<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SPORT CHALET, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[SPORT CHALET LETTERHEAD]
June 30, 1998
Dear Shareholder:
On behalf of your Company, I want to cordially invite you to attend the
Annual Meeting of Sport Chalet, Inc., to be held at the Pasadena Hilton Hotel,
150 S. Los Robles Avenue, Pasadena, California 91101, on Thursday, August 6,
1998 at 9:00 a.m. PDST.
The principal business of the Meeting is the election of the Company's
Class 3 Directors and to amend the Company's 1992 Incentive Award Plan. The
attached Notice of Annual Meeting and Proxy Statement fully describes the
business to be transacted.
The Directors and certain officers of the Company will be present to help
host the Meeting, respond to any questions that our shareholders may have, and
to discuss the Company's operating results and future. I therefore encourage
you to attend in order to meet your officers and Directors and to participate
in the business of the Meeting. However, if it is not possible for you to
attend, please sign, date and promptly return the enclosed proxy card
immediately to ensure that your shares will be voted.
Finally, you will find enclosed a 20% off coupon for your use at any of our
19 store locations. As in the past, I encourage you to try our stores and to
write me regarding your shopping experiences, what you liked about our stores
and any suggestions you may have for improvement.
Sincerely,
/s/ Norbert J. Olberz
Norbert J. Olberz
Chairman and Interim
Chief Executive Officer
<PAGE>
[SPORT CHALET LOGO]
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 6, 1998
----------------
Dear Shareholder:
The Annual Meeting of the Shareholders of Sport Chalet, Inc. will be held
at the Pasadena Hilton Hotel, 150 S. Los Robles Avenue, Pasadena, California
91101 Thursday, August 6, 1998 at 9:00 a.m., Pacific Daylight Savings Time. A
Proxy and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the following purposes:
1. To elect two Class 3 Directors to serve for a three-year term expiring
in 2001, or until a successor is elected and qualified.
2. To ratify an amendment to the 1992 Incentive Award Plan to increase
(i) the number of available shares and the number of automatic option
grants to non-employee Directors which will be automatically granted
upon being elected or reelected to the Board of Directors and (ii) the
maximum number of option shares such non-employee Director may receive
and (iii) to extend the term of said Plan to October 31, 2012.
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 12, 1998 as
the record date for determining shareholders entitled to notice of and to vote
at the Meeting or any adjournments thereof. For a period of at least ten days
prior to the Meeting, a complete list of shareholders entitled to vote at the
Meeting shall be open to the examination of any shareholder during ordinary
business hours at the Company's executive offices at 920 Foothill Boulevard,
La Canada, California 91011.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING ARE URGED
TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. AN ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR YOUR
CONVENIENCE.
By Order of the Board of Directors,
/s/ Howard K. Kaminsky,
-----------------------------
Howard K. Kaminsky,
Secretary
La Canada, California
June 30, 1998
<PAGE>
PROXY STATEMENT
---------------
SPORT CHALET, INC.
920 FOOTHILL BOULEVARD
LA CANADA, CALIFORNIA 91011
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 6, 1998
SOLICITATION AND REVOCABILITY OF PROXY
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Sport Chalet, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held on August 6, 1998, or at
any adjournments thereof (the "Meeting").
Any shareholder who executes and delivers a Proxy may revoke it at any time
prior to its use upon (a) receipt by the Secretary of the Company of written
notice of such revocation; (b) receipt by the Secretary of the Company of a
duly executed Proxy bearing a later date; or (c) attending the meeting and
requesting that the Inspector of Elections return his or her Proxy prior to
the taking of any vote.
All shares represented by a Proxy in the accompanying form which is
properly signed, dated, returned and not revoked will be voted in accordance
with the instructions contained therein. Unless authority to vote for the
election of Directors is withheld, Proxies will be voted for the two Directors
proposed by the Board and to ratify the amendment to the Company's 1992
Incentive Award Plan. Discretionary authority is provided in the Proxy as to any
matters not specifically referred to in the Proxy. Management is not aware of
any other matters which are likely to be brought before the Meeting. However, if
any such matters properly come before the Meeting, it should be understood that
the Proxy holder or holders are fully authorized to vote thereon in accordance
with his or their judgment and discretion.
The Company's Annual Report to Shareholders (the "Annual Report") for the
year ended March 31, 1998, including financial statements, is enclosed with
this Proxy Statement, which is being mailed to shareholders on or about June
30, 1998. The Annual Report does not constitute a part of this Proxy
Statement.
The cost of soliciting Proxies in the accompanying form has been, and/or
will be, paid by the Company. In addition, banks, brokers and other
custodians, nominees and fiduciaries will be requested to forward copies of
the Proxy material and Annual Report to their principals and to request
authority for the execution of Proxies. The Company will reimburse such
persons for their reasonable expenses in so doing.
RECORD DATE AND VOTING
The Board of Directors has fixed the close of business, 5:00 p.m., Pacific
Daylight Savings Time, on June 12, 1998, as the record date for the
determination of shareholders entitled to notice of, and to vote at, the
Meeting. As of the record date of the Meeting there were outstanding
<PAGE>
6,525,000 shares of Common Stock. The outstanding shares of Common Stock
constitute the only outstanding voting securities of the Company entitled to be
voted at the Meeting. Each holder of Common Stock is entitled to one vote for
each share held by such person with respect to each matter to be voted on at the
Meeting. The vote of a majority of the shares cast in person or by Proxy is
required to elect a Nominee for Director or for adoption of the proposed
Amendment to the Company's 1992 Incentive Award Plan (the "1992 Plan").
The presence at the Meeting by person or by Proxy, of the holders of a one-
third of the outstanding Common Stock, is necessary to constitute a quorum.
Votes cast by Proxy or in person at the Meeting will be tabulated by the
Inspector of Elections appointed for the Meeting to determine whether or not a
quorum is present. The Inspector of Elections will treat abstentions as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum, but as unvoted for purpose of determining the approval of any
matter submitted to the shareholders for a vote. If a broker indicates on the
Proxy that it does not have discretionary authority as to certain shares to vote
on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
As of the record date, Norbert J. Olberz, Chairman of the Board and Interim
Chief Executive Officer, owns indirectly approximately 67% of the Company's
Common Stock, as the Co-Trustee with his wife, Irene Olberz, of the Olberz
Family Trust, a revocable grantor trust. As a result, Chairman Olberz through
the Olberz Family Trust, is the Company's Principal Shareholder ("Principal
Shareholder") and will have sufficient voting power to determine the outcome
of any matters submitted to the Company's shareholders for approval. /1/
Thus, the Principal Shareholder has sufficient voting power to elect the
Nominees proposed by the Board of Directors and to ratify the amendment to the
1992 Incentive Award Plan and he will vote his shares in favor of the election
of such Nominees and to ratify said amendment. In that event, the other
shareholders will be unable to elect any other Director or defeat the proposed
ratification to the amendment to the Company's 1992 Incentive Award Plan.
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEE
The Amended and Restated Certificate of Incorporation of the Company
provides that the members of the Company's Board of Directors shall be
classified into three classes, as nearly equal in number as possible, each of
which is to serve three years, with one class being elected each year. The
term of the two Class 3 Directors expires with this Meeting.
- --------
/1/ As of the record date, June 12, 1998, the Company's Stock Registrar's
records reflect that Mr. Olberz owned approximately 72% of the outstanding
shares of the Company's Common Stock. Due to certain technical issues, the
Stock Registrar was unable to adjust its records to reflect that on March
31, 1998, Mr. Olberz agreed to award approximately 5% of the outstanding
shares to various Directors and employees. As awards were effective prior
to record date, arrangements have been made to provide recipients voting
rights with respect to awarded shares.
-2-
<PAGE>
Each shareholder is entitled to one vote per share held as of the record
date. Shareholders will not be allowed to cumulate their votes in the election
of Directors.
The Board of Directors has nominated Norbert J. Olberz and Kenneth Olsen
for election as the Class 3 Directors at this Meeting to serve for a three-year
term expiring at the annual meeting in 2001 or until his respective successor is
elected and qualified. Messrs. Olberz and Olsen currently are serving as
Directors and have consented to serve for a new term.
The persons named in the enclosed form of Proxy, unless otherwise directed
therein, intend to vote such Proxy for the election of Norbert J. Olberz and
Kenneth Olsen as Directors for the term specified. The Proxies may also be
voted for a substitute nominee in the event Norbert J. Olberz or Kenneth Olsen
shall be unable to serve for any reason or be withdrawn from nomination, a
contingency not now anticipated.
The following table, together with its footnotes, presents information
regarding the age, occupation, business experience furnished by Messrs. Olberz
and Olsen.
TABLE 1
CERTAIN INFORMATION REGARDING NOMINEE DIRECTOR
----------------------------------------------
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR'S NAME AGE CLASS OCCUPATION/BACKGROUND (1)
--------------- --- -------- -------------------------
<S> <C> <C> <C>
Norbert J. Olberz 73 3 The Company's founder and
Chairman of the Board since it
was founded in 1959, Interim
President from April 1995
through 1997 and Interim Chief
Executive Officer since April
1995.
Kenneth Olsen 80 3 Mr. Olsen has been a Director
of the Company and Chairman of
the Audit Committee since June
1994. He served as President
and Chief Executive Officer of
the Vons Company, Inc., a
leading grocery store chain,
from 1974 to 1983, at which
time he retired from full-time
responsibilities after thirty-
eight years with that company.
Mr. Olsen currently serves as a
director of several nonprofit
organizations and is a
management consultant advising
national and international
firms on marketing and
merchandising consumer
products.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION AS
DIRECTORS, THE NOMINEES LISTED ABOVE.
- -------------
(1) Based on information provided to the Company by each Nominee.
- -------------
-3-
<PAGE>
OTHER DIRECTORS
The following persons will continue to serve as Directors of the Company
after the Meeting until their terms of office expire (as indicated below) or
until they resign or their successors are elected and qualified:
TABLE 2
CERTAIN INFORMATION REGARDING DIRECTOR NON-NOMINEES
---------------------------------------------------
<TABLE>
<CAPTION>
TERM TO DIRECTOR POSITIONS WITH THE COMPANY
DIRECTOR'S NAME AGE EXPIRE(1) CLASS AND PRINCIPAL OCCUPATION (2)
--------------- --- --------- -------- ----------------------------
<S> <C> <C> <C> <C>
Eric S. Olberz 35 1999 1 Director since 1992. Mr.
Olberz currently is pursuing
a degree in Business
Administration. He was
President and owner of Camp
7, Inc., a soft goods
manufacturing operation
located in Santa Ana,
California from July 1995
through October 1996 and
Vice Chairman of the Company
from October 1994 to July
1995, Vice President from
1984 through October 1994
and Secretary from October
1992 to July 1995. Mr.
Olberz resigned as an
officer and employee
concurrently with Camp 7,
Inc.'s acquisition of the
Company's soft goods
manufacturing operations in
July 1995. Mr. Olberz is the
son of Norbert J. Olberz,
the Principal Shareholder.
John R. Attwood 66 2000 2 Director and Chairman of the
Compensation Committee since
February 1993. Mr. Attwood
is the President of Attwood
Enterprises, a consulting
business. He was the former
Chairman of Coca-Cola
Bottling of Los Angeles and
Senior Vice President and a
Group President at Beatrice
Companies, Inc., the parent
company of Coca-Cola
Bottling of Los Angeles,
until his retirement in
1986. Mr. Attwood currently
serves on the board of
directors of Verdugo Hills
Hospital, a non-profit
organization.
</TABLE>
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(1) Fiscal year during which term expires.
(2) Based on information provided to the Company by each Director.
- -------------
-4-
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board formally met eight times during the last fiscal year. The Board's
Audit and Compensation Committees, each currently comprised of non-employee
Directors Attwood, Olsen and Eric S. Olberz, met six and seven times,
respectively, during the fiscal year ending March 31, 1998. Each Director
attended each of the Board and Committee meetings, as appropriate. The
Directors also met informally with the Company's management during that fiscal
year.
The Audit Committee, among other things, nominates the independent
auditors, reviews the financial statements and the report of independent
auditors, and reviews the scope and results of the Company's accounting
practices and internal accounting procedures. The Compensation Committee is
responsible for reviewing and recommending to the full Board of Directors the
material terms for executive officer employment and severance contracts and
annual compensation levels for executive officers not otherwise set by contract,
administering the Company's 1992 Plan, establishing and periodically reviewing
the Company's policies regarding non-officer employee compensation and benefit
policies and other matters related to compensation and evaluation of Company
personnel.
COMPENSATION OF DIRECTORS
A. Cash Compensation. Directors who are employees of the Company are
-----------------
compensated as officers of the Company and receive no separate compensation
for serving as Directors. Directors receive an $18,000 annual retainer for
attending or participating in up to six formal Board and/or Committee meetings
during the fiscal year plus an additional $3,000 for each additional day they
attend or participate in formal Board and/or Committee meeting(s) and $750 for
each day that they attend or participate in an informal meeting with the
Company's management. Directors also may receive reimbursement of expenses in
attending meetings. For the fiscal year ended March 31, 1998, each non-
employee Director received as a Director $18,000 in fees for attending formal
meetings and $3,000 in additional fees.
In addition, Directors Attwood and Olsen have and will continue to
advise the Company regarding various areas in which they have significant
professional experience. These advisory services are in addition to the services
performed as Directors and, accordingly, each Director performing advisory
services will be entitled to additional compensation in an amount to be
negotiated from time to time by such Director and the Company and approved by a
majority of the disinterested Directors (i.e., those not performing advisory
----
services) in conformity with the Company's policies on conflicts of interest.
For the fiscal year ended March 31, 1998, Director Attwood received $7,500 in
compensation for services provided as a consultant.
