<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
VARSITY SPIRIT CORPORATION
(NAME OF SUBJECT COMPANY)
------------------------
RIDDELL SPORTS INC.
CHEER ACQUISITION CORP.
(BIDDERS)
------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
922294 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
LISA MARRONI, ESQ.
GENERAL COUNSEL
RIDDELL SPORTS INC.
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 826-4300
Copy to:
SHELDON S. ADLER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------
$97,783,440.30 $19,556.69
* For purposes of calculating fee only. This amount assumes the purchase of
4,563,183 shares of common stock of Varsity Spirit Corporation which are
outstanding, 570,464 shares of common stock of Varsity Spirit Corporation
which may be issued pursuant to options which are currently exercisable and
40,080 shares of common stock of Varsity Spirit Corporation issuable upon
conversion of an existing convertible term note issued by Varsity Spirit
Corporation, in each case at $18.90 in cash per share. The amount of the
filing fee calculated in accordance with Regulation 240.0-11 of the
Securities Exchange Act of 1934, as amended, equals 1/50 of one percent of
the value of shares to be purchased.
/ / Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable Filing Party: Not applicable
Form or Registration No.: Not applicable Date Filed: Not applicable
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<PAGE>
SCHEDULE 14D-1
CUSIP No. 765670 Page 1 of 2 Pages
1 NAME OF REPORTING PERSON
Cheer Acquisition Corp.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS
BK
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEDURE IS REQUIRED PURSUANT
TO ITEMS 2(e) OR 2(f) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Tennessee
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,738,530
See the Offer to Purchase
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / /
N/A
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
38%
10 TYPE OF REPORTING PERSON
CO
2
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SCHEDULE 14D-1
CUSIP No. 765670 Page 2 of 2 Pages
1 NAME OF REPORTING PERSON
Riddell Sports Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS 22-2890400
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS
BK
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEDURE IS REQUIRED PURSUANT
TO ITEMS 2(e) OR 2(f) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,738,530
See the Offer to Purchase
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / /
N/A
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
38%
10 TYPE OF REPORTING PERSON
CO
3
<PAGE>
This Statement on Schedule 14D-1 (this 'Statement') relates to the offer by
Cheer Acquisition Corp., a Tennessee corporation (the 'Purchaser') and a wholly
owned subsidiary of Riddell Sports Inc., a Delaware corporation ('Parent'), to
purchase all outstanding shares of Common Stock, par value $.01 per share (the
'Shares'), of Varsity Spirit Corporation, a Tennessee corporation (the
'Company'), at $18.90 per Share, net to the seller in cash ('Offer Price'), upon
the terms and subject to the conditions set forth in the Offer to Purchase dated
May 12, 1997 (the 'Offer to Purchase'), a copy of which is attached hereto as
Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is
attached hereto as Exhibit (a)(2) (which, as amended or supplemented from time
to time, together with the Offer to Purchase, constitute the 'Offer'). This
Statement also constitutes a Statement on Schedule 13D with respect to the
acquisition by Parent and the Purchaser of beneficial ownership of the Shares
subject to a shareholders agreement (the 'Shareholders Agreement'), dated as of
May 5, 1997, by and among Parent, the Purchaser and certain shareholders of the
Company (the 'Shareholders'), pursuant to which the Shareholders have agreed to
tender 1,738,530 Shares representing approximately 38% of the outstanding Shares
of the Company at the Offer Price and in accordance with the terms and
conditions of the Offer. The item numbers and responses thereto below are in
accordance with the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Varsity Spirit Corporation and the
address of its principal executive offices is 2525 Horizon Lake Drive, Memphis,
Tennessee 38133.
(b) The information set forth in the 'INTRODUCTION' of the Offer to
Purchase is incorporated herein by reference. As of May 5, 1997, 4,563,183
Shares were issued and outstanding.
(c) The information set forth in 'THE OFFER--Price Range of the Shares;
Dividends on the Shares' of the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d), (g) This Statement is being filed by the Purchaser and Parent. The
information set forth in the 'INTRODUCTION' and 'THE OFFER--Certain Information
Concerning Parent and the Purchaser' of the Offer to Purchase is incorporated
herein by reference. The name, business address, present principal occupation or
employment, the material occupations, positions, offices or employments for the
past five years and citizenship of each director and executive officer of the
Purchaser and Parent and the name, principal business and address of any
corporation or other organization in which such occupations, positions, offices
and employments are or were carried on are set forth in Schedule I and Schedule
II of the Offer to Purchase and incorporated herein by reference.
(e)-(f) During the last five years, none of the Purchaser, Parent or, to
the best of Parent's or the Purchaser's knowledge, any of the directors or
executive officers of the Purchaser or Parent has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which any such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(a)(1) Other than as set forth in 'SPECIAL FACTORS--Interests of Certain
Persons,' 'THE SHAREHOLDERS AGREEMENT' and 'THE STOCK PURCHASE AGREEMENTS,'
neither the Purchaser nor Parent, nor, to the best of the knowledge of the
Purchaser and Parent, any of the persons listed in Schedule I and Schedule II of
the Offer to Purchase, has entered into any transaction with the Company, or any
of the Company's affiliates which are corporations, since the commencement of
the Company's third full fiscal year preceding the date of this Statement, the
aggregate amount of which was equal to or greater than one percent of the
consolidated revenues of the Company for (i) the fiscal year in which such
transaction occurred, or (ii) the portion of the current fiscal year which has
occurred if the transaction occurred in such year.
(a)(2) Other than as set forth in 'SPECIAL FACTORS--Interests of Certain
Persons,' 'THE SHAREHOLDERS AGREEMENT' and 'THE STOCK PURCHASE AGREEMENTS,'
neither the Purchaser
4
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nor Parent, nor, to the best of the knowledge of the Purchaser and Parent, any
of the persons listed in Schedule I and Schedule II of the Offer to Purchase,
has entered into any transaction since the commencement of the Company's third
full fiscal year preceding the date of this Statement, with the executive
officers, directors or affiliates of the Company which are not corporations, in
which the aggregate amount involved in such transaction or in a series of
similar transactions, including all periodic installments in the case of any
lease or other agreement providing for periodic payments or installments,
exceeded $40,000.
(b) The information set forth in the 'INTRODUCTION,' 'SPECIAL FACTORS--
Background of the Transaction,--Purpose and Structure of the Transaction' and
'THE MERGER AGREEMENT' of the Offer to Purchase is incorporated herein by
reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a)-(b) The information set forth in 'SPECIAL FACTORS--Purpose and
Structure of the Transaction' and 'FINANCING THE TRANSACTION' of the Offer to
Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER
(a)-(e) The information set forth in the 'INTRODUCTION,' 'SPECIAL FACTORS--
Background of the Transaction, --Recommendation of the Board of Directors of the
Company; Fairness of the Transaction, --Purpose and Structure of the
Transaction, --Plans for the Company After the Offer and the Merger, --Interests
of Certain Persons in the Transaction,' 'FINANCING THE TRANSACTION,' 'THE MERGER
AGREEMENT,' 'THE SHAREHOLDERS AGREEMENT' and 'THE STOCK PURCHASE AGREEMENTS' of
the Offer to Purchase is incorporated herein by reference.
(f)-(g) The information set forth in the 'INTRODUCTION,' 'SPECIAL
FACTORS--Certain Effects of the Transaction' and 'THE OFFER--Effect of the Offer
on the Market for Shares; NASDAQ Quotation; Exchange Act Registration; Margin
Regulations' of the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a)-(b) The information set forth in 'INTRODUCTION,' 'SPECIAL FACTORS--
Interests of Certain Persons in the Transaction' and 'THE SHAREHOLDERS
AGREEMENT' of the Offer to Purchase is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES
The information set forth in the 'INTRODUCTION,' 'SPECIAL FACTORS--
Background of the Transaction, --Purpose and Structure of the Transaction,
- --Plans for the Company after the Merger, --Interest of Certain Persons in the
Transaction,' 'THE MERGER AGREEMENT,' 'THE SHAREHOLDERS AGREEMENT,' 'THE STOCK
PURCHASE AGREEMENTS' and 'THE OFFER--Certain Information Concerning Parent and
the Purchaser' of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information set forth in 'SPECIAL FACTORS--Opinion of Goldman, Sachs &
Co. to the Board of Directors of the Company, --Presentation of Berenson Minella
& Company to the Board of Directors of Parent' and 'THE OFFER--Fees and
Expenses' of the Offer to Purchase is incorporated herein by reference.
5
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ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS
The information set forth in 'THE OFFER--Certain Information Concerning
Parent and the Purchaser' of the Offer to Purchase is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION
(a) The information set forth in the 'INTRODUCTION,' 'SPECIAL FACTORS--
Background of the Transaction, --Purpose and Structure of the Transaction,
- --Plans for the Company after the Offer and Merger, --Interest of Certain
Persons in the Transaction,' 'THE MERGER AGREEMENT,' 'THE SHAREHOLDERS
AGREEMENT,' 'THE STOCK PURCHASE AGREEMENTS' and 'THE OFFER--Certain Information
Concerning Parent and the Purchaser' of the Offer to Purchase is incorporated
herein by reference. Except as described therein, there are no present or
proposed material contracts, arrangements, understandings or relationships
between the Purchaser or Parent, or to the best of the knowledge of the
Purchaser and Parent, any of the persons listed in Schedule I or Schedule II of
the Offer to Purchase, and the Company, or any of its executive officers,
directors, controlling persons or subsidiaries.
(b)-(c) The information set forth in 'THE OFFER--Certain Legal Matters;
Regulatory Approvals' of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in 'THE OFFER--Effect of the Offer on the
Market for Shares; NASDAQ Quotation; Exchange Act Registration; Margin
Regulations,' and '--Certain Legal Matters; Regulatory Approvals' of the Offer
to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
is incorporated herein by reference.
ITEM 11. MATERIALS TO BE FILED AS EXHIBITS
(a)(1) Offer to Purchase, dated May 12, 1997.
(a)(2) Letter of Transmittal with respect to the Shares.
(a)(3) Letter, dated May 12, 1997, from Berenson Minella & Company to
Brokers, Dealers, Banks, Trust Companies and Other Nominees.
(a)(4) Letter for use by Brokers, Dealers, Banks, Trust Companies and
Nominees to their Clients.
(a)(5) Notice of Guaranteed Delivery with respect to the Shares.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press Release jointly issued by Parent and the Company, dated May
6, 1997.
(a)(8) Form of Summary Advertisement, dated May 12, 1997.
(b)(1) Commitment Letter, dated as of May 2, 1997, as amended and restated
as of May 9, 1997, with certain banks relating to the bridge
financing (the 'Bridge Commitment Letter').
(b)(2) Exhibit A to the Bridge Commitment Letter--Senior Secured Bridge
Notes Summary of Indicative Terms and Conditions.
(b)(3) Commitment Letter, dated as of May 5, 1997, with certain banks
relating to a revolving credit facility.
(c)(1) Agreement and Plan of Merger, dated as of May 5, 1997, by and among
Parent, the Purchaser and the Company (see Annex I of the Offer to
Purchase).
(c)(2) Shareholders Agreement, dated as of May 5, 1997, by and among
Parent, the Purchaser and certain shareholders of the Company (see
Annex II of the Offer to Purchase).
(c)(3) Stock Purchase Agreement, dated as of May 5, 1997, between Parent
and Jeffrey G. Webb (see Annex III of the Offer to Purchase).
(c)(4) Stock Purchase Agreement, dated as of May 5, 1997, between Parent
and Gregory C. Webb (see Annex IV of the Offer to Purchase).
(c)(5) Stock Purchase Agreement, dated as of May 5, 1997, between Parent
and W. Kline Boyd (see Annex V of the Offer to Purchase).
6
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(c)(6) Stock Purchase Agreement, dated as of May 5, 1997, between Parent
and J. Kristyn Shepherd (see Annex VI of the Offer to Purchase).
(c)(7) Employment Agreement, dated as of May 5, 1997, between Parent and
Jeffrey G. Webb.
(c)(8) Employment Agreement, dated as of May 5, 1997, between Parent and
Gregory C. Webb.
(c)(9) Employment Agreement, dated as of May 5, 1997, between Parent and
W. Kline Boyd.
(c)(10) Employment Agreement, dated as of May 5, 1997, between Parent and
J. Kristyn Shepherd.
(d) None.
(e) Not applicable.
(f) None.
7
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: May 12, 1997
CHEER ACQUISITION CORP.
By: /s/ David Groelinger
Name: David Groelinger
Title: Vice President
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: May 12, 1997
RIDDELL SPORTS INC.
By: /s/ David Groelinger
Name: David Groelinger
Title: Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ----------------------------------------------------------- ------------
(a)(1) Offer to Purchase, dated as of May 12, 1997................
(a)(2) Letter of Transmittal with respect to the Shares...........
(a)(3) Letter, dated as of May 12, 1997, from Berenson Minella &
Company to Brokers, Dealers, Banks, Trust Companies and
Nominees...................................................
(a)(4) Letter for use by Brokers, Dealers, Banks, Trust Companies
and Nominees to their Clients..............................
(a)(5) Notice of Guaranteed Delivery with respect to the Shares...
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9..............................
(a)(7) Press Release jointly issued by the Purchaser and the
Company, dated as of May 6, 1997...........................
(a)(8) Form of summary advertisement, dated May 12, 1997..........
(b)(1) Commitment Letter, dated as of May 2, 1997, as amended and
restated as of May 9, 1997, with certain banks relating to
the bridge financing (the 'Bridge Commitment Letter')......
(b)(2) Exhibit A to the Bridge Commitment Letter--Senior Secured
Bridge Notes Summary of Indicative Terms and Conditions....
(b)(3) Commitment Letter, dated as of May 5, 1997, with certain
banks relating to a revolving credit facility..............
(c)(1) Agreement and Plan of Merger, dated as of May 5, 1997, by
and among Parent, the Purchaser and the Company (see Annex
I of the Offer to Purchase)................................
(c)(2) Shareholders Agreement, dated as of May 5, 1997, between
Parent and certain shareholders of the Company (see Annex
II of the Offer to Purchase)...............................
(c)(3) Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and Jeffrey G. Webb (see Annex III of the Offer to
Purchase)..................................................
(c)(4) Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and Gregory C. Webb (see Annex IV of the Offer to
Purchase)..................................................
(c)(5) Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and W. Kline Boyd (see Annex V of the Offer to
Purchase)..................................................
(c)(6) Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and J. Kristyn Shepherd (see Annex VI of the Offer
to Purchase)...............................................
(c)(7) Employment Agreement, dated as of May 5, 1997, between
Parent and Jeffrey G. Webb.................................
(c)(8) Employment Agreement, dated as of May 5, 1997, between
Parent and Gregory C. Webb.................................
(c)(9) Employment Agreement, dated as of May 5, 1997, between
Parent and W. Kline Boyd...................................
(c)(10) Employment Agreement, dated as of May 5, 1997, between
Parent and J. Kristyn Shepherd.............................
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
VARSITY SPIRIT CORPORATION
by
CHEER ACQUISITION CORP.
a wholly owned subsidiary
of
RIDDELL SPORTS INC.
at
$18.90 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY JUNE 9, 1997, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF THE COMPANY (WITH TWO INTERESTED DIRECTORS
ABSTAINING) HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER (AS DEFINED
HEREIN), HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES REPRESENTING AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON A
FULLY-DILUTED BASIS. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS
CONTAINED IN THIS OFFER TO PURCHASE. SEE 'THE OFFER--CONDITIONS TO THE OFFER.'
------------------------
IMPORTANT
Any shareholder who desires to tender all or any portion of such
shareholder's Shares (as defined herein) should either (1) complete and sign the
Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal, mail or deliver it and any other
required documents to the Depositary and either deliver the certificates for
such Shares to the Depositary along with the Letter of Transmittal or tender
such Shares pursuant to the procedures for book-entry transfer set forth in 'THE
OFFER--Procedures for Tendering Shares' or (2) request his broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him. Any shareholder whose Shares are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
broker, dealer, commercial bank, trust company or other nominee if he desires to
tender such Shares.
Any shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in 'THE
OFFER--Procedures for Tendering Shares.'
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent, the Dealer
Manager, the Depositary, or to brokers, dealers, commercial banks or trust
companies. A shareholder may also contact brokers, dealers, commercial banks or
trust companies for assistance concerning the Offer.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Dealer Manager for the Offer is:
BERENSON MINELLA & COMPANY
May 12, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
INTRODUCTION................................................................................................. 1
SPECIAL FACTORS.............................................................................................. 4
Background of the Transaction..................................................................... 4
Recommendation of the Board of Directors of the Company; Fairness of the Transaction.............. 7
Opinion of Goldman, Sachs & Co. to the Board of Directors of the Company.......................... 9
Presentation of Berenson Minella & Company to the Board of Directors of Parent.................... 12
Purpose and Structure of the Transaction.......................................................... 16
Plans for the Company After the Offer and Merger.................................................. 16
Interests of Certain Persons in the Transaction................................................... 17
Certain Effects of the Transaction................................................................ 19
Certain Federal Income Tax Consequences........................................................... 20
THE MERGER AGREEMENT......................................................................................... 21
THE SHAREHOLDERS AGREEMENT................................................................................... 26
THE STOCK PURCHASE AGREEMENTS................................................................................ 27
FINANCING THE TRANSACTION.................................................................................... 28
DISSENTERS' RIGHTS........................................................................................... 31
THE OFFER.................................................................................................... 32
1. Terms of the Offer................................................................................ 32
2. Procedures for Tendering Shares................................................................... 33
3. Withdrawal Rights................................................................................. 36
4. Acceptance for Payment and Payment................................................................ 36
5. Price Range of the Shares; Dividends on the Shares................................................ 38
6. Effect of the Offer on the Market for the Shares; NASDAQ Listing; Exchange Act Registration;
Margin Regulations................................................................................ 38
7. Certain Information Concerning the Company........................................................ 38
8. Certain Information Concerning Parent and the Purchaser........................................... 41
9. Dividends and Distributions....................................................................... 43
10. Conditions to the Offer........................................................................... 43
11. Certain Legal Matters; Regulatory Approvals....................................................... 45
12. Fees and Expenses................................................................................. 47
13. Miscellaneous..................................................................................... 48
</TABLE>
Schedule I -- Directors and Executive Officers of Parent.
