<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act for 1934 for the quarterly period ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act for 1934 for the transition period from ______ to ______
Commission File Number: 0-20736
Sport Chalet, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4390071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
920 Foothill Boulevard, La Canada California 91011
(Address of principal executive offices) (Zip Code)
(818) 790-2717
(Registrant's telephone number, including area code)
Not Applicable
(Former name former address and former fiscal year, if changes since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Number of shares outstanding of the registrant's common stock as of February 1,
2000:
6,577,000
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SPORT CHALET, INC.
------------------
Index to Form 10-Q
Part I - Financial Information
------------------------------
Page
----
Item 1. Financial Statements........................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and the Results of Operations.................................. 7
Part II - Other Information
---------------------------
Item 5. Other Information.............................................. 10
Item 6. Exhibits and Reports on Form 8-K............................... 10
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Part I - Financial Information
------------------------------
Item 1. Financial Statements.
---------------------
SPORT CHALET, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales....................................... $ 50,488,760 $ 47,234,297 $126,835,949 $115,523,159
Cost of goods sold, buying and occupancy........ 34,798,912 32,137,224 88,387,679 80,009,951
------------ ------------ ------------ ------------
Gross profit.................................... 15,689,848 15,097,073 38,448,270 35,513,208
Selling, general and administrative expenses.... 12,309,567 10,724,878 32,353,910 28,648,812
------------ ------------ ------------ ------------
Income from operations.......................... 3,380,281 4,372,195 6,094,360 6,864,396
Interest income................................. (24,241) (41,672) (173,451) (118,595)
------------ ------------ ------------ ------------
Income before taxes............................. 3,404,522 4,413,867 6,267,811 6,982,991
Income tax provision............................ 1,357,000 1,822,000 2,497,000 2,871,000
------------ ------------ ------------ ------------
Net income...................................... $ 2,047,522 $ 2,591,867 $ 3,770,811 $ 4,111,991
============ ============ ============ ============
Earnings per share:
Basic...................................... $ .31 $ .40 $ .57 $ .63
============ ============ ============ ============
Diluted.................................... $ .30 $ .38 $ .56 $ .61
============ ============ ============ ============
Weighted average number
of common shares outstanding:
Basic...................................... 6,577,000 6,532,000 6,577,000 6,528,889
============ ============ ============ ============
Diluted.................................... 6,777,944 6,779,044 6,776,721 6,696,307
============ ============ ============ ============
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash................................................................ $ 5,627,171 $ 10,829,102
Accounts receivable - net........................................... 796,062 604,296
Merchandise inventories............................................. 43,465,941 29,518,546
Prepaid expenses and other current assets........................... 198,616 268,343
Deferred income tax................................................. 1,163,920 1,263,779
------------ ------------
Total current assets............................................. 51,251,710 42,484,066
Furniture, equipment and leasehold improvements - net................. 17,138,249 13,501,416
Other assets.......................................................... 445,739 581,262
------------ ------------
Total assets..................................................... $ 68,835,698 $ 56,566,744
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable.................................................... $ 15,436,434 $ 11,228,511
Salaries and wages payable.......................................... 2,106,856 2,962,400
Other accrued expenses.............................................. 8,506,941 4,491,568
Income tax payable.................................................. 1,813,871 802,943
------------ ------------
Total current liabilities........................................ 27,864,102 19,485,422
Deferred income taxes................................................. 92,353 101,140
Shareholders' equity
Preferred stock, $.01 par value:
Authorized shares - 2,000,000
Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 6,577,000 at
December 31, 1999 and 6,532,000 at
March 31, 1999................................................... 65,770 65,320
Additional paid-in capital........................................ 21,659,907 21,532,107
Retained earnings................................................... 19,153,566 15,382,755
------------ ------------
Total shareholders' equity....................................... 40,879,243 36,980,182
------------ ------------
Total liabilities and shareholders' equity....................... $ 68,835,698 $ 56,566,744
============ ============
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities
Net income.................................................................... $ 3,770,811 $ 4,111,991
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................................. 2,904,502 1,770,000
Stock compensation........................................................ 128,250 45,500
Deferred income taxes..................................................... 91,072 614,143
Changes in operating assets and liabilities:
Accounts receivable..................................................... (191,766) 65,245
Merchandise inventories................................................. (13,947,395) (4,649,706)
Prepaid expenses and other current assets............................... 69,727 (46,118)
Accounts payable........................................................ 4,207,923 1,316,430
Salaries and wages expenses............................................. (855,544) (329,585)
Other accrued expenses.................................................. 4,015,373 3,152,329
Income tax payable...................................................... 1,010,928 1,707,094
------------ ------------
Net cash provided by operating activities..................................... 1,203,881 7,757,323
Investing activities
Other assets.................................................................. 135,523 (579,270)
Purchase of furniture, equipment and leasehold improvements................... (6,541,335) (2,022,256)
------------ ------------
Net cash used in investing activities......................................... (6,405,812) (2,601,526)
Financing activities
Proceeds from bank borrowings................................................. - -
Principal payments on bank loans.............................................. - -
------------ ------------
Net cash used in financing activities......................................... - -
(Decrease) increase in cash................................................... (5,201,931) 5,155,797
Cash at beginning of period................................................... 10,829,102 4,970,335
------------ ------------
Cash at end of period......................................................... $ 5,627,171 $ 10,126,132
============ ============
Cash paid during the year for:
Income taxes............................................................. $ 1,395,000 $ 550,000
Interest................................................................. - -
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results of
operations for the periods presented have been included.
The financial data at March 31, 1999 is derived from audited financial
statements which are included in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999, and should be read in conjunction with the
audited financial statements and notes thereto. Interim results are not
necessarily indicative of results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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Item 2. Management's Discussion and Analysis of Financial Condition and the
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Results of Operations.
---------------------
The following should be read in conjunction with the Company's financial
statements and related notes thereto provided under Item 1 above.
Results of Operations
Three Months Ended December 31, 1999 Compared to Three Months Ended
December 31, 1998. Sales have increased 6.9% to $50.5 million for the current
fiscal quarter compared to $47.2 million for the same quarter last year. The
increase is primarily the result of three new stores, partially offset by a 5.5%
decrease in comparable store sales. Comparable store sales are based upon stores
opened throughout both periods. The decrease in comparable store sales is
primarily due to reduced sales of winter related merchandise due to unusually
warm and dry weather in Southern California. Sales of non-winter related
merchandise was up 3.7% on a comparable store basis in the current fiscal
quarter compared to the same quarter last year.
Gross profit as a percent of sales decreased to 31.1% compared to 32.0% for
the same quarter last year, partially as the result of markdowns taken to
stimulate sales growth. In addition the decrease in comparable store sales
caused occupancy costs to increase as a percent of sales.
Selling, general and administrative expenses as a percent of sales
increased from 22.7% to 24.4% primarily as the result of decreased comparable
store sales and the costs associated with opening one new store and relocating
another during the quarter.
Interest income decreased slightly from $42,000 to $24,000.
The effective income tax rate was 39.9%, compared to 41.3% for the same
period last year, which differs from the statutory rate as a result of permanent
differences between financial reporting and tax-basis income.
Net income decreased from $2.6 million, or $.38 per diluted share to $2.0
million or $.30 per diluted share, primarily as a result of reduced gross profit
margin and increased selling, general and administrative expenses.
Nine Months Ended December 31, 1999 Compared to Nine Months Ended December
31, 1998. Sales have increased 9.8% to $126.8 million compared to $115.5 million
for the same period last year. The increase is the result of four new stores
opening since June 1998. Comparable store sales are flat as increases reflected
in the first half of the fiscal year were offset by the decrease in the third
quarter. The decrease is primarily due to reduced sales of winter related
merchandise due to unusually warm and dry weather in Southern California. Sales
of non-winter related merchandise was up 3.7% on a comparable store basis.
Gross profit as a percent of sales decreased to 30.3% from 30.7%, primarily
as the result of markdowns taken in excess of those taken during the same period
last year in an attempt to stimulate sales growth.
Selling, general and administrative expenses as a percent of sales
increased from 24.8% to 25.5% primarily the result of the costs associated with
opening new stores.
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Interest income increased slightly to $173,000 from $119,000 during the
same period last year.
The effective income tax rate was 39.8%, compared to 41.1% for the same
period last year, which differs from the statutory rate as a result of permanent
differences between financial reporting and tax-basis income
Net income decreased to $3.8 million from $4.1 million and earnings per
share decreased to $.56 per diluted share from $.61 per diluted share, primarily
as a result of the costs associated with opening new stores.
Liquidity and Capital Resources
The Company's primary capital requirements are for inventory and store
expansion, relocation and remodeling. Historically, cash from operations, credit
terms from vendors and bank borrowing have met the Company's liquidity needs.
Management believes that these sources will be sufficient to fund currently
anticipated cash requirements for the next 2 to 3 fiscal years.
Net cash provided by operating activities was $1.2 million for the nine
months ended December 31, 1999 compared to net cash provided by operating
activities of $7.8 million for the same period last year. Net income provided
$3.8 million and $4.1 million for the nine months ended December 31, 1999 and
1998, respectively. Depreciation also provided $2.9 million and $1.8 million of
non-cash for the same periods.
