[GRAPHIC MISSING]
GALYANS
SPORTS & OUTDOOR
ONE GALYANS PARKWAY
PLAINFIELD, INDIANA 46168
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Galyan's Trading Company, Inc., which will be held at the Company's
headquarters at One Galyans Parkway, Plainfield, Indiana 46168 on Friday, May
21, 2004 at 9:00 a.m., local time.
At the Annual Meeting, holders of common stock will vote upon the
election of twelve directors, the approval of grants of equity awards to our
Chief Executive Officer, and an amendment to our stock option plan. The attached
proxy statement contains information about these and other matters pertaining to
the Annual Meeting.
Whether or not you plan to attend, you can ensure that your shares are
represented at the meeting by promptly voting and submitting your proxy by
completing, executing and returning the enclosed proxy card.
I hope you will be able to attend the Annual Meeting and look forward
to seeing you on May 21, 2004.
/S/ EDWIN J. HOLMAN
Edwin J. Holman
CHIEF EXECUTIVE OFFICER
April 30, 2004
GALYAN'S TRADING COMPANY, INC.
ONE GALYANS PARKWAY
PLAINFIELD, INDIANA 46168
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2004
Galyan's Trading Company, Inc. will hold its Annual Meeting of
Shareholders on Friday, May 21, 2004 at One Galyans Parkway, Plainfield, Indiana
46168 at 9:00 a.m., local time, for the following purposes:
1. To elect twelve directors;
2. To consider approval of a stock option grant to our Chief Executive
Officer;
3. To consider approval of a restricted stock grant to our Chief
Executive Officer;
4. To consider approval of amendments to our stock option plan; and
5. To transact such other business as may properly come before the
meeting.
Only shareholders who owned stock at the close of business on March 29,
2004 can vote at this meeting or any adjournments that may take place. Even
though you may plan to attend the meeting, we ask that you vote your shares by
signing and dating the enclosed proxy card, and returning it without delay in
the enclosed postage-paid envelope. If you attend the meeting, you may withdraw
your proxy and vote in person.
Please vote your shares promptly so that your shares may be present at
the meeting.
By Order of the Board of Directors,
/S/ C. DAVID ZOBA
C. David Zoba
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
April 30, 2004
GALYAN'S TRADING COMPANY, INC.
ONE GALYANS PARKWAY
PLAINFIELD, INDIANA 46168
PROXY STATEMENT
GENERAL
We are sending you this proxy statement as part of a solicitation by
the Board of Directors (the "Board") of Galyan's Trading Company, Inc.
("Galyan's") for use at our 2004 Annual Meeting of Shareholders. We will hold
the meeting on Friday, May 21, 2004 at One Galyans Parkway, Plainfield, Indiana
46168, starting at 9:00 a.m., local time.
We will mail this proxy statement and accompanying proxy card on or
about April 30, 2004 to all of our shareholders entitled to vote at the meeting.
Unless the context otherwise requires, the terms "us," "we," "our" and "Company"
refer to Galyan's and its subsidiaries.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE MEETING
Q: WHY AM I RECEIVING THESE MATERIALS?
A: The Board is providing these proxy materials to you in connection with
the Annual Meeting of Shareholders, which will take place on May 21,
2004. As the owner of shares on the Record Date for the meeting (as
defined below), you are invited to attend the meeting and are entitled
to and requested to vote on the matters described in this proxy
statement.
Q: WHAT INFORMATION IS CONTAINED IN THESE MATERIALS?
A: This proxy statement includes information on the nominees for election
for director, a proposal to approve a stock option agreement with our
Chief Executive Officer, a proposal to approve a restricted stock grant
to our Chief Executive Officer and a proposal to approve amendments to
our stock option plan. The proxy statement also includes information on
the voting process and requirements, the compensation of directors and
some of our executive officers, and certain other required information.
Q: WHO CAN ATTEND THE MEETING?
A: All holders of shares of our common stock outstanding as of the close
of business on March 29, 2004 (the "Record Date") may attend.
Q: WHAT CAN I VOTE ON AT THE MEETING?
A: There are four matters scheduled to be voted on at the meeting:
(1) The election of twelve directors to our Board, each of whom will
serve a one-year term and until their successors are elected and
qualified;
(2) The approval of a grant, made outside of our stock option plan, to
our Chief Executive Officer of 100,000 options to acquire our
common stock;
1
(3) The approval of a grant of 50,000 restricted shares of common
stock; and
(4) The approval of amendments to our stock option plan which
authorize, in addition to the issuance of options, the issuance of
restricted stock and other awards to our employees.
Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THESE MATTERS?
A: Our Board recommends that you vote your shares FOR each of the four
matters scheduled to be voted on at the meeting.
Q: WHAT CLASSES OF SHARES ARE ENTITLED TO BE VOTED?
A: Each share of our common stock outstanding on the Record Date is
entitled to vote on all items being voted on at the meeting. On the
Record Date, we had 17,362,368 shares of common stock outstanding.
Q: WHAT SHARES CAN I VOTE?
A: You can vote all the shares that you owned on the Record Date. These
shares include: (1) shares held directly in your name as the
shareholder of record, (2) shares held for you as the beneficial owner
through a stockbroker, bank or other nominee and (3) for current or
former Galyan's employees, shares attributed to your account in the
Galyan's Trading Company Savings and Retirement Plan (the "Savings
Plan"). If you are an employee of Galyan's who has purchased shares
under the Galyan's Employee Stock Purchase Plan ("ESPP"), and you hold
those shares in the brokerage account established under the ESPP, those
shares are held for you as beneficial owner through the administrator
of the ESPP.
Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF
RECORD AND AS A BENEFICIAL OWNER?
A: Most of our shareholders hold their shares through a stockbroker, bank
or other nominee rather than directly in their own name. As summarized
below, there are some distinctions between shares held of record and
those owned beneficially. (For information for holders of shares
attributed to a Savings Plan account, see "How do I provide voting
instructions for shares in my Savings Plan account?" below.)
SHAREHOLDER OF RECORD
If your shares are registered in your name with our transfer agent,
U.S. Stock Transfer Corporation, you are considered a shareholder of
record with respect to those shares, and you are receiving these proxy
materials directly from us. As the shareholder of record, you have the
right to grant your voting proxy directly to us or to vote in person at
the meeting. We have enclosed a proxy card for you to use.
BENEFICIAL OWNER
If your shares are held in a stock brokerage account, by a bank or
other nominee (commonly referred to as being held in "street name"),
you are considered to be the beneficial owner of those shares, and
these proxy materials are being forwarded to you by your broker, bank
or nominee as the shareholder of record. As the beneficial owner, you
have the right to direct your broker, bank or other nominee how to vote
your shares and are also invited to attend the meeting. However, since
you are not the shareholder of record, you may not vote your shares in
person at the meeting unless you obtain a signed proxy from the record
holder giving you the right to vote the shares. Your broker or nominee
has enclosed or provided a voting instruction card for you to use in
directing the broker or nominee how to vote your shares. As indicated
above, if you are an employee of Galyan's who has purchased shares
under the
2
Galyan's ESPP, you are considered the beneficial owner of the shares in
the brokerage account established under the ESPP.
Q: HOW DO I VOTE?
A: For holders of record and beneficial owners, there are two ways that
you can vote:
(1) You can sign and date each proxy card that you receive and return
it in the prepaid envelope that comes with the proxy card.
(2) If you are a shareholder of record, you can vote in person at the
meeting. If you are the beneficial owner, and not the shareholder
of record, and you wish to vote your shares in person at the
meeting, you must notify your broker, bank or other nominee and
obtain a signed proxy from the shareholder of record giving you the
right to vote the shares.
Q: HOW DO I PROVIDE VOTING INSTRUCTIONS FOR SHARES IN MY SAVINGS PLAN
ACCOUNT?
A: If you have shares attributed to your account in the Savings Plan, you
have the right to direct the plan trustee how to vote the shares
attributed to your account. The plan trustee has enclosed or provided a
voting instruction card (which looks similar to the proxy card) for you
to use in directing the trustee how to vote the shares in your account.
You can sign and date the voting instruction card that you receive and
return it in the prepaid envelope that comes with the voting
instruction card. The deadline, or cut-off date, for providing voting
instructions to the plan trustee is 11:59 p.m. Eastern Time, May 18,
2004. If your instructions are not received by that date, the trustee
will not vote the shares attributed to your account.
Q: CAN I CHANGE MY VOTE OR REVOKE MY PROXY?
A: Yes. You can revoke your proxy. To do this, you must do one of the
following before the votes are cast at the meeting: (1) deliver a
written notice of your revocation to our Corporate Secretary at our
principal executive office, One Galyans Parkway, Plainfield, Indiana
46168, and (2) execute and deliver a later dated proxy. Alternatively,
you can attend the meeting and vote in person.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means that you hold shares registered in more than one account
(including shares attributed to your Savings Plan account). Sign and
return each proxy card that you get to ensure that all of your shares
are voted.
Q: WHAT IS THE QUORUM REQUIREMENT FOR THE MEETING?
A: For a "quorum" to exist at the meeting, shareholders holding a majority
of the votes entitled to be cast by the shareholders entitled to vote
generally must be present in person or represented by proxy at the
meeting. There must be a quorum for any action to be taken at the
meeting (other than adjournment or postponement of the meeting). If you
submit a properly executed proxy card, even if you abstain from voting,
then your shares will be counted for purposes of determining the
presence of a quorum. If a broker indicates on a proxy that it lacks
discretionary authority as to certain shares to vote on a particular
matter, commonly referred to as "broker non-votes," those shares will
still be counted for purposes of determining the presence of a quorum
at the meeting.
3
Q: HOW CAN I VOTE?
A: In the election of directors, you may vote FOR all of the nominees, or
your vote may be WITHHELD with respect to one or more of the nominees.
For the other matters, you may vote FOR or AGAINST the matter, or you
may indicate that you wish to ABSTAIN from voting on the matter.
Q: HOW WILL THE VOTES BE COUNTED?
A: Your shares of common stock will be voted according to your directions
on the proxy card, or broker voting instruction card. If you sign your
proxy card or broker voting instruction card with no further
instructions, your shares will be voted in accordance with the
recommendations of our Board (FOR all director nominees named in the
proxy statement, FOR the approval of the option grant to our Chief
Executive Officer, FOR the approval of the restricted stock grant to
our Chief Executive Officer, and FOR the amendments to our stock option
plan). If you ABSTAIN on a particular matter, your shares will not be
counted in the vote with respect to that matter.
Q: WHO WILL COUNT THE VOTES?
A: We have appointed three individuals to serve as inspectors of election
for the meeting. The election inspectors will determine the presence of
a quorum, tabulate votes, certify the results of the election and take
such other actions as may be necessary or appropriate to conduct the
election.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not currently expect any matters to be presented for a vote at
the meeting, other than the three matters described in the proxy
statement. If you grant a proxy, the officers named as proxy holders,
C. David Zoba and Edward S. Wozniak, or their nominees or substitutes,
will have the discretion to vote your shares on any additional matters
that are properly presented for a vote at the meeting. If, for any
unforeseen reason, any of our nominees is not available as a candidate
for director, the person named as the proxy holder will vote your proxy
for another candidate or other candidates nominated by our Board.
Q: MAY I PROPOSE ACTIONS FOR CONSIDERATION AT NEXT YEAR'S ANNUAL MEETING?
A: Yes. For your proposal to be considered for inclusion in our proxy
statement for next year's meeting, we must receive your written
proposal no later than December 31, 2004. If we change the date of next
year's meeting by more than 30 days from the date of this year's
meeting, then the deadline is a reasonable time before we begin to
print and mail our proxy materials. You should also be aware that your
proposal must comply with Securities and Exchange Commission
regulations regarding inclusion of shareholder proposals in
company-sponsored proxy materials. Similarly, in order for you to raise
a proposal (including a director nomination) from the floor during next
year's meeting, we must receive a written notice of the proposal no
later than February 20, 2005 and it must contain the additional
information required by our bylaws. If we change the date of next
year's meeting by more than 30 days before, or more than 70 days after,
the date contemplated at this year's meeting, then we must receive your
written proposal at least 90 days before the date of next year's
meeting in order for the proposal to be timely. You may obtain a
complete copy of our bylaws by submitting a written request to our
Corporate Secretary at our principal executive office, One Galyans
Parkway, Plainfield, Indiana 46168.
4
Q: HOW CAN I COMMUNICATE WITH THE BOARD OF DIRECTORS?
A: Shareholders or other interested parties can contact any non-management
director of the Board by writing to them c/o Corporate Secretary,
Galyan's Trading Company, Inc., One Galyans Parkway, Plainfield,
Indiana 46168. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a "Stockholder-Board
Communication" or "Stockholder-Director Communication." All such
letters must identify the author as a stockholder and clearly state
whether the intended recipients are all members of the Board of
Directors or certain specified individual directors. The Secretary will
make copies of all such letters and circulate them to the appropriate
director or directors.
Q: WHO IS PAYING FOR THIS PROXY SOLICITATION?
A: We will pay the cost of soliciting the proxies. In addition, officers,
directors and regular employees, who will not be paid any additional
compensation for such activities, may make the solicitation of proxies
or votes in person, by telephone or by electronic communication. We
will send copies of the solicitation material to brokers, fiduciaries
and custodians who will forward the material to the beneficial owners
of our shares. On request, we will reimburse brokers and other persons
representing beneficial owners of shares for their reasonable expenses
in forwarding solicitation material to such beneficial owners.
5
BENEFICIAL OWNERSHIP OF SHARES OF COMMON STOCK
The following contains information regarding the beneficial ownership
of our common stock as of March 15, 2004 (unless otherwise noted) for:
o each person known by us to beneficially own more than five percent of
our common stock;
o each director and nominee for director;
o each of the executive officers named in the Summary Compensation
Table on page 25 of this proxy statement; and
o all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. In computing the number of shares beneficially owned by a person and
the percentage of ownership held by that person, shares of common stock subject
to options and warrants held by that person that are currently exercisable or
will become exercisable within 60 days after March 15, 2004 (i.e., May 14, 2004)
are deemed outstanding, while these shares are not deemed outstanding for
computing the percentage ownership of any other person. Except as otherwise
indicated in the footnotes below, and except as may be provided under applicable
marital property laws, we believe, based on information furnished to us, the
persons and entities named in the table below have sole voting and investment
power with respect to all shares beneficially owned.
The percentages of common stock beneficially owned are based on
17,362,368 shares of common stock outstanding as of March 15, 2004.
SHARES OF PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------------------------------------------------------------------------------------
5% SHAREHOLDERS:
FS Equity Partners IV, L.P. .......................................... 5,694,500 (1)(2) 32.8%
Limited Brands, Inc. ................................................. 5,250,500 (2)(3) 28.1
Heartland Advisors, Inc. ............................................. 907,700 (4) 5.2
Dimensional Fund Advisors Inc. ....................................... 904,216 (5) 5.2
DIRECTORS AND EXECUTIVE OFFICERS:
Edwin J. Holman ...................................................... 102,000 (6) *
C. David Zoba ........................................................ 118,406 (7) *
Edward S. Wozniak .................................................... 65,057 (8) *
Robert B. Mang (9) ................................................... 291,000 (10) 1.7%
Charles F. Nelson (11) ............................................... 62,248 (12) *
Norman S. Matthews ................................................... 185,000 (13) 1.1
Byron E. Allumbaugh .................................................. 18,334 (14) *
Frank J. Belatti ..................................................... 8,334 (15) *
Stuart B. Burgdoerfer ................................................ -- --
Timothy J. Faber ..................................................... -- --
Michael Goldstein .................................................... -- --
Todd W. Halloran ..................................................... 5,694,500 (2)(16) 32.8
George R. Mrkonic, Jr. ............................................... 18,334 (17) *
John M. Roth ......................................................... 5,694,500 (2)(16) 32.8
Ronald P. Spogli ..................................................... 5,694,500 (2)(16) 32.8
Peter Starrett ....................................................... 190,000 (18) 1.1
Directors and executive officers as a group (22 persons) ............. 6,858,064 (19) 35.3
* REPRESENTS BENEFICIAL OWNERSHIP OF LESS THAN 1%.
(1) Based on the information in a Schedule 13D filed October 9, 2001, as
amended through August 18, 2003. This shareholder indicates that shares
are held of record by FS Equity Partners IV, L.P., a Delaware limited
partnership ("FS Equity IV"). FS Capital Partners LLC, a Delaware
limited liability company, is the general partner of FS Equity IV and
has the power to vote and dispose of the shares held of record by FS
Equity IV. The address for this shareholder is 11100 Santa Monica
Boulevard, Suite 1900, Los Angeles, California 90025.
6
(2) This shareholder also indicates in a Schedule 13D filed October 9,
2001, as amended through August 18, 2003, that, as a result of the
stockholders agreement among FS Equity IV, Limited Brands, Inc.
(formerly known as The Limited, Inc. and hereafter, "Limited Brands"),
G Trademark, Inc. (a wholly owned subsidiary of Limited Brands, "G
Trademark"), and Galyan's Trading Company, Inc., which agreement
includes a provision whereby FS Equity IV L.P., Limited Brands and G
Trademark agree to vote all their shares in the election of certain
directors, FS Equity IV L.P., FS Capital Partners LLC, Limited Brands
and G Trademark may be deemed to be a "group" within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In
the aggregate, as of August 18, 2003, such persons reported shared
voting power with respect to 10,945,000 shares, which represents
beneficial ownership of 60.9% of the shares outstanding as of March 15,
2004, of which 9,595,000 shares are currently outstanding (which
represents 55.3% of the shares outstanding as of March 15, 2004) and
1,350,000 are represented by a currently exercisable warrant held by
Limited Brands that had an exercise price of $44.82 per share as of
January 31, 2004.
(3) Based on the information in a Schedule 13D filed October 9, 2001, as
amended through August 18, 2003. This shareholder indicates that shares
owned by Limited Brands include 550,500 shares held of record by
Limited Brands, 1,350,000 shares subject to a warrant issued to Limited
Brands that is currently exercisable (with an exercise price of $44.82
as of January 31, 2004) and 3,350,000 shares held of record by G
Trademark. The address for Limited Brands and G Trademark is Three
Limited Parkway, Columbus, Ohio 43230.
(4) Based on the information in a Schedule 13G filed February 12, 2004.
This shareholder and its Chief Executive Officer, William J. Nasgovitz,
indicate that shares reported by them include 907,700 shares owned by
advisory clients of Heartland Advisors, Inc., 862,700, or approximately
five percent of Galyan's outstanding common stock as reported on the
Form 10-Q filed by Galyan's on December 15, 2003, are held by The
Heartland Value Fund, and, to the knowledge of Heartland Advisors,
Inc., no other client of a reporting person owns more than five percent
of Galyan's common stock. Heartland Advisors, Inc. disclaims beneficial
ownership of all such securities.
(5) Based on the information in a Schedule 13G filed February 6, 2004. This
shareholder indicates that shares reported by Dimensional Fund Advisors
Inc. include 904,216 shares owned by investment companies, trusts and
separate accounts for which Dimensional Fund Advisors Inc. provides
investment advice, and no one investment company, trust or separate
account, to the knowledge of Dimensional Fund Advisors Inc., owns more
than five percent of Galyan's common stock. Dimensional Fund Advisors
Inc. disclaims beneficial ownership of all such securities.
(6) Includes 100,000 restricted shares subject to a restricted stock
agreement dated September 3, 2003.
(7) Includes 80,333 shares subject to options exercisable on or before May
14, 2004.
(8) Includes 47,333 shares subject to options exercisable on or before May
14, 2004, 15,500 shares owned by a family trust with respect to which
Mr. Wozniak has indirect beneficial ownership and 2,224 shares
purchased under our employee stock purchase plan.
(9) Mr. Mang is one of our named executive officers for fiscal 2003 because
he served as our Chief Executive Officer during fiscal 2003 (and until
he resigned from that position on March 1, 2004). Mr. Mang currently
serves as a director of the Company, but has agreed to resign as a
director on or before May 14, 2004. He is also currently employed by
the Company in an advisory (non-officer) capacity, and this employment
arrangement is expected to terminate on or before May 31, 2004.
(10) Includes 191,000 shares subject to options exercisable on or before May
14, 2004 and 100,000 shares owned by a family trust with respect to
which Mr. Mang has indirect beneficial ownership. Does not include
109,000 options held by Mr. Mang that will become exercisable on May
31, 2004, pursuant to his Resignation and General Release Agreement
with the Company.
(11) Mr. Nelson was Senior Vice President, Minister of Culture, and retired
effective January 31, 2004.
(12) Includes 37,000 shares subject to options exercisable on or before May
14, 2004.
(13) Includes 125,000 shares subject to options exercisable on or before May
14, 2004.
(14) Includes 8,334 shares subject to options exercisable on or before May
14, 2004 and 10,000 shares held by a family trust with respect to which
Mr. Allumbaugh has indirect beneficial ownership.
(15) All 8,334 shares are subject to options exercisable on or before May
14, 2004.
(16) Mr. Spogli is the President and a Managing Member of FS Capital
Partners LLC. Mr. Halloran and Mr. Roth are Vice Presidents and
Managing Members of FS Capital Partners LLC. Accordingly, Messrs.
Spogli, Halloran and Roth may be deemed to be beneficial owners of the
shares of common stock held of record by FS Equity IV L.P.. Each of
these persons disclaims beneficial ownership in the shares except to
the extent of his pecuniary interest in them.
(17) Includes 8,334 shares subject to options exercisable on or before May
14, 2004.
(18) Includes 120,000 shares subject to options exercisable on or before May
14, 2004.
(19) Includes 765,567 shares subject to options exercisable on or before May
14, 2004 which are owned by individual directors and executive
officers. Also includes 5,694,500 shares held by FS Equity IV, the
ownership of which could be attributed to Messrs. Spogli, Halloran and
Roth. Each of these individuals disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in them. Excludes
Mr. Nelson and the 62,348 shares held by Mr. Nelson, who retired
effective January 31, 2004.
BOARD OF DIRECTORS
MEETINGS AND COMMITTEES
The Board of Directors has determined that Galyan's is a "controlled
company," as defined in Rule 4350(c)(5) of the listing standards of the National
Association of Securities Dealers, Inc. ("NASD"), based on the beneficial
ownership of FS Equity Partners IV, L.P. (hereafter, "Freeman Spogli") and
Limited Brands, Inc. (and its subsidiary, G Trademark Inc.) of approximately
55.3% of the common stock outstanding as of March 15, 2004, and the shareholders
agreement among Freeman Spogli, Limited Brands, G Trademark and the Company
(described below under the heading "Information Regarding Certain Directorships
and Voting Arrangements") requiring the parties to vote their shares in the
election of specified nominees to our Board of Directors. Accordingly, Galyan's
is exempt from certain requirements of the NASD listing standards, including the
requirement to maintain a majority of independent directors of Galyan's Board of
Directors and the requirements regarding the determination of compensation of
executive directors, the nomination of directors by independent directors and
the composition of our Compensation Committee or our Nominating and Governance
Committee.
