UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 4, 2008

 

To our Stockholders:

 

The 2008 annual meeting of stockholders of Dick’s Sporting Goods, Inc., a Delaware corporation (the “Company”), will be held at the Hyatt Regency, 1111 Airport Boulevard, Pittsburgh, PA 15231, (724) 899-1234, June 4, 2008, beginning at 1:30 p.m. local time. At the meeting, the holders of the Company’s issued and outstanding Class B common stock and common stock will act on the following matters:

 

(1) Election of two (2) Class C Directors, each for terms that expire in 2011;

 

(2) Ratify the appointment of the Company’s independent registered public accounting firm;

 

(3) Approve the Company’s Amended and Restated 2002 Stock and Incentive Plan (the “2002 Plan”); and

 

(4) Any other matters that properly come before the meeting.

 

All holders of record of shares of Dick’s Sporting Goods’ Class B common stock and common stock (NYSE: DKS) at the close of business on April 14, 2008 are entitled to vote at the meeting and any postponements or adjournments of the meeting.

 

A list of stockholders entitled to vote at the meeting may be examined by any stockholder, for any purpose germane to the meeting, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275 beginning on May 2, 2008.

 

By order of the Board of Directors,

 

Edward W. Stack

Chairman of the Board

 

May 7, 2008

Pittsburgh, PA

 

TABLE OF CONTENTS

 

 

300 Industry Drive, RIDC Park West

Pittsburgh, Pennsylvania 15275

 

PROXY STATEMENT

 

This proxy statement contains information related to the annual meeting of stockholders of Dick’s Sporting Goods, Inc., a Delaware corporation, to be held at the Hyatt Regency, 1111 Airport Boulevard, Pittsburgh, PA 15231, (724) 899-1234, June 4, 2008, beginning at 1:30 p.m. local time, and at any postponements or adjournments thereof. This proxy statement is being mailed to stockholders on or about May 7, 2008.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON JUNE 4, 2008:

 

The following Proxy materials are available for you to review online at: www.proxydocs.com/dks:

 

— This Proxy Statement (including all attachments);

 

 

— Any amendments to the foregoing materials that are required to be furnished to our stockholders.

 

In accordance with Securities and Exchange Commission rules, the foregoing website provides complete anonymity with respect to a stockholder accessing the website.

 

At our annual meeting, stockholders will act upon the matters outlined in the notice of meeting on the cover page of this proxy statement, including the election of two (2) Class C Directors, ratification of our independent public auditors for fiscal 2008, approval of the Amended and Restated 2002 Stock and Incentive Plan (the “2002 Plan”) and to act on any other matter to properly come before the meeting. In addition, management will report on the performance of the Company and respond to questions from stockholders.

 

Only stockholders of record at the close of business on April 14, 2008, the record date for the meeting, are entitled to receive notice of and to participate in the annual meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the meeting or any postponements or adjournments of the meeting.

 

Holders of our common stock and Class B common stock have identical rights, except that holders of the common stock are entitled to one (1) vote for each share held of record and holders of Class B common stock are

entitled to ten (10) votes for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. Stockholders do not have cumulative voting rights. Holders of common stock and Class B common stock vote together as a single class on all matters presented to the stockholders for their vote or approval, except as may otherwise be required by Delaware law.

 

Subject to space availability, all common stockholders and Class B stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration will begin at 1:00 p.m. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Please also note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.

 

The presence at the meeting, in person or by proxy, of the holders of record of the issued and outstanding shares of capital stock representing a majority of the votes entitled to be cast at the meeting constitutes a quorum, permitting the meeting to conduct its business. As of the record date, 85,400,330 shares of common stock representing the same number of votes and 26,241,118 shares of Class B common stock representing 262,411,180 votes were issued and outstanding. Thus, the presence of the holders of common stock or Class B common stock or the combination thereof representing at least 173,905,756 votes will be required to establish a quorum.

 

Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of votes considered to be present at the meeting to establish a quorum, but will not be deemed a vote cast with respect to the matters to be acted upon at the meeting.

 

If you complete and properly sign the accompanying proxy card and return it to the Company, it will be voted as you direct. If you are a registered stockholder and attend the meeting, you may deliver your completed proxy card in person. “Street name” stockholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

 

Yes. Even after you have submitted your proxy, you may change or revoke your vote at any time before the proxy is exercised by filing with the Corporate Secretary of the Company either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy.

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendation of the Board of Directors. The Board’s recommendation is set forth together with the description of each item in this proxy statement. In summary, the Board recommends a vote:

 

 

With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion.

 

Election of Directors.  The affirmative vote of a plurality of the votes cast at the meeting is required for the election of directors. A properly executed proxy marked “WITHHOLD” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum.

 

Other Items.  For any other item, including ratification of our independent accountants and approval of the 2002 Plan, the affirmative vote of a majority of the votes represented in person or by proxy and entitled to vote on the item will be required for approval. A properly executed proxy marked “ABSTAIN” with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote.

 

If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

 

Because as of March 31, 2008, Edward W. Stack, our Chairman and Chief Executive Officer, controlled approximately 67% of the combined voting power of our common stock and Class B common stock, we are a “controlled company” under the New York Stock Exchange’s Corporate Governance Standards, and we have chosen to take advantage of all of the exemptions available to “controlled companies” under Section 303A of the New York Stock Exchange Corporate Governance Standards.

 

Based on a review of filings with the Securities and Exchange Commission (the “SEC”) and information known to us about our Class B common stock, the following are the non-management beneficial holders of more than 5% of the outstanding shares of Dick’s Sporting Goods, Inc. (i) common stock (or Class B common stock that is convertible into more than 5% of the outstanding shares of our common stock) or (ii) Class B common stock, as of December 31, 2007 (the date on which holders of more than 5% of our outstanding common stock report their ownership):

 

 

 

 

 

The following table shows the amount of Dick’s Sporting Goods common stock and Class B common stock beneficially owned (unless otherwise indicated) by our directors, nominees for director, the executive officers named in the “Summary Compensation Table” below and all of our directors and executive officers as a group. Except as otherwise indicated, all information is as of March 31, 2008.

 

A person has beneficial ownership of shares if he or she has the power to vote or dispose of the shares. This power can be exclusive or shared, direct or indirect. In addition, a person is considered by the SEC rules to beneficially own shares underlying options and convertible securities that are presently exercisable or will become exercisable within 60 days of March 31, 2008. The shares listed in this table below include shares of common stock issuable upon the exercise of options or other rights that are exercisable or will become exercisable within 60 days of March 31, 2008, and reflect the two-for-one stock split effectuated by the Company in October 2007.

 

 

 

 

The Company’s directors and its executive officers are required under Section 16(a) of the Securities Exchange Act of 1934 to file reports of ownership and changes in ownership of the Company’s common stock with the SEC. Based upon a review of filings with the SEC and written representations that no other reports were required to be filed, we believe that all of our directors and executive officers complied during the Company’s 2007 fiscal year with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.

 

The Board is divided into three (3) classes, each containing as nearly as possible an equal number of directors. The current term of office of our Class C Directors expires at the 2008 annual meeting while the term for Class A Directors expires at the 2009 annual meeting and the term for Class B Directors expires at the 2010 annual meeting. Upon recommendation by the Governance and Nominating Committee of the Board of Directors, the Board of Directors proposes that the following nominees, Edward W. Stack (a Class C Director) and Lawrence J. Schorr (a Class C Director) be elected for new terms of three (3) years and until their successors are duly elected and qualified as Class C Directors. Each of the nominees has consented to serve if elected. If either of them becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board.

 

The directors standing for election at the annual meeting are:

 

Edward W. Stack, 53, has served as our Chairman and Chief Executive Officer since 1984 when the founder and Edward Stack’s father, Richard “Dick” Stack, retired from our then two store chain. Mr. Edward Stack has served us full time since 1977 in a variety of positions, including President, Store Manager and Merchandise Manager. Mr. Stack also received the title of President in February 2008.

 

Lawrence J. Schorr, 54, has served on the Board since 1985. Mr. Schorr currently serves as Chief Executive Officer of Boltaron Performance Products, LLC (formerly, Empire Plastics, Inc.) (a privately owned plastics manufacturing company) and as co-managing partner of the law firm of Levene, Gouldin and Thompson LLP. Mr. Schorr has held both of these positions for the last five years. He previously was President of RRT-Recycle America, a subsidiary of WMX Technologies, Inc. He formerly served in the same position for Resource Recycling Technologies, Inc. (a solid waste material management company listed on the American Stock Exchange). Prior to that he served as a partner in the law firm of Levene, Gouldin and Thompson LLP.

 

The Board of Directors unanimously recommends that the stockholders vote “For” the persons nominated by the Board as Class C Directors.

 

Other than the current nominees, the six (6) remaining members of the Board of Directors who served during fiscal 2007 will continue to serve as members of our Board. Our other directors who will serve after the 2008 annual meeting are:

 

William J. Colombo, 52, became our Vice Chairman of the Board in February 2008, after stepping down as President and Chief Operating Officer, a position he held since 2002. From late in 1998 to 2000, Mr. Colombo served as President of dsports.com LLC, our internet commerce subsidiary. Mr. Colombo served as Chief Operating Officer and an Executive Vice President from 1995 to 1998. Mr. Colombo joined us in 1988. From 1977 to 1988, he held various field and district positions with J.C. Penney Company, Inc. (a retailing company listed on the NYSE). He is also on the board of directors of Gibraltar Industries (a leading manufacturer, processor and distributor of products for the building, industrial and vehicular markets listed on Nasdaq). Mr. Colombo’s term as a Class A Director expires at the 2009 annual meeting.

 

David I. Fuente, 62, has served on the Board since 1993. Mr. Fuente is currently a member of the board of Office Depot, Inc. (an office supply retailer listed on the NYSE) and was Chairman of Office Depot from 1987 to 2001 and its Chief Executive Officer from 1987 to 2000. He currently serves as a director for Ryder System, Inc. (a truck leasing and logistics company listed on the NYSE). Mr. Fuente’s term as a Class A Director expires at the 2009 annual meeting.

