or on behalf of, any
officer, director, or employee of Gart, any of its Subsidiaries, or any
Affiliate of any of them, or any business or entity in which Gart, any
Subsidiary or any Affiliate of any of them, or relative of any such
Person, has any material, direct or indirect, interest, except for (i)
directors' fees, (ii) compensation to the officers and employees of Gart
(including benefits received by such officers and employees as a result
of their participation in Gart Plans) in the ordinary course of business
consistent with past practices, and (iii) advancement or reimbursement
of expenses in the ordinary course of business consistent with past
practices;
(l) any material modification or change in any Gart Insurance Policy
that would result in a diminishment of coverage under such Gart
Insurance Policy;
(m) any acquisition of a fee simple interest or a leasehold or
subleasehold interest in, or any sale, assignment, disposition,
transfer, pledge, mortgage or lease of, any real property owned or
leased by Gart or any of its Subsidiaries;
(n) any issuance, sale or disposition of any capital stock or other
equity interest in Gart, except upon the valid exercise of options in
accordance with the terms thereof, or any issuance or grant of any
options, warrants or other rights to purchase any such capital stock or
equity interest, or any securities convertible into or exchangeable for
such capital stock or equity interest, or any other change in the issued
and outstanding capitalization of Gart;
(o) any amendment, alteration or modification in the terms of any
currently outstanding options, warrants or other rights to purchase any
capital stock or equity interest in Gart or any securities convertible
into or exchangeable for such capital stock or equity interest,
including, without limitation, any reduction in the exercise or
conversion price of any such rights or securities, any change to the
vesting or acceleration terms of any such rights or securities, or any
change to terms relating to the grant of any such rights or securities;
(p) any closure, shut down or other elimination of any of Gart's
stores or offices or any material change in the basic character of its
business, properties or assets, other than any store closures effected
or proposed to be effected as set forth in Section 6.11.2 of the Gart
Disclosure Schedule;
(q) any action that, if it had been taken after the date hereof,
would have required the consent of the Company under Section 7.1; and
(r) any agreement to take any actions specified in this Section
6.11.2, except for this Agreement.
6.12. ACTIONS AND PROCEEDINGS. There are no outstanding Orders of any
Governmental Entity against Gart or any of its Subsidiaries, any of their
properties, assets or businesses, or, to the Knowledge of Gart, any of Gart's
or its Subsidiaries' current or former directors or officers or any other
Person whom Gart or any of its Subsidiaries has agreed to indemnify that would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Gart. Except as set forth in Section 6.12 of the Gart
Disclosure Schedule, there are no Actions pending or, to the Knowledge of
Gart, threatened against Gart or any of its Subsidiaries, any of their
properties, assets or businesses, or, to the Knowledge of Gart, any of Gart's
or its Subsidiaries' current or former directors or officers or any other
Person whom Gart or any of its Subsidiaries
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has agreed to indemnify that would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Gart. To the Knowledge of
Gart, there are no facts or circumstances specific to Gart that, if known to a
third party, would reasonably be expected to result in such an Action that
could have a Material Adverse Effect on Gart.
6.13. CONTRACTS. Each Contract to which Gart or any of its Subsidiaries is a
party is valid, binding and enforceable and in full force and effect in
accordance with its terms, except where the failure to be so valid, binding and
enforceable and in full force and effect would not reasonably be expected to
have a Material Adverse Effect on Gart, and there are no defaults by Gart or
any of its Subsidiaries or, to the Knowledge of Gart, another party thereto
thereunder, except any default that would not reasonably be expected to have a
Material Adverse Effect on Gart. Except as set forth in Section 6.13 of the
Gart Disclosure Schedule, neither Gart nor any of its Subsidiaries is a party
to, or is bound by, any non-competition agreement or any other agreement or
obligation that purports to limit in any material respect the manner in which,
or the localities in which, Gart or any such Subsidiary is entitled to conduct
all or any material portion of the business of Gart and its Subsidiaries taken
as a whole. Section 6.13 of the Gart Disclosure Schedule lists: (a) each
Contract to which Gart or any of its Subsidiaries is a party that is material
to the business, financial condition, results of operations or prospects of
Gart and its Subsidiaries taken as a whole; and (b) each Contract that is
material to the business, financial condition, results of operations or
prospects of Gart and its Subsidiaries taken as a whole and to which Gart or
any of its Subsidiaries is a party with respect to which a consent of any of
the other parties thereto will be required in connection with the transactions
contemplated by this Agreement.
6.14. TAXES.
6.14.1. All Tax Returns required to have been filed by, or with respect
to, Gart, any of its Subsidiaries or any affiliated, consolidated,
combined, unitary or similar group of which Gart or any Subsidiary is or
was a member (a "Relevant Gart Group") have been duly and timely filed
(including any extensions), except for such Tax Returns where the failure
to file such Tax Returns would not have a Material Adverse Effect on Gart.
All such Tax Returns are true, complete and correct in all material
respects. All material Taxes due and payable by Gart, any of its
Subsidiaries or any member of a Relevant Gart Group, whether or not shown
on any Tax Return, or claimed to be due by any Tax Authority, for periods
(or portions of periods) covered by the Gart Financials, have been paid or
accrued on the balance sheet included in the Gart Financials.
6.14.2. Gart and its Subsidiaries have not incurred any material
liability for Taxes in the period after the date of the Gart Financials.
The unpaid Taxes of Gart and its Subsidiaries (a) did not, as of the most
recent fiscal quarter end, exceed by any material amount the reserve for
liability for Income Tax (other than the reserve for deferred taxes
established to reflect timing differences between book and tax income) or
Other Tax set forth on the face of the balance sheet included in the Gart
Financials and (b) will not exceed by any material amount such reserve as
adjusted for operations and transactions in the ordinary course of business
through the Closing Date.
6.14.3. Neither Gart nor any of its Subsidiaries is a party to any
agreement extending the time within which to file any Tax Return. Except
for claims listed in Section 6.14.3 of the Gart Disclosure Schedule, no
claim has ever been made by a Taxing Authority of any jurisdiction in which
Gart or any member of any Relevant Gart Group does not file Tax Returns
that Gart or such member is or may be subject to taxation by that
jurisdiction.
6.14.4. Gart, each of its Subsidiaries and each member of any Relevant
Gart Group has withheld and paid all material Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor or independent contractor.
6.14.5. Gart does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against, or in
respect of, it, any of its Subsidiaries, or any Relevant Gart Group for any
past period. There is no dispute or claim concerning any Tax liability of
Gart or any of its
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Subsidiaries either (a) threatened, or to Gart's knowledge otherwise
claimed or raised by any Taxing Authority or (b) of which Gart is otherwise
aware. There are no Liens for Taxes upon the assets and properties of Gart
or any of its Subsidiaries other than Liens for Taxes not yet due. Section
6.14.3 of the Gart Disclosure Schedule indicates those Tax Returns, if any,
of Gart, each of its Subsidiaries and each member of any Relevant Gart
Group that have been audited or examined since the fiscal year ended
January 6, 1996 by Taxing Authorities, and indicates those Tax Returns of
Gart, each of its Subsidiaries and each member of any Relevant Gart Group
that currently are the subject of audit or examination. Gart has made
available to the Company complete and correct copies of all federal, state,
local and foreign income Tax Returns filed by, and all Tax examination
reports and statements of deficiencies assessed against or agreed to by,
Gart, each of its Subsidiaries and each member of any Relevant Gart Group
since the fiscal year ended January 30, 1999.
6.14.6. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or that include or are treated as including, Gart or any of its
Subsidiaries or with respect to any Tax assessment or deficiency affecting
Gart, any of its Subsidiaries or any Relevant Gart Group.
6.14.7. Except for rulings and agreements listed in Section 6.14.7 of
the Gart Disclosure Schedule, neither Gart nor any of its Subsidiaries has
received any written ruling related to Taxes or entered into any agreement
with a Taxing Authority relating to Taxes.
6.14.8. Neither Gart nor any of its Subsidiaries has any liability for
the Taxes of any Person other than the Relevant Gart Group of which Gart is
the parent (a) under Section 1.1502-6 of the treasury regulations (or any
similar provision of state, local or foreign law), (b) as a transferee or
successor, (c) by Contract or (d) otherwise.
6.14.9. Neither Gart nor any of its Subsidiaries (a) has agreed to make
or is required to make any adjustment under Section 481 of the Code by
reason of a change in accounting method and (b) is not a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code.
6.14.10 Neither Gart nor any of its Subsidiaries is a party to, or bound
by, any obligations under any tax sharing, tax allocation, tax indemnity,
or similar agreement or arrangement.
6.14.11 Neither Gart nor any of its Subsidiaries is a partner in any
joint venture, partnership, Contract or other arrangement that is treated
as a partnership for federal, state, local or foreign Income Tax purposes.
6.14.12 Neither Gart nor any of its Subsidiaries was included, nor is it
includible in, the Tax Return of any Relevant Gart Group with any
corporation other than such a return of which Gart is the common parent
corporation.
6.15. TITLE TO PROPERTIES; ENCUMBRANCES. Except as described in the
following sentence, each of Gart and its Subsidiaries has good, valid and, in
the case of real property, marketable title to, or a valid leasehold interest
in, all of its material properties and assets (real, personal, tangible and
intangible), including, without limitation, all such properties and assets
reflected in the consolidated balance sheet of Gart and its Subsidiaries as of
January 29, 2000 included in the Gart SEC Documents (except for properties and
assets disposed of in the ordinary course of business and consistent with past
practices since such date), except for such title or interest the failure of
which to have would not have, individually or in the aggregate, a Material
Adverse Effect on Gart. Except as described in Section 6.15 of the Gart
Disclosure Schedule, none of such properties or assets are subject to any
material Liens (whether absolute, accrued, contingent or otherwise) other than
Permitted Liens.
6.16. INTELLECTUAL PROPERTY. Gart owns or has the right to use all
Intellectual Property Rights (other than confidentiality and nondisclosure
agreements, license agreements, third-party software generally commercially
available on a "shrink wrap" license or similar basis and non-material
copyright and trade secret
A-36
items) now used or presently proposed to be used in the business of Gart and
its Subsidiaries (the "Gart Intellectual Property Rights") (without the making
of any payment to others or the obligation to grant rights to others in
exchange, except as set forth in Section 6.16 of the Gart Disclosure Schedule)
in all material respects necessary to the conduct of its business as presently
being conducted. To the Knowledge of Gart, Gart has no limitation by contract
or imposed by any court on its ability to use the Gart Intellectual Property
Rights in any jurisdiction inside or outside the United States in which Gart is
engaged in material business activities to the extent of the manner in which
such business is currently conducted by Gart in such jurisdiction. Except as
set forth in Section 6.16 of the Gart Disclosure Schedule, the validity of the
Gart Intellectual Property Rights, the title thereto of Gart, and the authority
of Gart to use the Gart Intellectual Property Rights as such Gart Intellectual
Property Rights are presently being used in any material manner is not being
challenged in any administrative or judicial proceeding to which Gart is a
party or, to the Knowledge of Gart, is subject, nor has any such claim been
threatened in writing to Gart or any of its Subsidiaries within the preceding
three years. To the Knowledge of Gart, the conduct of the business of Gart as
now conducted does not infringe or conflict in any material respect with (a)
the Trademark Rights or Patent Rights of others, or (b) any other Intellectual
Property Rights of others. Gart has, as of the date hereof, and will have as of
the Effective Time, satisfied all current requirements necessary to maintain
the validity of all Gart Intellectual Property Rights, and the right to use
such Gart Intellectual Property Rights in all material respects, necessary to
the conduct of Gart's business as it is presently being conducted. Gart has no
Knowledge of any use of any Gart Intellectual Property Rights owned by or
exclusively licensed to Gart that is now being made, except (i) by Gart or (ii)
by any Person duly licensed by it to use the same under a Contract as described
in Section 6.16 of the Gart Disclosure Schedule. Except as set forth in Section
6.16 of the Gart Disclosure Schedule, Gart has no Knowledge of any infringement
by others of any Gart Intellectual Property Rights. To the Knowledge of Gart,
all licenses and other agreements pertaining to the Gart Intellectual Property
Rights are in compliance in all material respects with all applicable laws and
regulations in all jurisdictions in which Gart conducts any business
operations, including, without limitation, those pertaining to remittance of
foreign exchange and taxation. The consummation of the transactions
contemplated hereby will not alter or impair the rights and interests of Gart
in the Gart Intellectual Property Rights, and Gart will have the same rights
and interests in the Gart Intellectual Property Rights immediately after the
Closing as it will have immediately prior to the Closing.
6.17. PROVIDED INFORMATION. The information supplied, or to be supplied, by
Gart or MergerSub for inclusion in the Registration Statement, the Proxy
Statement or any other filing required to be filed with the SEC will not, (i)
in the case of the Registration Statement or such other required filing, as
applicable, on the date it is filed with the SEC, on the date each amendment or
supplement thereto is filed with the SEC, on the date it becomes effective, and
as of the Effective Time, and (ii) in the case of the Proxy Statement, on the
dates of the mailing of the Proxy Statement by the Company and Gart or on the
dates of the Stockholders Meetings, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Each of (A) the
Registration Statement, on the date it becomes effective, (B) the Proxy
Statement and any amendments or supplements thereto, on their respective dates
of mailing, and (C) any other filing required to be filed with the SEC, as of
the date thereof, insofar as they relate to or are filed or are deemed to be
filed by Gart or any of its Affiliates, will comply in all material respects
with all applicable requirements of the Exchange Act. Notwithstanding the
foregoing, Gart and MergerSub make no representations with respect to any
statement in the foregoing documents based upon, and conforming to, information
supplied by the Company for inclusion therein.
6.18. GART PLANS; ERISA. During the six-year period ending on the Closing
Date, neither Gart nor any Gart ERISA Affiliate is or was obligated to make any
contributions to any "multi-employer plan," as defined in Section 3(37) of
ERISA. No amount is due or owing from Gart or any Gart ERISA Affiliate to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on account of any
withdrawal therefrom. During the six-year period ending on the Closing Date,
neither Gart nor any Gart ERISA Affiliate maintains or maintained, or is or was
obligated to contribute to, any plan described in Section 414(j) of the Code or
subject to Title IV of ERISA other than a "multi-employer plan," as defined in
Section 3(37) of ERISA, and no such
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plan subject to Title IV of ERISA has ever been terminated other than in a
"standard termination" under Section 4041(b) of ERISA. Neither Gart nor any
Gart ERISA Affiliate is subject to any material liability, tax or penalty
whatsoever to any Person or agency whomsoever as a result of engaging in a
prohibited transaction under ERISA or the Code, and neither Gart nor any Gart
ERISA Affiliate has any Knowledge of any circumstances that reasonably might
result in any material liability, tax or penalty, including, but not limited
to, a penalty under Section 502 of ERISA, as a result of a breach of any duty
under ERISA or under other laws. Each Gart Plan that is required to comply with
the provisions of Sections 4980B and 4980C of the Code, or with the
requirements referred to in Section 4980D(a) of the Code, has complied in all
material respects, and, except as required by such sections of the Code, no
Gart Plan that is a "welfare benefit plan," as defined in Section 3(1) of
ERISA, provides for post-employment benefits. None of the Gart Plans nor any
trust created thereunder has incurred any "accumulated funding deficiency," as
such term is defined in Section 412 of the Code, whether or not waived, since
the effective date of said Section 412, and no condition has occurred or exists
that by the passage of time could be expected to result in an accumulated
funding deficiency as of the last day of the current plan year of any such Gart
Plan. Each of the Gart Plans that is intended to be a qualified plan under
Section 401(a) of the Code has received a favorable determination letter from
the IRS, and has been operated substantially in accordance with its terms and
with the provisions of the Code. All of the Gart Plans have been administered
and maintained in substantial compliance with ERISA, the Code and all other
applicable Laws. All contributions required to be made to each of the Gart
Plans under the terms of that Gart Plan, ERISA, the Code or any other
applicable Laws have been timely made. Other than routine claims for benefits
under the Gart Plans, there are no pending, or, to the best Knowledge of Gart,
threatened, investigations, proceedings, claims, lawsuits, disputes, actions,
audits or controversies involving the Gart Plans, or the fiduciaries,
administrators, or trustees of any of the Gart Plans or Gart or any Gart ERISA
Affiliate of either as the employer or sponsor under any Gart Plan, with any of
the IRS, the Department of Labor, the PBGC, any participant in or beneficiary
of any Gart Plan or any other Person whomsoever. Gart knows of no reasonable
basis for any such claim, lawsuit, dispute, action or controversy.
6.19. ENVIRONMENTAL MATTERS. Gart and its Subsidiaries are and at all times
have been, and all real property currently or previously owned, leased,
occupied, used by or under the control of Gart or any of its Subsidiaries and
all operations or activities of Gart and its Subsidiaries (including, without
limitation, those conducted on or taking place at any of such Gart Real
Property) are and have been, in compliance with and not subject to any
Liability or obligation under any applicable Environmental Law or Environmental
Permit except where any of the foregoing would not have a Material Adverse
Effect on Gart. There is no condition or circumstance regarding Gart or any of
its Subsidiaries or their business or any such Gart Real Property or the
operations or activities conducted thereon, that, to the Knowledge of Gart,
could reasonably be expected to give rise to a violation of, or Liability or
obligation under, any applicable Environmental Law or Environmental Permit
which would have a Material Adverse Effect on Gart. Neither Gart, any of its
Subsidiaries nor, to the Knowledge of Gart, any Person, the acts or omissions
of which may be attributable to, the responsibility of, or be the basis of a
Liability to, Gart, has, or has arranged to have, any Hazardous Material
generated, released, treated, stored or disposed of at, or transported to, any
facility or property the remediation or cleanup of which, or the response costs
related thereto, could reasonably be expected to become or result in a Material
Adverse Effect on Gart. Gart has not received written notice of any
allegations, claims, demands, citations, notices of violation, or orders of
noncompliance made against Gart relating or pursuant to any Environmental Law
or Environmental Permit except those that have been corrected or complied with
or that are not material to Gart, and, to the Knowledge of Gart, no such
allegation, claim, demand, citation, notice of violation or order of
noncompliance is threatened.
6.20. LABOR MATTERS. With respect to employees of Gart and its Subsidiaries:
(a) to the Knowledge of Gart, there are no pending or threatened unfair labor
practice charges or employee grievance charges; (b) there is no request for
union representation, labor strike, dispute, slowdown or stoppage actually
pending or, to the Knowledge of Gart, threatened against Gart, and there has
been no such event during the 18 months preceding the date hereof; and (c) Gart
is not a party to any collective bargaining agreements. Gart is, and since
January 29, 2000 has been, in compliance in all material respects with all
applicable Laws respecting
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employment and employment practices and the terms and conditions of employment,
wages and hours, including, without limitation, any such Laws respecting
employment discrimination, occupational safety and health, and unfair labor
practices, except where such failure to comply would not have a Material
Adverse Effect on Gart. Gart is not delinquent in any material respect in
payments to its employees for any wages, salaries, commissions, bonuses or
other direct compensation for any services performed by them or any amounts
required to be reimbursed to such employees.
6.21. RELATED PARTY TRANSACTIONS. Except as set forth in Section 6.21 of the
Gart Disclosure Schedule or as contemplated by the transactions contemplated
hereby, no (a) beneficial owner of 10% or more of Gart's outstanding capital
stock, (b) officer or director of Gart or (c) any Person (other than Gart) in
which any such beneficial owner, officer or director owns any beneficial
interest (other than a publicly held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than 1%
of the stock of which is beneficially owned by all such Persons) has any
interest in: (i) any Contract, arrangement or understanding with, or relating
to, the business or operations of, Gart or any of its Subsidiaries; (ii) any
loan, Contract, arrangement, understanding or agreement for, or relating to,
indebtedness of Gart or any of its Subsidiaries; or (iii) any property (real,
personal or mixed), tangible or intangible, used in the business or operations
of the Company or any of its Subsidiaries, excluding any such Contract,
arrangement or understanding constituting a Gart Plan.
6.22. REAL ESTATE.
6.22.1. Section 6.22.1 of the Gart Disclosure Schedule sets forth a
true, correct and complete list of all real property (including
improvements thereon) owned in fee simple by Gart (collectively, the "Gart
Owned Real Property"). With respect to each such parcel of Gart Owned Real
Property: (a) Gart (either directly or through a Subsidiary) owns fee
simple marketable title to such parcel, subject to no Liens other than any
Permitted Liens or any Liens set forth in Section 6.22.1 of the Gart
Disclosure Schedule; (b) there are no leases, subleases, licenses,
concessions or other agreements, written or oral, granting to any person
the right of use or occupancy of any portion of such parcel; and (c) there
are no outstanding actions, rights of first refusal or options to purchase
such parcel.
6.22.2. Section 6.22.2 of the Gart Disclosure Schedule sets forth a
true, correct and complete list of all of the leases and subleases ("Gart
Leases") and each leased and subleased parcel of real property in which
Gart or any of its Subsidiaries is a tenant, subtenant, landlord or
sublandlord (collectively, the "Gart Leased Real Property") and for each
Gart Lease indicates: (a) whether or not the consent of and/or notice to
the landlord thereunder will be required in connection with the
transactions contemplated by this Agreement; (b) whether any third party or
Gart is the guarantor of the obligations of any Subsidiary of Gart under
the Gart Lease and the identity of any such guarantor; (c) its term and any
options to extend the term; and (d) the current rent payable as set forth
on the rent roll report (it being understood that such amount reported on
the rent roll report may not include percentage rent, common area
maintenance, tax and insurance amounts payable by Gart under the Gart
Lease). Gart (either directly or through a Subsidiary) holds a valid and
existing leasehold or subleasehold interest or landlord or sublandlord
interest as applicable in the Gart Leased Real Property, under each of the
Gart Leases described in Section 6.22.2 of the Gart Disclosure Schedule.
With respect to each Gart Lease: (a) the Gart Lease is legal, valid,
binding, enforceable and in full force and effect; (b) the Gart Lease will
continue to be legal, valid, binding, enforceable and in full force and
effect on the same terms and conditions following the Effective Time; (c)
neither Gart (or its applicable Subsidiary), nor, to the Knowledge of Gart,
any other party to the Gart Lease, is in any material respect in breach or
default under the Gart Lease, and no event has occurred that, with notice
or lapse of time, would constitute a breach or default in any material
respect by Gart (or such Subsidiary) or permit termination, modification or
acceleration under the Gart Lease by any other party thereto; (d) Gart (or
its applicable Subsidiary) has performed and will continue to perform all
of its obligations in all material respects under the Gart Lease; (e) Gart
has not, and, to the Knowledge of Gart, no third party has, repudiated any
provision of the Gart Lease; (f) there are no disputes, oral agreements or
forbearance programs in effect as to the Gart Lease other than those that,
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individually or in the aggregate, do not constitute a Material Adverse
Effect on Gart; (g) the Gart Lease has not been modified in any respect,
except to the extent that such modifications are set forth in documents
previously delivered or made available to the Company; (h) Gart has not
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the Gart Lease; and (i) each guaranty by Gart is in full
force and effect and no default has occurred thereunder.
6.22.3. The Gart Owned Real Property and the Gart Leased Real Property
are referred to collectively herein as the "Gart Real Property." Except as
disclosed on Section 6.22.1 or Section 6.22.2 of the Gart Disclosure
Schedule, there is no Gart Real Property used by Gart or any of its
Subsidiaries in their businesses. To the Knowledge of Gart, each parcel of
Gart Real Property is in material compliance with all existing Laws,
including, without limitation, (a) the Americans with Disabilities Act, 42
U.S.C. Section 12102 et seq., together with all rules, regulations and
official interpretations promulgated pursuant thereto, and (b) all Laws
with respect to zoning, building, fire, life safety, health codes and
sanitation. Gart and its Subsidiaries have received no notice of, and have
no Knowledge of, any condition currently or previously existing on the Gart
Real Property or any portion thereof that may give rise to any violation
of, or require any remediation under, any existing Law applicable to the
Gart Real Property if it were disclosed to the authorities having
jurisdiction over such Gart Real Property other than those (i) arising in
the ordinary course of business or (ii) that do not constitute,
individually or in the aggregate, a Material Adverse Effect on Gart.
6.22.4. Gart has not received written notice of any proceedings in
eminent domain, condemnation or other similar proceedings that are pending,
and, to the Knowledge of Gart, there are no such proceedings threatened,
affecting any portion of the Gart Real Property. Gart has not received
written notice of the existence of any outstanding writ, injunction,
decree, Order or judgment or of any pending proceeding, and, to the
Knowledge of Gart, there is no such writ, injunction, decree, Order,
judgment or proceeding threatened, relating to the ownership, lease, use,
occupancy or operation by any person of the Gart Real Property.
6.22.5. To the Knowledge of Gart, the current use of the Gart Real
Property does not violate in any material respect any instrument of record
or agreement affecting such Gart Real Property. There are no violations of
any covenants, conditions, restrictions, easements, agreements or Orders of
any Governmental Entity having jurisdiction over any of the Gart Real
Property that affect such Gart Real Property or the use or occupancy
thereof other than those that do not, individually or in the aggregate,
constitute a Material Adverse Effect on Gart. No damage or destruction has
occurred with respect to any of the Gart Real Property that, individually
or in the aggregate, has had or resulted in, or is reasonably likely to
have or result in, a Material Adverse Effect on Gart.