B. Directors' Stock Option Plan. Under the 1992 Plan, which is described
----------------------------
in detail later in this Proxy Statement, each non-employee Director currently is
granted automatically upon becoming a Director, Automatic Option Grants ("AOGs")
to purchase 3,000 shares of
-5-
<PAGE>
Common Stock at the fair market value on the grant date. On each triennial date
on which a non-employee Director is reelected to the Board, AOGs for an
additional 3,000 shares will be automatically granted to the Director subject to
an aggregate limit for any one non-employee Director of options to acquire a
total of 9,000 shares. All AOGs are exercisable one-third upon grant and one-
third on each of the first and second anniversaries of the date of initial grant
and all expire five years from the date of grant. In accordance with the terms
of the 1992 Plan, Director Attwood has been granted AOGs representing 9,000
shares and Directors Olsen and Eric S. Olberz each have been granted AOGs
representing 6,000 shares. The Board of Directors has voted in favor of an
amendment, subject to shareholder approval, to increase (i) the number of AOGs
which will be granted upon the election and reelection of a non-Employee
Director to 5,000 shares, and (ii) the maximum number of shares each non-
Employee Director may receive in AOGs to 30,000 shares. See "PROPOSAL 2--
AMENDMENT TO 1992 PLAN" below.
C. Principal Shareholder's Award Plan. On March 31, 1998, Directors
----------------------------------
Attwood, Eric S. Olberz, and Olsen were each awarded 6,000 shares of Company
Common Stock from the Principal Shareholder. See "Principal Shareholder's Award
Plan" below.
EXECUTIVE OFFICERS
The following persons are currently key executive officers of the Company
who are not identified in the Sections captioned "Election of Directors--
Nominees" or "Other Directors" and are "Named Officers" for purposes of the
Summary Compensation Table set forth below.
TABLE 3
CERTAIN INFORMATION REGARDING KEY OFFICERS
------------------------------------------
<TABLE>
<CAPTION>
KEY OFFICER'S NAME AGE POSITION WITH THE COMPANY AND BACKGROUND
------------------ --- ----------------------------------------
<S> <C> <C>
Craig L. Levra 39 President and Chief Operating Officer since
November 3, 1997. During the preceding five
years, Mr. Levra had been employed by The
Sports Authority, the Nation's largest
sporting goods retailer. During his tenure
with that company, he held positions of
increasing responsibility in merchandising
and operations and was Vice President of
Store Operations at the time of his
departure. Mr. Levra has an extensive
retail background having worked for several
major retail chains including the HomeClub
(the predecessor to HomeBase) and the All-
American Sports Club. Mr. Levra received
Bachelor and Masters of Business
Administration degrees from the University
of Kansas.
Dennis D. Trausch 48 Executive Vice President since June 1988.
Since joining the Company in 1976, Mr.
Trausch has served in various positions
starting as a salesperson and assuming
positions of increasing responsibility in
store and Company operations. He oversees
all store and distribution center
operations including human resources and
customer service, as well as being
responsible for site selection and leasing.
</TABLE>
-6-
<PAGE>
Howard K. Kaminsky 40 Chief Financial Officer since joining the
Company in 1985, Senior Vice President--
Finance since April 1997 and Secretary
since July 1995. Mr. Kaminsky was also the
Company's Vice-President--Finance from
January through April 1997 and Treasurer
from October 1992 through January 1997.
Prior to joining the Company, Mr. Kaminsky
was employed in the auditing division of
Ernst & Young LLP. He is a Certified Public
Accountant and received his Bachelor of
Science degree in Business Administration
from California State University,
Northridge. Mr. Kaminsky is a member of the
California Society of Certified Public
Accountants and the Retail Financial
Executives Professional Association.
Robert W. Haueter 46 Senior Vice President--Sales, Marketing and
Merchandising since January 1997.
Previously, Mr. Haueter was the Company's
Vice President--Marketing since joining the
Company in 1989. Mr. Haueter currently
oversees the Company's purchasing function
and directs its marketing and advertising
activities. Prior to joining the Company,
Mr. Haueter owned and managed The Carpet
Store, a carpet and floor goods retailer.
He also has held various positions with the
California Assembly and on political
campaign staffs, where his responsibilities
included marketing and strategy for
political campaigns. Mr. Haueter has served
on the Board of Directors of several
charitable organizations.
EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS
The Company traditionally does not enter into formal employment or
severance contracts with its executives and officers. The Company parted from
this policy by entering into a formal employment agreement on October 22, 1997
with Craig L. Levra, pursuant to which Mr. Levra was appointed President and
Chief Operating Officer.
The employment contract is for a period of approximately two years,
terminating on October 31, 1999. Mr. Levra receives an annual $200,000 salary,
is entitled to increases in salary as the Board Directors may determine at its
sole discretion, and will participate in the executive officer bonus program.
Mr. Levra also received a $100,000 signing bonus and 100,000 in non-qualified
stock options ("NQSOs"). Mr. Levra is entitled to the fringe benefits provided
other Company executive officers including, without limitation, vacation pay,
sick leave and reimbursement of certain business expenses. Pursuant to the
employment agreement, the Company also paid certain of Mr. Levra's moving and
relocation expenses. In the event Mr. Levra is terminated other than "for
cause", he will be entitled to monthly severance payments for what would be
the remaining employment term had he not been terminated in the amount of
8.333% of his then annual base salary.
During the fiscal year ended March 31, 1998, Mr. Levra received certain
additional awards under the 1992 Plan. See the discussion under the caption
"Incentive Compensation Plans."
OWNERSHIP OF SHARES BY CERTAIN BENEFICIAL OWNERS
The following table, with footnotes, reflects the Company's best knowledge
based on information filed with the Securities and Exchange Commission (the
"Commission") and information provided directly by the persons named below, of
certain information as of June 12,
-7-
<PAGE>
1998 regarding the amount of Common Stock beneficially owned by each Director
and Director Nominee of the Company, each executive officer that is a "Named
Officer" (see the discussion under the caption "Summary Compensation"), all such
Directors and executive officers as a group and by each holder of more than five
percent of the outstanding shares of the Company's Common Stock. All shares
shown in the table reflect sole voting and investment power.
TABLE 4
BENEFICIAL OWNERSHIP OF COMMON STOCK
------------------------------------
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER POSITION WITH COMPANY OWNED OF CLASS
------------------- --------------------- ------------ --------
<S> <C> <C> <C>
Norbert J. Olberz Chairman of the Board 4,372,617 65.9%
920 Foothill Boulevard and Interim Chief
La Canada, California 91011 Executive Officer
John R. Attwood Director 15,000(1) *
200 West Glenoaks Boulevard
Glendale, California 91202
Eric S. Olberz Director 272,403(2) 4.1%
920 Foothill Boulevard
La Canada, California 91011
Kenneth Olsen Director 19,100(3) *
920 Foothill Boulevard
La Canada, California 91011
Craig L. Levra President and Chief 25,000(4) *
920 Foothill Boulevard Operating Officer
La Canada, California 91011
Dennis D. Trausch Executive Vice President 55,286(5) *
920 Foothill Boulevard
La Canada, California 91011
Howard K. Kaminsky Senior Vice President-- 61,206(6) *
920 Foothill Boulevard Finance, Chief
La Canada, California 91011 Financial Officer, and
Secretary
Robert W. Haueter Senior Vice President-- 41,451(7) *
20 Foothill Boulevard Sales, Marketing and
La Canada, California 91011 Merchandising
All Directors and executive officers as a group (8 persons). 4,862,063 73.4%
</TABLE>
- --------
* Represents less than one percent
(1) Includes vested AOGs to purchase 7,000 shares of Common Stock and does not
include noninvested AOGs granted to Director Attwood to purchase 2,000
shares of Common Stock.
(2) Includes vested AOGs to purchase 5,000 shares of Common Stock and does not
include non-vested AOGs granted to Director Eric S. Olberz to purchase
1,000 shares of Common Stock.
(3) Includes vested AOGs to purchase 6,000 shares of Common Stock.
(4) Does not include non-vested NQSOs granted to Mr. Levra to purchase 125,000
shares of Common Stock.
(5) Includes vested NQSOs to purchase 28,800 shares of Common Stock and does
not included non-vested NQSOs granted to Mr. Trausch for 88,200 shares of
Common Stock.
(6) Includes vested NQSOs to purchase 28,800 shares of Common Stock and does
not include non-vested NQSOs granted to Mr. Kaminsky to purchase 93,200
shares of Common Stock.
(7) Includes vested NQSOs to purchase 24,000 shares of Common Stock and does
not include non-vested NQSOs granted to Mr. Haueter to purchase 81,000
shares of Common Stock.
-8-
<PAGE>
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Compensation Committee Report on executive compensation is set forth in
the following section below. As previously mentioned, the Compensation
Committee currently is comprised of three non-employee Directors of the
Company, Directors Attwood, Olsen and Eric S. Olberz. Only Eric S. Olberz is a
former officer or employee of the Company or any of its subsidiaries or
affiliates. See Table 2--"Certain Information Regarding Director Non-
Nominees."
The Compensation Committee makes recommendations to and reviews in detail
aspects of executive compensation with the full Board of Directors, which has
the ultimate responsibility for all compensation decisions. During fiscal year
ended March 31, 1998, the Principal Shareholder, in addition to the members of
the Compensation Committee, served on the Board of Directors.
COMPENSATION COMMITTEE REPORT OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors ("Committee") has
provided the following report on executive compensation.
A. Compensation Policy and Executive Compensation
----------------------------------------------
This Committee is responsible for reviewing and making recommendations as
to the annual compensation of the Company's executive officers, including such
components as annual cash compensation, short and long term incentives, and
supplemental benefits.
The Company's compensation policy is based on linking executive
compensation to the Company's objectives of growth through increased earnings
and maximizing long-term shareholder value. This policy traditionally has been
carried out through a compensation program consisting of salaries and short and
long term incentives. The Committee monitors compensation levels for comparable
retail companies and evaluates annual compensation on the basis of these
compensation trends and the performance of the Company in order to determine
whether adjustments to base salaries and bonuses, or both, are appropriate.
With few exceptions, the Company traditionally has not had formal
employment agreements with its executive officers, and currently only one
executive officer, Craig L. Levra, has entered into a formal contract. See
"Employment Agreements and Termination Arrangements" above. However, the
Company's recent practice has been to enter into formal severance agreements
with departing executives. The various elements of the Company's overall
compensation program are more fully discussed below.
-9-
<PAGE>
B. Annual Salary and Bonus
-----------------------
Annual compensation for Messrs. Olberz, Levra, Trausch, Kaminsky, and
Haueter (collectively, the "Executive Management Group") consists of a base
salary and an annual bonus. During the fiscal year ended March 31, 1998, the
annual base salaries for Messrs. Olberz, Levra, Trausch, Kaminsky and Haueter,
respectively, were $275,000, $200,000, $160,000, $160,000 and $150,000. For
the fiscal year ended March 31, 1999, their base salaries will be $300,000,
$200,000, $170,000, $170,000 and $154,000, respectively. The Committee has
used the service of the Compensation Resource Group to survey and provide
information on market conditions. Based on such information, the Committee
believes that the base salaries for the Executive Management Group, as
compared with the base salary for similar executives surveyed, is at or below
the surveyed market average.
Starting in fiscal 1996, the Company adopted a bonus plan under which,
subject to an overall maximum, the executive officers earn a bonus as a
percentage of their base compensation, if the Company meets the pre-tax profit
objective set by the Committee at the beginning of the fiscal year. If the
profit objective is met or exceeded, the CEO, COO, EVP, CFO and Senior VP--
Marketing and Merchandising each are entitled to receive a bonus equal to 45%,
50%, 35%, 35% and 30%, respectively, of their annual base compensation. If 90%
or more, but less than 100% of the profit objective is achieved, these
executives receive 50% of a full annual bonus plus 5% for each full percentage
point above 90% achieved. During fiscal 1998, the profit objective was exceeded
and each of above identified executives earned a full bonus. The summary of the
base salaries and bonuses paid to the Executive Management Group during the last
three years is set forth in the Summary Compensation Table (Table 5).
While a significant portion of the overall annual compensation package
continues to be based on a bonus program tied to the Company's earnings
performance, starting in fiscal 1996, a greater proportion of overall
compensation is now derived from the executives' base salary and an overall
cap is placed on the maximum bonus which is paid annually to each executive.
These adjustments conformed the Company's executive compensation policy more
closely with existing market practices and provide a more stable compensation
level. The Committee believes the base salaries are now sufficiently
competitive to allow the Company to attract and retain well-qualified
executives. Survey results support the Committee's conclusion that while
executive base salaries are still below the competitive market, if the Company
performs to profit levels similar to those achieved in Fiscal 1998, the
Executive Management Group's total compensation under this program falls
within an acceptable range of industry averages for the defined labor market.
-10-
<PAGE>
C. Longer-Term Compensation
------------------------
The Company granted NQSOs during the fiscal year ended March 31, 1998 to
certain employees, including Executive Management Group other than Chairman
Olberz, under the 1992 Plan. Messrs. Levra, Trausch, Kaminsky and Haueter were
granted NQSOs for 125,000, 45,000, 50,000 and 45,000 shares of Common Stock,
respectively, exercisable at the market price on the grant date and vesting at
a rate of 20% per year over five years. The Committee believes NQSOs provide a
valuable incentive to achieve long-term growth and maximum shareholder value
by linking compensation benefits to the long-term growth in the Company's
stock value. More specific information on option grants is shown in Tables 5
and 7 below of this Proxy Statement.