 

Larry D. Stone, 56, has served on the Board since 2007. Mr. Stone has served as President and Chief Operating Officer for Lowe’s Companies Inc. (a home improvement retailer listed on the NYSE) since December 2006, and before that served as Senior Executive Vice President Merchandising/Marketing since 2005. Mr. Stone served as Senior Executive Vice President Store Operations for Lowe’s from 2003 to 2005, and from 2001 to 2003, served as

Executive Vice President, Store Operations. Mr. Stone’s current term as a Class A Director expires at the 2009 annual meeting.

 

Emanuel Chirico, 50, has served on the Board since December 2003. On June 19, 2007, Mr. Chirico was named Chairman of the Board of the Phillips-Van Heusen Corporation (apparel and footwear company listed on the NYSE) and was named its Chief Executive Officer on February 27, 2006. Previously, Mr. Chirico had been Phillips-Van Heusen’s President and Chief Operating Officer and a director since June of 2005. Mr. Chirico had been the Executive Vice President and Chief Financial Officer of Phillips-Van Heusen Corporation from 1999 until June 2005. From 1993 until 1999, Mr. Chirico was Phillips-Van Heusen Corporation’s controller. Prior to that, he was a partner at Ernst & Young LLP. Mr. Chirico’s current term of office as a Class B Director expires at the 2010 annual meeting.

 

Brian J. Dunn, 47, has served on the Board since 2007. Mr. Dunn has been employed by Best Buy Co., Inc. (a technology and entertainment products retailer listed on the NYSE) since 1985. He has served as President and Chief Operating Officer of Best Buy since February 26, 2006, overseeing more than 800 stores in the United States and Canada as well as several corporate groups that directly support Best Buy’s stores. Mr. Dunn is also responsible for overseeing the merchandising, customer centricity, services and small business functions of Best Buy. Prior to this appointment as President and Chief Operating Officer, Mr. Dunn served as the company’s President — Retail, North America from 2004 to 2006. From 2002 to 2004, Mr. Dunn served as Executive Vice President — Best Buy U.S. Retail. Mr. Dunn’s current term as a Class B Director expires at the 2010 annual meeting.

 

Walter Rossi, 65, has served on the Board since 1993.  Mr. Rossi served as a director of Guitar Center, Inc. (a retailer of musical instruments formerly listed on Nasdaq) from 2004 through 2007. Mr. Rossi formerly served as Chief Executive Officer of Naartjie Custom Kids, Inc. (a children’s apparel retailer), Chief Executive Officer of Home Express (a retailer of home furnishings), Chairman of the Retail Group at Phillips-Van Heusen Corporation (apparel and footwear company listed on the NYSE) and Chairman and Chief Executive Officer of Mervyn’s (a department store chain). Mr. Rossi’s current term of office as a Class B Director expires at the 2010 annual meeting.

 

 

 

Beginning in fiscal 2001, non-employee directors were compensated by means of an annual retainer of $20,000 plus $7,500 per meeting ($3,750 for teleconferences) both paid in cash. In addition to the annual retainer, each committee chair receives $15,000 per committee chairmanship per year, except that the audit committee chair receives an annual retainer of $25,000. Each committee member also receives a per committee meeting fee of $1,500 ($750 for teleconferences). There are generally six (6) Board meetings per year.

 

Currently, each director receives an initial option grant exercisable for 20,000 shares of common stock upon his first election to the Board, with an additional annual option grant exercisable for 10,000 shares for each year of service thereafter. In each case, these options vest over four (4) years from the date of grant. Additionally, members of our Board of Directors are reimbursed for their expenses incurred in connection with attending any meeting. Beginning with the annual grants made in fiscal 2008, each director receives shares of restricted stock rather than option awards, in an amount determined by the Company’s Compensation Committee. The shares of restricted stock are subject to a three-year cliff vest.

 

The Board of Directors met six (6) times during fiscal 2007. Each director attended at least 75% of all Board of Director meetings during the time that they were members of the Board, either in person or via teleconference. The Audit Committee met eleven (11) times during fiscal 2007. Each Audit Committee member attended all Audit Committee meetings. During fiscal 2007, the Compensation Committee met six (6) times. Each Compensation Committee member attended at least 75% of all of the Compensation Committee meetings during the time that they were members of the Board. The Governance and Nominating Committee met four (4) times during fiscal 2007. Each Governance and Nominating Committee member attended at least 75% of all of the Governance and Nominating Committee meetings during the time that they were members of the Board.

 

The Board of Directors has standing Compensation, Audit and Governance and Nominating Committees. The following sets forth Committee memberships as of the date of this proxy statement.

 

 

 

 

The Audit Committee

 

Messrs. Chirico (Chairperson), Rossi and Schorr were members of the Audit Committee during fiscal 2007, which has been established in accordance with Section 3(a)(58)A of the Securities Exchange Act of 1934. We adopted an Audit Committee charter that was effective upon completion of our initial public offering, which we amended and restated after the adoption of the final New York Stock Exchange rules relating to corporate governance in December 2003, amended further in December 2004 to reflect additional changes in the New York Stock Exchange rules relating to corporate governance under which the Audit Committee reviews with management our internal financial controls, accounting procedures and reports, and amended again in March 2007 to address revised rules promulgated by the SEC relating to review and approval of related party transactions as set forth in Item 404 of Regulation S-K. The Audit Committee also reviews the engagement of our independent auditors, makes recommendations to the Board of Directors regarding the selection of independent auditors and reviews the scope, fees and results of any audit. Emanuel Chirico is qualified as the audit committee financial expert within the meaning of the SEC regulations, and the Board has determined that he has accounting and financial management expertise within the meaning of the standards of the New York Stock Exchange. The Board has determined that Mr. Chirico is independent as the term is defined in Item 7(d)(3)(iv) of Schedule 14A, and the Board has determined that all members of our Audit Committee are independent within the meaning of the SEC regulations relating to audit committee independence, the listing standards of the New York Stock Exchange and the Company’s Corporate Governance Guidelines. Our Audit Committee Charter is available on the Investor Relations portion of our website (www.dickssportinggoods.com), and a printed copy may be obtained by contacting our Investor Relations Department, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275, or via email at investors@dcsg.com.

 

The Compensation Committee

 

Messrs. Fuente (Chairperson), Schorr and Stone comprise our Compensation Committee. Our Compensation Committee monitors our stock and incentive and stock purchase plans, establishes the terms and conditions of all stock option grants, recommends an overall compensation policy for the Company, discharges the Board’s responsibilities relating to compensation of the officers and directors of the Company and advises the Board regarding management succession. The Compensation Committee does have the authority under its charter to delegate any of its duties and responsibilities (or functions) to a subcommittee of the Compensation Committee consisting of one or more members, as appropriate. The Company’s compensation program for executives generally has consisted of three key elements: a base salary, a performance-based annual bonus, which is payable in cash, and periodic grants of stock-based compensation, such as stock options and, beginning in 2008, restricted stock. Under this approach, compensation for executive officers involves a high proportion of pay that is “at risk,” in the form of the annual bonus, which takes into account personal performance but is also based, in significant part, on the

Company’s performance. In addition, stock-based compensation such as stock options and restricted stock relate a significant portion of long-term remuneration directly to stock price appreciation realized by all of the Company’s stockholders.

 

Base salaries for our executive officers other than our Chief Executive Officer, including any annual or other adjustments, are based upon recommendations by the Chief Executive Officer, taking into account such factors as salary norms in comparable businesses, a qualitative assessment of the nature of the position and the contribution and experience of the officer. During fiscal 2007, recommendations relating to executive officers subject to Section 162(m) of the Internal Revenue Code were reviewed and approved by the Compensation Committee. Awards of annual bonuses to executive officers who are subject to Section 162(m) of the Internal Revenue Code were made by the Compensation Committee and all other bonuses paid to non-executive officers were made in accordance with a formula established by the Compensation Committee and Chief Executive Officer. Company management engaged the Hay Group to provide consultation services regarding executive compensation in the fall of 2007, and to assist in determining or recommending the amount of executive compensation for fiscal 2007 and 2008. See page 21 of this proxy statement under “Compensation Discussion and Analysis” for more information regarding the services provided by the Hay Group.

 

Under the Company’s annual bonus program, executive officers and certain other employees are eligible to receive cash bonuses based upon the Company’s attainment of specific performance goals, primarily total company earnings before taxes and sales, as recommended by the Chief Executive Officer and approved by the Compensation Committee. Target incentive bonus opportunities are established at the beginning of the fiscal year, as measured generally by earnings before taxes and sales. A specified percentage of a bonus program participant’s annual salary is used to determine any amount to be paid. A minimum level of performance is established below which no bonus award is paid, levels of performance at which specified percentages of the bonus will be paid, and a maximum level of performance above which no additional bonus would be paid. For additional information regarding our Compensation Committee processes and procedures for the consideration and determination of executive officer compensation, see “Compensation Discussion and Analysis” starting on page 19 of this proxy statement.

 

During fiscal 2007, the Compensation Committee operated under guidelines for stock option grants which are generally applicable to all eligible employees. Under these guidelines, grants of stock options or, beginning in 2008, grants of restricted stock, are generally made on an annual basis in amounts that take into account such factors as market data on total compensation packages, the value of stock option grants and restricted stock at targeted external companies, total stockholder return, share usage and stockholder dilution. In appropriate cases, however, special grants may be authorized outside of the annual-grant framework. All decisions to grant stock options or restricted stock are in the sole discretion of the Compensation Committee and, except for grants to the Chief Executive Officer, are based upon recommendations from the Chief Executive Officer. However, in limited circumstances, a subcommittee consisting of our Chief Executive Officer, Chief Financial Officer and Senior Vice President- Human Resources has been delegated authority to grant stock options or restricted stock to non-executive officers in accordance with Delaware law.