6.22.6. There are currently in effect such insurance policies for the
Gart Real Property as are customarily maintained with respect to similar
properties. All premiums due on such insurance policies have been paid by
Gart, and Gart will maintain such insurance policies from the date hereof
through the Effective Time or earlier termination of this Agreement. Gart
has not received, and has no Knowledge of, any notice or request from any
insurance company requesting the performance of, any work or alteration
with respect to the Gart Real Property or any portion thereof. Gart has
received no notice from any insurance company concerning, nor does Gart
have any Knowledge of, any defects or inadequacies in the Gart Real
Property that, if not corrected, would result in the termination of
insurance coverage or would increase its cost.
6.22.7. All buildings and other improvements included within the Gart
Real Property (the "Gart Improvements") are, in all material respects,
adequate to operate such facilities as currently used, and, to Gart's
Knowledge, there are no facts or conditions affecting any of the Gart
Improvements that would, individually or in the aggregate, interfere in any
significant respect with the current use, occupancy or operation thereof,
which interference would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Gart. With respect to the
Gart Improvements, Gart has all rights of access that are reasonably
necessary for the operation of its business.
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6.22.8. All required or appropriate certificates of occupancy, permits,
licenses, franchises, approvals and authorizations (collectively, the "Gart
Real Property Permits") of all Governmental Entities having jurisdiction
over the Gart Real Property, the absence of which would be reasonably
likely to cause a Gart store to cease its operations, have been issued to
Gart to enable the Gart Real Property to be lawfully occupied and used for
all of the purposes for which it is currently occupied and used have been
lawfully issued and are, as of the date hereof, in full force and effect.
Gart has not received, or been informed by a third party of the receipt by
it of, any notice that would be reasonably likely to cause a Gart store to
cease its operations from any Governmental Entity having jurisdiction over
the Gart Real Property threatening a suspension, revocation, modification
or cancellation of any Gart Real Property Permit or requiring any
remediation in connection with maintaining any Gart Real Property Permit,
and, to the Knowledge of Gart, there is no basis for the issuance of any
such notice or the taking of any such action.
6.23. INSURANCE. Each of Gart and its Subsidiaries maintains insurance
policies (the "Gart Insurance Policies") against all risks of a character and
in such amounts as are usually insured against by similarly situated companies
in the same or similar businesses. Each Gart Insurance Policy is in full force
and effect and is valid, outstanding and enforceable, and, other than as set
forth in Section 6.23 of the Gart Disclosure Schedule, all premiums due thereon
have been paid in full. None of the Gart Insurance Policies will terminate or
lapse (or be affected in any other materially adverse manner) prior to the
Effective Time by reason of the transactions contemplated by this Agreement.
Each of Gart and its Subsidiaries has complied in all material respects with
the provisions of each Gart Insurance Policy under which it is the insured
party. No insurer under any Gart Insurance Policy has cancelled or generally
disclaimed Liability under any such policy or, to Gart's Knowledge, indicated
any intent to do so or not to renew any such policy. All material claims under
the Gart Insurance Policies have been filed in a timely fashion. Since January
6, 1996, there have been no historical gaps in insurance coverage of Gart
and/or its Subsidiaries.
6.24. MERCHANDISE VENDORS. Since January 29, 2000, there has not been any
change in relations with any of the major merchandise vendors of Gart and its
Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect on Gart.
6.25. VENDORS AND LANDLORDS; CO-OPERATIVE ADVERTISING CONTRACTS. There are
no disputes or disagreements between Gart or any of its Subsidiaries, on the
one hand, and any vendor or landlord of Gart or any of its Subsidiaries or any
Person that is a party to a co-operative advertising contract with Gart or any
of its Subsidiaries, on the other hand, that are pending or, to the Knowledge
of Gart, threatened that, in the aggregate and net of the reserve for such
disputes and disagreements set forth in the most recent balance sheet
(including the notes thereto) included in the Gart SEC Documents, exceed
$1,000,000; and Gart is not aware of any basis on which any such material
disputes or disagreements could reasonably be expected to arise.
6.26. STORE CLOSINGS. Except as set forth in Section 6.26 of the Gart
Disclosure Schedule, neither Gart nor any of its Subsidiaries have any material
Liability of any kind related to the closing of any store with respect to which
Gart or any of its Subsidiaries terminated, following January 1, 1990, its
leasehold or subleasehold interest.
6.27. DISCLOSURE. Each representation and warranty made by Gart or MergerSub
contained in this Agreement, and the Gart Disclosure Schedule and each
certificate prepared or delivered by, or on behalf of, Gart or MergerSub and
provided, or to be provided, to the Company in connection herewith, do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
6.28. TAKEOVER STATUTES. The board of directors of Gart has approved the
Merger and this Agreement and such approval is sufficient to render
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby, the restrictions on business combinations set forth in Section 203 of
the DGCL. To Gart's Knowledge, no other Takeover Statute applicable to Gart is
applicable to the Merger or any of the other transactions contemplated hereby.
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6.29. BROKERS. Except as set forth in Section 6.29 of the Gart Disclosure
Schedule, except for fees, commissions and expenses payable to its financial
advisor, Stephens, Inc., no broker, finder or financial advisor retained by
Gart or MergerSub is entitled to any brokerage, finder's or other fee or
commission from Gart or MergerSub in connection with the transactions
contemplated by this Agreement.
6.30. FINANCING. Gart has received, and has delivered to the board of
directors of the Company, a copy of a letter dated February 9, 2001 from The
CIT Group/Business Credit, Inc., pursuant to which such Person has committed,
subject to the terms and conditions set forth therein, to enter into a new
credit facility (the "New Credit Facility") providing for loans to Gart and its
Subsidiaries of up to $300,000,000. As used in this Agreement, the
aforementioned commitment shall be referred to as the "Financing Letter," and
the financing to be provided under the New Credit Facility shall be referred to
as the "Financing." The Financing Letter contemplates that the New Credit
Facility will be executed immediately following the consummation of the
transactions contemplated hereby and that, concurrently with such execution,
each of the Company Credit Facility and the Gart Credit Facility will be
terminated. Gart has no reason to believe that any condition to the Financing
contemplated by the Financing Letter will fail to be satisfied in accordance
with its terms (it being understood that, in making such representation, Gart
is not assuming any responsibility for the representations, warranties and
covenants of the Company set forth in this Agreement, which responsibility
shall remain solely that of the Company). The aggregate proceeds of the
Financing are in an amount sufficient (a) to pay when due, pursuant to the
terms and conditions herein, all necessary cash payments to be made by Gart and
the Surviving Corporation in connection with the Merger and the other
transactions contemplated hereby, (b) to provide a reasonable amount of working
capital financing, and (c) to pay related fees and expenses.
6.31. NO PRIOR ACTIVITIES. MergerSub has not incurred, directly or
indirectly, any material Liabilities or obligations except those incurred in
connection with its organization or with the negotiation and execution of this
Agreement and the performance of the transactions contemplated hereby. Except
as contemplated by this Agreement or in connection with the transactions
contemplated hereby, MergerSub has not engaged, directly or indirectly, in any
business or activity of any type or kind, or entered into any agreement or
arrangement with any person or entity, and is not subject to or bound by any
material obligation or undertaking.
ARTICLE 7.
Covenants
7.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except as
otherwise specifically contemplated by this Agreement, without the prior
written consent of Gart, from the date hereof to the Effective Time, each of
the Company and its Subsidiaries shall carry on its business in the ordinary
and usual course of business and consistent with past practices and shall use
its commercially reasonable best efforts to (a) preserve intact its present
business organization, (b) maintain in effect all material federal, state and
local Permits that are required for the Company or any of its Subsidiaries to
carry on its business, (c) keep available the services of its present employees
and consultants, and (d) preserve its present relationships with its employees,
consultants, customers, lenders, suppliers, licensors, licensees, landlords and
others having significant business relationships with it. Without limiting the
generality of the foregoing, except as otherwise specifically contemplated by
this Agreement or the Company Disclosure Schedule, without the prior written
consent of Gart (with respect to which the determination by Gart whether to
provide such consent shall not be unreasonably delayed), prior to the Effective
Time, the Company shall not, nor shall it permit any of its Subsidiaries to:
7.1.1. propose or adopt any change in its certificate of incorporation
or by-laws or comparable organizational documents;
7.1.2. (a) merge with or acquire a direct or indirect ownership interest
or investment in (by merger, consolidation, acquisition of stock or assets,
joint venture or otherwise) any corporation, partnership or other business
organization or division thereof; (b) sell, lease or otherwise dispose of a
material amount of
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assets (excluding sales of inventory or other assets in the ordinary course
of business consistent with past practices) or securities; (c) waive,
release, grant, or transfer any rights of value that are, individually or
in the aggregate, material to the Company and its Subsidiaries taken as a
whole; (d) modify or change in any material respect any material Permit;
(e) incur, assume or prepay any indebtedness for borrowed money except in
the ordinary course of business consistent with past practices; (f) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any indebtedness of any other
Person, except in the ordinary course of business consistent with past
practices; (g) mortgage, pledge or subject to any Lien (other than any
Permitted Lien), charge or other encumbrance any of the Company's or its
Subsidiaries' material assets, properties or business, whether tangible or
intangible; (h) make any loans, advances or capital contributions to, or
investments in, any other Person, except in the ordinary course of business
consistent with past practices; (i) authorize any capital expenditure or
expenditures not in the ordinary course of business consistent with past
practices; (j) pledge or otherwise encumber shares of capital stock of the
Company or any of its Subsidiaries; (k) enter into any Contract other than
in the ordinary course of business consistent with past practices that
would be material to the Company and its Subsidiaries taken as a whole; or
(l) amend, modify or waive any material right under any material Contract
of the Company or any of its Subsidiaries, except as otherwise permitted by
this Agreement;
7.1.3. enter into any new lease, sublease, assignment or other agreement
(other than any service or maintenance agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business
consistent with past practices) in respect of the Company Real Property
without Gart's prior written consent (which consent may be withheld in
Gart's sole and absolute discretion), except as described in Section 7.1 of
the Company Disclosure Schedule;
7.1.4. extend, renew, replace, amend, modify or alter any existing
Company Lease (other than in the ordinary course of business and consistent
with past practices and this Agreement, provided, that the Company shall
provide Gart with 10 days' advance notice of such proposed action and the
opportunity to discuss such proposed action with the Company) in respect of
the Company Real Property, except as described in Section 7.1 of the
Company Disclosure Schedule;
7.1.5. sell, contribute, assign or create any right, title or interest
whatsoever in or to the Company Real Property, or create or permit to exist
thereon any Lien (other than any Permitted Lien), charge or encumbrance, or
enter into any agreement to do any of the foregoing, without the prior
written consent of Gart (which consent may be granted or withheld in Gart's
sole and absolute discretion);
7.1.6. knowingly take any action that would result in any representation
or warranty of the Company contained in this Agreement that is qualified as
to materiality becoming untrue as of the Effective Time or any
representation or warranty not so qualified becoming untrue in any material
respect as of the Effective Time;
7.1.7. split, combine or reclassify any shares of, or declare, set aside
or pay any dividend (including, without limitation, an extraordinary
dividend) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of, any capital stock of the Company or any
of its Subsidiaries, or redeem, repurchase or otherwise acquire, or offer
to redeem, repurchase or otherwise acquire, any capital stock of the
Company or any of its Subsidiaries;
7.1.8. adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or employee benefit plan, agreement, trust, fund
or other arrangement for the benefit and welfare of any director, officer,
employee, agent or consultant providing management services or increase in
any manner the compensation or fringe benefits of any director, officer or
any class of employees or pay any benefit not required by any existing plan
or arrangement (including, without limitation, the granting of stock
options or stock appreciation rights or the removal of existing
restrictions in any benefit plans or agreements); make any loans to any of
its officers, directors, employees, Affiliates, agents or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such persons, whether pursuant to a Company Plan or
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otherwise; or grant, issue, accelerate, pay or accrue, or agree to pay or
make any accrual or arrangement for payment of, salary or other payments or
benefits pursuant to, or adopt or amend, any new or existing Company Plan;
provided, however, that, notwithstanding the foregoing, the Company shall
be entitled to increase the compensation of employees, make arrangements
with new employees that are not material, and make modifications in
incentive programs and personnel policies and procedures for non-officer
employees that are not material, in each case in the ordinary course of
business consistent in type and amount with past practices; and provided,
further, that, notwithstanding the foregoing, the Company shall be entitled
to commit to or provide for (a) severance and/or "stay bonus" benefits to
employees who are hired after the date hereof and prior to the Effective
Time, or (b) increases in benefits to existing employees of the Company or
its Subsidiaries as of the date hereof (other than any such employees who
have the rank of a corporate-level vice president or a more senior rank),
provided that (i) the aggregate amount of all such benefits committed to or
provided for the employees under clauses (a) and (b) does not exceed
$400,000, (ii) the Company shall commit to or provide for only such
benefits as it determines are reasonably necessary to obtain the services
of each such employee, and (iii) in the case of increases in benefits to
employees under clause (b), the Company shall use commercially reasonable
efforts to implement other methods to retain such employees before
committing to or providing for such increases.
7.1.9. except in the ordinary course of business consistent with past
practices or as required by applicable Law or GAAP, revalue in any material
respect any of its assets on the Company Financials, including writing down
the value of inventory in any material manner or writing off notes or
accounts receivable in any material manner;
7.1.10. pay, discharge or satisfy any material claims, Liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practices;
7.1.11. make any material Tax election, or settle or compromise any
material Tax Liability;
7.1.12. make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, Liabilities or
results of operations of the Company;
7.1.13. authorize for issuance, issue, sell or deliver, or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), any capital stock of the Company or any of its Subsidiaries or
equity equivalents;
7.1.14. adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries;
7.1.15. alter through merger, liquidation, reorganization, restructuring
or any other fashion the corporate structure or ownership of any
Subsidiary;
7.1.16. permit to lapse any material Permits;
7.1.17. permit to lapse any registrations or applications for material
Company Intellectual Property Rights owned, licensed, or used by the
Company (provided, that the Company shall use commercially reasonable
efforts to provide Gart with at least 10 days' advance notice of such event
and the opportunity to discuss such matter with the Company); or
7.1.18. agree or commit to do any of the foregoing.
7.2. CONDUCT OF BUSINESS BY GART PENDING THE MERGER. Except as otherwise
specifically contemplated by this Agreement, without the prior written consent
of the Company, from the date hereof to the Effective Time, each of Gart and
its Subsidiaries shall carry on its business in the ordinary and usual course
of business and consistent with past practices and shall use its commercially
reasonable best efforts to (a) preserve intact its present business
organization, (b) maintain in effect all material federal, state and local
Permits that are required for Gart or any of its Subsidiaries to carry on its
business, (c) keep available the services of its present employees and
consultants, and (d) preserve its present relationships with its
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employees, consultants, customers, lenders, suppliers, licensors, licensees,
landlords and others having significant business relationships with it. Without
limiting the generality of the foregoing, except as otherwise specifically
contemplated by this Agreement or in the Gart Disclosure Schedule, without the
prior written consent of the Company (with respect to which the determination
by the Company whether to provide such consent shall not be unreasonably
delayed), prior to the Effective Time, Gart shall not, nor shall it permit any
of its Subsidiaries to:
7.2.1. propose or adopt any change in its certificate of incorporation
or by-laws or comparable organizational documents;
7.2.2. (a) merge with or acquire a direct or indirect ownership interest
or investment (other than an ownership interest that is not material) in
(by merger, consolidation, acquisition of stock or assets, joint venture or
otherwise) any corporation, partnership or other business organization or
division thereof; (b) sell, lease or otherwise dispose of a material amount
of assets (excluding sales of inventory or other assets in the ordinary
course of business consistent with past practices) or securities; or (c)
waive, release, grant, or transfer any rights of value that are,
individually or in the aggregate, material to Gart and its Subsidiaries
taken as a whole;
7.2.3. knowingly take any action that would result in any representation
or warranty of Gart contained in this Agreement that is qualified as to
materiality becoming untrue as of the Effective Time or any representation
or warranty not so qualified becoming untrue in any material respect as of
the Effective Time;
7.2.4. split, combine or reclassify any shares of, or declare, set aside
or pay any dividend (including, without limitation, an extraordinary
dividend) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of, any capital stock of Gart or any of its
Subsidiaries, or redeem, repurchase or otherwise acquire, or offer to
redeem, repurchase or otherwise acquire, any capital stock of Gart or any
of its Subsidiaries;
7.2.5. except in the ordinary course of business consistent with past
practices or as required by applicable Law or GAAP, revalue in any material
respect any of its assets on the Gart Financials, including writing down
the value of inventory in any material manner or writing off notes or
accounts receivable in any material manner;
7.2.6. make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, Liabilities or
results of operations of Gart;
7.2.7. authorize for issuance, issue, sell or deliver, or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), any capital stock of Gart or any of its Subsidiaries or equity
equivalents; provided, however, that, notwithstanding the provisions of
this Section 7.2.7, Gart and its Subsidiaries shall be entitled to (a)
issue or grant options to employees, directors and consultants of Gart and
its Subsidiaries, and issue capital stock upon the exercise by holders of
options to purchase capital stock of Gart, and (b) issue securities of Gart
or its Subsidiaries substantially all the net proceeds of which are used to
(i) retire indebtedness or other ordinary course or general liabilities of
Gart or its Subsidiaries and/or (ii) provide working capital for Gart or
its Subsidiaries, provided that any such transactions pursuant to clause
(b) shall be on fair market value terms, and further provided that the
Company's board of directors shall not have determined in good faith, prior
to the consummation of any such transactions pursuant to clause (b), that
any such transactions would adversely affect the fairness of the Merger or
materially delay the consummation of the Merger, and further provided that
Gart shall provide to the Company (x) notice as soon as reasonably
practicable following the consummation of any such transactions pursuant to
clause (a) (other than issuances of capital stock upon the exercise by
holders of options to purchase capital stock of Gart) and (y) notice as
soon as reasonably practicable (and, in any event, at least five Business
Days) in advance of the consummation of any such transactions pursuant to
clause (b);
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7.2.8. adopt a plan of complete or partial liquidation, dissolution or
restructuring of Gart or any of its Subsidiaries; or
7.2.9. agree or commit to do any of the foregoing.
7.3. ACCESS AND INFORMATION. Each of Gart and the Company shall (and shall
cause its Subsidiaries and its and their respective officers, directors,
employees, auditors and agents to) afford to the other party and to such other
party's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives (except to the extent not permitted under
applicable Law as advised by counsel and except as may be limited by any
confidentiality obligation contained in any Contract with a third party)
reasonable access during normal business hours throughout the period prior to
the Effective Time to all of its books and records and its properties, plants
and personnel and, during such period, shall furnish promptly to the other
party a copy of each report, schedule and other document filed or received by
it pursuant to the requirements of federal securities laws. Such access may
include reasonable access to employees, books, records and properties necessary
to conduct Phase I environmental studies and surveys on Company Owned Real
Property. The Company agrees to cooperate reasonably with Gart with respect to
transition activities prior to the Effective Time, provided that such
activities (i) do not cause any unreasonable interference with the operation of
the Company's business and (ii) do not violate any applicable Laws. The Company
shall have provided to Gart prior to the date hereof a true and complete list,
as of a current date, of all employees who are employed by the Company at the
Company's headquarters and all other employees above the store manager level,
such list to include such employees' salaries, wages, other significant
compensation (other than benefits under the Company Plans), dates of employment
and positions.
7.4. NO SOLICITATION.
7.4.1. The Company agrees that neither it, nor any of its Subsidiaries
or Affiliates, nor any of the respective directors, executive officers,
agents or representatives of any of the foregoing, will, directly or
indirectly, (a) solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal with
respect to any merger, consolidation or other business combination
involving the Company or any Subsidiary of the Company or the acquisition
of all or any significant part of the assets or capital stock (including,
but not limited to, a control position voting interest) of the Company or
any Subsidiary of the Company (an "Acquisition Transaction"), (b) negotiate
or otherwise engage in discussions with any Person with respect to any
Acquisition Transaction, or that may reasonably be expected to lead to a
proposal for an Acquisition Transaction, or (c) enter into any agreement,
arrangement or understanding (including any letter of intent, agreement in
principle or similar agreement) with respect to any such Acquisition
Transaction, in the case of each clauses (a), (b) and (c) other than in
connection with the transactions with Gart and MergerSub contemplated by
this Agreement; provided, however, that, the Company may, in response to a
proposal or inquiry that is unsolicited and received by the Company after
the date hereof, furnish information to, negotiate or otherwise engage in
discussions with any Person (pursuant to a customary confidentiality
agreement) that makes or indicates in writing an intention or desire to
make, and with respect to whom the board of directors of the Company has
concluded in good faith after consultation with its financial advisor is
capable of making, a Superior Proposal (as herein defined), if the board of
directors of the Company determines in good faith, after consultation with
its outside counsel, that the failure to take such action would be
inconsistent with the fiduciary duties of the board of directors of the
Company under applicable Law and such proposed Acquisition Transaction was
not solicited by it in, or did not otherwise result from a, breach of this
Section 7.4.1, and the board of directors of the Company complies with the
other provisions of this Section 7.4.1; and, provided, further, that,
notwithstanding anything to the contrary contained herein, the board of
directors of the Company may take and disclose to the Company's
stockholders a position contemplated by Rule 14e-2 promulgated under the
Exchange Act, comply with Rule 14d-9 thereunder and make all other
disclosures required by applicable Law. Notwithstanding any of the
foregoing to the contrary, the Company may engage in discussions with, or
provide information to, any Person or group that has made a proposal
unsolicited after the date hereof with respect to an Acquisition
Transaction for the limited purpose of determining whether such proposal
is, or could lead to, a Superior Proposal.
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7.4.2. The Company agrees that, as of the date hereof, it, its
Subsidiaries and Affiliates, and the respective directors, executive
officers, agents and representatives of any of the foregoing, shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Person (other than Gart and its
representatives) conducted heretofore with respect to any Acquisition
Transaction. The Company agrees to promptly advise Gart of any inquiries or
proposals received by, any information requested from, or any negotiations
or discussions sought to be initiated or continued with, the Company, its
Subsidiaries or Affiliates, or any of the respective directors, executive
officers, agents or representatives of any of the foregoing, in each case
from a Person (other than Gart, MergerSub and their representatives) with
respect to an Acquisition Transaction, and, concurrently with such
advisement, to provide to Gart a reasonable summary of the terms of such
Acquisition Transaction (including the terms of any financing arrangement
or commitment in connection therewith) and the identity of such third
Person, and, except as otherwise would be inconsistent with the fiduciary
duties of the Company's board of directors under applicable Law, to update
on an ongoing basis or upon Gart's reasonable request the status thereof,
as well as any actions taken or other developments pursuant to this Section
7.4.2. As used herein, "Superior Proposal" means: (i) a bona fide fully-
financed written proposal or offer made by any Person or group (other than
Gart or any of its Subsidiaries) with respect to an Acquisition
Transaction; or (ii) a bona fide written proposal or offer made by any
Person or group (other than Gart or any of its Subsidiaries) with respect
to an Acquisition Transaction that would produce a greater value per share
of Company Common Stock than the Merger Consideration; provided, that, in
the case of either clause (i) or (ii), such proposal or offer would
otherwise be on terms that the board of directors of the Company determines
in good faith, based on the advice of independent financial advisors and
legal counsel, to be more favorable to the Company's stockholders than the
transactions contemplated hereby.
7.5. GOVERNMENTAL ENTITIES. Subject to the terms and conditions provided
herein, each of the parties hereto agrees to use its reasonable best efforts to
take promptly, or to cause to be taken promptly, all actions and to do
promptly, or to cause to be done promptly, all things necessary, proper or
advisable under applicable Laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable, including using reasonable best efforts to obtain all necessary
actions or non-actions, extensions, waivers, consents and approvals from all
applicable Governmental Entities, effecting all necessary registrations,
applications and filings (including, without limitation, filings under any
applicable state securities laws) and obtaining any required regulatory
approvals and consents.
7.6. BEST EFFORTS. Subject to the terms and conditions provided herein, the
Company agrees that it shall use its commercially reasonable best efforts to
secure waivers and/or consents from such third parties as may be necessary in
the judgment of the Company or Gart in order to consummate the transactions
contemplated hereby; provided, however, that, unless requested by Gart, the
Company shall not make any payment (or provide any similar non-monetary
benefit) to a third party (other than any such payment or benefit that is de
minimis in amount) in connection with securing any waiver or consent from such
third party without the prior written approval of Gart.
7.7. CERTAIN FILINGS UNDER SECURITIES LAWS. As soon as reasonably
practicable after the date hereof, the Company and Gart shall prepare and file
with the SEC the Registration Statement (including the Proxy Statement in
preliminary form) and any other filing required to be filed with the SEC. The
Company and Gart shall each use its reasonable best efforts to have the Proxy
Statement and any other such required filing cleared by the SEC and the
Registration Statement declared effective as soon as practicable. The Company
and Gart shall, as promptly as practicable (or at such other time as may be
mutually agreed by the Company and Gart), cause the Proxy Statement in
definitive form to be mailed to its respective stockholders. The Company shall
furnish Gart with all information concerning the Company and the holders of its
capital stock and shall take such other action as Gart may reasonably request
in connection with the Registration Statement, the Proxy Statement and any
other filing required to be filed with the SEC. If, at any time prior to the
Effective Time, any event or circumstance relating to the Company (including
any of its Subsidiaries or any of the officers or directors of the Company or
its Subsidiaries) or to Gart (including any of its Subsidiaries or
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any of the officers or directors of Gart or its Subsidiaries) should be
discovered by such party that should be set forth in an amendment or a
supplement to the Registration Statement, the Proxy Statement or any other
filing required to be filed with the SEC, such party shall promptly inform the
other party thereof and shall take appropriate action in respect thereof.