The Committee concluded that it is inappropriate for the Company at this
time to offer its key executives supplemental benefit programs. Instead, the
focus will remain on a short-term and long-term incentive based program in
order to achieve the Company's objectives of a greater earnings capacity and
long-term growth in share value. The Compensation Committee will continue to
review the Company's overall executive compensation program periodically and,
if appropriate, adjust existing compensation levels or policies in order to
meet market demands or changing corporate objectives.
D. Stock Awards
------------
Effective March 31, 1998, the Principal Shareholder and his wife Irene,
through their family trust, committed 293,625 shares of the Company's common
stock owned by them for awards to more than 100 employees and Directors
pursuant to the terms of that certain Olberz Family Trust Sport Chalet
Restricted Stock Plan (the "Olberz Plan"). Under the Olberz Plan, selected
employees and Directors will each be awarded a portion of these shares.
Messrs. Trausch, Kaminsky and Haueter received 25,000, 20,000, and 15,000
shares under the Olberz Plan, respectively. Mr. Levra did not receive any
stock awards. All such awards require no consideration to be paid by the
recipient, but are subject to the restrictions contained in the Olberz Plan.
These awards have been made by Mr. Olberz in appreciation and recognition of
and to reward recipients for their loyalty and service to the Company. The
shares so granted, while of the same class as the Company's registered Common
Stock, are unregistered. Accordingly, their subsequent transferability is
subject to applicable Federal and State securities laws, including, without
limitation, compliance with Securities Exchange Commission Rule 144 as well as
the private restrictions imposed by the Olberz Plan. Such private restrictions
include prohibition against transfer for two years and potential forfeiture in
the event certain employment conditions are not fulfilled. Further, for
federal tax purposes, the transaction will more likely than not be treated as
a contribution to capital of the Company and a payment of compensation by the
Company to the recipients to the extent of the fair market value of the stock
so awarded, resulting in a tax benefit to the Company. In recognition of both
the financial and employee incentive benefits to the Company from these
awards, the Company has agreed to pay the costs of administration,
implementation and enforcement of the Olberz Plan.
-11-
<PAGE>
Though the Olberz Plan is a private arrangement, the Committee welcomes Mr.
and Mrs. Olberz most generous gesture. The Committee believes that this one-
time benefit, a significant portion of which is allocated to non-executive
employees, will significantly complement and augment the compensation plans of
the Company.
E. Employment Agreement for Craig Levra
------------------------------------
The Committee participated in the negotiations leading to the employment of
Craig L. Levra as President and Chief Operating Officer of the Company
pursuant to a written employment agreement dated October 22, 1997. The
essential terms of the employment agreement with Mr. Levra are set forth in
the section under the caption "Employment Agreements and Termination
Agreements". Mr. Levra also was awarded under the 1992 Plan 25,000 shares of
Company Stock and NQSOs representing 25,000 shares in connection with an
awards package provided to executive officers during the fiscal year.
F. Chief Executive Officer Compensation
------------------------------------
The Committee believes that the $275,000 base salary paid to Mr. Olberz as
Chairman and Interim Chief Executive Officer during fiscal 1998 should be
adjusted to $300,000 for fiscal 1999 and as adjusted will be reasonable when
compared to the comparable companies whose chairmen are actively involved in
day to day operations. His participation in the executive bonus program
appropriately exemplifies the Company's pay-for-performance philosophy, since
the value of this element of his compensation package will be determined by
the Company's profitability during the period he serves as the Company's
Interim Chief Executive Officer. However, Chairman Olberz has not been
provided with any longer-term incentives, because, in the Committee's view,
his significant stock holdings in the Company already provide sufficient
motivation for him to achieve long-term profitability and maximum shareholder
value.
The profit objective for fiscal 1998 established by the Compensation
Committee at the beginning of the year was pre-tax $4.8 million. The Company
exceeded this objective with a pre-tax profit of $5.5 million. Accordingly,
Mr. Olberz became entitled to a full bonus of 45% of his base compensation, or
$124,000. Thus, Mr. Olberz' total compensation for fiscal 1998 was $399,000,
of which $124,000 was by way of performance bonus.
G. Tax Deductibility of Executive Compensation
-------------------------------------------
The Internal Revenue Code of 1986 was amended in 1993 in order to limit the
deductibility for federal income tax purposes of non-performance based
compensation in excess of $1,000,000 provided to certain executive officers.
As the Company's current compensation structure does not provide for or
contemplate annual compensation to any executive in excess of
-12-
<PAGE>
the $1,000,000 threshold, the limitations placed on tax deductions will be
inapplicable to the Company in the foreseeable future.
COMPENSATION COMMITTEE
----------------------
JOHN R. ATTWOOD
ERIC S. OLBERZ
KENNETH OLSEN
June 30, 1998
INCENTIVE COMPENSATION PLANS
On April 1, 1990, the Board of Directors of the Company adopted a Stock
Appreciation Rights Plan (the "1990 Plan") authorizing the grant of Stock
Appreciation Rights ("SARs") to key Company employees. These SARs entitled the
holder upon exercise to receive cash in an amount equal to 0.11% of three
times the increase in aggregate book value of the Company from the grant date.
The purpose of the 1990 Plan was to provide an incentive to key employees
in a position to contribute to the successful operations of the Company by
linking a portion of such employees' compensation directly to the increase in
the Company's aggregate book value through the issuance of the SARs. In October
1992, the Board adopted the 1992 Plan which authorized the granting of certain
incentive awards including new SARs, NQSOs, incentive stock options ("ISOs"),
AOGs to non-employee Directors, restricted stock, dividend equivalents, and PAs.
Pursuant to the terms of the 1992 Plan, the SARs granted under the 1990 Plan
were converted to PAs at a conversion price established under the 1992 Plan and
the 1990 Plan was terminated.
Each PA granted in the conversion entitled the holder on exercise to the
cash equivalent of 0.0011 times the difference between three times the book
value of the Company on the grant date of the original SAR and three times the
book value on the date of exercise, excluding such increase as is attributable
to the offering or any subsequent equity offering, and will otherwise be
subject to the same terms and conditions as the original SAR it replaces.
Prior to Fiscal 1993, 22 SARs had been issued to certain executives under the
1990 Plan. In Fiscal 1993, these SARs were converted into 22 PAs including
three, five and one PAs to Messrs. Trausch, Kaminsky and Haueter,
respectively, all of which were exercised during Fiscal 1996 resulting in
payments to Messrs. Trausch, Kaminsky, and Haueter, respectively, of $37,041,
$61,461 and $11,797.
A total of 600,000 shares of Common Stock currently are authorized and
reserved for awards to be granted under the 1992 Plan. The 1992 Plan provides
for the grant of ISOs as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, to employees of the Company. The 1992 Plan also provides
for the grant of NQSOs to the Company's officers, employees or consultants
thereof. An ISO may have certain tax advantages for the optionee as compared
to a NQSO. See the discussion under the caption "Tax Effects of Plan
Participation in the section "PROPOSAL 2--AMENDMENT TO 1992 PLAN". The
exercise price of the ISOs may not be less than 100% of the fair market value
of the Company's Common Stock on the date of grant or 110% of such fair market
value in the case of holders of more than 10% of the Company's Common Stock.
The exercise price
-13-
<PAGE>
of the NQSOs may not be less than 100% of the fair market value of the Company's
Common Stock on the grant date. Shares subject to an option granted under the
1992 Plan may be purchased for cash and/or its equivalent, including shares of
Common Stock. The ISOs and NQSOs expire ten years after the grant date, with the
exception of ISOs held by a holder of 10% or more of the outstanding Common
Stock, which expire five years after the grant date.
The Company granted NQSOs covering 378,000 shares of Common Stock under the
1992 Plan to certain employees immediately prior to the Company's initial
public offering in November 1992. Of this amount, NQSOs for 72,000, 72,000,
and 48,000 shares, respectively, were granted to Messrs. Trausch, Kaminsky,
and Haueter. These NQSOs were exercisable at the Company's initial public
offering price of $9.25 and vested at a rate of 20% per year over five years.
The Board of Directors authorized the issuance on March 1, 1996 of NQSOs to
certain of the Company's officers and these officers, including Messrs.
Trausch, Kaminsky and Haueter, agreed to terminate the existing NQSOs that
they had received prior to the Company's initial public offering in March,
1996. Mr. Haueter also received NQSOs for 12,000 additional shares of Common
Stock. On October 22, 1997, Craig L. Levra was granted NQSOs representing
100,000 shares in connection with his employment by the Company. On February
4, 1998, the Company granted NQSOs representing 225,000 shares to the
Company's executive officers and other key personnel. Of this amount, NQSOs
for 25,000, 45,000, 50,000 and 45,000 shares were granted to Messrs. Levra,
Trausch, Kaminsky and Haueter, respectively. In addition, Mr. Levra was
awarded 25,000 shares of Common Stock. See Table 7 of this Proxy Statement.
Under the 1992 Plan, a total of 30,000 shares of Common Stock have been
reserved for grant of AOGs to non-employee Directors of the Company, of which
AOGs for 9,000 shares remain unallocated as of the date of this Proxy
Statement. AOGs granted to Board of Directors members are discussed herein
under the Section captioned "Compensation of Directors." 32,000 shares of
Common Stock remain subject to award under the Plan as of the date of this
Proxy Statement. The Board of Directors has voted in favor of amendment to
increase (i) the number of shares of the Company's Common Stock which may be
issued under the 1992 Plan from 600,000 shares to 1,200,000 shares, (ii) the
number of AOGs which will be granted upon the election and re-election of a
non-employee Director from 3,000 to 5,000 shares, (iii) the maximum number of
shares each non-employee Director may receive in AOGs from 9,000 shares to
30,000 shares and (iv) the total number of shares reserved for grants of AOGs
to non-employee Directors from 30,000 to 101,000 shares. The 1992 Plan is
discussed in greater detail below in the Section captioned "ISSUE 2--AMENDMENT
TO 1992 PLAN."
Beginning in fiscal 1997, eligible employee participants could make
voluntary contributions to an employee retirement savings plan under Section
401(k) of the Internal Revenue Code 1986 as amended (the "401K Plan") through
payroll deductions which are matched, in part, by the Company's contributions.
Such contributions can be utilized by the participant to purchase interests in
certain mutual funds or shares of the Company's Common Stock.
-14-
<PAGE>
Each employee is eligible to participate in the 401K Plan on the first day
of the pay period coincident with the semi-annual eligibility computation
period during which he or she shall perform at least 1,000 hours or one year
of service. There are currently approximately 800 employees of the Company who
are eligible to participate in the 401K Plan. Subject to compliance with
certain nondiscrimination tests which limit contributions of or on behalf of
"highly compensated employees" (as such term as defined in the federal tax
laws), the eligible employee may make an annual contribution equal to from 2%
up to and including 15% of their salary compensation. The Company will make a
matching contribution of 25% of the first 4% of an eligible employee's
compensation. The maximum investments of any plan participant in company stock
cannot exceed 25% of their total deferral contributions.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the 1998, 1997, and 1996 fiscal years,
the cash compensation paid or accrued by the Company, as well as other
compensation paid or accrued for such year, as to the Company's Chief
Executive Officer during this period, Norbert J. Olberz, and to each of the
other key executive officers (collectively "Named Officers") for which
disclosure is required.
TABLE 5
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------------------ -------------------------------
NAME AND PRINCIPAL FISCAL SALARY BONUS OPTIONS/SARS ALL OTHER
POSITION YEAR ($) ($)(1) (#)(2) COMPENSATION
- ------------------ ------ -------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Norbert J. Olberz 1998 275,000 124,000 0 0
Chairman of the Board 1997 250,000 125,000 0 0
and Interim Chief 1996 243,750 0 0 0
Executive Officer
Craig L. Levra 1998 186,923(3) 42,000 125,000 118,700(4)
President and Chief
Operating Officer
Dennis D. Trausch 1998 160,000 56,000 45,000 125,000(5)
Executive Vice President 1997 145,000 52,000 0 0
1996 141,375 0 72,000 37,041(6)
Howard K. Kaminsky 1998 160,000 56,000 50,000 100,000(5)
Senior Vice President-- 1997 135,000 52,000 0 0
Finance, Chief 1996 131,625 0 72,000 61,461(6)
Financial Officer,
and Secretary
Robert W. Haueter 1998 150,000 50,000 45,000 75,000(5)
Senior Vice President-- 1997 120,000 48,000 0 0
Sales, Marketing, and 1996 117,000 0 60,000 11,797(6)
Merchandising
</TABLE>
-15-
<PAGE>
- --------
(1) All named executive officers were entitled to receive bonuses based on the
Company's net income for the fiscal year.
(2) Represents NQSOs issued to key executive officers during fiscal 1996. See
the discussion above under the heading "Incentive Compensation Plans."
(3) Includes a $100,000 signing bonus paid upon joining the Company.
(4) Represents the fair market value on the grant date of 25,000 shares
awarded to Mr. Levra. Mr. Levra joined the Company in fiscal 1998. See the
discussion above under the heading "Employment Agreement and Termination
Agreement."
(5) Represents the fair market value on the grant date of shares awarded by
the Principal Shareholder to Messrs. Trausch, Kaminsky and Haueter for
25,000, 20,000 and 15,000 shares of Common Stock, respectively.
(6) Represents payments to Messrs. Trausch, Kaminsky and Haueter upon exercise
of their respective PAs. See the discussion above under the heading
"Incentive Compensation Plans."
PERFORMANCE GRAPH
The following graph shows a comparison of the Company's total return to
shareholders for the last five years on an initial investment of $100.00 as
compared to total return for the MG Industry Group 529 Index and the NASDAQ
Market Index for the same period.