 

Mr. Stack, Chairman and Chief Executive Officer, is eligible to participate in the same executive compensation program available to other Company executive officers, and his total annual compensation, including compensation derived from the annual bonus program, was set by the Compensation Committee based on the same factors as other executives. Payments earned by Mr. Stack are included in the “Summary Compensation Table”. Mr. Stack, as a greater than 5% stockholder, is ineligible to participate in the Company’s employee stock purchase plan.

 

Our Compensation Committee Charter, which was amended in December 2004 to reflect changes in the New York Stock Exchange Rules relating to corporate governance and in March 2007 to reflect changes to Section 402 of Regulation S-K made by the SEC relating to compensation disclosure and discussion, is available on the Investor Relations portion of our website (www.dickssportinggoods.com), and a printed copy may be obtained by contacting our Investor Relations Department, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275, or via email at investors@dcsg.com.

The Governance and Nominating Committee

 

Messrs. Dunn, Fuente and Schorr (Chairperson) currently comprise our Governance and Nominating Committee. This Committee provides oversight and guidance to our Board of Directors to ensure that the membership, structure, policies and processes of the Board and its committees facilitate the effective exercise of the Board’s role in our governance. The Committee reviews and evaluates the policies and practices with respect to the size, composition and functioning of the Board, evaluates the qualifications of and recommends to the full Board candidates for election as directors, and reviews and recommends to the full Board the compensation and benefits for the Company’s non-employee directors. On March 26, 2008 our Governance and Nominating Committee recommended (with Mr. Schorr abstaining as to himself) to the Board of Directors that Messrs. Stack and Schorr stand for election as Class C Directors. Our Governance and Nominating Committee charter is available on the Investor Relations portion of our website (www.dickssportinggoods.com), and a printed copy may be obtained by contacting our Investor Relations Department, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275, or via email at investors@dcsg.com.

 

Because the Company is a “controlled company” under the New York Stock Exchange’s Corporate Governance Standards, we are not required to have an independent nominating committee. However, Messrs. Dunn, Fuente and Schorr would qualify as independent under the standards applicable to non-controlled companies under the New York Stock Exchange’s Corporate Governance Standards.

 

On March 27, 2008, the Board named David I. Fuente to act as the presiding non-management director for a one-year term (until the 2009 annual meeting proxy statement is filed or until his successor is duly appointed and qualified).

 

Our Governance and Nominating Committee will consider candidates for Board membership suggested by its members and other Board members and management, and will, if warranted, utilize a third party search firm to assist in finding prospective candidates. This Committee will consider director candidates from stockholders for election at the 2009 annual meeting if such nominees are submitted in accordance with the procedures set forth in “Additional Information — Advance Notice Procedures” on page 48 of this proxy statement.

 

Our Governance and Nominating Committee, at the direction of the Committee Chair, makes an initial determination as to whether to conduct a full evaluation of a prospective candidate. This initial determination is based on whatever information is provided to the Committee with the recommendation of the prospective candidate, as well as the Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members to fill vacancies or to expand the size of the Board, and the likelihood that the prospective nominee can satisfy the evaluation factors described below. If the Committee determines, in consultation with the other Board members as appropriate, that additional consideration is warranted, it may request that additional information about the prospective nominee’s background and experience be gathered and a report be prepared for the Committee, and may utilize a third-party search firm to assist in such evaluation. The Committee then would evaluate the prospective nominee against the standards and qualifications set out in the Company’s Corporate Governance Guidelines, including independence, integrity, experience, sound judgment in areas relevant to the Company’s businesses and willingness to commit sufficient time to the Board, all in the context of an assessment of the perceived needs of the Board at that point in time. The Committee will also measure candidates against the criteria it sets, including skills and attributes that reflect the values of the Company. Our Governance and Nominating Committee will also be responsible for reviewing with the Board, on an annual basis, the criteria it believes appropriate for Board membership.

 

Our Governance and Nominating Committee will also consider such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. Depending on the needs of the Company at the time, the prospective nominees and such other factors as the Committee deems in its business judgment to be relevant, the Committee will take such other steps as are necessary to evaluate the prospective nominee, including, if warranted, one or more Committee members interviewing the prospective nominee. After

completing this evaluation and other steps of the process, the Committee would make a recommendation to the full Board of Directors as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.

 

Our Code of Business Conduct and Ethics is applicable to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct and Ethics is available on the Investor Relations portion of our website (www.dickssportinggoods.com), and a printed copy may be obtained by contacting our Investor Relations Department, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275, or via email at investors@dcsg.com. We intend to post amendments to or waivers from The Code of Business Conduct and Ethics to the extent applicable to our chief executive officer, principal financial officer or principal accounting officer or directors.

 

Stockholders and other parties interested in communicating directly with our Board of Directors, the presiding non-management director or with the non-management directors as a group may do so by writing to the Board of Directors or Presiding Director (as the case may be), c/o General Counsel, Dick’s Sporting Goods, Inc., 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275 or e-mail at investors@dcsg.com to the attention of the General Counsel. Under our process for handling letters received by the Company and addressed to non-management members of the Board of Directors, our Governance and Nominating Committee has instructed the General Counsel to (i) review any such correspondence, (ii) regularly forward to the Board of Directors a summary of all such correspondence and (iii) regularly forward to the presiding non-management director copies of all correspondence that is addressed to the presiding director or the non-management directors as a group or that, in the opinion of the General Counsel, is intended for the presiding director or the non-management directors or that otherwise requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.

 

On December 4, 2003, the Board adopted its Corporate Governance Guidelines, which were amended on December 1, 2004 to reflect certain changes made by the New York Stock Exchange to its listing standards and in March 2007 to reflect changes made by the SEC relating to independence determinations. The Guidelines adopted by the Board meet the listing standards adopted by the New York Stock Exchange for “controlled companies,” and the full text of the Guidelines can be found in the Investor Relations section of the Company’s website (www.dickssportinggoods.com), and a printed copy may be obtained by contacting our Investor Relations Department, at 300 Industry Drive, RIDC Park West, Pittsburgh, PA 15275, or via email at investors@dcsg.com.

 

Pursuant to the Guidelines, the Board undertook its annual review of existing director and director nominee independence on March 27, 2008. During this review, the Board considered transactions and relationships between each director or nominee for director with the Company (either directly or as a partner, stockholder or officer of any organization that has a relationship with the Company). As provided in the Guidelines, the purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director or nominee for director is independent in accordance with independence requirements implemented by the New York Stock Exchange.

 

As a result of this review, the Board affirmatively determined that Messrs. Chirico, Dunn, Fuente, Rossi and Stone are, and that Mr. Schorr would be if re-elected, independent directors, in accordance with the standards set forth in the Guidelines and in accordance with independence requirements implemented by the New York Stock Exchange Listing Standards.

 

The Board’s official policy with respect to Board attendance at the annual meeting of stockholders is that the Board strongly encourages its members to attend the Company’s annual meeting of stockholders; the Company also expects that most of its directors will attend its 2008 annual meeting. All of the current members of the Board were in attendance at last year’s annual meeting.

 

Our Compensation Committee currently consists of Messrs. Fuente, Schorr and Stone. Neither Mr. Fuente, Mr. Schorr nor Mr. Stone has ever been an officer or employee of ours or any of our subsidiaries. None of our executive officers serve or have served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Compensation Committee. Our Compensation Committee customarily has met and discussed matters relating to the compensation of our employees and key officers.

 

Some of our stockholders who own more than 5% of a class of our common stock have registration rights to register shares of our common stock under the Securities Act of 1933. They may request that we register their shares of common stock with the SEC, and, if all conditions under our registration rights agreement are met, we must register their shares. We would be required to bear specified expenses related to those registrations.

 

We lease two locations from Stack Associates, LLC, a New York limited liability company established by the estate of Richard “Dick” Stack, our founder and father of Edward W. Stack, one of which continues to operate as one of our stores. Our total monthly lease payments for the two locations is $20,000. We paid $240,000 under these leases in fiscal year 2007. The amount we are paying per square foot under these leases is comparable to the amounts we agreed to pay to unaffiliated third parties for other new leases that were entered into around the same time period.

 

We entered into an agreement with Edward W. Stack and Richard T. Stack, dated November 12, 1992, which gives Edward W. Stack an irrevocable proxy to vote all shares of Dick’s Sporting Goods, Inc. owned (including shares acquired in the future) by Richard T. Stack. Also, on December 4, 2007, Edward W. Stack amended an option agreement entered into with his brother Martin Stack. As amended, the option is exercisable beginning December 2, 2009 and for thirty-six (36) months thereafter for up to seven hundred fifty-nine thousand eight hundred (759,800) shares of common stock. The option is exercisable at 75% of the then per share market price on the date of exercise. Market price for purposes of that agreement is defined as the mean between the high and low prices of the Company’s common stock on the national securities exchange on the day on which the option is exercised, if the common stock is then being traded on a national securities exchange, and if the common stock is then being traded on such an exchange but there are no sales on such day, the market price shall be deemed to be the mean between the high and low prices of the common stock on the national securities exchange on the day on which the most recent sales occurred prior to the date of exercise; and if the common stock is not then traded on such an exchange, then the market price shall be deemed to be the mean between the high and low bid and asked prices for the common stock on the over-the-counter market on the day on which the option is exercised.

 

Kim Myers, the sister of our Chairman and Chief Executive Officer and a holder of our Class B common stock, is married to Tim Myers, our Director of Reverse Logistics, an employee in our Conklin, New York facility. During fiscal 2007, Mr. Myers was paid an aggregate salary and bonus of $94,151 for his services during the year.

 

During fiscal 2007 we and our subsidiaries paid Buchanan Ingersoll & Rooney PC (a law firm with over 500 attorneys) an aggregate of $1,523,599 for legal services that were provided to us. Jeremiah Garvey is an equity shareholder of that law firm and the son-in-law of William Newlin, who was an executive officer of the Company until March 2007. Buchanan Ingersoll & Rooney’s representation of us predates the Company’s initial public offering and Mr. Newlin’s hire in 2003.