7.8. STOCKHOLDERS MEETINGS. Each of Gart and the Company, acting through its
board of directors, shall, subject to and in accordance with applicable Law and
its certificate of incorporation and by-laws, promptly and duly call, give
notice of, convene and hold as soon as practicable following the date on which
the Registration Statement becomes effective a Stockholders Meeting for the
purpose of voting (i) in the case of the Company, to adopt this Agreement and
approve the Merger and (ii) in the case of Gart, to approve the issuance of
Gart Common Stock in connection with the Merger. Except to the extent required
for the discharge by the board of directors of the Company of its fiduciary
duties under applicable Law and subject to Section 7.4, the board of directors
of the Company shall recommend the adoption of this Agreement and the approval
of the Merger by the Company's stockholders at the Company Stockholders Meeting
and the board of directors of Gart shall recommend the approval of the issuance
of Gart Common Stock contemplated hereby by Gart's stockholders at the Gart
Stockholders Meeting.
7.9. HSR NOTIFICATION.
7.9.1. FILINGS. As soon as reasonably practicable, each of the Company
and Gart shall file, or cause its Ultimate Parent Entity (as defined in the
HSR Act) to file, with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice pursuant to the HSR
Act, the notification and documentary material required in connection with
the transactions contemplated hereby.
7.9.2. COOPERATION. The Company and Gart shall use their reasonable best
efforts to obtain early termination of the applicable waiting period under
the HSR Act. The Company and Gart shall promptly file, or cause to be
filed, any additional information requested as soon as reasonably
practicable after receipt of a request for additional information. The
parties hereto will coordinate and cooperate with one another in exchanging
such information and providing such reasonable assistance as may be
requested in connection with such filings. Notwithstanding any provision in
this Agreement to the contrary, neither MergerSub nor Gart shall be
required to agree to any divestiture by Gart or the Company (or any
Subsidiary or Affiliate of Gart or the Company) of shares of capital stock
or of any business, assets or property of Gart or the Company (or any
Subsidiary or Affiliate of Gart or the Company), or to the imposition of
any material limitation on the ability of any of them to conduct its
business or to own or exercise control of its assets, properties or capital
stock.
7.10. FINANCIAL STATEMENT DELIVERIES. As soon as is reasonably practicable
and in no event later than 15 Business Days from the last day of each fiscal
month between the date hereof and the Closing Date, each of the Company and
Gart shall prepare and provide to the other party the monthly financial reports
routinely prepared for management of such party, utilizing the same format and
methodology used in preparing such reports as are provided internally to
management of such party (provided, however, that, if the end of the fiscal
quarter of such party occurs in such fiscal month, then such party shall
provide to the other party such reports no later than 45 days from the last day
of such fiscal month, and, if the end of the fiscal year of such party occurs
in such fiscal month, then such party shall provide to the other party such
reports no later than 90 days from the last day of such fiscal month). As soon
as reasonably practicable between the date hereof and the Closing Date, each of
the Company and Gart shall deliver any Form 10-Q or Form 10-K, including any
amendments thereto, prepared or filed by such party.
7.11. FINANCING. Each of Gart and MergerSub shall use good faith
commercially reasonable efforts to obtain the Financing, on terms reasonably
consistent with those contained in the Financing Letter. The Company agrees to
provide, and will use commercially reasonable efforts to cause its
Subsidiaries, officers, employees, representatives and advisors (including
legal and accounting advisors) to provide, all cooperation reasonably requested
by Gart in connection with the Financing. Gart will promptly provide to the
Company written notice of any fact or occurrence that might reasonably be
expected to cause any conditions of the Financing Letter not to be satisfied.
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7.12. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.
7.12.1. Gart and the Company agree that all rights to indemnification,
exculpation, advancement of expenses and the like now existing in favor of
any director or officer of the Company and its Subsidiaries (the
"Indemnified Parties") as provided in their respective charters or by-laws,
or in an agreement set forth in Section 7.12.1 of the Company Disclosure
Schedule between an Indemnified Party and the Company or one of its
Subsidiaries, are contract rights and shall survive the Merger. In
addition, and without limiting the foregoing, Gart and the Surviving
Corporation shall indemnify all Indemnified Parties to the fullest extent
permitted by applicable Law with respect to all acts and omissions arising
out of such individuals' services as officers, directors, employees or
agents of the Company or any of its Subsidiaries, or as trustees or
fiduciaries of any plan for the benefit of employees, occurring at or prior
to the Effective Time, including, without limitation, the transactions
contemplated by this Agreement. Without limiting the foregoing, in the
event any such Indemnified Party is or becomes involved in any capacity in
any Action in connection with any matter, including, without limitation,
the transactions contemplated by this Agreement, occurring at or prior to,
and including, the Effective Time, Gart and the Surviving Corporation will
pay as incurred such Indemnified Party's legal and other expenses
(including the cost of any investigation and preparation) incurred in
connection therewith so long as such party shall enter into an undertaking
with Gart and the Surviving Corporation to reimburse Gart and the Surviving
Corporation, to the extent required by applicable Law, for all amounts
advanced if a court of competent jurisdiction shall ultimately determine,
in a judgment that is not subject to appeal or review, that indemnification
of such Indemnified Party is prohibited by applicable Law. Gart and the
Surviving Corporation shall pay all expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in enforcing
the indemnity and other obligations provided for in this Section 7.12.1.
7.12.2. Gart and the Surviving Corporation shall cause to be maintained
in effect for six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company;
provided, that Gart and the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions that
are no less advantageous to the Indemnified Parties, and, provided, that
such substitution shall not result in any gaps or lapses in coverage with
respect to matters occurring prior to the Effective Time; and, provided,
further, that Gart and the Surviving Corporation shall not be required to
pay an annual premium in excess of 200% of the last annual premium paid by
the Company prior to the date hereof, and, if Gart and the Surviving
Corporation are unable to obtain the insurance required by this Section
7.12.2, then Gart and the Surviving Corporation shall obtain as much
comparable insurance as possible for an annual premium equal to such
maximum amount.
7.13. OPTIONS.
7.13.1. Prior to the Effective Time, the Company, by a resolution duly
adopted by its board of directors, shall (except as hereinafter provided)
cause all Options outstanding under the Company's 1993 Non-Employee
Director Plan to be cancelled, subject to the right of holders of such
Options to exercise such Options during the thirty-day period preceding the
Closing, as provided in and in accordance with the provisions of the 1993
Non-Employee Director Plan. In addition, prior to the Effective Time, the
Company, by a resolution duly adopted by its board of directors, shall
(except as hereinafter provided) cause all Options and shares of restricted
stock outstanding under the Company's 1994 Omnibus Plan to be transferred
and delivered to the Company in exchange for the payment of the value of
such Options and shares of restricted stock, as provided in and in
accordance with the provisions of the 1994 Omnibus Plan.
7.13.2. Notwithstanding any provision of Section 7.13.1: (a) with
respect to Options outstanding under any of the Stock Option Plans, the
Company's board of directors may, in its discretion, adopt amendments to
such plans and/or cause the Company to enter into amendments to stock
option agreements governing such Options, in order to permit such Options
to be exercised immediately prior to the Effective Time, such exercise(s)
to be contingent upon the occurrence of the Closing; (b) with respect to
Options outstanding under the 1993 Non-Employee Director Plan, the
Company's board of directors may, in its
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discretion, adopt amendments to such plan and/or cause the Company to enter
into amendments to stock option agreements governing such Options, in order
to permit such Options to be cancelled at the Effective Time in accordance
with Section 2.6; and (c) with respect to shares of restricted stock
outstanding under the 1994 Omnibus Plan, the Company's board of directors,
may, in its discretion, prior to the initial filing of the Registration
Statement, adopt amendments to such plan and/or cause the Company to enter
into amendments to restricted stock grant agreements governing such shares
in order to permit such shares to be cancelled and converted into the right
to receive the Merger Consideration at the Effective Time in accordance
with this Agreement.
7.13.3. With respect to Options that are not exercised, or that are not
transferred and delivered to the Company, in accordance with their terms or
pursuant to Section 7.13.1 or 7.13.2, the Company shall use its reasonable
best efforts to obtain the cancellation thereof as set forth in Section
2.6.
7.13.4. The Company shall have the right to advance (without interest)
to any holder of any Option, effective immediately prior to the Effective
Time, the amount necessary for such holder to exercise such Option
(provided that any such advance shall be contingent upon the consummation
of the transactions contemplated hereby); and, if any portion of such
amount so advanced remains unpaid at the Effective Time, then the terms of
each such advance shall permit Gart or the Surviving Corporation to
withhold from the Cash Consideration payable to such holder the advanced
amount that such holder has not repaid (and, to the extent that such Cash
Consideration is less than the sum of (a) any such unpaid portion and (b)
any amount that Gart or the Surviving Corporation is required under the
Code or any provision of any applicable Law to deduct and withhold from the
amount otherwise payable to such holder, then the terms of each such
advance shall permit Gart or the Surviving Corporation to withhold Stock
Consideration (each share of Gart Common Stock being valued at the Closing
Sale Price) in an amount that (together with the Cash Consideration) equals
such sum).
7.14. EMPLOYEE BENEFITS. Following the Effective Time, Gart and the
Surviving Corporation shall (i) subject to Section 7.22, continue each Company
Plan until at least the earlier of (a) 60 days following the Closing and (b)
the date that Gart makes a corresponding plan available to employees of the
Surviving Corporation who were employed by the Company or any of its
Subsidiaries at the Effective Time, and (ii) cause to be provided, to each of
the employees who was employed by the Company or any of its Subsidiaries at the
Effective Time and who continues to be employed by the Surviving Corporation or
any Affiliate of the Surviving Corporation on the sixtieth day following the
Closing ("Employee"), benefits (including, without limitations, benefits under
each Company Plan and Company benefit plan) that, taken as a whole, are no less
favorable to the Employee than the benefits provided the Employee by the
Company and its Subsidiaries immediately prior to the Effective Time unless any
of the benefits provided to comparable employees by Gart would be significantly
more favorable to the Employee in which event such more favorable benefits will
be provided to the Employee as soon as reasonably practicable. Each of Gart and
the Surviving Corporation and its Affiliates shall credit Employees with any
amounts paid for the calendar year under the Company's medical and dental plans
prior to the transition to a new medical or dental program toward satisfaction
of the applicable deductible amounts and copayment and deductible maximums
under any new medical or dental program. With respect to each Employee, each of
Gart and the Surviving Corporation and its Affiliates shall treat service
considered by the Company or its Subsidiaries as service with the Company or
its Subsidiaries as service with each of Gart and the Surviving Corporation or
its Affiliates for purposes of employee benefits and fringe benefits,
including, without limitation, vacation benefits, waiting periods, vesting
requirements and pre-existing conditions limitations. Notwithstanding anything
in the foregoing to the contrary: (a) none of Gart, the Surviving Corporation
and any Affiliate thereof shall be required under the terms of this Agreement
to provide (i) severance benefits or other benefits related to termination of
employment, or "stay bonuses" or similar benefits (except that the Surviving
Corporation shall pay the benefits to be provided pursuant to plans adopted by
the Company prior to the date hereof and disclosed in Section 5.18.8 of the
Company Disclosure Schedule), (ii) sick leave or similar benefits, or (iii)
benefits (other than benefits described in Section 7.13 of this Agreement)
under equity incentive plans, consistent with or otherwise with reference to
any preexisting Company Plan or Company benefit plan (i.e., benefits, if any,
in these categories shall be
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governed exclusively by plans made available by Gart and its Affiliates); (b)
none of Gart, the Surviving Corporation and any Affiliate thereof shall be
obligated to continue any particular Company Plan or Company benefit plan
(except as set forth in Section 7.14 of the Company Disclosure Schedule); and
(c) the requirements of this Section 7.14 shall remain in effect for a period
of twelve months following the Effective Time and then shall expire. The
parties hereto agree and acknowledge that this Section 7.14 does not constitute
an agreement to continue the employment of any particular Employee or Employees
of the Company or any of its Subsidiaries; rather, all Employees will be
subject to generally applicable Gart policies concerning employment (including
the status of employment as "at will"). For the avoidance of doubt, the parties
agree that the provisions of Section 10.7 are expressly intended to be
applicable to this Section 7.14.
7.15. ANTITAKEOVER STATUTES. If any Takeover Statute (as defined below) is
or may become applicable to the transactions contemplated hereby, the board of
directors of the Company will grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and will otherwise act
to eliminate the effects of any Takeover Statute on any of the transactions
contemplated hereby. For purposes of this Agreement, a "Takeover Statute" means
a "fair price," "moratorium," "control share acquisition" or other similar
antitakeover statute or regulation enacted under state or federal laws in the
United States, including Section 203 of the DGCL.
7.16. NOTIFICATION OF CERTAIN MATTERS. Each of Gart and the Company shall
give prompt notice to the other of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its Subsidiaries subsequent to
the date hereof and prior to the Effective Time, under any Contract material to
the financial condition, properties, business or results of operations of such
party taken as a whole to which such party, or any Subsidiary of such party, is
a party or is subject; and (b) any material adverse change in the condition
(financial or other), properties, assets, business, results of operations or
prospects of it and its Subsidiaries taken as a whole, or the occurrence of any
event that, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in any such change. Each of Gart and the Company
shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated
hereby. In the event that, at any time prior to the Closing, the Company
becomes aware of any matter that, if existing or known as of the date hereof,
would have been required to be set forth or described in the Company Disclosure
Schedule or would otherwise have rendered any representation or warranty of the
Company or any of its Subsidiaries set forth herein false, the Company shall
promptly provide written notice of such matters to Gart. In the event that, at
any time prior to the Closing, Gart becomes aware of any matter that, if
existing or known as of the date hereof, would have been required to be set
forth or described in the Gart Disclosure Schedule or would otherwise have
rendered any representation or warranty of Gart or any of its Subsidiaries set
forth herein false, Gart shall promptly provide written notice of such matters
to the Company. However, no such notice provided under this Section 7.16 shall
be deemed to cure any breach of any representation or warranty made herein,
whether for purposes of determining whether or not the conditions set forth in
Article 8 have been satisfied or otherwise.
7.17. FURTHER ASSURANCES. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company, Gart or MergerSub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company, Gart or MergerSub, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired, or to be acquired, by the
Surviving Corporation as a result of, or in connection with, the transactions
contemplated hereby.
7.18. FURTHER ACTION; REASONABLE COMMERCIAL EFFORTS. Subject to the terms
and conditions hereof, each party hereto shall use its reasonable commercial
efforts to take, or to cause to be taken, all appropriate action, and to do, or
to cause to be done, all things necessary, proper or advisable under applicable
Laws to consummate and make effective the transactions contemplated hereby.
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7.19. TAX-FREE REORGANIZATION TREATMENT. None of Gart, MergerSub and the
Company shall take, or cause to be taken, any action, whether before or after
the Effective Time, that would reasonably be expected to cause the Merger to
fail to qualify as a "reorganization" within the meaning of Section 368 of the
Code. Each of the Company and Gart agrees to, and agrees to cause its
respective Subsidiaries to, vigorously and in good faith defend all challenges
to the treatment of the reorganization as described in this Section 7.19.
7.20. DELIVERY OF OPINION OF FINANCIAL ADVISOR. The Company agrees to
deliver to Gart a true and complete copy of the written opinion of Financo,
Inc. (if not already so delivered), promptly following the execution and
delivery of this Agreement.
7.21. PUBLIC ANNOUNCEMENTS. Each of Gart and the Company agrees that, except
as may be required by applicable Law as advised by its respective counsel, it
will not issue any press release or otherwise make any public statement with
respect to this Agreement (including the Exhibits hereto) or the transactions
contemplated hereby without obtaining the approval of the other party (which
approval shall not be unreasonably withheld).
7.22. TERMINATION OF 401(K) SAVINGS PLAN. If Gart requests in writing (which
such request shall be delivered to the Company no later than 10 Business Days
prior to the Effective Time), then: (i) the board of directors of the Company
shall adopt resolutions terminating, effective as of the day prior to the
Closing Date, any Company Plan that is intended to meet the requirements of
Section 401(k) of the Code, and that is sponsored, or contributed to, by the
Company or any Company ERISA Affiliate; and (ii) at the Closing, the Company
shall provide to Gart (a) executed resolutions of the board of directors of the
Company authorizing such termination, and (b) an executed amendment to the
Company Plan that is sufficient to assure compliance with all applicable
requirements of the Code so that the tax-qualified status of the Company Plan
will be maintained at the time of termination.
7.23. NASDAQ LISTING. Gart agrees to cause the listing on the Nasdaq
National Market at the Effective Time of the shares of Gart Common Stock
issuable pursuant to this Agreement in the Merger, subject to official notice
of issuance.
7.24. BOARD OF DIRECTORS. Prior to the initial filing of the Proxy Statement
with the SEC, the board of directors of the Company shall identify two
individuals as designees to serve on Gart's board of directors (collectively,
the "Designated Directors"). Gart shall cause each of the Designated Directors
to be elected or appointed as members of Gart's board of directors effective as
of the Effective Time. Gart agrees to use commercially reasonable efforts to
cause its directors, subject to their fiduciary duties, to ensure that each of
the Designated Directors will be appointed or nominated for election to Gart's
board of directors at Gart's 2001 annual meeting of stockholders and at Gart's
2002 annual meeting of stockholders. In the event that one of the Designated
Directors is unable or unwilling to serve as a member of Gart's board of
directors, then a replacement nominee shall be chosen by the other Designated
Director, and Gart will use commercially reasonable efforts to cause its
directors, subject to their fiduciary duties, to ensure the election thereof.
In the event that both of the Designated Directors are unable or unwilling to
serve as members of Gart's board of directors, then Gart shall use commercially
reasonable efforts to have the individuals who were members of the Company's
board of directors immediately prior to the Effective Time choose replacement
nominees, and Gart will use commercially reasonable efforts to cause its
directors, subject to their fiduciary duties, to ensure the election thereof.
Notwithstanding anything in this Agreement to the contrary, Gart shall have no
obligation to cause its directors to appoint or nominate for election any of
the Designated Directors to Gart's board of directors at Gart's 2003 annual
meeting of stockholders or thereafter.
7.25. REGISTRATION RIGHTS. Gart agrees to enter into, as of the Effective
Time, a registration rights agreement (the "Registration Rights Agreement")
with certain holders of Company Common Stock substantially in the form attached
hereto as Exhibit C.
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7.26. REAL ESTATE MATTERS. The Company agrees to cooperate with Gart in
providing any notices of the transactions contemplated hereby that are required
to be delivered prior to the consummation of the transactions contemplated
hereby under the terms of the Company Leases to the applicable landlords.
ARTICLE 8.
Conditions of Merger
8.1. GENERAL CONDITIONS. The respective obligations of each party to effect
the transactions contemplated hereby shall be subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions:
8.1.1. NO LAW OR ORDERS. No Law or Order shall have been enacted,
entered, issued or promulgated by any Governmental Entity (and be in
effect) that prohibits the consummation of the transactions contemplated
hereby.
8.1.2. HSR ACT. Any applicable waiting period under the HSR Act shall
have expired or shall have been terminated with respect to the transactions
contemplated hereby.
8.1.3. LEGAL PROCEEDINGS. No Governmental Entity shall have initiated
proceedings to restrain or prohibit the transactions contemplated hereby or
to force rescission, unless such Governmental Entity shall have withdrawn
and abandoned any such proceedings prior to the time that otherwise would
have been the Closing Date.
8.1.4. STOCKHOLDER APPROVAL.
(a) This Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite vote of the
holders of the outstanding capital stock of the Company entitled to vote
thereon at the Company Stockholders Meeting.
(b) The issuance of Gart Common Stock contemplated hereby shall have
been approved by the requisite vote of the holders of the outstanding
capital stock of Gart entitled to vote thereon at the Gart Stockholders
Meeting.
8.1.5. REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated by the SEC.
8.1.6. REGULATORY APPROVAL. All regulatory approvals or waivers required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired, other than those the failure of which to be
obtained or maintained would not have, or reasonably be expected to have, a
Material Adverse Effect on the Company or Gart, and no such approvals or
waivers shall contain any conditions, restrictions or requirements that would,
following the Effective Time, have a Material Adverse Effect on Gart or the
Surviving Corporation.
8.1.7. PERMITS AND APPROVALS. Each party hereto shall have obtained all
Permits and approvals that are legally required to be obtained by such party or
its Subsidiaries from any Governmental Entity prior to consummation of the
transactions contemplated hereby, which if not obtained, individually or in the
aggregate, would have a Material Adverse Effect on the Surviving Corporation
and its Subsidiaries, taken as a whole.
8.1.8. CLOSING SALE PRICE. The Closing Sale Price shall not be less than
$7.00.
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8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to effect the transactions contemplated hereby shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
additional conditions, unless waived in writing by the Company:
8.2.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS.
(a) The representations and warranties of Gart and MergerSub
contained in this Agreement shall be true and correct except where the
failure to be true and correct would not have a Material Adverse Effect
on Gart and its Subsidiaries taken as a whole (it being understood
that, notwithstanding anything to the contrary contained in this
Agreement, for the sole purpose of determining whether there has been a
Material Adverse Effect as a result of any inaccuracy of a
representation or warranty of Gart or MergerSub, such representation or
warranty shall be read as if it were not qualified by "material" or
"Material Adverse Effect"), in each case on the date hereof and at the
Effective Time (unless the representations and warranties address
matters as of a particular date, in which case they shall remain true
and correct in all respects as of such date).
(b) Each of Gart and MergerSub shall have performed or complied in
all material respects with all covenants contained in this Agreement or
in any agreement, certificate or instrument to be executed by such
party pursuant hereto required to be performed or complied with by such
party either at or prior to the Closing.
8.2.2. DELIVERIES. Each of Gart and MergerSub shall have delivered, or
shall have caused to be delivered, to the Company at or prior to the
Closing the following:
(a) certified copies of the resolutions duly adopted by (i) the
board of directors of Gart approving the Merger and the issuance of
Gart Common Stock contemplated hereby and (ii) the holders of Gart
Common Stock approving the issuance of Gart Common Stock contemplated
hereby;
(b) such other documents, instruments or certificates as shall be
reasonably requested by the Company or its counsel; and
(c) a certificate of (i) the chief executive officer, the president
or any vice president of such party and (ii) the secretary or any
assistant secretary of such party, certifying to the matters set forth
in Sections 8.2.1(a) and (b) above with respect to such party.
8.2.3. GART ADVERSE CHANGES. There shall not have occurred after the
date hereof any events or circumstances that, individually or in the
aggregate, have had or are reasonably expected to have a Material Adverse
Effect on Gart.
8.2.4. TAX OPINIONS. The Company shall have received opinions in form
and substance reasonably satisfactory to it from Grant Thornton LLP to the
Company, dated as of the date hereof and as of the Closing Date, each
substantially to the effect that the Merger should be treated as a
reorganization within the meaning of Section 368(a) of the Code, subject to
assumptions or representations including those of the Company and Gart
typical to opinions of this nature and reasonably acceptable to Grant
Thornton LLP.
8.2.5. COMFORT LETTERS. The Company shall have received from Gart's
independent certified public accountants customary comfort letters dated
(a) the date of the effectiveness of the Registration Statement and (b)
shortly prior to the Closing Date, in each case with respect to certain
financial information regarding Gart and in the form customarily issued by
such accountants at such time in transactions of this type.
8.2.6. THIRD PARTY CONSENTS. Gart shall have received all consents from
third parties, and shall have delivered in a timely manner all notices to
third parties, that, if not so received or delivered, as applicable, prior
to the consummation of the transactions contemplated hereby, would be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Gart or the Surviving Corporation.
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8.3. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF GART AND MERGERSUB. The
obligations of Gart and MergerSub to effect the transactions contemplated
hereby shall be subject to the satisfaction on or prior to the Closing Date of
each of the following additional conditions, unless waived in writing by Gart:
8.3.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS.
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct except where the failure to be
true and correct would not have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole (it being understood
that, notwithstanding anything to the contrary contained in this
Agreement, for the sole purpose of determining whether there has been a
Material Adverse Effect as a result of any inaccuracy of a
representation or warranty of the Company, such representation or
warranty shall be read as if it were not qualified by "material" or
"Material Adverse Effect"), in each case on the date hereof and at the
Effective Time (unless the representations and warranties address
matters as of a particular date, in which case they shall remain true
and correct in all respects as of such date).
(b) The Company shall have performed or complied in all material
respects with all covenants contained in this Agreement or in any
agreement, certificate or instrument to be executed by the Company
pursuant hereto required to be performed or complied with by the
Company either at or prior to the Closing.
8.3.2. DELIVERIES. The Company shall have delivered, or shall have
caused to be delivered, to Gart at or prior to the Closing the following:
(a) certified copies of the resolutions duly adopted by the board of
directors of the Company and by the holders of Company Common Stock
adopting this Agreement and approving the Merger;
(b) such other documents, instruments or certificates as shall be
reasonably requested by Gart or its counsel; and
(c) a certificate of (i) the chief executive officer, the president
or any vice president of the Company and (ii) the secretary or any
assistant secretary of the Company, certifying to the matters set forth
in Section 8.3.1(a) and (b) above.
8.3.3. COMPANY ADVERSE CHANGES. There shall not have occurred after the
date hereof any events or circumstances that, individually or in the
aggregate, have had or are reasonably expected to have a Material Adverse
Effect on the Company.
8.3.4. TAX OPINIONS. Gart shall have received opinions in form and
substance reasonably satisfactory to it from Deloitte & Touche LLP to the
Company, dated as of the date hereof and as of the Closing Date, each
substantially to the effect that the Merger should be treated as a
reorganization within the meaning of Section 368(a) of the Code, subject to
assumptions or representations including those of Gart and the Company
typical to opinions of this nature and reasonably acceptable to Deloitte &
Touche LLP.