7
The Board of Directors met four (4) times during fiscal 2003, which
period began on February 2, 2003 and ended on January 31, 2004. In addition to
meetings of the full Board, directors also attended meetings of Board
committees. During fiscal 2003, the Board had standing audit, compensation,
nominating and governance, executive and real estate committees. During fiscal
2003, all of the directors attended at least 75% of the meetings of the Board
and those committees on which he or she served during his or her tenure on the
Board, except for Frank J. Belatti, who attended 75% of Board meetings but only
67% of all meetings of the Board and the committees on which he served. The
Board acted by unanimous written consent on five (5) occasions during fiscal
2003. Galyan's does not have a formal policy with respect to attendance of
directors at annual shareholder meetings, but the Nominating and Governance
Committee will undertake to consider such a policy during fiscal 2004. One
director attended last year's annual shareholders meeting.
CURRENT BOARD COMMITTEE MEMBERSHIP
NOMINATING AND
AUDIT COMPENSATION EXECUTIVE GOVERNANCE REAL ESTATE
NAME COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
---------------------------------------------------------------------------------------------------------------------
Byron E. Allumbaugh ........ M C
- ------------------------------------------------------------------------------------------------------------------------------
Frank J. Belatti ........... M
- ------------------------------------------------------------------------------------------------------------------------------
Stuart B. Burgdoerfer ...... M
- ------------------------------------------------------------------------------------------------------------------------------
Timothy J. Faber ........... M
- ------------------------------------------------------------------------------------------------------------------------------
Michael Goldstein .......... C
- ------------------------------------------------------------------------------------------------------------------------------
Edwin J. Holman ............ M M
- ------------------------------------------------------------------------------------------------------------------------------
Norman S. Matthews ......... C C C
- ------------------------------------------------------------------------------------------------------------------------------
George R. Mrkonic, Jr. ..... M
- ------------------------------------------------------------------------------------------------------------------------------
John M. Roth ............... M M
- ------------------------------------------------------------------------------------------------------------------------------
Ronald P. Spogli ........... M
- ------------------------------------------------------------------------------------------------------------------------------
Peter Starrett ............. M M M
M - Member
C - Chair (for committees that have a designated chairperson)
AUDIT COMMITTEE
Our Audit Committee currently consists of three independent directors.
The Board of Directors has adopted a revised Audit Committee charter that
complies with Rule 4350(d)(1) of the NASD listing standards, and a copy of the
revised charter is attached as APPENDIX A. Our Audit Committee has the
responsibility and authority set forth in Rule 4350(d)(3) of the NASD listing
standards under the revised charter. Among other things, our Audit Committee
appoints the independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors, approves professional
services to be provided by the independent public accountants, reviews and
evaluates our audit and control functions, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of our internal accounting controls. Our Board of
Directors has determined that it has at least one "audit committee financial
expert" serving on the Audit Committee, Michael Goldstein, and that Mr.
Goldstein is an "independent director" as defined in the NASD listing standards.
Our Audit Committee met on seventeen (17) occasions during fiscal 2003.
COMPENSATION COMMITTEE
Our Compensation Committee makes all recommendations to the Board
regarding our equity compensation plans and salaries and incentive compensation
for our executive officers. Our Compensation Committee met on two (2) occasions
during fiscal 2003.
8
EXECUTIVE COMMITTEE
Our Executive Committee makes decisions regarding the selection of new
store sites and other store related real estate matters at any time, in the
judgment of the members of our Real Estate Committee, it is necessary or
appropriate to make a decision based on recommendations of our Real Estate
Committee prior to the next scheduled meeting of the Board. Our Executive
Committee met on one (1) occasion during fiscal 2003. Effective March 1, 2004,
Mr. Holman became a member of this committee and Mr. Mang resigned from the
committee.
REAL ESTATE COMMITTEE
Our Real Estate Committee reviews the proposals and analysis prepared
by our management team, including Mr. Holman and Mr. Zoba, and makes
recommendations to the Board or our Executive Committee, as appropriate under
the circumstances, for the selection of new store sites and other store related
real estate matters. Our Real Estate Committee met on nine (9) occasions during
fiscal 2003. Effective March 1, 2004, Mr. Holman became a member of this
committee and Mr. Mang resigned from the committee.
NOMINATING AND GOVERNANCE COMMITTEE
Our Nominating and Governance Committee identifies individuals
qualified to become Board members, and recommends that the Board nominate such
individuals for election to the Board at the next annual meeting of
shareholders. This committee also develops and reviews Galyan's corporate
governance guidelines and makes recommendations to the Board relating to the
guidelines. The committee believes that candidates for director should meet
certain minimum qualifications, including (1) being of the highest ethical
character and sharing the values of Galyan's as reflected in our Ethics Policy,
(2) having reputations, both personal and professional, consistent with the
image and reputation of Galyan's, (3) being highly accomplished in their
respective field, with superior credentials and recognition and (4) having
relevant expertise and experience. The committee retains the right to modify
these minimum qualifications from time to time. Shareholders may provide the
committee information on director candidates for consideration by this committee
by writing a letter to our Corporate Secretary at our principal executive
office, One Galyans Parkway, Plainfield, Indiana 46168 containing the following
information: the prospective candidate's name, qualifications, age, relevant
experience, and such director candidate's consent to serve as a director. The
mailing envelope must contain a clear notation indicating that the enclosed
letter is a "Stockholder-Board Communication" or "Stockholder-Director
Communication." All such letters must identify the author as a stockholder and
clearly state that the intended recipients are all members of the Nominating and
Governance Committee. All such communications received by the Corporate
Secretary will be delivered to the members of the Nominating and Governance
Committee. A current copy of the Galyan's Nominating and Governance Committee
Charter is available on our website at WWW.GALYANS.COM in the Investors section,
and is also attached as APPENDIX B.
CODE OF ETHICS
Galyan's has a code of ethics, the Ethics Policy, which applies to all
employees, officers (including executive officers) and directors. The Ethics
Policy is posted on our website at WWW.GALYANS.COM in the Investors section, and
is attached as APPENDIX C.
DIRECTOR COMPENSATION ARRANGEMENTS
Each of our directors is eligible for reimbursement for reasonable
travel expenses incurred in attending meetings.
Michael Goldstein joined the Board in May 2003 and is the Chair of our
Audit Committee. Mr. Goldstein receives an annual cash retainer of $25,000 and
Byron E. Allumbaugh, Frank J. Belatti, and George R. Mrkonic, Jr. each receives
an annual cash retainer of $20,000. Each of these directors also receives a fee
for each Board meeting attended of $2,500
9
($1,250 for attending by phone), and a fee for each committee meeting not
otherwise held on a day of a Board meeting of $1,000 ($500 for attending by
phone). In addition, Messrs. Allumbaugh, Belatti and Mrkonic, Jr., upon joining
the Board in September 2001, each received a grant of 10,000 options. Mr.
Goldstein, upon joining the Board in May 2003, also received a grant of 10,000
options. Each of these directors will receive an annual grant of 5,000 options,
with the same vesting conditions. Norman S. Matthews joined the Board in 1999
and is Chairman of the Board, and the Chairman of the Compensation, Executive
and Real Estate Committees. Mr. Matthews receives an annual cash retainer of
$100,000 and no separate fees for meeting attendance. Mr. Matthews receives an
annual grant of 15,000 options, and Galyan's made the first such grant in May
2002. All options granted to members of our Board of Directors have a maximum
term of seven years and vest in equal installments over a three-year period so
long as he continues to serve as a director.
In addition, we had consulting arrangements with Mr. Matthews and Mr.
Starrett during the last fiscal year. The consulting arrangement with Mr.
Matthews terminated in May 2003. See "Compensation Committee Interlocks and
Insider Participation" below for a description of these arrangements.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
At the Annual Meeting, we will elect twelve (12) directors. The
nominees proposed for election by the Board of Directors are Edwin J. Holman,
Norman S. Matthews, Byron E. Allumbaugh, Frank J. Belatti, Stuart B.
Burgdoerfer, Timothy J. Faber, Michael Goldstein, Todd W. Halloran, George R.
Mrkonic, Jr., John M. Roth, Ronald P. Spogli and Peter Starrett. Robert Mang,
who currently is a member of the Board, has agreed to resign from the Board on
or before May 14, 2004, and will not stand for re-election. Each director will
serve until the annual meeting of shareholders in 2005 or until his or her
successor is elected and qualified. Each nominee has indicated his or her
willingness to serve if elected, but if any nominee should become unable to
serve, we will vote the proxies solicited hereby for the election of such other
person as our directors shall select.
INFORMATION ABOUT OUR NOMINEES AND CONTINUING DIRECTORS
EDWIN J. HOLMAN, 57, has served as our Chief Executive Officer since
March 2004 and as a director since September 2003, when he joined the Company as
President and Chief Operating Officer. Mr. Holman served as President and Chief
Operating Officer of Bloomingdale's, Inc., a subsidiary of Federated, Inc., from
July 2000 until August 2003. From January 1999 until July 2000, Mr. Holman
served as President and Chief Operating Officer of the Rich's, Lazarus and
Goldsmiths division of Federated, Inc. From January 1996 until January 1999, he
was Chairman and Chief Executive Officer of Petrie Retail, Inc.
NORMAN S. MATTHEWS, 71, has served as a director and has been
designated as the (non-executive) Chairman of our Board of Directors since
August 1999. Mr. Matthews has been an independent retail consultant for more
than fifteen years. From 1982 to 1988, Mr. Matthews served as Vice Chairman and
then President of Federated Department Stores, Inc. Mr. Matthews also serves as
a member of the board of directors of Henry Schein, Inc., Finlay Enterprises,
Inc., Progressive Corporation, Sunoco, Inc. and Toys "R" Us, Inc.
BYRON E. ALLUMBAUGH, 72, has served as a director since September 2001.
Mr. Allumbaugh served as Chairman and Chief Executive Officer of Ralphs
Supermarkets, a California based chain, from 1976 to 1995, and as Chairman from
1995 until February 1997. Since February 1997, he has been a self-employed
business consultant. Mr. Allumbaugh also serves as a member of the board of
directors of CKE Restaurants, Inc., Penn Traffic Company and The Pantry, Inc.
10
FRANK J. BELATTI, 56, has served as a director since September 2001.
Mr. Belatti has served as Chairman and Chief Executive Officer of AFC
Enterprises, Inc. in Atlanta, Georgia since 1992. Mr. Belatti also serves as a
member of the board of directors of Radio Shack Corporation and AFC Enterprises,
Inc.
STUART B. BURGDOERFER, 41, has served as a director since May 2001. Mr.
Burgdoerfer joined Limited Brands in September 1998 and served as Vice President
and Corporate Controller from November 2000 until August 2002 and as a Senior
Vice President and Corporate Controller since August 2002. From September 1999
to November 2000, he was Vice President and Chief Financial Officer of White
Barn Candle Company, a division of Limited Brands. From September 1998 to
September 1999, he served as Vice President-Financial Planning of Limited
Brands.
TIMOTHY J. FABER, 42, has served as a director since November 2000. Mr.
Faber joined Limited Brands in January 2000 and serves as its Vice President
Treasury/Mergers and Acquisitions. From September 1996 to January 2000, Mr.
Faber was employed by the General Electric Company as Managing Director of the
Capital Markets Services division of GE Capital.
MICHAEL GOLDSTEIN, 62, has served as a director since May 2003. Mr.
Goldstein has been the Chairman of the Toys "R" Us Children's Fund, Inc. since
2001. Mr. Goldstein was the Chairman of the Board of Toys "R" Us, Inc. from 1998
to 2001, and Chief Executive Officer from 1994 to 1997. Mr. Goldstein also
serves as a member of the board of directors of Finlay Enterprises, Inc., United
Retail Group, Inc., 4 Kids Entertainment, Inc. and Medco Health Solutions, Inc.
TODD W. HALLORAN, 42, has served as a director since August 1999. Mr.
Halloran joined Freeman Spogli & Co. in 1995 and became a Principal in 1998. Mr.
Halloran also serves as a member of the board of directors of The Pantry, Inc.
GEORGE R. MRKONIC, JR., 51, has served as a director since September
2001. Mr. Mrkonic served as Vice Chairman of Borders Group, Inc. from December
1994 to January 2002. From November 1994 until January 1997, he served as Vice
Chairman and President of Borders Group, Inc. He also serves as a member of the
board of directors of Borders Group, Inc., Guitar Center, Inc., Nashua
Corporation, Syntel, Inc., and Brinker International, Inc.
JOHN M. ROTH, 45, has served as a director since August 1999. Mr. Roth
joined Freeman Spogli & Co. in March 1988 and became a Principal in 1993. Mr.
Roth also serves as a member of the board of directors of Advance Auto Parts,
Inc., Asbury Automotive Group, Inc. and AFC Enterprises, Inc.
RONALD P. SPOGLI, 56, has served as a director since August 1999. Mr.
Spogli is a Principal of Freeman Spogli & Co., which he co-founded in 1983. Mr.
Spogli also serves as a member of the board of directors of Hudson Respiratory
Care, Inc. and AFC Enterprises, Inc.
PETER STARRETT, 56, has served as a director since August 1999. In
August 1998, Mr. Starrett founded Peter Starrett Associates, a retail advisory
firm. From 1990 to 1998, Mr. Starrett served as the President of Warner Bros.
Studio Stores Worldwide. Mr. Starrett also serves as a member of the board of
directors of Guitar Center, Inc., Pacific Sunwear, Inc., The Pantry, Inc. and
AFC Enterprises, Inc.
The Board of Directors recommends a vote FOR the election of the
directors listed above. We will vote proxies received by us in favor of the
above nominees unless a contrary choice is indicated.
11
INFORMATION REGARDING CERTAIN DIRECTORSHIPS AND VOTING ARRANGEMENTS
We are party to a stockholders agreement with Freeman Spogli, Limited
Brands, Inc., and G Trademark Inc. (a wholly-owned subsidiary of Limited
Brands), under which Freeman Spogli, Limited Brands, and G Trademark have agreed
to vote all of their shares in the election of directors in favor of the
following persons: (a) four Board nominees designated by Freeman Spogli, (b) two
Board nominees designated by Limited Brands, (c) our Chief Executive Officer in
office at the time of any election of directors, which currently is Edwin S.
Holman, (d) Norman S. Matthews, who is our current Chairman of the Board, and
(e) one or more additional nominees upon whom Freeman Spogli and Limited Brands
shall agree. If, at the time of any election of directors (or appointment of
directors in the event of a vacancy or an increase in the size of the Board),
Freeman Spogli and Limited Brands are unable to agree on any such additional
nominees, our stockholders agreement provides that our Board in existence at
that time will select the additional nominees. The number of Board nominees that
Freeman Spogli and Limited Brands are entitled to nominate under the agreement
decreases if the number of shares held by such party falls below certain
thresholds set forth in the stockholders agreement. Under the stockholders
agreement, the parties have agreed that we will have a Board consisting of no
more than 13 members. In addition, until one year after the date on which
persons other than Freeman Spogli and Limited Brands and their respective
affiliates own 20% or more of our shares, Limited Brands has agreed to vote
against any combination of our company unless Freeman Spogli consents to the
combination.
Under the terms of the stockholders agreement, the four designees of
Freeman Spogli are Todd W. Halloran, John M. Roth, Ronald P. Spogli and Peter
Starrett and the two designees of Limited Brands are Stuart B. Burgdoerfer and
Timothy J. Faber. Benchmark Capital, previously party to this stockholders
agreement, distributed its shares in the Company to its limited partners in 2003
and, as a result, is no longer bound by the stockholders agreement.
There are no family relationships among any of our directors or
executive officers.
PROPOSAL NO. 2:
APPROVAL OF STOCK OPTION AGREEMENT
On August 29, 2003, Galyan's entered into an amended employment
agreement with Edwin J. Holman, which is currently in effect, in connection with
his agreement to become Galyan's President and Chief Operating Officer. On March
1, 2004, in connection with his agreement to become our Chief Executive Officer,
Galyan's granted to Mr. Holman a nonqualified stock option to purchase 100,000
shares of Galyan's common stock, which was evidenced by a stock option agreement
(the "Option Agreement"). This stock option was not granted under the 1999 Stock
Plan and, instead, was granted subject to shareholder approval at the Annual
Meeting. This stock option will not be effective if the shareholders do not
approve it.
The full text of the Option Agreement is attached as APPENDIX D. The
material terms of the Option Agreement are described below, but such description
is qualified in its entirety by reference to the text of the Option Agreement,
attached as APPENDIX D.
The Board of Directors recommends a vote FOR the approval of the Option
Agreement.
12
VOTE REQUIRED
Approval of the Option Agreement requires that the votes cast for
approval of the Option Agreement exceed those cast against approval of the
Option Agreement. Only votes cast for or against approval of the Option
Agreement will be counted. Abstentions and broker non-votes will not change the
number of votes cast for or against the proposal.
SUMMARY OF THE OPTION AGREEMENT
SHARES SUBJECT TO THE OPTION AGREEMENT. The aggregate number of shares
of Galyan's common stock that may be issued pursuant to the nonqualified stock
option is 100,000 shares, subject to adjustment for reorganizations,
recapitalizations, stock splits, etc as provided below. The per share exercise
price of the option is $8.74, which was 100% of the fair market value of
Galyan's common stock on the date of grant. The option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code.
TERM OF AGREEMENT; CONSIDERATION FOR SHARES. The option and Mr.
Holman's right to exercise the option will terminate on March 1, 2011, unless
terminated earlier pursuant to the terms of the Option Agreement. To the extent
that the option has become vested and exercisable, Mr. Holman may exercise the
vested portion of the option by delivering to Galyan's a written notice of
exercise and full payment of the aggregate exercise price and any withholding
taxes in cash, by check or in such other form of lawful consideration as the
Board may approve from time to time, including without limitation, by delivering
previously-owned shares of Galyan's common stock.
VESTING. Subject to earlier termination of the option or acceleration
of vesting as provided in the Option Agreement, the option will vest and become
exercisable as to one-third of the total number of shares subject to the option
on each of the first three anniversaries of the date of grant, but only if Mr.
Holman remains employed by Galyan's on each such date.
EFFECT OF A TERMINATION OF EMPLOYMENT. If Galyan's terminates Mr.
Holman's employment for "Cause" or Mr. Holman resigns for other than "Good
Reason" or "Special Resignation" (each as defined in Mr. Holman's employment
agreement), his right to exercise the option, to the extent unexercised, will
terminate immediately upon his termination of employment.
If Mr. Holman's employment terminates during the term of his employment
agreement by Galyan's other than for Cause, upon his death or Disability (as
defined in the employment agreement), or if he terminates employment for Good
Reason or Special Resignation then he (or his estate in case of his death) may
exercise the option, to the extent then vested and exercisable, at any time
before the earlier of (1) the first anniversary of his termination of employment
or (2) the date on which his right to exercise the option would have terminated
if he had not terminated employment.
If Mr. Holman's employment terminates for any other reason other than
set forth in the preceding two paragraphs, he (or his estate, in case of his
death) may exercise the option, to the extent then vested and exercisable at any
time before the earlier of (1) 90 days after his termination of employment date
or (2) the date on which his right to exercise the options would have terminated
if he had not terminated employment.
Termination of Mr. Holman's employment will not accelerate the vesting
of all or any part of the option.
13
EFFECT OF A CHANGE IN CONTROL. Notwithstanding the foregoing, in the
event of a "Change in Control" (as defined in Mr. Holman's employment
agreement), the option, to the extent unvested on such date, shall become fully
vested and exercisable. A "Change in Control" generally includes (subject to
certain exceptions and as more specifically defined in the employment
agreement):
o an acquisition by any person or group other than a permitted
shareholder of the beneficial ownership of more than the greater of
(1) 30% of Galyan's then outstanding common stock and (2) the common
stock held by permitted shareholders and the incumbent directors
cease to constitute more than 50% of the members of the Board of
Directors;
o the consummation of a merger or consolidation or sale of all or
substantially all of Galyan's assets, in any case involving more
than a 40% change in ownership; or
o approval by the Board of Directors or the shareholders of a
liquidation or dissolution of Galyan's.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS.
Upon the occurrence of a dissolution, liquidation or sale of all or
substantially all our assets, or certain reorganizations or mergers in which
Galyan's does not survive or Galyan's does survive and shareholders of Galyan's
have the opportunity to receive cash or securities for their shares of Galyan's,
or any acquisition by a person or group owning more than fifty percent of
Galyan's then outstanding shares and no provision is made for the substitution,
assumption, settlement or other continuation of the option, the option, to the
extent then unvested, will become fully vested and exercisable and Mr. Holman
will have 10 days to exercise his vested option before the option terminates on
the consummation date of the triggering event. Upon other recapitalizations or
reorganizations, such as reclassification, stock split, etc., the Board will
make appropriate adjustments, if any, to the number, kind or exercise price of
shares subject to the option to the extent the option is then outstanding.
TRANSFERABILITY. Generally speaking, the option may not be assigned or
transferred except by will or by the laws of descent and distribution, and is
generally only exercisable by Mr. Holman (or if he has suffered a disability, by
his legal representative).
AMENDMENT AND TERMINATION OF THE OPTION AGREEMENT. The Option Agreement
may be amended by a written agreement executed by both of the parties. Galyan's
may unilaterally waive any provision of the Option Agreement to the extent that
such a waiver does not adversely affect Mr. Holman's rights under the Option
Agreement. Shareholder approval for any amendment will be required only to the
extent required under applicable law, including Code Section 162(m), or to the
extent otherwise deemed necessary or advisable by the Board.
FEDERAL INCOME TAX CONSEQUENCES. Galyan's is generally entitled to
deduct, and Mr. Holman will recognize taxable income in, an amount equal to the
difference between the option exercise price and the fair market value of the
shares at the time of exercise. If the vesting of the option is accelerated in
connection with a change in control (as this term is used under the Internal
Revenue Code), we may not be permitted to deduct the portion of the compensation
attributable to the acceleration ("parachute payments") if it exceeds certain
threshold limits under the Internal Revenue Code (and certain related excise
taxes may be triggered). Furthermore, if the compensation attributable to awards
is not "performance-based" within the meaning of Section 162(m) of the Internal
Revenue Code, we may not be permitted to deduct the aggregate non
performance-based compensation in excess of $1,000,000 in certain circumstances.