[PERFORMANCE GRAPH APPEARS HERE]
TABLE 6
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sport Chalet, Inc. 100.00 64.29 57.14 32.14 35.71 71.43
- --------------------------------------------------------------------------------------------------------------------------------
Peer Group (1) 100.00 107.94 116.75 159.53 148.11 180.92
- --------------------------------------------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 115.57 122.61 164.91 184.50 278.82
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_________________
(1) Peer group chosen was Media General Industry Group 529 - Other Importers,
Wholesalers and Retailers.
TABLE 7
OPTIONS GRANTED IN FISCAL 1998
The following sets forth certain information concerning the grants and stock
options under the 1992 Plan to the Named Officers during Fiscal 1998. No other
stock options were granted to such Named Officers during this period.
-16-
<PAGE>
OPTION GRANTS IN FISCAL 1998
----------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS INDIVIDUAL GRANTS
GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE -----------------
GRANTED FISCAL 1998 PRICE EXPIRATION 5% 10%
NAME(1) (#)(1) (2) ($/SH)(3) DATE (4) (4)
------- ------- -------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Norbert J. Olberz 0 N/A N/A N/A N/A N/A
Craig L. Levra 125,000 39% (5) (6) 611,366 1,491,790
Dennis D. Trausch 45,000 14% 4.75 2/4/08 134,426 340,662
Howard K. Kaminsky 50,000 15% 4.75 2/4/08 149,362 378,514
Robert W. Haueter 45,000 14% 4.75 2/4/08 134,426 340,662
</TABLE>
- -------------------
(1) Represents NQSOs which vest at a rate of 20% per year after grant over 5
years. Upon certain changes of control of the Company or the Shareholders
approval of a reorganization, merger, consolidation, liquidation, or
dissolution of the Company or similar transactions, the holder of an NQSO
shall have the right to exercise such option to the full extent not
theretofore exercised.
(2) Based on aggregate NQSOs representing 325,000 shares of Common Stock
granted during Fiscal 1998.
(3) All options were granted at the Company's closing stock price for its
Common Stock on the National Market System as reported by the NASDAQ on
the grant date.
(4) Calculated over a ten year period representing the term of the NQSOs.
(5) 100,000 NQSOs are exercisable at $4.375, 25,000 at $4.75.
(6) 100,000 NQSOs expire on November 22, 2007, 25,000 on February 4, 2008.
- -------------------
OPTION EXERCISES AND YEAR END VALUE
The following table sets forth information with respect to the Named
Officers concerning the unexercised options held at the end of Fiscal 1998. No
options were exercised in Fiscal 1998.
-17-
<PAGE>
TABLE 8
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION
--------------------------------------------------------------------------
VALUES
------
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON YEAR END (#) AT FISCAL YEAR END(1)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Norbert J. Olberz 0 0 0/0 N/A
Craig L. Levra 0 0 0/125,000 $0/68,750
Dennis D. Trausch 0 0 28,800/88,200 $75,600/124,650
Howard K. Kaminsky 0 0 28,800/93,200 $75,600/125,900
Robert W. Haueter 0 0 24,000/81,000 $63,000/105,750
</TABLE>
- --------
(1) Represents the difference between the closing price of the Company's
Common Stock on March 31, 1998 in excess of the exercise price of the
options multiplied by the number of shares subject to exercisable and
unexercised options, respectively.
- --------
CERTAIN TRANSACTIONS
From time to time the Company has transacted business with entities in
which the Principal Shareholder of the Company has an interest.
PROPERTY LEASES
The Company leases from corporations controlled by the Principal
Shareholder its corporate office space in La Canada, its warehouse and
distribution facility in Montclair, and its stores in La Canada and Huntington
Beach. The Company has incurred rental expense of $1.5 million, $1.5 million,
$1.4 million payable to the Principal Shareholder or his affiliated corporations
in Fiscal 1998, 1997, and 1996, respectively. The Company believes that the
occupancy costs to the Company under each lease are no higher than those which
would be charged by an unrelated third party under similar circumstances.
The Company's non-employee Directors have approved a proposal to relocate
and expand the La Canada store and corporate offices currently leased from La
Canada Properties, Inc., a California Corporation under the control of the
Principal Shareholder. The existing lease will be terminated and the store and
office relocated to the "Sport Chalet Village," a shopping center in La Canada
currently under development by La Canada Properties, Inc. That shopping center
is expected to be completed by the summer of 1999. The new rental rate during
the initial fifteen-year lease term for the store will be the amount by which
four percent times monthly
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<PAGE>
Gross Sales exceeds the $54,250 monthly minimum rent and is expected to be less,
on a per square foot basis, than under the old store lease. The new store will
be 50,000 square feet and, subject to obtaining necessary governmental
approvals, an outdoor pool area of approximately 1,500 square feet. The new
office rental rate will be $10,850 per month compared to $4,500 under the old
lease. The new office will be 20,000 square feet, compared to the current 10,000
square feet facility. Management believes that the new facilities will result in
improved operational efficiencies because the site will be larger and all
functions will be housed under one roof. Management believes that the occupancy
costs under the new leases would be no higher than those which would be charged
by an unrelated third party under similar circumstances.
PRINCIPAL SHAREHOLDER'S AWARD PLAN
On March 31, 1998, the Company and the Olberz Family Trust established the
Olberz Family Trust Sport Chalet Restricted Stock Award Plan ("Olberz Plan"),
pursuant to which the Olberz Family Trust transferred 293,625 unregistered
shares of the Company's Common Stock to the Olberz Plan and the Olberz Plan
concurrently awarded the shares to qualified employees and certain Directors
of the Company. Each Director of the Company (other than the Principal
Shareholder) was awarded 6,000 shares. The remaining shares were awarded to
qualified employees of the Company based on the responsibilities of the
eligible employee, the value of the employees services to the Company, the
employees tenure with the Company and other factors deemed pertinent by the
Committee responsible for administering the Olberz Plan. For further details,
see the description of the Olberz Plan in the discussion under the caption
"Compensation Committee Report of the Board of Directors."
PROPOSAL 2--AMENDMENT TO 1992 PLAN
AMENDMENT
---------
The Board of Directors has unanimously approved, subject to shareholder
approval, an Amendment to the 1992 Plan. The affirmative vote of the holders
of a majority of the outstanding shares of Common Stock entitled to vote is
required to approve the Plan. The following summary describes the principal
features of the 1992 Plan. This summary is qualified in its entirety by
reference to specific provisions of the 1992 Plan, the full text of which is
set forth as Exhibit A to this Proxy Statement.
DESCRIPTION OF THE 1992 PLAN
----------------------------
TITLE OF PLAN
- -------------
The title of the Plan is the "Sport Chalet, Inc. 1992 Incentive Award
Plan."
PURPOSE
- -------
The purpose of this Plan is to promote the growth and profitability of the
Company by providing, through the granting of Stock Appreciation Rights
("SARs"), NQSOs, ISOs, restrictive stock, stock payments or PAs (collectively,
"Awards"), incentives to attract highly talented persons to positions with the
Company, to retain such persons and to motivate them to use their best efforts
on behalf of the Company.
-19-
<PAGE>
AMENDMENT
- ---------
The Board may at any time, suspend, amend, alter, or terminate the Plan and
may amend the terms of any Award previously granted, prospectively or
retroactively, except under the following situations:
1. Shareholder Approval. Unless otherwise required by applicable
--------------------
law, rule or regulation, the Board shall not amend the Plan without requisite
shareholder approval if such amendment would (i) reduce the minimum option price
requirements set forth in the Plan; (ii) increase the maximum number of Awards
or Shares subject to Awards or Awards available for grant under the Plan (except
pursuant to Plan provisions providing for adjustments upon the occurrence of
certain events described in "Other Terms" below); (iii) provide for Plan
administration other than by the Board or Committee (as defined in Subsection C
below); (iv) change the requirements for qualifying as an Eligible Person; or,
(vi) extend the maximum period during which Awards may be exercised or the term
of the Plan.
2. Participant Approval. Unless otherwise required by applicable
--------------------
rule or regulation, any amendment which would affect in a material and adverse
manner any Award granted prior to the date of any such amendment must be
approved by the Participant holding the affected Award.
3. AOGs. The provisions under the Plan referring to AOGs may not be
----
amended more than one time during any six-month period except for any amendments
to conform to changes in the Code or ERISA, or the rules thereunder.
EFFECTIVE DATE AND TERM
- -----------------------
The amended Plan will become effective, upon Shareholder approval, on
August 6, 1998. The amended Plan will expire on October 31, 2012. The original
Plan, prior to the proposed approval of the Amendment (the "Original Plan"), is
scheduled to expire on November 1, 2002.
ELIGIBILITY
- -----------
An employee, consultant or officer of the County, including officers who
are Directors, and non-employee Directors are eligible to participate in the
Plan (a "Participant" or collectively "Participants"). Only non-employee
Directors receive AOGs nor are they eligible for any other form of Awards.
ERISA
- -----
The Plan is not subject to the Employee Retirement Income Security Act of
1974 ("ERISA").
ADMINISTRATION
- --------------
The Plan is administered by the Board under the terms of the Plan. The
Board's authority to administer the Plan includes (but is not limited to)
authority to (i) construe and interpret the Plan and any Award Agreements;
(ii) prescribe, amend and rescind rules and regulations relating to carrying
out the purpose of the Plan; (iii) determine which Eligible Persons shall
receive Awards and the time such Awards
-20-
<PAGE>
will be granted; (iv) determine the terms and conditions of Awards granted under
the Plan in a manner consistent with the Plan's provisions; and (v) make all
other determinations necessary or advisable for the administration of the Plan;
provided, however, that the Board shall not have the authority or power to
affect in any manner any AOGs granted pursuant to the Plan. All decisions,
determinations, interpretations, or other actions by the Board (or the
Committee, as defined hereinafter, if applicable) shall be final, conclusive,
and binding on all Participants and any successors-in-interest to such persons.
Subject to applicable law, the Board may, in its discretion, delegate in
whole or in part, its authority to administer and interpret the Plan and
authorize the granting of Awards and rights thereunder to a committee (the
"Committee") which shall consist of no fewer than two members of the Board,
selected by and serving at the pleasure of the Board, who are "disinterested
persons" within the meaning of Section 16(b) of the Securities Exchange Act of
1934 ("Exchange Act") (i.e., generally persons who are not and at any time
---
within one year prior to appointment to the Committee eligible to receive
Awards under the Plan except for the AOGs). The Board, in fact, has delegated
its authority to the Compensation Committee. As such, all actions by the
Compensation Committee will be inclusive and binding on all parties. All
references to the Board hereinafter shall be deemed to refer to the
Compensation Committee to the extent of such delegation.
SHARES SUBJECT TO PLAN; ADJUSTMENTS
- -----------------------------------
Under the Original Plan, a maximum of 600,000 shares are reserved pursuant
to the Plan of which 30,000 Shares are reserved for AOGs. Shares relating to
Awards that expire, terminate, lapse, are forfeited or otherwise do not vest,
will be available for subsequent Awards, except as otherwise expressly
provided in the Plan. As of June 12, 1998, only 7,000 shares were available
for issuance as Awards. Under the proposed Amendment, the maximum number of
Shares would be increased to 1,200,000 of which 101,000 shares would be
reserved for AOGs.
If the outstanding shares of Common Stock are increased, decreased, changed
into or exchanged for a different number or kind of shares of the Company
through reorganization, recapitalization, reclassification, stock split, stock
dividend, or reverse stock split, the Board may authorize an appropriate
adjustment in the number and kind of Shares or other consideration that is
subject to or may be delivered under the Plan.
AWARDS
- ------
Set forth below is a description of the types and terms and conditions of
Awards which Participants may participate in under the Plan, the price at
which the shares deliverable under the Awards may be purchased or the basis
upon which such price is to be determined, and the terms regarding the amount
of shares that a Participant may purchase:
1. Stock Options. The Board will designate these stock options as
-------------
either ISOs or NQSOs. There are certain distinctions between ISOs and NQSOs
which are discussed in more detail below including differences in income tax
consequences to the optionee and to the Company. See "Tax Effects of Plan
---
Participation" below. The purchase price of each share covered by each ISO or
NQSO will be equal to 100% of the fair market value of the Common Stock on the
grant date of the Award, except in the case
-21-
<PAGE>
of ISOs granted to Eligible Persons owning stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company (such persons hereinafter being referred to as "Controlling Employees"),
then the purchase price shall be at least 110% of the fair market value. Each
option will be exercisable in the manner and within the period or periods and in
the installments, if any, determined by the Board and set forth in the related
Award Agreement and, unless earlier terminated, will terminate ten (10) years
after the grant date (five years from the grant date with respect to ISOs
granted to Controlling Employees). The right to purchase the unexercised portion
of an ISO or NQSO continues until its lapse or termination. The exercise price
of an ISO or NQSO may be paid in cash, or, to the extent permitted by the
Company, by delivery of its equivalent, such as Common Stock having a fair
market value on the exercise date equal to the exercise price or part in cash
and part in such equivalent consideration.
2. AOGs. Under the Original Plan, each non-employee Director will be
----
granted automatically upon becoming a director, AOGs to purchase 3,000 shares at
the fair market value on the grant date. On each triennial date on which a Non-
Employee Director is reelected to the Board by the shareholders, AOGs for an
additional 3,000 shares will be automatically granted to the Director subject to
an aggregate limit for any one non-employee Director of options to acquire a
total of 9,000 shares. Under the proposed Amendment, a non-employee Director
will receive 5,000 shares upon election or reelection to the Board subject to an
aggregate limit of 30,000 shares. All AOGs are exercisable one-third upon grant
and one-third on each of the first and second anniversaries of the date of
initial grant and all expire five (5) years from the grant date. The purchase
price for each Share covered by each AOG will be equal to 100% of the fair
market value of the Common Stock on the grant date. The exercise price of an AOG
may be paid in cash, or, by delivery of Common Stock having a fair market value
on the exercise date equal to the exercise price, or part in cash and part in
cash and shares of Common Stock.