8.3.5. COMFORT LETTERS. Gart shall have received from the Company's
independent certified public accountants customary comfort letters dated
(a) the date of the effectiveness of the Registration Statement and (b)
shortly prior to the Closing Date, in each case with respect to certain
financial information regarding the Company and in the form customarily
issued by such accountants at such time in transactions of this type.
8.3.6. FINANCING. The Financing shall have been consummated on terms
reasonably consistent with those contained in the Financing Letter, and
each of the Company Credit Facility and the Gart Credit Facility shall have
been terminated (it being acknowledged that if the parties to the Financing
Letter (other than Gart) are prepared to perform as contemplated thereby,
but Gart is unwilling to complete the Financing on terms reasonably
consistent with those contained in the Financing Letter, the condition
contained in this Section 8.3.6 shall be deemed to have been satisfied).
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8.3.7. THIRD PARTY CONSENTS. The Company shall have received all
consents from third parties, and shall have delivered in a timely manner
all notices to third parties, (i) that are identified as required pursuant
to Section 8.3.7 of the Company Disclosure Schedule, and (ii) (with respect
to any consent or notice not so identified pursuant to clause (i) above)
that, if not so received or delivered, as applicable, prior to the
consummation of the transactions contemplated hereby, would be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on Gart or the Surviving Corporation.
8.3.8. DISSENTING SHARES. The aggregate number of Dissenting Shares
shall not equal 6% or more of the shares of Company Common Stock
outstanding as of the record date for the Company Stockholders Meeting or
at the Effective Time.
8.3.9. CANCELLATION OF OPTIONS. The Company shall have obtained the
cancellation of the Options as set forth in Section 2.6 and received any
necessary agreements, approvals or consents from the holders thereof.
ARTICLE 9.
Termination
9.1. TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time
(notwithstanding any adoption of this Agreement or approval of the Merger by
the stockholders of the Company or any approval of the issuance of Gart Common
Stock contemplated hereby by the stockholders of Gart):
9.1.1. MUTUAL CONSENT. By mutual written consent of Gart, MergerSub and
the Company;
9.1.2. BY GART. By Gart, if: (a) any of the conditions set forth in
Section 8.1 or 8.3 shall have become incapable of fulfillment (other than
as a result of a breach of this Agreement by Gart or MergerSub); or (b) the
board of directors of the Company or any committee thereof fails to
recommend, withdraws or modifies, or resolves to withdraw or modify, its
recommendation of this Agreement and the transactions contemplated hereby,
or approves a Superior Proposal, whether or not in compliance with Section
7.4;
9.1.3. BY THE COMPANY. By the Company, if (a) any of the conditions set
forth in Section 8.1 or 8.2 shall have become incapable of fulfillment
(other than as a result of a breach of this Agreement by the Company); or
(b) the board of directors of the Company has approved a Superior Proposal
in accordance with the terms of Section 7.4; or (c) the board of directors
of the Company withdraws its recommendation of the transactions
contemplated hereby in accordance with the terms of Section 7.4; or (d)
Gart shall have been notified in writing by The CIT Group/Business Credit,
Inc. of its withdrawal of the Financing Letter, or of its inability or
unwillingness to provide the Financing contemplated thereby, and within
sixty (60) days following the date of such written notification Gart does
not either (i) cause the Financing Letter to be reinstated or (ii) secure a
new financing letter with alternative financial institution(s) on terms and
conditions at least as favorable to Gart and the Company as those contained
in the Financing Letter;
9.1.4. TERMINATION DATE. By either Gart or the Company, if the
transactions contemplated hereby are not consummated on or before the date
that is six months after the date hereof, but only if the failure to
consummate such transactions on or before such date did not result from the
breach of any representation, warranty or agreement herein of the party
seeking termination (or any of its Subsidiaries);
9.1.5. BREACH OF COVENANT. By either Gart or the Company, if the other
party (or any of such other party's Subsidiaries) shall be in material
breach of any of its covenants contained in this Agreement and such breach
either is incapable of cure or is not cured within 20 Business Days after
notice from the party wishing to terminate; provided, that the party
seeking such termination (or any of such party's Subsidiaries) shall not
also then be in material breach of this Agreement; and, provided, further,
that any material breach of the provisions of Section 7.4 shall entitle
Gart to an immediate right to termination without any notice or cure
requirement;
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9.1.6. BREACH OF REPRESENTATIONS AND WARRANTIES. By either Gart or the
Company, if the other party (or any of such other party's Subsidiaries)
shall be in breach of any of its representations or warranties contained in
this Agreement, which breach, individually or together with all other
breaches, is reasonably expected to have a Material Adverse Effect on such
party, and such breach either is incapable of cure or is not cured within
20 Business Days after notice from the party wishing to terminate;
provided, that the party seeking such termination (or any of its
Subsidiaries) shall not also then be in material breach of this Agreement;
or
9.1.7. ORDER OR ACTION BY GOVERNMENTAL ENTITY. By either Gart or the
Company, if a Governmental Entity shall have issued a non-appealable final
Order or shall have taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby (provided, that, (a) if the party seeking to terminate
this Agreement (or any of its Subsidiaries) pursuant to this Section 9.1.7
is subject to such Order, it shall have used all reasonable efforts to have
such Order removed, and (b) the right to terminate this Agreement under
this Section 9.1.7 shall not be available to a party if such party (or any
of such party's Subsidiaries) has not complied with its obligations under
Section 7.5 and such noncompliance materially contributed to the issuance
of any such Order or the taking of any such action).
9.2. MANNER AND EFFECT OF TERMINATION. Termination shall be effected by the
giving of written notice to that effect by the party seeking termination. If
this Agreement is validly terminated and the transactions contemplated hereby
are not consummated, then this Agreement shall become null and void and of no
further force and effect and no party shall be obligated to any other party
hereunder; provided, however, that termination shall not affect (a) the rights
and remedies available to a party as a result of the breach by the other party
or parties hereunder (provided, that the provisions of Section 9.3 shall
constitute the exclusive legal remedy of the parties hereto with respect to the
matters described therein other than intentional breaches of covenants; without
limiting the generality of the foregoing, the payment by the Company of the
Termination Fee and the Gart Expenses pursuant to Section 9.3 shall constitute
the exclusive legal remedy of Gart and MergerSub in the event of the Company's
acceptance of a Superior Proposal or the withdrawal by the board of directors
of the Company of its recommendation of adoption and approval of this Agreement
and the transactions contemplated hereby, each as contemplated by Section 7.4),
(b) the provisions of Sections 5.30, 6.29, 10.1, 10.2, 10.4 and 10.11 or this
Section 9.2, or (c) the obligations of the parties hereto pursuant to Section
9.3. The Company and Gart further agree that, for a period of two years from
the date of any termination of this Agreement in accordance with this Article
IX, neither party will offer employment to, or hire any of, the employees
(other than any store employees whose rank is junior to that of a store
manager) of the other party (or any Subsidiary thereof) with whom it has had
contact or who became known to the party in connection with the transactions
contemplated hereby.
9.3. CERTAIN PAYMENTS UPON TERMINATION.
9.3.1. In the event that:
(a) the Company terminates this Agreement under (i) Section
9.1.3(a), based upon a failure of the condition expressed in Section
8.1.4(a), (ii) Section 9.1.3(b) or (iii) Section 9.1.3(c); or
(b) Gart terminates this Agreement under (i) Section 9.1.2(a), based
upon a failure of the condition expressed in Section 8.1.4(a), or (ii)
Section 9.1.2(b); or
(c) (i) Gart terminates this Agreement under (A) Section 9.1.2(a),
based upon a failure of the condition expressed in Section 8.3.1(a) or
a failure of the condition expressed in Section 8.3.1(b), or (B)
Section 9.1.5, or (C) Section 9.1.6, and (ii) the Company enters into
an agreement to consummate an Acquisition Transaction with any Person
(other than Gart or any Affiliate of Gart) within twelve (12) months of
the effective date of such termination and consummates such Acquisition
Transaction thereafter, then upon the consummation of such Acquisition
Transaction; the Company shall pay to Gart a termination fee in the
amount of $3,000,000 (the "Termination Fee").
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9.3.2. In any event in which the Termination Fee becomes payable, the
Company shall also pay to Gart all documented out-of-pocket fees and
expenses (including those of counsel, accountants and other advisors and
consultants and in connection with the negotiation and execution of the New
Credit Facility) incurred by any of Gart, MergerSub and their Affiliates in
connection with the transactions contemplated by this Agreement (the "Gart
Expenses"); provided, however, such Gart Expenses shall not exceed
$1,500,000. Notwithstanding the foregoing, in the event that Gart
terminates this Agreement as described in clause 9.3.1(c)(i), then Gart
Expenses shall be payable by the Company immediately, whether or not the
condition expressed in clause 9.3.1(c)(ii) is satisfied. In the event that
(a) Gart terminates this Agreement under Section 9.1.2(a), based upon a
failure of the condition expressed in Section 8.3.6, or the Company
terminates this Agreement under Section 9.1.3(d), in either case provided
that such failure is due to events or circumstances that have had a
Material Adverse Effect on Gart or is due to a Material Adverse Effect that
was caused by Gart, or (b) the Company terminates this Agreement under (i)
Section 9.1.3(a), based upon a failure of the condition expressed in
Section 8.2.1(a) or a failure of the condition expressed in Section
8.2.1(b), or (ii) Section 9.1.5, or (iii) Section 9.1.6, Gart shall pay to
the Company all fees and expenses (including those of counsel, accountants
and other advisors and consultants and in connection with the negotiation
and execution of the New Credit Facility) incurred by the Company and its
Affiliates in connection with the transactions contemplated by this
Agreement (the "Company Expenses"); provided, however, such Company
Expenses shall not exceed $1,500,000.
9.3.3. Any payment required to be made pursuant to this Section 9.3
shall be made by wire transfer of immediately available funds within two
(2) Business Days of the event giving rise to such payment. Gart and the
Company acknowledge that the agreements contained in this Section 9.3 are
an integral part of the transactions contemplated by this Agreement and
that, without said agreements, neither Gart nor the Company would enter
into this Agreement; accordingly, (1) if the Company fails promptly to pay
the Termination Fee and/or the Gart Expenses due pursuant to this Section
9.3, and, in order to obtain such payment, Gart commences a suit that
results in a judgment against the Company for the Termination Fee and/or
the Expenses, then the Company will pay to Gart reasonable expenses
(including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount due hereunder at the legal rate
determined by the court rendering such judgment, and (2) if Gart fails
promptly to pay the Company Expenses due pursuant to this Section 9.3, and,
in order to obtain such payment, the Company commences a suit that results
in a judgment against Gart for the Company Expenses, then Gart will pay to
the Company reasonable expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amount due
hereunder at the legal rate determined by the court rendering such
judgment.
ARTICLE 10.
Miscellaneous
10.1. CONFIDENTIALITY. Each of Gart and the Company agrees and acknowledges
that it will continue to be bound by the Confidentiality Agreement, dated July
18, 2000, between Gart and the Company (as such agreement may be amended, the
"Confidentiality Agreement").
10.2. EXPENSES. Except as otherwise specifically provided for herein
(including, without limitation, under Article 9), each of the Company, on the
one hand, and Gart and MergerSub, on the other, shall pay all of its costs and
expenses (including attorneys', accountants' and investment bankers' fees)
incurred in connection with this Agreement and the transactions contemplated
hereby; provided, however, that, with respect to any expenses incurred by the
Company in connection with the Merger that the Company has not paid as of the
Effective Time, MergerSub shall not distribute cash directly to the Company for
the payment of such expenses but instead shall directly pay the applicable
creditors of the Company at or following the Effective Time.
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10.3. NOTICES. All notices, requests, claims, demands and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally against written receipt or by facsimile
transmission against facsimile confirmation or mailed by a nationally
recognized overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
To the Company:
Oshman's Sporting Goods, Inc.
2302 Maxwell Lane
Houston, Texas 77023
Attention: Alvin N. Lubetkin
Facsimile: (713) 967-8254
With a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77023
Attention: John Clutterbuck
Facsimile: (713) 225-7047
To Gart or MergerSub:
Gart Sports Company
1000 Broadway
Denver, Colorado 80203
Attention: Nesa Hassanein
Facsimile: (303) 864-2188
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Anthony T. Iler
Facsimile: (310) 203-7199
All such notices, requests, claims, demands and other communications will (a)
if delivered personally to the address as provided in this Section 10.3, be
deemed given upon delivery, (b) if delivered by facsimile transmission to the
facsimile number as provided for in this Section 10.3, be deemed given upon
facsimile confirmation, and (c) if delivered by overnight courier to the
address as provided in this Section 10.3, be deemed given on the earlier of the
first Business Day following the date sent by such overnight courier or upon
receipt (in each case, regardless of whether such notice, request, claim,
demand or other communication is received by any other Person to whom a copy of
such notice is to be delivered pursuant to this Section 10.3). Any party hereto
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such
change to the other parties hereto.
10.4. ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
hereto, including the Company Disclosure Schedule and the Gart Disclosure
Schedule, constitute the entire Agreement among the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties hereto with respect to
the subject matter hereof, except for the Confidentiality Agreement, which
shall continue in full force and effect and shall survive any termination of
this Agreement or the Closing in accordance with its terms.
10.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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10.6. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom, and (d) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a part
of this Agreement a legal, valid and enforceable provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible.
10.7. THIRD PARTY BENEFICIARIES. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties
hereto to confer third party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person other than any Person entitled to
indemnity under Section 7.11.
10.8. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party hereto without the prior written consent of the other
parties hereto and any attempt to do so will be void. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of, and is
enforceable by the parties hereto and their respective successors and assigns.
10.9. HEADINGS. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
10.10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
10.11. CONSTRUCTION. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
10.12. SPECIFIC PERFORMANCE. The parties hereto agree that, if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist, and damages would be difficult to
determine. It is agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
10.13. AMENDMENT AND MODIFICATION. At any time prior to the Effective Time,
this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Gart, MergerSub and the
Company with respect to any of the terms contained herein; provided, however,
that no such amendment, modification or supplementation shall be made that,
under applicable Law, requires the approval of stockholders of the Company or
Gart, without the further approval of such stockholders.
10.14. WAIVER. At any time prior to the Effective Time, Gart and MergerSub,
on the one hand, and the Company, on the other, may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained
herein or in any documents delivered pursuant hereto, and (c) waive compliance
by the other with any of the agreements or conditions contained herein that may
legally be waived. Any agreement on the part of a party hereto to any
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such extension or waiver shall be valid only if set forth in an instrument in
writing specifically referring to this Agreement and signed on behalf of such
party.
10.15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in any certificate or other writing delivered
pursuant hereto shall survive until (but not beyond) the Effective Time. This
Section 10.15 shall not limit any covenant or agreement of the parties hereto
that by its terms contemplates performance after the Effective Time.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first written
above.
Oshman's Sporting Goods, Inc.,
a Delaware corporation
/s/ Alvin N. Lubetkin
By: _________________________________
Name: Alvin N. Lubetkin
Title: Chief Executive
Officer/President
Gart Sports Company,
a Delaware corporation
/s/ John Douglas Morton
By: _________________________________
Name: John Douglas Morton
Title: Chairman, President and CEO
Gsc Acquisition Corp.,
a Delaware corporation
/s/ John Douglas Morton
By: _________________________________
Name: John Douglas Morton
Title: Chairman, President and CEO
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EXHIBITS
Exhibit A Company Voting Agreements
Exhibit B Gart Voting Agreement
Exhibit C Registration Rights Agreement
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ANNEX B
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is entered into as of February 21,
2001, by and among Gart Sports Company, a Delaware corporation ("Gart"), GSC
Acquisition Corp., a Delaware corporation ("MergerSub"), and the person or
entity set forth on the signature page hereto (the "Stockholder").
WHEREAS, MergerSub, Gart and Oshman's Sporting Goods, Inc., a Delaware
corporation (the "Company"), are entering into an Agreement and Plan of Merger,
dated as of the date hereof (as it may be amended from time to time, the
"Merger Agreement"), which provides, among other things, for the merger of the
Company with and into MergerSub, with MergerSub as the surviving corporation
(the "Merger");
WHEREAS, in connection with the Merger Agreement, MergerSub and Gart have
required that the Stockholder make certain agreements with respect to all of
the Stockholder's Subject Shares (as defined below), upon the terms and subject
to the conditions of this Agreement; and
WHEREAS, the Stockholder is willing to make certain agreements with respect
to the Subject Shares, in order to induce MergerSub and Gart to enter into the
Merger Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties hereto agree as
follows:
1. Voting Agreements. For so long as this Agreement is in effect, at any
meeting (whether annual, special or adjourned) of the stockholders of the
Company, and in any action by consent of the stockholders of the Company,
the Stockholder shall vote, or, if applicable, give consents with respect
to, all of the Subject Shares that are held by the Stockholder on the
record date applicable to the meeting or consent (i) in favor of adoption
of the Merger Agreement and approval of the Merger; (ii) against any
competing Acquisition Transaction (as defined in the Merger Agreement) or
other proposal inconsistent with the Merger Agreement or that may delay or
adversely affect the likelihood of the completion of the transactions
contemplated by the Merger Agreement; (iii) against any change in a
majority of the persons who constitute the board of directors of the
Company inconsistent with the Merger Agreement or the transactions
contemplated by the Merger Agreement; (iv) against any change in the
capitalization of the Company or any amendment of the Company's certificate
of incorporation or by-laws inconsistent with the Merger Agreement or the
transactions contemplated by the Merger Agreement; and (v) in favor of any
other matter necessary for consummation of the transactions contemplated by
the Merger Agreement that is considered at any such meeting or in any such
consent. The Stockholder shall not enter into any agreement or
understanding with any person the effect of which would be inconsistent
with or violate the provisions of agreements contained in this Section 1.
The Stockholder shall cast the Stockholder's vote or give the Stockholder's
consent in accordance with the procedures communicated to the Stockholder
by the Company relating thereto so that the vote or consent shall be duly
counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent. The Stockholder
acknowledges receipt of a copy of the Merger Agreement.
2. Proxy. The Stockholder hereby irrevocably appoints Gart (and any
officer of Gart), with full power of substitution, the proxy of the
Stockholder with full power and authority, in the event that the
Stockholder shall at any time fail to perform such Stockholder's
obligations under Section 1, to vote or act by consent in respect of such
Stockholder's Subject Shares and all of such Stockholder's other voting
securities of the Company exclusively as provided in Section 1. The proxy
hereby granted shall, for the term of this Agreement, be irrevocable and
shall be deemed coupled with an interest in accordance with Section 212 of
the Delaware General Corporation Law.
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3. Subject Shares. The term "Subject Shares" shall mean all of the
shares of Common Stock, par value $1.00 per share ("Common Stock"), owned
by the Stockholder as of the date hereof, as set forth on Schedule A
hereto, together with any and all shares of the Company's capital stock as
to which the Stockholder acquires beneficial ownership after the date of
this Agreement. For all purposes of this Agreement, "beneficial ownership"
has the meaning given in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder (the "Exchange Act").
4. Stockholder Capacity. If the Stockholder is, or becomes during the
term of this Agreement, a director or officer of the Company, the
Stockholder shall not be deemed to have made any agreement or understanding
herein in such Stockholder's capacity as such director or officer, and no
action taken by the Stockholder in such Stockholder's capacity as an
officer or director of the Company shall be deemed a breach of this
Agreement. The Stockholder signs solely in such Stockholder's capacity as
the beneficial owner of the Stockholder's Subject Shares, and nothing
herein shall limit or affect any actions taken by the Stockholder in any
capacity as an officer or director of the Company to the extent
specifically permitted by the Merger Agreement. Nothing in this Agreement
shall be deemed to constitute a transfer of the beneficial ownership of the
Subject Shares by the Stockholder.
5. Covenants. For so long as this Agreement is in effect, except as
otherwise contemplated by the transactions contemplated by the Merger
Agreement, the Stockholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of, or enter
into any contract with respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of (each such
disposition or contract, a "Transfer"), any Subject Shares or any shares of
the Company's capital stock that the Stockholder then has or will have the
right to acquire pursuant to options, warrants, convertible securities or
other such rights to purchase shares of the Company's capital stock granted
to the Stockholder by the Company; (ii) grant any powers of attorney,
consents or proxies with respect to any shares of the Company's capital
stock that then constitute Subject Shares (other than pursuant to this
Agreement), deposit any of the Subject Shares into a voting trust, enter
into a voting or option agreement with respect to any of the Subject Shares
inconsistent with the transactions contemplated by the Merger Agreement or
this Agreement, or otherwise restrict or take any action adversely
affecting the ability of the Stockholder freely to exercise all voting
rights with respect to the Subject Shares; (iii) subject to Section 4,
directly or indirectly, solicit, initiate, encourage or otherwise
facilitate any inquiries or the making of any proposal or offer with
respect to an Acquisition Transaction, engage in any negotiation concerning
an Acquisition Transaction, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Transaction; and the Stockholder shall notify MergerSub immediately if any
such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Stockholder; or (iv) permit, cause, take
any action, or fail to take any action that would make any representation,
warranty, covenant or other undertaking of the Stockholder in this
Agreement untrue or incorrect, or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement; provided,
however, that nothing in the foregoing provisions of this Section 5 shall
prohibit the Stockholder from effecting any transfer of Subject Shares
pursuant to any bona fide charitable gift or by will or applicable laws of
descent and distribution, or for estate planning purposes, if the
transferee agrees in writing to be bound by the provisions of this
Agreement to the same extent as the Stockholder. As used in this Agreement,
"person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act.
6. Waiver of Dissenters' Rights. The Stockholder hereby waives any
rights to dissent from the transactions contemplated by the Merger
Agreement.
7. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Gart and MergerSub that:
(a) Capacity; No Violations. The Stockholder, if such Stockholder is
a trust, corporation or other legal entity, is duly organized and
validly existing under the laws of the jurisdiction of its
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organization. The Stockholder has the legal capacity to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and
performance by the Stockholder of this Agreement will not (i) conflict
with, require a consent, waiver or approval under, or result in a
breach or default under, any of the terms of any contract, commitment
or other obligation to which the Stockholder is a party or by which the
Stockholder is bound, (ii) violate any order, writ, injunction, decree
or statute, or any law, rule or regulation applicable to the
Stockholder or, to the Stockholder's knowledge, the Subject Shares; or
(iii) result in the creation of, or impose any obligation on the
Stockholder to create, any Lien upon the Subject Shares that would
prevent the Stockholder from voting the Subject Shares. In this
Agreement, "Lien" shall mean any lien, pledge, security interest,
claim, third party right or other encumbrance.
(b) Subject Shares. The Stockholder has the power to vote or direct
the voting of the Subject Shares. The Subject Shares are the only
shares of any class of capital stock of the Company that the
Stockholder has the right, power or authority (sole or shared) to sell
or vote, and the Stockholder does not have any right to acquire, nor is
the Stockholder the beneficial owner of, any other shares of any class
of capital stock of the Company or any other securities of the Company
or any securities convertible into, or exchangeable or exercisable for,
any shares of any class of capital stock of the Company or any other
securities of the Company. The Stockholder is not a party to any
contracts (including proxies, voting trusts or voting agreements) that
would prevent the Stockholder from voting the Subject Shares or that
conflict with the provisions of this Agreement.
(c) Title to Shares. The Stockholder is the sole record and
beneficial owner of the Subject Shares, free and clear of any pledge,
Lien, security interest, mortgage, charge, claim, equity, option,
proxy, voting restriction, voting trust or agreement, understanding,
arrangement, right of first refusal, limitation on disposition, adverse
claim of ownership or use or encumbrance of any kind, other than
restrictions imposed by the securities laws or pursuant to this
Agreement or the Merger Agreement and, with respect to any Subject
Shares held by the Stockholder as trustee for the benefit of any other
person, other than the rights of all beneficiaries under such trusts,
which such rights are not inconsistent with the provisions of this
Agreement.
(d) No Finder's Fees. Except as disclosed in the Merger Agreement,
no broker, investment banker, financial advisor, or other person is
entitled to any broker's, finder's, financial advisor's, or other
similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by, or on behalf of,
the Stockholder the payment of which could become the obligation of the
Company or MergerSub.
8. Representations and Warranties of Gart and MergerSub. Gart and
MergerSub represent and warrant to the Stockholder that:
(a) Binding Agreement. Each of Gart and MergerSub is a corporation
duly incorporated, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
Registration Rights Agreement (as defined in the Merger Agreement) and
the Merger Agreement by each of Gart and MergerSub and the consummation
of the transactions contemplated hereby and thereby have been duly and
validly authorized by the board of directors of Gart and MergerSub, and
no other corporate proceedings on the part of Gart or MergerSub are
necessary to authorize the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Merger Agreement
by Gart or MergerSub and the consummation of the transactions
contemplated hereby and thereby. Each
B-3
of Gart and MergerSub has duly and validly executed this Agreement, and
this Agreement constitutes a legal, valid and binding obligation of
each of them, enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(b) No Conflict. Neither the execution and delivery of this
Agreement, the consummation by MergerSub of the transactions
contemplated hereby, nor the compliance by MergerSub with any of the
provisions hereof will (i) conflict with or result in a breach of any
provision of its Certificate of Incorporation or By-laws, (ii) require
any consent, approval, authorization or permit of, registration,
declaration or filing (except for filings under the Exchange Act) with,
or notification to, any governmental entity, (iii) result in a default
(or an event that, with notice or lapse of time or both, would become a
default) or give rise to any right of termination by any third party,
cancellation, amendment or acceleration under any contract, agreement,
instrument, commitment, arrangement or understanding, (iv) require any
material consent, authorization or approval of any person other than a
governmental entity, or (v) violate or conflict with any order, writ,
injunction, decree or law applicable to MergerSub.
