SPORT CHALET INC FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Other Events, Financial Statements and Exhibits

Edgar Glimpses |

Item 1.01. Entry into a Material Definitive Agreement.

On June 30, 2014, Sport Chalet, Inc., a Delaware corporation (the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Vestis Retail Group, LLC, a Delaware limited liability company ("Vestis"), and Everest Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Vestis ("Merger Sub").

Pursuant to the Merger Agreement, Merger Sub will commence a tender offer (the "Offer") within five business days after the execution of the Merger Agreement to purchase all of the outstanding shares of the Class A Common Stock, $0.01 par value per share, of the Company (the "Class A Shares") and the Class B Common Stock, $0.01 par value per share, of the Company (the "Class B Shares" and together with the Class A Shares, the "Common Stock") at a price per share of $1.20, net to the seller, in cash without interest, less any applicable withholding taxes, and subject to adjustment as described below. If the shares of Common Stock tendered into the Offer (together with the shares to be acquired by Merger Sub pursuant to the Stock Purchase Agreement and the Top-Up Option described below) do not constitute at least 90\% of each of the Class A Shares and the Class B Shares on a fully diluted basis (as calculated pursuant to the Merger Agreement), the price per share of all Common Stock subject to the Offer will automatically be reduced to $1.04, net to the seller, in cash without interest, less any applicable withholding taxes. The amount actually paid by Merger Sub in the Offer is referred to as the "Offer Price."

The obligation of Merger Sub to purchase shares tendered in the Offer is subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement. In particular, it is a condition to Merger Sub's obligation to purchase the shares tendered in the Offer that the number of outstanding shares of Common Stock that have been validly tendered and not validly withdrawn, together with any shares of Common Stock then owned by Vestis or Merger Sub and the shares of Common Stock to be purchased from the Olberz Family (as described below), equals at least a majority in voting power of the Common Stock on a fully diluted basis (as calculated pursuant to the Merger Agreement).

As soon as practicable after the consummation of the Offer, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger") and the Company will become a wholly-owned subsidiary of Vestis.

In the Merger, each share of Common Stock, other than shares of Common Stock owned by Vestis, Merger Sub, the Company, the Olberz Family (as defined below) or stockholders who have validly exercised and not validly withdrawn their appraisal rights under Delaware law, will be converted into the right to receive cash in an amount equal to the Offer Price. The Merger Agreement provides that the Company and the Company's board of directors will take certain actions to provide that each holder of options to acquire shares of Common Stock (whether or not then vested or exercisable) will be provided with a notice pursuant to which all options held by such holder will become vested in full and exercisable during a twenty (20) day notice period, with such accelerated vesting and exercise contingent on the closing of the Merger. Any options that are not exercised during the notice period will be cancelled immediately prior to the closing of the Merger, except that if an option

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is not exercised and such option's exercise price is less than the Offer Price, such option will be automatically deemed to have been exercised by net settlement contingent on, and effective immediately prior to, the closing of the Merger.

The Company has granted to Merger Sub an irrevocable option (the "Top-Up Option") to purchase the number of newly-issued Class A Shares and Class B Shares that, when added to the number of Class A Shares and Class B Shares held by Vestis and Merger Sub after giving effect to the Common Stock validly tendered into the Offer and the Stock Purchase Agreement described below would constitute at least 90\% of each of the Class A Shares and the Class B Shares on a fully diluted basis (as calculated pursuant to the Merger Agreement); provided, however, that the Company shall not be required to issue a number of Class A Shares or Class B Shares in excess of the number of authorized but unissued or unreserved shares of either class of Common Stock or if such issuance would be prohibited by any applicable law or legal order. If the minimum tender condition described above is satisfied, Merger Sub will be obligated to exercise the Top-Up Option if doing so will permit Merger Sub to acquire at least 90\% of each of the Class A Shares and Class B Shares. If Vestis and Merger Sub acquire more than 90\% of each of the Class A Shares and Class B Shares, including through exercise of the Top-Up Option, Merger Sub will complete the Merger through the "short form" procedures available under Delaware law.

Substantially simultaneously with the execution and delivery of the Merger Agreement, The Olberz Family Trust dated 05/06/1997, Eric S. Olberz and Irene M. Olberz (collectively, the "Olberz Family") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Vestis, Merger Sub and, solely with respect to certain provisions, the Company. The Stock Purchase Agreement provides that the Olberz Family shall (i) sell to Merger Sub all of the Common Stock owned by them immediately following (and contingent upon) the consummation of the Offer at a price equal to $0.75 per share (subject to certain adjustments set forth in the Stock Purchase Agreement), and (ii) support the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement in accordance with the terms of the Stock Purchase Agreement. As of the date hereof, the Olberz Family collectively owns approximately 61\% of the outstanding Class A Shares and approximately 7\% of the outstanding Class B Shares.