3. Restricted Stock. One or more restricted stock Awards may be
----------------
granted to any eligible Participant. Each restricted stock Award Agreement will
specify the number of shares to be delivered, the date of such delivery, the
price to be paid, if any, for such shares and the restrictions as the Board
deems desirable to impose on such shares under the Plan. Shares of restricted
stock will vest and all restrictions thereon lapse on such date as shall be
determined by the Board and set forth in the applicable award agreement, but not
later than the termination date, and rights to such shares will be subject to
earlier termination as provided in the related Award Agreement and the Plan. The
Board may require that restricted stock be placed into escrow until all
restrictions are removed or expire. The purchase price per share of shares of
restricted stock will be determined by the Board. Participants receiving
restricted stock are entitled to dividend and voting rights for the Shares
delivered even though they are not vested, provided that such rights terminate
immediately as to any forfeited shares.
4. PAs. One or more PAs may be granted to any eligible Participant.
---
The value of such Awards may be linked to the market value, book value or other
measure of the value of the Company's Common Stock or other specific performance
criteria determined by the Board. The Plan provides that the Board may, at its
discretion, replace any cash payment to be awarded under the PAs by a stock
payment in part or in full.
-22-
<PAGE>
5. Stock Payments. The Board may approve stock payments to any
--------------
eligible Participant or as part of a compensation arrangement made in lieu of
all or any portion of the compensation otherwise payable to such eligible
person. The number of shares issued as stock payments shall be determined by the
Board.
6. Dividend Equivalents. To the extent provided in an applicable
--------------------
award agreement, an eligible Participant may also be granted "dividend
equivalents" based on the dividends declared on the Common Stock, to be credited
as of dividend payment dates, during the period between the date the Award is
granted and the date the Award is exercised, vests, expires or some similar
period, as determined by the Board. If granted, such dividend equivalents will
be converted to cash or additional Shares by such formula and at such time and
subject to such limitations as may be determined by the Board and set forth in
the applicable Award Agreement.
7. SARs. An SAR may be granted to an eligible Participant and shall
----
provide cash payments under certain circumstances, but will not entitle the
recipient to any shares. Upon exercise of an SAR, the Participant shall receive
an amount equal to the excess of (i) the fair market value of a share on the
date the SAR is exercised over (ii) the fair market value of a share on the date
such SAR was granted. Within ten (10) days after exercise, the Company shall pay
to the Participant in cash the amount determined under the preceding sentence.
The Board may, at the time an SAR is granted, impose such conditions on the
exercise of the SAR as may be required to comply with certain requirements under
Section 16-b of the Exchange Act. Without limiting the generality of the
foregoing, the Board may limit the exercise of an SAR to the period beginning on
the third business day following the Company's release of quarterly and annual
financial data and ending on the twelfth business day following such date. No
SAR may be granted which is exercisable after the expiration of ten years after
the grant date.
8. Terms and Conditions. The terms and conditions of Awards granted
--------------------
under the Plan typically will be evidenced by award agreements or amendments
thereto which are executed and delivered by the Company and the respective
persons to whom Awards have been granted. Award agreements and/or the terms of
the Plan often require the recipient to remain in the employment of the Company
for a specified period of time following the Award grant date in order to
realize any or all of the benefits from the Award. See "Forfeitures and
Penalties" below. The award agreements, however, will confer no right to
continued employment for any Participant. A Participant may exercise all or less
than all of his or her Awards. Awards may be exercised by the Participant by
giving written notice of exercise to the Company, which notice shall specify the
number of Awards to be exercised. However, no fractional shares will be issued
pursuant to the exercise of NQSOs or ISOs, nor will cash payment be made in lieu
of fractional shares. Subject to certain restrictions which are described in
"Restriction on Exercise of Awards and Resales of Shares" below, the shares of
Common Stock received from Awards may be sold from time to time by the
Participants either through one or more brokers or dealers in the over-the-
counter market, through privately-negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at prices otherwise negotiated
and such brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the Participant and/or commission from
purchasers of Shares for whom they may act as agent. The Company may not pay the
costs of any selling discounts, commissions or concessions in connection with
any sales of the shares to third parties.
-23-
<PAGE>
RESTRICTIONS ON EXERCISES OF AWARDS AND RESALE OF SHARES
- --------------------------------------------------------
The Board may delay the granting, vesting or exercisability of an Award for
such time as reasonably necessary to comply with applicable state or federal
securities laws. The Board may be prohibited from delivering any shares
pursuant to the Plan unless and until any then applicable requirements of the
Securities and Exchange Commission or any other regulatory agencies having
jurisdiction and of any exchanges upon which the Common Stock may be listed
have been fully complied with. All Participants that are Directors and
officers of the Company and/or are employees in the financial or accounting
portion of the Company's business, have agreed with the Company not to
purchase or sell Common Stock without receiving preclearance by the Company's
legal counsel. If such Participant contemplates such a transaction, they are
required to contact the Chief Operating Officer of the Company, so that a
legal opinion can be obtained in advance. This requirement does not apply to
stock option exercises under the Plan or otherwise, but would cover market
sales of option stock. The purpose of this requirement is to assure compliance
with securities laws and insider trading restrictions. No assurance can be
provided that a Participant will receive required preclearance by the
Company's legal counsel for any specific proposed sale.
TAX EFFECTS OF PLAN PARTICIPATION
- ---------------------------------
The following discussion is only intended as a general summary and not a
complete description of the effect of federal income taxation upon the
Participant and the Company with respect to the granting of stock option under
the Plan. Because of the complexity of the tax law and because the
applicability of certain tax principles may depend on factors unrelated to the
Participant's Award, the consequences discussed below may not apply in all
situations. In addition, the discussion does not address the income tax laws
of any state.
a. Federal Income Tax Consequences of Stock Option.
-----------------------------------------------
This discussion is based on present federal tax law and the
regulations promulgated thereunder, all of which are subject to change or
interpretation by Congress, the Treasury Department and the courts.
i. ISOs. Certain Options granted under the Plan are
----
intended to constitute "Incentive Stock Options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended ("Code"). In general, Sections
421(a) and 422(a) of the Code provide, in pertinent part, that no income shall
result to an optionee upon the exercise of an "Incentive Stock Option" under
Section 422(a), subject to the general qualification that the Eligible Person
(i) make no disposition of the stock acquired upon the exercise of an ISO within
two years of the grant date and within one year of the date of the Eligible
Person's exercise thereof, and (ii) is continuously employed by the Company from
the date the ISO is granted until three months prior to exercising the ISO.
However, the exercise of the ISO may result in an item of tax preference for
purposes of the alternative minimum tax under Section 55 of the Code equal to
the difference between the fair market value of stock at exercise (or six months
thereafter in certain circumstances) and the exercise price. Such Participant
also will ordinarily realize, upon a subsequent disposition of the stock, long-
term capital gain or loss equal to the difference between the ISO exercise price
and the amount realized on the sale of the Shares. No deduction for federal
income tax purposes will be allowed to the Company in connection with the
exercise of such ISO, provided the foregoing holding and employment period
-24-
<PAGE>
requirements are satisfied. If stock received under an ISO is disposed of by the
Participant within a period of two years from the grant date or a period of one
year from the exercise date, that portion of the gain (if any) derived therefrom
equal to the difference between the ISO exercise price and the fair market value
of the stock as of the exercise date (or, if lower, the proceeds of sale) will
be taxed to the Participant as ordinary compensation income in the year of
disposition, and the Company will receive a corresponding deduction for federal
income tax purposes in the amount taxable to the Eligible Person as ordinary
income. Any gain realized by the Participant in excess of the amount taxed as
ordinary income will be taxed as short-term or long-term capital gain depending
on how long the stock has been held by the Participant.
Except as described below, the foregoing tax consequences should also apply
to the exercise of an ISO under the Plan when shares of Common Stock are used in
payment of the exercise price of such ISO (assuming that the Board consents to
the use of Common Stock as payment of such exercise price). Pursuant to Proposed
Treasury Regulations, the use of shares that were previously obtained pursuant
to the same or a different option as payment of the exercise price of an ISO
under the Plan will be treated as a taxable disposition of the old shares if the
ISO or other holding period requirements applicable to the old Shares have not
been satisfied at the time of the exchange. This treatment could produce
compensation income equal to the fair market value of the old shares on the date
the corresponding option was originally exercised less the amount paid for the
old shares. However, no capital gain income will be recognized with respect to
any further appreciation in the value of the old shares between the date of the
earlier option exercise for the old shares and the date of the option exercise
for the new shares. In general, if the ISO holding period for the old shares is
satisfied at the time such old shares are used in payment of the exercise price
of the same or a different option under the Plan, or if the old shares were
acquired otherwise than by exercise of an option, then no income, gain or loss
should be recognized with respect to such disposition of the old Shares. The
optionee's basis in the old shares used to pay the exercise price under the
option would become such optionee's basis for the number of new shares received
upon the exercise that is equal to the number of the old shares surrendered,
plus any amount included in gross income as compensation at the time of the
exchange. The optionee's basis in the additional number of new shares would be
zero.
ii. NQSOs and AOGs. In general, a Participant receiving an
--------------
NQSO or an AOG receives a nonqualified option and does not realize taxable
income on the date of grant unless the NQSO or AOG has a readily ascertainable
fair market value at that time or the Participant properly elects pursuant to
Section 83(b) of the Code (a "Section 83(b) Election") (assuming such election
is available on the grant date) to be taxed on such grant date. Because the
NQSOs and AOGs received by the Participants would not be actively traded on an
established market, they will likely not be considered to have a readily
ascertainable fair market value under the Treasury Department Regulations.
Thus, unless the optionee already had made a Section 83(b) Election (if
available) or is a director or officer or otherwise subject to Section 16(b)
of the Exchange Act, such optionee will realize ordinary income generally at
the time of exercise in the amount of the difference between the exercise
price and the Fair Market Value of the Shares on the exercise date. The
optionee will have a basis in such Shares equal to the market value on the
exercise date. If the optionee is subject to Section 16(b) of the Exchange Act
and does not make the Section 83(b) Election, he or she will realize ordinary
income upon the expiration of the restrictions imposed under Section 16(b) for
disposition of Shares in the amount of the difference between the exercise
price and the fair market value of the shares at the time such restrictions
lapse. Such optionee's basis in such stock generally will be equal to the fair
market value of the shares on such date. In either case,
-25-
<PAGE>
the Company generally is entitled to a concurrent deduction equal to the gross
income realized by the optionee. Upon disposition of the Shares acquired upon
exercise of an NQSO or AOG, any further gain or loss to the optionee above or
below (as the case may be) the fair market value of the Shares when exercised
will either be a short-term or long-term capital gain or loss, depending on how
long the Shares are held. If the optionee is permitted to make and makes a
Section 83(b) Election, such optionee would recognize taxable income equal to
the difference between the fair market value of the shares on the grant date and
the exercise price. Any appreciation (or depreciation) in such shares after the
grant date would be capital gain (or loss) income which ordinarily would be
recognized upon a taxable disposition of same.
b. Tax Withholding and Reporting of Taxable Events.
-----------------------------------------------
The Board shall make such provisions and take such steps as it
deems necessary or appropriate for the withholding of any federal, state, local
and other tax required by law to be withheld with respect to the grant or
exercise of the Awards under the Plan, including, without limitation, (i) the
deduction of the amount of any such withholding tax from any compensation, any
amounts payable hereunder, or other amounts payable to a Participant by the
Company, or (ii) requiring a Participant (or the Participant's beneficiary or
legal representative) as a condition of granting or exercising an Award to pay
to the Company any amount required to be withheld, or to execute such other
documents as the Board deems necessary or desirable in connection with the
satisfaction of any applicable withholding obligations. The Company may be
obligated to file information returns with governmental tax authorities upon the
grant or exercise of an Award. In addition, if the grant or exercise of an Award
results in the recognition of taxable income by the recipient, the Company may
be obligated to report the amount of the income to governmental tax authorities.
FORFEITURES AND PENALTIES
- -------------------------
In connection with the grant of any award under the Plan, the Board may
provide through the Award Agreement for the expiration or termination of all
or any portion of an Award under certain circumstances in a manner not
inconsistent with the Plan. In the event that the status of a Participant is
terminated, or the Participant ceases to be a director of the Company
(collectively, the "Eligible Participant Termination Date"), for any reason
other than by reason of death or total disability, the Plan provides that any
Awards, or portions thereof, held by such Participant which have not vested
shall expire and become unexercisable as of such date. Unless an extension is
authorized by the Board, all vested Awards, or portions thereof, which have
not been exercised prior to the Eligible Participant Termination Date shall
expire and become unexercisable as of the earlier of:
1. The date which is three (3) months following the Eligible
Participant Termination Date; or
2. The date which the Plan expires.
In the event that the Participant status of a Participant is terminated, or
the Participant ceases to be a director of the Company, by reason of death or
total disability, the Plan provides that any Award, or portions thereof, held
by such Participant which has not vested as of the Eligible Participant
Termination Date shall expire and become unexercisable as of such date. Unless
an extension is authorized by the Board,
-26-
<PAGE>
the Plan provides that all Vested Awards, or portions thereof, which have not
been exercised prior to the Eligible Person Termination Date shall expire and
become unexercisable as of the earlier of:
a. The date on which the Award would normally terminate under
the terms of the award agreement; or
b. The first anniversary of the Eligible Person Termination
Date.