(c) SEC Documents. Gart has timely filed with the SEC each report,
proxy statement or information statement required to be filed by Gart
for all periods ending on or after December 31, 1999 (collectively, the
"Gart Reports"). As of their respective dates, the Gart Reports (i)
were prepared in all material respects in accordance with the
applicable requirements of the Securities Act or the Exchange Act, as
applicable, and the respective rules and regulations thereunder and
(ii) did not (or if amended or superseded by a subsequent filing prior
to the date of this Agreement, then on the date of such filing did not)
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading. None of Gart's subsidiaries is required
to file any forms, reports or other documents with the SEC. Each of the
consolidated balance sheets of Gart and its subsidiaries included in or
incorporated by reference into the Gart Reports (including the related
notes and schedules) fairly presents the consolidated financial
position of Gart and its subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of
Gart and its subsidiaries included in or incorporated by reference into
the Gart Reports (including any related notes and schedules) fairly
presents the results of operations, retained earnings or cash flows, as
the case may be, of Gart and its subsidiaries for the periods set forth
therein (subject to, in the case of unaudited statements, normal year-
end audit adjustments that would not be material in amount or effect),
in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved ("GAAP"),
except as may be noted therein. There are no liabilities of Gart or any
of its subsidiaries of any kind whatsoever that would be required by
GAAP to be reflected on a consolidated balance sheet of Gart (including
the notes thereto), other than: (x) liabilities incurred since January
29, 2000 in the ordinary course of business consistent with past
practices; (y) reasonable and customary fees and expenses incurred in
connection with the consummation of the transactions contemplated by
the Merger Agreement; and (z) liabilities disclosed in the Gart Reports
filed prior to the date hereof or reserved against on Gart's most
recent balance sheet delivered to the Company prior to the date hereof.
9. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
10. Specific Performance. The Stockholder acknowledges and agrees that,
if the Stockholder fails to perform any of the Stockholder's obligations
under this Agreement, immediate and irreparable harm or injury would be
caused to MergerSub for which money damages would not be an adequate
remedy. Accordingly, the Stockholder agrees that MergerSub shall have the
right, in addition to any other rights MergerSub may have, to specific
performance of this Agreement. If MergerSub should institute an action
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or proceeding seeking specific enforcement of the provisions of this
Agreement, the Stockholder hereby waives the claim or defense that
MergerSub has an adequate remedy at law and hereby agrees not to assert in
that action or proceeding the claim or defense that a remedy at law exists.
The Stockholder further agrees to waive any requirements for the securing
or posting of any bond in connection with obtaining any equitable relief.
11. Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made as of the date of receipt and shall be delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested), sent by overnight courier, or sent by telecopy, to the
applicable party at the following addresses or telecopy numbers (or at any
other address or telecopy number for a party as shall be specified by like
notice):
If to Gart or MergerSub:
Gart Sports Company
1000 Broadway
Denver, Colorado 80203
Attention: Nesa Hassanein
Facsimile: (303) 864-2188
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Anthony T. Iler
Facsimile: (310) 203-7199
If to the Stockholder:
at the address and telephone number
set forth on the signature page
With a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77023
Attention: John Clutterbuck
Facsimile: (713) 225-7047
12. Parties in Interest. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors and
permitted assigns; provided, however, that any successor in interest or
assignee shall agree to be bound by the provisions of this Agreement.
Nothing in this Agreement, express or implied, is intended to confer upon
any person other than Gart, MergerSub, the Stockholder or their successors
or assigns, any rights or remedies under, or by reason of, this Agreement.
13. Entire Agreement; Amendments. Other than the Merger Agreement, the
Registration Rights Agreement and the transactions contemplated herein or
therein, this Agreement contains the entire agreement between the
Stockholder, Gart and MergerSub with respect to the subject matter of this
Agreement and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such subject matter. This
Agreement may not be changed, amended or modified orally, but may be
changed only by an agreement in writing signed by the party against whom
any waiver, change, amendment, modification or discharge may be sought.
14. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of
the other party to this Agreement, except that (a) MergerSub may assign its
rights and obligations under this Agreement to Gart or to any of Gart's or
MergerSub's direct or indirect wholly owned subsidiaries or affiliates, and
(b) the Stockholder may transfer the Subject Shares to the extent permitted
by Section 5 of this Agreement.
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15. Headings. The section headings in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same
instrument.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
18. Term. This Agreement shall become effective on the date hereof and
shall terminate automatically and without further action on behalf of any
party hereto at the earlier of (i) the Effective Time (as defined in the
Merger Agreement) and (ii) the date on which the Merger Agreement is
terminated pursuant to, and in accordance with, its terms.
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IN WITNESS WHEREOF, Gart, MergerSub and the Stockholder have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
Gart Sports Company,
a Delaware corporation
By: _________________________________
Name:
Title:
GSC Acquisition Corp.,
a Delaware corporation
By: _________________________________
Name:
Title:
STOCKHOLDER
_____________________________________
_____________________________________
Address:
c/o Oshman's Sporting Goods, Inc.
2302 Maxwell Lane
Houston, Texas 77023
Facsimile Number: (713) 967-8254
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VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is entered into as of February 21,
2001, by and among Gart Sports Company, a Delaware corporation ("Gart"), GSC
Acquisition Corp., a Delaware corporation ("MergerSub"), and the person or
entity set forth on the signature page hereto (the "Stockholder").
WHEREAS, MergerSub, Gart and Oshman's Sporting Goods, Inc., a Delaware
corporation (the "Company"), are entering into an Agreement and Plan of Merger,
dated as of the date hereof (as it may be amended from time to time, the
"Merger Agreement"), which provides, among other things, for the merger of the
Company with and into MergerSub, with MergerSub as the surviving corporation
(the "Merger");
WHEREAS, in connection with the Merger Agreement, MergerSub and Gart have
required that the Stockholder make certain agreements with respect to all of
the Stockholder's Subject Shares (as defined below), upon the terms and subject
to the conditions of this Agreement; and
WHEREAS, the Stockholder is willing to make certain agreements with respect
to the Subject Shares, in order to induce MergerSub and Gart to enter into the
Merger Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties hereto agree as
follows:
1. Voting Agreements. For so long as this Agreement is in effect, at any
meeting (whether annual, special or adjourned) of the stockholders of the
Company, and in any action by consent of the stockholders of the Company,
the Stockholder shall vote, or, if applicable, give consents with respect
to, all of the Subject Shares that are held by the Stockholder on the
record date applicable to the meeting or consent (i) in favor of adoption
of the Merger Agreement and approval of the Merger; (ii) against any
competing Acquisition Transaction (as defined in the Merger Agreement) or
other proposal inconsistent with the Merger Agreement or that may delay or
adversely affect the likelihood of the completion of the transactions
contemplated by the Merger Agreement; (iii) against any change in a
majority of the persons who constitute the board of directors of the
Company inconsistent with the Merger Agreement or the transactions
contemplated by the Merger Agreement; (iv) against any change in the
capitalization of the Company or any amendment of the Company's certificate
of incorporation or by-laws inconsistent with the Merger Agreement or the
transactions contemplated by the Merger Agreement; and (v) in favor of any
other matter necessary for consummation of the transactions contemplated by
the Merger Agreement that is considered at any such meeting or in any such
consent. The Stockholder shall not enter into any agreement or
understanding with any person the effect of which would be inconsistent
with or violate the provisions of agreements contained in this Section 1.
The Stockholder shall cast the Stockholder's vote or give the Stockholder's
consent in accordance with the procedures communicated to the Stockholder
by the Company relating thereto so that the vote or consent shall be duly
counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent. The Stockholder
acknowledges receipt of a copy of the Merger Agreement.
2. Proxy. The Stockholder hereby irrevocably appoints Gart (and any
officer of Gart), with full power of substitution, the proxy of the
Stockholder with full power and authority, in the event that the
Stockholder shall at any time fail to perform such Stockholder's
obligations under Section 1, to vote or act by consent in respect of such
Stockholder's Subject Shares and all of such Stockholder's other voting
securities of the Company exclusively as provided in Section 1. The proxy
hereby granted shall, for the term of this Agreement, be irrevocable and
shall be deemed coupled with an interest in accordance with Section 212 of
the Delaware General Corporation Law.
3. Subject Shares. The term "Subject Shares" shall mean all of the
shares of Common Stock, par value $1.00 per share ("Common Stock"), owned
by the Stockholder as of the date hereof, as set forth on Schedule A
hereto, together with any and all shares of the Company's capital stock as
to which the
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Stockholder acquires beneficial ownership after the date of this Agreement.
For all purposes of this Agreement, "beneficial ownership" has the meaning
given in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder (the "Exchange Act").
4. Stockholder Capacity. The Stockholder is not an officer or director
of the Company. The Stockholder signs this Agreement solely in such
Stockholder's capacity as the beneficial owner of the Stockholder's Subject
Shares. Nothing in this Agreement shall be deemed to constitute a transfer
of the beneficial ownership of the Subject Shares by the Stockholder.
5. Covenants. For so long as this Agreement is in effect, except as
otherwise contemplated by the transactions contemplated by the Merger
Agreement, the Stockholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of, or enter
into any contract with respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of (each such
disposition or contract, a "Transfer"), any Subject Shares or any shares of
the Company's capital stock that the Stockholder then has or will have the
right to acquire pursuant to options, warrants, convertible securities or
other such rights to purchase shares of the Company's capital stock granted
to the Stockholder by the Company; (ii) grant any powers of attorney,
consents or proxies with respect to any shares of the Company's capital
stock that then constitute Subject Shares (other than pursuant to this
Agreement), deposit any of the Subject Shares into a voting trust, enter
into a voting or option agreement with respect to any of the Subject Shares
inconsistent with the transactions contemplated by the Merger Agreement or
this Agreement, or otherwise restrict or take any action adversely
affecting the ability of the Stockholder freely to exercise all voting
rights with respect to the Subject Shares; (iii) subject to Section 4,
directly or indirectly, solicit, initiate, encourage or otherwise
facilitate any inquiries or the making of any proposal or offer with
respect to an Acquisition Transaction, engage in any negotiation concerning
an Acquisition Transaction, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Transaction; and the Stockholder shall notify MergerSub immediately if any
such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Stockholder; or (iv) permit, cause, take
any action, or fail to take any action that would make any representation,
warranty, covenant or other undertaking of the Stockholder in this
Agreement untrue or incorrect, or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement; provided,
however, that nothing in the foregoing provisions of this Section 5 shall
prohibit the Stockholder from effecting any transfer of Subject Shares
pursuant to any bona fide charitable gift or by will or applicable laws of
descent and distribution, or for estate planning purposes, if the
transferee agrees in writing to be bound by the provisions of this
Agreement to the same extent as the Stockholder. As used in this Agreement,
"person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act.
6. Waiver of Dissenters' Rights. The Stockholder hereby waives any
rights to dissent from the transactions contemplated by the Merger
Agreement.
7. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Gart and MergerSub that:
(a) Capacity; No Violations. The Stockholder, if such Stockholder is
a trust, corporation or other legal entity, is duly organized and
validly existing under the laws of the jurisdiction of its
organization. The Stockholder has the legal capacity to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and
performance by the Stockholder of this Agreement will not (i) conflict
with, require a
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consent, waiver or approval under, or result in a breach or default
under, any of the terms of any contract, commitment or other obligation
to which the Stockholder is a party or by which the Stockholder is
bound, (ii) violate any order, writ, injunction, decree or statute, or
any law, rule or regulation applicable to the Stockholder or, to the
Stockholder's knowledge, the Subject Shares; or (iii) result in the
creation of, or impose any obligation on the Stockholder to create, any
Lien upon the Subject Shares that would prevent the Stockholder from
voting the Subject Shares. In this Agreement, "Lien" shall mean any
lien, pledge, security interest, claim, third party right or other
encumbrance.
(b) Subject Shares. The Stockholder has the power to vote or direct
the voting of the Subject Shares. The Subject Shares are the only
shares of any class of capital stock of the Company that the
Stockholder has the right, power or authority (sole or shared) to sell
or vote, and the Stockholder does not have any right to acquire, nor is
the Stockholder the beneficial owner of, any other shares of any class
of capital stock of the Company or any other securities of the Company
or any securities convertible into, or exchangeable or exercisable for,
any shares of any class of capital stock of the Company or any other
securities of the Company. The Stockholder is not a party to any
contracts (including proxies, voting trusts or voting agreements) that
would prevent the Stockholder from voting the Subject Shares or that
conflict with the provisions of this Agreement.
(c) Title to Shares. The Stockholder is the sole record and
beneficial owner of the Subject Shares, free and clear of any pledge,
Lien, security interest, mortgage, charge, claim, equity, option,
proxy, voting restriction, voting trust or agreement, understanding,
arrangement, right of first refusal, limitation on disposition, adverse
claim of ownership or use or encumbrance of any kind, other than
restrictions imposed by the securities laws or pursuant to this
Agreement or the Merger Agreement and, with respect to any Subject
Shares held by the Stockholder as trustee for the benefit of any other
person, other than the rights of all beneficiaries under such trusts,
which such rights are not inconsistent with the provisions of this
Agreement.
(d) No Finder's Fees. Except as disclosed in the Merger Agreement,
no broker, investment banker, financial advisor, or other person is
entitled to any broker's, finder's, financial advisor's, or other
similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by, or on behalf of,
the Stockholder the payment of which could become the obligation of the
Company or MergerSub.
8. Representations and Warranties of Gart and MergerSub. Gart and
MergerSub represent and warrant to the Stockholder that:
(a) Binding Agreement. Each of Gart and MergerSub is a corporation
duly incorporated, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
Registration Rights Agreement (as defined in the Merger Agreement) and
the Merger Agreement by each of Gart and MergerSub and the consummation
of the transactions contemplated hereby and thereby have been duly and
validly authorized by the board of directors of Gart and MergerSub, and
no other corporate proceedings on the part of Gart or MergerSub are
necessary to authorize the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Merger Agreement
by Gart or MergerSub and the consummation of the transactions
contemplated hereby and thereby. Each of Gart and MergerSub has duly
and validly executed this Agreement, and this Agreement constitutes a
legal, valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights
generally and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(b) No Conflict. Neither the execution and delivery of this
Agreement, the consummation by MergerSub of the transactions
contemplated hereby, nor the compliance by MergerSub with any of
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the provisions hereof will (i) conflict with or result in a breach of
any provision of its Certificate of Incorporation or By-laws, (ii)
require any consent, approval, authorization or permit of,
registration, declaration or filing (except for filings under the
Exchange Act) with, or notification to, any governmental entity, (iii)
result in a default (or an event that, with notice or lapse of time or
both, would become a default) or give rise to any right of termination
by any third party, cancellation, amendment or acceleration under any
contract, agreement, instrument, commitment, arrangement or
understanding, (iv) require any material consent, authorization or
approval of any person other than a governmental entity, or (v) violate
or conflict with any order, writ, injunction, decree or law applicable
to MergerSub.
(c) SEC Documents. Gart has timely filed with the SEC each report,
proxy statement or information statement required to be filed by Gart
for all periods ending on or after December 31, 1999 (collectively, the
"Gart Reports"). As of their respective dates, the Gart Reports (i)
were prepared in all material respects in accordance with the
applicable requirements of the Securities Act or the Exchange Act, as
applicable, and the respective rules and regulations thereunder and
(ii) did not (or if amended or superseded by a subsequent filing prior
to the date of this Agreement, then on the date of such filing did not)
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading. None of Gart's subsidiaries is required
to file any forms, reports or other documents with the SEC. Each of the
consolidated balance sheets of Gart and its subsidiaries included in or
incorporated by reference into the Gart Reports (including the related
notes and schedules) fairly presents the consolidated financial
position of Gart and its subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of
Gart and its subsidiaries included in or incorporated by reference into
the Gart Reports (including any related notes and schedules) fairly
presents the results of operations, retained earnings or cash flows, as
the case may be, of Gart and its subsidiaries for the periods set forth
therein (subject to, in the case of unaudited statements, normal year-
end audit adjustments that would not be material in amount or effect),
in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved ("GAAP"),
except as may be noted therein. There are no liabilities of Gart or any
of its subsidiaries of any kind whatsoever that would be required by
GAAP to be reflected on a consolidated balance sheet of Gart (including
the notes thereto), other than: (x) liabilities incurred since January
29, 2000 in the ordinary course of business consistent with past
practices; (y) reasonable and customary fees and expenses incurred in
connection with the consummation of the transactions contemplated by
the Merger Agreement; and (z) liabilities disclosed in the Gart Reports
filed prior to the date hereof or reserved against on Gart's most
recent balance sheet delivered to the Company prior to the date hereof.
9. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
10. Specific Performance. The Stockholder acknowledges and agrees that,
if the Stockholder fails to perform any of the Stockholder's obligations
under this Agreement, immediate and irreparable harm or injury would be
caused to MergerSub for which money damages would not be an adequate
remedy. Accordingly, the Stockholder agrees that MergerSub shall have the
right, in addition to any other rights MergerSub may have, to specific
performance of this Agreement. If MergerSub should institute an action or
proceeding seeking specific enforcement of the provisions of this
Agreement, the Stockholder hereby waives the claim or defense that
MergerSub has an adequate remedy at law and hereby agrees not to assert in
that action or proceeding the claim or defense that a remedy at law exists.
The Stockholder further agrees to waive any requirements for the securing
or posting of any bond in connection with obtaining any equitable relief.
11. Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made as of the date of receipt and shall be delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested), sent
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by overnight courier, or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or
telecopy number for a party as shall be specified by like notice):
If to Gart or MergerSub:
Gart Sports Company
1000 Broadway
Denver, Colorado 80203
Attention: Nesa Hassanein
Facsimile: (303) 864-2188
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Anthony T. Iler
Facsimile: (310) 203-7199
If to the Stockholder:
at the address and telephone number
set forth on the signature page
With a copy to:
____________________________
____________________________
____________________________
Attention:
Facsimile:
12. Parties in Interest. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors and
permitted assigns; provided, however, that any successor in interest or
assignee shall agree to be bound by the provisions of this Agreement.
Nothing in this Agreement, express or implied, is intended to confer upon
any person other than Gart, MergerSub, the Stockholder or their successors
or assigns, any rights or remedies under, or by reason of, this Agreement.
13. Entire Agreement; Amendments. Other than the Merger Agreement, the
Registration Rights Agreement, the Indemnification Agreement, dated as of
the date hereof, between Gart and the Stockholder, and the transactions
contemplated herein or therein, this Agreement contains the entire
agreement between the Stockholder, Gart and MergerSub with respect to the
subject matter of this Agreement and supersedes all prior and
contemporaneous agreements and understandings, oral or written, with
respect to such subject matter. This Agreement may not be changed, amended
or modified orally, but may be changed only by an agreement in writing
signed by the party against whom any waiver, change, amendment,
modification or discharge may be sought.
14. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of
the other party to this Agreement, except that (a) MergerSub may assign its
rights and obligations under this Agreement to Gart or to any of Gart's or
MergerSub's direct or indirect wholly owned subsidiaries or affiliates, and
(b) the Stockholder may transfer the Subject Shares to the extent permitted
by Section 5 of this Agreement.
15. Headings. The section headings in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same
instrument.
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17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
18. Term. This Agreement shall become effective on the date hereof and
shall terminate automatically and without further action on behalf of any
party hereto at the earlier of (i) the Effective Time (as defined in the
Merger Agreement) and (ii) the date on which the Merger Agreement is
terminated pursuant to, and in accordance with, its terms.
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IN WITNESS WHEREOF, Gart, MergerSub and the Stockholder have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
Gart Sports Company,
a Delaware corporation
By: _________________________________
Name:
Title:
GSC Acquisition Corp.,
a Delaware corporation
By: _________________________________
Name:
Title:
STOCKHOLDER
_____________________________________
Address:
Facsimile Number:
B-14
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is entered into as of February 21,
2001, by and between Oshman's Sporting Goods, Inc., a Delaware corporation
("Oshman's"), and Green Equity Investors, L.P., a Delaware limited partnership
(the "Stockholder").
WHEREAS, as of the date hereof, the Stockholder beneficially owns a majority
in interest of the common stock, par value $.01 per share (the "Common Stock"),
of Gart Sports Company, a Delaware corporation (the "Company");
WHEREAS, the Company, Oshman's and GSC Acquisition Corp., a Delaware
corporation ("MergerSub"), are entering into an Agreement and Plan of Merger,
dated as of the date hereof (as it may be amended from time to time, the
"Merger Agreement"), which provides, among other things, for the merger of
Oshman's with and into MergerSub, with MergerSub as the surviving corporation
(the "Merger");
WHEREAS, in connection with the Merger Agreement, Oshman's has required that
the Stockholder make certain agreements with respect to all of the
Stockholder's Subject Shares (as defined below), upon the terms and subject to
the conditions of this Agreement; and
WHEREAS, the Stockholder is willing to make certain agreements with respect
to the Subject Shares, in order to induce Oshman's to enter into the Merger
Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties hereto agree as
follows:
1. Voting Agreements. For so long as this Agreement is in effect, at any
meeting (whether annual, special or adjourned) of the stockholders of the
Company, and in any action by consent of the stockholders of the Company,
the Stockholder shall vote, or, if applicable, give consents with respect
to, all of the Subject Shares that are held by the Stockholder on the
record date applicable to the meeting or consent (i) in favor of approval
of the issuance of Common Stock (as defined below) contemplated by the
Merger Agreement; (ii) against any proposal inconsistent with the Merger
Agreement or that may delay or adversely affect the likelihood of the
completion of the transactions contemplated by the Merger Agreement; (iii)
against any change in a majority of the persons who constitute the board of
directors of the Company inconsistent with the Merger Agreement or the
transactions contemplated by the Merger Agreement; (iv) against any change
in the capitalization of the Company or any amendment of the Company's
certificate of incorporation or by-laws inconsistent with the Merger
Agreement or the transactions contemplated by the Merger Agreement; and (v)
in favor of any other matter necessary for consummation of the transactions
contemplated by the Merger Agreement that is considered at any such meeting
or in any such consent. The Stockholder also agrees to vote in favor of the
election of each of the Designated Directors (as defined in the Merger
Agreement) or any replacement nominee that is chosen in accordance with
Section 7.24 of the Merger Agreement to the Company's board of Directors at
the Company's 2001 annual meeting of stockholders and at the Company's 2002
annual meeting of stockholders, in each case as contemplated by such
Section 7.24. The Stockholder shall not enter into any agreement or
understanding with any person the effect of which would be inconsistent
with or violate the provisions of agreements contained in this Section 1.
The Stockholder shall cast the Stockholder's vote or give the Stockholder's
consent in accordance with the procedures communicated to the Stockholder
by the Company relating thereto so that the vote or consent shall be duly
counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent. The Stockholder
acknowledges receipt of a copy of the Merger Agreement.
2. Proxy. The Stockholder hereby irrevocably appoints Oshman's (and any
officer of Oshman's), with full power of substitution, the proxy of the
Stockholder with full power and authority, in the event that the
Stockholder shall at any time fail to perform such Stockholder's
obligations under Section 1 of this Agreement, to vote or act by consent in
respect of such Stockholder's Subject Shares and all of such
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Stockholder's other voting securities of the Company exclusively as
provided in Section 1 of this Agreement. The proxy hereby granted shall,
for the term of this Agreement, be irrevocable and shall be deemed coupled
with an interest in accordance with Section 212 of the Delaware General
Corporation Law.
3. Subject Shares. The term "Subject Shares" shall mean all of the
shares of Common Stock beneficially owned by the Stockholder (such shares
of Common Stock, as of the date hereof, are set forth on Schedule A
hereto), together with any and all shares of the Company's capital stock as
to which the Stockholder acquires beneficial ownership after the date of
this Agreement. For all purposes of this Agreement, "beneficial ownership"
has the meaning given in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder (the "Exchange Act").
4. Covenants. For so long as this Agreement is in effect, except as
otherwise contemplated by the transactions contemplated by the Merger
Agreement, the Stockholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of, or enter
into any contract with respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of (each such
disposition or contract, a "Transfer"), any Subject Shares or any shares of
the Company's capital stock that the Stockholder then has or will have the
right to acquire pursuant to options, warrants, convertible securities or
other such rights to purchase shares of the Company's capital stock granted
to the Stockholder by the Company; (ii) grant any powers of attorney,
consents or proxies with respect to any shares of the Company's capital
stock that then constitute Subject Shares (other than pursuant to this
Agreement), deposit any of the Subject Shares into a voting trust, enter
into a voting or option agreement with respect to any of the Subject Shares
inconsistent with the transactions contemplated by the Merger Agreement or
this Agreement, or otherwise restrict or take any action adversely
affecting the ability of the Stockholder freely to exercise all voting
rights with respect to the Subject Shares; or (iii) permit, cause, take any
action, or fail to take any action that would make any representation,
warranty, covenant or other undertaking of the Stockholder in this
Agreement untrue or incorrect, or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement. As used in
this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
5. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Oshman's that:
(a) Capacity; No Violations. The Stockholder is duly organized and
validly existing under the laws of the jurisdiction of its
organization. The Stockholder has the legal capacity to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and
performance by the Stockholder of this Agreement will not (i) conflict
with, require a consent, waiver or approval under, or result in a
breach or default under, any of the terms of any contract, commitment
or other obligation to which the Stockholder is a party or by which the
Stockholder is bound, (ii) violate any order, writ, injunction, decree
or statute, or any law, rule or regulation applicable to the
Stockholder or, to the Stockholder's knowledge, the Subject Shares; or
(iii) result in the creation of, or impose any obligation on the
Stockholder to create, any Lien upon the Subject Shares that would
prevent the Stockholder from voting the Subject Shares. In this
Agreement, "Lien" shall mean any lien, pledge, security interest,
claim, third party right or other encumbrance.