Schedule II -- Directors and Officers of the Purchaser.
Schedule -- Directors and Executive Officers of the Company.
III
Schedule IV -- Transactions in Shares During the past 60 Days by the
Purchaser, Parent, the Company and their Affiliates.
Exhibit A -- Opinion of Goldman, Sachs & Co. to the Board of Directors
of the Company.
Exhibit B -- Consolidated Financial Statements of the Company as of
December 31, 1995 and 1996 and for each of the years then
ended and for the nine-month period ended December 31, 1994.
Annex I -- Agreement and Plan of Merger, dated as of May 5, 1997, by
and among the Company, Parent and Purchaser.
Annex II -- Shareholders Agreement, dated as of May 5, 1997, by and
among Parent, Purchaser and certain shareholders of the
Company.
Annex III -- Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and Jeffrey G. Webb.
Annex IV -- Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and Gregory C. Webb.
Annex V -- Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and W. Kline Boyd.
Annex VI -- Stock Purchase Agreement, dated as of May 5, 1997, between
Parent and J. Kristyn Shepherd.
Annex VII -- Text of Section 48-23-102 of the Tennessee Business
Corporation Act.
i
<PAGE>
TO THE HOLDERS OF COMMON STOCK OF
VARSITY SPIRIT CORPORATION:
INTRODUCTION
Cheer Acquisition Corp., a Tennessee corporation (the 'Purchaser') and a
wholly owned subsidiary of Riddell Sports Inc., a Delaware corporation
('Parent'), hereby offers to purchase all outstanding shares of the Common
Stock, par value $.01 per share (the 'Shares'), of Varsity Spirit Corporation, a
Tennessee corporation (the 'Company'), at $18.90 per Share, net to the seller in
cash (the 'Offer Price'), upon the terms and subject to the conditions set forth
in this Offer to Purchase and in the related Letter of Transmittal (which,
together with any amendments or supplements hereto or thereto, collectively
constitute the 'Offer').
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses incurred in connection with the Offer
of Berenson Minella & Company ('Berenson Minella'), which is acting as the
Dealer Manager (the 'Dealer Manager'), American Stock Transfer & Trust Company,
which is acting as the Depositary (the 'Depositary'), and MacKenzie Partners,
Inc., which is acting as the Information Agent (the 'Information Agent').
The Purchaser is a corporation newly formed by Parent in connection with
the Offer and the transactions contemplated thereby. The Purchaser has no
significant assets or liabilities other than those that will be acquired in
connection with the Offer and the Merger (as defined below). For additional
information concerning the Purchaser, see 'THE OFFER--Certain Information
Concerning Parent and the Purchaser.'
The purpose of the Offer is for Parent, through the Purchaser, to acquire
the entire equity interest in the Company. The Offer is being made pursuant to
an Agreement and Plan of Merger, dated as of May 5, 1997 (the 'Merger
Agreement'), by and among Parent, the Purchaser and the Company, a copy of which
is attached hereto as Annex I. The Merger Agreement provides that, except as
provided therein, following satisfaction or waiver, if permissible, of the
conditions to the Offer and subject to the terms and conditions thereof, the
Purchaser will accept for payment and will pay for, in accordance with the terms
of the Offer, all Shares validly tendered pursuant to the Offer and not
withdrawn as soon as it is permitted to do so pursuant to applicable law. The
Offer will not remain open following the time Shares are accepted for payment.
See 'THE OFFER.'
Pursuant to the Merger Agreement, as soon as practicable after the
satisfaction or waiver, if permissible, of all conditions to the Offer and
completion of the Offer, the Purchaser will be merged with and into the Company
(the 'Merger') with the Company continuing as the surviving corporation (the
'Surviving Corporation') and a wholly owned subsidiary of Parent. At the time at
which the Merger is consummated in accordance with the terms of the Merger
Agreement (the 'Effective Time'), each Share then outstanding (other than Shares
held in the treasury of the Company, Shares held by Parent, the Purchaser or any
other wholly owned subsidiary of Parent and Shares held by shareholders who
perfect their dissenters' rights, if any, under the Tennessee Business
Corporation Act (the 'TBCA')) will be converted into the right to receive $18.90
in cash or any higher price per Share paid in the Offer. See 'SPECIAL
FACTORS--Purpose and Structure of the Transaction' and 'THE MERGER AGREEMENT.'
The Offer and the Merger are sometimes collectively referred to herein as the
'Transaction.'
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER
OF SHARES REPRESENTING AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON A
FULLY-DILUTED BASIS (THE 'MINIMUM CONDITION'). See 'THE OFFER--Conditions to the
Offer.'
Notwithstanding the satisfaction of the conditions of the Offer on the
initial scheduled expiration date of the Offer (the 'Initial Expiration Date'),
which is Monday, June 9, 1997, the Purchaser has the right, in its sole
discretion, during the fifteen business days following the Initial Expiration
Date, to extend the expiration date from time to time until not later than
fifteen business days after the Initial Expiration Date. The Purchaser will, on
the terms and subject to the prior satisfaction or waiver of the conditions of
the Offer, accept for payment and pay
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for Shares tendered as soon as it is legally permitted to do so under applicable
law; provided, however, that if, immediately prior to the Initial Expiration
Date of the Offer (as it may be extended pursuant to the preceding sentence or
otherwise), the Shares tendered and not withdrawn pursuant to the Offer equal
less than 90% of the outstanding Shares but more than 80% of the outstanding
Shares, the Purchaser may extend the Offer for a period not to exceed seven
business days, notwithstanding that all conditions to the Offer are satisfied as
of such expiration date of the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY (WITH TWO INTERESTED DIRECTORS
ABSTAINING) HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER, HAS DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND RECOMMENDS THAT SHAREHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES. See 'SPECIAL FACTORS--Recommendation
of the Board of Directors of the Company; Fairness of the Transaction.'
GOLDMAN, SACHS & CO. ('GOLDMAN SACHS') HAS DELIVERED ITS WRITTEN OPINION TO
THE BOARD OF DIRECTORS OF THE COMPANY THAT, AS OF MAY 5, 1997, THE $18.90 PER
SHARE IN CASH TO BE RECEIVED BY THE HOLDERS OF SHARES IN THE OFFER AND THE
MERGER WAS FAIR TO SUCH HOLDERS. The full text of the written opinion of Goldman
Sachs, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached hereto as
Exhibit A and is incorporated herein by reference. HOLDERS OF SHARES ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
The Minimum Condition. The Minimum Condition requires that the number of
Shares tendered and not withdrawn prior to the expiration of the Offer
constitutes at least a majority of the Shares outstanding. According to the
Company, as of May 5, 1997, there were 4,563,183 Shares issued and outstanding,
no shares of Company preferred stock outstanding, and outstanding options to
purchase an aggregate of 570,464 Shares. An additional 40,080 Shares are
reserved for issuance upon conversion of a term note, dated May 15, 1996, issued
by the Company to United Special Events, Inc. The Merger Agreement provides,
among other things, that the Company will not, without the prior written consent
of Parent, issue any additional Shares (except pursuant to the exercise of
Company Options (as defined below)). Pursuant to the terms of the Shareholders
Agreement (as defined below), the Purchaser would be assured of receiving the
tender of 1,738,530 Shares from the shareholders who are parties thereto.
Accordingly, only an additional 848,335 Shares, or approximately 18.6% of the
currently outstanding Shares (or approximately 16.4% of the fully diluted
outstanding Shares) must be tendered in order to satisfy the Minimum Condition.
See 'SPECIAL FACTORS--Interests of Certain Persons in the Transaction.'
The Shareholders Agreement. Pursuant to the Shareholders Agreement (the
'Shareholders Agreement'), dated as of May 5, 1997, by and among Parent, the
Purchaser and each of Jeffrey G. Webb, Chairman, President and Chief Executive
Officer of the Company, Gregory C. Webb, Senior Vice President of the Company,
Alan D. Gordon, a director of the Company, and Randall S. Sturges, a director of
the Company (each a 'Shareholder,' and together, the 'Shareholders'), the
Shareholders have agreed to tender all of the Shares owned by them at the Offer
Price and in accordance with the terms and conditions of the Offer, representing
in the aggregate 1,738,530 Shares, or approximately 38% of the outstanding
Shares of the Company (or approximately 33.6% of the fully diluted outstanding
Shares). The effect of the Shareholders agreeing to tender all of the Shares
beneficially owned by them pursuant to the Shareholders Agreement is that the
Purchaser would be assured of receiving the tender of approximately 38% of the
outstanding Shares as of the date of the Merger Agreement.
Pursuant to the Shareholders Agreement, the Shareholders have agreed, for a
period ending upon the earlier of the consummation of the Merger and four months
following the termination of the Merger Agreement in accordance with its terms
(the 'Term'), at any meeting of the holders of Shares, however called, or in
connection with any written consent of the holders of Shares, to vote (or cause
to be voted) the Shares (if any) then held of record or beneficially owned by
such Shareholder, (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement and the Shareholders
Agreement and any actions required in furtherance thereof, and (ii) against any
proposal or offer to acquire all or a substantial part of the business and
properties of the Company or any of its subsidiaries or any capital stock of the
Company or any of its subsidiaries, whether by merger, tender offer, exchange
offer, sale of assets or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company
(except by Parent or its affiliates) (an 'Acquisition Proposal') and against any
action or agreement that would impede, frustrate,
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prevent or nullify the Shareholders Agreement, or result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or which would result in any
of the conditions set forth in Annex A to the Merger Agreement or in Article VI
of the Merger Agreement not being fulfilled; provided however, that nothing
contained in the Shareholders Agreement will be construed as requiring any
Shareholder who also is a director of the Company to propose, endorse, approve
or recommend the Merger Agreement or any transaction contemplated thereby in
such Shareholder's capacity as a director of the Company.
Pursuant to the Shareholders Agreement, each of the Shareholders has
agreed, for the Term of the Shareholders Agreement, that the Shareholders shall
not (i) tender, or consent to any tender of, any or all of such Shareholder's
Shares, pursuant to any Acquisition Proposal, (ii) transfer, or consent to any
transfer of, any or all of such Shareholder's Shares, Company Options (as
defined below) or any interest therein, (iii) enter into any contract, option or
other agreement or understanding with respect to any transfer of any or all of
such Shares, Company Options or any interest therein, (iv) grant any proxy,
power-of-attorney or other authorization in or with respect to such Shares or
Company Options, (v) deposit such Shares or Company Options into a voting trust
or enter into a voting agreement or arrangement with respect to such Shares or
Company Options, or (vi) take any other action that would in any way restrict,
limit or interfere with the performance of their obligations thereunder or the
transactions contemplated by the Shareholders Agreement or by the Merger
Agreement. The Shareholders have further agreed to be bound by the provisions of
the Merger Agreement relating to prohibitions on solicitations of Acquisition
Proposals to the same extent as the Company. See 'THE SHAREHOLDERS AGREEMENT'
and 'THE MERGER AGREEMENT.'
The Stock Purchase Agreements. Pursuant to separate but substantially
identical Stock Purchase Agreements, dated as of May 5, 1997, entered into
between Parent and certain executive officers of the Company (the 'Stock
Purchase Agreements'), on or before the fifth business day after the
consummation of the Offer, Messrs. Jeffrey Webb, Gregory Webb, W. Kline Boyd,
Senior Vice President of the Company, and Ms. J. Kristyn Shepherd, Senior Vice
President of the Company, will each purchase (the 'Stock Purchase Transaction')
shares of Parent's common stock, par value $.01 per share ('Parent Common
Stock') at a price per share equal to the average closing price of Parent Common
Stock for the twenty trading days ending on the day immediately preceding the
consummation of the Offer; provided that the purchase price per share will not
exceed $4.50 nor be less than $2.80 (the 'Purchase Price'). The exact number of
shares of Parent Common Stock which each such purchaser will purchase will equal
the net after-tax proceeds (assuming a 28% tax rate and a basis in each Share of
$0.1666) received by each such purchaser in the Offer or Merger as a result of
the sale of 251,165, 32,500, 26,810 and 14,525 Shares, in the case of each of
Messrs. Jeffrey Webb, Gregory Webb, W. Kline Boyd and Ms. J. Kristyn Shepherd,
respectively, divided by the Purchase Price. Assuming the Purchase Price were
equal to the closing market price on May 9, 1997, the number of shares of Parent
Common Stock which would be purchased would be approximately 974,100 shares in
the aggregate, representing approximately 10.8% of Riddell's shares after giving
effect to such purchase. Parent has granted each such purchaser certain
incidental registration rights with respect to his or her shares of Parent
Common Stock purchased under the Stock Purchase Agreements. See 'THE STOCK
PURCHASE AGREEMENTS.'
The Merger. Under the TBCA, if the Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of each class and series of outstanding voting
shares of the Company, the Purchaser will be able to approve the Merger
Agreement and the transactions contemplated thereby without a vote of the
shareholders of the Company. In such event, Parent, the Purchaser and the
Company have agreed in the Merger Agreement to take, at the request of Parent
and subject to the satisfaction of the conditions set forth in the Merger
Agreement, all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after such acquisition, without a meeting of
the shareholders, in accordance with the provisions of the TBCA. See 'SPECIAL
FACTORS--Purpose and Structure of the Transaction.' If the Purchaser does not
acquire at least 90% of the outstanding Shares pursuant to the Offer or
otherwise and a vote of the shareholders is required under the TBCA, a
significantly longer period of time would be required to effect the Merger.
Pursuant to the Merger Agreement, following the purchase of Shares in the Offer,
Parent has the right to designate directors on the Board of Directors of the
Company. See 'THE MERGER AGREEMENT.'
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Registration of Shares. It is the present intention of the Purchaser to
seek to cause the Company to make an application for the termination of the
registration of Shares under the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), as soon as possible after the purchase of Shares pursuant
to the Offer if the requirements for termination of registration are met. See
'SPECIAL FACTORS--Certain Effects of the Transaction.'
Financing the Transaction. The Purchaser estimates that the total funds
required to purchase all Shares validly tendered pursuant to the Offer,
consummate the Merger, refinance Parent's and the Company's indebtedness that is
required to be repaid in connection with the Transaction, fund the Surviving
Corporation's working capital needs after the Merger and pay all related fees
and expenses will be approximately $136.9 million. Parent and the Purchaser
intend to obtain such funds by means of (a) the Stock Purchase Transaction, (b)
proceeds of borrowings under a $35 million revolving loan facility (the 'Bank
Facility') to be provided by a bank group to be led by NationsBank, N.A.
('NationsBank') and NBD Bank ('NBD' and together with NationsBank, the 'Bank
Lenders') pursuant to a commitment letter dated May 5, 1997 (the 'Bank
Commitment Letter') and (c) (i) proceeds obtained from the issuance of $100
million of senior notes of Parent (the 'Senior Notes') through a private
placement pursuant to Rule 144A of the Securities Act of 1933, as amended (the
'Securities Act') and/or (ii) to the extent the Senior Notes are not sold prior
to the purchase of the Shares, a bridge loan (the 'Bridge Loan') among Parent,
NationsBridge, L.L.C. ('NationsBridge') and NBD (together with NationsBridge,
the 'Bridge Lenders') as contemplated by a commitment letter, dated as of May 2,
1997, as amended and restated as of May 9, 1997 (the 'Bridge Commitment
Letter'). See 'FINANCING THE TRANSACTION.'
Information. The information contained in this Offer to Purchase concerning
the Company was supplied by the Company. Parent and the Purchaser take no
responsibility for the accuracy of such information. The information contained
in this Offer to Purchase concerning the Offer, the Merger, Parent and the
Purchaser was supplied by Parent and the Purchaser. The Company takes no
responsibility for the accuracy of such information.
THE OFFER TO PURCHASE AND LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
The Company was incorporated in 1983 as the successor to a limited
partnership formed in 1974 by Jeffrey G. Webb, President of the Company. In
1989, the Company effected a leveraged recapitalization by merging with a newly
formed corporation, the shareholders of which included Alan D. Gordon and
Randall S. Sturges, individual investors and directors of the Company. In
January 1992, the Company completed its initial public offering of Shares,
through which it raised approximately $12.6 million.
Commencing late in the first quarter of 1996, management and the Board of
Directors of the Company held a series of discussions concerning the strategic
direction of the Company and its business, including the possibility of
acquisitions of complementary businesses, a secondary offering of the Company's
Shares or a sale of the Company. In March 1996, the Company retained Goldman,
Sachs & Co. ('Goldman Sachs') to serve as its financial advisor in connection
with various strategic alternatives, including a possible sale of the Company.
The Board of Directors of the Company directed Goldman Sachs to approach certain
selected potential strategic and financial buyers to solicit interest in a
possible sale transaction. During the months of March, April and May 1996,
Goldman Sachs contacted on behalf of the Company certain of such strategic and
financial buyers. In June 1996, the Board of Directors of the Company determined
to defer a decision on the sale process.
On October 8, 1996, Berenson Minella & Company ('Berenson Minella'),
Parent's financial advisor, presented to Parent's management an analysis of the
Company based on publicly available information. On October 31, 1996, Raymond J.
Minella of Berenson Minella contacted, on behalf of Parent, Alan D. Gordon (a
member of the Company's Board) on a preliminary basis to discuss a possible
strategic combination of the two
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companies. Mr. Minella again contacted Mr. Gordon on November 5, and subsequent
thereto Parent and the Company executed a confidentiality agreement dated
November 21, 1996.
In early December 1996, David Mauer, Chief Executive Officer of Parent, and
Jeffrey G. Webb met at the Company's executive offices in Memphis, Tennessee to
discuss the feasibility of a possible business combination transaction.