Any Vested Awards of a deceased Participant may be exercised prior to their
respective expiration dates only by the person or persons to whom the
Participant's Award pass by will or through laws of descent and distribution.
The Board may, in its sole discretion, with the consent of the Participant,
extend the period of time during which a Vested Award shall remain
exercisable, provided that in no event shall such extension extend beyond the
date the Board shall so determine. In the case of any employee on an approved
leave of absence, the Plan provides that the Board may make such provision
respecting continuance of the Awards as the Board, in its discretion, deems
appropriate, except that in no event shall an Award be exercisable after the
date by which the Board has determined for the termination of such Award.
MARKET PRICE OF COMMON STOCK AND PLAN BENEFITS
- ----------------------------------------------
The closing price of the Company's Common Stock as of June 12, 1998 was
$5.25. If the price of the Company's Common Stock as of August 6, 1998 is
$5.25 and if the number of shares covered by the Awards is 1,200,000, then the
total amount of Plan benefits will be $6,300,000.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE SPORT CHALET, INC.
1992 INCENTIVE AWARD PLAN.
GENERAL
REQUIRED COMMISSION FILINGS
Based on Company records and other information, the Company believes that
all Commission filing requirements applicable to its Directors and officers
with respect to the Company's fiscal year ended March 31, 1998 were complied
with.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be considered at the 1999 Meeting of
Shareholders must be received by the Secretary of the Company not less than
sixty days nor more than ninety days prior to August 5, 1999.
-27-
<PAGE>
FORM 10-K
The Company will furnish without charge to each person whose Proxy is being
solicited, upon request of any such person, a copy of the Annual Report to
Shareholders of the Company on Form 10-K for the fiscal year ended March 31,
1998 as filed with the Securities and Exchange Commission, including the
financial statements. Such report was filed with the Securities and Exchange
Commission on or about June 30, 1998. Requests for copies of such reports
should be directed to Sport Chalet, Inc., Attention: Mr. Robert Haueter, 920
Foothill Boulevard, La Canada, California 91011.
Please date, sign and return the enclosed Proxy at your earliest
convenience in the enclosed envelope. No postage is required for mailing in the
United States. A prompt return of your Proxy is appreciated.
By Order of the Board of Directors,
/s/ Howard K. Kaminsky
--------------------------------
Howard K. Kaminsky, Secretary
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<PAGE>
EXHIBIT A
---------
SPORT CHALET, INC.
AMENDED 1992 INCENTIVE AWARD PLAN /1/
-------------------------------------
ARTICLE I
PURPOSE OF PLAN
---------------
The purpose of this Plan is to promote the growth and profitability of the
Company by providing, through the granting of stock appreciation rights,
options to purchase stock and other incentive awards, incentives to attract
highly talented persons to positions with one or more of the Participating
Companies, to retain such persons and to motivate them to use their best
efforts on behalf of the Participating Companies.
ARTICLE II
DEFINITIONS
-----------
For the purposes of this Plan, unless the context otherwise requires, the
following terms shall have the meanings set forth in this Article II:
2.01 Automatic Option Grants. The term "Automatic Option Grants" shall mean
-----------------------
the Non-qualified Stock Options granted to Non-employee Directors pursuant to
Article IX of the Plan.
2.02 Automatic Grant Date. The term "Automatic Grant Date" shall mean the date
--------------------
of grant of an Automatic Option Grant.
2.03 Board. The term "Board" shall mean the Board of Directors of the Company.
-----
2.04 Committee. The term "Committee" shall mean a committee appointed by the
---------
Board pursuant to Section 3.01 constituting not less than two (2) members of the
Board.
2.05 Common Stock. The term "Common Stock" shall mean the Company's common
------------
stock, par value $.01 per share.
- --------
/1/ As amended by the Board of Directors on March 31, 1998. Language added to
the Plan is underscored and language deleted is struck through.
A-1
<PAGE>
2.06 Company. The term "Company" shall mean Sport Chalet, Inc., a Delaware
-------
corporation, or any successor thereof.
2.07 Director. The term "Director" shall mean a member of the Board or a
--------
member of the board of directors of any Participating Company.
2.08 Disinterested Person. The term "Disinterested Person" shall mean a
--------------------
disinterested person as that term is defined in Rule 16b-3.
2.09 Dividend Equivalent. "Dividend Equivalent" shall mean the cash or
-------------------
additional Common Stock earned in connection with an Option, as described in
Article XIII.
2.10 Effective Date. The term "Effective Date" shall mean November 1, 1992.
--------------
2.11 Eligible Person. The term "Eligible Person" shall mean any employee,
---------------
consultant or officer of any Participating Company, including officers who are
directors.
2.12 Eligible Person Termination Date. The term "Eligible Person Termination
--------------------------------
Date" shall mean the date as of which the employment or consultant status of
such person by a Participating Company terminates or the date as of which such
person's service as a director of the Company terminates.
2.13 Exchange Act. The term "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as it may be amended from time to time.
2.14 Exercise Date. The term "Exercise Date" shall mean the date a Right or
-------------
Option, or any portion thereof, is exercised.
2.15 Fair Market Value. The term "Fair Market Value,"when used with respect
-----------------
to the determination of the fair market value of the Shares, shall mean: (a)
if Shares are traded on a national stock exchange or traded on the NASDAQ
national market system ("NMS"), the closing sales price per share of the
Shares; (b) if Shares are regularly traded in any over-the-counter market
other than the NMS, the average of the bid and asked prices per share of the
Shares; and (c) if Shares are not traded as described in (a) or (b) above, the
per share fair market value of the Shares as determined in good faith by the
Board on such basis as the Board in its sole discretion shall choose. The date
of determination of Fair Market Value with respect to subparagraphs (a), (b)
and (c) shall be the date specified in the Plan or, if no trading in the
Shares takes place on such date, on the next preceding trading day on which
there has been such trading.
2.16 Holder. The term "Holder" shall mean a person holding an Incentive Award.
------
2.17 Incentive Award. The term "Incentive Award" shall mean any Non-qualified
---------------
Stock Option, Incentive Stock Option, Restricted Stock, Stock Appreciation
Right, Dividend Equivalent, Stock Payment or Performance Award granted under the
Plan.
A-2
<PAGE>
2.18 Incentive Award Agreement. The term "Incentive Award Agreement" shall
-------------------------
mean an agreement relating to the grant of an Incentive Award under the Plan.
2.19 Incentive Award Termination Date. The term "Incentive Award
--------------------------------
Termination Date" shall mean the date as of which an Incentive Award shall
expire and terminate as the Board shall determine.
2.20 Incentive Stock Option. The term "Incentive Stock Option" shall mean an
----------------------
option as defined under Section 422 of the I.R.C., including an Incentive Stock
Option granted pursuant to Article VIII of the Plan.
2.21 I.R.C. The term "I.R.C." shall mean the Internal Revenue Code of 1986, as
----------------------
it may be amended from time to time.
2.22 Non-employee Director. The term "Non-employee Director" shall mean a
---------------------
member of the Board who is not and has not been within the previous one year
period also an officer or employee of the Company or any Participating
Company.
2.23 Non-qualified Stock Option. The term "Non-qualified Stock Option" shall
--------------------------
mean an option other than an Incentive Stock Option granted pursuant to Article
VIII of the Plan.
2.24 Option. The term "Option" shall mean a Non-qualified Stock Option or an
------
Incentive Stock Option.
2.25 Option Agreement. The term "Option Agreement" shall mean the agreements
----------------
required pursuant to Section 8.01 hereof with respect to Incentive Stock Options
and Section 9.01 hereof with respect to Non-qualified Stock Options.
2.26 Option Termination Date. The term "Option Termination Date" shall mean
-----------------------
the date as of which an Option shall expire and terminate as the Board shall
determine.
2.27 Parent Corporation. The term "Parent Corporation" shall mean a member of
------------------
an affiliated group as that term is defined in I.R.C. Section 424(e).
2.28 Participating Company. The term "Participating Company" shall mean the
---------------------
Company and any parent Corporation or subsidiary Corporation.
2.29 Participant. The term "Participant" shall mean an Eligible Person who
-----------
has been granted one or more Incentive Awards and a Non-employee Director who
has received an Automatic Option Grant.
A-3
<PAGE>
2.30 Performance Award. The term "Performance Award" shall mean an award
-----------------
whose value may be limited to stock value, book value or other specific
performance criteria which may be set by the Board of Directors, but which is
paid in cash, stock or a combination of both.
2.31 Person. The term "Person" shall mean a person as that term is defined in
------
Sections 13(d) and 14(d) of the Exchange Act.
2.32 Plan. The term "Plan" shall mean this Sport Chalet, Inc., 1992 Incentive
----
Award Plan.
2.33 Restricted Stock. The term "Restricted Stock" shall mean Common Stock
----------------
sold or granted to an Eligible Person which is nontransferable and subject to
substantial risk of forfeiture until certain restrictions lapse.
2.34 Right. The term "Right" shall mean a stock appreciation right granted
-----
pursuant to this Plan which will entitle the holder of such right to receive
an amount of cash based on the increase in the Fair Market Value of a Share
during the period such stock appreciation right is held by such holder.
2.35 Right Grant Date. The term "Right Grant Date" shall mean the effective
----------------
date of the grant of a Right. The effective date of the grant shall be deemed
to be the date on which the Board authorizes the grant of the Right, unless a
subsequent date is specified in such authorization.
2.36 Right Termination Date. The term "Right Termination Date" shall mean
----------------------
the date as of which a Right shall expire and terminate as the Board shall
determine.
2.37 Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3 promulgated by
----------
the Securities and Exchange Commission under the Exchange Act, as such rule
may be amended from time to time.
2.38 SAR Agreement. The term "SAR Agreement" shall mean the agreement required
-------------
pursuant to Section 6.01 hereof.
2.39 Share. The term "Share" shall mean a share of Common Stock.
-----
2.40 Stock Payment. The term "Stock Payment" shall mean a payment of Shares to
-------------
replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to an employee in cash.
2.41 Subsidiary Corporation. The term "Subsidiary Corporation" shall mean a
----------------------
subsidiary corporation as that term is defined in I.R.C. Section 424(f).
2.42 Terminating Transaction. The term "Terminating Transaction" shall mean
-----------------------
any of the following events: (a) stockholder approval of the dissolution or
liquidation of the Company; (b) stockholder approval of a reorganization,
merger or consolidation of the Company with one or more
A-4
<PAGE>
other corporations (other than any Participating Company and other than with
respect to a transaction, the purpose of which is to change the domicile of the
Company), as a result of which the Company goes out of existence or becomes a
subsidiary of another corporation (which shall be deemed to have occurred if
another corporation shall own, directly or indirectly, fifty percent (50%) or
more of the aggregate voting power of all outstanding equity securities of the
Company); (c) stockholder approval of a sale of all or substantially all of the
Company's assets; (d) the subsequent acquisition by a Person (other than the
Company, any Participating Company, a Participant or any employee benefit plan
of the Company) of equity securities of the Company representing twenty percent
(20%) or more of the aggregate voting power of all outstanding equity securities
of the Company; or (e) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the entire Board
shall cease for any reason to constitute a majority thereof unless the election,
or the nomination for election by the Company's stockholders of each new
Director was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of such period.
2.43 Termination Date. The term "Termination Date, shall mean October 31,
----------------
2012.
2.44 Total Disability. The term "Total Disability" shall mean a total and
----------------
permanent disability as that term is defined in I.R.C. Section 22(e)(3).
2.45 Vested Incentive Award. The term "Vested Incentive Award" shall mean an
----------------------
Incentive Award, or any portion thereof, that has become exercisable pursuant
to the terms and conditions of an applicable Incentive Award Agreement.
ARTICLE III
ADMINISTRATION OF PLAN
----------------------
3.01 Administration by the Board.
---------------------------
(a) The Plan shall be administered by the Board, or at the option of the
Board, by a committee designated by the Board pursuant to Section 3.02 hereof.
(b) The Board shall have full and absolute power and authority in its sole
discretion to (i) determine which Eligible Persons shall receive incentive
Awards, (ii) determine the time when Incentive Awards shall be granted, (iii)
determine the terms and conditions, not inconsistent with the provisions of the
Plan, of any Incentive Awards granted hereunder, and (iv) interpret the
provisions of the Plan and of any Incentive Awards granted under the Plan.
Neither the Board nor the Committee shall have the authority or power, however,
to affect in any manner any Automatic Option Grants made pursuant to Article IX
of this Plan.
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3.02 Action by Committee.
-------------------
(a) The Board may appoint a Committee of no less than two (2) Board
members to administer the Plan and, subject to applicable law, to exercise
all of the powers, authority, and discretion of the Board under this Plan.
The Board may from time to time remove members from, or add members to, the
Committee, and vacancies on the Committee shall be filled by the Board. The
Board may abolish the Committee at any time or revest in the Board the
administration of the Plan. Until changed by the Board, the members of the
Committee shall be the Company's Compensation Committee members.
(b) In establishing and maintaining the Committee, the Board shall
require each member of the Committee to be a Disinterested Person, and the
Board may, but is not required to, take such other actions as it deems
necessary or advisable to conform this Plan or the administration of this
Plan to the requirements of Rule 16b-3, as it may be amended from time to
time (such actions to conform the Plan or the administration thereof to the
requirements of Rule 16b-3 may be taken by the Board or Committee, as
appropriate, without approval from the Company's stockholders).
(c) The Committee shall report to the Board the names of Eligible
Persons granted Incentive Awards, the number of Incentive Awards granted to
Eligible Persons, and the terms and conditions of such Incentive Awards.
(d) No member of the Board of Directors or the Committee will be
liable for any action or determination made in good faith by the Board of
Directors or the Committee with respect to the Plan or any Incentive Award
granted under it.