(b) Subject Shares. The Stockholder has the power to vote or direct
the voting of the Subject Shares. The Subject Shares are the only
shares of any class of capital stock of the Company that the
Stockholder has the right, power or authority (sole or shared) to sell
or vote, and the Stockholder does
B-16
not have any right to acquire, nor is the Stockholder the beneficial
owner of, any other shares of any class of capital stock of the Company
or any other securities of the Company or any securities convertible
into, or exchangeable or exercisable for, any shares of any class of
capital stock of the Company or any other securities of the Company.
The Stockholder is not a party to any contracts (including proxies,
voting trusts or voting agreements) that would prevent the Stockholder
from voting the Subject Shares or that conflict with the provisions of
this Agreement.
(c) Title to Shares. The Stockholder is the sole record and
beneficial owner of the Subject Shares, free and clear of any pledge,
Lien, security interest, mortgage, charge, claim, equity, option,
proxy, voting restriction, voting trust or agreement, understanding,
arrangement, right of first refusal, limitation on disposition, adverse
claim of ownership or use or encumbrance of any kind, other than
restrictions imposed by the securities laws or pursuant to this
Agreement or the Merger Agreement and, with respect to any Subject
Shares held by the Stockholder as trustee for the benefit of any other
person, other than the rights of all beneficiaries under such trusts,
which such rights are not inconsistent with the provisions of this
Agreement.
(d) No Finder's Fees. Except as disclosed in the Merger Agreement,
no broker, investment banker, financial advisor, or other person is
entitled to any broker's, finder's, financial advisor's, or other
similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by, or on behalf of,
the Stockholder the payment of which could become the obligation of
Oshman's.
6. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
7. Specific Performance. The Stockholder acknowledges and agrees that,
if the Stockholder fails to perform any of the Stockholder's obligations
under this Agreement, immediate and irreparable harm or injury would be
caused to Oshman's for which money damages would not be an adequate remedy.
Accordingly, the Stockholder agrees that Oshman's shall have the right, in
addition to any other rights Oshman's may have, to specific performance of
this Agreement. If Oshman's should institute an action or proceeding
seeking specific enforcement of the provisions of this Agreement, the
Stockholder hereby waives the claim or defense that Oshman's has an
adequate remedy at law and hereby agrees not to assert in that action or
proceeding the claim or defense that a remedy at law exists. The
Stockholder further agrees to waive any requirements for the securing or
posting of any bond in connection with obtaining any equitable relief.
8. Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made as of the date of receipt and shall be delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested), sent by overnight courier, or sent by telecopy, to the
applicable party at the following addresses or telecopy numbers (or at any
other address or telecopy number for a party as shall be specified by like
notice):
If to Oshman's, to:
Oshman's Sporting Goods, Inc.
2302 Maxwell Lane
Houston, Texas 77023
Attention: Alvin N. Lubetkin
Facsimile: (713) 967-8254
With a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77023
Attention: John Clutterbuck
Facsimile: (713) 225-7047
B-17
If to the Stockholder, to:
Green Equity Investors, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Jonathan A. Seiffer
Facsimile: (310) 954-0404
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Anthony T. Iler
Facsimile: (310) 203-7199
9. Parties in Interest. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors and
permitted assigns; provided, however, that any successor in interest or
assignee shall agree to be bound by the provisions of this Agreement.
Except for the Designated Directors, each of whom is an intended third
party beneficiary of this Agreement solely with respect to the second
sentence of Section 1 of this Agreement, and not otherwise, nothing in this
Agreement, express or implied, is intended to confer upon any Person other
than Oshman's, the Stockholder or their successors or assigns, any rights
or remedies under, or by reason of, this Agreement.
10. Entire Agreement; Amendments. Other than the Merger Agreement and
the transactions contemplated thereby, this Agreement contains the entire
agreement between the Stockholder and Oshman's with respect to the subject
matter of this Agreement and supersedes all prior and contemporaneous
agreements and understandings, oral or written, with respect to such
subject matter. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the
party against whom any waiver, change, amendment, modification or discharge
may be sought.
11. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of
the other party to this Agreement, except that (a) Oshman's may assign its
rights and obligations under this Agreement to any of its direct indirect
wholly owned subsidiaries or Affiliates, and (b) the Stockholder may
transfer the Subject Shares to the extent permitted by Section 4 of this
Agreement.
12. Headings. The section headings in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same
instrument.
14. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
15. Term. This Agreement shall become effective on the date hereof and
shall terminate automatically and without further action on behalf of any
party hereto at the earlier of (i) the Effective Time (as defined in the
Merger Agreement) and (ii) the date on which the Merger Agreement is
terminated pursuant to, and in accordance with, its terms.
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IN WITNESS WHEREOF, Oshman's and the Stockholder have caused this Agreement
to be duly executed and delivered on the day and year first above written.
Oshman's Sporting Goods, Inc.,
a Delaware corporation
By: _________________________________
Name:
Title:
Green Equity Investors, L.P.,
a Delaware limited partnership
By: Leonard Green & Associates,
L.P.,
its general partner
By: _________________________________
Name:
Title:
B-19
ANNEX C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
, 2001, by and among Gart Sports Company, a Delaware corporation
(the "Company"), and those Persons set forth on the signature pages hereto (the
"Initial Stockholders").
RECITALS
A. This Agreement is made in connection with the Agreement and Plan of
Merger, dated as of February 21, 2001, by and among the Company, GSC
Acquisition Corp., a Delaware corporation, and Oshman's Sporting Goods, Inc., a
Delaware corporation (as such agreement may be amended from time to time, the
"Merger Agreement"), pursuant to which the Initial Stockholders will receive
shares of the Company's common stock, par value $.01 per share (the "Common
Stock").
B. The Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations thereunder,
or any similar successor statute (collectively, the "Securities Act"), and
applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
Definitions
1.1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Initial Amount" is the number of Registrable Securities originally
issued pursuant to the Merger Agreement (as adjusted pursuant to Section
1.1(d)).
(b) "Merger Shares" means the shares of Common Stock issued to the
Initial Stockholders pursuant to the Merger (as defined in the Merger
Agreement).
(c) "Person" means any individual, firm, corporation, partnership,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) to such entity.
(d) "Registrable Securities" means (i) the Merger Shares and (ii)
securities issued or issuable with respect to Merger Shares or other
Registrable Securities by virtue of this clause (ii), in each case by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, reorganization, reclassification, merger,
consolidation, compulsory share exchange or any other transaction or series
of related transactions in which shares of Common Stock or Registrable
Securities are changed into, converted into or exchanged for other
securities. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (i) a registration statement
registering such securities under the Securities Act has been declared
effective and such securities have been sold or otherwise transferred by
the holder thereof pursuant to such effective registration statement, (ii)
such securities are sold in compliance with paragraph (d) of Rule 145 under
the Securities Act or (iii) such securities are sold to the public in
accordance with Rule 144.
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(e) "Registration Period" means the period ending on the earliest of (i)
the date on which all of the Registrable Securities have been sold
(excluding transfers for estate, securities or tax planning or charitable
gift giving purposes), (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Company) may be
immediately sold to the public without registration and without restriction
as to the number of Registrable Securities to be sold (and without
aggregation of any sale with sales of any other Person whose sales are
subject to volume limitations), whether pursuant to Rule 144, Rule 145(d)
or otherwise, and (iii) five (5) years from the date hereof as may be
extended pursuant to Section 2.1.
(f) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(g) "Requisite Amount" means 20% of the then outstanding Registrable
Securities; provided, however, that such Requisite Amount will in no event
be an amount that is less than 10% of the Initial Amount.
(h) "Rule 144" has the meaning set forth in the preamble of Article
VIII.
(i) "Stockholders" means the Initial Stockholders and any transferees or
assignees thereof who agree to become bound by the provisions of this
Agreement in accordance with Article IX hereof. Any reorganization of the
internal structure or composition of a Stockholder will not affect such
Stockholder's designation as a Stockholder hereunder.
1.2. Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Merger
Agreement.
ARTICLE II
Registration
2.1. Demand Registrations. During the Registration Period, holders of the
Requisite Amount of Registrable Securities in the aggregate shall be entitled
to make a written request of the Company (each such request being a "Demand")
for registration under the Securities Act of all or part of the Registrable
Securities (a "Demand Registration") in accordance with this Section 2.1. Such
Demand shall specify: (i) the aggregate number and kind of Registrable
Securities requested to be registered; and (ii) the intended method of
distribution in connection with such Demand Registration to the extent then
known. The holders of Registrable Securities shall be entitled to three (3)
Demand Registrations. Any Demand Registration hereunder shall be on any
appropriate form under the Securities Act permitting registration of such
Registrable Shares for resale by the Stockholders making such Demand
Registration in the manner or manners designated by them (including, without
limitation, pursuant to a shelf registration (a "Shelf Registration") under
Rule 415 under the Securities Act); provided, however, only two Demand
Registrations requested by the Stockholders in accordance with this Section 2.1
shall be for an underwritten offering. If the holders of a majority in interest
of the Registrable Securities sought to be registered in a Demand Registration
request that such Demand Registration be an underwritten offering in accordance
with this Section 2.1, then such holders shall select a nationally recognized
underwriter or underwriters to manage and administer such offering, such
underwriter or underwriters, as the case may be, to be subject to the approval
of the Company's board of directors, which such approval shall not be
unreasonably withheld. No Demand shall be effective or impose any obligation
upon the Company unless such Demand shall request the registration of not less
than the Requisite Amount of Registrable Securities. Within ten (10) days after
receipt of a Demand, the Company shall give written notice of such Demand to
all other holders of Registrable Securities and shall include in such
registration all Registrable Securities of each holder thereof with respect to
which the Company has received a written request for inclusion therein within
twenty (20) days after the receipt by such holder of the Company's notice
required by this paragraph. A registration shall not be treated as a Demand
Registration unless the holders of Registrable Securities are able to include,
in accordance with the following provisions, at least 75% of the Registrable
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Securities requested to be included in such registration and until (i) the
applicable Registration Statement under the Securities Act has been filed with
the United States Securities and Exchange Commission ("SEC") with respect to
such Demand Registration and has been declared effective and (ii) such
Registration Statement shall have been maintained continuously effective for a
period of at least 120 days (or, in the case of a Shelf Registration, one (1)
year) or such shorter period when all Registrable Securities included therein
have been sold thereunder in accordance with the manner of distribution set
forth in such Registration Statement. Neither the Company nor any other Person
shall include any other securities in a Demand Registration, except with the
written consent of the holders of the majority of the Registrable Securities
sought to be registered pursuant to such Demand Registration. If, in connection
with a Demand Registration, any managing underwriter (or, if such Demand
Registration is not an underwritten offering, a nationally recognized
independent underwriter selected by the holders of a majority of the
Registrable Securities sought to be registered in such Demand Registration
(which such underwriter shall be reasonably acceptable to the Company and whose
fees and expenses shall be borne solely by the Company in the case of the first
underwritten Demand Registration and borne on a pro rata basis by all holders
of securities permitted by such underwriter to be included in any second
underwritten Demand Registration, in proportion to the number of securities
included in such Demand Registration)) advises the Company and the holders of
the Registrable Securities sought to be included in such Demand Registration
that, in its judgment, marketing or other factors dictate that limiting the
securities to be included in the Registration Statement is necessary to
facilitate public distribution of the Registrable Securities ultimately to be
included therein, then the Company shall include in such Registration Statement
only such limited portion of the Registrable Securities and other securities
sought to be registered therein as the underwriter shall permit in accordance
with this paragraph. Any exclusion of Registrable Securities shall be made pro
rata among the Stockholders seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by
such Stockholders; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities other than the Registrable Securities. The Company may postpone for
up to sixty (60) days (but no more than ninety (90) days in any 365 day period)
the filing or the effectiveness (which may include the withdrawal of an
effective registration statement) of a Registration Statement pursuant to this
Section 2.1 if the Company's board of directors reasonably determines in its
good faith judgment that, because of the existence of any proposal or plan by
the Company or any of its subsidiaries to engage in any acquisition or
financing activity (other than in the ordinary course of business) or the
unavailability for reasons beyond the Company's control of any required
financial statements, or any other event or condition of similar significance
to the Company (other than any such event or condition consisting of one or
more requests by one or more of the Company's stockholders (other than any
Stockholder) to exercise "demand" registration rights), it would be materially
disadvantageous to the Company for such a Registration Statement to be
maintained effective, or to be filed and become effective; provided, however,
that, in such event, the holders of Registrable Securities making such Demand
will be entitled to withdraw such Demand, and, if such Demand is withdrawn,
such registration will not count as one of the Demand Registrations hereunder;
and, provided, further, that the Registration Period will be extended for a
period of time equal to any such postponements.
2.2. Piggy-Back Registrations. During the Registration Period, if the
Company shall file with the SEC a Registration Statement (a "Piggyback
Registration Statement") relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(except on Form S-4 or Form S-8 or any successor form), then the Company shall
send to each Stockholder written notice of such determination and, if within
fifteen (15) days after the date of such notice, such Stockholder shall so
request in writing, the Company shall include in such Piggyback Registration
Statement all or any part of the Registrable Securities such Stockholder
requests to be registered (provided, that the Company shall not be obligated to
include Registrable Securities if (i) such Registrable Securities are covered
by a Registration Statement filed pursuant to Section 2.1 that provides for an
underwritten offering and provides for sales during the effective period of the
Piggyback Registration Statement, or (ii) such Piggyback Registration Statement
is filed by the Company as the result of the exercise of "demand" registration
rights by holders of the Company's securities pursuant to Section 2.4 of the
Registration Rights Agreement, dated as of January 9, 1998, by and among the
Company and the signatories thereto (the form of which was filed with the SEC
as Exhibit 10.1 to the Company's Form S-4
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filed with the SEC on December 16, 1997), and the holders party to such
Registration Rights Agreement do not consent, in accordance with the terms
thereof, to the inclusion of Registrable Securities in such Piggyback
Registration Statement), except that if, in connection with any such offering
for the account of the Company or for the account of others the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock that may be included in the Piggyback Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
that such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Piggyback Registration Statement
only such limited portion of the Registrable Securities with respect to which
such Stockholder has requested inclusion hereunder as the underwriter shall
permit. Any exclusion of Registrable Securities shall be made pro rata among
the Stockholders seeking to include Registrable Securities, in proportion to
the number of Registrable Securities sought to be included by such
Stockholders; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which did not initiate the filing of such Piggyback
Registration Statement pursuant to so-called "demand" registration rights or
are not entitled to pro rata inclusion with the Registrable Securities; and,
provided, further, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Piggyback Registration Statement on the basis of the number of securities such
holders have requested to include in such Piggyback Registration Statement. No
right to registration of Registrable Securities under this Section 2.2 shall be
construed to limit any registration required under Section 2.1. If an offering
in connection with which a Stockholder is entitled to registration under this
Section 2.2 is an underwritten offering, then each Stockholder whose
Registrable Securities are included in such Piggyback Registration Statement
shall, unless otherwise agreed to by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter
or underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering.
2.3. Holdbacks.
(a) Subject to the last sentence of this Section 2.3(a), each holder of
Registrable Securities agrees not to file or cause to be effected any other
registration of, or effect any public sale or distribution of, equity
securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the ten (10) day
period prior to, and during the seventy-five (75) day period following, the
effective date of any underwritten public offering of Common Stock for the
account of the Company or for the account of others, in each case that is
not in violation of Section 2.3(b) (except as part of such underwritten
registration, if permitted by Section 2.1 or 2.2 or otherwise permitted
hereunder) unless the underwriters managing the registered public offering
otherwise agree and such sale or distribution otherwise complies with
Regulation M of the Exchange Act. This Section 2.3(a) will not prohibit
sales of Registrable Securities by the Stockholders pursuant to Rule 144 or
Rule 145 or under a Shelf Registration in accordance with Section 2.1.
(b) The Company agrees not to file or cause to be effected any
registration of, or effect any public sale or distribution of, its equity
securities, or any securities convertible into or exchangeable or
exercisable for such securities, whether for its own account or for the
account of others, during the ten (10) day period prior to, and during the
seventy-five (75) day period following, the effective date of any
underwritten Registration Statement filed pursuant to a Demand hereunder
(except as part of such underwritten Registration Statement, or if
otherwise permitted hereunder, or pursuant to registration on Form S-4,
Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree.
(c) Notwithstanding the foregoing, neither the Stockholders nor the
Company will be subject to the foregoing holdbacks for any period or
periods in aggregate that are in excess of 150 days during any 365 day
period.
C-4
ARTICLE III
Obligations of the Company
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1. A Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated
by reference therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
3.2. The Company shall prepare and file with the SEC promptly any
Registration Statement that is required to be filed by the Company pursuant
to this Agreement and such amendments (including post-effective amendments)
and supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep
such Registration Statement effective at all times required for such
Registration Statement under this Agreement, and, during such period,
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until the termination of said period.
3.3. The Company shall furnish to each Stockholder whose Registrable
Securities are included in the Registration Statement and its legal counsel
(a) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration
Statement and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and each letter
written by or on behalf of the Company to the SEC or the staff of the SEC,
and each item of correspondence from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion,
if any, thereof that contains information for which the Company has sought
confidential treatment), and (b) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements
thereto and such other documents as such Stockholder may reasonably request
in order to facilitate the disposition of the Registrable Securities
covered by the Registration Statement that are owned (or to be owned) by
such Stockholder. All correspondence to or from the SEC or its staff shall,
subject to applicable law and legal process, be kept confidential by the
Stockholders.
3.4. The Company shall use reasonable efforts to (a) register and
qualify the Registrable Securities covered by the Registration Statement
under securities laws of such jurisdictions in the United States as each
Stockholder who holds (or has the right to hold) Registrable Securities
being offered reasonably requests, (b) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (c) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(d) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however,
that the Company shall not be required in connection therewith or as a
condition thereto to (i) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3.4,
(ii) subject itself to general taxation in any such jurisdiction, (iii)
file a general consent to service of process in any such jurisdiction, (iv)
provide any undertakings that cause the Company material expense or burden,
or (v) make any change in its charter or by-laws, which in each case the
board of directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
3.5. In the event the Stockholders who hold a majority in interest of
the Registrable Securities being offered in an offering pursuant to a
Registration Statement or any amendment or supplement thereto select
underwriters for the offering in accordance with Section 2.1, the Company
shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
underwriters of such offering.
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3.6 As soon as practicable after becoming aware of such event, the
Company shall notify each Stockholder of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and shall use its best efforts as soon as practicable to
prepare a supplement or amendment to (and, in the event of an amendment,
obtain the effectiveness thereof) the Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Stockholder as such Stockholder may
reasonably request.
3.7. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, to obtain the withdrawal of
such order at the earliest practicable time and to notify (by telephone and
also by facsimile and reputable overnight carrier) each Stockholder who
holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof.
3.8. The Company shall permit a single firm of counsel designated by the
Stockholders to review the Registration Statement and all amendments and
supplements thereto for a reasonable period of time prior to their filing
with the SEC, and shall not file any document in a form to which such
counsel reasonably and timely objects.
3.9. The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days if such earnings
statement is on Form 10-K or forty-five (45) days if such earnings
statement is on Form 10-Q after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 under
the Securities Act) covering a twelve (12) month period beginning not later
than the first day of the Company's fiscal quarter next following the
effective date (as defined in said Rule 158) of the Registration Statement.
3.10. At the request of any Stockholder, the Company shall furnish, on
the date of effectiveness of the Registration Statement and thereafter from
time to time on such dates as a Stockholder may reasonably request (a) an
opinion, dated as of such applicable date, from counsel representing the
Company addressed to the Stockholders and in form, scope and substance as
is customarily given in an underwritten public offering and (b) a letter,
dated as of such applicable date, from the Company's independent certified
public accountants addressed to the Stockholders and in form, scope and
substance as customarily given to underwriters in an underwritten public
offering; provided, however, that a Stockholder shall only be entitled to
the foregoing no more than two times in any six (6) month period (unless a
greater number of times or a shorter period would otherwise be reasonable
under their applicable circumstances).
3.11. The Company shall make available for inspection by (i) one
Stockholder who has been designated by a majority in interest of the
Stockholders whose Registrable Securities are to be included in the
applicable Registration Statement as their representative, (ii) any
underwriter participating in any disposition pursuant to the Registration
Statement, (iii) one firm of attorneys and one firm of accountants retained
by the Stockholders, and (iv) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably requested by
any of the foregoing and cause the Company's officers, directors and
employees to supply all information that any Inspector may reasonably
request; provided, however, that each Inspector shall hold in confidence
and shall not make any disclosure (except to a Stockholder) of any Record
or other information that the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified in
writing, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement (in which
event the Company shall promptly make appropriate public disclosure thereof
unless such misstatement or omission relates to events set forth in the
last sentence of Section 2.1 that would allow the Company to postpone the
filing or effectiveness of a Registration Statement, in which event the
Inspectors will be so notified and public disclosure of such
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misstatement or omission will occur as soon as practicable but no later
than 60 days from the date the Inspectors are so notified), (b) the release
of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or is otherwise
required by applicable law or legal process or (c) the information in such
Records has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement (to the
knowledge of the relevant Person). The Company shall not be required to
disclose any confidential information in such Records to any Inspector
until and unless such Inspector shall have entered into confidentiality
agreements (in form and reasonable substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this
Section 3.11. Each Stockholder agrees that it shall, upon learning that
disclosure of such Records are sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential. Nothing in this Section 3.11 shall be deemed
to limit a Stockholder's ability to sell Registrable Securities in a manner
that is consistent with applicable laws and regulations.
3.12. The Company shall hold in confidence and not make any disclosure
of information concerning a Stockholder provided to the Company unless (a)
disclosure of such information is necessary to comply with federal or state
securities laws, (b) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement,
(c) the release of such information is ordered pursuant to a subpoena or
other order from a court or governmental body of competent jurisdiction or
is otherwise required by applicable law or legal process, (d) such
information has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement (to the
knowledge of the Company), or (e) such Stockholder consents to the form and
content of any such disclosure. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Stockholder is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Stockholder prior to making
such disclosure, and shall allow the Stockholder, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.
3.13. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
3.14. The Company shall cooperate with the Stockholders who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable
such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the
Stockholders may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Stockholders may
request.
3.15. At the request of any Stockholder, the Company shall promptly
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary in
order to change the description of the plan of distribution set forth in
such Registration Statement.
3.16. The Company shall comply with all applicable laws related to the
applicable Registration Statement and offering and sale of securities and
all applicable rules and regulations of governmental authorities in
connection therewith (including, without limitation, the Securities Act and
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Exchange Act").
3.17. The Company shall take all such other actions as any Stockholder
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
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3.18. If the Company receives written notice from any holder of the
Company's securities that such holder is exercising, or contemplating the
exercise of, "demand" registration rights pursuant to a registration rights
agreement entered into by the Company and such holder, then the Company
shall send to the Stockholders written notice thereof.
ARTICLE IV
Obligations of the Stockholders
In connection with the registration of the Registrable Securities, a
Stockholder shall have the following obligations:
4.1. Such Stockholder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
method of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities, and shall execute such documents in connection with such
registration as the Company may reasonably request. At least 10 business
days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Stockholder of the information
that the Company requires from each such Stockholder.
4.2. Each Stockholder, by such Stockholder's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Stockholder has notified
the Company in writing of such Stockholder's election to exclude all of
such Stockholder's Registrable Securities from the applicable Registration
Statement.
4.3. Each Stockholder whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require
delivery of a prospectus relating thereto in connection with any sale
thereof pursuant to such Registration Statement, and each such Stockholder
shall comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4. Each Stockholder agrees to notify the Company promptly, but in any
event within five (5) business days after the date on which all Registrable
Securities covered by a Registration Statement that are owned by such
Stockholder have been sold by such Stockholder, if such date is prior to
the expiration of the Registration Period, so that the Company may comply
with its obligation to terminate such Registration Statement in accordance
with Item 512(a)(3) of Regulation S-K promulgated under the Securities Act.
4.5. Each Stockholder agrees that, upon receipt of written notice from
the Company of the happening of any event of the kind described in Section
3.6, such Stockholder will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Stockholder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3.6, and, if
so directed by the Company, such Stockholder shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Stockholder's possession
(other than a limited number of permanent file copies), of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
4.6. No Stockholder may participate in any underwritten distribution
pursuant to a Registration Statement under Section 2.1 or 2.2 unless such
Stockholder (a) agrees to sell such Stockholder's Registrable Securities on
the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements, and (c) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Article V.
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ARTICLE V
Expenses of Registration
All expenses, other than underwriting discounts and commissions, incurred by
the Company in connection with registrations, filings or qualifications
pursuant to Articles II and III shall be borne by the Company, including,
without limitation, all registration, listing and qualification fees, printers
and accounting fees, the fees and disbursements of counsel for the Company, and
the reasonable fees and expenses of one counsel to the Stockholders for the
review of filings hereunder.