Inventories increased by $13.9 million and $4.6 million for the nine months
ended December 31, 1999 and 1998, respectively, due to the seasonal build-up of
winter related inventory. Inventory at December 31, 1999 is $11.0 million
greater than the same time last year primarily due to the opening of three new
stores during the nine months ended December 31, 1999 and, to a lesser extent,
the result of lower than anticipated sales of winter related merchandise due to
unusually warm and dry weather in Southern California. Accounts payable
increased by $4.2 million and $1.3 million for the respective periods due
primarily to inventory build-up and the timing of payments to vendors.
Net cash used in investing activities increased to $6.4 million from $2.6
million primarily due to the opening of three new stores and the relocation of
an existing store during the nine months ended December 31, 1999 compared to one
new store in the same time period last year.
Net cash provided by financing activities has historically reflected
advances or pay down of the Company's revolving credit line. There were no
borrowings during either nine-month period ended December 31, 1999 or 1998.
Year 2000
The Year 2000 issue exists because many computer applications currently use
two-digit date fields to designate a year. As the century date occurs, time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in the computer shutting down or performing
incorrect computations, thereby possibly leading to disruptions in normal
business processing.
The Company has conducted a review to identify which systems, both internal
and external, will be affected by the "Year 2000" problem, and has developed a
project plan and schedule designed to correct those issues and systems under its
control.
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The majority of the Company's business processing applications operate on a
mainframe computer system. Management believes that the mainframe hardware and
operating system are now Year 2000 compliant, all programs and data have been
appropriately modified and testing is complete. The Company's point of sale,
payroll and phone systems also are believed by Management to currently be Year
2000 compliant.
The Company has completed substantially all of its Year 2000-conversion
project using internal staff spending approximately $200,000 in this effort. The
Company believes that the cost associated with becoming Year 2000 compliant has
not and is not expected to materially affect its future operating results or
financial condition.
While Management currently believes that it has completed its Year 2000
conversion project, failure to achieve Year 2000 compliance could have a
material adverse impact on the Company's operations. Management believes the
most reasonably likely worst case scenario is where the Company would be unable
to collect payments from customers through its point-of-sale systems, receive
merchandise from vendors or ship merchandise to its own stores.
In addition, there can be no assurance that the systems of other companies
with which the Company does business will also be converted in a timely manner
or that failure to convert by other companies would not have a material impact
on the Company's operations. While the Company did not formally survey its
vendors, Management believes that because the Company purchases merchandise from
over 1200 vendors, none of which historically supplies more than 9% of the
Company's annual purchases, and based on a limited review of vendor disclosure
materials, no material disruptions to the Company's operations due to the Year
2000 issues related to third parties are anticipated. However, Management
believes that the most reasonably likely worst case scenario regarding third
parties would be lost sales due to a significant number of the Company's vendors
having difficulties shipping merchandise or the Company's inability to accept
customer payments because of problems with the bank or credit card processor. To
date there have been no significant problems related to the Year 2000 issue.
Disclosure Regarding Forward-Looking Statements
The statements which are not historical facts contained in this Quarterly
Report on Form 10-Q are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. The words "anticipate", "believes", "expect", "intend", "may",
"likely" or similar expressions used in this Quarterly Report as they relate to
the Company or its Management are generally intended to identify such forward
looking statements. These risks and uncertainties contained in this Quarterly
Report include but are not limited to, product demand and market acceptance
risks, the effect of economic conditions generally and in Southern California,
and retail and sporting goods business conditions specifically, the impact of
competition, technological difficulties including Year 2000 issues, capacity and
supply constraints or difficulties, the results of financing efforts, changes in
consumer preferences and trends, the effect of the Company's accounting
policies, weather conditions, acts of God, and other risks detailed in the
Company's Security and Exchange Commission filings.
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Part II - Other Information
Item 5. Other Information.
-----------------
As of October 1, 1999, the Company entered into employment agreements with
Dennis D. Trausch, Howard K. Kaminsky, and Ronald G. Mann, the Company's
Executive Vice President, Senior Vice President - Finance and Senior Vice
President - General Merchandise Manager, respectively.
The initial term of each such agreement ends on March 31, 2000 and
automatically renews for additional twelve month periods unless notice is given
by either party. In consideration for services rendered under these agreements,
Messrs. Trausch, Kaminsky, and Mann are entitled to (i) receive an annual base
salary of $170,000, $170,000, and $160,000, respectively, (ii) participate in
such executive bonus programs as the Company may establish from time to time,
(iii) an annual vacation of up to four weeks, (iv) a monthly automobile
allowance of $900, (v) participation by the executive and his immediate family
in such healthcare plans as may be provided to executive officers of the Company
generally and (vi) reimbursement for personal tax and financial advisory
services up to $750 per year. Under the Senior Management Bonus Plan currently
in effect, each executive's maximum target annual bonus will be 35% of his base
salary. Upon the termination of employment within three years of "Change of
Control" (as defined) either by the Company without "Cause" (as defined) or by
the executive by reason of a "Change of Duties," the Company will continue to
pay the executive's base salary for twelve months.
The term "Change in Control" includes the following events, among others
(i) Norbert Olberz ceases to be the Chairman of the Board of the Company, (ii)
the directors for whose nomination Mr. Olberz last voted in favor cease to be a
majority of the Company's directors or (iii) any person or group (other than a
trust, estate or entity controlled by Norbert or Irene Olberz) becomes the
beneficial owner of 50% or more of the Company's voting securities. The term
"Change in Duties" includes, among other things, (i) a significant change in the
nature of the executive's authority, (ii) a significant reduction in salary,
(iii) a decrease in the executive's eligibility to participate in bonus
compensation plans or benefits and (iv) a change in the executive's principal
place of employment. The term "Cause" includes (i) the executive's continued and
willful failure or refusal to perform his duties, (ii) the commission of any
dishonesty, fraud, misrepresentation or other misconduct in the performance of
such duties and (iii) the commission of a felony or crime include moral
turpitude.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.1 Employment Agreement for Dennis D. Trausch
10.2 Employment Agreement for Howard K. Kaminsky
10.3 Employment Agreement for Ronald G. Mann
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter for which this Report on Form 10-Q is
filed, no reports on Form 8-K were filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
SPORT CHALET, INC.
DATE: February 10, 2000 /s/ Craig L. Levra
-------------------------------------
Craig L. Levra
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: February 10, 2000 /s/ Howard K. Kaminsky
-------------------------------------
Howard K. Kaminsky
Senior Vice President-Finance, Chief
Financial Officer, and Secretary
(Principal Financial
and Accounting Officer)
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Exhibit 10.1
EMPLOYMENT AGREEMENT
SPORT CHALET, INC., a Delaware corporation ("Employer"), and DENNIS D.
TRAUSCH ("Executive"), in consideration of the mutual promises made herein, do,
as of October 1, 1999, agree as follows:
A. Executive has served as the Executive Vice President since June
1988; and
B. The Employer desires to be assured of the continued association
and services of Executive in order to take advantage of his experience,
knowledge and abilities in Employer's business, and is willing to employ
Executive, and Executive desires to be so employed, on the terms and conditions
set forth in this Agreement;
1. TERM OF EMPLOYMENT
1.1 Specified Term. Employer hereby employs Executive, and Executive
--------------
hereby accepts employment with Employer, for an initial term beginning on
October 1, 1999 and ending at the close of business on March 31, 2000.
Executive's employment hereunder shall automatically renew for succeeding
twelve-month periods, unless notice of termination is given by either party at
least 30 days prior to the end of the initial term or any renewal term.
Executive's employment may be subject to earlier termination as otherwise
provided in this Agreement.
1.2 "Employment Term." The phrase "Employment Term" shall mean the
---------------
entire period of Executive's employment by Employer hereunder, whether for the
periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Employer and Executive.
2. DUTIES
2.1 General Duties. Executive shall serve as the Executive Vice
--------------
President of Employer. In this capacity, Executive shall, to the best of his
ability, perform all services, acts or things (i) necessary or advisable to
manage and conduct the business of Employer as it relates to store and
distribution center operations, store selection and store leasing, including
human resources and customer service; (ii) as are provided in Employer's
Certificate of Incorporation and Bylaws, (iii) as may be assigned by Employer's
President, Chief Executive Officer or Board of Directors or (iv) as may be
specified in the job description or performance objectives adopted from time to
time by Employer's Board of Directors, President and Chief Executive Officer.
Executive shall perform such duties subject at all times to the policies of
Employer and its Board of Directors and the direction of Employer's President
and Chief Executive Officer. Executive shall report to Employer's President and
Chief Executive Officer.
2.2 Conduct of Executive. Executive shall at all times during the
--------------------
Employment Term conduct himself in a manner consistent with his position with
Employer and shall not knowingly perform any act contrary to the best interests
of Employer.
2.3 Devotion to Employer's Business.
-------------------------------
(a) Executive shall devote the full working portion of his entire
productive time, ability and attention to the business of Employer during the
Employment Term.