On February 13, 2006, we entered into an Aircraft Sublease Agreement with Corporate Air, LLC (“Corporate Air”). Under that sublease we charter for business use an aircraft owned by EWS, LLC (“EWS”), an entity owned by Edward W. Stack. Corporate Air, an independent airline charter company, has a master lease with EWS under which Corporate Air operates and maintains this aircraft, hires pilots and other staff for flight operations and also may act to charter the aircraft for use by third parties. During the five (5) year sublease term, we have the right to use this aircraft on a flight available basis for one thousand five hundred (1,500) hours for travel purposes. The sublease may be terminated on certain conditions as set forth in the sublease and terminates automatically if Corporate Air no longer has the right to operate the aircraft under the master lease. Under this arrangement, we will pay Corporate Air a base fee of $150,000 per month and an hourly charter rate of $1,900 per block hour of actual usage. The hourly charter rate is subject to a fuel surcharge adjustment, as set forth in the sublease. During fiscal 2007, we paid Corporate Air $2,336,857 under the sublease.

 

We, along with two of our subsidiaries, currently sublease one (1) store to and lease two (2) stores from Best Buy Co., Inc., where Mr. Dunn serves as President and Chief Operating Officer. Each lease was entered into pursuant to arms’ length transactions prior to Mr. Dunn’s election to our Board of Directors. The sublease was entered into in 1999 for an initial term of five (5) years, with four (4) extension options thereafter, each for an additional five (5) year term. The annual rent that Best Buy pays to us under this sublease is $201,811. The first lease was entered into by our subsidiary Galyan’s Trading Company, Inc. in 1999, for a twenty (20) year term and annual rent of $1,474,151 per year. The second lease is held through our wholly-owned subsidiary, Golf Galaxy, Inc. The lease, entered into in 2004, has a term of ten (10) years and two (2) months, and has annual rent payments of $232,498.

 

Prior to the implementation of our related party policy, which is discussed below, the Audit Committee, through its committee charter, had the ability in its discretion to review and ratify, approve or disapprove the Company entering into any transaction between the Company or its subsidiaries and any related persons that were required to be reported under SEC Regulation S-K Item 404, or any rules or regulations issued in connection therewith. The Audit Committee reviewed and approved or ratified the transactions set forth above in accordance with the terms of its committee charter, with the exception of the retail lease agreements entered into with Best Buy, which were reviewed and approved by the full Board prior to Mr. Dunn being elected to our Board, in accordance with the Company’s related party policy. As of March 2007, the Audit Committee’s review and ratification, approval or disapproval of transactions required to be reported under SEC Regulation S-K Item 404 must be conducted in accordance with the terms of the Company’s related party policy, which is discussed below. Any potential related party transactions that are not reviewed by the Audit Committee must be reviewed by the full Board or another committee thereof, in accordance with the terms of the policy.

 

In March of 2007, the Company’s Board approved a policy related to notification, review and approval or disapproval of related party transactions that are reportable under SEC Regulation S-K Item 404. This related party policy covers our directors, nominees, executive officers, and immediate family members of our directors, nominees and executive officers. The policy also may apply to any outside third-party company or entity in which any of these persons owns more than 10% of the equity, serves as an officer or equivalent or, in the case of directors or immediate family members, is employed. Transactions with these outside entities will initially be reviewed by the office of General Counsel to determine if they are within the scope of the policy. We obtain information regarding potential related party transactions as part of our annual director and executive officer questionnaires.

 

Transactions (or series of related transactions) that would fall within the scope of the policy include those in which the amount exceeds $120,000, other than compensation between a person covered by the policy and the Company (and its subsidiaries). Any new transaction and any amendment to a transaction that falls within the scope of the policy is to be reviewed, and approved or disapproved by the Audit Committee (or the full Board in lieu of the Audit Committee).

 

The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

The charter of the Audit Committee of the Board of Directors, the full text of which is available on the Investor Relations portion of our website (www.dickssportinggoods.com), specifies that the purpose of the Committee is to assist the Board of Directors in its responsibility to:

 

 

In carrying out these responsibilities, the Audit Committee, among other things:

 

 

The Audit Committee met eleven (11) times during fiscal 2007. The Audit Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks. The Committee’s meetings include, whenever appropriate, executive sessions with the Company’s independent auditors without the presence of the Company’s management.

 

As part of its oversight of the Company’s financial statements, the Committee reviews and discusses with both management and the Company’s independent auditors all annual financial statements and quarterly operating results prior to their issuance. During fiscal 2007, management advised the Committee that each set of financial statements reviewed had been prepared in accordance with generally accepted accounting principles, and reviewed significant accounting and disclosure issues with the Committee. These reviews included discussion with the outside auditors of matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication with Audit Committees), including the adoption of, or changes to, the Company’s significant internal auditing and accounting principles and procedures as suggested by the outside auditors, internal audit and management and any management letters provided by the outside auditors and the response to those letters. The Committee also discussed with Deloitte & Touche LLP matters relating to its independence, including a review of audit and non-audit fees and the disclosures made to the Committee pursuant to Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and the Audit Committee has received a written disclosure letter as required by that standard. The Audit Committee has also received, reviewed and discussed with Deloitte & Touche LLP the report required by section 10A(k) of the Securities Exchange Act of 1934.

Taking all of these reviews and discussions into account, the undersigned Committee members recommended to the Board of Directors that the Board approve the inclusion of the Company’s audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008, for filing with the SEC.

 

Members of the Audit Committee

 

Emanuel Chirico (Chairperson)
Lawrence J. Schorr
Walter Rossi

 

Deloitte & Touche LLP (we sometimes refer to Deloitte & Touche LLP as D&T) has served as our independent accountants since the audit for the 11-month period ended January 30, 1999. For 2007, D&T rendered professional services in connection with the audit of our financial statements, including review of quarterly reports and review of filings with the Securities and Exchange Commission and provided tax services. They are knowledgeable about our operations and accounting practices and are well qualified to act as the independent registered public accounting firm, and the Audit Committee has selected D&T as such for 2008.

 

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP for the audit of the Company’s annual financial statements for fiscal 2006 and 2007, and fees billed for other services rendered by D&T for fiscal 2006 and 2007.

 

 

Audit Fees.  Amounts presented for fiscal 2006 and 2007 include $320,487 and $323,816 of fees incurred in connection with review of Company compliance under the Sarbanes-Oxley Act in fiscal 2006 and 2007, respectively.

 

Audit-Related Fees.  Audit related fees paid in fiscal year 2006 principally include fees relating to audits of employee benefit plans. Audit related fees in fiscal 2007 principally include fees relating to acquisitions, procedures performed in connection with the Company’s financial statement restatement and audits of employee benefit plans.

 

Tax Fees.  Tax fees set forth for fiscal 2006 and 2007 are for tax-related services related primarily to tax compliance (including U.S. federal and state returns), tax consulting and tax planning.

 

The Audit Committee pre-approves the terms of all auditing services and the terms of any non-audit services which the independent registered public accounting firm is permitted to render under Section 10A(h) of the Securities Exchange Act of 1934. The Audit Committee may delegate the pre-approval to one of its members, provided that if such delegation is made, the full Audit Committee at the next regularly scheduled meeting shall be presented with any pre-approval decision made by that member.

 

Representatives of D&T will be present at the Annual Meeting of stockholders to respond to questions and to make statements as they desire.

 

The Board of Directors unanimously recommends that the stockholders vote “For” ratifiation of the appointment of Deloitte & Touche LLP as the Company’s independently registered public accounting firm for Fiscal 2008.

 

The following Report of the Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth below with the Company’s management and, based upon such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

The full text of the Compensation Committee’s charter is available on the Investor Relations portion of our website (www.dickssportinggoods.com).

 

Respectfully submitted,

 

Members of the Compensation Committee

 

David I. Fuente (Chairperson)
Lawrence J. Schorr
Larry D. Stone

 

Overview

 

This section of our proxy statement discusses the compensation awarded to, earned by, or paid to the named executive officers (we refer to the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2007, as well as the other individuals included in the “Summary Compensation Table” on page 30, as the “named executive officers”).

 

Role of Compensation Committee

 

Our Compensation Committee is responsible for reviewing the corporate goals and objectives relevant to the compensation of the Chief Executive Officer, evaluating the Chief Executive Officer based on those goals and objectives and setting his compensation based on that performance. The Compensation Committee makes recommendations to our Board and the Chairman and Chief Executive Officer¹ related to the compensation of other named executive officers and approves those officers’ compensation. Additionally, as it relates to all employee compensation other than his own, our Chairman and Chief Executive Officer plays a central role in establishing, reviewing and evaluating compensation matters. Because our Chairman and Chief Executive Officer is key to our business, holds in excess of 66% of the voting power of our capital stock and has been operating the Company since 1984, he plays an extremely significant role in establishing all policies at the Company, including those related to other employees’ compensation. For example, the Chairman and Chief Executive Officer determines annual base salary for all executive officers, in consultation with the head of Human Resources and as approved by the Compensation Committee, may (as part of a subcommittee appointed by the Compensation Committee) approve individual stock awards for officers other than directors and executive officers, and makes the final determination on whether new and/or revised compensation programs will be presented by management to the Compensation Committee.

 

 

¹ In February 2008 our Chairman and Chief Executive Officer’s title was revised to add the title President as well.

Under the rules promulgated by the New York Stock Exchange and Rule 162(m) of the Internal Revenue Code, as amended, the three members of our Compensation Committee are independent non-employee directors for purposes of establishing compensation for our named executive officers.

 

Objectives and Philosophy

 

General.  The Company’s compensation objectives and philosophy are grounded in our overall goal — which is to be the number one sports and fitness specialty retailer for all athletes and outdoor enthusiasts through the relentless improvement of everything we do. We believe that, in order to pursue and achieve that goal, we need to continue to grow our business in a very disciplined way. Because we believe that financial discipline and focus are critical elements to the Company’s overall success, we use earnings before tax (“EBT”) and sales as the primary metrics to measure our business goals for compensation purposes.