ARTICLE VI
Indemnification
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1. The Company agrees to indemnify, to the fullest extent permitted by
law, each holder of Registrable Securities, its officers, directors,
employees, trustees, beneficiaries, partners, attorneys and agents and each
Person who controls (within the meaning of the Securities Act) such holder
or such other indemnified Person against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement
of material fact contained in any Registration Statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or a fact necessary to make the statements therein not misleading,
except insofar as the same are caused by and contained in any information
furnished in writing to the Company by such holder expressly for use
therein. In connection with an underwritten offering and without limiting
any of the Company's other obligations under this Agreement, the Company
shall indemnify such underwriters, their officers, directors, employees and
agents and each Person who controls (within the meaning of the Securities
Act) such underwriters or such other indemnified Person to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.1, as it
pertains to any preliminary prospectus, shall not inure to the benefit of
any indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented, if such corrected
prospectus was timely made available by the Company pursuant to Section
3.3, and the indemnified Person was promptly advised in writing not to use
the incorrect prospectus prior to the use giving rise to a violation and
such indemnified Person, notwithstanding such advice, used such incorrect
prospectus.
6.2. In connection with any Registration Statement in which a holder of
Registrable Securities is participating, each such holder will furnish to
the Company in writing information regarding such holder's ownership of
Registrable Securities and its intended method of distribution thereof and,
to the extent permitted by law, shall indemnify the Company, its directors,
officers, employees and agents and each Person who controls (within the
meaning of the Securities Act) the Company or such other indemnified Person
against any losses, claims, damages, liabilities and expenses (including
with respect to any claim for indemnification hereunder asserted by any
other indemnified Person) resulting from any untrue or alleged untrue
statement of material fact contained in the Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission
is caused by and contained in such information so furnished in writing by
such holder; provided, that the obligation to indemnify will be several,
not joint and several, among holders of Registrable Securities, and the
liability of each such holder of Registrable Securities will be in
proportion to and limited to the net amount received by such holder from
the sale of Registrable Securities pursuant to such Registration Statement.
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6.3. Any Person entitled to indemnification hereunder shall give prompt
written notice to the indemnifying party of any claim with respect to which
it seeks indemnification; provided, however, the failure to give such
notice shall not release the indemnifying party from its obligation under
this Article VI, except to the extent that the indemnifying party has been
materially prejudiced by such failure to provide such notice.
6.4. In any case in which any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
(so long as it shall continue to have the right to defend, contest,
litigate and settle the matter in question in accordance with this
paragraph) be liable to such indemnified party hereunder for any legal or
other expense subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation,
supervision and monitoring (unless such indemnified party reasonably
objects to such assumption on the grounds that there may be defenses
available to it that are different from, or in addition to, the defenses
available to such indemnifying party, in which event the indemnified party
shall be reimbursed by the indemnifying party for the expenses incurred in
connection with retaining separate legal counsel). An indemnifying party
shall not be liable for any settlement of an action or claim effected
without its consent. The indemnifying party shall lose its right to defend,
contest, litigate and settle a matter if it shall fail to diligently
contest such matter (except to the extent settled in accordance with the
next following sentence). No matter shall be settled by an indemnifying
party without the consent of the indemnified party (which consent shall not
be unreasonably withheld).
6.5. The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified Person and will survive the transfer of the
Registrable Securities.
ARTICLE VII
Contribution
If recovery is not available under Article VI for any reason or reasons
other than as specified therein, any Person who would otherwise be entitled to
indemnification by the terms thereof shall nevertheless be entitled to
contribution from the person who would otherwise have been the indemnifying
party with respect to any losses, claims, damages, liabilities or expenses with
respect to which such Person would be entitled to such indemnification but for
such reason or reasons. In determining the amount of contribution to which the
respective Persons are entitled, there shall be considered the Persons'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and other equitable considerations appropriate under the
circumstances. It is hereby agreed that it would not necessarily be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation.
ARTICLE VIII
Reports Under the Exchange Act; Nasdaq Listing
With a view to making available to the Stockholders the benefits of Rule 144
under the Securities Act or any other similar rule or regulation of the SEC
that may at any time permit the Stockholders to sell securities of the Company
to the public without registration ("Rule 144") and to otherwise establish the
existence of a public market with respect to the Company's securities to
provide liquidity for the Stockholders with respect to
C-10
the Registrable Securities, the Company agrees, during the Registration Period
and for a period of one year thereafter, for so long as the Company's equity
securities are registered under Section 12(b) or 12(g) of the Exchange Act,
that:
8.1. The Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act
even if the Exchange Act would permit such termination.
8.2. The Company shall cause all such Registrable Securities to be
listed on each securities exchange and included in each established over-
the-counter market on which or through which securities of the same class
of the Company are then listed or traded and, if not so listed or traded,
to be listed on The Nasdaq Stock Market ("Nasdaq"), and if listed on
Nasdaq, secure designation of all such Registrable Securities covered by
such Registration Statement as a Nasdaq "national market system security"
within the meaning of Rule 11Aa2-1 under the Exchange Act, or, failing
that, to secure Nasdaq authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such and maintain such registration and
listing with respect to such Registrable Securities.
8.3. The Company shall file with the SEC in a timely manner and make and
keep available all reports and other documents required of the Company
under the Securities Act and the Exchange Act so long as the filing and
availability of such reports and other documents is required for the
applicable provisions of Rule 144.
8.4. The Company shall furnish to each Stockholder so long as such
Stockholder holds Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Stockholders to
sell such securities pursuant to Rule 144 without registration.
ARTICLE IX
Assignment of Registration Rights
The rights of the Stockholders hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assigned by each Stockholder to any transferee of all or any
portion of the Registrable Securities (other than pursuant to a Registration
Statement, Rule 144 or Rule 145 (so long as the shares subject to such transfer
are thereafter freely tradeable under the Securities Act)) if: (a) the
Stockholder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i)
the name and address of such transferee or assignee, and (ii) the securities
with respect to which such registration rights are being transferred or
assigned, (c) following such transfer or assignment, the further disposition of
such securities by the transferee or assignee is restricted under the
Securities Act or applicable state securities laws, and (d) at or before the
time the Company receives the written notice contemplated by clause (b) of this
sentence, the transferee or assignee agrees in writing for the benefit of the
Company to be bound by all of the provisions contained herein.
C-11
ARTICLE X
Amendment of Registration Rights
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, the
Initial Stockholders (but not an Initial Stockholder who no longer owns any
Registrable Securities and who is not affected by such amendment or waiver) and
Stockholders who then hold a majority interest of the Registrable Securities.
Any amendment or waiver effected in accordance with this Article X shall be
binding upon each Stockholder and the Company. Notwithstanding the foregoing,
no amendment or waiver shall retroactively affect any Stockholder without such
Stockholder's consent or prospectively adversely affect any Stockholder who no
longer owns any Registrable Securities without such Stockholder's consent and
neither Article VI nor Article VII may be amended or waived in a manner adverse
to a Stockholder without such Stockholder's consent. All consents of a
Stockholder shall be in writing to be effective.
ARTICLE XI
Miscellaneous
11.1. A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
11.2. All notices, requests, claims demands and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission
against facsimile confirmation or mailed by a nationally recognized overnight
courier prepaid, to the parties at the following addresses or facsimile
numbers:
To the Company:
Gart Sports Company
1000 Broadway
Denver, Colorado 80203
Attention: Nesa Hassanein
Facsimile: (303) 864-2188
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Anthony T. Iler
Telecopier: (310) 203-7199
To a Stockholder, to , who is hereby designated as
the representative for purposes of coordinating communications with the
Stockholders:
______________________
______________________
______________________
Facsimile: ___________
C-12
With a copy to:
______________________
______________________
______________________
Facsimile: ___________
All such notices, requests, claims, demands and other communications will (a)
if delivered personally to the address as provided in this Section 11.2, be
deemed given upon delivery, (b) if delivered by facsimile transmission to the
facsimile number as provided for in this Section 11.2, be deemed given upon
facsimile confirmation, and (c) if delivered by overnight courier to the
address as provided in this Section 11.2, be deemed given on the earlier of the
first business day following the date sent by such overnight courier or upon
receipt (in each case, regardless of whether such notice, request, claim,
demand or other communication is received by any other Person to whom a copy of
such notice is to be delivered pursuant to this Section 11.2). Any party hereto
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such
change to the other parties hereto.
11.3. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11.4. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the federal courts located in the state of Delaware and the
state courts of the State of Delaware located in the County of New Castle in
the State of Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties
hereto mailed by first class mail shall be deemed in every respect effective
service of process upon each such party in any such suit or proceeding. Nothing
herein shall affect any party's right to serve process in any other manner
permitted by law. The parties hereto agree that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11.5. This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
11.6. Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
11.7. Any headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement.
11.9. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10. The Company agrees not to enter into any registration rights or
comparable agreement that provides rights or restrictions which are
inconsistent with this Agreement.
11.11. If any provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement.
C-13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
Gart Sports Company
a Delaware corporation
_________________________
By:
Name:
Title:
INITIAL STOCKHOLDERS
____________________________
____________________________
____________________________
____________________________
____________________________
____________________________
C-14
ANNEX D
February 21, 2001
Board of Directors
Oshman's Sporting Goods, Inc.
Board Of Directors:
We understand that Oshman's Sporting Goods, Inc. (the "Company") has entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") dated
February 21, 2001 among the Company, Gart Sports Company, a Delaware
corporation ("Gart"), and GSC Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Gart ("MergerSub" and, together with Gart, the
"Proposed Acquiror"), pursuant to which, inter alia, the Company will be merged
with and into MergerSub (the "Merger"). Pursuant to the terms of the Merger,
each share of the Company's common stock will be converted into the right to
receive an amount equal to (i) $7.00 plus (ii) 0.550 shares of common stock of
Gart (subject to adjustment as provided by the Merger Agreement). The cash and
shares of Gart common stock to be received are collectively referred to herein
as the "Merger Consideration". The terms and conditions of the proposed Merger
are set forth in more detail in the Merger Agreement.
The Board Of Directors of the Company (the "Board") has requested that
Financo, Inc. ("Financo") render its opinion (the "Opinion") with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the Merger Consideration offered in the Merger. In addition to the engagement
of Financo to render the Opinion, Financo has acted as financial advisor to the
Company in connection with the Merger. If the Merger is consummated, Financo
shall receive a fee in connection therewith, against which the fee payable to
Financo for this Opinion shall be deducted.
In conducting our analysis of the Merger and arriving at the Opinion, we
have reviewed and analyzed such materials and considered such financial and
other factors that we deemed relevant under the circumstances, including the
following:
(1) the financial terms and conditions of the Merger Agreement;
(2) certain publicly available historical financial and operating data
concerning the Company, including the Company's Annual Reports to
stockholders on Form 10-K for the fiscal years ended January 2000, 1999,
and 1998, and the Quarterly Reports on Form 10-Q filed with the Securities
and Exchange Commission (the "SEC") for the fiscal quarters ended April 29,
2000, July 29, 2000, and October 28, 2000;
(3) certain publicly available historical financial and operating data
concerning Gart, including Gart's Annual Reports to stockholders on Form
10-K for the fiscal years ended January 2000 and 1999, and the Quarterly
Reports on Form 10-Q filed with the SEC for the fiscal quarters ended April
29, 2000, July 29, 2000, and October 28, 2000;
(4) certain internal financial analyses and forecasts of the Company and
Gart related to the business, earnings, cash flow, assets and prospects of
the Company and Gart, respectively, provided to us by the management of the
Company and Gart, respectively;
(5) discussions with members of senior management of the Company and
Gart concerning their respective businesses, operations, assets, present
condition and future prospects;
(6) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses that we deemed
relatively and reasonably comparable to the Company or otherwise relevant
to our inquiry;
D-1
(7) a trading history of the common shares of the Company and Gart from
January 5, 1996 to the present and January 16, 1998 to the present,
respectively;
(8) a comparison of the financial terms of the Merger with the terms of
certain other recent transactions which we deemed relevant and comparable;
(9) such other financial studies, analyses and investigations we deemed
appropriate.
In rendering the Opinion, we have relied, without independent investigation
or verification, upon the accuracy and completeness of all information publicly
available, supplied or otherwise communicated to us by the Company and Gart. We
have not made any evaluations or appraisals of the assets or liabilities of the
Company or Gart. With respect to the financial forecasts provided to us by the
Company and Gart, we have assumed, with the Board's acknowledgment, that such
forecasts have been reasonably and accurately prepared and represent
management's best currently available judgments and estimates as to the future
financial performance of the Company and Gart, respectively, and we express no
opinion with respect to such forecasts or the assumptions upon which they are
based. We have further relied upon the assurances of senior management of the
Company and Gart that they are not aware of any facts that would make such
financial or other information relating to the Company or Gart, respectively,
inaccurate or misleading. The Opinion is necessarily based upon economic,
financial and market conditions as they exist and can be evaluated only as of
the date of this letter and we assume no responsibility to update or revise the
Opinion based upon events or circumstances occurring after the date hereof.
Further, we express no opinions on matters of a legal, regulatory, tax or
accounting nature relating to or arising out of the Merger.
In rendering this Opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company or Gart.
The Opinion is directed to the Board and does not constitute a
recommendation to any stockholders of the Company as to whether such
stockholders should vote in favor of the Merger. This Opinion may not be
reproduced, summarized, excerpted from or otherwise publicly referred to or
disclosed in any manner without Financo's prior written consent, except that
the Company may include the Opinion in its entirety in any disclosure document
to be sent to the Company's stockholders or filed with the SEC relating to the
Merger.
This Opinion addresses only the fairness, from a financial point of view, of
the Merger Consideration to be received by the Company's stockholders in the
Merger, and we do not express any views on any of the other terms of the
Merger. Specifically, the Opinion does not address the Company's underlying
business decision to engage in the Merger.
Based upon and subject to the foregoing, we are of the opinion that the
Merger Consideration to be received by the Company's stockholders in the Merger
is fair, from a financial point of view, to such stockholders.
Very truly yours,
Financo, Inc.
/s/ William M. Smith
By___________________________________
William M. Smith
President
D-2
ANNEX E
DELAWARE GENERAL CORPORATION LAW
Section 262--Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251 (g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to secs.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
E-1
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
E-2
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
E-4
ANNEX F
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee's role is one of oversight. Management is responsible
for preparing the Company's financial statements and the independent auditor is
responsible for auditing those financial statements.
The Audit Committee shall be appointed by the Board of Directors to assist
the Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
. Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
. Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of Directors.
The Audit Committee shall have the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone else in the Company. The Audit Committee
shall be authorized to retain, at the Company's expense, special legal,
accounting, or other consultants or experts it deems necessary in the
performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the National
Association of Securities Dealers, Inc. for Audit Committee members of
companies quoted on the NASDAQ National Market. The Audit Committee shall be
comprised of three or more directors, as such number shall be determined by the
Board of Directors. Each member shall be an independent non-executive director,
free from any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements; and at least one member of the Committee
shall have accounting or past employment experience in finance or accounting,
requisite professional certification in accounting or other comparable
experience which results in such member's financial sophistication.
Audit Committee members shall be appointed by the Board on recommendation of
the Nominating Committee. If an audit committee Chair is not designated or
present, the members of the Committee may designate a Chair by majority vote of
the Audit Committee membership.
A majority of the Audit Committee members shall constitute a quorum for the
transaction of the Audit Committee's business. Unless otherwise required by
applicable law, the corporation's charter, bylaws of the Board of Directors,
the Audit Committee shall act upon the vote or consent of a majority of its
members at a duly called meeting at which a quorum is present. Subject to
Section II paragraph 4 below, any action of the Audit Committee may be taken by
a written instrument signed by all of the members of the Audit Committee.
Meetings of the Audit Committee may be held at such place or places as the
Audit Committee shall determine or as may be specified or fixed in the
respective notices or waivers of a meeting. Members of the Audit Committee may
participate in Audit Committee proceedings by means of conference telephone or
similar communications equipment by means of which all persons participating in
the proceedings can hear each other.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Director of Internal Audit shall prepare and
distribute an agenda in advance of each meeting. The Audit Committee shall meet
privately in executive session at least annually with management, the Director
of Internal
F-1
Audit, the independent auditors, and as a committee to discuss any matters
that the Audit Committee or any of the foregoing persons believe should be
discussed. In addition, the Audit Committee, or at least its Chair, should
communicate with management and the independent auditors quarterly to review
the Company's financial statements and significant findings based upon the
auditors' limited review procedures prior to public release of information.
Notwithstanding the foregoing, the procedures set forth in this paragraph are
intended as guidelines, to be followed as practicable, and not as mandatory
requirements.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually and
suggest revisions as appropriate. Submit the charter to the Board of Directors
for approval and ensure that the Charter is published at least every three
years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to filing
or distribution. Review shall include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments, as well as the adequacy of internal controls that
could significantly affect the Company's financial statements.
3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial reporting
processes and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such exposures.
Review significant findings prepared by the independent auditors and the
internal auditing department together with management's responses.
4. Review with financial management and the independent auditors the
company's quarterly financial results prior to the release of earnings and/or
the company's quarterly financial statements prior to filing or distribution.
5. Discuss with the independent auditors any significant changes to the
Company's accounting principles and any items required to be communicated by
the independent auditors in accordance with Statement on Accounting Standards
No. 61 as may be modified or supplemented. The Chair of the Committee may
represent the entire Audit Committee for purposes of this review.
Independent Auditors
6. Annually recommend to the Board of Directors the appointment of
independent auditors, which auditors shall ultimately be accountable to the
Audit Committee and the Board of Directors.
7. Review the independence and performance of such auditors and approve any
discharge of auditors when circumstances warrant.
8. Review and approve the fees and other significant compensation to be
paid to the independent auditors.
9. On an annual basis, review and discuss with the independent auditors all
significant relationships they have with the Company that could impair the
auditors' independence and recommend that the Board of Directors take
appropriate action to ensure such independence.
10. Ensure that the independent auditors provide the Audit Committee with
the written disclosures and letter required by Independent Standards Board
Standard No. 1 as may be modified or supplemented and review such disclosures
and letter.
11. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
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12. Obtain from the independent auditor assurance that section 10A of the
Private Securities Litigation Reform Act of 1995 has not been implicated.
Internal Audit Department and Legal Compliance
13. Review the Company's budget, plan, changes in plan, activities,
organizational structure, and qualifications of the internal audit department,
as needed.
14. Review the appointment, performance, and replacement of the senior
internal audit executive.
15. Review significant reports prepared by the Company's internal audit
department together with management's response and follow-up to these reports.
16. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, inquiries received from regulators or governmental agencies and
the response to such inquiries.
Other Audit Committee Responsibilities
17. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission and ensure that such report is included in the
Company's annual proxy statement.
18. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Audit Committee or the Board deems necessary
or appropriate.
19. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Such activities shall remain the responsibility of management and the
independent auditors. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, among management, the
independent auditors or the internal audit department or to assure compliance
with laws and regulations.
F-3
ANNEX G
GART SPORTS COMPANY
1994 MANAGEMENT EQUITY PLAN
1. Background; Purpose. The purpose of this 1994 Management Equity Plan (the
"Plan") is to secure for Gart Sports Company, a Delaware corporation (the
"Company"), and its stockholders the benefits arising from stock ownership by
selected key employees of Gart Bros. Sporting Goods Company, a Colorado
corporation ("Gart Bros"), a wholly-owned subsidiary of the Company, as the
Committee (as hereinafter defined) may from time to time determine. The purpose
of this Plan shall also be to issue stock based awards to compensate the non-
employee and non-affiliate directors of the Company for serving the Company in
their capacity as directors of the Company.
The Company intends that awards of Grant Shares, Purchased Shares and Stock
Options, and the issuance of Common Stock upon exercise of Stock Options
hereunder (all as hereinafter defined), shall constitute the offer and sale of
securities pursuant to a compensatory benefit plan within the meaning of Rule
701 promulgated under the Securities Act of 1933, as amended.
With respect to Stock Options, the Plan will provide a means whereby (i) key
employees may purchase shares of Common Stock of the Company pursuant to Stock
Options that will qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) such employees
may purchase shares of Common Stock of the Company pursuant to "non- incentive"
or "non-qualified" Stock Options.
2. Administration. The Plan shall be administered by the Board of Directors
of the Company, or, in the discretion of the Board, a Committee (in either
case, the "Committee") consisting of two or more directors of the Company to
whom administration of the Plan has been duly delegated; provided, that the
Plan shall be administered by the Board of Directors with respect to any awards
granted under the Plan to any non-employee member of the Board of Directors of
the Company. If the Committee is not the entire Board of Directors, the
Committee shall be appointed by the Board of Directors of the Company.
Notwithstanding anything in the Plan to the contrary, all Stock Options and
other awards shall be granted under the Plan in such a manner so as to qualify
for the exemption provided under Rule 16b-3. Except as otherwise provided in
the Company's Bylaws and action of the Committee with respect to administration
of the Plan shall be taken by a majority vote at which a quorum is duly
constituted or unanimous written consent of the Committee's members.
Subject to the provisions of the Plan, the Committee shall have sole and
final authority (i) to construe and interpret the Plan, (ii) to define the
terms used herein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to make awards of Grant Shares, Purchased Shares and
Stock Options hereunder, (v) to determine the individuals to whom and the time
or times at which such awards shall be made, the number of shares of Common
Stock to be subject to such awards, the vesting of such awards and the other
terms of such awards, (vi) in the case of Stock Options, to determine whether
such Stock Options shall be intended as "incentive stock options" or "non-
incentive" or "nonqualified" Stock Options under Section 422 of the Code, and
(vii) to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants in the Plan and
their legal representatives and beneficiaries.
3. Shares Subject to the Plan. The shares to be allocated under this Plan
shall consist of the Company's authorized but unissued Common Stock, $.01 par
value per share ("Common Stock"). Subject to adjustment as provided in Section
6 hereof, the aggregate number of shares of the Common Stock which may be
allocated to awards made to participants shall not exceed Two Million Five
Hundred Thousand (2,500,000) of such shares (no more than Six Hundred Thousand
(600,000) of which shall be "incentive stock options" under Section 422
G-1
of the Code outstanding at any time). The number of shares of Common Stock on
which Stock 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 of Common Stock issued pursuant to the Plan and
subsequently reacquired by the Company shall be available for reissuance under
the Plan and shares of Common Stock that are subject to Stock Options or other
awards that lapse or terminate without exercise shall be available to be
subject to newly issued Stock Options or awards under the Plan.
4. Eligibility and Participation. All key employees of the Company and each
of its subsidiaries and each of the non-employee and non-affiliate members of
the Board of Directors of the Company shall be eligible for selection to
participate in the Plan (each a "Participant"). The Board of Directors shall,
in its sole discretion, determine those directors who are non-affiliates of the
Company.
5. Awards. A Participant may receive one or more awards hereunder, at any
time and from time to time, as determined by the Committee or, in the case of
awards made to directors of the Company, as determined by the Board of
Directors of the Company. Awards may be in the form of (i) grants of Common
Stock ("Grant Shares"), (ii) permitted purchases of Common Stock ("Purchased
Shares"), or (iii) options to purchase Common Stock ("Stock Options" or any
combination of the foregoing. All awards (x) of Purchased Shares shall be
pursuant to, and shall be subject to the terms and restrictions provided in, a
Management Subscription and Stockholders Agreement substantially in the form
attached to this Plan as Exhibit "A"; or in such other form as may be approved
by the Committee, (y) of Stock Options to employees of the Company shall be
pursuant to, shall be subject to the terms and restrictions provided in, either
an Employee Stock Option Agreement substantially in the form attached to this
Plan as Exhibit "B-1" or an Executive Management Stock Option Agreement
substantially in the form attached to this Plan as Exhibit "B-2" and (z) of (1)
Grant Shares or (2) to members of the Board of Directors of the Company shall
be subject to the terms and restrictions provided in agreements relating to
such awards as determined by the Committee. Subject to the terms of this Plan,
the Committee shall determine the exact terms and restrictions included in each
of the foregoing agreements, as applicable, with respect to each award to a
Participant; provided that, in the case of awards to members of the Board of
Directors of the Company, the Board of Directors shall determine such terms and
restrictions.
6. Provisions Applicable to Incentive Stock Options. No Stock Option
intended as an "incentive stock option" within the meaning of Section 422 of
the Code shall be granted to any person who owns shares of the Company's or any
of its parent or subsidiary corporation's outstanding Common Stock or such
other capital stock as may hereinafter be issued by the Company or any of its
parent or subsidiary corporations possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any of
such corporations, unless the purchase price of such Stock Option is at least
one hundred ten percent (110%) of the per share fair market value of the Common
Stock on the date the Stock Option is granted and such Stock Option by its
terms is not exercisable after the expiration of five (5) years from the date
such Stock Option is granted. In addition, no Stock Option intended as an
"incentive stock option" shall be issued to any Participant with a purchase
price of less than one hundred percent (100%) of the per share fair market
value of the Common Stock on the date the Stock Option is granted or with a
term of longer than ten (10) years from the date such Stock Option is granted.
If a holder of an "incentive stock option" ceases to be employed by Gart
Bros., the Company or another subsidiary of the Company for any reason other
than the option holder's death or permanent disability (within the meaning of
Section 22(e)(3) of the code), the option holder's "incentive stock option"
shall not be entitled to incentive treatment under the Code if exercised after
more than three months after the date the option holder ceased to be an
employee of one of such corporations (unless by its terms such Stock Option
sooner expires). If a holder of an "incentive stock option" ceases to be
employed by Gart Bros., the Company or another subsidiary of the Company on
account of death or permanent disability (within the meaning of Section
22(e)(3) of the Code), such Stock Option shall not be entitled to incentive
treatment under the Code if exercised after
G-2
one year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, any vested unexercised
portion of the Stock Option may be exercised by the person or persons to whom
the option holder's rights under the Stock Option shall pass by will or the
laws of descent and distribution.