3.03 Rules and Regulations. The Board may adopt such rules and regulations as
---------------------
it, in its discretion, may deem necessary or appropriate to carry out the
purposes of the Plan.
3.04 Authority. All decisions, determinations, interpretations, or other
---------
actions by the Board (or the Committee, if applicable) shall be final,
conclusive, and binding on all Eligible Persons, Participants, Participating
Companies and any successors-in-interest to such persons.
ARTICLE IV
NUMBER OF RIGHTS OR SHARES AVAILABLE UNDER THE PLAN
---------------------------------------------------
4.01 Maximum Number of Rights or Shares in the Aggregate. Subject to Sections
---------------------------------------------------
4.02 and 15.08 hereof, the maximum number of Rights and Shares which may become
subject to Incentive Awards granted under the Plan shall be One Million Two
Hundred Thousand (1,200,000) in the aggregate of which One Hundred One Thousand
(101,000) are reserved for the Automatic Option Grants to Non-employee Directors
as set forth in Article IX.
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4.02 Additional Availability. If Incentive Awards granted under the Plan
-----------------------
shall for any reason terminate, lapse, be forfeited, or expire without being
exercised, the Shares related thereto, if any, shall again be available for
granting under the Plan and shall not be included in the calculations of the
maximum number of Shares which may be granted under the Plan.
ARTICLE V
TERM OF PLAN
------------
The Plan shall be effective as of the Effective Date and shall terminate on
the Termination Date. No Incentive Awards may be granted hereunder after
October 31, 2012.
ARTICLE VI
STOCK APPRECIATION RIGHTS
-------------------------
6.01 Form of SAR Agreement. Any Right granted under the Plan shall be
---------------------
evidenced by an agreement ("SAR Agreement") in such form as the Board, in its
discretion, may from time to time approve. Any SAR Agreement shall incorporate
the Plan by reference and shall contain such terms and conditions as the
Board, in its discretion, may deem necessary or appropriate and which are not
inconsistent with the provisions of the Plan.
6.02 Limitations on Grants. No Right may be granted which is exercisable after
---------------------
the expiration of ten (10) years after the Right Grant Date.
6.03 Exercisability of Rights.
------------------------
(a) Vesting. The Board shall determine when a Right shall vest or
-------
become exercisable ("Vested Right"), provided that no Right granted under
this Plan shall be exercisable until six (6) months and one day after the
Right Grant Date.
(b) Rule 16b-3 Limitations. The Board may, at the time a Right is
----------------------
granted, impose such conditions on the exercise of a Right as may be
required to comply with subsection (e) of Rule 16b-3. Without limiting the
generality of the foregoing, the Board may limit the exercise of a Right to
the period beginning on the third (3rd) business day following the
Company's release of quarterly and annual financial data and ending on the
twelfth (12th) business day following such date.
(c) Termination of Rights. Each Right shall expire and terminate on
---------------------
the Right Termination Date determined by the Board.
6.04 Payment Upon Exercise of Rights.
-------------------------------
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(a) Amount of Payment. Upon exercise of each Right, the Participant
-----------------
shall receive an amount equal to the excess of (i) the Fair Market Value of
a Share on the date the Right is exercised (the "Exercise Date"), over (ii)
the Fair Market Value of a Share on the Right Grant Date of such Right or,
in the case of grants of Rights on or prior to the date the registration
statement under the Securities Act of 1933 became effective, the offering
price at the time of the Company's initial public stock offering.
(b) Means and Timing of Payment. Within ten (10) days after the
---------------------------
Exercise Date, the Company shall pay to the Participant in cash the amount
determined under paragraph (a).
ARTICLE VII
NON-QUALIFIED STOCK OPTIONS
---------------------------
7.1 The Committee may grant Non-qualified Stock Options to purchase Common
Stock to Eligible Persons, subject to the following terms and conditions:
(a) The purchase price of Common Stock under each Non-qualified Stock
Option may not be less than one hundred (100%) percent of the Fair Market
Value of the Common Stock on the date the Non-qualified Stock Option is
granted.
(b) No Non-qualified Stock Option may be exercised after ten (10)
years and one day from the date of grant. Each Non-qualified Stock Option
granted under this Plan shall also be subject to earlier termination as
provided in this Plan.
(c) Upon the exercise of a Non-qualified Stock Option, the purchase
price will be payable in full in cash and/or its equivalent, such as Common
Stock, acceptable to the Company. Any Holder subject to Section 16(b) of
the Exchange Act shall have beneficially owned Shares used for such payment
for at least six months and one day. Any shares so assigned and delivered
to the Company in payment or partial payment of the purchase price will be
valued at their Fair Market Value on the exercise date.
(d) No fractional shares will be issued pursuant to the exercise of a
Non-qualified Stock Option nor will any cash payment be made in lieu of
fractional shares.
(e) No Non-qualified Stock Option granted to an officer of the
Company subject to Section 16(b) of the Exchange Act, nor any shares of
Common Stock issuable upon exercise of any such Non-qualified Stock Option,
may be sold or otherwise disposed of prior to the date that is six (6)
months and one (1) day following the date of grant of the Non-qualified
Stock Option.
(f) Recipients of Non-qualified Stock Options shall enter into option
agreements (each an "Option Agreement"), in such form deemed appropriate by
the Committee.
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<PAGE>
ARTICLE VIII
INCENTIVE STOCK OPTIONS
-----------------------
8.01 Incentive Stock Options. The Committee may grant Incentive Stock Options
-----------------------
to purchase Common Stock to Eligible Persons, subject to the following terms and
conditions:
(a) The purchase price of each share of Common Stock under an
Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of a share of the Common Stock on the date of grant;
provided, however, that if an Employee, at the time an Incentive Stock
option is granted, owns stock representing more than ten (10%) percent of
the total combined voting power of all classes of stock of the Company (as
defined in I.R.C Section 424(e) or (d)), then the purchase price of each
share of Common Stock subject to such Incentive Stock Option shall be at
least one hundred and ten (110%) percent of the Fair Market Value of such
share of Common Stock.
(b) No Incentive Stock Option may be exercised after ten (10) years
from the date of grant; provided, however, that if an Employee, at the time
an Incentive Stock option is granted to him or her, owns stock representing
more than ten (10%) percent of the total combined voting power of all
classes of stock of the Company (as defined in I.R.C. Section 424(e) or
(d)), the Incentive Stock Option granted shall not be exercisable after the
expiration of five (5) years from the date of grant. Each Incentive Stock
Option granted under this Plan shall also be subject to earlier termination
as provided in this Plan.
(c) Upon the exercise of an Incentive Stock Option, the purchase
price will be payable in full in cash and/or its equivalent, such as Common
Stock, acceptable to the Company. Any Holder subject to Section 16(b) of
the Exchange Act shall have beneficially owned any Shares used for such
payment for at least six months and one day. Any shares so assigned and
delivered to the Company in payment or partial payment of the purchase
price will be valued at their Fair Market Value on the exercise date.
(d) The Fair Market Value (determined at the time the Incentive Stock
Option is granted) of the shares of Common Stock subject to Incentive Stock
Options that become first exercisable in any calendar year (including
Incentive Stock Options under all plans of the Company) shall not exceed
One Hundred Thousand ($100,000) Dollars.
(e) No fractional shares will be issued pursuant to the exercise of
an Incentive Stock Option nor will any cash payment be made in lieu of
fractional shares.
(f) No Incentive Stock Option granted to an officer of the Company
subject to Section 16(b) of the Exchange Act, nor any shares of Common
Stock issuable upon exercise of any such Incentive Stock Option, may be
sold or otherwise disposed of prior to the date
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<PAGE>
that is six (6) months and one (1) day following the date of grant of the
Incentive Stock Option.
(g) Recipients of Incentive Stock Options shall enter into Option
Agreements in such form deemed appropriate by the Committee.
ARTICLE IX
AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
-------------------------------------------------
9.01 (a) Automatic Grants. Each Non-employee Director shall automatically
----------------
be granted Non-qualified Options ("Automatic Option Grants") to purchase
the number of shares of Common Stock set forth below (subject to adjustment
under Section 15.08) hereof on the dates and terms set forth below:
(i) Each person who is a Non-employee Director on the date of
adoption by the Board of the Plan, as amended hereby, or who is
appointed a Non-employee Director prior to the date on which the
shareholders approve the Plan, shall receive an Automatic Option Grant
on the date of stockholder approval of the Plan, as amended hereby, to
purchase 5,000 Shares.
(ii) Each person who, after the date of approval by the
Company's stockholders of the Plan, as amended hereby, is elected or
appointed as a Non-employee Director, shall receive on the date of
appointment as a Non-employee Director an Automatic Option Grant to
purchase 5,000 Shares. Thereafter, an option with respect to a similar
number of shares shall be automatically granted to such director
effective as of each triennial date on which such person is reelected
to the Board of Directors by the Company's stockholders; provided that
the total of such shares optioned to any one Non-employee Director
shall not exceed 30,000 shares.
(b) Terms and Conditions. The terms and conditions applicable to each
--------------------
Automatic Option Grant shall be as follows:
(i) The purchase price of each Share of Common Stock under
each of the options shall be equal to one hundred percent (100%) of
the Fair Market Value of a share of the Common Stock on the Automatic
Grant Date, which, if on or before the company's initial public
offering, shall not be less than the offering price.
(ii) The options shall be exercisable for a period of five
years and one day from the Automatic Grant Date.
(iii) The options will be exercisable on a cumulative basis in
the following increments: each option shall become exercisable with
respect to thirty-three and
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<PAGE>
one-third percent (33-1/3%) of the Shares initially covered by the
option immediately and shall become exercisable with respect to and
additional thirty-three and one-third percent (33-1/3%) of the Shares
initially covered by the option on the first and second anniversaries
of the Automatic Grant Date; provided that (i) the exercisability of
--------
all such options shall accelerate upon the occurrence of a Terminating
Transaction and shall terminate, to the extent unexercised, if the
Common Stock ceases to exist or be publicly traded as a result of the
Terminating Transaction, unless the options are expressly assumed or
replaced by substitute options by the entity that survives the
Terminating Transaction; and (ii) no option granted under this
Paragraph 9.01 may be exercised prior to approval of the Plan, as
amended hereby, by the Company's stockholders.
(iv) Upon exercise of each option, the purchase price will
become payable immediately in cash or in Shares of Common Stock that
the optionee has held for at least six months having a Fair Market
Value on the date of exercise equal to the aggregate purchase price,
or in a combination of cash and Shares.
(v) No option nor any Shares of Common Stock issuable upon
exercise of any such option, may be sold or otherwise disposed of
prior to the date that is six (6) months and one (1) day following the
Automatic Grant Date.
(vi) Recipients of Automatic Option Grants shall enter into
Option Agreements relating to such grants, in the form attached hereto
in Exhibit "A".
-----------
ARTICLE X
RESTRICTED STOCK
----------------
The Committee may grant Restricted Stock to Eligible Persons, subject to
the following terms and conditions:
(a) The Committee in its discretion will determine the purchase price
per share of Restricted Stock, if any.
(b) All shares of Restricted Stock sold or granted pursuant to the
Plan (including any shares of Restricted Stock received by the Holder as a
result of stock dividends, stock splits, or any other forms of
capitalization) will be subject to the following restrictions:
(i) The shares may not be sold, transferred, or otherwise
alienated or hypothecated until the restrictions are removed or
expire.
(ii) The Committee may require the Holder to enter into an
escrow agreement providing that the certificates representing
Restricted Stock sold or
A-11
<PAGE>
granted pursuant to the Plan will remain in the physical custody of an
escrow holder until all restrictions are removed or expire.
(iii) Each certificate representing Restricted Stock sold or
granted pursuant to the Plan will bear a legend making appropriate
reference to the restrictions imposed on the Restricted Stock.
(iv) The Committee may impose restrictions on any shares sold
pursuant to the Plan as it may deem advisable, including, without
limitation, restrictions designed to facilitate exemption from or
compliance with the Exchange Act, the requirements of any stock
exchange upon which such shares or shares of the same class are then
listed and any blue sky or other securities laws applicable to such
shares.
(v) No Restricted Stock sold or granted to an officer of the
Company subject to Section 16(b) of the Exchange Act may be sold or
otherwise disposed of prior to the date that is six (6) months and one
(1) day following the date of grant of the Restricted Stock.
(c) The restrictions imposed under subparagraph (b) above upon
Restricted Stock (other than those imposed under subparagraph (b)(v)) will
lapse in accordance with a schedule or other conditions as determined by
the Committee, subject to the provisions of Section 15.07, subparagraph
(e).
(d) Subject to the provisions of subparagraph (b) above and Section
15.07 the Holder will have all rights of a shareholder with respect to the
Restricted Stock granted or sold, including the right to vote the shares
and receive all dividends and other distributions paid or made with respect
thereto.
ARTICLE XI
PERFORMANCE AWARDS
------------------
The Committee may grant Performance Awards to Eligible Persons. Such awards
may be based on Common Stock performance over a period determined in advance
by the Committee or any other measures as determined appropriate by the
Committee. Payment will be in cash unless replaced by a Stock Payment in full
or in part as determined by the Committee. Concurrent with the receipt of a
Performance Award, the Holder shall enter into an Incentive Award Agreement in
the form approved by the Committee. No Shares granted as part of a Performance
Award granted to an officer of the Company subject to 16(b) of the Exchange
Act may be sold or otherwise disposed of prior to the date that is six (6)
months and one (1) day following the date of grant. The Committee shall
confirm in writing Performance Awards previously granted under earlier Company
plans as being granted under this plan and as being subject to its terms and
conditions from and after the date
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<PAGE>
of adoption of this plan. On the Effective Date, the existing rights issued
under the Company's Stock Appreciation Rights Plan, dated April 1, 1990 (the
"1990 Plan") shall be converted into Performance Awards under this plan with
similar terms and conditions as those of the 1990 Plan and evidenced by written
agreements with the participants.