Following the meeting, Mr. Webb expressed a willingness to continue to explore
the possibility of such a combination. Thereafter, Mr. Mauer telephoned Mr. Webb
and suggested that each company's financial advisors meet to discuss a possible
business combination.
On January 7, 1997, members of Parent's management (including Mr. Mauer,
Dan Cougill, President and Chief Operating Officer of Parent, and David
Groelinger, Chief Financial Officer of Parent) and Mr. Minella met in Memphis
with Mr. Webb and John M. Nichols, the Company's Chief Financial Officer, and a
representative of Goldman Sachs concerning the Company's business and the
business of Parent. Parent was advised by the Company, through Goldman Sachs,
that any transaction could not be subject to any significant financing
conditions. Parent indicated its willingness to consider and explore various
transaction structures.
On January 28, 1997, the Executive Committee of Parent's Board of Directors
met to discuss a possible transaction with the Company. The following day,
representatives of NationsBank met with management representatives of Parent in
order to become more familiar with Parent's operations and financial structure.
On February 9, 1997, at the invitation of Mr. Webb, Mr. Mauer met Mr. Webb
in Orlando, Florida during the national cheerleading championship sponsored by
the Company. During the visit, Messrs. Webb and Mauer discussed various
management and integration issues with regard to a possible business
combination.
On February 10, 1997, representatives of the parties' financial advisors
met in New York, at which meeting Berenson Minella discussed the possibility of
a transaction at $18.00 per Share. On February 27, 1997, Messrs. Webb and
Nichols met with Messrs. Robert E. Nederlander, Chairman of Parent, Leonard
Toboroff, Vice President and a director of Parent, and Messrs. Mauer and
Groelinger to introduce Mr. Webb to Messrs. Nederlander and Toboroff. The next
day, Messrs. Webb and Nichols met with representatives of Parent at Parent's
headquarters in New York to discuss various aspects of a possible business
combination.
Following further discussions as to alternative structures for the
transaction and Parent's review of additional information, on March 14, 1997,
Parent indicated it would be prepared to proceed with an acquisition of the
Company at $19.00 per Share, conditioned upon the 'rollover' by certain senior
members of the Company's management (consisting of Jeffrey G. Webb, Gregory C.
Webb, W. Kline Boyd and J. Kristyn Shepherd) of up to 325,000 shares of Company
Common Stock into a security convertible into shares of Parent Common Stock and
the principal stockholders of the Company (consisting of Jeffrey G. Webb,
Gregory C. Webb, Alan D. Gordon and Randall S. Sturges) contractually committing
to support the transaction. Representatives of the Company, after consultations
with members of the Company's Board, indicated that the Company would be
prepared to proceed with a transaction at a price of $19.00 per Share if a
number of outstanding substantive open issues could be resolved (including the
tax free nature of the 'rollover') and if financing commitments acceptable to
the Company were obtained by Parent. Based on the foregoing, Parent agreed to
proceed to procure financing commitments and continue its due diligence
inquiries.
On March 18, 1997, initial drafts of acquisition agreements were circulated
and negotiations concerning the terms of such agreements commenced. On March 19,
1997, representatives of Parent, the Bridge Lenders and their respective
counsel, representatives of Grant Thornton LLP (Parent's independent auditors)
and counsel to the Company met in New York to discuss the process, proposed
timing and structure of the transaction and the timing of the prospective
financing sources' due diligence review leading to a definitive commitment to
finance the proposed transaction.
On March 25, 1997, the Board of Directors of the Company held a special
meeting to consider the possibility of a transaction whereby the Company would
be acquired by Parent. The Company's Board reviewed the status of discussions
with Parent and received oral reports from the Company's management and Goldman
Sachs and a review by legal counsel of the legal standards applicable to
business combination transactions.
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Following a series of discussions concerning the proposed 'rollover' by
certain members of Company management of an aggregate of 325,000 Shares into a
security convertible or exchangeable into shares of Parent Common Stock, counsel
to the Company and counsel to Parent concluded that there could be no assurance
that such rollover could be accomplished on a tax-free basis. Accordingly, on
April 2, 1997, Parent submitted an alternative proposal, pursuant to which such
members of management would agree to reinvest the after-tax cash proceeds to be
received by them in the Offer from sale of the 325,000 Shares towards the
purchase of Parent shares at a to-be-agreed upon price. In addition, such
members of management would receive options to purchase a number of Parent
shares such that the number of reinvestment shares plus the number of option
shares would equal the number of shares of Parent which would have been
otherwise received in the 'rollover.' After consideration of the alternative
proposal, it was determined to continue to proceed with negotiations relating to
a possible transaction.
A draft of the Bridge Commitment Letter with respect to Parent's proposed
bridge financing was circulated to the Company and its counsel and Goldman Sachs
on April 2, 1997. After review of the draft commitment letter, the Company and
its counsel determined that the letter contained unacceptable conditions to the
prospective lenders' obligations to finance the proposed offer and merger.
Following several discussions among NationsBank, the Company, Parent and their
respective financial advisors and counsel, NationsBank agreed to revise its
commitment in a manner satisfactory to the Company, conditioned upon an
accelerated schedule for payment of the fees associated with the financing.
On April 8, 1997, Mr. Webb met with Mr. Mauer to discuss cross-marketing
opportunities and prospective operations of the combined company. Messrs. Webb,
Mauer and Groelinger also discussed the pricing mechanism for the purchase of
Parent Common Stock by the executives of the Company. Mr. Webb also met that day
with Mr. Nederlander to discuss the future opportunities of the combined
company.
On April 21, 1997, Mr. Mauer met with Mr. Webb to discuss certain
management and organizational issues relating to the potential transaction. On
April 22, 1997, the Board of Directors of Parent held a regularly scheduled
meeting at which management updated the directors on the status of the
negotiations relating to the transaction.
On April 30, 1997, in view of the accelerated payment schedule associated
with the financing, the Company and Parent tentatively agreed that the price to
be paid for the Shares would be reduced to $18.90 per Share, that the Company
would agree to contribute $650,000 toward the accelerated payment of the bridge
commitment fee, and the parties would continue to proceed with negotiations
toward a definitive agreement and attempt to finalize the terms of the Bank
Commitment Letter and Bridge Commitment Letter.
During the period from March 19, 1997 through May 5, 1997, representatives
of Parent and the Company and their respective legal advisors negotiated
definitive terms of a merger agreement. Among other things, during the course of
such negotiations (i) the conditions to Parent's and the Purchaser's obligation
to consummate the Offer were narrowed; (ii) the scope of the representations and
warranties made by the Company was narrowed; (iii) the fiduciary duty exception
to the provision in the Merger Agreement which prohibits the Board of the
Company from engaging in negotiations with, or providing information to, any
person (other than Parent or its affiliates) relating to any Acquisition
Proposal was expanded and a proposed break-up fee payable in the event that the
Board of Directors of the Company accepts a Superior Proposal (as defined in the
Merger Agreement) from a third party was eliminated; and (iv) the circumstances
under which certain expenses of Parent, the Purchaser and their affiliates were
reimbursable by the Company were narrowed and the amount of such expenses was
limited to $4,250,000.
On May 1, 1997, Messrs. Mauer and Groelinger spoke with Mr. Nichols to
review the Company's first quarter financial results and to receive a due
diligence update.
On May 4, 1997, the Board of Directors of the Company held a special
telephonic meeting (Richard F. Strup and Roy F. Kramer were not in attendance)
to discuss the status of the transaction. Counsel to the Company again reviewed
the fiduciary duties of directors and reviewed in detail the terms and
conditions of the draft Merger Agreement, Shareholders Agreement and Stock
Purchase Agreements. Representatives of Goldman Sachs presented preliminary
materials regarding the proposed transaction to the Board of Directors of the
Company. The Board meeting was adjourned until May 5, 1997, pending resolution
of certain issues relating to Parent's continuing negotiation of its bank
financing.
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On May 5, 1997, the Board of Directors of Parent held a special meeting to
review, with the advice and assistance of Parent's financial and legal advisors,
the final proposed terms and conditions of the proposed Merger Agreement and
Offer and related transactions. At such meeting, Berenson Minella delivered its
Presentation (as defined below). See '--Presentation of Berenson Minella &
Company to the Board of Directors of Parent.' Counsel to Parent reviewed the
fiduciary duties of directors and reviewed in detail the terms and conditions of
the Transaction agreements. Following the Board's review of the final terms of
the Merger Agreement and the Offer and related transactions, Parent's Board of
Directors unanimously determined to approve the Merger Agreement and related
transaction agreements.
On May 5, 1997, the Board of Directors of the Company reconvened its
special telephonic meeting, with all directors present. Goldman Sachs summarized
and reviewed materials regarding the proposed transaction in final form and
delivered its opinion that, as of May 5, 1997, the $18.90 per Share in cash to
be received by the holders of Shares in the Offer and the Merger was fair to
such holders. (See '--Opinion of Goldman, Sachs & Co. to the Board of Directors
of the Company.') Counsel to the Company again summarized the terms of the Offer
and the Merger. The Board of Directors of the Company (with Jeffrey G. Webb and
Gregory C. Webb absent due to their status as prospective employees of, and
investors in, Parent) then discussed the merits of the proposed Offer and
Merger. Following such discussion, the Board of Directors of the Company (with
two interested directors, Jeffrey G. Webb and Gregory C. Webb, abstaining)
unanimously approved the Merger Agreement, authorized execution and delivery
thereof, determined that the Offer and the Merger are fair to and in the best
interests of the holders of Shares and recommended that shareholders of the
Company accept the Offer and tender their Shares pursuant to the Offer. After
the vote of the Board of Directors of the Company, Jeffrey G. Webb and Gregory
C. Webb returned to the meeting and expressed their support for the Transaction
and the Board's action.
The Merger Agreement, the Shareholders Agreement and the Stock Purchase
Agreements were executed the evening of May 5, 1997.
Prior to the commencement of trading on May 6, 1997, the Company and Parent
issued a joint press release regarding the execution of the Merger Agreement.
On May 12, 1997, the Purchaser commenced the Offer.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY; FAIRNESS OF THE
TRANSACTION
The Board of Directors of the Company
In making its recommendation to the Company's shareholders, the Board of
Directors of the Company considered a number of factors, including, but not
limited to, the following:
(i) the terms and provisions of the Offer, the Merger and the Merger
Agreement;
(ii) discussions with management of the Company (at Board meetings on
March 25, May 4 and May 5, 1997 and at previous Board meetings) relating to
the financial position, results of operations, business and prospects of
the Company, including the prospects of the Company if the Company were to
remain independent;
(iii) the results of the process undertaken to identify and solicit
proposals from third parties to enter into a transaction with the Company;
(iv) the trading price of the Shares over the last three years, and
the fact that the $18.90 price in connection with the Offer and the Merger
represents a premium of approximately 30% over the last sale price of
$14.50 for the Shares on the NASDAQ on May 5, 1997, the day prior to the
public announcement of the execution of the Merger Agreement;
(v) the views expressed by management and Goldman Sachs that, based
on the process undertaken to identify and solicit proposals from third
parties, it was unlikely that other parties would propose a transaction
that was more favorable to the Company's shareholders;
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(vi) the presentations by Goldman Sachs at the May 4 and May 5, 1997
Board meetings and the written opinion of Goldman Sachs, dated May 5, 1997,
to the effect that, as of such date, and based on the assumptions made,
matters considered and limits of review as set forth in such opinion, the
$18.90 per Share in cash to be received by the holders of Shares in the
Offer and the Merger was fair to such holders. A copy of the written
opinion of Goldman Sachs, which sets forth the assumptions made, matters
considered and certain limitations on the scope of review undertaken by
Goldman Sachs, is attached as Exhibit A hereto and is incorporated herein
by reference. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION OF
GOLDMAN SACHS CAREFULLY IN ITS ENTIRETY;
(vii) the fact that certain disinterested holders (Messrs. Alan D.
Gordon and Randall S. Sturges) of approximately 24% of the Shares were
prepared to endorse the Merger Agreement;
(viii) the fact that the Offer and the Merger are not conditioned on
the availability of financing; and
(ix) the fact that the Merger Agreement permits the Board, in the
exercise of its fiduciary duties, to terminate the Merger Agreement in
favor of a superior alternative acquisition proposal although such
termination would trigger the reimbursement by the Company of expenses
incurred by Parent and the Purchaser up to a maximum of $4.25 million.
The Board of Directors recognized that consummation of the Offer and the
Merger will deprive current shareholders of the Company of the opportunity to
participate in the future growth prospects of the Company and, therefore, in
reaching its conclusion to approve the Offer and the Merger, determined that the
historical results of the operations and future prospects of the Company are
adequately reflected in the $18.90 price per Share. The Board of Directors also
noted that although the Company has for some period of time been identified as a
potential acquisition candidate, and Goldman Sachs has assisted the Company in
identifying and contacting potential investors in or purchasers of the Company,
no buyer other than Parent had indicated an intention to make a proposal to
purchase all of the Shares for cash on terms as favorable to the Company and its
shareholders as those in the Offer and the Merger.
Considering these factors, the Board of Directors determined that
acceptance of the Offer and the tender of Shares pursuant to the Offer, and the
approval and adoption of the Merger and the Merger Agreement would be in the
best interest of the Company's shareholders.
In view of the variety of factors considered in connection with its
evaluation of the Transaction, the Board of Directors of the Company did not
assign relative weights to the specific factors considered in reaching its
decision.
Parent and the Purchaser
Parent and the Purchaser regard the acquisition of the Company as an
opportunity to achieve certain strategic business objectives through
cross-marketing opportunities.
Parent's product line includes football, baseball and practicewear products
which are marketed by Parent's in-house sales force primarily to athletic
coaches, focused on male athletics. Parent also has expertise in creating and
marketing collectible products. The Company's product line includes cheerleading
uniforms and accessories and the Company sponsors events and operates
cheerleading and dance camps, all of which are marketed by the Company's
in-house sales force. As the majority of cheerleading participants are female,
the Company's focus is complementary to Parent.
Parent believes that it can leverage the Company's expertise and contacts
in the camp and special events area to include high school and youth football
participants. Parent believes that the development of camps and special events
will enhance its sales efforts of athletic equipment.
Parent's experience and contacts relating to practicewear and plastic
collectible products should allow the Parent to leverage the Company's sales
efforts to coaches of female athletic teams and to booster organizations for
fundraising activities.
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Ultimately, the combination of Parent and the Company should allow each of
the companies to increase its penetration of less developed market segments
while reinforcing those segments where each company already is strong.
Parent and the Purchaser have each concluded that the Transaction is fair
to holders of Shares based on (i) the conclusions of, and unanimous approval of
the independent directors of the Board of Directors of the Company, as well as
the basis therefor, which conclusions and basis, as set forth above, are
incorporated by reference herein, (ii) notwithstanding the fact that Goldman
Sachs' opinion was provided solely for the information and assistance of the
Board of Directors of the Company and that Parent and the Purchaser are not
entitled to rely on such opinion, the fact that the Board of Directors of the
Company had received the written opinion of Goldman Sachs addressed to the Board
of Directors of the Company that the $18.90 per Share in cash to be received by
holders of Shares in the Offer and the Merger was fair to such holders, (iii)
the fact that representatives of Parent and its legal and financial advisors
negotiated the principal terms of the Transaction on an arms-length basis with
representatives of the Company and its legal and financial advisors, and (iv)
the fact that (a) during the negotiations of the Merger Agreement the interests
of the holders of Shares were represented by the Board of Directors of the
Company (certain members of which had a significant ownership interest in the
Company) and its independent legal and financial advisors and the interests of
Parent and the Purchaser were represented by their legal and financial advisors,
and (b) such parties had different economic and other interests. Parent and the
Purchaser did not find it practicable to, and did not, quantify or otherwise
attach relative weights to the specific factors considered by them.
OPINION OF GOLDMAN, SACHS & CO. TO THE BOARD OF DIRECTORS OF THE COMPANY
On May 5, 1997, Goldman, Sachs & Co. ('Goldman Sachs') delivered its
written opinion to the Board of Directors of the Company that, as of the date of
such opinion, the $18.90 per Share to be received by the holders of Shares in
the Offer and the Merger was fair to such holders. THE FULL TEXT OF THE WRITTEN
OPINION OF GOLDMAN SACHS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS EXHIBIT A TO THIS OFFER TO PURCHASE AND IS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS OF THE COMPANY ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) Annual Reports to Stockholders and Annual Reports
on Form 10-K of the Company for the five years ended December 31, 1996; (iii)
certain interim reports to stockholders and Quarterly Reports on Form 10-Q; (iv)
certain other communications from the Company to its stockholders; and (v)
certain internal financial analyses and forecasts for the Company prepared by
its management. Goldman Sachs also held discussions with members of the senior
management of the Company regarding the past and current business operations,
financial condition, and future prospects of the Company. In addition, Goldman
Sachs reviewed the reported price and trading activity for Shares, compared
certain financial and stock market information for the Company with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the apparel industry specifically and in other industries generally and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
has not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries and Goldman Sachs has not
been furnished with any such evaluation or appraisal. Goldman Sachs' advisory
services and its opinion were provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Merger Agreement and such opinion does not
constitute a recommendation as to whether any holder of Shares should tender
such Shares in the Offer.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Company's
Board of Directors on May 5, 1997.
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(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
daily historical closing prices and trading volumes for Shares during the
period from April 29, 1996 to April 28, 1997 and the weekly historical
closing prices and trading volumes for Shares during the period from April
29, 1994 to April 25, 1997. In addition, for the periods from October 28,
1996 to April 28, 1997; April 29, 1996 to April 28, 1997; and April 28,
1994 to April 28, 1997, Goldman Sachs reviewed the volume of Shares traded
at a range of prices, the weighted average price of Shares and the total
number of Shares traded as a percentage of outstanding shares.