SECURITIES UNDERLYING OPTION. ON APRIL 1, 2004, THE CLOSING PRICE OF A SHARE OF
GALYAN'S COMMON STOCK WAS $9.99. IF THE OPTION AGREEMENT IS APPROVED BY
SHAREHOLDERS, GALYAN'S PLANS TO REGISTER THE 100,000 SHARES OF COMMON STOCK
SUBJECT TO THE OPTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
14
PROPOSAL NO. 3:
APPROVAL OF RESTRICTED STOCK AGREEMENT
On August 29, 2003, Galyan's entered into an amended employment
agreement with Edwin J. Holman, which is currently in effect, in connection with
his agreement to become Galyan's President and Chief Operating Officer. On March
1, 2004, in connection with his agreement to become our Chief Executive Officer,
Galyan's granted to Mr. Holman an award of 50,000 shares of Galyan's common
stock, subject to the restrictions and conditions set forth in a restricted
stock agreement (the "Restricted Stock Agreement"), subject to shareholder
approval at the Annual Meeting. This award will not be effective if the
shareholders do not approve it.
The full text of the Restricted Stock Agreement is attached to this
Proxy Statement as APPENDIX E. The material terms of the Restricted Stock
Agreement are described below, but such description is qualified in its entirety
by reference to the text of the Restricted Stock Agreement, attached as APPENDIX
E.
The Board of Directors recommends a vote FOR the approval of the
Restricted Stock Agreement.
VOTE REQUIRED
Approval of the Restricted Stock Agreement requires that the votes cast
for approval of the Restricted Stock Agreement exceed those cast against
approval of the Restricted Stock Agreement. Only votes cast for or against
approval of the Restricted Stock Agreement will be counted. Abstentions and
broker non-votes will not change the number of votes cast for or against the
proposal.
SUMMARY OF THE RESTRICTED STOCK AGREEMENT
SHARES SUBJECT TO THE RESTRICTED STOCK AGREEMENT; CONSIDERATION FOR
SHARES. The aggregate number of shares of Galyan's common stock subject to the
restricted stock award is 50,000 shares. The consideration for the shares
delivered consists of services rendered and to be rendered by Mr. Holman to
Galyan's in accordance with the terms of his employment.
VESTING; EFFECT OF A TERMINATION OF EMPLOYMENT. Subject to any
acceleration of vesting as provided in the Restricted Stock Agreement, the
shares subject to the restricted stock award will vest and become
non-forfeitable as to one-third of the total number of shares on each of the
first three anniversaries of the date of grant, provided that Mr. Holman remains
employed by Galyan's on each such date. Except as provided in the next sentence,
the restricted shares, to the extent unvested on a termination of Mr. Holman's
employment, shall immediately be forfeited on the termination date without
payment of consideration. However, if Mr. Holman's employment is terminated
during the term of his employment agreement by Galyan's other than for "Cause,"
upon his death or "Disability," or if he terminates employment with Galyan's for
"Good Reason" or "Special Resignation" (each as defined in Mr. Holman's
employment agreement) then the restricted shares, to the extent then unvested,
shall immediately vest and become non-forfeitable.
EFFECT OF A CHANGE IN CONTROL. In the event of a "Change in Control"
(as defined in Mr. Holman's employment agreement), the restricted shares, to the
extent unvested on such date, shall become fully vested and non-forfeitable. A
"Change in Control" generally includes (subject to certain exceptions and as
more specifically defined in the employment agreement):
15
o an acquisition by any person or group other than a permitted
shareholder of the beneficial ownership of more than the greater of
(1) 30% of Galyan's then outstanding common stock and (2) the common
stock held by permitted shareholders and the incumbent directors
cease to constitute more than 50% of the members of the Board of
Directors;
o the consummation of a merger or consolidation or sale of all or
substantially all of Galyan's assets, in any case involving more
than a 40% change in ownership; or
o approval by the Board of Directors or the shareholders of a
liquidation or dissolution of Galyan's.
TRANSFERABILITY. Prior to the date that the restricted shares become
vested and non-forfeitable, Mr. Holman may not sell, transfer, pledge,
hypothecate or otherwise dispose of the restricted shares.
AMENDMENT OF THE RESTRICTED STOCK AGREEMENT. The Restricted Stock
Agreement may be amended by a written agreement executed by both of the parties.
Shareholder approval for any amendment will be required only to the extent
required under applicable law.
FEDERAL INCOME TAX CONSEQUENCES. Galyan's is generally entitled to
deduct, and Mr. Holman will recognize taxable income in, an amount equal to the
fair market value of the common stock on the date the restricted shares vest and
become non-forfeitable.
If the vesting of the restricted shares is accelerated under the
Restricted Stock Agreement in connection with a change in control (as this term
is used under the Internal Revenue Code), we may not be permitted to deduct the
portion of the compensation attributable to the acceleration ("parachute
payments") if it exceeds certain threshold limits under the Internal Revenue
Code (and certain related excise taxes may be triggered). Furthermore, because
the compensation attributable to the restricted stock award is not
"performance-based" within the meaning of Section 162(m) of the Internal Revenue
Code, we will not be permitted to deduct the aggregate non performance-based
compensation in excess of $1,000,000 in certain circumstances.
SECURITIES SUBJECT TO RESTRICTED STOCK AWARD. ON APRIL 1, 2004, THE CLOSING
PRICE OF A SHARE OF GALYAN'S COMMON STOCK WAS $9.99. IF THE RESTRICTED STOCK
AGREEMENT IS APPROVED BY SHAREHOLDERS, GALYAN'S PLANS TO REGISTER THE 50,000
RESTRICTED SHARES OF COMMON STOCK UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
PROPOSAL NO. 4:
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE GALYAN'S
TRADING COMPANY, INC. 1999 STOCK OPTION PLAN, AS AMENDED
On October 15, 1999, the Board of Directors adopted the Galyan's
Trading Company, Inc. 1999 Stock Option Plan (as amended, the "1999 Stock
Plan"). The shareholders subsequently approved amendments to the 1999 Stock Plan
on May 1, 2001 and on May 29, 2002. On April 6, 2004, the Board of Directors
approved an amended and restated version of the 1999 Stock Plan, which reflects
the amendments to the 1999 Stock Plan described below, subject to shareholder
approval at the Annual Meeting.
16
The full text of the 1999 Stock Plan, as amended and restated, is
attached to this Proxy Statement as APPENDIX F. The principal features of the
1999 Stock Plan, including an explanation of material changes contemplated by
the proposed amendments, are described below, but such description is qualified
in its entirety by reference to the text of the 1999 Stock Plan, as amended and
restated, attached as APPENDIX F. Except as otherwise described below in the
explanation of the proposed amendments, none of the other existing provisions of
the 1999 Stock Plan have been materially changed. In particular, the amendments
are not expected to increase the aggregate number of Galyan's shares available
for award grant purposes under the plan. However, to comply with proposed tax
regulations relating to incentive stock options, the amendments modify the
trigger date for the scheduled increase in available shares under the plan on
May 29, 2004, so that the increase in the number of available shares will be
520,871, which is 3% of the shares of Galyan's common stock outstanding on March
29, 2004, rather than 3% of the shares of the Galyan's common stock outstanding
on May 29, 2004, as provided in the current plan.
The Board of Directors recommends a vote FOR the approval of the
amendment and restatement of the Galyan's Trading Company, Inc. 1999 Stock
Option Plan.
VOTE REQUIRED
Approval of the amendment and restatement of the 1999 Stock Plan
requires that the votes cast for approval of the amendment and restatement
exceed those cast against approval of the amendments. Only votes cast for or
against approval of the amendment and restatement will be counted. Abstentions
and broker non-votes will not change the number of votes cast for or against the
proposal.
PROPOSED PLAN AMENDMENTS
The 1999 Stock Plan has principally been amended to authorize the grant
of restricted stock awards and stock appreciation rights (in addition to stock
options) to provide for the deferred payment of awards and to increase the
number of options that may be granted to any individual in a calendar year. The
Board of Directors believes that the flexibility to grant restricted stock and
stock appreciation rights under the 1999 Stock Plan will provide Galyan's with
greater flexibility to structure future incentives. If the 1999 Stock Plan
proposal is not approved by shareholders, no awards of restricted stock or stock
appreciation rights will be made under the 1999 Stock Plan and the current stock
option features of the 1999 Stock Plan will remain in effect (without giving
effect to the amendments approved by the Board of Directors and currently
proposed for consideration by the shareholders).
SUMMARY OF THE 1999 STOCK PLAN
PURPOSE. The purpose of the 1999 Stock Plan is to further the growth,
development and financial success of Galyan's by providing stock-based
incentives to eligible employees, directors, officers or consultants of Galyan's
and its subsidiaries that align the participants' interests with those of
Galyan's shareholders and to assist Galyan's in its efforts to attract and
retain quality key employees and service providers.
ADMINISTRATION. The 1999 Stock Plan is administered by the Board. The
Board may elect to delegate some or all of the administration to the
Compensation Committee, which consists of two or more non-employee directors,
each of whom meet certain standards of disinterestedness. The appropriate
acting body is referred to as the "Administrator." The Administrator has broad
authority under the 1999 Stock Plan, which generally includes the authority to
grant awards (including specifying the terms of the awards), determine
eligibility, accelerate vesting or exercise periods, establish, amend and
rescind rules and interpret and make all other determinations deemed necessary
or advisable for the administration of the 1999 Stock Plan.
17
The 1999 Stock Plan will not limit the authority of the Board or the
Compensation Committee to grant awards or authorize any other compensation, with
or without reference to Galyan's common stock, under any other plan or
authority.
ELIGIBILITY. Awards under the 1999 Stock Plan may be granted to any key
employee, director, officer or consultant of Galyan's or any of its subsidiaries
as determined from time to time by the Administrator. As of March 22, 2004,
approximately 5,976 of Galyan's employees and consultants, including all ten
executive officers, and all 11 of Galyan's non-employee directors were
considered eligible to be granted awards under the 1999 Stock Plan.
SHARES SUBJECT TO THE 1999 STOCK PLAN. The aggregate number of shares
of Galyan's common stock that may be issued pursuant to all awards under the
1999 Stock Plan is 3,024,757 shares, plus an additional 520,871 shares of
Galyan's common stock, which will become available under the plan on May 29,
2004. Various additional share limits are imposed. A maximum of:
o 1,000,000 shares may be issued pursuant to incentive stock options;
o 250,000 shares (increased from 100,000 in the current plan) may be
subject to all awards granted to any one individual in any calendar
year; and
o 100,000 shares may be issued pursuant to restricted stock awards to
any one individual in any calendar year.
Each of the foregoing limits is further subject to adjustments for
reorganizations, recapitalizations, stock splits, etc. In addition, any shares
subject to awards that are not exercised, that fail to vest, are forfeited or
that expire or are terminated and any shares surrendered as payment for an
option will again be available for regrant and award purposes under the 1999
Stock Plan.
TYPES OF AWARDS. The 1999 Stock Plan authorizes the grant of stock
options (both incentive stock options and nonqualified stock options), stock
appreciation rights ("SARs") and restricted stock awards. Awards may be granted
under the 1999 Stock Plan pursuant to another incentive program that
incorporates the terms and conditions of the 1999 Stock Plan by reference, may
be granted singly or in tandem with other awards and may be granted in
substitution for other awards granted by Galyan's, whether or not such other
awards were granted under the 1999 Stock Plan.
The Administrator has discretion to establish the vesting period of
awards, and may grant awards that are fully vested and exercisable at grant.
Subject to earlier termination as set forth in the 1999 Stock Plan or an award
agreement, each award granted under the 1999 Stock Plan will terminate no later
than seven years after the date of grant. If a grantee pays part or all of the
exercise price and/or taxes associated with an award by transferring or
surrendering shares of stock to Galyan's, the Administrator may, in its
discretion, grant a new award to replace the shares of stock transferred and/or
surrendered.
TERM OF PLAN; CONSIDERATION FOR SHARES. Awards may be granted under the
1999 Stock Plan until October 15, 2009. The 1999 Stock Plan permits the
participants to pay the exercise price of an option or the cash purchase price
(if any) of any shares in cash, by check or in such other form of lawful
consideration as the Administrator may approve from time to time, including
without limitation, by delivering previously-owned shares of Galyan's common
stock. Shares may also be issued solely for services.
18
STOCK OPTIONS. A stock option is the right to purchase shares of our
common stock at a future date at a specified price. The price at which the
common stock may be purchased is referred to as the "exercise price" of the
option. An option may either be an incentive stock option or a nonqualified
stock option. The exercise price will be determined by the Administrator, but in
the case of an incentive stock option may not be less than the fair market value
of a share of our common stock (110% in the case of a 10% owner of Galyan's
stock) on the date the option is granted.
Incentive stock options are also subject to more restrictive terms and
are limited in amount by the 1999 Stock Plan and the U.S. Internal Revenue Code.
The 1999 Stock Plan limits the aggregate fair market value of shares with
respect to which incentive stock options are exercisable for the first time by
any optionee in any calendar year under our plans to $100,000 per year. In
addition, incentive stock options granted under the plan are subject the
additional terms and conditions required for the options to qualify as
"incentive stock options" under Section 422 the Internal Revenue Code. Subject
to earlier termination, incentive stock options shall expire not more than seven
years after the date of grant, and incentive stock options granted to a 10%
shareholder of Galyan's shall expire not more than five years after the date of
grant. Incentive stock option benefits are taxed differently from nonqualified
stock options, as described under "Federal Income Tax Consequences" below. No
incentive stock options have been granted.
STOCK APPRECIATION RIGHTS. A stock appreciation right is the right to
receive payment in cash or shares of an amount equal to the excess of the fair
market value of a share of Galyan's common stock on the date of exercise of the
stock appreciation right over the base price of the stock appreciation right.
The base price will be established by the Administrator at the time of grant of
the stock appreciation right, but will not be less than the fair market value of
a share of our common stock on the date of grant.
RESTRICTED STOCK AWARDS. A restricted stock award is an award typically
for a fixed number of shares of Galyan's common stock subject to restrictions.
The Administrator specifies the price, if any, the participant must pay for such
shares and the restrictions (which may include, for example, continued service
only) imposed on such shares.
DEFERRED PAYMENT. The 1999 Stock Plan authorizes the Administrator to
permit the deferred payment of awards. The Administrator may determine the form
and timing of payment, vesting, and other terms applicable to deferrals.
TERMINATION OF EMPLOYMENT. The Administrator may establish the effect
of termination of employment or service on the rights and benefits under each
award, and may make distinctions based upon, among others, the cause of
termination and type of award. Unless otherwise expressly provided by the
Administrator, a participant's termination of employment or service shall not
accelerate or otherwise increase the number of shares subject to an award.
In addition, the Administrator may cancel any unexpired, unpaid or
deferred awards at any time if the participant is not in compliance with all
applicable provisions of the 1999 Stock Plan or with any award agreement or if
the participant, whether or not he or she is currently employed by Galyan's,
engages in any of the following activities without Galyan's prior written
consent: (1) directly or indirectly renders services to or for an organization,
or engages in a business, that is, in the judgment of the Administrator, in
competition with Galyan's or (2) discloses to anyone outside of Galyan's, or
uses for any purpose other than Galyan's business, any confidential or
proprietary information or material relating to Galyan's, whether acquired by
the participant during or after employment with Galyan's.
19
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS.
Subject to the Administrator's right to accelerate vesting and exercisability of
outstanding awards, upon dissolution, liquidation or sale of all or
substantially all our assets, or certain reorganizations or mergers in which
Galyan's does not survive or Galyan's does survive and shareholders of Galyan's
have the opportunity to receive cash or securities for their shares of Galyan's,
or any acquisition by a person or group owning more than fifty percent of our
then outstanding shares, the 1999 Stock Plan and all outstanding awards will
terminate, subject to any provisions made by the Administrator for the
substitution, assumption, settlement or other continuation of the awards. Upon
other recapitalizations or reorganizations, such as reclassification, stock
split, etc., the Administrator shall make appropriate adjustments, if any, to
the number, kind or exercise price of shares subject to outstanding awards or
remaining available for grant.
TRANSFERABILITY. Subject to customary exceptions, awards generally may
not be assigned or transferred except by will or by the laws of descent and
distribution, and are generally only exercisable by the participant (or if the
participant has suffered a disability, by his or her legal representative).
AMENDMENT AND TERMINATION OF THE PLAN. The Board may terminate and the
Administrator may amend the 1999 Stock Plan at any time. Shareholder approval
for any amendment will be required only to the extent required under applicable
law, including Code Section 162(m) and Code Section 422, or to the extent
otherwise deemed necessary or advisable by the Board. Generally speaking, no
amendment may materially adversely affect any award then outstanding without the
written consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of an employee's participation in
the 1999 Stock Plan are complex and subject to change. The following discussion
is only a summary of the general rules applicable to awards granted under the
1999 Stock Plan as of the date hereof. The application of state and local income
taxes and other federal taxes is not discussed. For individuals resident outside
the United States, the tax consequences to the individual and to us are
determined by the applicable tax laws of the foreign jurisdiction.
With respect to nonqualified stock options, Galyan's is generally
entitled to deduct, and the optionee recognizes taxable income in, an amount
equal to the difference between the option exercise price and the fair market
value of the shares at the time of exercise. With respect to incentive stock
options, we generally are not entitled to a deduction nor does the participant
recognize income at the time of exercise, although the optionee may be subject
to the U.S. federal alternative minimum tax. If incentive stock option shares
are not held for specified qualifying periods, however, the difference between
the fair market value of the shares at the date of exercise (or, if lower, the
sale price) and the cost of such shares is taxed as ordinary income (and we
generally will receive a corresponding deduction) in the year the shares are
sold.
The current federal income tax consequences of other awards authorized
under the 1999 Stock Plan generally follow certain basic patterns: stock
appreciation rights are taxed and deductible in substantially the same manner as
nonqualified stock options and non-transferable restricted stock subject to a
substantial risk of forfeiture results in income recognition equal to the excess
of the fair market value over the price paid (if any) only at the time the
restrictions lapse (unless the recipient elects to accelerate recognition as of
the date of grant). In each of the foregoing cases, we generally will have a
corresponding deduction at the time the participant recognizes income.
20
If the vesting of an award is accelerated under the 1999 Stock Plan in
connection with a change in control (as this term is used under the Internal
Revenue Code), we may not be permitted to deduct the portion of the compensation
attributable to the acceleration ("parachute payments") if it exceeds certain
threshold limits under the Internal Revenue Code (and certain related excise
taxes may be triggered). Furthermore, if the compensation attributable to awards
is not "performance-based" within the meaning of Section 162(m) of the Internal
Revenue Code, we may not be permitted to deduct the aggregate non
performance-based compensation in excess of $1,000,000 in certain circumstances.
SPECIFIC BENEFITS. Galyan's has not approved any awards under the 1999
Stock Plan that are contingent on shareholder approval of this 1999 Stock Plan
proposal. If the plan amendments reflected in this 1999 Stock Plan proposal had
been in effect in fiscal 2003, we do not expect that our award grants for fiscal
2003 would have been substantially different from those actually granted under
the plan in that year. For information regarding stock options granted to our
named executive officers in fiscal 2003, see the material under the heading
"Executive Compensation" on page 25. For additional information regarding past
option grants under the 1999 Stock Plan, see the "Aggregate Past Grants under
the 1999 Stock Plan" table below. We are not currently considering any specific
additional awards under the 1999 Stock Plan. The number, amount and type of
awards to be received by or allocated to eligible persons in the future under
the 1999 Stock Plan cannot be determined at this time.
SECURITIES UNDERLYING AWARDS. ON APRIL 1, 2004, THE CLOSING PRICE OF A SHARE OF
GALYAN'S COMMON STOCK WAS $9.99. GALYAN'S HAS REGISTERED THE AGGREGATE NUMBER OF
SHARES AVAILABLE FOR ISSUANCE UNDER THE 1999 STOCK PLAN UNDER THE SECURITIES ACT
OF 1933, AS AMENDED.
21
AGGREGATE PAST GRANTS UNDER THE 1999 STOCK PLAN
As of April 1, 2004, options covering 2,489,769 shares of our common
stock had been granted (and not cancelled and/or surrendered) under the 1999
Stock Plan. The following table shows information regarding the distribution of
those options among the persons and groups identified below and option exercises
prior to and option holdings as of that date.
NUMBER OF NUMBER OF NUMBER OF SHARES UNDERLYING
SHARES SUBJECT SHARES OPTIONS AS OF APRIL 1, 2004
TO PAST OPTION ACQUIRED ON
NAME AND POSITION GRANTS EXERCISE EXERCISABLE UNEXERCISABLE
------------------- ---------------- ------------- ------------- --------------
EXECUTIVE GROUP:
Robert B. Mang .................................. 300,000 -- 191,000 109,000
Former Chief Executive Officer and Chairman
of the Company1
Edwin J. Holman ................................. 200,000 -- -- 200,000
Chief Executive Officer (President and
Chief Operating Officer as of the end of the
most recent fiscal year)
C. David Zoba ................................... 176,000 -- 80,333 96,667
Executive Vice President, General Counsel
and Secretary
Charles F. Nelson ............................... 44,500 5,833 37,000 1,667
Former Senior Vice President, Minister
of Culture2
Edward S. Wozniak ............................... 91,000 -- 47,333 43,667
Senior Vice President and Chief Financial
Officer
TOTAL FOR EXECUTIVE GROUP (12 PERSONS): ............ 1,238,100 11,833 495,565 730,702
NON-EXECUTIVE DIRECTOR GROUP: ........................ 340,000 -- 270,002 69,998
EACH OTHER PERSON WHO RECEIVED OR IS TO RECEIVE 5%
OR MORE OF THE OPTIONS, WARRANTS OR RIGHTS UNDER THE
1999 STOCK OPTION PLAN -- -- -- --
ALL EMPLOYEES, INCLUDING ALL CURRENT OFFICERS WHO ARE
NOT EXECUTIVE OFFICERS OR DIRECTORS, AS A GROUP ...... 911,668 177,802 327,097 406,769
---------- ------- ----------- ------------
TOTAL 2,489,768 189,635 1,092,664 1,207,469
========== ======= =========== ============
1 Mr. Mang resigned from these positions on March 1, 2004.
2 Mr. Nelson retired from Galyan's effective January 31, 2004.
EQUITY COMPENSATION PLAN INFORMATION
As of the end of fiscal 2003, we maintained the following compensation
plans under which our equity securities are authorized for issuance: (1) 1999
Stock Option Plan, (2) 1999 Stock Subscription Plan, (3) 2002 Employee Stock
Purchase Plan, (4) a stock option agreement entered into in 2003 with Edwin J.
Holman and (5) a restricted stock agreement entered into in 2003 with Edwin J.
Holman.