 

Compensation Philosophy.  Our compensation programs are designed to attract and retain executive leaders who are results oriented, financially astute and focused on continuous performance improvement. Consequently, our compensation philosophy currently emphasizes “at risk” pay by providing for market median compensation at target performance and significant upside potential for above-target performance through our variable pay programs. The chart below provides the purpose and specific target market position for each pay element.

 

 

 

 

 

Determining Executive Compensation

 

Material increases or decreases in our named executive officers’ compensation (other than our Chairman and Chief Executive Officer) are determined by our Chairman and Chief Executive Officer (through his recommendations to the Compensation Committee) and approved by our Compensation Committee. These changes are determined based on the circumstances related to the named executive officer including individual performance, specific skills, knowledge and experience, the internal value of the position held and external market competitiveness. Overall Company performance is an intrinsic element of our variable pay programs. The annual bonus plan payout for named executive officers is based solely on Company financial metrics. Equity grants made under our 2002 Plan are inherently performance based, as the executive officer receives very limited benefit from the grant unless the stock price rises after the grant date. Company performance is also a consideration in determining other aspects of compensation, including base pay increases and Company contributions to retirement programs.

 

Changes to our Chairman and Chief Executive Officer’s compensation are determined based on performance of our Company and our subsidiaries. The Committee, in determining compensation amounts for the Chairman and Chief Executive Officer, also reviews and takes into consideration the aggregate historic compensation awarded to the Chairman and Chief Executive, both in terms of individual elements of compensation (including the mix of fixed versus variable pay components), as well as the aggregate value of the Chairman and Chief Executive’s equity ownership in the Company.

 

Benchmarking Executive Compensation

 

The Hay Group, a nationally known consulting company with a strong emphasis in the retail sector, was engaged by the Company’s management in the fall of 2007 to conduct a comprehensive market analysis for use in evaluating and establishing executive compensation. Each direct pay component utilized by the Company was analyzed against the Hay Group 2007 Retail Industry Total Remuneration Report (referred to in this proxy statement as the “Hay Retail Survey”), which includes 100 companies and provides data by job title (controlling for differences in responsibility and revenue).

 

In addition, at the request of the Compensation Committee, management in 2007 conducted a review of the direct compensation components for our named executive officers against a benchmark retail group, which we refer to as the “Peer Analysis”. The Peer Analysis focused on base pay, annual bonus and stock-based compensation.

 

The Compensation Committee approved the establishment of an “Executive Compensation Retail Peer Group” using the following general criteria for purposes of conducting the Peer Analysis:

 

 

In addition to the above criteria, the Peer Analysis considered the Company’s financial and operational performance against that of the peer group, in areas such as Total Shareholder Return, Sales and Net Income Growth, Return on Invested Capital and Return on Equity. This peer group will be reviewed periodically by the Compensation Committee and may change from time to time based on each retailer’s continued relevance to the

Company’s current or future business model, as well as the competitive environment for executive talent. The peer group is currently comprised of the following companies:

 

 

Compensation Program Design

 

The Compensation Committee, in consultation with our Chairman and Chief Executive Officer, has designed our executive compensation program to reward the achievement of specific annual Company financial metrics and to align executives’ interests with those of our stockholders by rewarding performance that increases stockholder value. To that end, our plans emphasize variable, performance-based pay.

 

We historically have not had a rigid policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the Compensation Committee, in consultation with our Chairman and Chief Executive Officer, has maintained the flexibility to make allocation between these variables as circumstances dictate. In fiscal year 2007 for our named executive officers, the variable pay components (i.e. bonus and equity awards) of their total direct compensation mix ranged from 79% to 81%, with the Chairman and Chief Executive Officer’s variable pay at 89% of total direct compensation. This compares to a retail market benchmark, generated in connection with the Hay Retail Survey, of 56% to 74%.

 

Although the Company has no formal policy related to such matters, generally, the Company has not adjusted or permitted recovery of awards or payments where the relevant performance measures upon which they were based were restated or otherwise adjusted in a manner that would have reduced the size of an award or payment (although the Company has done so in certain instances).

 

Compensation Components

 

Consistent with the goals discussed above, the Company’s compensation program for executives consists of these elements:

 

Base Salary.  Base salaries for our named executive officers, other than the Chairman and Chief Executive Officer, including any annual or other adjustments, are based upon recommendations provided by our Chairman and Chief Executive Officer, taking into account a qualitative assessment of the nature of the position, the contributions and experience of the officer and external market competitiveness. The base salaries paid to our named executive officers for fiscal 2006 and 2007 are set forth in the “Summary Compensation Table” located on page 30 of the proxy statement.

 

During the Compensation Committee’s meeting in March 2008, salary recommendations for the named executive officers subject to Section 162(m) of the Internal Revenue Code were reviewed and discussed by the Compensation Committee and determined for fiscal year 2008 as follows: Chairman, Chief Executive Officer and President, $700,000; Executive Vice President, Finance, Administration and Chief Financial Officer, $500,000; Executive Vice President and Chief Merchandising Officer, $643,750; and President and Chief Executive Officer, Golf Galaxy, $355,000. The 2008 salary for Mr. Colombo, who became the Vice Chairman and stepped down as President and Chief Operating Officer at the end of fiscal 2007, is discussed below on page 29 of this proxy statement.

Based on information derived from the Hay Retail Study, as compared to certain other companies reviewed by the Hay Group, our 2008 base salaries placed our Chief Executive Officer and our Golf Galaxy Chief Executive Officer in the 25th percentile on a comparative basis, our Chief Financial Officer in the 50th percentile and our Chief Merchandising Officer in the 75th percentile. This relatively low ranking overall on a percentile basis demonstrates the Company’s philosophy of maintaining a lower percentage of total compensation attributable to base pay, with a higher percentage of total compensation based on variable pay elements, so as to keep the Company’s named executive officers focused on continual improvement of the Company’s performance, which is expected to ultimately benefit the Company’s stockholders as well. However, at the same time the Company recognizes the need to provide higher base pay amounts for those positions that are most crucial to the success of a retail company (such as the Chief Merchandising Officer position). After reviewing the competitive market and peer group data along with the total compensation of the named executive officers, the Compensation Committee believes the base salaries above reflect appropriate levels of base pay.

 

Annual Bonus.  Under our annual bonus program, executive officers and certain other employees are eligible to receive cash bonuses based upon the Company’s attainment of specific performance goals as recommended by the Chairman and Chief Executive Officer and approved by the Compensation Committee.

 

The Company’s target incentive bonus opportunities are established using the following position specific company metrics:

 

 

 

 

A specified percentage of the bonus program participant’s annual salary is used to determine any amount to be paid. For fiscal 2007, three (3) levels of performance were established: (i) a threshold level of performance below which no bonus award is paid; (ii) a target level of performance; and (iii) a maximum level of performance above which no additional bonus would be paid. For fiscal 2008, an additional level of performance was established, which is included below. The following sets forth the levels of bonus percentages payable for fiscal 2007 and 2008 for our named executive officers:

 

 

The threshold, target and maximum bonus percentages payable for fiscal 2007 applicable to Senior Vice Presidents were as follows: Threshold 30%, Target 37.5%, Maximum 75%. With the promotion of Mr. Kullman to Executive Vice President, none of the named executive officers are at the Senior Vice President level in fiscal 2008.

 

In accordance with the requirements of Section 162(m) of the Internal Revenue Code and our 2002 Plan, each of these levels for fiscal 2007 was established by the Compensation Committee prior to the end of the first quarter of that fiscal year.

 

The targets for which bonus payments may be made, whether at the threshold, target or maximum percentage amounts, were established based on percent improvement over fiscal year 2006 results for the various categories set forth above (consolidated EBT, Dick’s Sporting Goods EBT, sales, margin percent increase and inventory turn ratio). With respect to consolidated EBT, for 2007 the Company established a target requirement of $230,570,000 for those named executive officers for whom consolidated EBT is utilized, and for 2008 the target for consolidated EBT is $299,757,000. With respect to the other metrics utilized by the Company in determining whether bonuses are achieved, which are not disclosed in this proxy statement, the Committee set the minimum, target and maximum levels for each of fiscal 2007 and 2008 such that the relative difficulty of achieving the target level is consistent from year to year.

 

Each of the bonus payments are generally made for the most recently completed fiscal year (assuming the target levels have been met) as soon as administratively practical after the bonus amounts are determined and the Compensation Committee has taken the action required under Section 162(m) of the Internal Revenue Code. The Compensation Committee has retained the right to pay bonuses outside of the Company’s 2002 Plan and that do not qualify and are not deductible by the Company as compensation under Section 162(m) of the Internal Revenue Code because the requirements of Section 162(m) have not been met.

 

As a result of the Company’s fiscal 2007 operating results, and in connection with our 2007 bonus program we paid Messrs. Stack, Kullman, Colombo, Zanatta and Ms. Manto cash bonuses of $2,792,308, $279,087, $973,558, $98,951 and $831,097 respectively. Mr. Hines, who left the Company in March 2007, was not paid a bonus for fiscal 2007.

 

Over the past three (3) years, we have achieved the maximum performance level twice. In fiscal 2005, we did not meet the threshold level of performance; however, we paid a discretionary award to Mr. Stack at 160% of his annual salary and we paid discretionary awards to the other executive officers at 60% of their annual salaries. Generally, the Compensation Committee believes it sets the minimum, target and maximum levels such that the relative difficulty of achieving the target level is consistent from year to year.

 

Awards of annual bonuses to named executive officers who are subject to Section 162(m) of the Internal Revenue Code are set by the Compensation Committee, and all other bonuses paid to non-executive officers are made in accordance with a formula established by the Compensation Committee and Chairman and Chief Executive Officer.