Substantially simultaneously with the execution and delivery of the Merger Agreement, each of Craig L. Levra, the Company's Chairman of the Board and Chief Executive Officer, Howard K. Kaminsky, the Company's Executive Vice-President - Finance, Chief Financial Officer and Secretary, and Dennis Trausch, the Company's Executive Vice President - Growth and Development, who collectively own approximately 3\% of the outstanding Class A Shares and 53\% of the outstanding Class B Shares, have separately entered into a Tender and Support Agreement (each a "Support Agreement") with Vestis and Merger Sub, providing that they shall (i) tender the shares of Common Stock owned by them into the Offer, and (ii) otherwise support the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement in accordance with the terms of the Support Agreement. In the event that the Company's board of directors changes its recommendation, the number of shares subject to the Support Agreements will be reduced on a pro rata basis to a number such that all shares subject to the Support Agreements, together with the shares owned by the Olberz Family, represents 35\% of the voting power of the Company.

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Substantially simultaneously with the execution and delivery of the Merger Agreement, and as an inducement to Vestis entering into the Merger Agreement, an affiliate of the Olberz Family amended its lease to the Company of the Company's headquarters (the "Lease Amendment"). The Lease Amendment grants the Company the right to terminate the lease upon the giving of nine or twelve months' notice, together with the concurrent payment of a lease termination fee of $300,000 (for nine months' notice) or $200,000 (for twelve months' notice).

In order to encourage the Olberz Family to cooperate with and facilitate the transactions contemplated by the Merger Agreement, substantially simultaneously with the execution and delivery of the Merger Agreement, the Company entered into an Indemnification Agreement (the "Indemnification Agreement") with the Olberz Family. The Indemnification Agreement provides that the Company shall indemnify the Olberz Family against certain liabilities incurred by them in connection with such transactions to the same extent that it indemnifies directors and officers.

Pursuant to the terms of the Merger Agreement, the Company may not solicit, initiate or knowingly encourage any proposal or inquiry that constitutes or would be reasonably likely to lead to an acquisition proposal and has agreed to certain restrictions on its ability to respond to such proposals, subject to fulfillment of certain fiduciary duties of the Company's board of directors. The Company must give Vestis three business days' notice before the Company is permitted to change its recommendation with respect to the Merger Agreement. Any material amendments to an acquisition proposal require at least a two business day notice by the Company to Vestis prior to any change in recommendation by the Company's board of directors.

The Merger Agreement contains certain termination rights for the Company and Vestis including, with respect to Vestis, in the event that the Company's board of directors changes its recommendation or more than 72,544 shares of Common Stock held by the Olberz Family shall have been sold pursuant to a margin loan . . .

Item 8.01. Other Events

On June 30, 2014, the Company issued a press release announcing, among other things, its entry into the Merger Agreement described in Item 1.01 above. A copy of the press release is attached hereto as Exhibit 99.9 and is incorporated herein by reference.

On June 30, 2014, the Company sent a letter to the employees of the Company, which is attached hereto as Exhibit 99.10 and is incorporated herein by reference.

On June 30, 2014, the Company sent a list of Frequently Asked Questions to the employees of the Company, which is attached hereto as Exhibit 99.11 and is incorporated herein by reference.

On June 30, 2014, the Company sent a letter to selected vendors of the Company, which is attached as Exhibit 99.12 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits Exhibit No. Description 2.1* Agreement and Plan of Merger, dated as of June 30, 2014, by and among Sport Chalet, Inc., Vestis Retail Group, LLC and Everest Merger Sub, Inc. 99.1 Stock Purchase Agreement, dated as of June 30, 2014, by and among The Olberz Family Trust dated 05/06/1997, Irene M. Olberz, Eric S. Olberz, Vestis Retail Group, LLC, Everest Merger Sub, Inc. and, solely with respect to certain -7-

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provisions, Sport Chalet, Inc. 99.2 Form of Tender and Support Agreement, dated as of June 30, 2014, by and among Vestis Retail Group, LLC, Everest Merger Sub, Inc. and each of Craig L. Levra, Howard K. Kaminsky and Dennis Trausch. 99.3 First Amendment to Lease, dated as of June 30, 2014, by and between La Canada Properties, Inc. and the Company. 99.4 Indemnification Agreement, dated as of June 30, 2014, by and among the Company, Irene Maria Olberz, Eric Steven Olberz, and the Olberz Family Trust. 99.5 Consent Agreement, dated as of June 27, 2014, by and among Sport Chalet, Inc., Sport Chalet Value Services, LLC, Sport Chalet Team Sales, Inc., certain financial institutions and Bank of America, N.A., as Agent. 99.6 Consent Agreement, dated as of June 27, 2014, by and among Sport Chalet, Inc., Sport Chalet Value Services, LLC, Sport Chalet Team Sales, Inc., certain financial institutions and Crystal Financial SBIC LP., as Agent. 99.7** Letter agreement, dated June 30, 2014, between Sport Chalet, Inc. and Craig L. Levra, waiving enhanced change-in-control termination benefits. 99.8** Letter agreement, dated June 30, 2014, between Sport Chalet, Inc. and Howard K. Kaminsky, waiving enhanced change-in-control termination benefits. 99.9 Joint Press Release, issued by Sport Chalet, Inc. and Vestis Retail Group, LLC, dated June 30, 2014 99.10 Letter to employees, dated June 30, 2014 99.11 List of Frequently Asked Questions to employees, dated June 30, 2014 99.12 Letter to selected vendors, dated June 30, 2014 * Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the Securities and Exchange Commission upon request. ** Constitute management contracts, or compensatory plans or arrangements, which are required to be filed pursuant to Item 601 of Regulation S-K. -8-

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