(ii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis for the Company using financial forecasts
furnished by the Company's management. Based on such forecasts, Goldman
Sachs calculated a net present value of free cash flows for the Company for
the years 1997 through 2001 using discount rates ranging from 10.0% to
14.0%. Goldman Sachs calculated the Company's terminal values in the year
2001 based on multiples ranging from 5.0x earnings before interest
expenses, income taxes, depreciation and amortization ('EBITDA') to 7.0x
EBITDA. These terminal values were then discounted to present value using
discount rates ranging from 10.0% to 14.0%. Such analysis resulted in
implied per share values that ranged from $15.27 to $21.59.
(iii) Selected Companies Analysis. Goldman Sachs reviewed and
compared certain financial information relating to the Company to
corresponding financial information, ratios and public market multiples for
eight publicly traded corporations in the apparel industry: Parent, Starter
Corp. and Angelica Corp. (the 'Small Capitalization Selected Companies');
and Jostens Inc., Russell Corp., Cintas Corp., Reebok International Ltd.
and Nike Inc. (the 'Large Capitalization Selected Companies' and, together
with the Small Capitalization Selected Companies, the 'Selected
Companies'). Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples of the Company were calculated using a
price of $14.75 per Share, the closing price of Shares on the NASDAQ on
April 30, 1997. The multiples and ratios for the Company, Parent and the
Selected Companies were based on the most recent publicly available
information and, in the case of the Company and Parent, on certain
information provided by their respective managements.
Goldman Sachs considered levered market capitalization (i.e., market
value of common equity plus estimated market value of debt less cash and
cash equivalents) (i) as a multiple of latest twelve months ('LTM') sales,
(ii) as a multiple of LTM EBITDA and (iii) as a multiple of LTM earnings
before interest expenses and income taxes ('EBIT'). Goldman Sachs' analyses
of the Selected Companies indicated that (a) levered multiples of LTM sales
ranged from 0.52x to 0.84x for the Small Capitalization Selected Companies
with a median of 0.62x and from 0.85x to 3.23x for the Large Capitalization
Selected Companies with a median of 1.55x, compared to 0.66x for the
Company; (b) levered multiples of LTM EBITDA ranged from 5.9x to 17.4x for
the Small Capitalization Selected Companies with a median of 7.3x and from
7.2x to 14.7x for the Large Capitalization Selected Companies with a median
of 10.8x, compared to 6.0x for the Company; and (c) levered multiples of
LTM EBIT ranged from 9.6x to 22.9x for the Small Capitalization Selected
Companies with a median of 9.9x and from 10.5x to 18.2x for the Large
Capitalization Selected Companies with a median of 13.0x, compared to 6.9x
for the Company. Goldman Sachs also considered for the Selected Companies
(i) price-to-earnings multiples as estimated for the 1997 ('1997E P/E
Multiple') and 1998 ('1998E P/E Multiple') calendar years, in each case
based on latest median Institutional Brokers Estimate System ('IBES')
earnings estimates ('IBES Estimates'), except for Parent earnings per share
which are based on Parent management projections; (ii) five year earnings
per share ('EPS') growth rates ('Five Year EPS Growth Rate'), in each case
based on IBES Estimates, except for the Company which was based on the
Company management's estimated five-year annual growth rate; and (iii)
price-to-earnings as a multiple of Five Year EPS Growth Rate ('1997E P/E
Growth Rate Multiple'). Goldman Sachs' analyses of the Selected Companies
indicated that (a) 1997E P/E Multiples ranged from 7.1x to 36.5x for the
Small Capitalization Selected Companies with a median of 14.1x and from
11.6x to 25.3x for the Large Capitalization Selected Companies with a
median of 15.8x, compared to 11.6x for the Company; (b) 1998E P/E Multiples
ranged from 6.4x to 17.0x for the Small Capitalization Selected Companies
with a median of 12.6x and from 10.2x to 21.3x for the Large Capitalization
Selected Companies with a median of 14.0x, compared to 11.2x for the
Company; (c) Five Year EPS Growth Rates ranged from 10.0% to 12.0% for the
Small Capitalization Selected Companies and from 11.0% to 19.3% for
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the Large Capitalization Selected Companies, compared to 13.0% for the
Company; and (d) 1997E P/E/Growth Rate Multiples ranged from 1.2x to 3.7x
for the Small Capitalization Selected Companies and from 1.0x to 1.3x for
the Large Capitalization Selected Companies, compared to 0.9x for the
Company.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to the following selected transactions in the apparel
industry since 1988 (the 'Selected Transactions'): Page Holding Co./Perry
Manufacturing (Aris Industries, Inc.); Kohlberg Kravis & Roberts &
Co./Spalding & Evenflo Corp.; Warnaco Group, Inc./Authentic Fitness Corp.;
Investor Group/Leslie Fay Co. (Sassco Fashions Division); Converse
Inc./Apex Oneline; Maidenform/NCC Industries; Vaneton Int'l Inc./Phillips
Van-Heusen Corp.; Phillips-Van Heusen/Crystal Brands; Nike Inc./Canstar;
Fruit of the Loom/Artex Manufacturing (division of Jostens, Inc.); VF
Corporation/Nutmeg Industries, Inc.; VF Corporation/H.H. Cutter Co.; Fruit
of the Loom/Salem Sportswear; Elf Sanofi SA/Yves Saint Laurent SA; Plaid
Holdings/Crystal Brands Men's Tailored Clothing Business; Tultex
Corporation/Logo 7; Renown Inc./Acquascutam Group PLC; Walsh, Greenwood &
Co./Signal Apparel; Sara Lee Corporation/Champion Products, Inc.; and The
Prospect Group, Inc./The Athletic Apparel Division of BSN Corp. Goldman
Sachs' analysis indicated that for the Selected Transactions (i) levered
aggregate consideration as a multiple of LTM sales ranged from 0.3x to
2.0x, as compared to 0.92x, 0.81x and 0.71x, respectively, for the levered
aggregate consideration to be received in the Merger as a multiple of sales
for 1996 and as estimated for the 1997 and 1998 calendar years; (ii)
levered aggregate consideration as a multiple of LTM EBIT ranged from 2.5x
to 16.0x, as compared to 9.7x, 8.2x and 7.2x, respectively, for the levered
aggregate consideration to be received in the Merger as a multiple of EBIT
for 1996 and as estimated for the 1997 and 1998 calendar years; (iii) the
EBIT Margin-to-3-Year compounded annual growth rate ('CAGR') sales ratio
ranged from (4.4%) to 15.7% and (iv) the EBIT Margin-to-LTM sales ratio
ranged from (8.3%) to 15.3%.
(v) Pro Forma EPS Impact Analysis. Goldman Sachs computed an EPS
impact analysis with respect to Parent based on a transaction price of
$18.90 per Share. For purpose of the analysis, Goldman Sachs assumed that
the debt incurred by Parent in connection with the Offer and the Merger
would be financed at 11% and that the goodwill resulting from the Merger
would be amortized over a 40-year period. Based on such assumptions, the
analysis indicated that (a) following the Merger, EPS for Parent Common
Stock as estimated for the 1997 and 1998 calendar years would be $0.43 and
$0.56, respectively; (b) the Merger would be dilutive to Parent's
stockholders on an EPS basis in 1997 and 1998; (c) following the Merger, as
estimated for the 1997 and 1998 calendar years, Parent would need to
achieve approximately $1,700,000 and $400,000 in pre-tax synergies,
respectively, to achieve annual growth in earnings necessary to yield the
same current value to its stockholders; (d) following the Merger, EBITDA
less capital expenditures as a multiple of interest as estimated for the
1997 and 1998 calendar years would be 1.6x and 2.0x, respectively; (e)
following the Merger, there would be 10,060,000 shares of Parent Common
Stock outstanding; and (f) following the Merger, total debt as a multiple
of EBITDA would be 4.97x in 1997.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to the
Company or Parent or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs' providing its opinion to the Company Board
of Directors as to the fairness of $18.90 per Share in cash to be received by
holders of Shares in the Offer and the Merger and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of the
Company, Parent, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
Goldman Sachs' opinion to the Board of Directors of the Company was one of many
factors taken into consideration by the Board of Directors in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis
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performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Exhibit A hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The Company selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the transaction contemplated by the Merger Agreement. Goldman Sachs is
familiar with the Company, having acted as financial advisor in connection with,
and having participated in certain of the negotiations leading to, the Merger
Agreement.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company and Parent for its own account and for the accounts of
customers. As of May 2, 1997, Goldman Sachs, for its own account, held no
positions with respect to securities of the Company or Parent.
Pursuant to a letter agreement dated March 25, 1996 (the 'Goldman Sachs
Engagement Letter'), the Company engaged Goldman Sachs to act as its financial
advisor in connection with the Offer and the Merger. Pursuant to the terms of
the Goldman Sachs Engagement Letter, the Company has agreed to pay Goldman Sachs
upon consummation of the Offer and the Merger a transaction fee equal to the sum
of (i) 1.5% of the total consideration to be paid by Purchaser for all
outstanding Shares in the Offer and the Merger and (ii) the product of 5% of the
excess of the transaction value per Share over $18.50 and the number of Shares
outstanding, on a fully-diluted basis, immediately prior to the time that the
Shares are accepted for purchase in the Offer. The Company has agreed to
reimburse Goldman Sachs for reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
PRESENTATION OF BERENSON MINELLA & COMPANY TO THE BOARD OF DIRECTORS OF PARENT
Parent retained Berenson Minella & Company ('Berenson Minella') to act as
its financial advisor in connection with the Transaction between the Company and
Parent. Berenson Minella was selected based upon Berenson Minella's
qualifications, expertise and reputation, as well as Berenson Minella's prior
investment banking relationship and familiarity with Parent. Berenson Minella is
a nationally recognized investment banking firm which has substantial experience
in corporate finance, restructurings and mergers and acquisitions transactions
such as the Transaction.
In the Fall of 1996, Parent asked Berenson Minella to initiate discussions
with a limited number of potential acquisition candidates including the Company.
On January 28, 1997, the Parent Board of Directors engaged Berenson Minella as
financial advisor with respect to (i) a possible business combination
transaction involving the Company, and (ii) raising and negotiating the
financing in connection with such business combination transaction. Thereafter,
Berenson Minella assisted the Parent Board of Directors in connection with
evaluating and negotiating the Transaction.
On May 5, 1997, at the request of the Parent Board of Directors and prior
to its approval of the Merger Agreement, Berenson Minella delivered a
presentation regarding the Transaction (the 'Presentation') to the Parent Board
of Directors.
The Presentation did not include any opinion and Berenson Minella has
expressed no opinion regarding the Transaction, including any opinion as to the
fairness of the Transaction to any person, including Parent, the Company or any
of their respective shareholders.
In preparing its Presentation, Berenson Minella, among other things: (i)
reviewed the Merger Agreement, in substantially the form executed, (ii) reviewed
certain publicly-available business and financial information relating to the
Company, including the Company's Annual Report on Form 10-K for the fiscal years
ended December 31, 1995 and 1996 and Parent's Annual Report on Form 10-K for the
fiscal years ended December 31, 1994, 1995 and 1996; (iii) reviewed forecasted
operating data for the Company for the twelve month period
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ending December 31, 1997 through 2001 which were prepared by the Company and
reviewed forecasted income statements and balance sheets for Parent for the
twelve month periods ending December 1997 through 2001 (collectively, forecasted
financial information prepared by the managements of each of Parent and the
Company are referred to herein as the 'Projected Financial Information'), and
had discussions with the management of Parent and the Company regarding the
Projected Financial Information; (iv) discussed with the managements of each of
Parent and the Company their respective businesses and the views of the
managements of each of the companies regarding the companies' respective
profitability, as well as the operating and strategic benefits, including the
effect on sales and the operating synergies and cost savings projected to be
achieved, and implications of the Transaction; (v) considered both the
historical and recent sales and earnings trends of the Company; (vi) reviewed
historical stock prices and trading volumes of the Company; (vii) compared the
recent financial performance of the Company with that of other public companies
engaged in businesses deemed similar to those of the Company; (ix) reviewed the
financial terms of certain other recent business combinations involving
companies engaged in businesses deemed similar to those of Parent and the
Company, to the extent publicly available; (x) reviewed such other information
and took into account such other factors as Berenson Minella deemed relevant.
For purposes of preparing its Presentation, Berenson Minella assumed and
relied upon the accuracy and completeness of the foregoing information and did
not assume any responsibility for independent verification of such information
or for any independent valuation or appraisal of any of the assets or
liabilities of Parent or the Company, nor was Berenson Minella furnished with
any such valuations or appraisals. With respect to the Projected Financial
Information and financial forecasts, Berenson Minella assumed, without further
analysis or investigation, that they have been reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the management of Parent as to the future performance of Parent, of the
management of the Company as to the future performance of the Company, and of
the managements of Parent and the Company with respect to the future performance
of the combined operation of Parent and the Company, and relied upon the
assurances of the managements of Parent and the Company that they are unaware of
any facts that would make the information, Projected Financial Information or
financial forecasts provided to Berenson Minella incomplete or misleading.
Berenson Minella also assumed, without further analysis or investigation, that
the effect on sales and the operating synergies and cost savings projected by
the managements of Parent and the Company to be achieved through the combination
of the operations of Parent and the Company will be realized and relied without
further analysis or investigation on the judgment of the managements of Parent
and the Company as to the companies' respective profitability. Berenson
Minella's Presentation was necessarily based on economic, market and other
conditions, and the information made available to it, as of the date of the
Presentation.
The following is a brief summary of the financial analyses undertaken by
Berenson Minella and discussed with the Parent Board of Directors in delivering
its Presentation to the Parent Board of Directors on May 5, 1997.
Summary Market Review. Berenson Minella reviewed the Company's market
statistics, including the Company's price to earnings ('PE') multiple as of
April 29, 1997, and the Company's earnings per share ('EPS') for the last twelve
months ('LTM'). Berenson Minella also reviewed the Company's total enterprise
value ('TEV'), and calculated multiples of revenues, operating income and
earnings before interest, taxes, depreciation and amortization ('EBITDA') based
on the TEV.
Actual and Projected Financial Information. Berenson Minella reviewed the
actual financial performance of the Company for the years ended December 31,
1994 through 1996, and reviewed the Projected Financial Information for the
Company for the years 1997 through 2001.
Stock Trading History. Berenson Minella reviewed the stock trading history
of the Company, including (i) prices of the Shares as of the Company's initial
public offering on January 28, 1992; (ii) the all-time high and low prices of
the Shares, (iii) the 52 week high and low prices of the Shares as of the date
of the Presentation; (iv) trading volumes of the Shares over the six month
period preceding the Presentation, (v) the daily price and trading volume of the
Shares for the period April 30, 1996 through April 29, 1997, (vi) the weekly
price and trading volume of the Shares for the period January 31, 1992 through
April 25, 1997 and (vii) the Company's dividend yield as of April 29, 1997.
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Comparison with Selected Comparable Publicly Traded Companies. Berenson
Minella reviewed and compared certain financial data of each of seven companies
deemed similar to the Company, based upon financial information publicly
available and stock prices as of April 29, 1997. The companies compared were
Parent, Bell Sports Corp., Danskin Inc., Jostens Inc., Russell Corp., Sports
Supply Group, Inc. and Starter Corporation. With the exception of Bell Sports
Corp., these companies were included in the Company's Peer Index set forth in
the Company's proxy statement dated March 26, 1996. For each comparable company,
Berenson Minella calculated (i) the equity value; (ii) the TEV; (iii) the PE
multiples (a) for LTM, (b) estimated for 1997, and (c) estimated for 1998; and
(iii) the ratio of TEV to (a) LTM revenues, (b) LTM EBITDA, and (c) LTM earnings
before interest and taxes ('EBIT'). Berenson Minella observed that (i) LTM PE
multiples for comparable companies ranged from a maximum of 53.4x to a minimum
of 10.7x; (ii) the 1997 estimated PE multiples for comparable companies ranged
from a maximum of 30.8x to a minimum of 11.8x; (iii) the 1998 estimated PE
multiples for comparable companies ranged from a maximum of 40.0x to a minimum
of 7.8x; (iv) the ratio of TEV to LTM revenue for comparable companies ranged
from a maximum of 1.4x to a minimum of 0.4x; (v) the ratio of TEV to LTM EBITDA
for comparable companies ranged from a maximum of 24.0x to a minimum of 6.1x;
and (vi) the ratio of TEV to LTM EBIT for comparable companies ranged from a
maximum of 30.0x to a minimum 9.0x. In comparison, Berenson Minella observed
that the Company's (i) LTM PE multiple was 13.4x; (ii) 1997 estimated PE
multiple was 11.7x; (iii) 1998 estimated PE multiple was 11.2; (iv) ratio of TEV
to LTM revenue was 0.7x; (v) ratio of TEV to LTM EBITDA was 6.0x; and (vi) ratio
of TEV to LTM EBIT was 6.9x. Based upon its review of comparable company
multiples, Berenson Minella calculated the implied valuation per fully-diluted
Share and observed that (i) based upon the Company's LTM revenues, the Shares
carried an implied valuation per Share ranging from a maximum of $27.81 to a
minimum of $9.95; (ii) based upon the Company's LTM EBITDA, the Shares carried
an implied valuation per Share ranging from a maximum of $48.58 to a minimum of
$14.47; (iii) based upon the Company's LTM EBIT, the Shares carried an implied
valuation per Share ranging from a maximum of $52.22 to a minimum of $17.60;
(iv) based upon the Company's LTM EPS, the Shares carried an implied valuation
per Share ranging from a maximum of $58.78 to a minimum of $11.73; (v) based
upon the Company's projected 1997 EPS, the Shares carried an implied valuation
per Share ranging from a maximum of $38.85 to a minimum of $14.81; (vi) based
upon the Company's projected 1998 EPS, the Shares carried an implied valuation
per Share ranging from a maximum of $52.80 to a minimum of $10.34; and (vii)
based upon each of the preceding values in clauses (i) through (vi), the average
implied valuation per Share ranged from a maximum $46.51 to a minimum $13.15.
