Tax Indemnification Agreement
EXHIBIT
99.1
THIS
TAX
INDEMNIFICATION AGREEMENT dated as of September 30, 2005 (this "Agreement"),
is
entered into by and among SPORT CHALET, INC., a Delaware corporation (the
"Company"), XXXXXXX XXXXXX and XXXXX XXXXXX, both individually and in their
capacities as the trustees of THE OLBERZ FAMILY TRUST ("Olberz"), XXXXX X.
XXXXX
("Xxxxx") and XXXXXX X. XXXXXXXX ("Xxxxxxxx").
WHEREAS,
pursuant to the "Transition Plan" dated February 28, 2005, attached hereto
as
Exhibit
A,
Olberz
has agreed to transfer to Xxxxx and Xxxxxxxx (the "Transfer") such number
of
shares (the "Shares") of Class B Common Stock of the Company owned by Olberz
as
would be necessary, when added to the shares owned by Xxxxx and Xxxxxxxx,
to
give them at least 45% of the combined voting power of the Class A Common
Stock
and the Class B Common Stock of the Company;
WHEREAS,
because the Transfer is between the Company's majority stockholder and officers
of the Company, applicable tax rules and regulations require the Company
to
treat the Transfer as the contribution of the Shares to the Company's capital
and the subsequent issuance of the Shares by the Company to Xxxxx and
Xxxxxxxx;
WHEREAS,
the Company and Olberz have agreed to the Transfer on the condition that
Xxxxx
and Xxxxxxxx pay all taxes imposed as a result of the Transfer, including
without limitation gift taxes, income tax withholding, FICA, FUTA, SDI and
SUI;
and
WHEREAS,
Xxxxx and Xxxxxxxx have agreed to indemnify the Company and Olberz from any
such
taxes, and have agreed to pledge 457,263 shares (the "Pledged Shares") of
Company Class B Common Stock as security for such obligation, provided, however,
that such pledge shall be subordinate to any pledge of the Pledged Shares
for
indebtedness incurred by Xxxxx and Xxxxxxxx;
NOW,
THEREFORE, to induce the Company and Olberz to enter into, and in consideration
of its entering into, the Transfer, and in consideration of the premises
and the
representations, warranties and agreements contained herein, the parties
hereto
agree as follows:
ARTICLE
I Definitions.
"Taxes"
means any federal, state and local taxes, including, without limitation,
gift
taxes, transfer taxes, income taxes (including withholding of income taxes)
and
payroll taxes (such as FICA, FUTA, SDI, SUI and the like), and any penalties
and
interest on any such taxes.
"Indemnitee"
means Olberz and his successors and assigns. "Indemnitors" means Xxxxx and
Xxxxxxxx and their successors and assigns.
ARTICLE
II Indemnification
by Xxxxx and Xxxxxxxx.
The
Indemnitors, jointly but not severally, agree to indemnify and hold harmless
the
Indemnitee from and against any and all Taxes asserted against, imposed upon,
or
incurred by the Indemnitee which arise out of or in connection with the
Transfer, plus reasonable legal fees and expenses incurred for or with respect
to such indemnity. For purposes of clarification, each Indemnitor shall be
liable hereunder only for those Taxes asserted against, imposed upon, or
incurred by the Indemnitee that are solely attributable to the transfer of
Shares to such Indemnitor in connection with the Transfer.
(a) If
a
claim by a federal, state or local taxing authority is made against the
Indemnitee arising out of a matter for which the Indemnitee is entitled to
be
indemnified pursuant to Section 2 (a "Tax Claim"), the Indemnitee shall promptly
notify each Indemnitor in writing of such claim. The failure to notify promptly
the Indemnitors shall not relieve the Indemnitors of their obligations hereunder
except to the extent (and only to the extent) that the Indemnitors are actually
and materially prejudiced by such failure. The Indemnitors shall be responsible
for the fees and expenses of the counsel employed by the Indemnitee, provided
that in no event shall the Indemnitors be liable for the fees and expenses
of
more than one counsel (in addition to any local counsel) for the Indemnitee
in
connection with any one Tax Claim or separate but similar or related Tax
Claims.
(b) The
Indemnitors shall be entitled to control the defense of a Tax Claim,
individually or jointly, through their counsel, at their own expense, and,
without limiting the foregoing, may in their sole discretion, pursue or forego
any and all administrative appeals, proceedings, hearings and conferences
with
any taxing authority with respect thereto, and may in their sole discretion,
pay
the amount claimed and xxx for a refund (where applicable law permits such
refund suits), settle or contest the Tax Claim in any permissible manner.
(c) So
long
as the Indemnitors are participating in the defense of a Tax Claim in good
faith, the Indemnitee shall reasonably cooperate with the Indemnitors by,
among
other things, providing records and information that are reasonably relevant
to
such Tax Claim and filing such appeals, petitions and other papers as requested
by the Indemnitors. The Indemnitee shall not settle or compromise any Tax
Claim
without the written consent of the Indemnitors. No such consent will be required
if the Indemnitee agrees in writing to forego all claims for indemnification
from the Indemnitors with respect to such Tax Claim.
2. Termination
of
Indemnification. The obligations of the Indemnitors to indemnify the
Indemnitee with respect to any Tax, pursuant to Section 2, shall terminate
upon
the earlier of (i) the close of business on the date which is five (5) years
from the date of this Agreement and (ii) the close of business on the date
which
is sixty (60) days after the applicable statute of limitations for collection
of
such Tax, taking into account extensions thereof, except in each case with
respect to any Tax Claims with respect to which any Indemnitee has theretofore
delivered notice to the Indemnitors in accordance with this Agreement, which
shall survive until such Tax Claims are finally resolved.