To the extent that the aggregate fair market value of Common Stock or other
capital stock with respect to which "incentive stock options" are exercisable
for the first time by any individual during any calendar year (under all plans
of the Company and its parent and subsidiary corporations) exceeds $100,000,
such Stock Options shall be treated as Stock Options which are not "incentive
stock options."
7. Adjustments. If the outstanding shares of the Common Stock of the Company
are increased, decreased, changed into or exchanged for a different number or
kind or shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares which may be awarded under this Plan.
Adjustments under this paragraph 7 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
8. Amendment and Termination of Plan. The Committee may at any time suspend
or terminate the Plan. The Committee may also at any time amend or revise the
terms of the Plan.
Notwithstanding the foregoing, no amendment, suspension or termination of
the Plan that would materially adversely affect any rights or obligations of
any Participant under any management Subscription and Stockholders Agreement,
Management Stock Option and Stockholders Agreement, Employee Stock Option
Agreement or Executive Management Stock Option Agreement shall be effective as
to such Participant unless there shall have been specific action of the
Committee and consent of the Participant.
9. No Employment Rights. The selection of any person to receive an award
under this Plan shall not give such person any right to be retained in the
employment of Gart Bros., the Company or any of their affiliates and the right
and the power of the Gart Bros. to discharge the Company or any of their
affiliates and the right and the power of the Gart Bros. to discharge any such
person shall not be affected by such award. No person shall have any right or
claim whatever, directly, indirectly or by implication, to receive an award,
nor any expectancy thereof, unless and until an award in fact shall have been
made to such person by the committee as provided herein. The award to any
person hereunder at any time shall not create any right or implication that any
other or further award may or shall be made at another time. Each award
hereunder shall be separate and distinct from every other award and shall not
be construed as a part of any continuing services of awards or compensation.
10. Plan Not Exclusive. The Plan is not exclusive. The Company may have
other plans, programs and arrangements for compensation or the issuance of
shares or options. The Plan does not require that participants hereunder be
precluded from participation in such other plans, programs and arrangements.
11. Term. The term of this Plan shall commence as of September 30, 1994 and
shall expire September 30, 2004, unless earlier terminated by the Committee.
G-3
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify officers and directors for actions taken in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the corporation, and with respect to any criminal action that they had no
reasonable cause to believe was unlawful.
Gart's amended and restated certificate of incorporation and amended and
restated bylaws provide that any person who was or is a party or is threatened
to be a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, because that person is or was
a director or officer of Gart, or is or was serving at the request of Gart as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, will be indemnified
against expenses, including attorney's fees, judgments, fines and amounts paid
in settlement and will be held harmless by Gart to the fullest extent permitted
by the Delaware General Corporation Law.
The indemnification rights conferred by Gart are not exclusive of any other
right to which persons seeking indemnification may be entitled under any
statute, Gart's amended and restated certificate of incorporation, Gart's
amended and restated bylaws, any agreement, any vote of stockholders or
disinterested directors, or otherwise.
In addition, Gart may pay expenses incurred by its respective directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the final disposition of
that action, suit or proceeding. However, such payment will be made only if
Gart receives an undertaking by or on behalf of that director or officer to
repay all amounts advanced if it is ultimately determined that he or she is not
entitled to be indemnified by Gart, as authorized by Gart's amended and
restated certificate of incorporation and amended and restated bylaws.
Item 21. Exhibits and Financial Statement Tables
(a) Exhibits
Number Description
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2.1 Agreement and Plan of Merger, dated as of February 21, 2001, by and
among the Registrant, GSC Acquisition Corp. and Oshman's Sporting
Goods, Inc. (included in Joint Proxy Statement-Prospectus as Annex A).
The Registrant agrees to furnish a supplemental copy of the omitted
schedules to the Securities and Exchange Commission upon request.
4.1 Registrant's Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-4, File No. 333-42355).
5.1 Opinion of Irell & Manella LLP, as to legality of the securities being
registered.*
8.1 Tax Opinion of Deloitte & Touche LLP. *
8.2 Tax Opinion of Grant Thornton LLP.*
10.1 Financing Agreement, dated as of January 9, 1998, by and among The CIT
Group/Business Credit, Inc. (as Agent and Lender), and Gart Bros.
Sporting Goods Company and Sportmart, Inc. (incorporated by reference
to Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed
on January 13, 1998).
10.2 Form of Registration Rights Agreement, by and among the Registrant,
Green Equity Investors, L.P. and certain former shareholders of
Sportmart, Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4, File No. 333-42355).
II-1
Number Description
------ -----------
10.3 Registration Rights Agreement, dated as of January 9, 1998, by and
between the Registrant and Green Equity Investors, L.P. (incorporated
by reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K, filed on January 13, 1998).
10.4 Registrant's 1994 Management Equity Plan (incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.4a Amendment to Registrant's 1994 Management Equity Plan (incorporated by
reference to Exhibit A to the Registrant's Schedule 14A, filed on May
7, 1999).
10.5 Registrant's Employee Benefit Plan (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.6 Form of Executive Severance Agreements, by and between Registrant and
certain of its executive officers (incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999, filed on April 29, 1999).
10.7 Consulting Agreement, by and among Gart Bros. Sporting Goods Company,
Sportmart, Inc. and Larry J. Hochberg (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.8 Consulting Agreement, by and among Gart Bros. Sporting Goods Company,
Sportmart, Inc. and Andrew S. Hochberg (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.9 Management Services Agreement, dated as of April 20, 1994, by and among
the Registrant, Gart Bros. Sporting Goods Company and Leonard Green &
Associates, L.P. (incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-4, File No. 333-42355).
10.10 Tax Indemnity Agreement, dated as of September 25, 1992, by and among
Pacific Enterprises, TCH Corporation, Thrifty Corporation and Big 5
Holdings, Inc. (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, File No. 33-69118).
10.11 Tax Sharing Agreement, dated as of September 25, 1992, by and among TCH
Corporation and its then subsidiaries, including the Registrant
(incorporated by reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form S-4, File No. 333-42355).
10.12 Indemnification Allocation Agreement, dated as of April 20, 1994, by
and among Thrifty PayLess Holdings, Inc., the Registrant and MC Sports
Company (incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-4, File No. 333-42355).
10.13 Indemnification and Reimbursement Agreement, dated as of April 20,
1994, by and among Thrifty PayLess Holdings, Inc. and its then
subsidiaries, including the Registrant (incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.14 Sportmart, Inc. 1996 Restricted Stock Plan, as amended and restated
(incorporated by reference to Exhibit 10.40 to Sportmart, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 28, 1996,
filed on September 11, 1996).
10.15 Sportmart, Inc. Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to Sportmart, Inc.'s Registration Statement
on Form S-1, File No. 33-50726).
10.16 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 32490, for the Sportmart
store in Calumet City, Illinois, as amended (incorporated by reference
to Exhibit 10.6 to Sportmart, Inc.'s Registration Statement on Form S-
1, File No. 33-50726).
II-2
Number Description
------ -----------
10.17 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 54277, for the Sportmart
store in Chicago (Lakeview), Illinois, as amended (incorporated by
reference to Exhibit 10.8 to Sportmart, Inc.'s Registration Statement
on Form S-1, File No. 33-50726).
10.18 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 56691, for the Sportmart
store in Wheeling, Illinois, as amended (incorporated by reference to
Exhibit 10.9 to Sportmart, Inc.'s Registration Statement on Form S-1,
File No. 33-50726).
10.19 Lease, by and between Sportmart, Inc. and Lake County Trust Company, as
Trustee under Trust No. 3737, for the Sportmart store in Merrillville,
Indiana, as amended (incorporated by reference to Exhibit 10.10 to
Sportmart, Inc.'s Registration Statement on Form S-1, File No. 33-
50726).
10.20 Lease, by and between Sportmart, Inc. and North Riverside Limited
Partnership for the facility in North Riverside, Illinois, as amended
(incorporated by reference to Exhibit 10.11 to Sportmart, Inc.'s
Registration Statement on Form S-1, File No. 33-50726).
10.21 Lease, by and between Sportmart, Inc. No Contest division and North
County Associates, L.P. for the Sportmart No Contest store in Ferguson,
Missouri, as amended (incorporated by reference to Exhibit 10.12 to
Sportmart, Inc.'s Registration Statement on Form S-1, File No. 33-
50726).
10.22 Agency Agreement, dated as of January 15, 1997, by and between
Sportmart, Inc. and Hilco/Great American Group (incorporated by
reference to Exhibit 10.41 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
10.23 First Amendment to Lease, dated as of May 1, 1994, by and between
Sportmart, Inc. and Roosevelt Associates Limited Partnership for the
Sportmart store at Lombard, Illinois (incorporated by reference to
Exhibit 10.45 to Sportmart, Inc.'s Annual Report on Form 10-K for the
fiscal year ended February 2, 1997, filed on May 5, 1997).
10.24 Lease, dated as of September 1, 1994, by and between Sportmart, Inc.
and American National Bank and Trust Company of Chicago as Trustee
under Trust No. 42371, for the Sportmart store in Schaumburg, Illinois
(incorporated by reference to Exhibit 10.46 to Sportmart, Inc.'s Annual
Report on Form 10-K for the fiscal year ended February 2, 1997, filed
on May 5, 1997).
10.24a Amendment to Lease, by and between Sportmart, Inc. and American
National Bank and Trust Company, as Trustee under Trust No. 42371, for
the Sportmart Store in Schaumberg, Illinois, as amended (incorporated
by reference to Exhibit 10.22a to the Registrant's Report on Form 10-K
for the fiscal year ended January 29, 2000, filed on April 20, 2000).
10.25 Lease, dated as of January 1, 1995, by and between Sportmart, Inc. and
H-C Developers, as Agent for American National Bank and Trust Company
of Chicago, as Trustee under Trust No. 30426, for the Sportmart store
in Niles, Illinois (incorporated by reference to Exhibit 10.47 to
Sportmart, Inc.'s Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, filed on May 5, 1997).
10.26 First Amendment to Lease, dated as of November 1, 1995, by and between
Sportmart, Inc. and Merrillville Partners Limited Partnership for the
Sportmart store in Merrillville, Illinois (incorporated by reference to
Exhibit 10.48 to Sportmart, Inc.'s Annual Report on Form 10-K for the
fiscal year ended February 2, 1997, filed on May 5, 1997).
10.27 Second Amendment to Lease, dated as of March 31, 1996, by and between
Sportmart, Inc. and North Riverside Associates Limited Partnership for
the Sportmart store in North Riverside, Illinois (incorporated by
reference to Exhibit 10.49 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
II-3
Number Description
------ -----------
10.28 Third Amendment to Lease, dated as of April 23, 1996, by and between
Sportmart, Inc. and Torrence Properties for the Sportmart store in
Calumet City, Illinois (incorporated by reference to Exhibit 10.51 to
Sportmart, Inc.'s Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, filed on May 5, 1997).
10.29 Third Amendment to Lease, dated as of April 23, 1996, by and between
Sportmart, Inc. and North Riverside Associates Limited Partnership for
the Sportmart store in North Riverside, Illinois (incorporated by
reference to Exhibit 10.50 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
10.30 Post-Employment Medical Benefits Plan for Larry Hochberg, dated as of
March 8, 1996 (incorporated by reference to Exhibit 10.53 to Sportmart,
Inc.'s Annual Report on Form 10-K for the fiscal year ended February 2,
1997, filed on May 5, 1997).
10.31 Deferred Compensation Plan of Gart Bros. Sporting Goods Company, dated
January 1, 1999 (incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000, filed on April 20, 2000).
10.32 Form of Voting Agreement, by and among the Registrant, GSC Acquisition
Corp. and certain stockholders of Oshman's Sporting Goods, Inc.
(included in Joint Proxy Statement-Prospectus as Annex B).
10.33 Form of Voting Agreement, by and among the Registrant, GSC Acquisition
Corp. and certain stockholders of Oshman's Sporting Goods, Inc.
(included in Joint Proxy Statement-Prospectus as Annex B).
10.34 Form of Registration Rights Agreement, by and among the Registrant and
certain stockholders of Oshman's Sporting Goods, Inc. (included in
Joint Proxy Statement-Prospectus as Annex C).
10.35 Form of Consulting Agreement, by and between Gart Bros. Sporting Goods
Company and Alvin N. Lubetkin.
10.36 Form of Consulting Agreement, by and between Gart Bros. Sporting Goods
Company and Marilyn Oshman.
10.37 Form of Indemnification Agreement, by and between the Registrant and
certain shareholders of Oshman's Sporting Goods, Inc.
16.1 Letter from KPMG LLP regarding a change in certified accountant
(incorporated by reference to Exhibit 16.1 to the Registrant's Current
Report on Form 8-K, filed on May 23, 2000).
23.1 Consent of Irell & Manella LLP (included in Exhibit 5.1).*
23.2 Consent of Deloitte & Touche LLP (included in Exhibit 8.1).*
23.3 Consent of Grant Thornton LLP (included in Exhibit 8.2).*
23.4 Consent of Deloitte & Touche LLP (relating to financial statements of
Registrant).
23.5 Consent of KPMG LLP (relating to financial statements of Registrant).
23.6 Consent of Grant Thornton LLP (relating to financial statements of
Oshman's Sporting Goods, Inc.).
23.7 Consent of Marilyn Oshman.
23.8 Consent of Alvin N. Lubetkin.
II-4
Number Description
------ -----------
24.1 Power of attorney (included on the signature page of this Registration
Statement on Form S-4 and incorporated herein by reference).
99.1 Form of Proxy Card for Annual Meeting of Stockholders of Registrant.
99.2 Form of Proxy Card for Special Meeting of Stockholders of Oshman's
Sporting Goods, Inc.
*to be filed by amendment
(b)Financial Statement Schedules
none
(c)Reports, Opinions and Appraisals
none
II-5
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10 (a) (3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed in its behalf by the
undersigned, thereunto duly authorized in the city of Denver, state of
Colorado, on April 17, 2001.
GART SPORTS COMPANY
/s/ John Douglas Morton
By___________________________________
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints John Douglas Morton and Thomas T.
Hendrickson and each of them, his or her true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof. This power of attorney
may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John Douglas Morton Chairman, President and April 17, 2001
____________________________________ Chief Executive Officer and
John Douglas Morton Director (principal
executive officer)
/s/ Thomas T. Hendrickson Executive Vice President, April 17, 2001
____________________________________ Chief Financial Officer and
Thomas T. Hendrickson Treasurer (principal
financial and accounting
officer)
/s/ Jonathan D. Sokoloff Director April 17, 2001
____________________________________
Jonathan D. Sokoloff
/s/ Jonathan A. Seiffer Director April 17, 2001
____________________________________
Jonathan A. Seiffer
/s/ Gordon D. Barker Director April 17, 2001
____________________________________
Gordon D. Barker
/s/ Peter R. Formanek Director April 17, 2001
____________________________________
Peter R. Formanek
/s/ Larry J. Hochberg Director April 17, 2001
____________________________________
Larry J. Hochberg
EXHIBIT INDEX
Number Description
------ -----------
2.1 Agreement and Plan of Merger, dated as of February 21, 2001, by and
among the Registrant, GSC Acquisition Corp. and Oshman's Sporting
Goods, Inc. (included in Joint Proxy Statement-Prospectus as Annex A).
The Registrant agrees to furnish a supplemental copy of the omitted
schedules to the Securities and Exchange Commission upon request.
4.1 Registrant's Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-4, File No. 333-42355).
5.1 Opinion of Irell & Manella LLP, as to legality of the securities being
registered.*
8.1 Tax Opinion of Deloitte & Touche LLP. *
8.2 Tax Opinion of Grant Thornton LLP.*
10.1 Financing Agreement, dated as of January 9, 1998, by and among The CIT
Group/Business Credit, Inc. (as Agent and Lender), and Gart Bros.
Sporting Goods Company and Sportmart, Inc. (incorporated by reference
to Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed
on January 13, 1998).
10.2 Form of Registration Rights Agreement, by and among the Registrant,
Green Equity Investors, L.P. and certain former shareholders of
Sportmart, Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4, File No. 333-42355).
10.3 Registration Rights Agreement, dated as of January 9, 1998, by and
between the Registrant and Green Equity Investors, L.P. (incorporated
by reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K, filed on January 13, 1998).
10.4 Registrant's 1994 Management Equity Plan (incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.4a Amendment to Registrant's 1994 Management Equity Plan (incorporated by
reference to Exhibit A to the Registrant's Schedule 14A, filed on May
7, 1999).
10.5 Registrant's Employee Benefit Plan (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.6 Form of Executive Severance Agreements, by and between Registrant and
certain of its executive officers (incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999, filed on April 29, 1999).
10.7 Consulting Agreement, by and among Gart Bros. Sporting Goods Company,
Sportmart, Inc. and Larry J. Hochberg (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.8 Consulting Agreement, by and among Gart Bros. Sporting Goods Company,
Sportmart, Inc. and Andrew S. Hochberg (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.9 Management Services Agreement, dated as of April 20, 1994, by and among
the Registrant, Gart Bros. Sporting Goods Company and Leonard Green &
Associates, L.P. (incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-4, File No. 333-42355).
10.10 Tax Indemnity Agreement, dated as of September 25, 1992, by and among
Pacific Enterprises, TCH Corporation, Thrifty Corporation and Big 5
Holdings, Inc. (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, File No. 33-69118).
1
Number Description
------ -----------
10.11 Tax Sharing Agreement, dated as of September 25, 1992, by and among TCH
Corporation and its then subsidiaries, including the Registrant
(incorporated by reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form S-4, File No. 333-42355).
10.12 Indemnification Allocation Agreement, dated as of April 20, 1994, by
and among Thrifty PayLess Holdings, Inc., the Registrant and MC Sports
Company (incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-4, File No. 333-42355).
10.13 Indemnification and Reimbursement Agreement, dated as of April 20,
1994, by and among Thrifty PayLess Holdings, Inc. and its then
subsidiaries, including the Registrant (incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on Form S-4,
File No. 333-42355).
10.14 Sportmart, Inc. 1996 Restricted Stock Plan, as amended and restated
(incorporated by reference to Exhibit 10.40 to Sportmart, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 28, 1996,
filed on September 11, 1996).
10.15 Sportmart, Inc. Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to Sportmart, Inc.'s Registration Statement
on Form S-1, File No. 33-50726).
10.16 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 32490, for the Sportmart
store in Calumet City, Illinois, as amended (incorporated by reference
to Exhibit 10.6 to Sportmart, Inc.'s Registration Statement on Form S-
1, File No. 33-50726).
10.17 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 54277, for the Sportmart
store in Chicago (Lakeview), Illinois, as amended (incorporated by
reference to Exhibit 10.8 to Sportmart, Inc.'s Registration Statement
on Form S-1, File No. 33-50726).
10.18 Lease, by and between Sportmart, Inc. and American National Bank and
Trust Company, as Trustee under Trust No. 56691, for the Sportmart
store in Wheeling, Illinois, as amended (incorporated by reference to
Exhibit 10.9 to Sportmart, Inc.'s Registration Statement on Form S-1,
File No. 33-50726).
10.19 Lease, by and between Sportmart, Inc. and Lake County Trust Company, as
Trustee under Trust No. 3737, for the Sportmart store in Merrillville,
Indiana, as amended (incorporated by reference to Exhibit 10.10 to
Sportmart, Inc.'s Registration Statement on Form S-1, File No. 33-
50726).
10.20 Lease, by and between Sportmart, Inc. and North Riverside Limited
Partnership for the facility in North Riverside, Illinois, as amended
(incorporated by reference to Exhibit 10.11 to Sportmart, Inc.'s
Registration Statement on Form S-1, File No. 33-50726).
10.21 Lease, by and between Sportmart, Inc. No Contest division and North
County Associates, L.P. for the Sportmart No Contest store in Ferguson,
Missouri, as amended (incorporated by reference to Exhibit 10.12 to
Sportmart, Inc.'s Registration Statement on Form S-1, File No. 33-
50726).
10.22 Agency Agreement, dated as of January 15, 1997, by and between
Sportmart, Inc. and Hilco/Great American Group (incorporated by
reference to Exhibit 10.41 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
10.23 First Amendment to Lease, dated as of May 1, 1994, by and between
Sportmart, Inc. and Roosevelt Associates Limited Partnership for the
Sportmart store at Lombard, Illinois (incorporated by reference to
Exhibit 10.45 to Sportmart, Inc.'s Annual Report on Form 10-K for the
fiscal year ended February 2, 1997, filed on May 5, 1997).
2
Number Description
------ -----------
10.24 Lease, dated as of September 1, 1994, by and between Sportmart, Inc.
and American National Bank and Trust Company of Chicago as Trustee
under Trust No. 42371, for the Sportmart store in Schaumburg, Illinois
(incorporated by reference to Exhibit 10.46 to Sportmart, Inc.'s Annual
Report on Form 10-K for the fiscal year ended February 2, 1997, filed
on May 5, 1997).
10.24a Amendment to Lease, by and between Sportmart, Inc. and American
National Bank and Trust Company, as Trustee under Trust No. 42371, for
the Sportmart Store in Schaumberg, Illinois, as amended (incorporated
by reference to Exhibit 10.22a to the Registrant's Report on Form 10-K
for the fiscal year ended January 29, 2000, filed on April 20, 2000).
10.25 Lease, dated as of January 1, 1995, by and between Sportmart, Inc. and
H-C Developers, as Agent for American National Bank and Trust Company
of Chicago, as Trustee under Trust No. 30426, for the Sportmart store
in Niles, Illinois (incorporated by reference to Exhibit 10.47 to
Sportmart, Inc.'s Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, filed on May 5, 1997).
10.26 First Amendment to Lease, dated as of November 1, 1995, by and between
Sportmart, Inc. and Merrillville Partners Limited Partnership for the
Sportmart store in Merrillville, Illinois (incorporated by reference to
Exhibit 10.48 to Sportmart, Inc.'s Annual Report on Form 10-K for the
fiscal year ended February 2, 1997, filed on May 5, 1997).
10.27 Second Amendment to Lease, dated as of March 31, 1996, by and between
Sportmart, Inc. and North Riverside Associates Limited Partnership for
the Sportmart store in North Riverside, Illinois (incorporated by
reference to Exhibit 10.49 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
10.28 Third Amendment to Lease, dated as of April 23, 1996, by and between
Sportmart, Inc. and Torrence Properties for the Sportmart store in
Calumet City, Illinois (incorporated by reference to Exhibit 10.51 to
Sportmart, Inc.'s Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, filed on May 5, 1997).
10.29 Third Amendment to Lease, dated as of April 23, 1996, by and between
Sportmart, Inc. and North Riverside Associates Limited Partnership for
the Sportmart store in North Riverside, Illinois (incorporated by
reference to Exhibit 10.50 to Sportmart, Inc.'s Annual Report on Form
10-K for the fiscal year ended February 2, 1997, filed on May 5, 1997).
10.30 Post-Employment Medical Benefits Plan for Larry Hochberg, dated as of
March 8, 1996 (incorporated by reference to Exhibit 10.53 to Sportmart,
Inc.'s Annual Report on Form 10-K for the fiscal year ended February 2,
1997, filed on May 5, 1997).
10.31 Deferred Compensation Plan of Gart Bros. Sporting Goods Company, dated
January 1, 1999 (incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000, filed on April 20, 2000).
10.32 Form of Voting Agreement, by and among the Registrant, GSC Acquisition
Corp. and certain stockholders of Oshman's Sporting Goods, Inc.
(included in Joint Proxy Statement-Prospectus as Annex B).
10.33 Form of Voting Agreement, by and among the Registrant, GSC Acquisition
Corp. and certain stockholders of Oshman's Sporting Goods, Inc.
(included in Joint Proxy Statement-Prospectus as Annex B).
3
Number Description
------ -----------
10.34 Form of Registration Rights Agreement, by and among the Registrant and
certain stockholders of Oshman's Sporting Goods, Inc. (included in
Joint Proxy Statement-Prospectus as Annex C).
10.35 Form of Consulting Agreement, by and between Gart Bros. Sporting Goods
Company and Alvin N. Lubetkin.
10.36 Form of Consulting Agreement, by and between Gart Bros. Sporting Goods
Company and Marilyn Oshman.
10.37 Form of Indemnification Agreement, by and between the Registrant and
certain shareholders of Oshman's Sporting Goods, Inc.
16.1 Letter from KPMG LLP regarding a change in certified accountant
(incorporated by reference to Exhibit 16.1 to the Registrant's Current
Report on Form 8-K, filed on May 23, 2000).
23.1 Consent of Irell & Manella LLP (included in Exhibit 5.1).*
23.2 Consent of Deloitte & Touche LLP (included in Exhibit 8.1).*
23.3 Consent of Grant Thornton LLP (included in Exhibit 8.2).*
23.4 Consent of Deloitte & Touche LLP (relating to financial statements of
Registrant).
23.5 Consent of KPMG LLP (relating to financial statements of Registrant).
23.6 Consent of Grant Thornton LLP (relating to financial statements of
Oshman's Sporting Goods, Inc.).
23.7 Consent of Marilyn Oshman.
23.8 Consent of Alvin N. Lubetkin.
24.1 Power of attorney (included on the signature page of this Registration
Statement on Form S-4 and incorporated herein by reference).
99.1 Form of Proxy Card for Annual Meeting of Stockholders of Registrant.
99.2 Form of Proxy Card for Special Meeting of Stockholders of Oshman's
Sporting Goods, Inc.
--------
* to be filed by amendment
4