Comparison with Comparable Merger and Acquisition Transactions. Berenson
Minella reviewed certain recent business combinations involving companies
engaged in businesses deemed relatively comparable to those of the Company in
terms of selected financial data and valuation ratios, to the extent publicly
available, including TEV as a multiple of revenue, EBIT and EBITDA and the ratio
of acquisition price to the earnings of the acquired company. The transactions
reviewed included Emerson Radio Corp./Sports Supply Group, Inc., Kohlberg Kravis
and Roberts/Spalding & Evenflo, Sun America/Danskin Inc., Scholastic Brands/CJC
Holdings--Artcarved & LF Balfour, American Brands/Cobra Golf Inc. II,
Nike/Canstar Sports, VF Corp./Nutmeg Industries, Fruit of the Loom/Salem
Sportswear Corp., and Usaha Tegas Sdn Bhd/Voit. Berenson Minella observed that
for companies involved in comparable merger and acquisition transactions (i) TEV
as a multiple of revenue ranged from a maximum of 3.6x to a minimum of 0.5x;
(ii) TEV as a multiple of EBIT ranged from a maximum of 20.4x to a minimum of
9.7x; (iii) TEV as a multiple of EBITDA ranged from a maximum of 30.5x to a
minimum of 7.5x; and (vi) the PE ratio ranged from a maximum of 35.3x to a
minimum 13.6x. Based upon its review of companies involved in comparable merger
and acquisition transactions, Berenson Minella calculated the implied valuation
per fully-diluted Share and observed that (i) based upon the Company's LTM
revenues, the Shares carried an implied valuation per Share ranging from a
maximum of $64.00 to a minimum of $11.42; (ii) based upon the Company's LTM
EBITDA, the Shares carried an implied valuation per share ranging from a maximum
of $60.88 to a minimum of $17.06; (iii) based upon the Company's LTM EBIT, the
Shares carried an implied valuation per share ranging from a maximum of $36.43
to a minimum of $18.78; (iv) based upon the Company's LTM EPS, the Shares
carried an implied valuation per Share ranging from a maximum of $38.79 to a
minimum of $14.92; and (v) based upon each of the preceding values in clauses
(i) through (iv), the average implied valuation per Share ranged from a maximum
$50.02 to a minimum $15.54.
Discounted Cash Flow Analysis. Berenson Minella utilized a discounted cash
flow analysis to calculate the implied equity values per fully-diluted Share
based upon the discounted net present value (utilizing discount
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rates ranging from 10% to 12%) of the sum of (i) the projected stream of
after-tax unlevered free cash flows of the Company for the period 1997 through
2001 and (ii) the projected terminal value of the Company at 2001 by applying
multiples ranging from 7.0x to 10.0x to the Company's projected EBITDA in 2001.
In performing its calculations, Berenson Minella utilized two scenarios (1) the
'base case' scenario provided by management of the Company, and (2) the
'conservative case' scenario utilizing a 5% revenue growth rate. Pursuant to
this methodology, Berenson Minella observed that the implied value per
fully-diluted Share (i) for the base case, (a) utilizing a 10.0% discount rate,
ranged from a maximum of $28.82, utilizing an EBITDA multiple of 10.0x, to a
minimum of $22.36, utilizing an EBITDA multiple of 7.0x, and (b) utilizing a
12.0% discount rate, ranged from a maximum of $26.72, utilizing an EBITDA
multiple of 10.0x, to a minimum of $20.82, utilizing an EBITDA multiple of 7.0x;
and (ii) for the conservative case, (a) utilizing a 10.0% discount rate, ranged
from a maximum of $20.96, utilizing an EBITDA multiple of 10.0x, to a minimum of
$16.54, utilizing an EBITDA multiple of 7.0x, and (b) utilizing a 12.0% discount
rate, ranged from a maximum of $19.51, utilizing an EBITDA multiple of 10.0x, to
a minimum of $15.47, utilizing an EBITDA multiple of 7.0x.
Premiums Paid Analysis. In performing the premiums paid analysis, Berenson
Minella utilized five screening criteria, including (i) the transactions
analyzed had each occurred between October 18, 1996 and April 18, 1997; (ii) the
target companies reviewed were each U.S. public companies at the time of the
transaction; (iii) the target companies reviewed excluded financial companies;
(iv) only completed or unconditional transactions were analyzed; and (v) the
value of each transaction analyzed was between $50 and $300 million. Berenson
Minella compared the premiums paid relative to the acquired companies' stock
values (i) one day prior to announcement, (ii) one week prior to announcement,
and (iii) four weeks prior to announcement, and observed that, in the case of
(i) one day prior to announcement, the premiums ranged from a minimum of (19.7%)
to a maximum of 90.5%; (ii) one week prior to announcement, the premiums ranged
from a minimum of (18.6%) to a maximum of 110.5%; and (iii) four weeks prior to
announcement, the premiums ranged from a minimum of (12.2%) to a maximum of
166.7%. For purposes of comparison, Berenson Minella calculated that the premium
which Parent would pay to shareholders of the Company if the transaction were to
have closed on April 29, 1997, would be (i) 28.1%, in the case of one day prior;
(ii) 32.6% in the case of one week prior; and (iii) 28.1%, in the case of four
weeks prior.
Pro Forma Acquisition Analysis. Berenson Minella analyzed certain pro
forma effects of Parent's acquisition of the Company on the capitalization and
earnings of the combined company, as well as Parent's EPS based upon the number
of fully-diluted Shares. These analyses were based upon certain assumptions,
including that (i) the transaction closed on December 31, 1996, and thus the
1997 pro forma EPS incorporated the Company's first quarter operating loss; (ii)
all synergies and cost savings were expected to commence on June 30, 1997; (iii)
the bridge financing would be drawn down and repaid after one month; (iv) no
benefit is realized from Parent's net operating loss carry-forwards; (v) the
interest rate on the Revolving Credit Facility and Senior Notes would be 7.75%
and 11.0%, respectively, (vi) management of the Company purchases 1,168,000 new
shares of Parent Common Stock pursuant to the Stock Purchase Agreements, (vii)
Parent issues 950,000 new options at a $3.80 exercise price, and (viii) the
Parent's Convertible Subordinated Notes conversion price is reduced to $5.38 per
share from $6.00 per share. Such analysis indicated (i) under the base case
scenario (a) an increase from $.53, on a stand alone basis, to $.56, on a pro
forma combined basis, for the projected twelve months ending December 31, 1998,
from $.75, on a stand alone basis, to $.94 on a pro forma combined basis, for
the projected twelve months ending December 31, 1999, from $1.00, on a stand
alone basis, to $1.31 on a pro forma combined basis, for the projected twelve
months ending December 31, 2000, and from $1.28, on a stand alone basis, to
$1.76 on a pro forma combined basis, for the projected twelve months ending
December 31, 2001, (ii) under the Parent base case scenario and the Company
conservative case scenario (a) no increase or decrease from $.53, on a stand
alone basis, for the projected twelve months ending December 31, 1998, from
$.75, on a stand alone basis, to $.86 on a pro forma combined basis, for the
projected twelve months ending December 31, 1999, from $1.00, on a stand alone
basis, to $1.18 on a pro forma combined basis, for the projected twelve months
ending December 31, 2000, and from $1.28, on a stand alone basis, to $1.56 on a
pro forma combined basis, for the projected twelve months ending December 31,
2001 (iii) under the conservative case scenario (a) an increase from $.45, on a
stand alone basis, to $.47 for the projected twelve months ending December 31,
1998, from $.53, on a stand alone basis, to $.68 on a pro forma combined basis,
for the projected twelve months ending December 31, 1999, from $.58, on a stand
alone basis, to $.85 on a pro forma combined basis, for the projected
15
<PAGE>
twelve months ending December 31, 2000, and from $.63, on a stand alone basis,
to $1.03 on a pro forma combined basis, for the projected twelve months ending
December 31, 2001.
The above description is a summary of all financial analyses performed by
Berenson Minella and discussed with the Parent Board of Directors in connection
with its Presentation to such Board on May 5, 1997. Berenson Minella did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. No company or transaction used in the above analyses as a
comparison is identical to the Company or Parent or the contemplated
Transaction. Berenson Minella's analyses were prepared solely for purposes of
providing its presentation to the Parent Board, they do not purport to express
any opinions or be appraisals and do not necessarily reflect the prices at which
businesses or securities may actually be sold. The analyses performed by
Berenson Minella, including those based upon forecasts of future results, are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than as suggested by such analyses. The
foregoing summary does not purport to be a complete description of Berenson
Minella's analyses.
Since 1995, Berenson Minella has received fees totaling $418,750 (not
including the amount in clause (i) below) for its financial advisory services to
Parent. Pursuant to the terms of its engagement with Parent, Parent has (i) paid
Berenson Minella a fee of $250,000 upon the execution of the Merger Agreement,
and (ii) agreed to pay Berenson Minella a fee of $1,430,000 upon consummation of
the Offer, against which the amount in (i) above will be credited. Parent has
also agreed to reimburse Berenson Minella for its reasonable travel and other
out-of-pocket expenses and to indemnify Berenson Minella and certain related
persons against certain liabilities and expenses in connection with its services
as financial advisor, including liabilities under federal securities laws.
PURPOSE AND STRUCTURE OF THE TRANSACTION
The purpose of the Transaction is for Parent, through the Purchaser, to
acquire the entire equity interest in the Company by consummating the Merger. If
the Purchaser acquires at least 90% of the outstanding Shares through the Offer,
Parent intends to cause the Purchaser to consummate the Merger through a
short-form merger without a vote of shareholders under Tennessee law. In any
event, the Purchaser intends, should it purchase Shares pursuant to the Offer,
to cause the Merger to occur (subject to satisfaction or waiver of the
conditions contained in the Merger Agreement). As set forth under 'THE
OFFER--Conditions to the Offer,' the Offer is conditioned upon, among other
things, the Minimum Condition being satisfied. Parent and the Purchaser cannot
waive the Minimum Condition without the written consent of the Company (such
consent to be authorized by the Board of Directors of the Company or a duly
authorized committee thereof). As a result, without the prior written approval
of the Company, the Purchaser cannot accept for payment, and therefore purchase,
any Shares pursuant to the Offer, unless there have been validly tendered and
not withdrawn prior to expiration of the Offer a number of Shares which
constitutes at least a majority of the Shares outstanding on a fully-diluted
basis.
The acquisition of the entire equity interest in the Company has been
structured as a cash tender offer followed by a cash merger in order to provide
a prompt and orderly transfer of ownership of the Company from the public
shareholders of the Company to Parent. Following the Merger, the interest of
Parent in the Company's net book value and net income will increase to 100%.
Parent will thereafter benefit from any increases in the value of the Company
and also bear the risk of any decreases in the value of the Company. In
connection with the Offer, Parent and the Purchaser have reviewed, and will
continue to review, various possible business strategies that Parent and the
Purchaser might consider in the event that the Purchaser acquires control of the
Company, whether pursuant to the Merger Agreement or otherwise.
PLANS FOR THE COMPANY AFTER THE OFFER AND MERGER
Except as indicated in this Offer to Purchase with respect to the Offer and
the Merger, neither Parent nor the Purchaser has any present plan or proposals
which relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Company or any of its
subsidiaries, a sale or transfer of a material amount of assets of the Company
or any of its subsidiaries or any material change in the Company's
capitalization or any other material changes in the Company's corporate
structure or business or the composition of the Board of Directors or
management.
Upon consummation of the Offer, Purchaser intends to continue to review the
Company and its assets, businesses, operations, properties, policies, corporate
structure, capitalization and management and consider if
16
<PAGE>
any changes would be desirable in light of the circumstances then existing. Upon
consummation of the Merger, Parent intends to continue to review the business of
the Company and to try to identify potential synergies and cost savings. See
'SPECIAL FACTORS--Interests of Certain Persons in the Transaction.'
Purchaser anticipates that, upon consummation of the Offer, it will
exercise its rights under the Merger Agreement to designate persons to be
elected to the Company's Board of Directors so that its designees constitute at
least a majority of the Company's Board of Directors. See 'THE MERGER
AGREEMENT.'
It is expected that, if Shares are not accepted for payment by Purchaser
pursuant to the Offer and the Merger is not consummated, the Company's current
management, under the general direction of the Company's Board of Directors,
will continue to manage the Company as an ongoing business.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the Board of Directors of the Company,
shareholders of the Company should be aware that certain officers and directors
of the Company have certain interests in the Transaction, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer. The Board of Directors of the Company was aware of
these potential or actual conflicts of interest and considered them along with
other matters described under 'SPECIAL FACTORS--Recommendation of the Board of
Directors of the Company; Fairness of the Transaction.'
As of May 5, 1997, the executive officers and directors of the Company
owned an aggregate of 1,892,152 Shares and held Company Options to purchase an
aggregate of 314,125 Shares (whether or not exercisable). On such date, the
Shares owned by executive officers and directors of the Company and the Options
held by such persons (whether or not exercisable) together constituted 48.4% of
the outstanding Shares on a fully-diluted basis (assuming the exercise of all
outstanding Company Options). If the Transaction is consummated, subject to the
consent of the Company Option holder, each outstanding Company Option will be
surrendered and cancelled in exchange for a cash payment equal to the number of
Shares subject to such option, multiplied by the Offer Price, less the aggregate
exercise price of such Company Option. See 'THE MERGER AGREEMENT--Options' for a
discussion of the treatment of Company Options in the Merger.
The following table sets forth, as of May 5, 1997, the number of Shares and
Company Options owned by, and the aggregate amounts to be received by, each
executive officer and director of the Company who owns any Shares or Company
Options, and all executive officers and directors of the Company as a group,
pursuant to the Transaction. Other than the individuals named below, no
executive officer or director of the Company owns any Shares.
<TABLE>
<CAPTION>
COMPANY TOTAL CASH AMOUNT
NAME OF DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY SHARES OPTIONS TO BE RECEIVED
- ---------------------------------------------------------------------- --------- ------- -----------------
<S> <C> <C> <C>
Alan D. Gordon........................................................ 648,500 0 $12,256,650
Randall S. Sturges.................................................... 460,000 0 8,694,000
William C. Willis, Jr................................................. 3,000 7,000 117,740
Jeffrey G. Webb....................................................... 553,455 91,325 11,359,705
Gregory C. Webb....................................................... 72,095 46,875 1,822,537
W. Kline Boyd......................................................... 60,000 46,875 1,593,941
J. Kristyn Shepherd................................................... 32,502 53,050 1,190,683
Roy F. Kramer......................................................... 0 2,000 10,800
Richard F. Strup...................................................... 2,000 2,000 48,600
John M. Nichols....................................................... 0 22,000 128,840
Deana C. Roberts...................................................... 300 7,500 38,670
Richard R. Bowers..................................................... 0 9,000 65,100
Robert Dunseath....................................................... 60,300 26,500 1,430,750
All Directors and Executive Officers
as a Group (13 Persons)............................................. 1,892,152 314,125 $38,758,016
</TABLE>
Employment Agreements. In addition, in connection with the Transaction,
Parent entered into an employment agreement with Jeffrey G. Webb on May 5, 1997.
Under the terms of such agreement, which has a three-year term, Jeffrey G. Webb
will serve as Vice Chairman of Parent, as well as President and Chief Operating
Officer of the Company. Jeffrey G. Webb will be entitled to a base salary of no
less than $375,000 per year and
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<PAGE>
will be eligible to participate in those bonus arrangements which are made
available to other senior officers of Parent at a target level of 40% of his
base salary. Jeffrey G. Webb will also receive options to purchase 50,000 shares
of Parent Common Stock and 'special options' to purchase an additional 347,760
shares of Parent Common Stock. See 'New Option Grants.' Upon termination of
Jeffrey G. Webb's employment (i) by the Company without Cause (as defined in the
employment agreement), (ii) by Mr. Webb with Good Reason (as defined in the
employment agreement, including a material adverse alteration in his status or
responsibilities and relocation more than 50 miles from Memphis, Tennessee), or
(iii) following a Change in Control (as defined in the employment agreement),
Jeffrey G. Webb will receive continued payments of base salary for the longer of
the remainder of the term and one year (two years in case of termination
following a Change in Control) (any such applicable period, the 'Continuation
Period'), continued coverage under the Parent's welfare benefit plans during the
Continuation Period, and additional supplemental pension plan benefits he would
have become entitled to had he remained employed for the Continuation Period.
Jeffrey G. Webb is subject to a noncompetition covenant for a period of two
years following the termination of his employment for any reason (or for the
Continuation Period, if longer).
Pursuant to Jeffrey G. Webb's employment agreement, Mr. Webb agreed to
become a party to the Stockholders Agreement, dated as of August 14, 1995, by
and among Robert Nederlander, the Leonard Toboroff, P.C., Defined Benefit Plan,
Lenny Corp., QEN R.E.R. Corp., JEMC Corp., David Mauer, Dan Cougill and Leonard
Toboroff (the 'Voting Agreement'), and Parent agreed to amend such Voting
Agreement so that the parties thereto agree, for the three-year period
commencing at the Effective Time and terminating on the third anniversary of
such date or upon earlier termination of Mr. Webb's employment (provided,
however, that if the Merger Agreement is terminated, then, at the time of such
termination, Mr. Webb's employment agreement shall be deemed cancelled and of no
force and effect), to vote their shares of Parent Common Stock (i) in favor of
the election of Jeffrey G. Webb and a designee of Mr. Webb to the Parent Board
of Directors, and (ii) in favor of Parent's 1997 Stock Option Plan. Jeffrey G.
Webb's employment agreement further provides that at any time that Mr. Webb is
serving as an officer of Parent, Parent shall provide him with director and
officer liability insurance and indemnification to the same extent provided to
other members of the Parent Board of Directors and other officers of the Parent
for all occurrences while he is or was a member of the Parent Board of Directors
or an officer of Parent.
Parent has also entered into employment agreements with Messrs. Gregory C.