(b) During the Employment Term, Executive shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, without the prior
consent of Employer's Board of Directors, President or Chief Executive Officer;
provided, however, that the expenditure of reasonable amounts of time for
- --------
educational, charitable or professional activities shall not be deemed a breach
of this Agreement
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if those activities do not materially interfere with the services required under
this Agreement and shall not require the prior written consent of Employer as
set forth above.
(c) This Agreement shall not be interpreted to prohibit Executive
from making passive personal investments or conducting private business affairs
if those activities do not materially interfere with the services required under
this Agreement. Notwithstanding the foregoing, Executive shall not, to the best
of his knowledge, directly or indirectly, acquire, hold or retain any interest
in any vendor or supplier of Employer or in any business competing with or
similar in nature to the business of Employer; provided, however, that Executive
--------
shall have a reasonable period from the date hereof to dispose of any such
prohibited investments.
2.4 Competitive Activities. Except as otherwise expressly provided in
----------------------
this Agreement, during the Employment Term, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer or director, or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
2.5 Trade Secrets.
-------------
(a) Executive shall not, without the prior written consent of
Employer in each instance, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of such
employment, any confidential business or technical information or trade secret
of Employer acquired in the course of such employment, whether or not
patentable, copyrightable or otherwise protected by law, and whether or not
conceived of or prepared by him (collectively, the "Trade Secrets"), including,
without limitation, any confidential information concerning customer lists,
products, procedures, operations, investments, financing, costs, employees,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
profits and plans for future development, the identity, requirements,
preferences, practices and methods of doing business of specific parties with
whom Employer transacts business, and all other information which is related to
any product, service or business of Employer, other than information which is
generally known in the industry in which Employer transacts business or is
acquired from public sources or was known to Executive prior to his employment
by Employer; all of which Trade Secrets are the exclusive and valuable property
of Employer.
(b) All files, accounts, records, documents, books, forms, notes,
reports, memoranda, studies, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, and all other physical items
related to Employer, other than a merely person item, whether of a public nature
or not, and whether prepared by Executive or not, are and shall remain the
exclusive property of Employer and shall not be removed from the premises of
Employer except as required in the course of Executive's employment, without the
prior written consent of Employer in each instance, and the same shall be
promptly returned to Employer by Executive on the expiration or termination of
his employment or at any time prior thereto upon the request of Employer.
(c) Executive hereby acknowledges and agrees that it would be
difficult to fully compensate Employer for damages resulting from the breach or
threatened breach of Sections 2.4 or 2.5 and, accordingly, that Employer shall
be entitled to temporary and injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, to enforce such
provisions without the necessity of proving actual damages and without the
necessity of posting any bond or other undertaking in connection therewith.
This provision with respect to injunctive relief shall not, however, diminish
Employer's right to claim and recover damages.
3. COMPENSATION
3.1 Compensation. As compensation for the services to be performed
------------
hereunder, Executive shall receive a salary in the amount of One Hundred Seventy
Thousand Dollars ($170,000) per annum, payable in arrears in equal installments
not less than once per month on the first business day of each month with
respect to the
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preceding calendar month (or part thereof) of employment during the Employment
Term. Executive shall receive such increases in salary, if any, as may be
determined by the Board of Directors in its sole discretion.
3.2 Severance.
---------
(a) Upon the termination of Executive's employment hereunder during
the Covered Period, which termination is initiated either (i) by Employer other
than for Cause or (ii) by Executive by reason of a Change of Duties, Employer
shall continue to pay Executive's Base Salary to Executive for a period of
twelve months following the date of termination on such dates as Executive's
salary otherwise would have been paid had such termination not occurred. The
aggregate amount paid under the preceding sentence is referred to herein as the
"Severance Amount." The Severance Amount shall be paid as severance and only
upon execution by Executive of Employer's standard form of Severance Agreement
and Release. Payment of the Severance Amount shall be in lieu of all other
claims, damages or liabilities Executive might otherwise assert against
Employer, including, without limitation, those for breach of this Agreement by
Employer. All capitalized terms used in this Section 3.2 shall have the meanings
set forth on Exhibit A.
(b) It is the intention of the parties that any payment of the
Severance Amount shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and
any regulations thereunder. If the independent accountants acting as auditors
for Employer on the date of a Change of Control (or another accounting firm
designated by them) determine that any payment of the Severance Amount may
constitute "excess parachute payments," the payments may be reduced to the
maximum amount which may be paid without the payments being "excess parachute
payments." The determination shall take into account (i) whether the payments
are "parachute payments" under Section 280(3) and, if so, (ii) the amount of
payments under this Agreement that constitutes reasonable compensation under
Section 280G. Nothing contained in this Agreement shall prevent Employer, after
a Change of Control, from agreeing to pay Executive compensation or benefits in
excess of those provided in this Agreement.
3.3 Tax Withholding. Employer shall have the right to deduct or withhold
---------------
from any amounts due to Executive hereunder (including, without limitation, the
Severance Amount) any and all federal, state or local taxes, withholdings and
deductions now applicable or that may be enacted and become applicable in the
future, including, but not limited to, federal income and Social Security taxes.
3.4 Profit Sharing. Executive shall be eligible to participate in such
--------------
executive bonus programs as Employer may establish from time to time. Under the
"Senior Management Bonus Plan" currently in effect, Executive's maximum target
annual bonus shall be thirty-five percent (35%) of his base salary for the
applicable fiscal year payable pursuant to Section 3.1.
3.5 Stock Options. Executive has been granted Non-Qualified Stock
-------------
Options ("NQSOs") to purchase Employer's common stock on the terms set forth on
Exhibit B and in accordance with Employer's 1992 Incentive Award Plan as amended
and a Key Employee Stock Option Incentive Award Agreement which is incorporated
herein by this reference.
3.6 Annual Vacation. Executive shall be entitled to vacation or personal
---------------
leave in accordance with Employer's policies for executive vacations for a
period of up to four calendar weeks per year with prior approval.
3.7 Automobile Allowance. Employer shall pay to Executive a monthly
--------------------
automobile allowance of $900.
3.8 Medical Coverage. Employer shall include Executive and his immediate
----------------
family in such health care plans as may be provided to executive officers of
Employer generally and under the same terms and conditions.
3.9 Life Insurance. Employer shall provide to Executive such life
--------------
insurance, if any, as is currently provided to executive officers of Employer
generally and under the same terms and conditions.
-14-
<PAGE>
3.10 Qualified Plans. Employee shall be entitled to participate in
---------------
Employer's qualified plans in accordance with the terms and conditions of the
plan documents.
3.11 Reimbursement of Business Expenses. Employer shall promptly
----------------------------------
reimburse Executive for all reasonable and necessary business expenses incurred
by Executive in connection with the business of Employer subject to compliance
by Executive with Employer's Standard Operating Procedures with respect to the
amount, documentation and verification of such expenses as the same may be
amended from time to time.
3.12 Tax Consulting. Employer shall reimburse Executive for all fees and
--------------
costs for personal tax and financial advisory services incurred by Executive up
to $750 per year.
4. TERMINATION
4.1 At Will Relationship. Employer and Executive each hereby
--------------------
acknowledges and agrees that, except as expressly set forth in Section 4.2, (i)
as provided in Employer's employment policy, Executive's relationship with
Employer under this Agreement is AT WILL and can be terminated at the option of
either Executive or Employer in his or its sole and absolute discretion, for any
or no reason whatsoever, with or without cause, (ii) no representations,
warranties or assurances have been made concerning the length of such
relationship or the aggregate amount of compensation to be received by Executive
and (iii) after the termination of his employment by Employer, Executive shall
have no right, title or interest in or claim to any revenues received by
Employer from any person for any goods sold or services rendered by Employer to
such person, whether or not Executive was the cause, in whole or in part, for
such person to purchase such goods from Employer or to retain Employer to
perform such services.
4.2 Duties Upon Termination. In the event that Executive's employment by
-----------------------
Employer under this Agreement is terminated, neither Employer nor Executive
shall have any remaining duties or obligations hereunder, except that (i)
Employer shall promptly pay to Executive, or his estate, all reimbursable
expenses incurred by Executive hereunder as of such date and such compensation
as is due pursuant to Sections 3.1 and 3.4, prorated through the date of
termination, (ii) Employer shall promptly provide to Executive such severance as
is due pursuant to Section 3.2 and (iii) Executive shall continue to be bound by
Section 2.5.
5. GENERAL PROVISIONS
5.1 Notices. Any notices to he given hereunder by either party to the
-------
other shall be in writing and may he transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing on
the signature pages hereof, but each party may change that address by written
notice in accordance with this section. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall be
deemed communicated as of the third day following the date of mailing.
5.2 Arbitration. Any controversy between Employer and Executive
-----------
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall on the written request of either party served
on the other be submitted to arbitration. Arbitration shall comply with and be
governed by the provisions of the California Arbitration Act and that certain
Agreement to Arbitrate Claims entered into by Employer and Executive as of the
date hereof, which Agreement is incorporated herein by this reference.