 

Stock Options.  Our 2002 Plan is designed to create a link between the creation of stockholder value and long-term incentive compensation, provide our employees an opportunity for increased equity ownership and attract and retain associates who are focused on long-term performance. During fiscal 2007, the Compensation Committee operated under guidelines for stock option grants which are generally applicable to all eligible employees. Under these guidelines, stock option grants are generally made on an annual basis in amounts that take into account such factors as Company performance, total stockholder return, share usage and stockholder dilution as well as market competitiveness. Special grants may also be authorized by the Compensation Committee outside of the annual-grant framework for new hires and promotions, to recognize exceptional performance or for retention purposes. See page 44 of the proxy statement for additional information regarding proposed changes to the 2002 Plan relating to Section 409A of the Internal Revenue Code, as amended, for which the Company is currently seeking stockholder approval. Historically, our Chairman and Chief Executive Officer had been delegated limited authority by the Compensation Committee to grant stock options to non-executive officers in accordance with Delaware law. Beginning in fiscal year 2008, the Compensation Committee delegated broader authority to a subcommittee consisting of the Chairman and Chief Executive Officer, Executive Vice President, Finance, Administration and Chief Financial Officer and Senior Vice President, Human Resources to approve stock option grants and grants of

restricted stock to non-executive officers for promotions, new hires and special retention purposes during interim periods between meetings of the Compensation Committee.

 

Generally, all decisions to grant equity awards to our named executive officers are in the sole discretion of the Compensation Committee and, except for grants to the Chairman and Chief Executive Officer, are based upon recommendations provided by the Chief Executive Officer. Historically, annual awards of stock options to named executive officers have been made at a regularly scheduled Compensation Committee meeting during the spring of each year. The exercise price of stock option grants is determined by reference to the closing price of our common stock on the last trading day prior to the date of the grant or the date of the grant depending on the timing of the Compensation Committee meeting during which the grants are approved. Grants of stock options to newly hired named executive officers who are eligible to receive them have been made at special Compensation Committee meetings, in connection with Board meetings or by unanimous written consent. We do not have equity or other security ownership requirements or guidelines applicable to our named executive officers nor do we have any Company policies regarding hedging the economic risk of such ownership. Outside of the annual grant of options made to the named executive officers in March of 2007, the Company also granted Mr. Zanatta a stock option and restricted stock award in connection with the Golf Galaxy acquisition and Mr. Kullman was granted two (2) stock option awards in connection with his employment in 2007 as Senior Vice President and Chief Financial Officer. See page 28 of the proxy statement for additional details on these grants.

 

In fiscal year 2007 stock option grants to our named executive officers were generally at or above the 75th percentile of the Hay Retail Survey and our Peer Analysis. This is consistent with our compensation philosophy, which provides for above median awards for outstanding company performance. See the “Grants of Plan-Based Awards” table located on page 32 of the proxy statement, for specific details on the 2007 grants.

 

Stock options granted under the 2002 Plan and the Golf Galaxy 2004 Stock Incentive Plan historically have a ten (10) year maximum term from the date of grant, or earlier upon employment termination, death or disability. Commencing in fiscal year 2008, the maximum term for stock options was reduced to seven (7) years, pursuant to the terms of the individual award agreements. Historically, most options have vested over four (4) years, but in some instances options for new hires have vested over a three (3) year period as a result of negotiations with the new hire and in some cases cliff vest at the end of certain periods. Vesting ceases upon termination of employment. Options that have vested are generally exercisable for no more than ninety (90) days (and options issued under our prior 1992 Stock Option Plan may be exercisable for no more than thirty (30) days) following termination, except in the case of death or disability, in which case vested options are exercisable for twelve (12) months (ninety (90) days for options issued under our prior 1992 Stock Option Plan), but in no event can an option be exercised following its expiration date. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. All options granted to our named executive officers are made with exercise prices equal to the fair market value of the Company’s common stock in accordance with the plan under which they are granted.

 

Restricted Stock.  Beginning in fiscal year 2008, the Compensation Committee approved the use of restricted stock for the annual grant as well as the new hire, promotion and retention grant programs. Prior to 2008, the only issuances of restricted stock by the Company were to certain employees of Golf Galaxy, including Randall Zanatta, in connection with the Company’s acquisition of Golf Galaxy. These annual restricted stock grants generally become 100% vested on the third anniversary of the grant date, and are subject to forfeiture if the recipient fails to remain employed by the Company, or its subsidiary, during the vesting period. For 2008, the restricted stock component will be equal to 40% of the total value of the grant with the remaining 60% in stock options for vice presidents and above (including executive officers), and 100% of the total value of the grant for non-executive directors and other equity eligible associates. We believe the greater use of restricted stock will enhance the retention aspect of our equity program, encourage a long-term focus in our executives and assist in reducing share usage and stockholder dilution.

 

Retirement and Other Benefits.  The Company’s retirement savings plan, established pursuant to Section 401(k) of the Internal Revenue Code, covers all salaried employees (including executive officers) and certain hourly employees. Under the terms of the retirement savings plan, the Company provides a matching contribution equal to 50%

of each participant’s contribution up to 10% of the participant’s compensation. All Company contributions to the savings plan vest over a five (5) year period, at 20% per year of service.

 

Supplemental Smart Savings Plan.  On July 1, 2006, the Company’s Supplemental Smart Savings Plan became effective, which allowed certain members of management to annually defer a portion of their existing compensation. We implemented the Supplemental Smart Savings Plan because certain members of management had historically been restricted in their ability to participate in the Company’s existing 401(k) Plan because of qualified plan testing rules. The Supplemental Smart Savings Plan was amended on December 7, 2006, to exclude executive officers from being eligible to participate in the Supplement Smart Savings Plan after December 31, 2006.

 

Prior to the effectiveness of the amendment, executive officers had the opportunity to defer up to 15% of their compensation (defined as base salary, quarterly bonus compensation and annual incentive bonus payments), and could elect to receive distributions from the Supplemental Smart Savings Plan on the earlier of (i) a specific date which occurs no earlier than the second plan year following the plan year in which deferrals designated for distribution were credited or the date the employee’s employment is terminated for any reason, or (ii) the date the employee’s employment is terminated for any reason. The form of distribution could, at the executive’s election, be paid in a single lump sum payment, or monthly, quarterly, semi-annual or annual installments, with any installment term between two (2) and fifteen (15) years.

 

Under the Supplemental Smart Savings Plan, the Company has the ability to match amounts deposited into plan accounts, up to a discretionary percentage of compensation determined annually by the Company, not to exceed 7% of a participant’s compensation. We have established a rabbi grantor trust, with a third party trust company as trustee, for the purpose of providing the Company with funds for the payment of matching amounts under the Supplemental Smart Savings Plan.

 

Officers’ Supplemental Savings Plan.  On March 21, 2007, our Compensation Committee approved the implementation of the Dick’s Sporting Goods Officers’ Supplemental Savings Plan, a voluntary nonqualified deferred compensation plan, effective April 1, 2007. The Officers’ Plan was implemented for the purpose of attracting high quality executives and promoting in our key executives increased efficiency and an interest in the successful operation of the Company. Certain key executives, including our named executive officers, are eligible to participate in the Officers’ Plan. These executives are being afforded the opportunity to participate in the Officers’ Plan because, as discussed above, they are no longer eligible to participate in our Supplemental Smart Savings Plan.

 

Under the Officers’ Plan, eligible participants have the opportunity to defer up to 25% of their base salary and up to 100% of their annual bonus, and may allocate amounts deferred under the Officers’ Plan among a range of investment choices. Participant deferral amounts are 100% vested, and matching contributions become 100% vested after five (5) years of plan participation, or upon participant’s death, disability or upon a change in control. Eligible participants may elect to receive distributions of discretionary contributions from the Officers’ Plan as a lump sum, in annual installments, with any installment term between two (2) and twenty (20) years, or a combination of the two options. Matching contributions may be distributed only after age 55. Distributions are also triggered upon a participant’s death or disability (as defined in applicable treasury regulations) or in the event of certain hardships or changes of control (each as defined under Section 409A of the Internal Revenue Code).

 

Under the Officers’ Plan, we are required to match amounts deposited into plan accounts at a rate of 20% of the participant’s annual deferral, up to a $200,000 maximum match per year. Matching amounts are contributed as one lump sum at the end of the year, and the participant must be an eligible participant as of December 31st to receive the matching contribution for that year. We also have the ability to make a discretionary matching contribution as we, through our Board, may determine from time to time. We may at any time direct the Officers’ Plan’s administrator to amend or terminate the Officers’ Plan, except that no amendment or termination may reduce a participant’s account balance.

 

For fiscal year 2007 as a result of the outstanding financial performance of the Company, the Chairman and Chief Executive Officer recommended, and the Compensation Committee approved, a discretionary contribution to each of our three retirement programs. The Smart Savings Plan company match was increased from 50% of each participant’s contribution to 71% of each participant’s contribution up to the 10% maximum. Associates eligible to participate in the Supplemental Savings Plan or the Officers’ Supplemental Savings Plan received a discretionary

contribution, with allocations to individual associates based on a percent of base salary. For additional information regarding discretionary amounts received by our named executive officers see the “Nonqualified Deferred Compensation” table set forth on page 38 of our proxy statement.

 

Employee Stock Purchase Plan.  The Company has an employee stock purchase plan, which provides that eligible employees (including named executive officers) may purchase shares of our common stock at a discount. There are two offering periods in a fiscal year, one ending on June 30th and the other on December 31st, or as otherwise determined by the Company’s Compensation Committee. The employee’s purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of the semi-annual offering period. Employees may purchase shares having a fair market value of up to $25,000 for all purchases ending within the same calendar year. Our Chairman and Chief Executive Officer is not eligible to participate in the stock purchase plan because he owns more than 5% of our voting stock.