ARTICLE XII
STOCK PAYMENT
-------------
The Committee may grant Stock Payments of Common Stock to Eligible Persons
for all or any portion of the compensation (other than base salary) that would
otherwise become payable to an Employee in cash. No Shares granted as part of
a Stock Payment granted to an officer of the Company subject to 16(b) of the
Exchange Act may be sold or otherwise disposed of prior to the date that is
six (6) months and one (1) day following the date of grant.
ARTICLE XIII
DIVIDEND EQUIVALENTS
--------------------
The Committee may grant a Holder at no additional cost "Dividend
Equivalents" based on the dividends declared on the Common Stock on record
dates during the period between the date an Option is granted and the date
such Option is exercised, or such other equivalent period, as determined by
the Committee. Such Dividend Equivalents shall be converted to additional
Shares or cash by such formula as may be determined by the Committee.
Dividend Equivalents shall be computed, as of each dividend record date,
both with respect to the number of Shares under the Option and with respect to
the number of Dividend Equivalent Shares previously earned by the Holder (or
his successor in interest) and not issued during the period prior to the
dividend record date.
ARTICLE XIV
AMENDMENT OR TERMINATION OF PLAN
--------------------------------
14.01 Board Authority. Subject to the provisions of Section 14.02 below, the
---------------
Board may amend, suspend, alter, or terminate the Plan at any time; provided,
however, that unless required by applicable law, rule, or regulation, the
Board shall not amend the Plan in the following respects without approval of
the amendment either (i) by a majority of the vote cast at a duly held
stockholders' meeting at which a quorum representing a majority of all of the
outstanding voting stock of the Company is, either in person or by proxy,
present and voting on the amendment; or (ii) by the written consent of the
holders of a majority of the outstanding shares of the Company's voting stock:
(a) To reduce the minimum option price requirements set forth in the
Plan;
A-13
<PAGE>
(b) To increase the maximum number of Rights or Shares subject to
Incentive Awards available for grant under the Plan (except pursuant to the
provisions of the Plan providing for adjustments upon the occurrence of
certain events);
(c) To provide for the administration of the Plan other than by the
Board or the Committee;
(d) To change the classes of Eligible Persons or Participating
Companies; or
(e) To extend the maximum period during which Incentive Awards may be
exercised or to extend the term of the Plan.
14.02 Limitation on Board Authority. The Board or the Committee may amend
-----------------------------
the terms of any Incentive Awards previously granted, prospectively or
retroactively, and may amend the Plan in accordance with the provisions of
Section 14.01; provided, however, that (i) unless required by applicable law,
rule, or regulation, no amendment of the Plan or of any Incentive Award
Agreement shall, without the consent of any Participant holding any such
affected Incentive Awards, be permitted if such amendment would affect in a
material and adverse manner an Incentive Award granted prior to the date of
any such amendment and (ii) the provisions of Article IX hereof and any other
provisions respecting Automatic Option Grants to Non-employee Directors in the
Plan may not be amended more than one time during any six-month period except
for any amendments to comport with changes in the I.R.C., the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
14.03 Contingent Grants Based on Amendments. Incentive awards may be granted
-------------------------------------
in reliance on and consistent with any amendment adopted by the Board and
which is necessary to enable such Incentive Awards to be granted under the
Plan even though such amendment requires future stockholder approval;
provided, however, that any such contingent Incentive Awards by its terms may
not be exercised prior to stockholder approval of such amendment, and provided
further, that in the event stockholder approval is not obtained within twelve
(12) months of the date of grant of such contingent Incentive Awards, then
such contingent Incentive Awards shall be deemed cancelled and no longer
outstanding.
ARTICLE XV
GENERAL PROVISIONS
------------------
15.01 Termination of Eligible Person Status or of Directorship Other Than by
----------------------------------------------------------------------
Reason of Death or Disability. In the event that the Eligible Person status of
- -----------------------------
a Participant is terminated, or the Participant ceases to be a director of the
Company, for any reason other than by reason of death or Total Disability, any
Incentive Awards, or portions thereof, held by such Participant which have not
vested as of the Eligible Person Termination Date shall expire and become
unexercisable as of such date. Except as set forth in Section 15.04 hereof,
all Vested Incentive Awards, or portions thereof,
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<PAGE>
which have not been exercised prior to the Eligible Person Termination Date
shall expire and become unexercisable as of the earlier of:
(a) The date which is three (3) months following the Eligible Person
Termination Date; or
(b) The Termination Date.
15.02 Leave of Absence. In the case of any employee on an approved leave of
----------------
absence, the Board may make such provision respecting continuance of the
Incentive Awards as the Board, in its discretion, deems appropriate, except
that in no event shall an Incentive Award be exercisable after the date by
which the Board has determined for the termination of such Incentive Award.
15.03 Death or Total Disability of a Participant. In the event that the
------------------------------------------
Eligible Person status of a Participant is terminated, or the Participant
ceases to be a director of the Company, by reason of death or Total
Disability, any Incentive Award, or portions thereof, held by such Participant
which have not vested as of the Eligible Person Termination Date shall expire
and become unexercisable as of such date. Except as set forth in Section 15.04
hereof, all Vested Incentive Awards, or portions thereof, which have not been
exercised prior to the Eligible Person Termination Date shall expire and
become unexercisable as of the earlier of:
(a) The Right Termination Date or Option Termination Date; or
(b) The first anniversary of the Eligible Person Termination Date.
Any vested Incentive Awards of a deceased Participant may be exercised
prior to their respective expiration dates only by the person or persons to whom
the Participant's Incentive Award pass by will or the laws of descent and
distribution.
15.04 Extensions. Notwithstanding the provisions covering the exercisability
----------
of Incentive Awards following the Eligible Person Termination Date set forth
in Sections 15.01 and 15.03, respectively, the Board may, in its sole
discretion, with the consent of the Participant, extend the period of time
during which a Vested Incentive Award shall remain exercisable, provided that
in no event shall such extension extend beyond the Incentive Award Termination
Date.
15.05 Partial Exercise. A Participant may exercise all or less than all of
----------------
his or her Incentive Awards. Incentive Awards may be exercised by the
Participant by giving written notice of exercise to the Company, which notice
shall specify the number of Incentive Awards to be exercised.
15.06 Incentive Awards Not Transferable. Incentive Awards granted under this
---------------------------------
Plan may not be sold, pledged, hypothecated, assigned, encumbered, gifted or
otherwise transferred or alienated in any manner, either voluntarily or
involuntarily, or by operation of law, other than by will or the laws of
descent and distribution, and may be exercised during the lifetime of a
Participant only by such
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<PAGE>
Participant. Upon any attempt to transfer Incentive Awards other than by will or
the laws of descent and distribution, or to assign, pledge, hypothecate or
otherwise dispose of Incentive Awards, or upon the levy of any execution,
attachment or similar process thereon, such Incentive Awards shall become null
and void and any subsequent attempted exercise of the Incentive Awards shall be
ineffective against the Company. The terms of the Incentive Awards shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Participants.
15.07 Restrictions on Grants and Exercise.
-----------------------------------
(a) As a condition to the granting or exercise of any Incentive
Award, the Board may require the person receiving or exercising such
Incentive Award to make any representation and/or warranty to the Company
as may be required (or deemed appropriate by the Board, in its discretion)
under any applicable law, rule or regulation, including but not limited to
a representation that the Incentive Award is being acquired only for
investment and without any present intention to sell or distribute such
Incentive Award, if such a representation is required under applicable law,
rule, or regulation.
(b) The exercise of Incentive Awards under this Plan is conditioned
on approval of the Plan, as amended hereby, within twelve months of the
adoption of the Plan either (i) by a majority of the votes cast at a duly
hold stockholders' meeting at which a quorum representing a majority of all
of the outstanding voting stock of the Company is, either in person or by
proxy, present and voting on the Plan; or (ii) by the written consent of
the holders of a majority of the outstanding shares of the Company's voting
stock. In the event such approval is not obtained within such time period,
any Incentive Awards granted hereunder prior to approval shall be void.
(c) The Committee may delay the granting, vesting or exercisability
of an Incentive Award for such time as reasonably necessary to comply with
applicable State or Federal securities laws.
(d) Neither Non-qualified Stock Options, Incentive Stock Options or
Automatic Options shall be exercisable unless the purchase of such optioned
shares is pursuant to an applicable effective registration statement under
the Securities Act of 1933, as amended (the "Act"), or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned
shares would be exempt from the registration requirements of the Act and
from the registration or qualification requirements of applicable state
securities laws.
15.08 Capitalization Adjustments. If the outstanding shares of Common Stock
--------------------------
of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, upon authorization by the Board an appropriate and proportionate
adjustment shall be made in the number of Incentive Awards and the kind of
Shares to which the Incentive Awards relate.
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<PAGE>
15.09 Acceleration Upon a Terminating Transaction. Upon the occurrence of a
-------------------------------------------
Terminating Transaction and for the period of thirty (30) days immediately
thereafter, any Participant holding outstanding Incentive Awards shall have the
right to exercise his or her Incentive Awards to the full extent not theretofore
exercised, including any Incentive Awards which have not yet become Vested
Incentive Awards (subject, however, to the provisions of Section 6.03(a) above).
For purposes of determining the cash payment pursuant to Section 6.04(a) hereof
upon an exercise of Right: during such thirty (30) day period, the Fair Market
Value of a Share on the Exercise Date shall equal the highest reported sales
price of a Share within the sixty (60) day period immediately preceding the date
of the Terminating Transaction, as reported on any securities exchange upon
which the Shares are traded.
15.10 Taxes. The Board shall make such provisions and take such steps as it
-----
deems necessary or appropriate for the withholding of any federal, state, local
and other tax required by law to be withheld with respect to the grant or
exercise of the Incentive Awards under the Plan, including, without limitation,
(i) the deduction of the amount of any such withholding tax from any
compensation, any amounts payable hereunder, or other amounts payable to a
Participant by any member of the Participating Companies, or (ii) requiring a
Participant (or the Participant's beneficiary or legal representative) as a
condition of granting or exercising a Incentive Award to pay to any member of
the Participating Companies any amount required to be withheld, or to execute
much other documents as the Board deems necessary or desirable in connection
with the satisfaction of any applicable withholding obligation.
15.11 Legends on Agreements. Each Incentive Award Agreement shall be endorsed
---------------------
with all legends, if any, required by applicable federal and state securities
laws to be placed on the Incentive Award Agreement. The determination of which
legends, if any, shall be placed upon these agreements shall be made by the
Board in its sole discretion and such decision shall be final and binding.
15.12 Availability of Plan. A copy of this Plan shall be delivered to any
--------------------
Eligible Person and any Non-employee Director making reasonable inquiry
concerning the Plan.
15.13 Notice. Any notice or other communication required or permitted to be
------
given pursuant to the Plan or under any Incentive Award Agreement must be in
writing and may be given by registered or certified mail, and if given by
registered or certified mail, shall be determined to have been given and
received on the date three days after a registered or certified letter
containing such notice, properly addressed with postage prepaid, is deposited
in the United States mails; and if given other than by registered or certified
mail, it shall be deemed to have been given when delivered to and received by
the party to whom addressed. Notice shall be given to Eligible Persons and
Non-employee Directors at their most recent addresses shown in the Company's
records. Notice to the Company shall be addressed to the Company at the
address of the Company's principal executive offices, to the attention of the
Secretary of the Company.
A-17
<PAGE>
15.14 Titles and Headings. Titles and headings of sections and articles of
-------------------
this Plan document are for convenience of reference only and shall not affect
the construction of any provision of this Plan.
15.15 Governing Law. Except with respect to matters relating to general
-------------
corporation law which shall be governed by the General Corporation Law of the
State of Delaware, this Plan shall be governed by, interpreted under, and
construed and enforced in accordance with the internal laws, and not the laws
pertaining to conflicts or choice of laws, of the State of California
applicable to agreements made and to be performed wholly within the State of
California.
15.16 Information. During the period that Incentive Awards are outstanding,
-----------
the Company will provide Participants with copies of all reports, proxy
statements and other communications distributed to its stockholders generally.
A-18
<PAGE>
- --------------------------------------------------------------------------------
Please mark [X]
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ITEMS 1 AND 2.
WITHHELD
ITEM 1--ELECTION OF DIRECTORS FOR FOR ALL
Nominees: [_] [_]
Norbert J. Olberz
Kenneth Olsen
WITHHELD FOR: (Write that nominee's name in the
space provided below).
____________________________
ITEM 2--APPROVAL OF AN FOR AGAINST ABSTAIN
AMENDMENT TO [_] [_] [_]
1992 INCENTIVE
PLAN
Signature ____________________ Signature ______________________ Date ___________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE>
- --------------------------------------------------------------------------------
PROXY
SPORT CHALET, INC.
920 FOOTHILL BOULEVARD
LA CANADA, CALIFORNIA 91011
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 6, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned shareholder(s) hereby appoints Eric S. Olberz and John R.
Attwood, and each of them, with power of substitution, as attorneys and proxies
for and in the name and place of the undersigned, and hereby authorizes them to
represent and to vote all of the shares of Common Stock of SPORT CHALET, INC. to
be held of record as of June 12, 1998, which the undersigned is entitled to vote
at the Annual Meeting of Shareholders of SPORT CHALET, INC. to be held on August
6, 1998 at the Pasadena Hilton Hotel, 150 S. Los Robles Avenue, Pasadena,
California 91101, at 9:00 a.m. PDST, and at any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