5.3 Attorneys' Fees and Costs. If any legal action based in contract law
-------------------------
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may be
entitled. This provision shall be construed as applicable to the entire
contract.
5.4 SEC Compliance. Executive acknowledges that concurrently herewith he
--------------
has been provided with a copy of and will abide by the Employer's Statement of
Company Policy Re: Securities Trades by Company
-15-
<PAGE>
Personnel as the same may be amended from time to time by Employer, which
Statement is incorporated herein by this reference.
5.5 Entire Agreement. This Agreement, together with its exhibits,
----------------
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Executive by Employer and
contains all of the covenants and agreements between the parties with respect to
that employment in any manner whatsoever. Each party to this Agreement
acknowledges that no representation, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this agreement shall be valid or binding
on either party.
5.6 Modifications. Any modification of this Agreement will be effective
-------------
only if it is in writing and signed by the party to be charged and approved by
the Board of Directors of Employer.
5.7 Effect of Waiver. The failure of either party to insist on strict
----------------
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
5.8 Partial Invalidity. If any provision in this Agreement is held by a
------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
5.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California except that, with respect to
matters of corporate governance, the laws of the State of Delaware shall govern.
5.10 Sums Due Deceased Executive. If Executive dies prior to the
---------------------------
expiration of the Employment Term, any sums that may be due him from Employer
under this agreement as of the date of death shall be paid to Executive's
executors, administrators, heirs, personal representatives, successors, and
assigns.
5.11 Insurance. Executive shall be covered by any policy of directors'
---------
and officers' liability insurance maintained by Employer.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first set forth above.
Employer: SPORT CHALET, INC.
By /s/ Craig L. Levra
--------------------------------
Craig L. Levra,
President
920 Foothill Boulevard
La Canada, CA 91011
Executive: /s/ Dennis D Trausch
-------------------------------------
DENNIS D. TRAUSCH
-16-
<PAGE>
EXHIBIT A
Definitions
-----------
1. Affiliate. An "Affiliate" shall mean any entity which owns or controls, is
owned by or is under common ownership or control with, Employer.
2. Base Salary. "Base Salary" shall, as determined on the termination date,
be equal to the greater of:
(i) Executive's annual salary, excluding bonuses and special incentive
payments, on the date of the earliest Change of Control to occur
during the Covered Period; or
(ii) Executive's annual salary, excluding bonuses and special incentive
payments, on the termination date.
3. Change in Duties. A "Change in Duties" shall mean any one or more of the
following:
(i) A significant change in the nature or scope of Executive' authority
or duties from those applicable to him immediately prior to the date
on which a Change of Control occurs;
(ii) A significant reduction in Executive's Base Salary from that provided
to him immediately prior to the date on which a Change of Control
occurs;
(iii) A diminution in Executive's eligibility to participate in bonus,
stock option, incentive award and other compensation plans which
provide opportunities to receive compensation, from the greater of:
. the opportunities provided by Employer (including its
subsidiaries) for executives with comparable duties; or
. the opportunities under any such plans under which Executive was
participating immediately prior to the date on which a Change of
Control occurs.
(iv) A diminution in Executive's benefits (including, but not limited to,
medical, dental, life insurance and long-term disability plans) and
perquisites from the greater of:
. the benefits and perquisites provided by Employer (including its
subsidiaries) to executives with comparable duties; or
. the benefits and perquisites to which Executive was entitled
immediately prior to the date on which a Change of Control
occurs.
(v) A change in the location of Executive's principal place of employment
by Employer (including its subsidiaries) to a location not within Los
Angeles County; or
(vi) A reasonable determination by the Board of Directors of Employer
that, as a result of a Change in Control and a change in
circumstances thereafter significantly affecting Executive's
position, Executive is unable to exercise the authorities, powers,
function
-17-
<PAGE>
or duties attached to Executive's position immediately prior to the
date on which a Change of Control occurs.
4. Change of Control. A "Change of Control" shall be deemed to have occurred
if:
(i) Norbert Olberz ceases to be the Chairman of the Board of Employer;
(ii) The directors of Employer who were last nominated by the Board of
Directors for election as directors, for which nomination Norbert
Olberz voted in favor, cease to constitute a majority of the
directors of Employer;
(iii) Any "person," including a "group" as determined in accordance with
the Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than the trust or estate of Norbert or Irene
Olberz, or an entity wholly owned by any of them, becomes the
beneficial owner, directly or indirectly, of securities of Employer
representing 50% or more of the combined voting power of Employer's
then outstanding Voting Securities and Executive is not a member of
such group;
(iv) As a result of, or in connection with, any tender offer or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions
(a "Transaction"), Norbert or Irene Olberz or their trusts or estates
shall cease to own a majority of the outstanding Voting Securities of
Employer or its successor;
(v) Employer is merged or consolidated with another corporation and as a
result of the merger or consolidation less than 50% of the
outstanding Voting Securities of the surviving or resulting
corporation shall then be owned in the aggregate by Norbert or Irene
Olberz, or their respective trusts or estates or a group of which
Executive is a member;
(vi) A tender offer or exchange offer is made and consummated for the
ownership of securities of Employer representing 50% or more of the
combined voting power of Employer's then outstanding Voting
Securities and in which Executive is not a participant; or
(vii) Employer transfers substantially all of its assets to another
corporation which is not a wholly-owned subsidiary of Employer and
which is not owned in whole or in part by Norbert or Irene Olberz,
their respective estates or trusts or by Executive.
5. Covered Period. "Covered Period" shall mean a period of time following the
occurrence of a Change of Control equal to the lesser of (a) the
Executive's employment by Employer prior to that Change of Control, or (b)
three years following the occurrence of the Change of Control.
6. Voting Securities. "Voting Securities" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the happening of any pre-condition or contingency.
7. Termination for Cause. Executive's employment shall be deemed to have been
terminated by Employer for Cause if it shall be terminated for any of the
following reasons:
(i) Executive's continued and willful failure or refusal to perform his
duties hereunder; or
-18-
<PAGE>
(ii) The commission by Executive of any act of dishonesty, fraud,
misrepresentation or other misconduct in the performance of his
duties hereunder; or
(iii) The conviction of Executive of a felony or a crime involving moral
turpitude or the pleading of no contest by Executive to the same,
whether or not committed in the course of his employment; provided,
however, that no such termination shall occur under clauses (i) and
(ii) unless Executive first shall have received written notice
specifying the acts or omissions alleged to constitute such failure,
refusal or act and, if the same can be corrected, it continues after
Executive shall have had reasonable opportunity to correct it.
-19-
<PAGE>
Dennis Trausch
Exhibit "B"
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Terms Of NQSOs
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Date Issued Number of Shares Exercise Price Vesting Schedule Expiration Date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/01/1996 72,000 2.375 5 03/01/2006
- -------------------------------------------------------------------------------------------
02/04/1998 45,000 4.750 5 02/04/2008
- -------------------------------------------------------------------------------------------
04/15/1999 20,000 4.438 3 04/15/2009
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Terms of Grants/Awards
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Date Issued Number of Shares Price on Grant Date Restriction Period
- -------------------------------------------------------------------------------------------
05/22/1998 25,000 5.000 2
- -------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
SPORT CHALET, INC., a Delaware corporation ("Employer"), and HOWARD K.
KAMINSKY ("Executive"), in consideration of the mutual promises made herein, do,
as of October 1, 1999, agree as follows:
A. Executive has served as the Senior Vice President - Finance,
Chief Financial Officer and Secretary; and
B. The Employer desires to be assured of the continued association
and services of Executive in order to take advantage of his experience,
knowledge and abilities in Employer's business, and is willing to employ
Executive, and Executive desires to be so employed, on the terms and conditions
set forth in this Agreement;
1. TERM OF EMPLOYMENT
1.1 Specified Term. Employer hereby employs Executive, and Executive
--------------
hereby accepts employment with Employer, for an initial term beginning on
October 1, 1999 and ending at the close of business on March 31, 2000.
Executive's employment hereunder shall automatically renew for succeeding
twelve-month periods, unless notice of termination is given by either party at
least 30 days prior to the end of the initial term or any renewal term.
Executive's employment may be subject to earlier termination as otherwise
provided in this Agreement.
1.2 "Employment Term." The phrase "Employment Term" shall mean the entire
---------------
period of Executive's employment by Employer hereunder, whether for the periods
provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Employer and Executive.
2. DUTIES
2.1 General Duties. Executive shall serve as the Senior Vice President -
--------------
Finance, Chief Financial Officer and Secretary of Employer. In this capacity,
Executive shall, to the best of his ability, perform all services, acts or
things (i) necessary or advisable to manage and conduct the business of Employer
as it relates to finance and accounting; (ii) as are provided in Employer's
Certificate of Incorporation and Bylaws, (iii) as may be assigned by Employer's
President, Chief Executive Officer or Board of Directors or (iv) as may be
specified in the job description or performance objectives adopted from time to
time by Employer's Board of Directors, President and Chief Executive Officer.
Executive shall perform such duties subject at all times to the policies of
Employer and its Board of Directors and the direction of Employer's President
and Chief Executive Officer. Executive shall report to Employer's President and
Chief Executive Officer.