 

Life Insurance.  We pay the insurance premiums on life insurance policies for the benefit of Messrs. Stack and Colombo. The beneficiaries under the policies, upon the executive’s death, are the executives’ respective spouses. For Mr. Stack, we also pay for the premiums on an additional life insurance policy for which a personal beneficiary chosen by Mr. Stack is, upon his death, the beneficiary or where prior to death, Mr. Stack may receive the cash surrender value of the policy, and a policy where, upon his death, we are the beneficiary. Attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended February 2, 2008, are included in column (i) of the “Summary Compensation Table” on page 30 of this proxy statement.

 

Perquisites and Other Personal Benefits.  The Company provides named executive officers with perquisites and other personal benefits that our Chairman and Chief Executive Officer and the Compensation Committee believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain our executive talent for key positions. Certain named executive officers are provided with use of automobiles leased by the Company and in certain instances tax preparation service, reimbursement for certain club dues, personal use of Company owned or leased aircraft in accordance with our aircraft policy, the use of administrative assistant services for personal matters and the personal use of tickets acquired by the Company for business entertainment when they become available because no business use has been arranged. Attributed costs of these benefits described above for the named executive officers for the fiscal year ended February 2, 2008, are included in column (i) of the “Summary Compensation Table” and the related footnotes to the column on page 30 of this proxy statement.

 

Written Employment Arrangements.  We historically have not entered into employment agreements with our named executive officers. Except for some of the officers of Golf Galaxy, Inc. (which we acquired in February 2007) who had employment agreements in place prior to our acquisition of Golf Galaxy, and with whom we negotiated continuing employment agreements in connection with the acquisition, and in some limited instances for new hires, we have generally only provided our executive officers with limited severance payments upon termination of employment. In most cases, upon the termination of an officer’s employment by us we are only obligated to pay to that officer an amount equal to the greater of (i) four (4) weeks of pay at the officer’s base salary or (ii) one (1) week of pay for every year of employment with us. The severance payment is payable bi-weekly over the 12-month period following the officer’s termination. No severance payment is payable to the officer if the officer voluntarily terminates employment with us, retires or is terminated due to “cause” (as defined in the agreement), death, or permanent disability. The Company in its discretion may offer other arrangements to employees who end employment with the Company. Aside from the employment agreements discussed in this proxy statement, the Company does not have any arrangements in place with the named executive officers that would provide severance payments to them upon a change-in-control.

 

In some instances in connection with the negotiation of new hires we have entered into offer letters with our executive officers which have provided them written assurances of additional elements of compensation as they join our Company. In November 2005, the Company agreed to terms of employment with Gwen Manto, our Executive Vice President and Chief Merchandising Officer. Under her offer letter, Ms. Manto received an initial gross annual salary of $600,000, and is eligible to participate in the Company’s management bonus plan. Ms. Manto received a signing bonus of $385,000, payable in two (2) installments, which was required to be refunded if her employment was voluntarily terminated within one (1) year of starting employment, and an initial stock grant of 150,000 shares of common stock (adjusted to accommodate the Company’s two-for-one stock split effectuated in October 2007),

which is cliff vested three (3) years from her starting employment date. The Company also agreed to pay to Ms. Manto the value of 8,000 units of unvested restricted stock held by Ms. Manto in connection with her previous employment at Sears, Roebuck and Company. These payments were made in two (2) installments during 2006 and 2007, with the first payment of $609,250 being paid on February 15, 2006 and the second installment of $450,000 being paid on February 15, 2007.

 

On February 13, 2007, we acquired Golf Galaxy as our wholly-owned subsidiary. Following our acquisition of Golf Galaxy, Randall K. Zanatta, Golf Galaxy’s President and Chief Executive Officer, continues to serve in that capacity. In connection with Mr. Zanatta’s continuation as President and Chief Executive Officer of Golf Galaxy (and the fact that Mr. Zanatta previously had an employment agreement in place with Golf Galaxy), we negotiated and entered into an employment agreement with him, which was based on his pre-merger agreement with Golf Galaxy, for a term of three (3) years. Under the terms of his employment agreement, Mr. Zanatta receives a base salary (initially $355,000 per year), specified benefits, the option and restricted stock grants discussed below, and is entitled to receive an annual bonus, based primarily on the performance of Golf Galaxy but also the performance of overall Company goals. Mr. Zanatta will also be entitled to severance if he is terminated without cause (as defined in the employment agreement), and is subject to certain non-compete and non-solicitation covenants set forth in the employment agreement. If Mr. Zanatta’s employment is terminated for a reason other than cause or he resigns under certain specified circumstances (good reason), he is entitled to a lump sum severance payment equal to two (2) times his then-current base salary and incentive bonus for the fiscal year in which termination occurred (if and to the extent certain specified performance targets are achieved), continuation of benefits for two (2) years, and all stock options previously granted that were exercisable for Golf Galaxy common stock prior to the merger (now converted to options exercisable for our common stock) will vest. Additionally, the vesting of shares of restricted stock described below that vest based only on the passage of time (i.e., no performance or other conditions are imposed) will also accelerate. The shares of restricted stock described below that vest only if certain performance targets are achieved will vest to the extent that the performance targets have been met and/or the Company is on target to meet the performance targets as of the termination date. The agreement has a term ending at the end of our third fiscal year following February 13, 2007. See page 40 of the proxy statement for additional information regarding the severance provisions of Mr. Zanatta’s employment agreement.

 

On November 16, 2006, Mr. Zanatta was granted, subject to the completion of the merger, a one-time special option exercisable for 330,000 shares of our common stock, which, subject to vesting, is exercisable at any time prior to February 13, 2012 or, if he is still employed by Golf Galaxy at that time, for such longer period as is prescribed by our 2002 Plan. Additionally, under his employment agreement, Mr. Zanatta received 150,000 shares of our restricted common stock, which, if he continues to be employed by the Company on February 13, 2010, will, with respect to half of the shares, vest automatically, and will, with respect to the other half of the shares, vest if certain performance targets are achieved. This employment arrangement, including the elements of severance in the agreement, arose out of the assumption of Mr. Zanatta’s employment agreement with Golf Galaxy that existed prior to our acquisition of Golf Galaxy and as a result of negotiations between us and Mr. Zanatta. All numbers reflected in this paragraph have been adjusted to accommodate the Company’s two-for-one stock split effectuated in October 2007.

 

The performance targets for Mr. Zanatta’s performance based restricted stock award were a result of negotiations with Mr. Zanatta. Those criteria are based on Golf Galaxy and Company earnings metrics and savings and synergies achievement. We believe that these targets represent goals developed as the result of arms’ length negotiations and as such are difficult to reach.

 

In February 2007, we agreed to employment terms with Timothy E. Kullman, whereby Mr. Kullman agreed to join us as Senior Vice President and Chief Financial Officer to replace Mr. Hines. Mr. Kullman joined the Company in April 2007. The offer letter provided to Mr. Kullman indicated that he would receive a gross annual salary of $450,000, and is eligible to participate in the Company’s discretionary management incentive plan with a target payout of 37.5% of base pay. Mr. Kullman also received an initial stock option grant exercisable for 100,000 shares, which vests at 25% per year starting on the first anniversary of the grant, and an option grant exercisable for 50,000 shares, which vests in its entirety on the fourth anniversary of the date of grant. Mr. Kullman is also eligible to participate in the full range of benefits and 401(k) plans offered to other Company officers. In February 2008, Mr. Kullman was promoted to Executive Vice President, Finance, Administration and Chief Financial Officer, as a result of which his base salary was increased to $500,000 and his 2008 management incentive plan target increased

to 75% of salary. In March 2008 he also received a promotional stock option grant exercisable for 37,500 shares which vests at 25% per year starting on the first anniversary of the grant. All numbers reflected in this paragraph have been adjusted to accommodate the Company’s two-for-one stock split effectuated in October 2007.

 

On September 25, 2007, Joseph H. Schmidt was promoted to Executive Vice President of Operations from his prior position as Senior Vice President Store Operations. On January 15, 2008, Jeffrey R. Hennion was promoted to Executive Vice President and Chief Marketing Officer from Senior Vice President and Chief Marketing Officer, and on February 25, 2008, Diane Lazzaris began employment with the Company as Senior Vice President-Legal, General Counsel and Corporate Secretary. Each of Mr. Schmidt, Mr. Hennion and Ms. Lazzaris are included as executive officers of the Company.

 

Effective February 2, 2008, William J. Colombo assumed the role of Vice Chairman of the Company’s Board of Directors and stepped down as the Company’s President and Chief Operating Officer. Mr. Colombo’s prior responsibilities as President and Chief Operating Officer were assumed by Joseph H. Schmidt, Executive Vice President of Operations, who assumed the additional title of Chief Operating Officer, Timothy E. Kullman, Executive Vice President, Finance, Administration and Chief Financial Officer, and Edward W. Stack, Chairman and Chief Executive Officer, who assumed the additional title of President. In addition to serving as Vice Chairman of the Company’s Board, Mr. Colombo has agreed to continue as an employee of the Company, to provide assistance with respect to various projects as requested by our Chairman and Chief Executive Officer, and will receive an annual salary of $150,000 in connection with such employment.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation.  Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any fiscal year to the corporation’s chief executive officer, chief financial officer and three (3) other most highly compensated executive officers as of the end of any fiscal year. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met.

 

The Compensation Committee believes that it is generally in the Company’s best interest to attempt to structure performance-based compensation, including stock option grants and annual bonuses, to executive officers who may be subject to Section 162(m) in a manner that satisfies the statute’s requirements. However, the Compensation Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet Section 162(m) standards when necessary to enable the Company to meet its overall objectives, even if the Company may not deduct all of the compensation. Accordingly, the Compensation Committee expressly reserves the authority to approve non-deductible compensation in appropriate circumstances. 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 Company’s efforts, that compensation intended by the Company to satisfy the requirements for deductibility under Section 162(m) does in fact do so.

 

Nonqualified Deferred Compensation.  On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. The Company believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005.