Webb and W. Kline Boyd and Ms. J. Kristyn Shepherd (each, an 'Executive'). These
agreements, which have a two year term, provide that Messrs. Webb and Boyd and
Ms. Shepherd will serve the Company as Senior Vice President and General
Manager--UCA, Senior Vice President and General Manager--Varsity Spirit Fashions
and Senior Vice President--UCA, respectively, with base salaries of $125,000,
$125,000 and $115,000, respectively. The Executives shall be eligible to receive
bonuses at the Board's discretion. If an Executive's employment is terminated by
the Company other than due to death, disability or for Cause (as defined in the
employment agreement), he or she will receive continued payments of base salary
for six months following termination. The Executives are each subject to a
noncompetition covenant for a period of two years following the termination of
their employment for any reason. Messrs. Webb and Boyd and Ms. Shepherd will
also receive certain options to purchase shares of Parent Common Stock and
'special options' to purchase additional shares of Parent Common Stock. See
'--New Option Grants' below.
New Option Grants. Pursuant to their respective employment agreements with
Parent, on the later of the Effective Time and the date of Parent's 1997 Annual
Shareholders' Meeting (the applicable date, the 'Grant Date'), Messrs. Jeffrey
G. Webb, Gregory C. Webb, Boyd and Ms. Shepherd will receive options to purchase
50,000, 20,000, 30,000 and 20,000 shares of Parent Common Stock, respectively.
Such options are a part of the Parent Options (as defined below under 'THE
MERGER AGREEMENT--Options') to acquire an aggregate of 500,000 shares of Parent
Common Stock which Parent has agreed to issue to employees of the Company
pursuant to the Merger Agreement. Such grant may, at the Parent's election, be
pursuant to the Parent's 1997 Stock Option Plan (the 'Plan'), in which case it
shall be subject to shareholder approval of the Plan. The exercise price of the
options shall be equal to the average closing price of a share of Parent Common
Stock over the ten (10) consecutive trading days ending on the date immediately
prior to the Grant Date. The options shall become exercisable as to 1/3 of the
shares originally covered by such option upon the first anniversary of the Grant
Date and as to an additional 1/3 of the shares originally covered by such option
on each of the second and third anniversaries of the Grant Date. The options
shall expire on the earlier of the tenth anniversary of the Grant Date or the
thirtieth (30th) day following the date the executive's employment is terminated
for any reason; provided, however, that if the Company terminates the
Executive's employment at any time without Cause (as defined in
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<PAGE>
the applicable employment agreement but without regard to whether such
employment agreement had expired) or, in case of Jeffrey G. Webb only, Mr.
Jeffrey G. Webb terminates his employment for Good Reason (as defined in his
employment agreement but without regard to whether such employment agreement had
expired), then the option shall become fully vested and shall remain exercisable
for a period of one year following such termination of employment; and, provided
further that if the executive's employment is terminated on account of death or
disability, then upon such termination the option shall become fully vested and
shall remain exercisable for a period of one year following such termination of
employment. The option shall also become fully vested upon the occurrence of a
Change in Control (as defined in the applicable employment agreement).
In addition, Messrs. Jeffrey G. Webb, Gregory C. Webb, W. Kline Boyd and
Ms. Shepherd will receive, within thirty days immediately following the
Effective Time, 'special options' to purchase an additional 347,760, 45,000,
36,990 and 20,250 shares of Parent Common Stock, respectively. Such grant may,
at the Parent's election be pursuant to the Plan, in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the special
options shall be equal to the lower of (i) the average closing price of a share
of Parent Common Stock over the ten consecutive trading days ending on the date
immediately prior to the Effective Time and (ii) $3.80. The special options
shall be fully vested as of the date of grant and shall become exercisable as of
the date of shareholder approval of the Plan. The special options shall expire
on the tenth anniversary of the date of grant. If shareholders of Parent fail to
approve the Plan (which Parent intends to submit to shareholders for approval at
its 1997 Annual Meeting of Shareholders), the executives and the Company have
agreed to discuss alternative mechanism to provide the executives with the
economic equivalent of such special options.
The Stock Purchase Agreements. Pursuant to the Stock Purchase Agreements,
on or before the fifth business day after the consummation of the Offer, Messrs.
Jeffrey Webb, Gregory Webb, W. Kline Boyd and Ms. J. Kristyn Shepherd will each
purchase shares of Parent's common stock, par value $.01 per share ('Parent
Common Stock') at a price per share equal to the average closing price of Parent
Common Stock for the twenty trading days ending on the day immediately preceding
the consummation of the Offer, provided that the purchase price per share will
not exceed $4.50 nor be less than $2.80 (the 'Purchase Price'). The exact number
of shares of Parent Common Stock which each such purchaser will purchase will
equal the net after-tax proceeds (assuming a 28% tax rate and a basis in each
share of $.1666) received by each such purchaser in the Offer or Merger as a
result of the sale of 251,165, 32,500, 26,810 and 14,525 Shares, in the case of
each of Messrs. Jeffrey Webb, Gregory Webb, W. Kline Boyd and Ms. J. Kristyn
Shepherd, respectively, divided by the Purchase Price. Parent has granted each
such purchaser certain incidental registration rights with respect to his or her
shares of Parent Common Stock to be purchased under the Stock Purchase
Agreements. Assuming a Purchase Price of $4.50, the parties to the Stock
Purchase Agreements would purchase an aggregate of approximately 974,100 shares
of Parent Common Stock, representing approximately 10.8% of Parent's outstanding
shares after giving effect to such purchase. Assuming a Purchase Price of $2.80,
the parties to the Stock Purchase Agreements would purchase an aggregate of
approximately 1,565,600 shares of Parent Common Stock, representing
approximately 16.25% of Parent's outstanding shares after giving effect to such
purchase. See 'THE STOCK PURCHASE AGREEMENTS.'
CERTAIN EFFECTS OF THE TRANSACTION
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and, depending upon the number of Shares so purchased,
could adversely affect the liquidity and market value of the remaining Shares
held by the public.
NASDAQ Quotation. Depending upon the number of Shares purchased pursuant
to the Offer, the Shares may no longer meet the requirements of the NASDAQ for
continued quotation. Pursuant to Section 4310 of the National Association of
Securities Dealers Manual, in order for a security to continue to be quoted on
the NASDAQ, among other requirements, (a) the Shares must have a minimum bid
price of $3.00 per share, (b) there must be at least 300 holders of the Shares,
(c) there must be at least 100,000 publicly held Shares, and (d) the Shares must
have a market value of at least $200,000. If, as a result of the purchase of
Shares pursuant to the Offer or otherwise, the Company does not meet the
requirements for continued quotation on the NASDAQ and the Shares are no longer
quoted on the NASDAQ, as the case may be, the market for Shares could be
adversely affected.
In the event that the Company at any time does not meet the requirements
for continued quotation on the NASDAQ, it is possible that the Shares would
continue to trade in the over-the-counter market and that price quotations would
be reported by other sources. The extent of the public market for the Shares and
the availability
19
<PAGE>
of such quotations would, however, depend upon the number of holders of Shares
remaining at such time, the interest in maintaining a market in Shares on the
part of securities firms, the possible termination of registration of the Shares
under the Exchange Act, as described below, and other factors.
Margin Regulations. The Shares are presently 'margin securities' under the
regulations of the Board of Governors of the Federal Reserve System (the
'Federal Reserve Board'), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding market
quotations, it is possible that, following the Offer, the Shares would no longer
constitute 'margin securities' for the purposes of the margin regulations of the
Federal Reserve Board and therefore could no longer be used as collateral for
loans made by brokers.
Exchange Act Registration. The Shares currently are registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more holders
of record. Termination of registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its shareholders and to the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of furnishing a proxy statement
pursuant to Section 14(a) in connection with shareholders' meetings and the
related requirement of furnishing an annual report to shareholders and the
requirements of Rule 13e-3 under the Exchange Act with respect to 'going
private' transactions, no longer applicable to the Company. Furthermore, the
ability of 'affiliates' of the Company and persons holding 'restricted
securities' of the Company to dispose of such securities pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act, may be impaired or eliminated.
If registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be 'margin securities' or be eligible for continued quotation on
the NASDAQ. The Purchaser intends to seek to cause the Company to apply for
termination of registration of the Shares under the Exchange Act as soon as
practicable after the completion of the Offer if the requirements for such
termination are met.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following addresses the material federal income tax consequences to
holders of Shares who sell Shares in the Offer or the Merger. The summary does
not address all aspects of federal income taxation that may be relevant to
particular holders of Shares and thus, for example, may not be applicable to
holders of Shares who are not citizens or residents of the United States or
holders of Shares who are employees and who acquired their Shares pursuant to
the exercise of incentive stock options; nor does the summary address the effect
of any applicable foreign, state, local or other tax laws. The discussion
assumes that each holder of Shares holds such Shares as a capital asset within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the 'Code'). SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PRECISE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER
AND THE MERGER.
Receipt of Cash. For U.S. federal income tax purposes, Purchaser will be
disregarded as a transitory entity, and the Merger of Purchaser with and into
the Company will be treated as a sale of a shareholder's Shares to Parent.
Accordingly, shareholders who dispose of Shares pursuant to the Offer and the
Merger will recognize capital gain or loss equal to the difference between the
amount of cash received and the shareholder's adjusted tax basis in the
shareholder's Shares. Such capital gain or loss will be long-term capital gain
or loss if the shareholder has held such Shares for more than one year.
Dissenters. Shareholders who do not sell Shares pursuant to the Offer or
the Merger and who exercise and perfect their rights, if any, under the TBCA to
demand fair value for such Shares will recognize capital gain or loss (and may
recognize an amount of interest income) attributable to any payment received
pursuant to the exercise of such rights.
Withholding. Unless a shareholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code and regulations promulgated thereunder, such shareholder may be
subject to backup withholding of 31% with respect to any payments received in
the Offer, the Merger or as a result of the exercise of dissenters' rights.
Shareholders should contact their brokers to ensure compliance with such
procedures. Foreign shareholders should consult their advisors regarding
withholding taxes in general.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN
FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF SHARES IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER AND THE MERGER.
20
<PAGE>
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by reference and a copy of which is attached hereto
as Annex I.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered and not withdrawn pursuant to the Offer. The Merger Agreement provides
that, without the written consent of the Company, the Purchaser will not
decrease the Offer Price, decrease the number of Shares sought in the Offer,
amend or waive the Minimum Condition, or amend any condition of the Offer in a
manner adverse to the holders of Shares. Notwithstanding the satisfaction of the
conditions of the Offer on the Initial Expiration Date, June 9, 1997, the
Purchaser shall have the right, in its sole discretion, during the fifteen
business days following the Initial Expiration Date, to extend the expiration
date from time to time until not later than fifteen business days after the
Initial Expiration Date. The Purchaser will, on the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer, accept for payment
and pay for Shares tendered and not withdrawn as soon as it is legally permitted
to do so under applicable law; provided, however, that if, immediately prior to
the Initial Expiration Date of the Offer (as it may be extended pursuant to the
preceding sentence or otherwise), the Shares tendered and not withdrawn pursuant
to the Offer equal less than 90% of the outstanding Shares but more than 80% of
the outstanding Shares, the Purchaser may extend the Offer for a period not to
exceed seven business days, notwithstanding that all conditions to the Offer are
satisfied as of such expiration date of the Offer.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Tennessee law, as soon as practicable following the Effective Time, the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease and the Company
will continue as the surviving corporation (the 'Surviving Corporation').
The respective obligations of Parent and the Purchaser, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions, any and all of which may be
waived in whole or in part, to the extent permitted by applicable law: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law, in order to consummate the
Merger; (ii) no statute, rule or regulation shall have been enacted or
promulgated by any government or any governmental agency or authority of
competent jurisdiction which prohibits the consummation of the Merger, and there
shall be no order or injunction of a court of competent jurisdiction in effect
precluding consummation of the Merger; and (iii) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer, unless such
failure to purchase is as a result of a breach of Parent's or the Purchaser's
obligations under the Merger Agreement.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock, any Shares
owned by Parent, the Purchaser or any other wholly owned subsidiary of Parent,
or any Shares which are held by shareholders exercising dissenters' rights, if
any, under Tennessee law) will be converted into the right to receive the price
per Share paid pursuant to the Offer (the 'Merger Consideration'), and (ii) each
issued and outstanding share of the Purchaser will be converted into one share
of common stock of the Surviving Corporation.
The Board of Directors of the Company. The Merger Agreement provides that
upon the purchase and payment by Parent or the Purchaser of Shares representing
at least a majority of the outstanding Shares on a fully diluted basis, Parent
shall be entitled to designate such number of directors on the Board of
Directors of the Company which represents a percentage of the Board of Directors
of the Company equaling the percentage of Shares purchased. If requested by
Parent, the Company shall cause such persons designated by Parent to constitute
at least the same percentage of each committee of the Board of Directors of the
Company and each board of directors of each subsidiary of the Company.
The Merger Agreement further provides that in the event that Parent's
designees are elected to the Board of Directors of the Company prior to the
Effective Time of the Merger, until the Effective Time of the Merger the Board
of Directors of the Company shall have at least two directors who are directors
as of the date of the Merger
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Agreement. In such event, the affirmative vote of a majority of the directors
not designated by Parent shall be required to (i) amend or terminate the Merger
Agreement, (ii) exercise or waive any of the Company's rights, benefits or
remedies under the Merger Agreement, or (iii) take any other action by the Board
of Directors of the Company under or in connection with the Merger Agreement.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its shareholders (the 'Special
Meeting') as promptly as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger and the adoption of the Merger
Agreement. The Merger Agreement further provides that the Company will, if
required by applicable law in order to consummate the Merger, prepare and file
with the Commission a preliminary proxy or information statement (the 'Proxy
Statement') relating to the Merger and the Merger Agreement and use its best
efforts (i) to obtain and furnish the information required to be included by the
Commission in the Proxy Statement and, after consultation with Parent, to
respond promptly to any comments made by the Commission with respect to the
preliminary Proxy Statement and cause a definitive Proxy Statement to be mailed
to its shareholders, provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and its
counsel and (ii) to obtain the necessary approvals of the Merger and the Merger
Agreement by its shareholders. IF THE PURCHASER ACQUIRES AT LEAST A MAJORITY OF
THE OUTSTANDING SHARES, THE PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO
APPROVE THE MERGER, EVEN IF NO OTHER SHAREHOLDERS VOTE IN FAVOR OF THE MERGER.
Pursuant to the Merger Agreement, the Company has agreed to include in the Proxy
Statement the recommendation of the Board of Directors of the Company that
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of the Merger Agreement. Parent has agreed that it will vote, or cause
to be voted, all of the Shares then owned by it, the Purchaser or any of its
other subsidiaries and affiliates in favor of the approval of the Merger and the
adoption of the Merger Agreement.
The Merger Agreement provides that in the event that Parent, the Purchaser
and any other subsidiary of Parent acquires at least 90% of the outstanding
Shares in the aggregate, pursuant to the Offer or otherwise, Parent, the
Purchaser and the Company will, at the request of Parent and subject to the
terms of the Merger Agreement, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of shareholders of the Company, in accordance
with Tennessee law.
Options. Pursuant to the Merger Agreement, on the Expiration Date (as
defined below under 'THE OFFER--Terms of the Offer'), immediately prior to the
Purchaser's acceptance of tenders to purchase Shares pursuant to the Offer, each
outstanding employee stock option to purchase Shares (a 'Company Option')
granted under the 1991 Stock Option Plan and the 1989 Non-qualified Stock Option
Plan (collectively, 'Option Plans'), shall be surrendered to the Company and
shall be forthwith cancelled and the Company shall pay to each holder of a
Company Option, by check, an amount equal to (i) the product of the number of
the Shares which are issuable upon exercise of such Company Option, multiplied
by the Offer Price, less (ii) the aggregate exercise price of such Company
Option. Except as may be otherwise agreed to by Parent or the Purchaser and the
Company, the Company's Option Plans shall terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any of its subsidiaries shall be deleted as of the Effective Time and
no holder of Company Options or any participant in the Options Plans or any
other plans, programs or arrangements shall have any rights thereunder to
acquire any equity securities of the Company, the Surviving Corporation or any
subsidiary thereof.
Pursuant to the Merger Agreement, effective as of the Effective Time and
subject to any required shareholder approval necessary to effectuate the
following grants, Parent has agreed to grant options to acquire an aggregate of
500,000 shares of Parent Common Stock ('Parent Options') to certain specified
employees of the Company. The Parent Options shall be subject to the terms and
conditions set forth in the applicable option plan of Parent (as the same may be
amended) and the applicable option agreement.
Pursuant to a letter of amendment, dated May 2, 1997 (the 'Amendment
Letter'), Parent amended its Note Purchase Agreement, dated October 30, 1996
(the 'Note Purchase Agreement') between Silver Oak Capital, L.L.C. and Parent to
allow Parent to grant incentive stock options to employees of the Company as
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contemplated by the Merger Agreement and Employment Agreements. Pursuant to the
Amendment Letter, Parent agreed to reduce the conversion price of the
convertible notes issued under the Note Purchase Agreement from $6.00 to
approximately $5.38 following the date Parent grants stock options to employees
of the Company.
Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated by the Merger Agreement or agreed
to in writing by Parent, prior to the time the directors of the Purchaser
constitute a majority of the Board of Directors of the Company (the 'Board
Appointment Date'), the business of the Company and its subsidiaries will be
conducted only in the ordinary and usual course and to the extent consistent
therewith, each of the Company and its subsidiaries will use its best reasonable
efforts to preserve its business organization intact and maintain its existing
relations with customers, suppliers, employees, creditors and business partners,
and (a) the Company will not, directly or indirectly, (i) issue, sell, transfer
or pledge or agree to sell, transfer or pledge any treasury stock of the Company
or any capital stock of any of its subsidiaries beneficially owned by it, except
upon the exercise of Company Options outstanding on the date of the Merger
Agreement, (ii) amend its charter or by-laws or similar organizational
documents; or (iii) split, combine or reclassify the outstanding Shares or its
preferred stock or any outstanding capital stock of any of the subsidiaries of
the Company; and (b) neither the Company nor any of its subsidiaries shall (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock other than dividends paid by
subsidiaries of the Company to the Company or any of its subsidiaries in the
ordinary course of business; (ii) issue, sell, pledge, dispose of or encumber
any additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its subsidiaries, other
than Shares reserved for issuance on the date of the Merger Agreement pursuant
to the exercise of Company Options outstanding on the date of the Merger
Agreement; (iii) transfer, lease, license, sell, mortgage, pledge, dispose of,
or encumber any assets other than in the ordinary and usual course of business
and consistent with past practice, or incur or modify any indebtedness or other
liability, other than in the ordinary and usual course of business and
consistent with past practice; (iv) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock; (v) grant any increase in the
compensation payable or to become payable by the Company or any of its
subsidiaries to any of its executive officers or adopt any new or amend or
otherwise increase or accelerate the payment or vesting of the amounts payable
or to become payable under any existing bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement; (vi) enter into any employment or severance agreement with or,
except in accordance with the existing written policies of the Company, grant
any severance or termination pay to any officer, director or employee of the
Company or any of its subsidiaries, except as permitted under the Merger
Agreement with respect to seasonal employees; (vii) permit any insurance policy
naming it as a beneficiary or a loss payable payee to be cancelled or terminated
without notice to Parent, except in the ordinary course of business and
consistent with past practice; (viii) enter into any contract or transaction
relating to the purchase of assets other than in the ordinary course of business
consistent with prior practices; (ix) change any of the accounting methods used
by it unless required by generally accepted accounting principles ('GAAP'), make
any material tax election except in the ordinary course of business consistent
with past practice; change any material tax election already made, adopt any
material tax accounting method except in the ordinary course of business
consistent with past practice; change any material tax accounting method unless
required by GAAP; enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment; (x) other than
indebtedness incurred in connection with the cancellation and payment of Company
Options, incur or assume any long-term debt; incur or assume any short-term
indebtedness except in the ordinary course of business and consistent with past
practice and in an aggregate amount not to exceed $5,000,000; assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; make any
loans, advances or capital contributions to, or investment in, any other person
(other than to wholly-owned subsidiaries of the Company or customary loans or
advances to employees in accordance with past practice); enter into any material
commitment or transaction (including, but not limited to, any borrowing, capital
expenditure or purchase, sale or lease of assets); (xi) settle or compromise any
claim, lawsuit, liability or obligation; pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligation (a) to the extent reflected or
reserved against in, or contemplated by, the consolidated financial statements
(or the notes
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thereto) of the Company and its consolidated subsidiaries, (b) incurred in the
ordinary course of business and consistent with past practice or (c) which are
legally required to be paid, discharge or satisfied; (xii) take, or agree to
commit to take, any action that would make any representation or warranty of the
Company contained in the Merger Agreement inaccurate in any respect at, or as of
any time prior to, the Effective Time; (xiii) take any action with the intent of
causing any of the conditions to the Offer set forth in Annex A to the Merger
Agreement to not be satisfied; or (xvi) enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither the Company nor any of its subsidiaries will (and the Company will
use its best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent, any of its affiliates or representatives) concerning any
proposal or offer to acquire all or a substantial part of the business and
properties of the Company or any of its subsidiaries or any capital stock of the
Company or any of its subsidiaries, whether by merger, tender offer, exchange
offer, sale of assets or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
'Acquisition Proposal'), except that the Company and the Board of Directors of
the Company are not prohibited from (i) taking and disclosing to the Company's
shareholders a position with respect to a tender or exchange offer by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or
(ii) making such disclosure to the Company's shareholders as, in the good faith
judgment of the Board, after receiving advice from outside counsel, is required
under applicable law, provided that the Company may not, except as described
below, withdraw or modify, or propose to withdraw or modify, its position with
respect to the Offer or the Merger or approve or recommend, or propose to
approve or recommend, any Acquisition Proposal, or enter into any agreement with
respect to any Acquisition Proposal. The Company also agreed to immediately
cease any existing activities, discussions or negotiations with any parties
conducted prior to the date of the Merger Agreement with respect to any of the
foregoing. The Merger Agreement further provides that the Company, prior to the
acceptance of Shares pursuant to the Offer, may furnish information concerning
the Company and its subsidiaries to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group concerning an Acquisition Proposal if (i) such entity or group has, on
an unsolicited basis, submitted a bona fide written proposal to the Company
relating to any such transaction which the Board of Directors of the Company
determines in good faith, after consulting with a nationally recognized
investment banking firm, represents a superior transaction to the Offer and the
Merger and (ii) in the opinion of the Board of Directors of the Company, only
after receipt of advice from outside legal counsel, the failure to provide such
information or access or to engage in such discussions or negotiations would
reasonably be expected to cause the Board of Directors of the Company to violate
its fiduciary duties to the Company's shareholders under applicable law (an
Acquisition Proposal which satisfies the immediately foregoing clauses (i) and
(ii) is referred to in the Merger Agreement as a 'Superior Proposal'). The
Company has agreed that following receipt of any proposal or inquiry received,
the Company will immediately notify Parent of the receipt of the same, the
identity of the party making such proposal or inquiry, and the terms (both
initial and modified) of any such proposal or inquiry (and will disclose any
written materials delivered in connection therewith) and the Company will keep
Parent reasonably informed of the status (including amendments or proposed
amendments) of any such proposal or inquiry. The Company will promptly provide
to Parent any material non-public information regarding the Company provided to
any other party which was not previously provided to Parent. At any time after
two business days following notification to Parent of its intent to do so (which
notification shall include the identity of the bidder and the material terms and
conditions of the proposal) and if permitted to do so pursuant to the terms of
the Merger Agreement, the Board of Directors of the Company may withdraw or
modify its approval or recommendation of the Offer and may enter into an
agreement with respect to a Superior Proposal, provided it shall concurrently
with entering into such agreement pay or cause to be paid to Parent the expense
reimbursement fee described below under '--Termination; Fees'. If the Company
has notified Parent of its intent to enter into an agreement with respect to a
Superior Proposal in compliance with the preceding sentence and has otherwise
complied with such sentence, the Company may enter into an agreement with
respect to such Superior Proposal (with the bidder and
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on terms no less favorable than those specified in such notification) after the
expiration of the initial two business day period without any further
notification.
Indemnification and Insurance. Pursuant to the Merger Agreement, for six
years after the Effective Time, the Surviving Corporation (or any successor to
the Surviving Corporation) shall indemnify, defend and hold harmless the present
and former officers and directors of the Company and its subsidiaries, and
persons who become any of the forgoing prior to the Effective Time, with respect
to matters occurring at or prior to the Effective Time to the full extent
permitted under Tennessee law, the terms of the Company's charter or by-laws, as
in effect as of the date of the Merger Agreement, and the terms of any
indemnification agreement entered into by such persons with the Company prior
the date of the Merger Agreement. The Merger Agreement also provides that Parent
or the Surviving Corporation will maintain the Company's existing officers' and
directors' liability insurance ('D&O Insurance') for a period of not less than
six years after the Effective Time; provided, that Parent may substitute
therefor policies of substantially equivalent coverage and amounts containing
terms no less favorable to such former directors or officers. Parent has also
agreed that if the existing D&O Insurance expires, is terminated or cancelled
during such period, Parent or the Surviving Corporation will use all reasonable
efforts to obtain substantially similar D&O Insurance, but in no event will it
be required to pay aggregate premiums for such insurance in excess of 150% of
the aggregate premiums paid in 1996 on an annualized basis for such purpose (the
'1996 Premium'). If Parent or the Surviving Corporation is unable to obtain the
amount of D&O Insurance required for such aggregate premium, Parent or the
Surviving Corporation has agreed to obtain as much insurance as can be obtained
for an annual premium not in excess of 150% of the 1996 Premium.
Parent Board Representation. At the Effective Time, Parent has agreed take
all actions necessary to (i) appoint Mr. Jeffrey G. Webb as a director of
Parent's Board of Directors and as Vice Chairman of the Board of Directors and
to such other officer positions specified in the Employment Agreement between
Mr. Webb and Parent, and (ii) appoint another individual selected by Mr. Webb
and reasonably acceptable to the Board of Directors of Parent as a director of
Parent's Board of Directors. The parties agreed that any person who is a senior
vice president or Director of the Company on the date of the Merger Agreement is
reasonably acceptable to the Board of Directors of Parent.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Parent and the
Purchaser with respect to, among other things, its organization, capitalization,
authority, financial statements, need for consents or approvals, public filings,
conduct of business, employee benefit plans, intellectual property, employment
matters, compliance with laws, tax matters, litigation, environmental matters,
vote required to approve the Merger Agreement, undisclosed liabilities,
information to be contained in the Proxy Statement, the opinion of its financial
advisor, and the absence of any material adverse change since December 31, 1996
Pursuant to the Merger Agreement, Parent and the Purchaser have made
substantially similar representations and warranties as to their organization,
authority, need for consents or approvals, information to be contained in the
Proxy Statement, capitalization, financial statements, public filings,
undisclosed liabilities, litigation, as well as the Parent and Purchaser's
ability to obtain the financing for the Transaction.
Termination; Fees. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the shareholders of the Company, (a) by mutual consent of Parent and
the Company; (b) by either the Company or Parent (i) if the Offer shall have
expired without any Shares being purchased therein, provided, that such right to
terminate will not be available to any party whose failure to fulfill any
obligation under the Merger Agreement was the cause of, or resulted in, the
failure of Parent or the Purchaser to purchase the Shares on or before such
date; (ii) if any governmental entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties will use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the acceptance for payment of,
or payment for, Shares pursuant to the Offer or the Merger and such order,
decree, ruling or other action shall have become final and non-appealable, or
(iii) if the Offer has not been consummated prior to September 5, 1997;
provided, that the right to terminate the Merger Agreement under this clause
(iii) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of Parent or the Purchaser, as the case may be, to purchase Shares
pursuant to the Offer on or prior to such date; (c) by the Company (i) if
Parent, the Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
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public announcement of the Offer; provided, that the Company may not terminate
the Merger Agreement pursuant to this clause (i) if the Company is at such time
in breach of its obligations under the Merger Agreement such as to cause a
material adverse effect on the Company and its subsidiaries, taken as a whole;
(ii) in connection with entering into a definitive agreement with respect to an
Acquisition Proposal unless it has complied with all of the provisions,
including the notice provisions described above under 'No Solicitation,' and
that the Company (x) makes simultaneous payment of an amount equal to Parent's
good faith estimate of its expenses, and (y) acknowledges in writing its
obligation to promptly reimburse Parent for its actual expenses in excess of
such estimated expenses payment; or (iii) if Parent or the Purchaser shall have
breached in any material respect any of their respective representations,
warranties, covenants or other agreements contained in the Merger Agreement,
which breach cannot be or has not been cured, in all material respects, within
30 days after the giving of written notice to Parent or the Purchaser, as
applicable; (d) by Parent (i) if, due to an occurrence, not involving a breach
by Parent or the Purchaser of their obligations under the Merger Agreement,
which makes it impossible to satisfy any of the conditions to the Offer, Parent,
the Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the initial public
announcement of the Offer; (ii) if, prior to the purchase of Shares pursuant to
the Offer, the Company has breached any representation, warranty, covenant or
other agreement contained in the Merger Agreement which (x) would give rise to
the failure of any of the conditions to the Offer, and (y) cannot be or has not
been cured, in all material respects, within 30 days after the giving of written
notice to the Company; or (iii) if either Parent or the Purchaser is entitled to
terminate the Offer as a result of (x) the withdrawal or adverse modification by
the Company of its approval or recommendation of the Offer, or (y) the Company
entering into an agreement with respect to a Superior Proposal.
In accordance with the Merger Agreement, if (x) the Company terminates the
Merger Agreement pursuant to clause (c)(ii) of the immediately preceding
paragraph, (y) Parent terminates the Merger Agreement pursuant to clause
(d)(iii) of the immediately preceding paragraph, or (z) either the Company or
Parent terminates the Merger Agreement pursuant to paragraph (b)(i) above, and
prior thereto there shall have been publicly announced an Acquisition Proposal,
the Company has agreed to pay to Parent an amount, not to exceed $4,250,000 in
the aggregate, equal to Parent's actual and reasonably documented out-of-pocket
fees and expenses incurred by Parent and Purchaser in connection with the Offer,
the Merger, the Merger Agreement and the consummation of the Transactions
(including the financing thereof).
In accordance with the Merger Agreement, the Company has agreed to pay
$650,000 of the commitment fee payable to the Bridge Lenders pursuant to the
Bridge Commitment Letter. Any amounts refunded under the Bridge Commitment
Letter will be divided equally between Parent and the Company; provided that the
Company will not be entitled to any refund in excess of $650,000.
THE SHAREHOLDERS AGREEMENT
The following is a summary of certain provisions of the Shareholders
Agreement. The summary is qualified in its entirety by reference to the
Shareholders Agreement which is incorporated herein by reference and a copy of
which is attached hereto as Annex II.
Pursuant to the Shareholders Agreement (the 'Shareholders Agreement'),
dated as of May 5, 1997, by and among Parent, the Purchaser, Jeffrey G. Webb,
Chairman, President and Chief Executive Officer and a Director of the Company,
Gregory C. Webb, Senior Vice President and a Director of the Company, Alan D.
Gordon, a director of the Company, and Randall S. Sturges, a director of the
Company (each a 'Shareholder' and together, the 'Shareholders'), the
Shareholders have agreed to tender all of the Shares beneficially owned by them
at the Offer Price and in accordance with the terms and conditions of the Offer,
representing in the aggregate 1,738,530 Shares, or approximately 38% of the
currently outstanding Shares of the Company. The effect of the Shareholders
agreeing to tender certain Shares pursuant to the Shareholders Agreement is that
the Purchaser would only need to receive tenders of an additional 848,335
Shares, or approximately 18.6% of the currently outstanding Shares (or
approximately 16.4% of the fully-diluted Shares), to satisfy the Minimum
Condition. See 'SPECIAL FACTORS--Purpose and Structure of the Transaction.'
Pursuant to the Shareholders Agreement, the Shareholders have agreed, for a
period ending upon the earlier of the consummation of the Merger and four months
following the termination of the Merger Agreement in accordance with its terms
(the 'Term'), at any meeting of the holders of Shares, however called, or in
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connection with any written consent of the holders of Shares, to vote (or cause
to be voted) the Shares (if any) then held of record or beneficially owned by
such Shareholder, (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement and the Shareholders
Agreement and any actions required in furtherance thereof, and (ii) against any
Acquisition Proposal and against any action or agreement that would impede,
frustrate, prevent or nullify the Merger Agreement, or result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or which would result in any
of the conditions set forth in Annex A to the Merger Agreement or set forth in
Article VI of the Merger Agreement not being fulfilled; provided however, that
nothing contained in the Shareholders Agreement shall be construed as requiring
any Shareholder who also is a director of the Company to propose, endorse,
approve or recommend the Merger Agreement or any transaction contemplated
thereby in such Shareholder's capacity as a director of the Company.
Pursuant to the Shareholders Agreement, the Shareholders have further
agreed, during the Term, that the Shareholders shall not (i) tender, or consent
to any tender of, any or all of such Shareholder's Shares, pursuant to any
Acquisition Proposal, (ii) transfer, or consent to any transfer of, any or all
of such Shareholder's Shares, Company Options or any interest therein, (iii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of such Shares, Company Options or any interest
therein, (iv) grant any proxy, power-of-attorney or other authorization in or
with respect to such Shares or Company Options, (v) deposit such Shares or
Company Options into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares or Company Options, or (vi) take any
other action that would in any way restrict, limit or interfere with the
performance of their obligations under the Shareholders Agreement or the
transactions contemplated thereby or by the Merger Agreement. The Shareholders
have further agreed to be bound by the provisions of the Merger Agreement
relating to prohibitions on solicitations of Acquisition Proposals to the same
extent as the Company.
Each Shareholder has also granted Parent an irrevocable proxy to vote each
Shareholder's Shares in favor of the Merger Agreement and against any
Acquisition Proposal.
THE STOCK PURCHASE AGREEMENTS
The following is a summary of certain provisions of the Stock Purchase
Agreements. The summary is qualified in its entirety by reference to the Stock
Purchase Agreements which are incorporated herein by reference and copies of
which are attached hereto as Annexes III-VI.
Pursuant to the Stock Purchase Agreements, on or before the fifth business
day after the consummation of the Offer, Messrs. Jeffrey G.Webb, Gregory C.
Webb, W. Kline Boyd, Senior Vice President of the Company, and J. Kristyn
Shepherd, Senior Vice President of the Company, will each purchase shares of
Parent Common Stock at a price per share equal to the average closing price of
Parent Common Stock for the twenty trading days ending on the day immediately
preceding the consummation of the Offer; provided that the purchase price per
share will not exceed $4.50 nor be less than $2.80 (the 'Purchase Price'). The
exact number of shares of Parent Common Stock which each such purchaser will
purchase will equal the net after-tax proceeds (assuming a 28% tax rate and a
basis in each share of $0.1666) received by each such purchaser in the Offer or
Merger as a result of the sale of 251,165, 32,500, 26,810 and 14,525 Shares, in
the case of each of Messrs. Jeffrey Webb, Gregory Webb, W. Kline Boyd and Ms. J.
Kristyn Shepherd respectively, divided by the Purchase Price. If Parent proposes
to file a registration statement with respect to an offering by Parent for its
own account or an offering for the account of any of its respective
securityholders of any shares of Parent Common Stock (other than a registration
statement on Form S-4 or S-8), then each of the foregoing purchasers of Parent
Common Stock shall, be entitled to include in the offering, subject to certain
limitations, his or her shares of Parent Common Stock acquired pursuant to the
Stock Purchase Agreements.
Assuming a Purchase Price of $4.50, the parties to the Stock Purchase
Agreement would purchase an aggregate of approximately 974,100 shares of Parent
Common Stock, representing approximately 10.8% of Parent's outstanding shares
after giving effect to such purchase. Assuming a Purchase Price of $2.80, the
parties to the Stock Purchase Agreements would purchase an aggregate of
approximately 1,565,600 shares of Parent Common Stock, representing
approximately 16.25% of Parent's outstanding shares after giving effect to such
purchase.