2.2 Conduct of Executive. Executive shall at all times during the
--------------------
Employment Term conduct himself in a manner consistent with his position with
Employer and shall not knowingly perform any act contrary to the best interests
of Employer.
2.3 Devotion to Employer's Business.
-------------------------------
(a) Executive shall devote the full working portion of his entire
productive time, ability and attention to the business of Employer during the
Employment Term.
-21-
<PAGE>
(b) During the Employment Term, Executive shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, without the prior
consent of Employer's Board of Directors, President or Chief Executive Officer;
provided, however, that the expenditure of reasonable amounts of time for
- --------
educational, charitable or professional activities shall not be deemed a breach
of this Agreement if those activities do not materially interfere with the
services required under this Agreement and shall not require the prior written
consent of Employer as set forth above.
(c) This Agreement shall not be interpreted to prohibit Executive
from making passive personal investments or conducting private business affairs
if those activities do not materially interfere with the services required under
this Agreement. Notwithstanding the foregoing, Executive shall not, to the best
of his knowledge, directly or indirectly, acquire, hold or retain any interest
in any vendor or supplier of Employer or in any business competing with or
similar in nature to the business of Employer; provided, however, that Executive
--------
shall have a reasonable period from the date hereof to dispose of any such
prohibited investments.
2.4 Competitive Activities. Except as otherwise expressly provided in
----------------------
this Agreement, during the Employment Term, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer or director, or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
2.5 Trade Secrets.
-------------
(a) Executive shall not, without the prior written consent of
Employer in each instance, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of such
employment, any confidential business or technical information or trade secret
of Employer acquired in the course of such employment, whether or not
patentable, copyrightable or otherwise protected by law, and whether or not
conceived of or prepared by him (collectively, the "Trade Secrets"), including,
without limitation, any confidential information concerning customer lists,
products, procedures, operations, investments, financing, costs, employees,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
profits and plans for future development, the identity, requirements,
preferences, practices and methods of doing business of specific parties with
whom Employer transacts business, and all other information which is related to
any product, service or business of Employer, other than information which is
generally known in the industry in which Employer transacts business or is
acquired from public sources or was known to Executive prior to his employment
by Employer; all of which Trade Secrets are the exclusive and valuable property
of Employer.
(b) All files, accounts, records, documents, books, forms, notes,
reports, memoranda, studies, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, and all other physical items
related to Employer, other than a merely person item, whether of a public nature
or not, and whether prepared by Executive or not, are and shall remain the
exclusive property of Employer and shall not be removed from the premises of
Employer except as required in the course of Executive's employment, without the
prior written consent of Employer in each instance, and the same shall be
promptly returned to Employer by Executive on the expiration or termination of
his employment or at any time prior thereto upon the request of Employer.
(c) Executive hereby acknowledges and agrees that it would be
difficult to fully compensate Employer for damages resulting from the breach or
threatened breach of Sections 2.4 or
-22-
<PAGE>
2.5 and, accordingly, that Employer shall be entitled to temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions without the
necessity of proving actual damages and without the necessity of posting any
bond or other undertaking in connection therewith. This provision with respect
to injunctive relief shall not, however, diminish Employer's right to claim and
recover damages.
3. COMPENSATION
3.1 Compensation. As compensation for the services to be performed
------------
hereunder, Executive shall receive a salary in the amount of One Hundred Seventy
Thousand ($170,000) per annum, payable in arrears in equal installments not less
than once per month on the first business day of each month with respect to the
preceding calendar month (or part thereof) of employment during the Employment
Term. Executive shall receive such increases in salary, if any, as may be
determined by the Board of Directors in its sole discretion.
3.2 Severance.
---------
(a) Upon the termination of Executive's employment hereunder during
the Covered Period, which termination is initiated either (i) by Employer other
than for Cause or (ii) by Executive by reason of a Change of Duties, Employer
shall continue to pay Executive's Base Salary to Executive for a period of
twelve months following the date of termination on such dates as Executive's
salary otherwise would have been paid had such termination not occurred. The
aggregate amount paid under the preceding sentence is referred to herein as the
"Severance Amount." The Severance Amount shall be paid as severance and only
upon execution by Executive of Employer's standard form of Severance Agreement
and Release. Payment of the Severance Amount shall be in lieu of all other
claims, damages or liabilities Executive might otherwise assert against
Employer, including, without limitation, those for breach of this Agreement by
Employer. All capitalized terms used in this Section 3.2 shall have the meanings
set forth on Exhibit A.
(b) It is the intention of the parties that any payment of the
Severance Amount shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and
any regulations thereunder. If the independent accountants acting as auditors
for Employer on the date of a Change of Control (or another accounting firm
designated by them) determine that any payment of the Severance Amount may
constitute "excess parachute payments," the payments may be reduced to the
maximum amount which may be paid without the payments being "excess parachute
payments." The determination shall take into account (i) whether the payments
are "parachute payments" under Section 280(3) and, if so, (ii) the amount of
payments under this Agreement that constitutes reasonable compensation under
Section 280G. Nothing contained in this Agreement shall prevent Employer, after
a Change of Control, from agreeing to pay Executive compensation or benefits in
excess of those provided in this Agreement.
3.3 Tax Withholding. Employer shall have the right to deduct or withhold
---------------
from any amounts due to Executive hereunder (including, without limitation, the
Severance Amount) any and all federal, state or local taxes, withholdings and
deductions now applicable or that may be enacted and become applicable in the
future, including, but not limited to, federal income and Social Security taxes.
3.4 Profit Sharing. Executive shall be eligible to participate in such
--------------
executive bonus programs as Employer may establish from time to time. Under the
"Senior Management Bonus Plan" currently in effect, Executive's maximum target
annual bonus shall be thirty-five percent (35%) of his base salary for the
applicable fiscal year payable pursuant to Section 3.1.
-23-
<PAGE>
3.5 Stock Options. Executive has been granted Non-Qualified Stock Options
-------------
("NQSOs") to purchase Employer's common stock on the terms set forth on Exhibit
B and in accordance with Employer's 1992 Incentive Award Plan as amended and a
Key Employee Stock Option Incentive Award Agreement which is incorporated herein
by this reference.
3.6 Annual Vacation. Executive shall be entitled to vacation or personal
---------------
leave in accordance with Employer's policies for executive vacations for a
period of up to four calendar weeks per year with prior approval.
3.7 Automobile Allowance. Employer shall pay to Executive a monthly
--------------------
automobile allowance of $900.
3.8 Medical Coverage. Employer shall include Executive and his immediate
----------------
family in such health care plans as may be provided to executive officers of
Employer generally and under the same terms and conditions.
3.9 Life Insurance. Employer shall provide to Executive such life
--------------
insurance, if any, as is currently provided to executive officers of Employer
generally and under the same terms and conditions.
3.10 Qualified Plans. Employee shall be entitled to participate in
---------------
Employer's qualified plans in accordance with the terms and conditions of the
plan documents.
3.11 Reimbursement of Business Expenses. Employer shall promptly reimburse
----------------------------------
Executive for all reasonable and necessary business expenses incurred by
Executive in connection with the business of Employer subject to compliance by
Executive with Employer's Standard Operating Procedures with respect to the
amount, documentation and verification of such expenses as the same may be
amended from time to time.
3.12 Tax Consulting. Employer shall reimburse Executive for all fees and
--------------
costs for personal tax and financial advisory services incurred by Executive up
to $750 per year.
4. TERMINATION
4.1 At Will Relationship. Employer and Executive each hereby acknowledges
--------------------
and agrees that, except as expressly set forth in Section 4.2, (i) as provided
in Employer's employment policy, Executive's relationship with Employer under
this Agreement is AT WILL and can be terminated at the option of either
Executive or Employer in his or its sole and absolute discretion, for any or no
reason whatsoever, with or without cause, (ii) no representations, warranties or
assurances have been made concerning the length of such relationship or the
aggregate amount of compensation to be received by Executive and (iii) after the
termination of his employment by Employer, Executive shall have no right, title
or interest in or claim to any revenues received by Employer from any person for
any goods sold or services rendered by Employer to such person, whether or not
Executive was the cause, in whole or in part, for such person to purchase such
goods from Employer or to retain Employer to perform such services.
4.2 Duties Upon Termination. In the event that Executive's employment by
-----------------------
Employer under this Agreement is terminated, neither Employer nor Executive
shall have any remaining duties or obligations hereunder, except that (i)
Employer shall promptly pay to Executive, or his estate, all reimbursable
expenses incurred by Executive hereunder as of such date and such compensation
as is due pursuant to Sections 3.1 and 3.4, prorated through the date of
termination, (ii) Employer shall
-24-
<PAGE>
promptly provide to Executive such severance as is due pursuant to Section 3.2
and (iii) Executive shall continue to be bound by Section 2.5.
5. GENERAL PROVISIONS
5.1 Notices. Any notices to he given hereunder by either party to the
-------
other shall be in writing and may he transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing on
the signature pages hereof, but each party may change that address by written
notice in accordance with this section. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall be
deemed communicated as of the third day following the date of mailing.