 

The following table discloses the compensation for Edward W. Stack, the principal executive officer of the Company, Michael F. Hines and Timothy E. Kullman, each of whom served as the principal financial officer of the Company during fiscal 2007, and the other three (3) most highly compensated executive officers of the Company or its subsidiaries who were serving as executive officers at the fiscal year ended February 2, 2008 and whose total annual compensation (excluding items described in column (h) below) exceeded $100,000 (the “named executive officers”).

 

 

 

 

The following table sets forth each grant of awards made to a named executive officer in the 2007 fiscal year under plans established by the Company, and has been adjusted to reflect the two-for-one stock split effectuated in October 2007.

 

 

 

 

 

Offer Letters for Executive Officers

 

On November 28, 2005, the Company agreed to terms of employment with Gwen Manto, whereby Ms. Manto agreed to join the Company as Executive Vice President and Chief Merchandising Officer. Ms. Manto joined the Company in January 2006. Under the offer letter, Ms. Manto received an initial gross annual salary of $600,000, and is eligible to participate in the Company’s management bonus plan. Ms. Manto received a signing bonus of $385,000 and an initial stock option grant of 150,000 shares, which are cliff vested at three (3) years from her starting employment date. The Company also agreed to pay to Ms. Manto the value of 8,000 units of unvested restricted stock held by Ms. Manto in connection with her previous employment at Sears, Roebuck and Company. These payments were made in two installments during 2006 and 2007, with the first payment of $609,250 having been paid on February 15, 2006 and the second payment of $405,000 having been paid on February 15, 2007. Additionally, Ms. Manto is eligible to participate in the full range of benefits and 401(k) plan offered to other Company officers.

 

On February 13, 2007, we entered into an employment agreement with Randall K. Zanatta, Golf Galaxy’s President and Chief Executive Officer, in connection with our acquisition of Golf Galaxy. Mr. Zanatta’s employment agreement is based on the prior agreement he had in place with Golf Galaxy. Under the agreement, Mr. Zanatta receives a base salary (initially $355,000 per year), specified benefits, certain option and restricted stock grants discussed below, and is entitled to receive an annual bonus, based primarily on the performance of Golf Galaxy but also the performance of the overall Company goals, in an amount equal to 0 to 150% of base salary. Mr. Zanatta will also be entitled to severance if he is terminated without cause (as defined in the employment agreement), and is subject to certain non-compete and non-solicitation covenants set forth in the employment agreement. If Mr. Zanatta’s employment is terminated for a reason other than cause or he resigns under certain specified circumstances (good reason), he is entitled to a lump sum severance payment equal to two (2) times his then-current base salary and incentive bonus for the fiscal year in which termination occurred (if and to the extent certain specified performance targets are achieved), continuation of benefits for two (2) years, and all stock options previously granted that were exercisable for Golf Galaxy common stock prior to our acquisition (which have been converted to options exercisable for our common stock) will vest. Additionally, the vesting of shares of restricted stock described below that vest based only on the passage of time (i.e., no performance or other conditions are imposed) will also accelerate. The shares of restricted stock described below that vest only if certain performance targets are achieved will vest to the extent that the performance targets have been met and/or the Company is on target to meet the performance targets as of the termination date. The agreement has a term ending at the end of our third fiscal year following February 13, 2007. See “Potential Payments Upon Termination or Change-in-Control” on page 39 of this proxy statement for a description of these severance payment agreements.

 

On November 16, 2006, Mr. Zanatta was granted, subject to the completion of the merger, a one-time special option exercisable for 330,000 shares of our common stock, which, subject to vesting, is exercisable at any time prior to February 13, 2012 or, if he is still employed by Golf Galaxy at that time, for such longer period as is prescribed by our 2002 Plan. Additionally, under his employment agreement, Mr. Zanatta received 150,000 shares of our restricted common stock, which, if he continues to be employed by the Company on February 13, 2010, will,

with respect to half of the shares, vest automatically, and will, with respect to the other half of the shares, vest if certain performance targets are achieved.

 

In February 2007, we agreed to employment terms with Timothy E. Kullman, whereby Mr. Kullman agreed to join us as Senior Vice President and Chief Financial Officer (now Executive Vice President, Finance, Administration and Chief Financial Officer) to replace Mr. Hines. Mr. Kullman joined the Company in April 2007. The offer letter provided to Mr. Kullman indicated that he would receive an initial gross annual salary of $450,000, and is eligible to participate in the Company’s discretionary management incentive plan. Mr. Kullman also received an initial stock option grant exercisable for 100,000 shares, which vests at 25% per year starting on the first anniversary of the grant, and an option grant exercisable for 50,000 shares, which vests in its entirety on the fourth anniversary of the date of grant. Mr. Kullman is also eligible to participate in the full range of benefits and 401(k) plans offered to other Company officers.

 

Option Awards

 

The Company’s 2002 Plan permits the granting of options, both incentive stock options and non-qualified stock options, to purchase shares of our common stock, as well as the granting of shares of restricted stock. The Company’s 1992 Stock Plan also permitted the granting of both incentive stock options and non-qualified stock options. The 1992 Stock Plan terminated in 2002, such that no new options can be granted under the 1992 Stock Plan, although certain options previously granted under the 1992 Stock Plan remain exercisable. Non-qualified stock options were granted to the Company’s named executive officers in fiscal 2007 as set forth in the Grant of Plan Based Awards Table above. The option exercise price for each share covered by an option was determined, in accordance with the Company’s 2002 Plan, as the closing sale price for our common stock as quoted on the New York Stock Exchange for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as they deem reliable. The term of the option may not exceed ten (10) years from the date of the grant. Generally, options vest 25% per year over a four (4) year period on each anniversary of the date of grant, although some options have three (3) or four (4) year cliff vesting features. See “Potential Payments Upon Termination or Change-in-Control” beginning on page 39 of this proxy statement for a description of the effects of employment termination or a change in control on stock option awards.

 

Incentive Bonus Award

 

The Company’s 2002 Plan allows for the payment of incentive bonus awards to executive officers. Incentive bonus awards payable to named executive officers in fiscal 2007 are reflected in column (g) of the above “Summary Compensation Table”. Each incentive bonus award confers the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period, which is typically the fiscal year, established by the Compensation Committee. Each incentive bonus award is documented with respect to the threshold, target and maximum amount payable, the performance criteria and level of achievement versus these criteria that shall determine the amount of such payment, the term of the performance period as to which performance shall be measured for determining the amount of any payment and the timing of any payment earned by virtue of performance. The maximum amount payable as a bonus may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of an incentive bonus award granted under the 2002 Plan for any fiscal year that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall not exceed $5,000,000.

 

The Compensation Committee establishes the performance criteria and level of achievement versus these criteria that shall determine the target and maximum amount payable under an incentive bonus award, which criteria may be based on financial performance and/or personal performance evaluations. The Compensation Committee may specify the percentage of the target incentive bonus that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. For additional detail regarding the targets and criteria utilized in connection with the payment of the incentive bonus awards in fiscal 2007, see “Compensation Discussion and Analysis” on page 23 of this proxy statement.

 

The Compensation Committee determines the timing of payment of any incentive bonus, and may provide for or permit an election for the payment of any incentive bonus to be deferred to a specified date or event. An incentive

bonus may be payable in equity or in cash or other property, including any award permitted under the 2002 Plan. Notwithstanding satisfaction of any performance goals, the amount paid under an incentive bonus award on account of either financial performance or personal performance evaluations may be reduced by the Compensation Committee on the basis of such further considerations as the Compensation Committee shall determine.

 

The Company’s 2002 Plan allows the grant of awards that qualify as performance-based compensation under Section 162(m). One of the conditions to qualify as performance-based is that the material terms of the performance goals must be approved by the Company’s stockholders at least every five (5) years. The Board of Directors and our stockholders approved the 2002 Plan prior to our initial public offering, and was again approved by our stockholders at our 2003 annual meeting. To preserve the tax status of certain awards as performance-based, and thereby to allow the Company to continue to fully deduct the compensation expense related to such awards, we are asking the stockholders to re-approve the performance goals and to approve certain other changes made to the 2002 Plan in connection with Section 409A of the Code. For additional information, see “Item Three- Approval of our Amended and Restated 2002 Stock and Incentive Plan” on page 44 of this proxy statement.

 

Travel Policy

 

Our Compensation Committee and Board of Directors approved a Company Travel Policy for Non-Business Use of Corporate Aircraft in November 2004, which was filed with the SEC on a Form 8-K. Under the policy, certain of our executives (including the Chief Executive Officer, President, Executive Vice Presidents, members of the Board of Directors and other officers designated by the Chief Executive Officer) may use any aircraft owned or leased by us for non-business purposes. The frequency and priority of the non-business use of the aircraft by these executives will be determined by our Chief Executive Officer. Except as approved by our Chief Executive Officer or the Company’s Compensation Committee, the value of the non-business trip is billed to the executive (done directly through our aircraft management company to the executive or director and paid by the executive or director to our third-party aircraft management company) at the aggregate incremental cost to the Company determined in accordance with Item 402 of Regulation S-K, as amended (but no less than $500 per hour for each hour of flight time), and in accordance with Federal Aviation Association regulations. In any limited instances where the executive or director is not billed, any non-reimbursed travel will be considered income to the executive or director and reported for tax purposes in the executive’s earnings in accordance with the base aircraft valuation formula, which is also known as the standard industry fare level formula.

 

At least yearly, the Company’s director of internal audit conducts an internal audit of the non-business use of the corporate aircraft to confirm adherence to the travel policy, and prepares a report to the Company’s Compensation Committee relating to such audit.

 

Reference is also made to our “Compensation Discussion and Analysis” on page 21 of this proxy statement, which discusses compensation paid to our executive officers, and how each component of executive officer compensation is structured, and the rationale for such structure.

 

The following table sets forth all unexercised options which have been awarded to our named executive officers by the Company and that are outstanding as of February 2, 2008.