22
The 1999 Stock Option Plan, the 1999 Stock Subscription Plan and the
2002 Employee Stock Purchase Plan each has been approved by our shareholders.
However, we are submitting to the shareholders for approval (1) a stock option
agreement granting 100,000 options to our Chief Executive Officer and (2) a
restricted stock grant of 50,000 shares of our common stock to our Chief
Executive Officer. Because the grant of stock options and the grant of
restricted stock were made, subject to shareholder approval, after the end of
the fiscal 2003, the table below does not include information about those
arrangements.
The 2003 Stock Option Agreement with Edwin J. Holman, which was a grant
of 200,000 options outside of our stock option plan, and the 2003 Restricted
Stock Agreement with Edwin J. Holman, which was a grant of 50,000 shares of
restricted stock, were each adopted without shareholder approval, in accordance
with the inducement grant exception under the NASD listing standards. The
material terms of those grants are described under the heading "Employment
Agreements and Other Arrangements - Employment Contracts - Edwin J. Holman." No
additional options are issuable under the 2003 Stock Option Agreement with Mr.
Holman, and no additional shares of restricted stock are issuable under the 2003
Restricted Stock Agreement with Mr. Holman.
The following table sets forth, for each of these plans and agreements,
the number of shares of our common stock subject to outstanding options,
warrants, and rights, the weighted-average exercise price of outstanding
options, warrants, and rights, and the number of shares remaining available for
future award grants as of January 31, 2004.
EQUITY COMPENSATION PLAN INFORMATION AS OF JANUARY 31, 2004
NUMBER OF SHARES NUMBER OF SHARES
TO BE ISSUED UPON REMAINING AVAILABLE FOR
EXERCISE OF WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
OUTSTANDING EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OPTIONS, WARRANTS OUTSTANDING OPTIONS, (EXCLUDING SHARES REFLECTED
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS IN THE FIRST COLUMN)
- -----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans 2,148,733 1 $ 15.28 3,143,107 2,3
approved by stockholders
Equity compensation plans 200,000 $ 11.43 0
not approved by stockholders
---------- -------- ---------------
Total 2,348,733 $ 14.34 3,143,107
========== ======== ===============
1 All of these shares were subject to stock options outstanding under our
1999 Stock Option Plan.
2 Of these shares, 694,389 were available for additional stock option grants
under our 1999 Stock Option Plan, 381,640 shares were available for
issuance at fair market value under our 1999 Stock Subscription Plan, and
1,425,308 were available for purchase under our 2002 Employee Stock
Purchase Plan.
3 Under the 1999 Stock Option Plan as currently in effect, on May 29, 2004 an
additional number of shares of our common stock, equal to three percent
(3%) of the total number of issued and outstanding shares of our common
stock as of the close of business on that date will become available for
stock option grant purposes under our 1999 Stock Option Plan. However,
under the proposed amendments to the 1999 Stock Option Plan, the increase
will be effective on May 29, 2004, but will be calculated as of March 29,
2004, which will result in an increase of 520,871 shares available under
the plan based on the number of shares of our common stock issued and
outstanding on that date.
23
EXECUTIVE OFFICERS
The following is a list of our current executive officers, followed by
their biographical information (other than Mr. Holman, whose biographical
information appears on page 10 of this proxy statement):
NAME AGE POSITION
Edwin J. Holman 57 Chief Executive Officer and Director
C. David Zoba 52 Executive Vice President, General Counsel and Secretary
Edward S. Wozniak 58 Senior Vice President, Chief Financial Officer
Edward J. Brett 49 Senior Vice President, Human Resources
Jeffrey R. Brown 49 Senior Vice President, General Merchandise Manager, Apparel and
Footwear
Galen R. Erickson 52 Senior Vice President, Logistics
David M. Pritchett 39 Senior Vice President, Store Operations
Lindsay J. Rice 49 Senior Vice President, General Merchandise Manager, Hardgoods
Paul C. Wagner 38 Senior Vice President, Chief Information Officer
Edward J. Whitehead 48 Senior Vice President, Marketing
C. DAVID ZOBA has served as Executive Vice President, General Counsel
and Secretary since May 2001 and has primary responsibility for real estate and
store planning, and is the Company's chief legal officer. He served as a
director of the Company from August 1999 until May 2001. Mr. Zoba served as the
Senior Vice President and Counsel-Real Estate for Limited Brands from 1999 until
May 2001, and as Vice President and Senior Counsel - Real Estate from 1994 to
1999.
EDWARD S. WOZNIAK has served as Senior Vice President and Chief
Financial Officer since February 2001. From April 1998 to October 2000, Mr.
Wozniak served as Senior Vice President and Chief Financial Officer for David's
Bridal Inc.
EDWARD J. BRETT, has served as Senior Vice President, Human Resources
since January 2004. From December 2001 to May 2003, Mr. Brett served as
Corporate Vice President of Store Innovation and Development at Circuit City
Stores, Inc. From May 2000 to December 2001, he served as Vice President,
Northeast Division President and from 1995 to 2000, Mr. Brett served as Vice
President of Superstores Human Resources & Training and Human Resources Director
of Central Division at Circuit City.
JEFFREY R. BROWN has served as Senior Vice President, General
Merchandise Manager, Apparel and Footwear, since May 2003. From 1974 until May
2003, Mr. Brown held various merchandising and management positions with
Kaufmann's Department Stores, serving as Senior Vice President, General
Merchandise Manager from March 1989 until May 2003.
GALEN R. ERICKSON has served as Senior Vice President, Logistics, since
May 2003. From 1996 until May 2003, Mr. Erickson served as Senior Vice
President, Distribution of Blockbuster Entertainment.
DAVID M. PRITCHETT has served as Senior Vice President, Store
Operations, since May 2001. From March 1996 to May 2001, he was Director of
Store Operations.
LINDSAY J. RICE has served as Senior Vice President, General
Merchandise Manager, Hardgoods, since October 2003. He served as Senior Vice
President, General Merchandise Manager, Athletics from May 2001 until October
2003, and as General Merchandise Manager, Athletics from April 1998 until May
2001.
PAUL C. WAGNER has served as Senior Vice President, Chief Information
Officer since September 2001. He served as
24
Chief Information Officer from January 2000 to September 2001. He served as Vice
President of Information Systems at Finish Line, Inc. from August 1995 until
January 2000.
EDWARD J. WHITEHEAD has served as Senior Vice President, Marketing
since February 2002. From March 2001 until February 2002, Mr. Whitehead served
as President of Eyestorm, Inc., a wholly-owned subsidiary of Eyestorm.com Ltd.,
a company that markets and distributes art media products. From January 2000
until March 2001, Mr. Whitehead served as Director of Marketing and Strategic
Planning for Harrods Ltd. in London. From May 1998 until January 2000, Mr.
Whitehead was Founder and CEO of the Workshop, Inc., an agency specializing in
marketing, advertising and strategic branding.
EXECUTIVE COMPENSATION
The following table sets forth compensation earned during the fiscal
periods indicated by the person who served as our Chief Executive Officer at the
end of the most recent fiscal year and the other four most highly compensated
executive officers during the most recent fiscal year. We refer to these
individuals as our named executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S) OPTIONS COMPENSATION
- --------------------------------------------------------------------------------------------------------------------------------
FORMER CEO AND CHAIRMAN
OF THE COMPANY
Robert B. Mang 1 2003 $ 600,000 $ 0 0 72,000 $ 10,587 2
2002 550,000 120,313 0 48,000 11,798 3
2001 500,000 185,504 0 15,000 10,861 4
CURRENT CEO AND OTHER
NAMED EXECUTIVE OFFICERS
Edwin J. Holman 5 2003 $ 250,721 $ 705,000 6 $ 720,000 7 300,000 $ 86,730 8
CHIEF EXECUTIVE OFFICER (FORMER
PRESIDENT AND CHIEF OPERATING OFFICER)
C. David Zoba 9 2003 $ 350,000 $ 100,000 10 0 30,000 $ 8,043 10
EXECUTIVE VICE PRESIDENT, 2002 325,000 140,625 11 0 21,000 170,282 11
GENERAL COUNSEL AND SECRETARY 2001 257,692 174,202 12 0 110,000 124,863 12
Charles F. Nelson 13 2003 $ 269,231 $ 0 0 -- $ 3,288 14
FORMER SENIOR VICE PRESIDENT, 2002 250,000 23,438 0 -- 3,144
14
MINISTER OF CULTURE 2001 248,461 46,376 0 5,000 5,267 14
Edward S. Wozniak 15 2003 $ 266,154 $ 0 0 24,000 $ 6,808 16
SENIOR VICE PRESIDENT 2002 243,808 26,797 0 27,000 128,511 17
CHIEF FINANCIAL OFFICER 2001 205,769 41,738 0 40,000 61,598 18
1 Mr. Mang resigned as Chief Executive Officer and Chairman of the Company on
March 1, 2004.
2 Represents $7,500 in financial planning services and $3,087 in matching
contributions under our 401(k) plan.
3 Represents $7,500 in financial planning services and $4,298 in matching
contributions under our 401(k) plan.
4 Represents $7,408 in relocation expenses and $3,453 in financial planning
services.
5 Mr. Holman joined Galyan's as President and Chief Operating Officer in
September 2003, and was named our Chief Executive Officer on March 1, 2004.
6 Represents a payment of $225,000 due under his employment agreement at the
end of fiscal 2003 and $480,000, which is the value of 40,000 shares of
restricted stock that were granted on September 3, 2003 and immediately
vested, based on the closing price of Galyan's common stock on that date of
$12.00.
25
7 Represents the value of 60,000 shares of restricted common stock that were
granted on September 3, 2003 but not immediately vested, based on the on
the closing price of Galyan's common stock on that date of $12.00. These
shares of restricted stock vest in three equal annual installments on each
anniversary of the date of grant. At the end of fiscal 2003, based on the
closing price of Galyan's common stock on January 31, 2004 of $8.81 per
share, the 60,000 shares of restricted stock had a value of $528,600. In
the event that Galyan's pays any dividends during the vesting period, the
dividends will be paid on the shares of restricted stock.
8 All Other Compensation represents $83,605 in relocation expenses and $3,125
in financial planning services.
9 Mr. Zoba joined Galyan's in May 2001.
10 Bonus includes a $100,000 payment due under his employment agreement at the
end of fiscal 2003. All Other Compensation represents $5,000 in financial
planning services and $3,043 in matching contributions under our 401(k)
plan.
11 Bonus includes a $100,000 payment due under his employment agreement at the
end of fiscal 2002. All Other Compensation represents $160,926 in
relocation expenses, $5,750 in financial planning services and $3,606 in
matching contributions under our 401(k) plan.
12 Bonus includes a $100,000 payment due under his employment agreement at the
end of fiscal 2001. All Other Compensation represents $120,370 in
relocation expenses, $2,762 in financial planning services and $1,731 in
matching contributions under our 401(k) plan.
13 Mr. Nelson retired as Senior Vice President, Minister of Culture, effective
as of January 31, 2004.
14 Represents our matching contribution under our 401(k) plan.
15 Mr. Wozniak joined Galyan's in February 2001.
16 Represents $3,750 in financial planning services and $3,058 in matching
contributions under our 401(k) plan.
17 Represents $121,452 in relocation expenses, $4,500 in financial planning
services and $2,559 in matching contributions under our 401(k) plan.
18 Represents $59,547 in relocation expenses and $2,051 in financial planning
services.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth options granted during fiscal 2003 to
each of our named executive officers. Each grant vests in three equal
installments beginning one year after the date of grant and, except for a grant
of 200,000 options to Mr. Holman approved by the Board in connection with his
hiring and described below under "Equity Compensation Plan Information," each
grant during fiscal 2003 was made under the 1999 stock option plan. The
potential realizable value is calculated assuming that the fair value on the
date of grant of our common stock appreciates at the indicated annual rate
compounded annually for the entire term of the option, and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
The assumed rates of appreciation are mandated by the rules of the SEC and do
not represent our estimate of the future prices or market value of our common
stock.
OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FAIR VALUE FOR OPTION TERM
OPTIONS IN FISCAL PRICE ON DATE OF EXPIRATION ---------------------------------------
NAME GRANTED YEAR PER SHARE GRANT DATE 0% 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
Robert B. Mang 22,000 1 2.8% $ 11.43 $ 11.43 9/2/2010 $ -- $ 102,369 $ 238,564
50,000 2 6.4% 13.66 13.66 5/30/2010 -- 278,050 647,974
Edwin J. Holman 200,000 3 25.6% 11.43 12.00 9/3/2010 114,000 930,632 2,168,767
100,000 3 12.8% 11.43 12.00 9/3/2010 57,000 465,316 1,084,384
C. David Zoba 30,000 2 3.9% 13.66 13.66 5/30/2010 -- 166,830 388,784
Charles F. Nelson -- -- -- -- -- -- -- --
Edward S. Wozniak 24,000 2 3.1% 13.66 13.66 5/30/2010 -- 133,464 311,027
1 Options granted on September 2, 2003.
2 Options granted on May 30, 2003.
3 Options granted on September 3, 2003.
26
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND FISCAL YEAR-END OPTION VALUES
None of our named executive officers exercised any stock options in fiscal 2003.
The following table provides summary information concerning the year-end values
of unexercised options held by the named executive officers.
AGGREGATE YEAR-END OPTION TABLE
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
JANUARY 31, 2004 OPTIONS AT JANUARY 31, 2004 (1)
--------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Robert B. Mang .......................... 191,000 109,000 N/A N/A
Edwin J. Holman ......................... 0 300,000 N/A N/A
C. David Zoba ........................... 80,333 80,667 N/A N/A
Charles F. Nelson ....................... 37,000 1,667 N/A N/A
Edward S. Wozniak ....................... 35,667 55,333 N/A N/A
1 Based on the closing stock price on January 31, 2004 of $8.81 per share,
none of the named executive officers had in-the-money options.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
EMPLOYMENT CONTRACTS
THE COMPANY HAS EMPLOYMENT CONTRACTS WITH THREE OF ITS NAMED EXECUTIVE
OFFICERS, WHICH ARE DESCRIBED BELOW.
EDWIN J. HOLMAN
In August 2003, we entered into an employment agreement with Mr. Holman
to be our President and Chief Operating Officer. In March 2004, Mr. Holman
became our Chief Executive Officer. In connection with his agreement to become
our Chief Executive Officer, we granted him 100,000 options to acquire our
common stock under our 1999 stock option plan, and we agreed to grant him,
subject to shareholder approval, 50,000 restricted shares of our common stock
and an additional 100,000 options to acquire our common stock. Otherwise, except
as identified below, the terms of his August 2003 employment agreement to be our
President and Chief Operating Officer continues to apply to his employment as
our Chief Executive Officer.
The term of the August 2003 agreement is three years, with an automatic
day-by-day renewal beginning after the second anniversary, so that there is
always a one year term remaining under the agreement until either we or Mr.
Holman elect to terminate the agreement or until another event triggering
termination occurs. Under the agreement, Mr. Holman's annual base salary was
$600,000 for fiscal 2003, and will be at least $650,000 for fiscal 2004 and
$700,000 for fiscal 2005. In addition, under the agreement, if we achieve
certain financial objectives, Mr. Holman is eligible to receive a target bonus
equal to 75% of his base salary. We agreed to increase to his target bonus to
90% of his base salary upon naming him our Chief Executive Officer. In addition,
the target bonus can be increased by an uncapped, additional amount if we exceed
our targeted financial objectives by an amount determined by our Board of
Directors. Mr. Holman was paid a guaranteed bonus of $225,000 for fiscal 2003,
and received no separate target bonus for fiscal 2003. Under the agreement, Mr.
Holman is eligible to receive an annual grant of stock options, subject to a
minimum of 50,000 shares per year, pursuant to our 1999 stock option plan.
27
If Mr. Holman's employment is terminated by us without cause or by Mr.
Holman for good reason, he will be entitled to receive all earned but unpaid
salary and benefits as of the date of termination, a lump sum payment equal to
his target bonus for the fiscal year of termination, and, if the termination
occurs after October 31 of the fiscal year of termination, the annual bonus, if
any, for that fiscal year based upon the Company's actual performance and paid
consistent with the administration of the Company's regular annual bonus
program. In addition, he will receive severance pay comprised of a lump sum
payment equal to his then current base salary, continued health coverage and a
payment equal to what he would have received under our retirement plans, for the
longer of one year from the date of termination or three years from the date of
his employment agreement. In the event of such a termination, any unvested
restricted stock will immediately become vested.
In the event of a change in control of the Company, unvested options
and restricted stock previously granted to Mr. Holman shall immediately become
vested on the date of such change of control. In addition, and in lieu of the
termination benefits described in the paragraph above, if a change in control
occurs and the Company or its successor terminates Mr. Holman's employment
without cause or Mr. Holman then terminates his employment for good reason
within one year following such change in control, Mr. Holman will receive a lump
sum payment equal to the sum of his annual base salary in effect on the date of
termination and his target bonus for the fiscal year in which the termination
occurs, multiplied by 2.5, plus an amount equal to the excise tax payable by Mr.
Holman under the Internal Revenue Code as a result of excess parachute payments
made to Mr. Holman resulting from the change in control.
Mr. Holman has also agreed to be bound by non-competition and non-hire
provisions that apply until the first anniversary of termination of his
employment.
In connection with the August 2003 agreement, Galyan's issued Mr.
Holman the following securities on September 3, 2003: (1) a restricted stock
grant of 100,000 shares of the Company's stock, (2) 100,000 options pursuant to
the Company's 1999 stock option plan and (3) 200,000 additional options pursuant
to a separate stock option agreement approved by the Board of Directors. The
grant of restricted stock vests as follows: 40% on September 3, 2003, and 20% on
each of the first, second and third anniversaries of Mr. Holman's commencement
date of employment. In the event Mr. Holman terminates his employment without
cause prior to the first anniversary of his employment, he must forfeit to the
Company an amount equal to the value of the restricted stock based upon the date
of grant. The options to acquire 200,000 shares of our common stock vest in
equal installments over three years, expire seven years after the date of grant
and otherwise have substantially the same as the terms of options issued under
the 1999 stock option plan. On September 3, 2003, the closing price of a share
of Galyan's common stock was $12.00, and the exercise price of the 100,000
shares of common stock issued under the 1999 stock option plan and the 200,000
shares of common stock issued under a separate agreement outside of the plan is
$11.43, which was the closing price of Galyan's common stock on September 2,
2003, Mr. Holman's first day of employment.
C. DAVID ZOBA
In October 2003, we entered into a new employment agreement with Mr.
Zoba, our executive vice president, general counsel and secretary, extending his
agreement for two years, with an automatic day-by-day renewal beginning after
the first anniversary, so that there is always a one year term remaining under
the agreement until either we or Mr. Zoba elect to terminate the agreement or
until another event triggering termination occurs. Mr. Zoba's annual base salary
was $350,000 for fiscal 2003, and will be at least $375,000 for fiscal 2004 and
$400,000 for fiscal 2005. Mr. Zoba will receive a bonus of $100,000 per year if
he remains employed by us on the last day of each fiscal year (or a pro rata
amount at the end of the term of the agreement, if less than a full year).
28
Under the agreement, Mr. Zoba is eligible to receive a target bonus
equal to 50% of his base salary if we achieve certain financial objectives, and
the target bonus can be increased by an uncapped, additional amount if we exceed
our targeted financial objectives by an amount determined by our Board of
Directors. Because we did not achieve our financial objectives for 2003, Mr.
Zoba received no target bonus for fiscal 2003, but did receive $100,000 for
remaining employed at the end of the fiscal year. Under the agreement, Mr. Zoba
is eligible to receive an annual grant of stock options pursuant to our 1999
stock option plan.
If Mr. Zoba's employment is terminated by us without cause or by Mr.
Zoba for good reason, he will be entitled to receive all earned but unpaid
salary and benefits as of the date of termination and a lump sum payment equal
to his target bonus for the fiscal year of termination. In addition, he will
receive severance pay comprised of a lump sum payment equal to his then current
base salary, continued health coverage and a payment equal to what he would have
received under our retirement plans, for the longer of one year from the date of
termination or two years from the date of his employment agreement. In the event
of a change in control of the Company, unvested options previously granted to
Mr. Zoba shall immediately become vested on the date of such change of control.
Mr. Zoba has also agreed to be bound by non-competition and non-hire
provisions that apply until the later of the second anniversary of termination
of his employment or three years from the date of the agreement.
AGREEMENT WITH ROBERT B. MANG, OUR FORMER CHIEF EXECUTIVE OFFICER AND CHAIRMAN
We entered into an agreement with Robert B. Mang, our former Chief
Executive Officer and Chairman of the Company, formalizing his separation
arrangements with us. Under the agreement, Mr. Mang resigned from his position
as an officer of Galyan's effective March 1, 2004, and agreed to resign as a
director of Galyan's no later than May 14, 2004. Under the terms of our
separation agreement with him, Mr. Mang will remain an employee of Galyan's,
assisting Mr. Holman, our new Chief Executive Officer, with merchandising,
marketing and other transition issues, for a period ending no later than May 31,
2004. During his transitional period of employment, Mr. Mang will receive his
normal base salary at the rate of $650,000 per year (payable under our normal
payroll arrangements). In addition, within ten business days after the end of
his transitional period of employment, Mr. Mang will receive a bonus payment in
the gross amount of $585,000 (subject to reductions for taxes), representing his
target bonus for fiscal 2004, a severance payment in the gross amount of
$866,667 (subject to reductions for taxes), and a lump sum equal to the benefits
that Mr. Mang would have accrued under Galyan's retirement plans through July 1,
2005 were he to remain employed through such date. In addition, all unvested
options granted to Mr. Mang vest on May 31, 2004, and those and all other
outstanding options were made exercisable until March 31, 2006. We have also
agreed to allow Mr. Mang, partially at his expense, to continue his group health
insurance coverage through September 30, 2005. Under the agreement, Mr. Mang
waived all other consideration to which he may have been entitled and released
us from any and all claims related to his employment. He also agreed not to
compete with us directly or indirectly or to solicit any of our employees for a
one-year period.
CONSULTING AGREEMENT WITH CHARLES F. NELSON, OUR FORMER SENIOR VICE PRESIDENT,
MINISTER OF CULTURE
In January 2004, we entered into a consulting arrangement with Charles
Nelson, formerly our Senior Vice President, Minister of Culture, under which we
agreed that he would retire effective January 31, 2004, and that Galyan's would
pay him $10,000 per month for twelve months for employee and executive search
services. We have also agreed to pay him a success fee of 25% of the salary and
bonus earned in the first year by any person hired by the Company as a result of
the efforts of Mr. Nelson. Any success fees will be credited against the monthly
retainer. If both Mr. Nelson and Galyan's agree,
29
the term of the agreement may be extended one year. In connection with the
agreement, Galyan's also agreed to extend the exercise period for Mr. Nelson's
options until January 31, 2006. In addition, Mr. Nelson released Galyan's of any
potential claims, and agreed not to compete with Galyan's or solicit for hire
any of Galyan's employees for a two year period ending January 31, 2006.