5.2 Arbitration. Any controversy between Employer and Executive involving
-----------
the construction or application of any of the terms, provisions, or conditions
of this Agreement shall on the written request of either party served on the
other be submitted to arbitration. Arbitration shall comply with and be governed
by the provisions of the California Arbitration Act and that certain Agreement
to Arbitrate Claims entered into by Employer and Executive as of the date
hereof, which Agreement is incorporated herein by this reference.
5.3 Attorneys' Fees and Costs. If any legal action based in contract law
-------------------------
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may be
entitled. This provision shall be construed as applicable to the entire
contract.
5.4 SEC Compliance. Executive acknowledges that concurrently herewith he
--------------
has been provided with a copy of and will abide by the Employer's Statement of
Company Policy Re: Securities Trades by Company Personnel as the same may be
amended from time to time by Employer, which Statement is incorporated herein by
this reference.
5.5 Entire Agreement. This Agreement, together with its exhibits,
----------------
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Executive by Employer and
contains all of the covenants and agreements between the parties with respect to
that employment in any manner whatsoever. Each party to this Agreement
acknowledges that no representation, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this agreement shall be valid or binding
on either party.
5.6 Modifications. Any modification of this Agreement will be effective
-------------
only if it is in writing and signed by the party to be charged and approved by
the Board of Directors of Employer.
5.7 Effect of Waiver. The failure of either party to insist on strict
----------------
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
5.8 Partial Invalidity. If any provision in this Agreement is held by a
------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
-25-
<PAGE>
5.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California except that, with respect to
matters of corporate governance, the laws of the State of Delaware shall govern.
5.10 Sums Due Deceased Executive. If Executive dies prior to the
---------------------------
expiration of the Employment Term, any sums that may be due him from Employer
under this agreement as of the date of death shall be paid to Executive's
executors, administrators, heirs, personal representatives, successors, and
assigns.
5.11 Insurance. Executive shall be covered by any policy of directors'
---------
and officers' liability insurance maintained by Employer.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first set forth above.
Employer: SPORT CHALET, INC.
By /s/ Craig L. Levra
---------------------------
Craig L. Levra,
President
920 Foothill Boulevard
La Canada, CA 91011
Executive: /s/ Howard K. Kaminsky
--------------------------------
HOWARD K. KAMINSKY
-26-
<PAGE>
EXHIBIT A
Definitions
-----------
1. Affiliate. An "Affiliate" shall mean any entity which owns or controls, is
owned by or is under common ownership or control with, Employer.
2. Base Salary. "Base Salary" shall, as determined on the termination date, be
equal to the greater of:
(i) Executive's annual salary, excluding bonuses and special incentive
payments, on the date of the earliest Change of Control to occur
during the Covered Period; or
(ii) Executive's annual salary, excluding bonuses and special incentive
payments, on the termination date.
3. Change in Duties. A "Change in Duties" shall mean any one or more of the
following:
(i) A significant change in the nature or scope of Executive' authority
or duties from those applicable to him immediately prior to the date
on which a Change of Control occurs;
(ii) A significant reduction in Executive's Base Salary from that provided
to him immediately prior to the date on which a Change of Control
occurs;
(iii) A diminution in Executive's eligibility to participate in bonus,
stock option, incentive award and other compensation plans which
provide opportunities to receive compensation, from the greater of:
. the opportunities provided by Employer (including its
subsidiaries) for executives with comparable duties; or
. the opportunities under any such plans under which Executive was
participating immediately prior to the date on which a Change of
Control occurs.
(iv) A diminution in Executive's benefits (including, but not limited to,
medical, dental, life insurance and long-term disability plans) and
perquisites from the greater of:
. the benefits and perquisites provided by Employer (including its
subsidiaries) to executives with comparable duties; or
. the benefits and perquisites to which Executive was entitled
immediately prior to the date on which a Change of Control
occurs.
(v) A change in the location of Executive's principal place of employment
by Employer (including its subsidiaries) to a location not within Los
Angeles County; or
(vi) A reasonable determination by the Board of Directors of Employer
that, as a result of a Change in Control and a change in
circumstances thereafter significantly affecting Executive's
position, Executive is unable to exercise the authorities, powers,
function
-27-
<PAGE>
or duties attached to Executive's position immediately prior to the
date on which a Change of Control occurs.
4. Change of Control. A "Change of Control" shall be deemed to have occurred
if:
(i) Norbert Olberz ceases to be the Chairman of the Board of Employer;
(ii) The directors of Employer who were last nominated by the Board of
Directors for election as directors, for which nomination Norbert
Olberz voted in favor, cease to constitute a majority of the
directors of Employer;
(iii) Any "person," including a "group" as determined in accordance with
the Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than the trust or estate of Norbert or Irene
Olberz, or an entity wholly owned by any of them, becomes the
beneficial owner, directly or indirectly, of securities of Employer
representing 50% or more of the combined voting power of Employer's
then outstanding Voting Securities and Executive is not a member of
such group;
(iv) As a result of, or in connection with, any tender offer or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions
(a "Transaction"), Norbert or Irene Olberz or their trusts or estates
shall cease to own a majority of the outstanding Voting Securities of
Employer or its successor;
(v) Employer is merged or consolidated with another corporation and as a
result of the merger or consolidation less than 50% of the
outstanding Voting Securities of the surviving or resulting
corporation shall then be owned in the aggregate by Norbert or Irene
Olberz, or their respective trusts or estates or a group of which
Executive is a member;
(vi) A tender offer or exchange offer is made and consummated for the
ownership of securities of Employer representing 50% or more of the
combined voting power of Employer's then outstanding Voting
Securities and in which Executive is not a participant; or
(vii) Employer transfers substantially all of its assets to another
corporation which is not a wholly-owned subsidiary of Employer and
which is not owned in whole or in part by Norbert or Irene Olberz,
their respective estates or trusts or by Executive.
5. Covered Period. "Covered Period" shall mean a period of time following the
occurrence of a Change of Control equal to the lesser of (a) the
Executive's employment by Employer prior to that Change of Control, or (b)
three years following the occurrence of the Change of Control.
6. Voting Securities. "Voting Securities" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the happening of any pre-condition or contingency.
7. Termination for Cause. Executive's employment shall be deemed to have been
terminated by Employer for Cause if it shall be terminated for any of the
following reasons:
(i) Executive's continued and willful failure or refusal to perform his
duties hereunder; or
-28-
<PAGE>
(ii) The commission by Executive of any act of dishonesty, fraud,
misrepresentation or other misconduct in the performance of his
duties hereunder; or
(iii) The conviction of Executive of a felony or a crime involving moral
turpitude or the pleading of no contest by Executive to the same,
whether or not committed in the course of his employment; provided,
however, that no such termination shall occur under clauses (i) and
(ii) unless Executive first shall have received written notice
specifying the acts or omissions alleged to constitute such failure,
refusal or act and, if the same can be corrected, it continues after
Executive shall have had reasonable opportunity to correct it.
-29-
<PAGE>
Howard Kaminsky
Exhibit "B"
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Terms Of NQSOs
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Date Issued Number of Shares Exercise Price Vesting Schedule Expiration Date
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
03/01/1996 72,000 2.375 5 03/01/2006
- ----------------------------------------------------------------------------------------------
02/04/1998 50,000 4.750 5 02/04/2008
- ----------------------------------------------------------------------------------------------
04/15/1999 20,000 4.438 3 04/15/2009
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Terms of Grants/Awards
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Date Issued Number of Shares Price on Grant Date Restriction Period
- ----------------------------------------------------------------------------------------------
05/22/1998 20,000 5.000 2
- ----------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
SPORT CHALET, INC., a Delaware corporation ("Employer"), and RONALD G. MANN
("Executive"), in consideration of the mutual promises made herein, do, as of
October 1, 1999, agree as follows:
A. Executive has served as the Senior Vice President - General
Merchandise Manager pursuant to an Employment Contract dated August 17, 1998;
and
B. The Employer desires to be assured of the continued association
and services of Executive in order to take advantage of his experience,
knowledge and abilities in Employer's business, and is willing to employ
Executive, and Executive desires to be so employed, on the terms and conditions
set forth in this Agreement;
1. TERM OF EMPLOYMENT
1.1 Specified Term. Employer hereby employs Executive, and Executive
--------------
hereby accepts employment with Employer, for an initial term beginning on
October 1, 1999 and ending at the close of business on March 31, 2000.
Executive's employment hereunder shall automatically renew for succeeding
twelve-month periods, unless notice of termination is given by either party at
least 30 days prior to the end of the initial term or any renewal term.
Executive's employment may be subject to earlier termination as otherwise
provided in this Agreement.
1.2 "Employment Term." The phrase "Employment Term" shall mean the
---------------
entire period of Executive's employment by Employer hereunder, whether for the
periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Employer and Executive.