3. Pledge
of
Shares. The Indemnitors agree to pledge the Pledged Shares to the
Indemnitees as security for their obligations hereunder, provided that such
security interest held for the benefit of the Indemnitee is subordinate to
any
security interest held by a lender to the Indemnitors. The pledge of the
Pledged
Shares hereunder shall be in the form of Stock Pledge Agreement attached
hereto
as Exhibit B.
4. Confidentiality.
Each
party hereto agrees to maintain the confidentiality of any tax information
in
connection with this Agreement, except with respect to any taxing authority
in
connection with a Tax Claim or as otherwise required by law.
5. Miscellaneous.
(a) Any
and
all notices required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing and will be effective and
deemed
to provide such party sufficient notice under this Agreement on the earliest
of
the following: (i) at the time of personal delivery, if delivery is in person;
(ii) at the time of transmission by facsimile, addressed to the other party
at
its facsimile number specified herein (or hereafter modified by subsequent
notice to the parties hereto), with confirmation of receipt made by both
telephone and printed confirmation sheet verifying successful transmission
of
the facsimile; (iii) one (1) business day after deposit with an express
overnight courier for United States deliveries, or two (2) business days
after
such deposit for deliveries outside the United States, with proof of delivery
from the courier requested; or (iv) three (3) business days after deposit
in the
United States mail by certified mail (return receipt requested) for United
States deliveries.
All
notices not delivered personally or by facsimile will be sent with postage
and/or other charges prepaid and properly addressed to the party to be notified
at the address or facsimile number as follows, or at such other address or
facsimile number as such other party may designate by one of the indicated
means
of notice herein to the other parties hereto as follows:
To
the
Company:
Sport
Chalet, Inc.
Xxx
Xxxxx
Xxxxxx Xxxxx
Xx
Xxxxxx, Xxxxxxxxxx 00000
Attn:
President
Copy
to
D.
Xxxxxxx Xxxxxxxxxx, Esq.
Xxxxxxxx
Xxxxxx Xxxxxxx & Hampton, LLP
000
X.
Xxxx Xx., 00xx
Xxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
To
Olberz:
Xxxxxxx
Xxxxxx
Sport
Chalet, Inc.
Xxx
Xxxxx
Xxxxxx Xxxxx
Xx
Xxxxxx, Xxxxxxxxxx 00000
Copy
to
Xxxx
X.
Xxxxxxx, Esq.
Xxxx
& Xxxx LLP
000
Xxxx
Xxxxxxxx Xxxx., Xxxxx Xxxxx
Xxxxxxxx,
Xxxxxxxxxx 00000
To
Xxxxx:
Xxxxx
X.
Xxxxx
Sport
Chalet, Inc.
Xxx
Xxxxx
Xxxxxx Xxxxx
Xx
Xxxxxx, Xxxxxxxxxx 00000
To
Xxxxxxxx:
Xxxxxx
X.
Xxxxxxxx
Sport
Chalet, Inc.
Xxx
Xxxxx
Xxxxxx Xxxxx
Xx
Xxxxxx, Xxxxxxxxxx 00000
(b) This
Agreement shall inure to the benefit of and shall be binding upon the parties
hereto and their respective successors, heirs and assigns, but shall not
be
assignable by any party without the prior written consent of all parties
hereto.
(c) This
agreement shall be governed by and construed in accordance with the laws
of the
State of California, without regard to the conflicts of law principles of
such
state.
(d) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original and all of which together shall be deemed to be
a
single agreement.
(e) This
Agreement may not be amended or modified except by an instrument in writing
signed by all the parties hereto. Any party hereto may (i) extend the time
for
the performance of any obligation or other act of any other parties hereto
or
(ii) waive compliance with any agreement or condition contained herein. Any
waiver of any term or condition shall not be construed as a waiver of any
subsequent breach or a subsequent waiver of the same term or condition, or
a
waiver of any other term or condition, of this Agreement. The failure of
any
party at any time to require performance of any provision hereof shall in
no
manner affect its right at a later time to enforce the same.
(f) If
any
term or provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nonetheless remain in full force and effect
so long as the economic and legal substance of the transactions contemplated
by
this Agreement is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal
or
incapable of being enforced, the parties hereto shall negotiate in good faith
to
modify this Agreement so as to effect the original intent of the parties
as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally
contemplated to the fullest extent possible.
IN
WITNESS WHEREOF, the parties to this Agreement have caused this Agreement
to be
duly executed as of the date first written above.
| SPORT CHALET, INC. | ||
| |
|
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| By: | /s/ Xxxxx X. Xxxxx | |
|
Xxxxx X. Xxxxx, President |
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| By: | /s/ Xxxxxxx Xxxxxx | |
|
Xxxxxxx
Xxxxxx, individually and as trustee of The Olberz Family
Trust
|
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| By: | /s/ Xxxxx Xxxxxx | |
|
Xxxxx
Xxxxxx, individually and as trustee of The Olberz Family
Trust
|
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| By: | /s/ Xxxxx X. Xxxxx | |
|
Xxxxx
X. Xxxxx
|
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| By: | /s/ Xxxxxx X. Xxxxxxxx | |
|
Xxxxxx
X. Xxxxxxxx
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