CONSULTING AGREEMENTS
See "Compensation Committee Interlocks and Insider Participation" below
for a description of an oral consulting agreement that we have with Mr. Starrett
and the oral consulting agreement that we had with Mr. Matthews, which was
terminated in May 2003.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
THIS SECTION OF THE PROXY STATEMENT WILL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING THIS PROXY
STATEMENT INTO ANY OF OUR FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT WE SPECIFICALLY
INCORPORATE THIS INFORMATION BY REFERENCE, AND WILL NOT OTHERWISE BE DEEMED
"FILED" UNDER EITHER SUCH ACTS.
The Galyan's Compensation Committee of the Board of Directors (the
"Committee") is responsible for developing and administering the policies and
practices associated with the total compensation for executives, subject to the
approval of the Board as deemed necessary or appropriate, and making
recommendations to the Board on all elements of compensation of our executive
officers. The Committee also has the authority to administer and make award
grants under the 1999 Stock Option Plan. The Committee also has authority to
administer option award grants made to Mr. Holman in September 2003 and March
2004.
EXECUTIVE COMPENSATION PHILOSOPHY
It is the philosophy of the Committee that a significant portion of
each executive's possible compensation be directly linked to Galyan's
performance and appreciation in shareholder value. Thus, a significant portion
of each executive's compensation is "at risk." The guiding principles behind
total compensation for executive officers are as follows:
o Provide a competitive total compensation package that enables us
to attract, retain and motivate executive talent to achieve our
goals and objectives.
o Provide variable compensation opportunities on an annual basis
that are directly linked to Galyan's performance goals.
o Provide long-term equity participation that aligns executive
compensation with appreciated shareholder value.
o Recognize and reward individual performance.
30
BASE SALARY
The Committee sets base salaries, which are subject to annual
adjustment, by the Committee, except that the base salaries for Messrs. Holman
and Zoba are set forth in employment agreements we have entered into with each
of them. The Committee strives to set and maintain base salaries at levels
competitive with those paid by other retailers. In setting base salary levels,
the Committee considers, among other factors it may deem relevant in the
circumstances, salaries for comparable positions at comparable retail companies,
using independent survey data of other representative retailers, adjusted for
company size. The Committee also sets base salary levels based on its subjective
assessment of individual performance and future contributions, satisfaction of
Galyan's performance objectives, competitive issues, length of service and
internal equity in light of the executives' relative positions and
responsibilities.
SHORT-TERM INCENTIVE COMPENSATION
Each year, the Committee establishes an annual incentive compensation
program that provides for cash awards based upon the achievement of specific
performance objectives established by the Committee based on operating income,
earnings per share or a similar financial performance metric. If Galyan's
achieves the Committee's financial performance objective, each executive officer
will earn a "target" bonus established by the Committee with respect to the
officer. Although the Committee has discretion to determine "target" bonus
levels, each executive's "target" bonus level generally ranges from 30% to 90%
of his or her base salary. The Committee sets a minimum financial performance
standard below which no executive officer will be entitled to any of his or her
"target" bonus, and also establishes whether and the extent to which partial
bonuses will be paid for performance that exceeds the minimum standard but falls
short of the original goal, as well as the extent to which bonuses greater than
the applicable "target" will be paid for performance that exceeds goals. There
are no caps on the maximum level of bonuses. For fiscal 2003, Galyan's financial
performance objectives were based on various specific and confidential operating
income goals. The fiscal 2003 goals were not achieved. Accordingly, no fiscal
2003 bonuses were paid to executives.
LONG-TERM INCENTIVE COMPENSATION
The Committee intends to make annual grants of stock options under the
1999 Stock Option Plan to provide long-term equity participation that help to
further align management's interests with the interests of Galyan's
shareholders. The Committee believes that option grants promote the continuity
of management and focus performance on long-term strategic and financial goals
and objectives, including improvement in shareholder value. In determining the
number of options to grant to an executive officer, the Committee takes into
consideration the position of the individual, the Committee's subjective
assessment of his or her performance, the individual's previous and anticipated
contribution to Galyan's success and grant history, total compensation paid to
the executive, possible dilutive effects of the award, possible future stock
values, and industry practices and trends in general, with no one factor being
accorded any special weight. Each grant typically allows the individual to
acquire shares of our common stock at a price that is not less than the fair
market value of the shares at the close of business on the grant date. The
options typically vest in equal annual installments over a three-year period and
have a maximum term of seven years.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER FOR FISCAL 2003
Robert B. Mang was appointed Chairman of the Company and Chief
Executive Officer effective October 1, 2000, and served in that capacity until
his resignation as an officer on March 1, 2004. Pursuant to the terms of his
employment
31
agreement, Mr. Mang received a base salary of $600,000 in fiscal 2003. In
addition, pursuant to the terms of his separation arrangement, Mr. Mang will
receive various payments described above under the heading "Employment
Agreements and Other Arrangements - Agreement with Robert B. Mang, our Former
Chief Executive Officer and Chairman."
SHORT-TERM INCENTIVE COMPENSATION
For fiscal 2003, Mr. Mang did not receive an incentive cash award under
the annual incentive compensation program established by the Committee. Mr.
Mang's "target" bonus for purposes of the annual incentive compensation plan for
fiscal 2003 was 90% of his base salary.
LONG-TERM INCENTIVE COMPENSATION
For fiscal 2003, Mr. Mang received stock option grants covering 72,000
shares of Galyan's common stock as part of Galyan's program of annual option
grants. The stock options have a three-year vesting period, a maximum term of
seven years, and the exercise price was set at the fair market value of the
underlying stock on the date of grant. Pursuant to the terms of his separation
arrangements with Galyan's, these options and all other unvested options held by
Mr. Mang shall vest on May 31, 2004 and be exercisable until March 31, 2006. The
number of shares subject to such option grant to Mr. Mang was determined after
taking into consideration his position, the Committee's subjective assessment of
his performance and his previous and anticipated contribution to Galyan's
success, his total compensation, possible dilutive effects of the award,
possible future stock values, and industry practices and trends in general with
no one factor being accorded any special weight.
TAX TREATMENT
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public corporations for compensation in excess of $1,000,000 paid
for any fiscal year to the corporation's chief executive officer or to any of
the four other most highly compensated executive officers as of the end of the
fiscal year. However, the statute exempts qualifying performance-based
compensation from the deduction limit if certain requirements are met. The
Committee currently intends to structure stock option grants as qualifying
performance-based compensation for this purpose. Current base salary and
anticipated bonus levels are not expected to exceed or materially exceed the
Section 162(m) limit.
The Board of Directors and Committee endeavor to maximize the
deductibility of compensation under Section 162(m) of the Internal Revenue Code
to the extent practicable while maintaining competitive compensation. Further,
because of ambiguities and uncertainties as to the application and
interpretation of Section 162(m) and the regulations issued thereunder, no
assurance can be given, notwithstanding the Committee's efforts, that
compensation intended by the Committee to satisfy the requirements for
deductibility under Section 162(m) does in fact do so.
Submitted by the Compensation Committee
Norman S. Matthews, Chair
Frank J. Belatti
Timothy J. Faber
John M. Roth
Peter Starrett
32
PERFORMANCE MEASUREMENT COMPARSION
The following graph compares the cumulative total shareholder return on
a $100 investment in our common stock with the cumulative total return of a $100
investment in (a) the Russell 2000 Index and (b) S&P 500 Specialty Retail Index
(a published industry index). The graph is intended to provide a relevant
comparison of total returns for the period from June 27, 2001 (the day our
common stock commenced trading) through March 29, 2004. Because our stock began
trading on June 27, 2001, the information in the graph is provided at fiscal
quarter-end intervals and at March 29, 2004, the record date for our annual
meeting. The total return on the common stock is measured by dividing the
difference between the common stock price at the end and the beginning of the
measurement period by the common stock price at the beginning of the measurement
period. The graph for our Company and each of the indices also assumes the
reinvestment of dividends. Note: We caution that past stock price performance
shown for our common stock is not necessarily indicative of future price
performance.
THIS PERFORMANCE GRAPH WILL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING THIS PROXY STATEMENT INTO ANY
OF OUR FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934, EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE THIS INFORMATION BY
REFERENCE, AND SHALL NOT BE DEEMED "SOLICITING MATERIAL" OR OTHERWISE DEEMED
"FILED" UNDER EITHER SUCH ACTS.
GALYAN'S TRADING COMPANY, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN
JUNE 27, 2001 TO MARCH 29, 2004
TOTAL RETURN TO SHAREHOLDERS
(DIVIDENDS REINVESTED MONTHLY)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
INDEXED RETURNS
Base Quarter Ending
Period
Company / Index 6/27/01 8/4/01 11/3/01 2/2/02 5/4/02 8/3/02 11/2/02 2/1/03 5/3/03 8/2/03 11/1/03 1/31/04 3/29/04
- -----------------------------------------------------------------------------------------------------------------------------------
GALYANS TRADING
CO INC 100 59.60 53.74 65.46 93.36 60.58 56.08 49.54 78.90 56.42 64.04 43.04 48.12
RUSSELL 2000
INDEX 100 98.41 87.80 97.64 104.55 77.07 78.81 76.77 84.43 97.25 110.04 121.31 122.08
S&P 500
SPECIALTY
RETAIL 100 104.17 87.77 107.31 106.10 72.77 78.16 66.50 82.09 89.72 106.79 102.08 107.04
33
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Our Compensation Committee consists of Norman S. Matthews, as Chairman,
Frank J. Belatti, Timothy J. Faber, John M. Roth and Peter Starrett. None of the
members is an employee or was formerly one of our officers or an officer of one
of our subsidiaries. However, Mr. Faber is Vice President Treasury/Mergers and
Acquisitions of Limited Brands, Inc., Mr. Starrett provides consulting services
to Galyan's, Mr. Matthews provided consulting services until May 2003, when the
arrangement for such services was terminated, and Mr. Roth is Vice President and
Managing Member of FS Capital Partners LLC, which is the general partner of FS
Equity Partners IV, L.P. Certain transactions and relationships between us and
Limited Brands, Messrs. Matthews and Starrett and Freeman Spogli or their
respective affiliates are described below.
TRANSACTIONS WITH FREEMAN SPOGLI AND LIMITED BRANDS
In connection with our 1999 recapitalization, we declared a dividend in
the form of a warrant to Limited Brands to purchase 1,350,000 shares of our
stock with an initial exercise price on September 1, 1999 of $10.00 per share.
Under the terms of the warrant, on the first day of each month from and
including October 1999 to and including September 2000, the exercise price
increased by an amount equal to 3 1/3% of the initial exercise price. On the
first day of each month thereafter, the exercise price increases by an amount
equal to 3 1/3% of the exercise price in effect on the preceding September 1.
This results in an increase of the exercise price at a rate of 40.0% per year.
The warrant became exercisable upon the completion of our initial public
offering in July 2001 and will expire in August 2009.
We are party to a stockholders agreement with FS Equity Partners IV,
L.P., Limited Brands, Inc., and G Trademark, Inc. See "Information Regarding
Certain Directorships and Voting Arrangements" above for a description of the
stockholders agreement. In addition, we are party to a 1999 registration rights
agreement granting FS Equity Partners IV, L.P., Limited Brands, Inc. and G
Trademark, Inc. rights to require us to register their shares for public resale,
pursuant either to a demand made by these shareholders or pursuant to a request
to participate in offerings to be made by the Company.
Limited Brands is a guarantor of our obligations under our real
property leases for eight of our stores: (1) Woodbury, Minnesota store, (2)
Minnetonka, Minnesota store, (3) Dublin, Ohio store, (4) Schaumburg, Illinois
store, (5) Buford, Georgia store, (6) Atlanta, Georgia store, (7) Castleton,
Indiana store, and (8) Gaithersburg, Maryland store. We have agreed to reimburse
Limited Brands for any amounts that they may be required to pay under these
guarantees. To date, they have made no payments.
In December 2003, we acquired from an affiliate of Limited Brands
approximately 37 acres of land that is adjacent to our distribution center in
Plainfield, Indiana for a purchase price of approximately $2.2 million. The
price was based upon an independent appraisal, with a reduction from the
appraised price to reflect costs savings to Limited Brands associated with not
having to pay brokerage fees.
CERTAIN AGREEMENTS AND ARRANGEMENTS WITH DIRECTORS
Mr. Starrett, who is a consultant to Freeman Spogli & Co., has a verbal
consulting agreement with us, under which we pay him $50,000 per year, for his
consulting services. Either party can terminate this agreement at any time.
34
From August 1999 until May 2003, we had a consulting agreement with Mr.
Matthews under which we paid him $100,000 per year. In fiscal 2003, we paid Mr.
Matthews $25,000 for the period of services prior to the May 2003 termination of
such consulting agreement. In August 2000, we loaned Mr. Matthews $75,000 in
connection with his purchase from us of 10,000 shares of our common stock, and
Mr. Matthews issued to us a full recourse promissory note for the amount
borrowed, bearing simple interest at 7.5% per annum and secured by the
additional shares of common stock. Mr. Matthews repaid the borrowed amount
(together with all accrued interest) in full in March 2004. Mr. Matthews is a
consultant to Freeman Spogli & Co.
In addition, on May 30, 2003, we granted Mr. Matthews 15,000 options to
purchase our common stock at an exercise price of $13.66 per share.
None of our executive officers serves on the compensation committee or
board of directors of any other company on which any of the members of our
Compensation Committee or any of our directors is an executive officer.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
THIS SECTION OF THE PROXY STATEMENT WILL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING THIS PROXY
STATEMENT INTO ANY OF OUR FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT WE SPECIFICALLY
INCORPORATE THIS INFORMATION BY REFERENCE, AND WILL NOT OTHERWISE BE DEEMED
"FILED" UNDER EITHER SUCH ACTS.
Our Audit Committee is comprised of Byron E. Allumbaugh, George R.
Mrkonic, Jr. and Michael Goldstein (Chairman). Each of the members of the Audit
Committee is independent as defined under the listing standards of the Nasdaq
National Market. The Board of Directors of the Company has determined that
Michael Goldstein, Chair of the Audit Committee, is an audit committee financial
expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and is independent within the
meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. The Committee
operates under a revised written charter adopted by our Board on March 9, 2004
and attached to this proxy statement as APPENDIX A. The Audit Committee appoints
our independent accountants.
Galyan's management is responsible for preparing our financial
statements, internal controls and financial reporting process. Galyan's
independent accountants, Deloitte & Touche LLP, are responsible for performing
an independent audit of our consolidated financial statements in accordance with
generally accepted auditing standards and for issuing a report thereon. The
Audit Committee's responsibility is to monitor and oversee these processes. The
members of the Audit Committee are not professionally engaged in the practice of
auditing or accounting and are not experts in the fields of accounting or
auditing, including in respect of auditor independence. It is not the Audit
Committee's duty or responsibility to conduct auditing or accounting reviews or
procedures. Therefore, the Audit Committee has relied, without independent
verification, on management's representation that the financial statements have
been prepared with the integrity and objectivity and in conformity with
generally accepted accounting principles and on the representations of the
independent accountants included in their report on Galyan's consolidated
financial statements. Furthermore, the Audit Committee's considerations and
discussions with management and the independent accountants do not assure that
Galyan's consolidated financial statements are presented in accordance with
generally accepted accounting principles, that the audit of Galyan's
consolidated financial statements has been carried out in accordance with
generally accepted auditing standards, or that the independent accountants are
in fact "independent."
35
The Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent accountants, including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements. The Audit Committee discussed with the
independent accountants matters required to be discussed by the Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as amended by
Statement on Auditing Standards No. 89 (Audit Adjustments) and Statement on
Auditing Standards No. 90 (Audit Committee Communications). Our independent
accountants also provided to the Audit Committee the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee discussed with the
independent accountants that firm's independence.
Based on the reviews and discussions mentioned above and the report of
the independent accountants to the Audit Committee, and subject to the
limitations on the role and responsibilities of the Audit Committee referred to
above, the Audit Committee, exercising its business judgment, recommended to our
Board that the audited consolidated financial statements be included in our
Annual Report on Form 10-K for the year ended January 31, 2004, filed with the
Securities and Exchange Commission.
Submitted by the Audit Committee
Michael Goldstein, Chairman
Byron E. Allumbaugh
George R. Mrkonic, Jr.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH FREEMAN SPOGLI, LIMITED BRANDS AND CERTAIN DIRECTORS
See "Compensation Committee Interlocks and Insider Participation" and
"Information Regarding Certain Directorships and Voting Arrangements" above for
descriptions of certain transactions and relationships between us and Freeman
Spogli and Limited Brands or one or more of their respective affiliates, and
certain members of our Board of Directors.
STOCK SALES TO EXECUTIVE OFFICERS AND DIRECTORS PRIOR TO OUR INITIAL PUBLIC
OFFERING
In October 1999, David M. Pritchett and Lindsay J. Rice purchased
11,000 and 10,000 shares of common stock, respectively, for a purchase price of
$110,000 and $100,000 respectively, and we lent them $50,000 and $50,000,
respectively, to finance the purchase of a portion of these shares. Each person
issued to us a full recourse promissory note for the amount borrowed. Each note
bears simple interest at 7.5% per annum and accrued interest is payable in
arrears on March 31 of each year commencing on March 31, 2000. The principal
balance of, and all accrued and unpaid interest on, each note is due and payable
on October 15, 2004. The notes are secured by shares of common stock owned by
these individuals. As of March 31, 2004, after reflecting payments for accrued
interest for the period ending December 31, 2003, the outstanding principal
balance plus accrued interest due from each of Messrs. Pritchett and Rice was
approximately $50,938.
36
In May 2001, C. David Zoba purchased 30,000 shares of common stock at
$19.00 per share, which represented the fair value of the shares at that time,
for a purchase price of $570,000. We loaned $285,000 to Mr. Zoba to finance the
purchase of a portion of those shares. Mr. Zoba issued to us a full recourse
promissory note for the amount borrowed, bearing simple interest at 7.5% per
year and secured by his shares of common stock. In February 2003, Mr. Zoba
repaid the borrowed amount (together with all accrued interest) in full.
AGREEMENTS WITH EXECUTIVE OFFICERS
See "Employment Agreements and Other Arrangements" above for a
description of certain agreements we have entered into with certain of named
executive officers.
In addition to those agreements, we entered into an employment
agreement with each of Jeffrey R. Brown, Lindsay J. Rice and Edward J. Brett on
December 12, 2003, December 12, 2003 and January 20, 2004, respectively. Each of
those agreements provides for a term of two years, with an automatic day-by-day
renewal beginning after the first anniversary, so that there is always a one
year term remaining under the agreement. The initial base salary for the
executive under each of the agreements is $265,000, and is to be adjusted under
the Company's normal salary review procedures. Each executive is also eligible
to receive a target bonus equal to 35% of his base salary if we achieve certain
financial objectives. The target bonus can be increased by an uncapped,
additional amount if we exceed our targeted financial objectives by an amount
determined by our Board of Directors. Because we did not achieve our financial
objectives for 2003, none of the executives received a target bonus for fiscal
2003. Each executive is also eligible under his agreement to receive an annual
grant of stock options pursuant to our 1999 Stock Option Plan. If the executive
is terminated by us without cause or by the executive for good reason, he will
be entitled to receive all earned but unpaid salary and benefits as of the date
of termination and the annual bonus, if any, for that fiscal year based upon the
Company's actual performance and paid consistent with the administration of the
Company's regular annual bonus program. In addition, he will receive severance
pay constituting the continuation of his then current base salary and health
coverage and a payment equal to what he would have received under our retirement
plans for the longer of one year from the date of termination of his employment
or two years from the date of the agreement. In the event of a change in control
of the Company, unvested options previously granted to the executive will
immediately become vested on the date of such change of control. Each executive
also agreed to be bound by non-competition and non-hire provisions that apply
until the first anniversary of termination of his employment.
In June 2003, we entered into a separation agreement with Joan M.
Hurley, formerly our Senior Vice President, Communications and Community
Relations, under which we agreed to pay Ms. Hurley her annual base salary of
$160,000 per year during a one-year period, with potential reduction for income
earned by her from third parties, and some excess benefits costs, in exchange
for a release from Ms. Hurley of any potential claims and an agreement by her
not to compete with us or solicit for hire any of our employees during the one
year period.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and SEC regulations require our
directors, certain officers and persons who own more than 10% of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the SEC and NASDAQ. These persons are required by SEC regulation
to furnish us with copies of all Section 16(a) forms they file. Based solely on
our review of the copies of such reports that we received, and on written
representations from certain reporting persons, we believe that, other than a
late Form 4 filing by each of Messrs. Allumbaugh, Belatti, Mang and Mrkonic, our
directors, officers and greater than 10% beneficial owners complied with all
applicable Section 16(a) filing requirements during fiscal 2003.
37
INDEPENDENT PUBLIC ACCOUNTANTS
Our Audit Committee of the Board of Directors has appointed Deloitte &
Touche LLP as our independent public accountants for fiscal year 2004. Deloitte
& Touche LLP has served as our independent public accountants since 1999.
Services provided to us by Deloitte & Touche LLP in fiscal 2003 included the
audit of our consolidated financial statements for the year ended January 31,
2004, limited reviews of quarterly reports, services related to filings with the
Securities and Exchange Commission, and consultations on various tax matters.
We expect representatives of Deloitte & Touche LLP to be at the Annual
Meeting and to be available to respond to appropriate questions from
shareholders. We will give the Deloitte & Touche LLP representatives an
opportunity to make a statement if they desire.
FEES PAID TO INDEPENDENT AUDITORS
AUDIT FEES. The aggregate fees billed for audit services rendered by
Deloitte & Touche LLP in 2003 and 2002 totaled approximately $270,000
and $232,000, respectively. Services rendered in this category
consisted of:
o audits of the consolidated financial statements;
o reviews of the consolidated financial statements included in the
Company's Quarterly Reports on Form 10-Q;
o professional services rendered in connection with a consent included
in Form S-8 filing for hiring of President and Chief Operating
Officer;
o professional services rendered in connection with a consent included
in Form S-8 filing for establishment of an employee stock purchase
plan; and
o services associated with periodic reports and other documents filed
with the Securities and Exchange Commission.
AUDIT-RELATED FEES. The aggregate fees billed in 2003 and 2002 for
assurance and related services by Deloitte & Touche LLP that are
reasonably related to the performance of the audit or review of the
Company's financial statements totaled approximately $147,000 and
$14,000, respectively. Services rendered in this category consisted
primarily of:
o internal control reviews;
o Section 404 readiness consultation; and
o financial statement audits of employee benefit plans.