2. DUTIES
2.1 General Duties. Executive shall serve as the Senior Vice President -
--------------
General Merchandise Manager of Employer. In this capacity, Executive shall, to
the best of his ability, perform all services, acts or things (i) necessary or
advisable to manage and conduct the business of Employer as it relates to
merchandising; (ii) as are provided in Employer's Certificate of Incorporation
and Bylaws, (iii) as may be assigned by Employer's President, Chief Executive
Officer or Board of Directors or (iv) as may be specified in the job description
or performance objectives adopted from time to time by Employer's Board of
Directors, President and Chief Executive Officer. Executive shall perform such
duties subject at all times to the policies of Employer and its Board of
Directors and the direction of Employer's President and Chief Executive Officer.
Executive shall report to Employer's President and Chief Executive Officer.
2.2 Conduct of Executive. Executive shall at all times during the
--------------------
Employment Term conduct himself in a manner consistent with his position with
Employer and shall not knowingly perform any act contrary to the best interests
of Employer.
2.3 Devotion to Employer's Business.
-------------------------------
(a) Executive shall devote the full working portion of his entire
productive time, ability and attention to the business of Employer during the
Employment Term.
-31-
<PAGE>
(b) During the Employment Term, Executive shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial or professional nature to any other
person or organization, whether for compensation or otherwise, without the prior
consent of Employer's Board of Directors, President or Chief Executive Officer;
provided, however, that the expenditure of reasonable amounts of time for
- --------
educational, charitable or professional activities shall not be deemed a breach
of this Agreement if those activities do not materially interfere with the
services required under this Agreement and shall not require the prior written
consent of Employer as set forth above.
(c) This Agreement shall not be interpreted to prohibit Executive
from making passive personal investments or conducting private business affairs
if those activities do not materially interfere with the services required under
this Agreement. Notwithstanding the foregoing, Executive shall not, to the best
of his knowledge, directly or indirectly, acquire, hold or retain any interest
in any vendor or supplier of Employer or in any business competing with or
similar in nature to the business of Employer; provided, however, that Executive
--------
shall have a reasonable period from the date hereof to dispose of any such
prohibited investments.
2.4 Competitive Activities. Except as otherwise expressly provided in
----------------------
this Agreement, during the Employment Term, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer or director, or in any other individual
or representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of Employer.
2.5 Trade Secrets.
-------------
(a) Executive shall not, without the prior written consent of
Employer in each instance, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of such
employment, any confidential business or technical information or trade secret
of Employer acquired in the course of such employment, whether or not
patentable, copyrightable or otherwise protected by law, and whether or not
conceived of or prepared by him (collectively, the "Trade Secrets"), including,
without limitation, any confidential information concerning customer lists,
products, procedures, operations, investments, financing, costs, employees,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
profits and plans for future development, the identity, requirements,
preferences, practices and methods of doing business of specific parties with
whom Employer transacts business, and all other information which is related to
any product, service or business of Employer, other than information which is
generally known in the industry in which Employer transacts business or is
acquired from public sources or was known to Executive prior to his employment
by Employer; all of which Trade Secrets are the exclusive and valuable property
of Employer.
(b) All files, accounts, records, documents, books, forms, notes,
reports, memoranda, studies, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, and all other physical items
related to Employer, other than a merely person item, whether of a public nature
or not, and whether prepared by Executive or not, are and shall remain the
exclusive property of Employer and shall not be removed from the premises of
Employer except as required in the course of Executive's employment, without the
prior written consent of Employer in each instance, and the same shall be
promptly returned to Employer by Executive on the expiration or termination of
his employment or at any time prior thereto upon the request of Employer.
(c) Executive hereby acknowledges and agrees that it would be
difficult to fully compensate Employer for damages resulting from the breach or
threatened breach of Sections 2.4 or
-32-
<PAGE>
2.5 and, accordingly, that Employer shall be entitled to temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions without the
necessity of proving actual damages and without the necessity of posting any
bond or other undertaking in connection therewith. This provision with respect
to injunctive relief shall not, however, diminish Employer's right to claim and
recover damages.
3. COMPENSATION
------------
3.1 Compensation. As compensation for the services to be performed
------------
hereunder, Executive shall receive a salary in the amount of One Hundred Sixty
Thousand Dollars ($160,000) per annum, payable in arrears in equal installments
not less than once per month on the first business day of each month with
respect to the preceding calendar month (or part thereof) of employment during
the Employment Term. Executive shall receive such increases in salary, if any,
as may be determined by the Board of Directors in its sole discretion.
3.2 Severance.
---------
(a) Upon the termination of Executive's employment hereunder during
the Covered Period, which termination is initiated either (i) by Employer other
than for Cause or (ii) by Executive by reason of a Change of Duties, Employer
shall continue to pay Executive's Base Salary to Executive for a period of
twelve months following the date of termination on such dates as Executive's
salary otherwise would have been paid had such termination not occurred. The
aggregate amount paid under the preceding sentence is referred to herein as the
"Severance Amount." The Severance Amount shall be paid as severance and only
upon execution by Executive of Employer's standard form of Severance Agreement
and Release. Payment of the Severance Amount shall be in lieu of all other
claims, damages or liabilities Executive might otherwise assert against
Employer, including, without limitation, those for breach of this Agreement by
Employer. All capitalized terms used in this Section 3.2 shall have the meanings
set forth on Exhibit A.
---------
(b) It is the intention of the parties that any payment of the
Severance Amount shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and
any regulations thereunder. If the independent accountants acting as auditors
for Employer on the date of a Change of Control (or another accounting firm
designated by them) determine that any payment of the Severance Amount may
constitute "excess parachute payments," the payments may be reduced to the
maximum amount which may be paid without the payments being "excess parachute
payments." The determination shall take into account (i) whether the payments
are "parachute payments" under Section 280(3) and, if so, (ii) the amount of
payments under this Agreement that constitutes reasonable compensation under
Section 280G. Nothing contained in this Agreement shall prevent Employer, after
a Change of Control, from agreeing to pay Executive compensation or benefits in
excess of those provided in this Agreement.
3.3 Tax Withholding. Employer shall have the right to deduct or withhold
---------------
from any amounts due to Executive hereunder (including, without limitation, the
Severance Amount) any and all federal, state or local taxes, withholdings and
deductions now applicable or that may be enacted and become applicable in the
future, including, but not limited to, federal income and Social Security taxes.
3.4 Profit Sharing. Executive shall be eligible to participate in such
--------------
executive bonus programs as Employer may establish from time to time. Under the
"Senior Management Bonus Plan" currently in effect, Executive's maximum target
annual bonus shall be thirty-five percent (35%) of his base salary for the
applicable fiscal year payable pursuant to Section 3.1.
-33-
<PAGE>
3.5 Stock Options. Executive has been granted Non-Qualified Stock
-------------
Options ("NQSOs") to purchase Employer's common stock on the terms set forth on
Exhibit B and in accordance with Employer's 1992 Incentive Award Plan as amended
and a Key Employee Stock Option Incentive Award Agreement which is incorporated
herein by this reference.
3.6 Annual Vacation. Executive shall be entitled to vacation or personal
---------------
leave in accordance with Employer's policies for executive vacations for a
period of up to four calendar weeks per year with prior approval.
3.7 Automobile Allowance. Employer shall pay to Executive a monthly
--------------------
automobile allowance of $900.
3.8 Medical Coverage. Employer shall include Executive and his immediate
----------------
family in such health care plans as may be provided to executive officers of
Employer generally and under the same terms and conditions.
3.9 Life Insurance. Employer shall provide to Executive such life
--------------
insurance, if any, as is currently provided to executive officers of Employer
generally and under the same terms and conditions.
3.10 Qualified Plans. Employee shall be entitled to participate in
---------------
Employer's qualified plans in accordance with the terms and conditions of the
plan documents.
3.11 Reimbursement of Business Expenses. Employer shall promptly
----------------------------------
reimburse Executive for all reasonable and necessary business expenses incurred
by Executive in connection with the business of Employer subject to compliance
by Executive with Employer's Standard Operating Procedures with respect to the
amount, documentation and verification of such expenses as the same may be
amended from time to time.
3.12 Tax Consulting. Employer shall reimburse Executive for all fees and
--------------
costs for personal tax and financial advisory services incurred by Executive up
to $750 per year.
4. TERMINATION
-----------
4.1 At Will Relationship. Employer and Executive each hereby
--------------------
acknowledges and agrees that, except as expressly set forth in Section 4.2, (i)
as provided in Employer's employment policy, Executive's relationship with
Employer under this Agreement is AT WILL and can be terminated at the option of
either Executive or Employer in his or its sole and absolute discretion, for any
or no reason whatsoever, with or without cause, (ii) no representations,
warranties or assurances have been made concerning the length of such
relationship or the aggregate amount of compensation to be received by Executive
and (iii) after the termination of his employment by Employer, Executive shall
have no right, title or interest in or claim to any revenues received by
Employer from any person for any goods sold or services rendered by Employer to
such person, whether or not Executive was the cause, in whole or in part, for
such person to purchase such goods from Employer or to retain Employer to
perform such services.
