RETAILSPORTS, INCORPORATED On the evening of October 15, 1998, Barry Almond left his dinner appointment at the Peppermill Restaurant feeling angry and confused. As he approached his car, he fumbled through his briefcase for his phone; he wanted to let his wife know that the Board of Directors had just suggested that he step down as Chief Executive Officer of RetailSports, Incorporated (RSI). Four years earlier, Almond had taken the lead role in founding the Internet-based sporting goods retail company. Almond had developed the business concept, recruited a top-rate management team, successfully raised $5.5 MM in two rounds of financings, and had been on target to outperform all agreed-upon financial goals. While he had no previous management experience in start-ups, Almond, 28, believed that he had demonstrated his ability to execute on a huge idea. Two days earlier, Almond had received a telephone call from Frank Gelmann asking him to schedule dinner for the two of them plus another director, Robert Mason. The purpose of the meeting was “to discuss a few Company issues”. Gelmann, one of RSI’s Directors, was the CEO of Venture-Concept.com—an organization of former high tech entrepreneurs dedicated to helping create new businesses. Through Venture-Concept.com, Gelmann had helped RSI develop its business strategy as well as funding contacts. Over dinner, Gelmann and Mason conveyed the Board’s thinking on Almond’s performance. The Board had unanimously agreed that Almond had performed well in the small venture. However, as the Company expanded, it would require a CEO with more experience. The Board felt that Tim Howard, RSI’s current President, had the experience required to become the next Chief Executive Officer. Almond had recruited Howard from Titan Sports, a sports-related Internet retailer, four months earlier. Mason ended the dinner by re-emphasizing that the Board was only making a suggestion; the final decision was in Almond’s hands. Almond requested a few days to think through his options. Almond drove home, trying to understand the Board’s rationale. Why would they remove a high-performing CEO? Should he refuse? Should he stay with the Company and take a more junior position, or should he simply resign from the Company? He had signed an employee contract that protected his equity position in such an event and stipulated that he could not be removed without just cause. Was there just cause? At home that night, his wife suggested they take a weekend trip to Pajaro Dunes to mull over the decision. Barry Almond and Chester Associates Barry Almond graduated from Stanford University in 1993 with a Bachelors of Arts degree in Engineering. Following his undergraduate studies, Almond relocated to Seattle to join West One Bank’s management training program. There, he proceeded through a series of rotational assignments and projects concentrating on corporate lending and international finance. Unhappy with the slow pace and lack of innovation in the company’s culture, Almond quit to pursue a more entrepreneurial career.Almond had always been interested in both sports and technology. Almond’s father, Tom, owned a golf shop, and his father-in-law, Jack, owned a snow board manufacturer. Almond had taken advantage of the opportunity to help with both companies. In addition, he “was very much intrigued by this up-and-coming technology called the Internet.” He had led several school-related research projects to learn more about the subject. Almond decided that the perfect career move for him would be to work in an environment that combined both his interests. In September 1994, Almond teamed up with Randy Childs and Antonio Tate (two former classmates) to found Chester Associates. Chester Associates focused on providing website design and development, primarily for the retail sports industry. Almond recalled the difficulty of convincing retailers that they needed a web presence when most did not even understand the Internet. Still, the group cemented exclusive relationships with the three major industry trade organizations. Chester Associates became the “official” advisor to the industry on consumer-related Internet issues. In fewer than 12 months, the group had developed and hosted web sites for more than 100 sports brands across various industry segments (ski, footwear, camping, apparel, etc.). By June 1995, the group was operating with positive cash flow. Almond was proactive in leveraging Chester Associates’ competitive position as the only company bridging the sporting goods industry and the Internet. “The natural progression was for us to promote and manage sales transactions over the web for our major customers.” Chester Associates successfully contracted with Matchco, a $1 billion sporting goods manufacturer and marketer, and Northern Tops, a $50 million specialty manufacturer and direct distributor, to manage their Internet sites. These two companies became the backbone of Chester Associates’s push into e-commerce. To fund the group’s initial expansion, Almond raised funds from his family. In September 1995, his family invested a total of $25,000 for 15% of the Company. Both his father and uncle joined the Company’s Board. According to Almond, “it was much easier to sell the idea to my family. In addition to investing in me, they understood the power of the concept.” As Chester Associates became more successful at providing retailers with comprehensive e-commerce services, the team slowly moved the business mix away from the original web development services. In 1996, the Company was poised to play a lead role in the Internet consumer sporting goods industry. The Sporting Goods Industry Driven by international television exposure of both amateur and professional sporting events, the sporting goods industry had emerged as one of the truly global consumer businesses. Worldwide, the retail sporting goods market was estimated to be $150 billion with a projected annual growth rate of 3%. The United States market dominated the industry, with $70 billion in retail sales, growing at more than 6% annually. According to the Sporting Goods Manufacturers Association, online sporting goods revenues would reach $4 billion by 2002. Sporting goods manufacturers distributed products through two primary channels: a) the retail channel, which in 1996 accounted for 93% or $65.2