TAX FEES. The aggregate fees billed in 2003 and 2002 for professional
services rendered by Deloitte & Touche LLP for tax compliance, tax
advice and tax planning totaled approximately $113,000 and $138,000,
respectively. Services rendered in this category consisted primarily
of:
38
o tax planning and other non-compliance consultation, including tax
audit assistance;
o professional services rendered in connection with the establishment
of a new wholly owned subsidiary;
o sale leaseback accounting review;
o tax compliance and ruling requests, including federal and state tax
return preparation; and
o advice and assistance in implementing a change in accounting method
for tax purposes of Internal Revenue Service regulations related to
uniform capitalization costs of inventory.
The Audit Committee approves all audit-related and non-audit related
services, and does not delegate these responsibilities except that pre-approval
of non-audit services may be delegated to a single member of the Audit
Committee. In fiscal 2003, the Audit Committee pre-approved Deloitte and Touche
LLP's provision of all non-audit services, and determined that Deloitte and
Touche LLP's provision of the non-audit services is compatible with maintaining
Deloitte and Touche LLP's independence.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be
presented at the Annual Meeting. If other matters properly come before the
Annual Meeting, the proxies will be voted in accordance with the judgment of the
persons voting.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ C. DAVID ZOBA
C. David Zoba
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
Plainfield, Indiana
Dated: April 30, 2004
39
APPENDIX A
GALYAN'S TRADING COMPANY, INC.
AUDIT COMMITTEE CHARTER
A. NAME
There shall be a committee of the Board which shall be called the Audit
Committee.
B. PURPOSE
The Audit Committee shall be directly responsible for the appointment,
compensation and oversight over the work of the Company's public accountants.
The Audit Committee shall monitor (1) the integrity of the financial
statements of the Company and of the Company's systems of internal accounting
and financial controls, (2) the Company's compliance with legal and regulatory
requirements, (3) the public accountants' qualifications and independence, (4)
the performance of the Company's public accountants and (5) the establishment
and performance of the Company's internal audit functions.
The Audit Committee shall prepare the report required by the rules of
the Securities and Exchange Commission to be included in the Company's annual
proxy statement. The Audit Committee Charter shall be included as an appendix to
the Company's proxy statement at least once every three years.
C. COMMITTEE MEMBERSHIP
The Audit Committee shall consist of no fewer than three members. Each
member of the Audit Committee shall satisfy the independence, experience and
financial expertise requirements of the NASDAQ and Section 10A of the Securities
Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, and the
rules promulgated thereunder. Director's fees are the only compensation that an
Audit Committee member may receive from the Company.
The Board shall appoint the members of the Audit Committee annually,
considering the recommendation of the Nominating and Corporate Governance
Committee, and further considering the views of the Chairman of the Board and
the Chief Executive Officer, as appropriate. The members of the Audit Committee
shall serve until their successors are appointed and qualify, and shall
designate the Chairperson of the Audit Committee. The Board shall have the power
at any time to change the membership of the Audit Committee and to fill
vacancies in it, subject to such new member(s) satisfying the independence,
experience and financial expertise requirements referred to above. Except as
expressly provided in this Charter or the by-laws of the Company or the
Corporate Governance Guidelines of the Company, or as otherwise provided by law
or the rules of the NASDAQ, the Audit Committee shall fix its own rules of
procedure.
A-1
D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint or replace
the public accountants and shall approve all audit engagement fees and terms and
all non-audit engagements with the public accountants. The Audit Committee shall
consult with management but shall not delegate these responsibilities, except
that pre-approvals of non-audit services may be delegated to a single member of
the Audit Committee. In its capacity as a committee of the Board, the Audit
Committee shall be directly responsible for the oversight of the work of the
public accounting firm (including resolution of disagreements between management
and the public accounting firm regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work, and the public accounting
firm shall report directly to the Audit Committee.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain special legal, accounting or other
consultants to advise the committee and carry out its duties, and to conduct or
authorize investigations into any matters within its scope of responsibilities.
The Audit Committee shall meet periodically with management, the internal
auditors and the public accountants in separate executive sessions in
furtherance of its purposes. The Audit Committee may request any officer or
employee of the Company or the Company's outside counsel or public accountants
to attend a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. The Audit Committee
shall annually review the Audit Committee's own performance.
In performing its functions, the Audit Committee shall undertake those
tasks and responsibilities that, in its judgment, would most effectively
contribute and implement the purposes of the Audit Committee. The following
functions are some of the common recurring activities of the Audit Committee in
carrying out its oversight responsibility:
o Review and discuss with management and the public accountants the
Company's annual audited financial statements, including disclosures
made in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the matters required to be discussed
pursuant to Statement on Auditing Standards No. 61, and recommend to
the Board whether the audited financial statements should be
included in the Company's Form 10-K.
o Review and discuss with management and the public accountants the
Company's quarterly financial statements, including disclosures made
under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" or similar disclosures, and the matters
required to be discussed pursuant to Statement on Auditing Standards
No. 61, prior to the filing of its Form 10-Q, including the results
of the public accountants' reviews of the quarterly financial
statements to the extent applicable.
o Review and discuss with management and the public accountants, as
applicable, (a) major issues regarding accounting principles and
financial statement presentations, including any significant changes
in the Company's selection or application of accounting principles,
and major issues as to the adequacy of the Company's internal
A-2
controls and any special audit steps adopted in light of material
control deficiencies; (b) analyses prepared by management or the public
accountants setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP
methods on the financial statements; (c) any management letter provided
by the public accountants and the Company's response to that letter;
(d) any problems, difficulties or differences encountered in the course
of the audit work, including any disagreements with management or
restrictions on the scope of the public accountants' activities or on
access to requested information and management's response thereto; (e)
the effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company; and (f) earnings press releases (paying particular attention
to any use of "proforma" or "adjusted" non-GAAP, information), as well
as financial information and earnings guidance (generally or on a
case-by-case basis) provided to analysts and rating agencies.
o Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk
management policies.
o Obtain and review a report from the public accountants at least
annually regarding all relationships between the public accountants
and the Company. Evaluate the qualifications, performance and
independence of the public accountants, including a review and
evaluation of the lead partner of the registered public accountant
and taking into account the opinions of management and the Company's
internal auditors.
o Ensure that the lead audit partner of the public accountants and the
audit partner responsible for reviewing the audit are rotated at
least every five years as required by the Sarbanes-Oxley Act of
2002.
o Recommend to the Board policies for the Company's hiring of
employees or former employees of the public accountants who were
engaged on the Company's account (recognizing that the
Sarbanes-Oxley Act of 2002 does not permit the CEO, controller, CFO
or chief accounting officer to have participated in the Company's
audit as an employee of the public accountants during the preceding
one-year period).
o Discuss with the public accountants any communications between the
audit team and the audit firm's national office respecting auditing
or accounting issues presented by the engagement.
o Discuss with management and the public accountants any accounting
adjustments that were noted or proposed by the registered public
accountants but were passed (as immaterial or otherwise).
o Discuss with the public accountants the internal audit function and
the audit plan responsibilities, budget and staffing.
o Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (b) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
A-3
o Review disclosures made by the Company's principal executive officer
or officers and principal financial officer or officers regarding
compliance with their certification obligations as required under
the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder,
including the Company's disclosure controls and procedures and
internal controls for financial reporting and evaluations thereof.
o Review any reports of the public accountants mandated by Section 10A
of the Securities Exchange Act of 1934, as amended, and obtain from
the public accountants any information with respect to illegal acts
in accordance with Section 10A.
o Review and approve the Audit Committee report required to be
included in the Company's annual proxy statement.
o Ensure that the Company establishes and maintains an internal audit
function.
o Determine that management has established, reviewed and updated
periodically an Ethics Policy, particularly with regard to senior
management. Recommend to the Board proposed modifications, if any,
to the Company's Ethics Policy, and consider any request for waivers
of the Company's Ethics Policy in respect of any of the Company's
executive officers. The Company shall make disclosure of any waivers
required by (and in accordance with) applicable law and listing
standards.
o Review and approve all related-party transactions.
o Review with the Company's general counsel legal or regulatory
matters that may have a material impact on the Company's financial
statements or its compliance or reporting policies.
E. LIMITATIONS OF AUDIT COMMITTEE'S ROLES
While the Audit Committee has the responsibilities and powers set forth
in its Charter, it is not the duty of the Audit Committee to prepare financial
statements, plan or conduct audits or to determine that the Company's financial
statements and disclosures are complete and accurate and are in accordance with
generally accepted accounting principles and applicable rules and regulations.
These are the responsibilities of management and the registered public
accountants.
Adopted on March 9, 2004.
A-4
APPENDIX B
GALYAN'S TRADING COMPANY, INC.
NOMINATING AND GOVERNANCE COMMITTEE CHARTER
A. NAME
There shall be a committee of the Board, which shall be called the
Nominating & Governance Committee.
B. PURPOSE
The Nominating & Governance Committee shall (1) identify individuals
qualified to become Board members, and recommended that the Board select the
director nominees for the next annual meeting of shareholders; and (2) develop
and recommend to the Board the Corporate Governance Guidelines applicable to the
Company.
C. COMMITTEE MEMBERSHIP AND PROCEDURES
The Nominating & Governance Committee shall consist of no fewer than
two members. The Board shall appoint the members of the Nominating & Governance
Committee. The members of the Nominating & Governance Committee shall serve
until their successors are appointed and qualify, and shall designate the
Chairman of the Nominating & Governance Committee. The Board shall have the
power at any time to change the membership of the Nominating & Governance
Committee and to fill vacancies in it, subject to such new member (s) satisfying
the independence requirements established by NASDAQ (if, and to the extent, such
NASDAQ independence rules apply to the Company). Except as expressly provided in
this Charter, the by-laws of the Company or the Corporate Governance Guidelines
of the Company, the Nominating & Governance Committee shall fix its own rules of
procedure.
D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
o The Nominating & Governance Committee shall develop qualification
criteria for Board members, and actively seek, interview and screen
individuals qualified to become Board members for recommendation to
the Board in accordance with the Corporate Governance Guidelines.
The Nominating & Governance Committee shall take into account the
obligations of the Company under the Stockholders Agreement dated as
of August 31, 1999, as amended, (the "Stockholders Agreement"),
among FS Equity Partners IV, L.P., G Trademark, Inc., The Limited,
Inc. and the Company.
o The Nominating & Governance Committee shall have the sole authority
to retain and terminate any search firm to be used to identify
director candidates and shall have sole authority to approve the
search firm's fees and other retention terms. The Nominating &
Governance Committee shall also have authority to obtain advice and
assistance from internal or external legal, accounting or other
advisors.
B-1
o The Nominating & Governance Committee shall oversee the evaluation
of the executive management of the Company and make recommendations
to the Board as appropriate.
o The Nominating & Governance Committee shall review and reassess at
least annually the adequacy of the Corporate Governance Guidelines
of the Company and recommend any proposed changes to the Board for
approval.
o The Nominating & Governance Committee shall make regular reports to
the Board.
o The Nominating & Governance Committee shall serve in an advisory
capacity to the Board and Chairman of the Board on matters of
organizational and governance structure of the Company and the
conduct of the Board.
o The Nominating & Governance Committee shall review and reassess the
adequacy of this Charter annually and recommend any proposed changes
to the Board for approval. The Nominating & Governance Committee
shall annually review its own performance.
o Subject to the provisions and obligations in the Stockholders
Agreement, the Nominating & Governance Committee shall review
annually, or more often if appropriate, the directors who are
members (including qualifications and requirements), structure
(including authority to delegate) and performance of committees of
the Board (including reporting to the Board), and make
recommendations to the Board, as appropriate.
o The Nominating & Governance Committee shall receive comments from
all directors and report annually to the Board with an assessment of
the Board's performance, to be discussed with the full Board
following the end of each fiscal year.
o Subject to the provisions and obligations in the Stockholders
Agreement, the Nominating & Governance Committee shall advise on
changes in Board compensation.
Adopted on March 9, 2004.
B-2
APPENDIX C
GALYAN'S TRADING COMPANY, INC.
ETHICS POLICY
WHAT WE STAND FOR
Galyan's desires to promote honest and ethical conduct. Every member of
the Galyan's community - directors, executives, management and Associates - has
a duty to comply with all applicable law and adhere to our standards of business
ethics, as outlined in this Ethics Policy. This Ethics Policy sets forth the
fundamental principles of law and ethics governing the way we do business. The
members of our board of directors are subject to this Ethics Policy, as well as
applicable law and additional guidance relating to their special
responsibilities. All executives, management and Associates are subject to this
Ethics Policy, as well as applicable law and the policies and procedures set
forth in the Galyan's Associate Handbook (revised August 2003), which contains
additional information that supplements this policy.
Please review these points, and commit to them. They are important to
each of us, and to the business as a whole.
COMPLY WITH THE LAW
While performing your job, you must obey all applicable local, state,
and federal laws and regulations, as well as the applicable laws and regulations
of any foreign country in which we transact business. Also, don't assist others
in taking, and don't allow others to take, actions that would be in violation of
law or this policy. All questions of law should be directed to the General
Counsel of the Company.
PROTECT COMPANY ASSETS AND CONFIDENTIAL INFORMATION
Confidential or sensitive information must not be disclosed to any
person (either inside or outside the Company) without a legitimate business
reason. In no event should any confidential information or trade secrets be used
by you for personal benefit or for the benefit of any competitor. As an
Associate of the Company, you are legally required to protect the
confidentiality of our information and trade secrets - even if you are no longer
an Associate.
You are expected to use your work time for the benefit of the Company.
Our premises, equipment, documents, data, software, supplies, and support
services are furnished to you to further the Company's business and interests.
Inventions, designs, and innovations that you conceive or devise are assets of
the Company when they (1) arise out of or are suggested by the Company's
confidential information or trade secrets or any work you performed for the
Company, or (2) result from your use of the Company's time, facilities, or
assets. You are expected to take due care in safeguarding the Company's tangible
and intangible assets against loss or unauthorized use. Misuse of your Associate
discount privileges is also a violation of this policy.
C-1
KEEP ACCURATE RECORDS
Our books and records must be accurate and complete and fairly reflect
the underlying transactions. All accounting entries must comply with generally
accepted accounting principles and all other accounting policies of the Company.
No document, record, or report should contain misrepresentations, or material
omissions.
COMPLY WITH SECURITIES LAWS
The Company has adopted a policy statement prohibiting trading of any
securities based on inside information. You are expected to be familiar with
this policy and to comply with it in all respects. The Company has also adopted
a Disclosure Policy limiting the number of people who may discuss our Company's
performance with securities analysts and the media. Unless you are a
specifically authorized person, you should not discuss any performance related
matters. If you have not already received these policy statements, you should
request copies from the Human Resources department.
COMPLY WITH LAWS ON COMPETITION
We have full confidence in our ability to succeed and prosper in a free
marketplace. Our competitive advantage is the superiority of our Associates,
merchandise, stores, and services. We don't tolerate illegal restraints of trade
or unfair competition. Don't enter into any discussions or arrangements with
competitors or suppliers that affect competitive pricing, marketing, or labor
practices.
AVOID CONFLICTS OF INTEREST
Don't use your position with the Company to obtain a personal benefit
of any kind. All business decisions must be based on and promote the best
interests of the Company. Avoid any action or relationship that creates a
conflict between the Company's interests and your personal or immediate family's
interests. (An example: having an interest in a non-public Company that competes
or does business with our Company or any of its affiliates.) While the Company
respects your privacy, as well as your right to conduct your personal affairs
without interference, you must make prompt, complete, and continuing disclosure
of all facts relating to any actual or potential conflict in accordance with the
procedures for compliance outlined below. The situation may be allowed to
continue, but only if it is determined not to be detrimental to the interests of
the Company.
COOPERATE WITH INVESTIGATIONS
You must cooperate fully with any inquiry or investigation undertaken
at the Company's direction by its attorneys, investigators, internal auditors,
or independent public accountants.
C-2
WE PROHIBIT CORRUPT PRACTICES
The U.S. Foreign Corrupt Practices Act prohibits giving anything of
value, directly or indirectly, to foreign government officials or foreign
political candidates in order to obtain or retain business. It is strictly
prohibited to make illegal payments to government officials of any country. In
addition, the U.S. government has a number of laws and regulations regarding
business gratuities which may be accepted by U.S. government personnel. The
promise, offer or delivery to an official or employee of the U.S. government of
a gift, favor or other gratuity in violation of these rules would not only
violate Company policy but could also be a criminal offense. State and local
governments, as well as foreign governments, may have similar rules. The
Company's General Counsel can provide guidance to you in this area.
COMPLY WITH CUSTOMS LAWS
We have a strict policy of complying with all legal requirements
associated with the importation of goods into the United States.
BUSINESS ENTERTAINMENT AND GIFTS
The purpose of business entertainment and gifts in a commercial setting
is to create good will and sound working relationships. No gift or entertainment
should be offered, given, provided or accepted by any Company employee, family
member of an employee or agent unless it: (1) is not a cash gift, (2) is
consistent with customary business practices, (3) is not excessive in value (not
more than $50 unless approved by your General Merchandise Manager or Senior Vice
President), (4) cannot be construed as a bribe or payoff and (5) does not
violate any laws or regulations. Please discuss with your General Merchandise
Manager or Senior Vice President any gifts or proposed gifts which you are not
certain are appropriate.
COMPLY WITH LAWS ON POLITICAL ACTIVITY
Although we encourage the participation of our Associates in the
democratic process, the Company's political activities are strictly regulated by
federal, state, and local laws. The Company's resources should never be used
for, or committed to, any political activity without prior written approval of
the General Counsel of the Company.
What special obligations apply to Associates with financial reporting
responsibilities?
Because of Galyan's status as a public company, the Chief Executive
Officer and all Associates in the Galyan's finance department are subject to the
following special obligations: (1) act with honesty and integrity, (2) provide
information that is accurate, complete, objective, relevant, timely and
understandable to ensure full, fair, accurate, timely and understandable
disclosure in reports and documents that Galyan's files with, or submits to,
governmental agencies and in other public communications and (3) promptly report
any conduct that the individual believes to be a violation of law or business
ethics or any provision of the Ethics Policy in accordance with the procedures
set forth under the heading "Accounting Complaints" below.
C-3
WHAT HAPPENS WHEN THERE'S A VIOLATION OF THIS POLICY?
All violations of this Ethics Policy - no matter how trivial they may
seem at the time - are harmful to the interests of the Company and will be
treated accordingly. Violations will result in appropriate disciplinary action,
up to and including termination of employment, recovery of damages, and filing
of criminal charges.
PROCEDURES FOR COMPLIANCE WITH THIS POLICY
It is the responsibility of all managers to lead by example, ensuring
that other Associates understand and comply with this policy and fostering an
environment that promotes compliance. It is your responsibility as an Associate
to comply in all respects and also to report any violations committed by others.
If you have questions or concerns, or want to report known or suspected
violations, you should:
1. Contact your supervisor immediately. We have an open-door policy,
and it encourages you to take all problems to your supervisor for a
full and frank discussion.
2. If you are uncomfortable taking the matter to your supervisor, or if
you are not satisfied with the resolution of the matter at that
level, contact our Senior Vice President of Human Resources.
3. If you believe the matter is too sensitive to be handled within your
department, or if you are not satisfied with the resolution of the
matter at that level, contact our General Counsel, who is also
available to all Associates for information and assistance on any
matter discussed in this policy.
THE GENERAL COUNSEL CAN BE REACHED AT ONE GALYANS PARKWAY, PLAINFIELD,
IN 46168
TOLL FREE TELEPHONE: 888-425-9267 OR FAX 317-532-0269
EMAIL: DZOBA@GALYANS.COM
WAIVERS FROM THIS POLICY
We expect that members of the Galyan's community will follow the Ethics
Policy and that waivers will rarely be requested or granted. Waivers can be
granted only by the General Counsel (or a designee of the General Counsel).
Waivers for members of the Board of Directors or executive officers can be
granted only by the Board of Directors and must be promptly disclosed, along
with the reasons for the waiver, in accordance with applicable law and listing
requirements.
C-4
SPEAK UP!
If you see something that you think is wrong, don't worry about the
repercussions of sharing it. In no event will you or any Associate be subject to
reprisals, retribution, or any career disadvantage for complying with the
reporting or other requirements of this policy. All inquiries, as well as the
identity of reporting Associates, will be kept confidential (except in instances
where the Company is required to reveal information in order to enforce this
policy or by applicable law or judicial process). Of course, false reporting of
violations -- when done knowingly or recklessly - will not be tolerated; but if
you have actual knowledge of or a reasonable basis for suspecting a violation,
you should err on the side of making the report.
ACCOUNTING COMPLAINTS
The Company's policy is to comply with all applicable financial
reporting and accounting regulations applicable to the Company. If any employee,
officer or director of the Company has concerns or complaints regarding
questionable accounting or auditing matters of the Company, then he or she is
encouraged to submit those concerns or complaints (anonymously and
confidentially) to the Audit Committee of the Board of Directors (which will,
subject to its duties arising under applicable law, regulations and legal
proceedings, treat such submissions confidentially). The Company has engaged an
independent, third party to give you assurance that your concerns or complaints
can be submitted anonymously and confidentially. You may report any concerns
regarding the Company's internal accounting controls or auditing matters by
calling toll free 1-866-537-4591, or online at HTTP://WWW.OPENBOARD.INFO/GLYN/
or by email at GLYN@OPENBOARD.INFO to leave a confidential and anonymous message
with our Audit Committee.
Adopted on March 9, 2004.
C-5
APPENDIX D
GALYAN'S TRADING COMPANY, INC.
2004 STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is entered into as of March
1, 2004, by and between Galyan's Trading Company, Inc., an Indiana corporation
("Company"), and Edwin J. Holman ("Optionee").
R E C I T A L S
A. Optionee is employed by the Company pursuant to an Amended
Employment Agreement dated August 29, 2003 ("Employment Agreement").
B. Company has determined to grant Optionee the right to purchase
shares of common stock of the Company pursuant to the terms of this Agreement.
C. The Options (as hereinafter defined) granted pursuant to this
Agreement are not granted pursuant to any plan and shall be subject to approval
by Company's shareholders at Company's next annual meeting scheduled for May 21,
2004 (the "Annual Meeting"). Nevertheless, except as provided herein, such
Options shall be subject to the same terms and conditions as if they had been
granted pursuant to the Galyan's Trading Company, Inc. 1999 Stock Option Plan,
as amended ("Plan").
A G R E E M E N T
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the parties agree as follows:
1. OPTIONS; NUMBER OF SHARES.
(a) Subject only to approval by Company's shareholders at the Annual
Meeting, Company hereby grants to Optionee the right to purchase (each an
"Option" and collectively, the "Options") up to 100,000 shares of common stock,
no par value, of the Company ("Common Stock" or "Shares") at a per share price
("Purchase Price") equal to the closing price of Common Stock on the date hereof
($8.74).