4.2 Duties Upon Termination. In the event that Executive's employment by
-----------------------
Employer under this Agreement is terminated, neither Employer nor Executive
shall have any remaining duties or obligations hereunder, except that (i)
Employer shall promptly pay to Executive, or his estate, all reimbursable
expenses incurred by Executive hereunder as of such date and such compensation
as is due pursuant to Sections 3.1 and 3.4, prorated through the date of
termination, (ii) Employer shall
-34-
<PAGE>
promptly provide to Executive such severance as is due pursuant to Section 3.2
and (iii) Executive shall continue to be bound by Section 2.5.
5. GENERAL PROVISIONS
------------------
5.1 Notices. Any notices to he given hereunder by either party to the
-------
other shall be in writing and may he transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing on
the signature pages hereof, but each party may change that address by written
notice in accordance with this section. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall be
deemed communicated as of the third day following the date of mailing.
5.2 Arbitration. Any controversy between Employer and Executive
-----------
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall on the written request of either party served
on the other be submitted to arbitration. Arbitration shall comply with and be
governed by the provisions of the California Arbitration Act and that certain
Agreement to Arbitrate Claims entered into by Employer and Executive as of the
date hereof, which Agreement is incorporated herein by this reference.
5.3 Attorneys' Fees and Costs. If any legal action based in contract law
-------------------------
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which that party may be
entitled. This provision shall be construed as applicable to the entire
contract.
5.4 SEC Compliance. Executive acknowledges that concurrently herewith he
--------------
has been provided with a copy of and will abide by the Employer's Statement of
Company Policy Re: Securities Trades by Company Personnel as the same may be
amended from time to time by Employer, which Statement is incorporated herein by
this reference.
5.5 Entire Agreement. This Agreement, together with its exhibits,
----------------
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Executive by Employer and
contains all of the covenants and agreements between the parties with respect to
that employment in any manner whatsoever except that the representation and
warranty contained in paragraph 2.09 of Executive's prior employment contract
with Employer shall remain in full force and effect. Each party to this
Agreement acknowledges that no representation, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this agreement shall be valid
or binding on either party.
5.6 Modifications. Any modification of this Agreement will be effective
-------------
only if it is in writing and signed by the party to be charged and approved by
the Board of Directors of Employer.
5.7 Effect of Waiver. The failure of either party to insist on strict
----------------
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
-35-
<PAGE>
5.8 Partial Invalidity. If any provision in this Agreement is held by a
------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
5.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California except that, with respect to
matters of corporate governance, the laws of the State of Delaware shall govern.
5.10 Sums Due Deceased Executive. If Executive dies prior to the
---------------------------
expiration of the Employment Term, any sums that may be due him from Employer
under this agreement as of the date of death shall be paid to Executive's
executors, administrators, heirs, personal representatives, successors, and
assigns.
5.11 Insurance. Executive shall be covered by any policy of directors'
---------
and officers' liability insurance maintained by Employer.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first set forth above.
Employer: SPORT CHALET, INC.
By /s/ Craig L. Levra
----------------------------------
Craig L. Levra,
President
920 Foothill Boulevard
La Canada, CA 91011
Executive: /s/ Ronald G. Mann
---------------------------------------
RONALD G. MANN
-36-
<PAGE>
EXHIBIT A
Definitions
-----------
1. Affiliate. An "Affiliate" shall mean any entity which owns or controls, is
owned by or is under common ownership or control with, Employer.
2. Base Salary. "Base Salary" shall, as determined on the termination date,
be equal to the greater of:
(i) Executive's annual salary, excluding bonuses and special incentive
payments, on the date of the earliest Change of Control to occur
during the Covered Period; or
(ii) Executive's annual salary, excluding bonuses and special incentive
payments, on the termination date.
3. Change in Duties. A "Change in Duties" shall mean any one or more of the
following:
(i) A significant change in the nature or scope of Executive' authority
or duties from those applicable to him immediately prior to the date
on which a Change of Control occurs;
(ii) A significant reduction in Executive's Base Salary from that provided
to him immediately prior to the date on which a Change of Control
occurs;
(iii) A diminution in Executive's eligibility to participate in bonus,
stock option, incentive award and other compensation plans which
provide opportunities to receive compensation, from the greater of:
. the opportunities provided by Employer (including its
subsidiaries) for executives with comparable duties; or
. the opportunities under any such plans under which Executive was
participating immediately prior to the date on which a Change of
Control occurs.
(iv) A diminution in Executive's benefits (including, but not limited to,
medical, dental, life insurance and long-term disability plans) and
perquisites from the greater of:
. the benefits and perquisites provided by Employer (including its
subsidiaries) to executives with comparable duties; or
. the benefits and perquisites to which Executive was entitled
immediately prior to the date on which a Change of Control
occurs.
(v) A change in the location of Executive's principal place of employment
by Employer (including its subsidiaries) to a location not within Los
Angeles County; or
(vi) A reasonable determination by the Board of Directors of Employer
that, as a result of a Change in Control and a change in
circumstances thereafter significantly affecting Executive's
-37-
<PAGE>
position, Executive is unable to exercise the authorities, powers,
function or duties attached to Executive's position immediately prior
to the date on which a Change of Control occurs.
4. Change of Control. A "Change of Control" shall be deemed to have occurred
if:
(i) Norbert Olberz ceases to be the Chairman of the Board of Employer;
(ii) The directors of Employer who were last nominated by the Board of
Directors for election as directors, for which nomination Norbert
Olberz voted in favor, cease to constitute a majority of the
directors of Employer;
(iii) Any "person," including a "group" as determined in accordance with
the Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than the trust or estate of Norbert or Irene
Olberz, or an entity wholly owned by any of them, becomes the
beneficial owner, directly or indirectly, of securities of Employer
representing 50% or more of the combined voting power of Employer's
then outstanding Voting Securities and Executive is not a member of
such group;
(iv) As a result of, or in connection with, any tender offer or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions
(a "Transaction"), Norbert or Irene Olberz or their trusts or estates
shall cease to own a majority of the outstanding Voting Securities of
Employer or its successor;
(v) Employer is merged or consolidated with another corporation and as a
result of the merger or consolidation less than 50% of the
outstanding Voting Securities of the surviving or resulting
corporation shall then be owned in the aggregate by Norbert or Irene
Olberz, or their respective trusts or estates or a group of which
Executive is a member;
(vi) A tender offer or exchange offer is made and consummated for the
ownership of securities of Employer representing 50% or more of the
combined voting power of Employer's then outstanding Voting
Securities and in which Executive is not a participant; or
(vii) Employer transfers substantially all of its assets to another
corporation which is not a wholly-owned subsidiary of Employer and
which is not owned in whole or in part by Norbert or Irene Olberz,
their respective estates or trusts or by Executive.
5. Covered Period. "Covered Period" shall mean a period of time following the
occurrence of a Change of Control equal to the lesser of (a) the
Executive's employment by Employer prior to that Change of Control, or (b)
three years following the occurrence of the Change of Control.
6. Voting Securities. "Voting Securities" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the happening of any pre-condition or contingency.
7. Termination for Cause. Executive's employment shall be deemed to have been
terminated by Employer for Cause if it shall be terminated for any of the
following reasons:
(i) Executive's continued and willful failure or refusal to perform his
duties hereunder; or
(ii) The commission by Executive of any act of dishonesty, fraud,
misrepresentation or other misconduct in the performance of his
duties hereunder; or
(iii) The conviction of Executive of a felony or a crime involving moral
turpitude or the pleading of no contest by Executive to the same,
whether or not committed in the course of his employment; provided,
however, that no such termination shall occur under clauses (i) and
(ii) unless Executive first shall have received written notice
specifying the acts or omissions alleged to constitute such failure,
refusal or act and, if the same can be corrected, it continues after
Executive shall have had reasonable opportunity to correct it.
-38-
<PAGE>
Ron Mann
Exhibit "B"
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Terms Of NQSOs
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Date Issued Number of Shares Exercise Price Vesting Schedule Expiration Date
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
08/06/1998 45,000 6.500 5 08/06/2008
- -----------------------------------------------------------------------------------------------------
04/15/1999 20,000 4.438 3 04/15/2009
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Terms of Grants/Awards
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Date Issued Number of Shares Price on Grant Date Restriction Period
- -----------------------------------------------------------------------------------------------------
08/12/1998 5,000 6.500 2
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
-39-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1999 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,627,171
<SECURITIES> 0
<RECEIVABLES> 796,062
<ALLOWANCES> 73,000
<INVENTORY> 43,465,941
<CURRENT-ASSETS> 51,251,710
<PP&E> 34,290,342
<DEPRECIATION> 17,152,093
<TOTAL-ASSETS> 68,835,689
<CURRENT-LIABILITIES> 27,864,102
<BONDS> 0
0
0
<COMMON> 65,770
<OTHER-SE> 40,813,473
<TOTAL-LIABILITY-AND-EQUITY> 68,835,698
<SALES> 126,835,949
<TOTAL-REVENUES> 126,835,949
<CGS> 88,387,679
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,353,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (173,451)
<INCOME-PRETAX> 6,267,811
<INCOME-TAX> 2,497,000
<INCOME-CONTINUING> 3,770,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,770,811
<EPS-BASIC> .57
<EPS-DILUTED> .56
</TABLE>