(b) Although the Options are not issued pursuant to the Plan, the
Options and the right to purchase all or any portion of the Shares are subject
to the terms and conditions stated in this Agreement and in the Plan, as if such
Options had been granted pursuant to the Plan. Upon exercise of an Option and
payment of the Purchase Price, Optionee shall become a shareholder of the
Company, with all rights and privileges of a shareholder of the Company in
respect of any Shares issuable upon such exercise. It is intended that the
Options will not qualify for treatment as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended ("Code").
2. EXERCISE CRITERIA.
(a) Unless vesting of the Options is accelerated pursuant to Subsection
(b), one-third of the Options shall become vested on each of the first three
anniversaries of the date hereof, provided Optionee is employed by Company on
such anniversary date.
(b) Upon a Change in Control (as defined in Section 7 of the Employment
Agreement), all outstanding Options shall become 100% vested.
D-1
(c) If the Plan and the outstanding Options terminate pursuant to
Section 13(b) of the Plan (with no substitution, assumption, settlement, or
other continuation), and ten days' notice referred to in Section 13(b) is
required to be given to Optionee (or would be required to be given to Optionee
if his Options were vested on such date), all of the Options shall become vested
as of the date preceding such notice, and Optionee shall have the exercise
rights specified in Section 13(d) with respect to all outstanding Options.
3. TERMINATION OF OPTIONS. The Options and Optionee's right to exercise the
Options shall terminate on the expiration of seven (7) years from the date
hereof, unless terminated earlier pursuant to Section 4 hereof or the Plan
(including, without limitation, Section 13(b) of the Plan).
4. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH.
(a) If the Company terminates Optionee's employment for Cause (as
defined in Section 4(a) of the Employment Agreement), or Optionee resigns for
other than Good Reason or Special Resignation pursuant to Section 4(e) or 4(f)
of the Employment Agreement, Optionee's right to exercise any outstanding
Options shall terminate immediately upon his termination of employment.
(b) If Optionee's employment terminates during the term of the
Employment Agreement pursuant to Section 4(b), (c), (d), (e), or (f), Optionee
(or, Optionee's estate, in case of his death) may exercise any or all of his out
standing vested Options at any time before the earlier of (i) the first
anniversary of his termination of employment or (ii) the date on which his right
to exercise such vested Options would have terminated if he had not terminated
employment.
(c) If Optionee's employment terminates for a reason other than as
provided in Subsection (a) or (b) above, Optionee (or his estate, in case of his
death) may exercise any or all of his outstanding vested Options at any time
before the earlier of (i) 90 days after his termination of employment date or
(ii) the date on which his right to exercise such vested Options would have
terminated if he had not terminated employment.
5. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The termination of
Optionee's employment shall not accelerate the vesting of the Options. The
Options may be exercised only with respect to that number of Shares which could
have been exercised under the Options had such Options been exercised by
Optionee on the date of such termination (for a termination other than Cause)
and only for the limited period of time set forth in Section 4.
6. DEATH OF OPTIONEE: NO ASSIGNMENT. The rights of Optionee under this Agreement
may not be assigned or transferred except by will, by the laws of descent or
distribution, and may be exercised during the lifetime of Optionee only by such
Optionee; provided, however, that in the event of disability (within the meaning
of Section 22(e)(3) of the Code) of Optionee, Optionee's designee or legal
representative may exercise the Options on behalf of Optionee (provided the
Options would have been exercisable by Optionee) until the right to exercise the
Options otherwise expires. Any attempt to sell, pledge, assign, hypothecate,
transfer, or otherwise dispose of the Options in contravention of this Agreement
or the Plan shall be void. If Optionee should die while Optionee is engaged in
an employment relationship with the Company or within 90 days after termination
of such relationship, and provided Optionee's rights hereunder shall have
vested, in whole or in part, pursuant to Section 2 hereof, Optionee's designee,
legal representative, or legatee, the successor trustee of Optionee's inter
vivos trust or the person who acquired the right to exercise the Options by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's rights under this Agreement. After the death of Optionee, only a
Successor may exercise the Options.
D-2
7. EXERCISE OF OPTIONS. No Option granted under this Agreement shall be
exercisable until and except to the extent that it has vested. On or after the
vesting of the Options in accordance with Section 2 hereof and until termination
of the Options in accordance with this Agreement and the Plan, the Options may
be exercised by Optionee (or such other person specified in Section 6 hereof) to
the extent exercisable as determined under Section 2 hereof, upon delivery of
the following to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement, the
type of Option to be exercised, and states the number of Shares to be purchased;
(b) a check, cash or any combination thereof in the amount of the
aggregate Purchase Price (or pay ment of the aggregate Purchase Price in such
other form of lawful consideration as the Committee may approve from time to
time under the provisions of Section 7 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's with holding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
Optionee in connection with the exercise, in whole or in part, of the Options
(unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company, provided, however, such arrangements must satisfy the
requirements of all applicable tax laws);
(d) any written representations and/or undertakings, in such form and
substance as the Company may deem necessary or desirable to assure compliance
with all applicable legal and accounting requirements; and
(e) such further acts as may be necessary to register Optionee as a
shareholder of the Company. Fractional share interests shall be disregarded, but
may be cumulated. No fewer than 100 Options may be exercised at any one time,
unless the number is the total number of Options exercisable at the time.
8. CONTINUANCE OF EMPLOYMENT REQUIRED; NO EMPLOYMENT COMMITMENT. The vesting
schedule requires continued employment through each applicable vesting date as a
condition to the vesting of the applicable installment of the Options and the
rights and benefits under this Agreement. Partial employment, even if
substantial, during any vesting period will not entitle Optionee to any
proportionate vesting or avoid or mitigate a termination of rights and benefits
upon or following a termination of employment as provided in Section 3 above or
under the Plan.
9. NO RIGHTS AS A STOCKHOLDER. Neither Optionee nor any other person entitled to
exercise any Option shall have any of the rights or privileges of a stockholder
of the Company as to any shares of Common Stock until the issuance and delivery
to him or her of a certificate evidencing the shares registered in his or her
name. No adjustment will be made for dividends or other rights as to a
stockholder for which a record date is prior to such date of delivery.
10. THE PLAN. The Options and all rights of Optionee thereunder and/or hereunder
are subject to, and Optionee agrees to be bound by, all of the terms and
conditions of the Plan, which are incorporated herein by this reference, and
apply to the same extent as if the Options had been issued pursuant to the Plan;
provided, however, the limitation in Section 5(b) of the Plan on the number of
options that may be granted in any calendar year to an individual shall not
apply. Unless otherwise expressly provided in these terms and conditions,
provisions of the Plan that confer discretionary authority on the Board or the
Committee do not (and shall not be deemed to) create any additional rights in
Optionee not expressly set forth in this Agreement or in a written amendment
hereto signed by the Company. If there is
D-3
any conflict or inconsistency between the terms and conditions of this Agreement
and of the Plan, the terms and conditions of the Plan shall govern; provided,
however, notwithstanding any provision of the Plan to the contrary, including
the final sentence of Section 8.1 thereof, any determination of whether
Optionee's employment has terminated and the section of Optionee's Employment
Agreement pursuant to which such termination occurs shall be made pursuant to
the terms of the Employment Agreement without regard to the Plan or this Option
Agreement. Optionee acknowledges receipt of a complete copy of the Plan and
agrees to be bound by its terms. Optionee acknowledges reading and understanding
the Plan.
(a) FURTHER ASSURANCES. Each party hereto agrees to perform any further
acts and execute and deliver any documents which may be reasonably necessary to
carry out the intent of this Agreement.
(b) NOTICES. Except as otherwise provided herein, all notices,
requests, demands and other communica- tions under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, or by registered or certified mail, shall be deemed to have
been validly served, given or delivered upon actual delivery, at the following
addresses, telephone and facsimile numbers (or such other address(es), telephone
and facsimile numbers a party may designate for itself by like notice):
If to Optionee:
To the Optionee's most recent address or telecopy number reflected on
the Company's records.
If to the Company:
Galyan's Trading Company, Inc.
One Galyans Parkway
Plainfield, IN 46168
Attn: General Counsel
Telecopy: (317) 532-0269
With a copy to:
Norman S. Matthews
650 Madison Ave., 23rd Floor
New York, NY 10022
(c) AMENDMENTS. This Agreement may be amended only by a written
agreement executed by both of the parties hereto. The Company may, however,
unilaterally waive any provision hereof in writing to the extent such waiver
does not adversely affect the interests of Optionee hereunder, but no such
waiver shall operate as or be construed to be a subsequent waiver of the same
provision or a waiver of any other provision hereof.
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana without regard to conflict of
law principles thereunder.
D-4
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding among the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, relating
hereto.
(f) HEADINGS. Introductory headings at the beginning of each section
and subsection of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon or description of the contents
of any such section and subsection of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and both of which, when taken
together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY: OPTIONEE:
Galyan's Trading Company, Inc.
an Indiana corporation
By:________________________________ ________________________________
Norman S. Matthews, Edwin J. Holman
Chairman of the Board
REV. 3/16/04
D-5
APPENDIX E
2004 RESTRICTED STOCK AGREEMENT
This 2004 Restricted Stock Agreement is entered into between Galyan's
Trading Company, Inc., an Indiana corporation ("Company"), and Edwin J. Holman
("Employee"), effective as of March 1, 2004.
BACKGROUND
A. Company and Employee are parties to an Amended Employment Agreement,
dated August 29, 2003 ("Employment Agreement").
B. Company desires to grant Employee 50,000 shares of unregistered
common stock of Company, effective as of the date hereof, subject to the
conditions set forth in this 2004 Restricted Stock Agreement and subject to
approval by Company's shareholders at Company's next annual meeting scheduled
for May 21, 2004 (the "Annual Meeting").
In consideration of the premises, Company and Employee agree as
follows:
AGREEMENT
1. Subject only to approval by Company's shareholders at the Annual
Meeting, Company grants Employee 50,000 shares of unregistered common stock of
Company, effective as of March 1, 2004, which shares ("2004 Restricted Shares")
shall be subject to the restrictions specified in this 2004 Restricted Stock
Agreement. Company agrees to endeavor to register the 2004 Restricted Shares
within a reasonable time after the grant date specified in the preceding
sentence.
2. Until such time as the 2004 Restricted Shares become vested,
Employee shall not have any right to sell, transfer, pledge, hypothecate, or
otherwise dispose of the 2004 Restricted Shares. Employee represents and
warrants to Company that he shall not sell, transfer, pledge, hypothecate, or
otherwise dispose of the 2004 Restricted Shares in violation of applicable
securities laws or the provisions of this 2004 Restricted Stock Agreement.
Except as expressly provided in this 2004 Restricted Stock Agreement, all
non-vested 2004 Restricted Shares shall be forfeited upon Employee's termination
of employment.
3. The 2004 Restricted Share shall vest as follows:
(a) Unless vesting of the 2004 Restricted Shares is accelerated
pursuant to Subsections (b) or (c) below, one-third of the 2004
Restricted Shares shall become vested on each of the first three
anniversaries of the date hereof, provided Employee is employed on such
anniversary date.
(b) If Employee's employment terminates under the circumstances
covered by Section 5(b) or (c) of the Employment Agreement, all 2004
Restricted Shares granted to Employee shall become fully vested (to the
extent not already vested) upon Employee's termination of employment.
(c) If Employee's employment terminates pursuant to Section 4(c) or
4(d) of the Employment Agreement, all 2004 Restricted Shares granted to
Employee shall become fully vested (to the extent not already vested)
upon Employee's termination of employment.
E-1
(d) If a Change in Control (as defined in Section 7 of the
Employment Agreement occurs, all 2004 Restricted Shares granted to
Employee shall become fully vested (to the extent not already vested),
effective as of the date on which such Change in Control occurs.
4. Employee represents and warrants to Company that he is acquiring the
2004 Restricted Shares for his own account for investment and not with a view to
or for resale in connection with any distribution of the 2004 Restricted Shares
and that he has no present intention of distributing or reselling the 2004
Restricted Shares. Employee acknowledges that the certificate or certificates
representing the 2004 Restricted Shares shall bear an appropriate legend
relating to restrictions on transfer.
IN WITNESS WHEREOF, Company and Employee have executed this Agreement,
effective as of the date specified in the first paragraph hereof.
EMPLOYEE GALYAN'S TRADING COMPANY, INC.
________________________________ By:________________________________
Edwin J. Holman Norman S. Matthews
Chairman of the Board
- -------------------------------- ----------------------------------
(Date) (Date)
E-2
APPENDIX F
GALYAN'S TRADING COMPANY, INC.
1999 STOCK OPTION PLAN
(2004 RESTATEMENT)
-------------------------------
ARTICLE I
RESTATEMENT AND PURPOSE
SECTION 1.1. RESTATEMENT OF PLAN. Galyan's Trading Company, Inc., an
Indiana corporation ("Company"), first adopted the Galyan's Trading Company,
Inc. 1999 Stock Option Plan ("Plan"), effective October 15, 1999. This document
sets out the terms of the Plan, as restated effective May 21, 2004, which
restatement was approved by the Company's shareholders at their annual meeting
on May 21, 2004. The terms of the Plan, as restated herein, shall not affect any
Awards granted before the effective date of this restatement.
SECTION 1.2. DESCRIPTION OF PLAN. The Plan is designed to promote the
interests of the Company and its shareholders by providing a means by which the
Board of Directors may award stock-based incentives to designated employees,
directors, officers, and/or consultants of the Company and Subsidiaries
("Participants") who are expected to contribute materially to the success of the
Company. The Plan permits the Board to grant Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock, and Stock Appreciation Rights,
all as provided herein.
SECTION 1.3. PURPOSE OF PLAN. The purpose of the Plan is to further the
growth, development, and financial success of the Company by providing for
stock-based incentives to Participants that align the Participants' interests
more closely with those of the Company's shareholders. The Company believes that
the Plan will assist it in its efforts to attract and retain quality key
employees and service providers.
ARTICLE II
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 2.1. DEFINITIONS. When capitalized in this Plan, the following
terms shall have the meanings specified below, unless the context otherwise
requires:
(a) "Award" means a grant made to a Participant pursuant to Article
VI.
(b) "Award Agreement" means a written instrument between the Company
and a Participant evidencing an Award and prescribing the terms,
conditions, and restrictions applicable to the Award.
(c) "Board of Directors" or "Board" means the Company's Board of
Directors, as constituted from time to time.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the committee described in Section 3.1;
provided however, to the extent that the Board has not designated a
Committee, "Committee" means the "Board."
F-1
(f) "Company" means Galyan's Trading Company, Inc.
(g) "Employee" means any individual employed by the Company or a
Subsidiary, including an employee who is a member of the Board or the
board of directors of a Subsidiary.
(h) "Exercise Price" means the price, if any, required to be paid to
the Company upon the exercise of an Award.
(i) "Fair Market Value" means, with respect to a Share on any date,
(i) if the Shares are listed or admitted to trade on a national
securities exchange, the closing price of a Share on the Composite
Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the Shares are
listed or admitted to trade on such date, or, if there is no trading of
the Shares on such date (or if the market has not closed at the
applicable time), then the closing price of a Share as quoted on such
Composite Tape on the next preceding date on which there was trading in
Shares; (ii) if the Shares are not listed or admitted to trade on a
national securities exchange, the last price for a Share on such date,
as furnished by the National Association of Securities Dealers, Inc.
("NASD") through the NASDAQ National Market Reporting System or a
similar organization, if the NASD is no longer reporting such
information; (iii) if the Shares are not listed or admitted to trade on
a national securities exchange and are not reported on the National
Market Reporting System, the mean between the bid and asked price for a
Share on such date, as furnished by the NASD or a similar organization;
or (iv) if the Shares are not listed or admitted to trade on a national
securities exchange, are not reported on the National Market Reporting
System, and if bid and asked prices for the Shares are not furnished by
the NASD or a similar organization, the value as established by the
Committee at such time for purposes of the Plan.
(j) "Incentive Stock Option" means a stock option that satisfies the
requirements of Code Section 422.
(k) "Non-Qualified Stock Option" means a stock option that does not
satisfy the requirements of Code Section 422.
(l) "Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted pursuant to the Plan.
(m) "Participant" means any person to whom an Award has been granted
under the Plan, provided, however, a Participant shall cease to be such
at such time as all Awards granted to him under the Plan have been
exercised and/or forfeited.
(n) "Plan" means the Galyan's Trading Company, Inc. 1999 Stock
Option Plan, as set out in this document, as amended from time to time.
(o) "Restricted Stock" means an Award of Shares that, at the time of
grant, are nontransferable and are subject to a substantial risk of
forfeiture.
(p) "Rule 16b-3" means Rule 16b-3 under the Securities Exchange Act
of 1934, as amended.
(q) "Share" means a share of the Company's no-par value common
stock.
F-2
(r) "Stock Appreciation Right" or "SAR" has the meaning given to it
in Section 6.2(a).
(s) "Subsidiary" means any company (other than the Company) that is
a "subsidiary corporation" within the meaning of Code Section 424.
SECTION 2.2. RULES OF CONSTRUCTION. The following rules shall apply in
construing the Plan and any Award Agreement:
(a) This Plan, the Awards, all documents evidencing Awards and all
other related documents shall be governed by, and construed in
accordance with, the laws of the State of Indiana without regard to
conflicts of law principles.
(b) If a court of competent jurisdiction holds any provision invalid
and unenforceable, the remaining pro visions of the Plan shall continue
in effect, provided that the essential economic terms of the Plan and
any Award can still be enforced.
(c) Captions and headings are used solely as a convenience to
facilitate reference and shall not be deemed in any way material or
relevant to the construction of the Plan or any provision thereof.
(d) Reference to any provision of the Code or other law shall be
deemed to include a reference to the successor of such provision.
(e) The Plan and the Awards are intended to comply with and shall be
construed to effect compliance with, the exemptions under Rule 16b-3,
in the case of Participants who are subject to Section 16 of the
Securities Exchange Act of 1934; provided, however, the Company shall
have no liability to any Participant for Section 16 consequences of an
Award.
(f) It is intended that Awards granted with an Exercise Price not
less than Fair Market Value on the date of grant shall qualify as
performance-based compensation or otherwise be exempt from
deductibility limitations under Code Section 162(m), and the Plan and
the Awards shall be construed accordingly.
ARTICLE III
ADMINISTRATION
SECTION 3.1. COMMITTEE. Except as otherwise provided herein, the Plan
shall be administered by the Board or, at the Board's option, by a compensation
committee thereof to which the Board has duly delegated the administration of
the Plan. The Committee shall consist solely of two or more non-employee
directors (within the meaning of Rule 16b-3) who are "outside directors" for
purposes of Code Section 162(m) and the regulations thereunder. Any action of
the Committee with respect to administration of the Plan shall be taken by a
majority vote or written consent of its members.
SECTION 3.2. POWERS OF COMMITTEE. Subject to the express provisions of
the Plan and any express limitations on its delegated authority, the Committee
is authorized and empowered to administer the Plan and to (i) designate those
person who are Participants; (ii) grant Awards; (iii) determine effective date
of each Award, the number of Shares subject to the Award, and the other terms
and conditions of the Award, which terms and conditions need not be same for
each Award; (iv) interpret the Plan; (v) determine the Fair Market Value of the
Shares; (vi) accelerate the time during which an Award may be exercised, either
in accordance with Section 6.8 or otherwise, in each case notwithstanding the
provisions of the Award Agreement stating the time during which the Award may be
exercised; (vii) prescribe, amend, and rescind rules relating to the Plan;
F-3
(viii) authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Award previously granted by the
Committee; (ix) determine the rights and obligations of Participants under the
Plan; and (x) make all other determinations deemed necessary or advisable for
the administration of the Plan.
SECTION 3.3. BINDING DETERMINATIONS. Any action taken by, or inaction
of, the Company, the Board, or the Committee relating or pursuant to the Plan
(including, without limitation, any determination of Fair Market Value) shall be
within the sole discretion of that entity or body and shall be conclusive and
binding upon all persons. Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their sole discretion in matters
within their authority related to the Plan.
SECTION 3.4. RELIANCE ON EXPERTS. In making any determination or in
taking or not taking any action under the Plan, the Committee or the Board, as
the case may be, may obtain and rely upon the advice of experts, including
employees of and professional advisors to the Company.
SECTION 3.5. DELEGATION. The Committee may delegate ministerial
non-discretionary functions to one or more Company officers or employees.
SECTION 3.6. NO LIABILITY. No director, officer, or agent of the
Company shall be liable for any action, omission, or decision under the Plan
that is taken, made, or omitted in good faith.
ARTICLE IV
ELIGIBILITY
The Committee shall, from time to time, designate those persons
eligible to receive Awards under the Plan from among the key employees,
directors, officers, and/or consultants of the Company or any Subsidiary. The
Committee may grant more than one Award to any Participant.
ARTICLE V
SHARES SUBJECT TO AWARDS
SECTION 5.1. SHARES AVAILABLE. The only shares subject to Awards shall
be the Company's authorized, but unissued, or reacquired Shares.
SECTION 5.2. AGGREGATE SHARE LIMIT. The aggregate number of Shares with
respect to which Awards may be granted shall be the sum of the following:
(a) two million (2,000,000); plus
(b) effective May 29, 2002, an additional 511,181 Shares; plus
(c) effective May 29, 2003, an additional 513,576 Shares; plus
(d) effective May 29, 2004, an additional 520,871 Shares.
F-4
Upon the expiration or termination, in whole or in part, for any reason of an
outstanding Award or any portion thereof that shall not have vested or shall not
have been exercised in full, or upon forfeiture of any Share of Restricted
Stock, or upon the surrender of Shares as payment for an Option, any Shares
subject to the Award that have not been acquired by the Participant or that are
forfeited by the Participant shall again become available for the granting of
additional Awards.
SECTION 5.3. LIMITATION APPLICABLE TO SPECIFIC AWARDS. The maximum
number of Shares that may be delivered pursuant to Incentive Stock Options
granted under the Plan is 1,000,000. The only limitations on the number of
Shares available for Non-Qualified Stock Options, Stock Appreciation Rights, and
Restricted Stock Awards shall be those specified in Sections 5.2 and 5.4.
SECTION 5.4. ANNUAL LIMITATIONS ON AWARDS TO ANY PARTICIPANT.
(a) The maximum number of Shares subject to all Awards granted in
any calendar year to a Participant shall be limited to 250,000.
(b) The maximum number of Shares subject to Restricted Stock Awards
granted in any calendar year to a Participant shall not exceed 100,000.
SECTION 5.5. ADJUSTMENTS UPON RECAPITALIZATION OR REORGANIZATION.
Subject to Section 6.5, if the outstanding Shares are changed into, or exchanged
for, a different number or kind of shares or securities of the Company through
any capital reorganization or reclassification, or if the number of outstanding
Shares is changed through a stock split or stock dividend, an appropriate
adjustment shall be made by the Committee in the number, kind, and/or Exercise
Price with respect to Shares as to which Awards may be granted under the Plan. A
corresponding adjustment shall likewise be made in the number, kind, and/or
Exercise Price for Shares with respect to which there are unexercised
outstanding Awards. Any such adjustment in an outstanding Award, however, shall
be made without change in the total price applicable to the unexercised portion
of the Award but with a corresponding adjustment in the price for each Share
covered by the Award. In making such adjustments, or in determining that no such
adjustments are necessary, the Committee may rely upon the advice of counsel and
accountants to the Company, and the good faith determination of the Committee
shall be final, conclusive, and binding. No fractional shares of stock shall be
issued or issuable under the Plan on account of any such adjustment.
ARTICLE VI
AWARDS
SECTION 6.1. GRANT OF AWARDS. Awards authorized under this Article VI
may be granted pursuant to another incentive program that incorporates by
reference the terms and conditions of this Plan. Awards may be granted singly or
in combination or tandem with other Awards. Awards may also be granted in
replacement of, or as substitution for, other awards granted by the Company,
whether or not such other awards were granted under this Plan. Without limiting
the foregoing, if a Participant pays all or part of the Exercise Price or taxes
associated with an Award by the transfer of Shares or the surrender of all or
part of an Award (including the Award being exercised), the Committee may, in
its discretion, grant a new Award to replace the Shares that were transferred or
the Award that was surrendered. The Company may assume awards granted by an
organization acquired by the Company or may grant Awards in replacement of, or
in substitution for, any such awards.
F-5
SECTION 6.2. TYPES OF AWARDS. Awards may include, but are not limited
to, the following:
(a) STOCK APPRECIATION RIGHT (SAR) - A right to receive a payment,
in cash or Shares, equal to the excess of (A) the Fair Market Value of
a specified number of Shares on the date the right is exercised over
(B) the Fair Market Value on the date the right is granted, all as
determined by the Committee. The right may be conditioned upon the
occurrence of certain events, such as a change in control, or may be
unconditional, as determined by the Committee.
(b) RESTRICTED STOCK AWARD - An Award that is made in Restricted
Stock. All or part of any Restricted Stock Award may be subject to
conditions, restrictions, and risks of forfeiture, as and to the extent
established by the Committee.
(c) OPTION - A right to purchase a specified number of Shares,
during a specified period and at a specified exercise price, all as
determined by the Committee. An Option may be an Incentive Stock Option
or a Non-Qualified Stock Option. In addition to the terms, conditions,
vesting periods, and restrictions established by the Committee in the
Award Agreement, Incentive Stock Options must comply with the
requirements of Code Section 422, Section 6.4, and this Article VI.
SECTION 6.3. TERMS AND CONDITIONS OF AWARDS; AGREEMENTS. Awards granted
under the Plan shall be evidenced by a written agreement ("Award Agreement")
executed by the Company and the Participant, which shall contain such terms and
be in such form as the Committee may from time to time approve, subject to the
following limitations and conditions:
(a) GRANT AND NOTICE OF AWARD. The date of an Award grant shall, for
all purposes, be the date on which the Board makes the determination
granting such an Award. Notice of the determination shall be given to
each Participant to whom an Award is granted within a reasonable time
after the date of grant. The grant of an Award shall not obligate the
Participant to exercise it.
(b) NUMBER OF SHARES. The Award Agreement shall state, as
appropriate, the type and total number of Shares (i) granted as
Restricted Stock, (ii) with respect to which Stock Appreciation Rights
are granted, and/or (iii) with respect to which Options are granted.
(c) EXERCISE PRICE. The Award Agreement shall state, as applicable,
the Exercise Price per share of the Shares with respect to which
Options are issued and the Fair Market Value of Shares with respect to
which Stock Appreciation Rights are issued. The Exercise Price shall be
determined by the Committee. For Incentive Stock Options, the Exercise
Price shall satisfy the requirements of the Section 6.4 and the
provisions of the Code applicable to incentive stock options.
(d) EXERCISE AND PAYMENT OF EXERCISE PRICE. Once vested, an Award
may be exercised by the Participant by (i) giving written notice to the
Company specifying the number of Shares to be purchased and accompanied
by payment of the full Exercise Price therefor in cash, by check, or in
such other form of lawful consideration as the Committee may approve,
including without limitation and in the sole discretion of the
Committee, the transfer by the Participant to the Company of
outstanding Shares held by the Participant in a manner intended to
comply with the provisions of Rule 16b-3, if applicable, and (ii)
satisfying any other requirements set forth herein (including, without
limitation, the tax withholding requirements of Article VII) or in the
applicable Award Agreements. Any Shares delivered by the Participant in
connection with the exercise of an Award must have been owned by the
Participant for at least six months as of the date of delivery. Shares
used to satisfy the Exercise Price of an Award shall be valued at their
Fair Market Value on the date of exercise.
F-6
(e) RESTRICTIONS ON GRANTS. Notwithstanding any other provisions set
forth herein or in an Award Agreement, no Award may be granted under
the Plan after October 14, 2009, which is ten years after the initial
adoption of the Plan.
(f) VESTING OF AWARDS. Awards shall vest based on longevity of
service and/or other schedules established by the Committee, as set
forth in each Award Agreement. The Committee may grant Awards that are
fully vested and exercisable at grant.
(g) DEFERRAL OF AWARDS. With the approval of the Committee, the
delivery of Shares, cash, or any combination thereof subject to an
Award may be deferred, either in the form of installments or a single
future delivery. The Committee may also permit selected Participants to
defer the payment of some or all of their Awards, as well as other
compensation, in accordance with procedures established by the
Committee to assure that the recognition of taxable income is deferred
under the Code. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments.
(h) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS. The
Company may postpone the issuance and delivery of certificates
representing Shares until (i) the admission of such Shares to listing
on any stock exchange on which Shares are then listed and (ii) the
completion of such registration or other qualification of Shares under
any state or federal law, rule, or regulation as the Company shall
determine to be necessary or advisable, which registration or other
qualification the Company shall use its best efforts to complete;
provided, however, a person purchasing or otherwise receiving Shares
pursuant to the Plan has no right to require the Company to register
the Shares under federal or state securities laws at any time. Any
person purchasing or otherwise receiving Shares pursuant to the Plan
may be required to make such representations and furnish such
information as may, in the opinion of counsel for the Company, be
appropriate to permit the Company, in light of the existence or
non-existence with respect to such Shares of an effective registration
under the Securities Act of 1933, as amended, or any similar state
statute, to issue the Shares in compliance with the provisions of those
or any comparable acts.
SECTION 6.4. ADDITIONAL LIMITATIONS APPLICABLE TO INCENTIVE STOCK
OPTIONS.
(a) GENERAL. To the extent that any Award granted pursuant to this
Plan contains an Incentive Stock Option, the limitations and conditions
of this Section shall apply to such Incentive Stock Option and the
Award Agreement relating thereto in addition to the terms and
conditions otherwise specified by the Plan and the Award Agreement.
(b) PRICE. The price of an Incentive Stock Option shall be an amount
per share not less than the Fair Market Value per share of the Shares
on the date of granting of the option. In the case of Incentive Stock
Options granted to an employee of the Company who is a 10% shareholder,
the option price shall be an amount per share not less than one hundred
ten percent (110%) of the Fair Market Value per share of the Shares on
the date of the granting of the Incentive Stock Option.
(c) EXERCISE PERIOD. Unless terminated earlier pursuant to other
terms and provisions of the Award Agreement, the term of each Incentive
Stock Option shall expire within the period prescribed in the agreement
relating thereto, which shall not be more than five years from the date
the Incentive Stock Option is granted, if the Participant is a 10%
shareholder (as defined in Code Section 422(b)(6)), and not more than
seven years from the date the Incentive Stock Option is granted, if the
Participant is not a 10% shareholder (as defined in Code Section
422(b)(6)).
F-7
(d) LIMITATION ON GRANTS. No Incentive Stock Option shall be granted
under this Plan after October 14, 2009.
(e) LIMITATION ON TRANSFERABILITY. No Incentive Stock Option shall
be assignable or transferable except by will or under the laws of
descent and distribution. During the lifetime of a Participant, an
Incentive Stock Option shall be exercisable only by the Participant and
may not be transferred or assigned.
(f) MAXIMUM EXERCISE RULE. The aggregate Fair Market Value
(determined at the time the Option is granted) of the Shares with
respect to which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year under this Plan and
any other incentive stock option plan (within the meaning of Code
Section 422) of the Company or any parent or subsidiary corporation of
the Company shall not exceed $100,000.
(g) OTHER CODE LIMITS. Incentive Stock Options may be granted only
to employees of the Company (or a Subsidiary) that satisfy the other
eligibility requirements of the Code. There shall be imposed in any
Award Agreement relating to Incentive Stock Options such other terms
and conditions as from time to time are required for the Option be an
"incentive stock option" within the meaning of Code Section 422.
SECTION 6.5. TERMINATION OF AWARDS.
(a) Each Award granted under the Plan shall set forth a termination
date, which shall be not later than seven years from the date of grant,
subject to earlier termination as set forth in Section 6.5 or 6.8, or
as otherwise set forth in the Award Agreement.
(b) The Committee shall establish the effect of a termination of
employment or service on the rights and benefits under each Award and
in so doing may make distinctions based upon, among other factors, the
cause of termination and type of Award. A Participant's termination of
employment, or termination of service as a director or consultant,
shall not, unless otherwise expressly provided by the Committee,
accelerate or otherwise increase the number of Shares subject to an
Award. Following such termination of employment or service, an Award
may be exercised only in accordance with the applicable Award Agreement
and, unless otherwise expressly provided by the Committee, only with
respect to that number of Shares for which the Award could have been
exercised by the Participant on the date of such termination.
(c) The Committee may cancel any unexpired, unpaid, or deferred
Awards at any time, if the Participant is not in compliance with all
applicable provisions of this Plan or with any Award Agreement or if
the Participant, whether or not he or she is currently employed by the
Company, engages in any of the following activities without the prior
written consent of the Company:
(1) Directly or indirectly renders services to or for an
organization, or engages in a business, that is, in the
judgment of the Committee, in competition with the
Company.
(2) Discloses to anyone outside of the Company, or uses for
any purpose other than the Company's business, any
confidential or proprietary information or material
relating to the Company, whether acquired by the
Participant during or after employment with the Company.
F-8
The Committee may, in its discretion and as a condition to the exercise
of an Award, require a Participant to acknowledge in writing that he or
she is in compliance with all applicable provisions of this Plan and of
any Award Agreement and has not engaged in any activities referred to
in clauses (1) and (2) above.
(d) Subject to Section 6.8, (i) upon the dissolution, liquidation,
or sale of all or substantially all of the business, properties, and
assets of the Company, (ii) upon any reorganization, merger,
consolidation, sale, or exchange of securities in which the Company
does not survive, (iii) upon any sale, reorganization, merger,
consolidation, or exchange of securities in which the Company does
survive and any of the Company's shareholders have the opportunity to
receive cash, securities of another corporation, partnership, or
limited liability company and/or other property in exchange for their
capital stock of the Company, or (iv) upon any acquisition by any
person or group (as defined in Section 13d of the Exchange Act) of
beneficial ownership of more than 50% of the then outstanding Shares
(each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein as an "Extraordinary Event"), the Plan and each
outstanding Award shall terminate, subject to any provision that has
been made by the Committee through a plan of reorganization or
otherwise for the substitution, assumption, settlement, or other
continuation of the Awards. If Awards are to terminate (with no
substitution, assumption, settlement, or other continuation) in such
circumstances, each Participant shall have the right, by giving notice
at least ten days before the effective date of the Extraordinary Event
("Effective Date"), to exercise on or before the Effective Date, in
whole or in part, any unexpired Award issued to the Participant, to the
extent that the Award is vested and exercisable as of the Effective
Date.
SECTION 6.6. RIGHTS AS A SHAREHOLDER. Unless otherwise provided by the
Board of Directors or the Committee, a Participant shall have rights as a
shareholder with respect to Shares covered by an Award, including voting rights
or rights to dividends, only upon the date of issuance of a certificate to him
and, if payment is required, only after payment if full has been made for such
Shares.
SECTION 6.7. LIMITS ON EXERCISE AND TRANSFER.
(a) Except as expressly provided in (or pursuant to) Subsection (b)
by applicable law or by the Award Agreement, as the same may be
amended:
(1) all Awards are non-transferable and shall not be subject
in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance, or charge;
(2) Awards must be exercised only by the Participant; and
(3) amounts payable or shares issuable pursuant to an Award
must be delivered only to (or for the account of) the
Participant.
In addition, the Shares shall be subject to the restrictions imposed in
the applicable Award Agreement.
(b) The exercise and transfer restrictions in Subsection (a) shall not
apply to:
(1) transfers to the Company;
(2) the designation of a beneficiary to receive benefits if
the Participant dies or, if the Participant has died,
transfers to or exercises by the Participant's
beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent
and distribution; or
F-9
(3) if the Participant has suffered a disability, transfers
or exercises on behalf of the Participant by the
Participant's duly authorized legal representative in
accordance with the applicable Award Agreement.
SECTION 6.8. ACCELERATION OF AWARDS.
(a) Notwithstanding the provisions of Article VI or any provision to
the contrary contained in a particular Award Agreement, the Committee,
in its sole discretion, may accelerate the vesting and exercisability
of all or any portion of any Award then outstanding. The decision by
the Committee to accelerate an Award or to decline to accelerate an
Award shall be final. In the event of the acceleration of the
exercisability of Awards as the result of a decision by the Committee
pursuant to this Section, each outstanding Award so accelerated shall
be exercisable for a period from and after the date of such
acceleration and upon such other terms and conditions as the Committee
may determine in its sole discretion, provided that such terms and
conditions (other than terms and conditions relating solely to the
acceleration of exercisability and the related termination of an Award)
may not materially adversely affect the rights of any Participant
without the consent of that Participant. Any outstanding Award that has
not been exercised by the holder at the end of such period shall
terminate automatically at that time.
(b) If the vesting of an Award has been accelerated in anticipation
of an event, and the Committee or the Board later determines that the
event will not occur, the Committee may rescind the effect of the
acceleration as to any then outstanding and unexercised or otherwise
unvested Awards.
(c) Any discretion with respect to the events addressed in Section
6.5 or this Section shall be limited to the extent required by
applicable accounting requirements in the case of a transaction
intended to be accounted for as a pooling of interests transaction.
SECTION 6.9. SUBSTITUTE AWARDS. If the Company at any time should
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Awards may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase Shares in such entity held by them at the
time of succession. The Committee, in its sole and absolute discretion, shall
determine the extent to which such substitute Awards shall be granted (if at
all), the person or persons to receive such substitute Awards (who need not be
all option holders of such entity), the number of Awards to be received by each
such person, the exercise price of such Award and the other terms and conditions
of such substitute Awards.
ARTICLE VII
WITHHOLDING OF TAXES
The Company (or a Subsidiary) may deduct and withhold from the wages,
salary, bonus, and other income paid by the Company (or Subsidiary) to the
Participant the requisite tax upon the amount of taxable income, if any,
recognized by the Participant in connection with the exercise in whole or in
part of any Award, the lapse of restrictions with respect to Restricted Stock,
or the sale of the Shares issued to the Participant upon the exercise of an
Award, as may be required from time to time under any federal or state tax laws
and regulations. This withholding of tax shall be made from the Company's (or
Subsidiary's) concurrent or next payment of wages, salary, bonus, or other
income to the Participant or by payment to the Company by the Participant of the
required withholding tax, as the Committee may determine; provided, however,
that, in the sole discretion of the Committee, the Participant may pay such tax
by reducing the number of Shares or amount of cash issued upon exercise of an
Award (for which purpose such Shares shall be valued at Fair Market Value at the
F-10
time of exercise). Notwithstanding the foregoing, the Company shall not be
obligated to issue certificates representing the Shares to be acquired through
the exercise of an Award, if the Participant fails to provide the Company with
adequate assurance that the Participant will pay such amounts to the Company as
required herein. Participants shall notify the Company in writing of any amounts
included as income in the Participants' federal income tax returns in connection
with an Award. Any Shares or cash withheld by the Company to satisfy a
Participant's withholding tax obligation in connection with an Award shall not
exceed the number of Shares or amount of cash necessary to satisfy the minimum
required levels of withholding under applicable law.
ARTICLE VIII
COMPLIANCE WITH LAWS
SECTION 8.1. GENERAL. The Plan, the granting and vesting of Awards
under the Plan, the offer, issuance, and delivery of the Shares, and the payment
of money under the Plan or under Awards are subject to compliance with all
applicable federal and state laws, rules, and regulations (including but not
limited to state and federal securities laws and federal margin requirements)
and to such approvals by any listing, regulatory, or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. In addition, any securities delivered under the Plan may
be subject to any special restrictions that the Committee may require to
preserve a pooling of interests under generally accepted accounting principles.
A person acquiring any securities under the Plan shall, if requested by the
Company, provide such assurances and representations to the Company as the
Committee may deem necessary or desirable to assure compliance with all
applicable legal and accounting requirements.
SECTION 8.2. COMPLIANCE WITH SECURITIES LAWS. No Participant shall
sell, pledge, or otherwise transfer Shares acquired pursuant to an Award or any
interest in such Shares except in accordance with the express terms of the Plan
and the applicable Award Agreement. Any attempted transfer in violation of this
Section shall be void and of no effect. Without in any way limiting the
provisions set forth above, no Participant shall make any disposition of all or
any portion of Shares acquired or to be acquired pursuant to an Award, except in
compliance with all applicable federal and state securities laws.
Notwithstanding anything else herein to the contrary, the Company has no
obligation to register the Shares or file any registration statement under
either federal or state securities laws.
ARTICLE IX
EFFECTIVENESS AND TERMINATION OF THE PLAN
The Plan was originally effective on October 15, 1999, and this
restatement of the Plan is effective May 21, 2004. The Plan shall terminate at
the close of business on October 14, 2009, the tenth anniversary of its
effective date; provided, however, the Board may, in its sole discretion,
terminate the Plan at any prior time. Subject to Section 6.5 and 6.8, no such
termination shall in any way affect any Award then outstanding or the
Committee's authority hereunder with respect to such Award.
ARTICLE X
AMENDMENT OF PLAN
Subject to Article VI, the Committee may make such amendments to the
Plan and/or an Award Agreement as it shall deem advisable; provided, however,
except as permitted by Article VI, no amendment shall materially adversely
affect any Award then outstanding without the written consent of the affected
Participant. Adjustments contemplated by Section 5.5 shall not be deemed to be
amendments for purposes of the foregoing. Shareholder approval for any amendment
shall be required only to the extent required under applicable law, including
Code Section 162(m) and Code Section 422 and other provisions of the Code
applicable to incentive stock options, or to the extent deemed necessary or
advisable by the Board.
F-11
ARTICLE XI
LEAVES OF ABSENCE; OTHER TERMINATION OF EMPLOYMENT
OR SERVICE PROVISIONS
If a Participant is not an employee or director and provides services
as a consultant to the Company (or a Subsidiary), the Committee shall be the
sole judge of whether the Participant continues to render services, unless a
contract or Award Agreement otherwise provides. If, in these circumstances, the
Company notifies the Participant in writing that a termination of the
Participant's services for purposes of the Plan has occurred, then (unless the
contract or Award Agreement otherwise expressly provides), the Participant's
termination of services for purposes the Plan and his Awards shall be the date
which is 10 days after the Company's mailing of the notice or, in the case of a
termination for cause, the date of the mailing of the notice. Unless Company
policy or the Committee otherwise provides, an employment relationship shall not
be considered terminated in the case of (i) sick leave, (ii) military leave, or
(iii) any other leave of absence authorized by the Company or the Committee;
provided that unless reemployment upon the expiration of such leave is
guaranteed by contract or law, such leave is for a period of not more than 90
days. In the case of any employee on an approved leave of absence, continued
vesting of the Participant's Awards while on leave from the employ of the
Company may be suspended until the employee returns to service, unless the
Committee otherwise provides or applicable law otherwise requires. In no event
shall an Award be exercised after the expiration of the term set forth in the
Option or Award Agreement. For purposes of this Plan and any Award, if an entity
ceases to be a Subsidiary, a termination of employment or service shall be
deemed to have occurred with respect to each eligible person in respect of the
Subsidiary who does not continue as an eligible person in respect of another
entity within the Company.
ARTICLE XII
INDEMNIFICATION
In addition to such other rights of indemnification as they may have as
members of the Board, the members of the Committee shall be indemnified by the
Company to the fullest extent permitted by law against reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any appeal
thereof, to which they or any of them may be a party by reason of any act or
failure to act under or in connection with the Plan or any Award, and against
all amounts paid by them in satisfaction of a judgment in any such action, suit,
or proceeding except in relation to matters as to which it shall be adjudged in
such action, suit, or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided, however, within 60 days after
institution of any such action, suit, or proceeding, such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same, and such Committee member shall cooperate with and
assist the Company in the defense of any such action, suit, or proceeding. The
Company shall not be obligated to indemnify any Committee member with regard to
the settlement of any action, suit, or proceeding to which the Company did not
give its prior written consent.
ARTICLE XIII
NOT AN EMPLOYMENT OR CONSULTING AGREEMENT
Nothing contained in the Plan or in any Award Agreement shall confer,
intend to confer, or imply any right of employment or right to continued
employment by, or rights to a continued relationship with, the Company (or any
affiliate) in favor of any Participant or limit the ability of the Company (or
any affiliate) to terminate, with or without cause, in its sole and absolute
discretion, the employment of any Participant, subject to the terms of any
written employment to which a Participant is a party. In addition, nothing
contained in the Plan or in any Award Agreement shall preclude any lawful action
by the Company or the Board. Status as an eligible person under the Plan shall
not be construed as a commitment that any Award will be granted to the eligible
person.
F-12
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1. NON-EXCLUSIVITY OF PLAN. Nothing in the Plan shall limit
or be deemed to limit the authority of the Board or the Committee to grant
awards or authorize any other compensation, with or without reference to the
Shares, under any other plan or independent authority.
SECTION 14.2. NO RESTRICTION ON CORPORATE POWERS. The existence of the
Plan and the Awards granted hereunder shall not affect or restrict in any way
the right or power of the Board or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any merger or consolidation of
the Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's capital stock or the rights thereof,
the dissolution or liquidation of the Company or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding.
SECTION 14.3. NO FIDUCIARY DUTIES. Neither the provisions of this Plan
(or of any related documents), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant or other person.
F-13