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FINANCING THE TRANSACTION
The Purchaser estimates that the total funds required to purchase all
Shares validly tendered pursuant to the Offer, consummate the Merger, refinance
Parent's and the Company's indebtedness that is required to be repaid in
connection with the Transaction, fund the Surviving Corporation's working
capital needs after the Merger and pay all related costs and expenses will be
approximately $136.9 million. Parent and the Purchaser intend to obtain such
funds by means of (a) the Stock Purchase Transaction, (b) proceeds of borrowings
under the Bank Facility and (c) (i) proceeds obtained from the issuance of the
Senior Notes through a private placement offering that will not be registered
under the Securities Act and that will be made to 'qualified institutional
buyers' in reliance on the exemption from registration provided by Rule 144A
under the Securities Act and to a limited number of institutional 'accredited
investors' and/or (ii) to the extent the Senior Notes are not sold prior to the
purchase of the Shares, proceeds of the Bridge Notes (as defined).
The terms of the Senior Notes, the senior secured bridge notes evidencing
the Bridge Loan (the 'Bridge Notes'), and the Bank Facility (together with the
Bridge Notes and the Senior Notes, the 'Financing Instruments') have not yet
been finalized and are still being negotiated. Moreover, the documentation
evidencing the Financing Instruments has not yet been finalized. Accordingly,
the description below of the Financing Instruments is preliminary and
necessarily incomplete. In addition, the terms and provisions of the Financing
Instruments, to the extent described, are subject to change if the terms of the
Transaction change. In any event, the ultimate Financing Instruments might
contain terms that are more or less onerous than those currently contemplated.
Rule 144A Offering.
Parent intends to issue $100 million aggregate principal amount of Senior
Notes with a maturity date of ten years from the date of issuance at a fixed
interest rate to be determined. The Senior Notes will be senior unsecured
obligations and will rank senior in right of payment to all existing and future
indebtedness of Parent that is subordinated to the Senior Notes and will rank
pari passu in right of payment with all other existing and future senior
indebtedness of Parent. Loans under the Bank Facility will be secured by
substantially all of Parent's assets and accordingly, the Senior Notes will be
effectively subordinated to the loans outstanding under the Bank Facility to the
extent of the value of the assets securing such loans.
The Senior Notes will be unconditionally guaranteed (the 'Subsidiary
Guarantees') on a senior basis by Parent's then existing subsidiaries and each
future subsidiary (collectively, the 'Guarantors'). The Subsidiary Guarantees
will rank senior in right of payment to all existing and future subordinated
indebtedness of the Guarantors and will rank pari passu in right of payment with
all other unsubordinated indebtedness of the Guarantors, including the
guarantees of indebtedness under the Bank Facility. Any Guarantor's obligations
under the Bank Facility, however, will be secured by a lien on substantially all
of the assets of such Guarantor, and the Indenture under which the Senior Notes
will be issued (the 'Indenture') will restrict, but not prohibit, the Guarantors
from incurring additional secured indebtedness. Accordingly, such secured
indebtedness will rank prior to the Subsidiary Guarantees with respect to such
assets.
The Senior Notes and the Indenture are expected to contain customary
covenants, events of default, optional redemption and repurchase and other
provisions, which provisions will be negotiated by Parent based on prevailing
market conditions at the time of the offering.
The Senior Notes will be sold in a private placement offering that will not
be registered under the Securities Act. The Senior Notes may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act. THIS OFFER TO PURCHASE DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SENIOR NOTES.
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Bridge Notes.
In the event that Parent is not able to successfully complete the Rule 144A
private placement prior to consummation of the Offer, Parent intends to fund the
Transaction with the proceeds of the Bridge Notes.
Pursuant to the Bridge Commitment Letter, the Bridge Lenders have committed
that either they and/or one or more of their respective affiliates will purchase
$100 million in aggregate principal amount of the Bridge Notes. The Bridge Notes
will be senior secured obligations of Parent, guaranteed by all existing and
hereafter acquired subsidiaries. NationsBridge and NBD have committed to make
such purchase on a several basis and not jointly, for $80 million and $20
million, respectively, upon terms and subject to the conditions set forth in the
Bridge Commitment Letter, including the execution of definitive financing
documents.
The Bridge Commitment Letter provides that the commitments of the Bridge
Lenders will terminate on September 5, 1997, unless the funding of the Bridge
Notes has occurred prior to such time.
Parent has agreed to pay certain fees to the Bridge Lenders, payable as
follows: (i) a commitment fee in an amount equal to $3 million, which was paid
upon acceptance of the Bridge Commitment Letter, (ii) a funding fee equal to 1%
of the principal amount of the Bridge Notes, payable in cash upon the issuance
of any Bridge Notes and (iii) a customary rollover funding fee payable upon the
exchange of any Bridge Notes for any Rollover Notes (as defined below). Under
certain circumstances, if the Merger is not consummated as a result of certain
governmental actions, a portion of such fees are refundable.
In accordance with the Merger Agreement, the Company has agreed to pay
$650,000 of the commitment fee payable to the Bridge Lenders pursuant to the
Bridge Commitment Letter and any amounts refunded by the Bridge Lenders shall be
divided equally between Parent and the Company; provided that the Company shall
not be entitled to any refund in excess of $650,000.
Funding pursuant to the Bridge Commitment Letter is subject to certain
conditions precedent, including but not limited to (i) the negotiation,
execution and delivery of definitive documents reasonably satisfactory to the
Bank Lenders; (ii) the completion of the bank financing in the amount of at
least $35 million; (iii) the receipt of an opinion from an independent firm
reasonably satisfactory to the Bank Lenders attesting to the solvency of Parent
and its current and future subsidiaries; (iv) not less than a majority of the
shares of the Company (on a fully diluted basis) shall have been validly
tendered and not withdrawn prior to the expiration of the Offer; (v) fees and
expenses incurred in connection with the Merger shall be limited to $15 million;
(vi) all material governmental and third party approvals necessary in connection
with the Offer and the Merger and the continuing operations of Parent and its
subsidiaries shall have been obtained; and (vii) no injunction, temporary
restraining order or other similar relief will have been issued and in effect
with respect to the Offer and/or the Merger.
The Bridge Notes shall mature one year after the issuance thereof (the
'Bridge Note Maturity Date'). If prior to such time they have not been redeemed
in full for cash, the principal of the Bridge Notes then outstanding may,
subject to certain conditions precedent, be satisfied through the delivery of
Senior Secured Rollover Notes (the 'Rollover Notes'). The Bridge Commitment
Letter also provides for the issuance, under certain circumstances, of certain
customary warrants to acquire Parent Common Stock.
The Bridge Notes will be callable up to the Bridge Note Maturity Date, in
whole or in part, at Parent's option, at any time at par plus accrued interest
to the date of redemption. No sinking fund will be required but mandatory
redemption will be required with (subject to certain agreed upon exceptions):
(i) the net proceeds from the issuance of any debt or equity securities of
Parent or any of its subsidiaries or (ii) the net proceeds from asset sales the
net proceeds of which exceed $50,000 of Parent or any of its subsidiaries, other
than sales of current assets to the extent required to pay the Bank Lenders.
Interest shall be payable at the prime rate as announced by NationsBank
from time to time plus the Applicable Margin. The 'Applicable Margin' shall
initially be 3%, increasing by an additional .5% at the end of each subsequent
three-month period for as long as the Bridge Notes are outstanding, provided
that such rate shall not exceed 18% per annum.
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The Bank Facility.
As set forth above under 'INTRODUCTION--Financing the Transaction,' the
Bank Lenders have delivered the Bank Commitment Letter. Pursuant to the Bank
Commitment Letter, the Bank Lenders have committed to provide the Bank Facility
on a senior secured basis, such Facility to include a sublimit for the issuance
of standby and commercial letters of credit, all upon the terms and subject to
the conditions set forth in the Bank Commitment Letter, including the execution
of definitive financing documents.
The Bank Commitment Letter provides that the commitments of the Bank
Lenders will terminate unless definitive financing agreements with respect
thereto shall have been executed and delivered on or prior to September 5, 1997.
Parent has agreed to pay certain fees to the Bank Lenders for their own
account and for the account of the other banks extending the Bank Facility,
payable as follows: (i) a facility fee in an aggregate amount equal to $525,000,
to be paid upon the initial funding thereunder, (ii) a commitment fee of 1/2%
per annum of the undrawn portion of the commitment under the Bank Facility,
accruing from the date of acceptance of the Bank Commitment Letter to and
including the termination of the commitment to provide the loans and letters of
credit to be provided by the Bank Facility and payable on the initial funding of
the Bank Facility and, thereafter, quarterly on the last business day of each
calendar quarter and (iii) an agent's administrative fee, payable to NBD (the
'Administrative Agent'), in the amount of $10,000 annually, payable in advance
commencing on the date of the initial funding of the Bank Facility.
The Bank Facility will be provided pursuant to the terms and conditions of
the Credit Agreement to be entered into by Parent and the Bank Lenders.
Pursuant to the Bank Commitment Letter, the Bank Facility is expected to
consist of a five year revolving credit and working capital facility available
to Parent in a maximum principal amount not to exceed $40 million through
September 30, 1997 and $35 million thereafter outstanding at any time, a portion
of which may be comprised of standby and/or commercial letters of credit (the
'Letters of Credit'), with amounts borrowed thereunder to be subject to a
borrowing base of inventory and accounts receivable (the 'Borrowing Base').
All existing and hereafter acquired subsidiaries of Parent (including the
Surviving Corporation) will unconditionally guarantee the obligations arising
under the Bank Facility. The Bank Facility, and the guarantee obligations in
respect thereof, will be secured by a security interest in accounts receivable
and inventory of Parent and its subsidiaries. The Bank Lenders will also be
granted limited licenses on intellectual property to enable them to dispose of
inventory in the event of a default under the Bank Facility. Additionally,
Parent and its subsidiaries will grant a negative pledge on all unencumbered
assets (other than as required in the Financing Instruments for the Bridge Loan)
in favor of the Bank Lenders.
The Bank Facility will be required to be prepaid in the event and to the
extent that the outstanding principal amount exceeds the Borrowing Base.
Voluntary reduction of the Bank Facility is permitted at any time. Indebtedness
outstanding under the Bank Facility will bear an initial interest rate for the
first year of the Bank Facility, computed on a per annum basis, equal to either
the Alternate Base Rate (as defined below) plus .75% or the London Interbank
Offered Rate ('LIBOR') plus 2.25%. Parent shall have the option of selecting the
type of the borrowing and the length of the interest period applicable thereto.
Following the first year of the Bank Facility, the LIBOR and Alternate Base Rate
margins will be subject to performance pricing step-downs based upon the ratio
(the 'Pricing Ratio') of Parent's Consolidated Funded Debt to EBITDA (as such
terms will be defined in the Credit Agreement). The Pricing Ratio will be
computed quarterly in arrears on a rolling four quarter basis. If the Pricing
Ratio (i) equals or exceeds 5.0, the margin on LIBOR based loans shall be 2.5%
and the margin on Alternate Base Rate based loans shall be 1.0%, (ii) is equal
to or exceeds 4.5 but less than 5.0, the margin on LIBOR based loans shall be
2.25% and the margin on Alternate Base Rate based loans shall be .75%, (iii) is
equal to or exceeds 4.0 but is less than 4.5, the margin on LIBOR based loans
shall be 2% and the margin on Alternate Base Rate based loans shall be .5%, (iv)
is equal to or exceeds 3.5 but is less than 4.0, the margin on LIBOR based loans
shall be 1.75% and the margin on Alternate Base Rate based loans shall be .25%
and (v) is less than 3.5%, the margin on LIBOR based loans shall be 1.5% and the
margin on Alternate Base Rate based loans shall be 0.
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'Alternate Base Rate' shall mean the higher of (i) the Administrative
Agent's prime rate and (ii) the Federal Funds rate plus .5%.
Fees payable in respect of standby letters of credit shall be in an amount
equal to the interest rate margin on LIBOR based loans then in effect, due
quarterly in arrears. The Administrative Agent shall be paid a per annum facing
fee of .25% on the outstanding amount of all standby letters of credit, due
quarterly in arrears. A drawing fee of .25% will be payable on the date of any
drawing under a trade letter of credit. Additionally, Parent shall pay the
Administrative Agent its customary letter of credit charges as in effect from
time to time.
The Bank Facility will contain certain representations and warranties,
certain negative and affirmative financial covenants, certain conditions and
events of default which are customarily required for similar financings.
Representations and warranties will probably apply to Parent and its
subsidiaries, including the Surviving Corporation. Such covenants will include
restrictions and limitations on dividends and stock redemptions, capital
expenditures, leases, incurrence of debt, transactions with affiliates,
investments and acquisitions, and mergers, consolidations and asset sales.
Furthermore, Parent will be required to maintain compliance with certain
financial covenants such as a Maximum Leverage Ratio, an Interest Coverage Ratio
and Minimum Net Worth (as such terms will be defined in the Credit Agreement).
DISSENTERS' RIGHTS
No appraisal or dissenters rights are available in connection with the
Offer. If the Merger is consummated, pursuant to Section 48-23-102(c) of the
Tennessee Business Corporation Act ('TBCA'), holders of Shares will NOT have the
right to dissent from the Merger or elect to have the fair value of their Shares
judicially determined and paid to them in cash, if the Shares are listed on a
national securities exchange or are a national market system security as of the
date of the effectuation of the Merger. As of the date of this Offer, the Shares
are quoted on a national market system.
In the event that the provisions of Section 48-23-102(c) of the TBCA are
inapplicable to the Merger because the Shares are not quoted on a national
market security system as of the date of the effectuation of the Merger, then
Company shareholders shall be entitled to dissent from the Merger and receive
the fair value of their Shares upon compliance with the provisions of Section
48-23-101 through 48-23-302 of the TBCA regarding dissenters' rights. A copy of
the relevant provisions of the TBCA regarding dissenters rights is attached
hereto as Annex VII.
In order to be eligible to exercise the right to dissent, a Company
shareholder must file with the Company a written objection to the Merger stating
that he intends to dissent if the Merger is effected. Such statement must be
filed before the vote is taken at the Special Meeting. It is not necessary for a
dissenting shareholder to vote against the Merger to preserve dissenters'
rights; however, such rights will be lost if the shareholder votes in favor of
the Merger.
If the Merger is approved, the Company will deliver a written notice to
dissenting shareholders no later than ten (10) days after adoption of the
Merger, unless the Merger is terminated and abandoned. The written notice will
set forth where the dissenting shareholders' payment demands must be sent and
where and when certificates must be deposited and will supply a form for
dissenting shareholders demanding payment. A dissenting shareholder must deliver
his payment demand to the Company no later than the date set forth in the
written notice to dissenting shareholders, which may not be fewer than one nor
more than two months after the written notice is delivered ('Demand Period').
Merely abstaining from or voting against the Merger will not satisfy the two
requirements that the shareholder (a) object in writing to the Merger and (b)
file a written demand for payment within the payment period. Failure of a
shareholder to take the required action during the Demand Period binds such
shareholder to the terms of the Merger and precludes exercise of dissenter's
rights.
Within the Demand Period, a dissenting shareholder must submit the
certificates representing his Shares to the Company in accordance with the terms
of the notice to dissenting shareholders. As soon as practicable after the
Merger is effected, or upon receipt of a dissenting shareholder's payment
demand, whichever is later, the Company shall pay each dissenting shareholder
the fair value of his or her shares, plus accrued interest.
If a dissenting shareholder believes that the amount paid by the Company is
less than the fair value of his Shares or that interest due was incorrectly
calculated, the dissenting shareholder must, within one month after the Company
has made payment to the dissenting shareholder, demand payment of his estimate
of the fair value. If a
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demand for payment remains unsettled, the Company must commence a suit in a
court having equity jurisdiction located in Shelby County, Tennessee, within two
months after receiving the dissenting shareholder's payment demand. If the
Company fails to bring such a suit within such time, it shall pay each
dissenting shareholder whose demand remains unsettled the amount demanded. The
court shall determine the dissenting shareholder's right to receive payment or
the fair value of his or her Shares or both. The costs and expenses of such
proceedings shall be assessed against the Company unless the court shall find
the actions of a dissenting shareholder who is a party to the suit to be
arbitrary, vexatious or not in good faith.
Section 48-23-209 of the TBCA provides that 'fair value of shares' shall be
determined as of the day prior to the date on which the shareholder vote was
taken approving the Merger, 'excluding any appreciation or depreciation of
shares in anticipation of such corporate action.' The value so determined could
be more or less than the value of the Merger consideration into which Shares are
to be converted pursuant to the Merger.
IN VIEW OF THE COMPLEXITIES OF THE FOREGOING PROVISIONS OF THE TCBA,
COMPANY SHAREHOLDERS WHO ARE CONSIDERING PURSUING THEIR DISSENTERS' RIGHTS MAY
WISH TO CONSULT WITH LEGAL COUNSEL.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET
FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES
AVAILABLE TO SHAREHOLDERS IF APPRAISAL RIGHTS BECOME AVAILABLE IN CONNECTION
WITH THE MERGER.
SHAREHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE
ANY APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE OFFER
PRICE.
THE OFFER
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for all Shares validly tendered prior to the
Expiration Date (as defined below) and not theretofore withdrawn in accordance
with Section 3 of this Offer to Purchase. The term 'Expiration Date' shall mean
12:00 Midnight, New York City time, on Monday, June 9, 1997, unless and until
the Purchaser, in accordance with the terms of the Merger Agreement, shall have
extended the period of time for which the Offer is open, in which event the term
'Expiration Date' shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire. See 'INTRODUCTION' for a description of
certain rights of Parent and the Purchaser to extend the Expiration Date of the
Offer.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition. See 'THE OFFER--Conditions to the Offer.' If such condition
is not satisfied prior to the Expiration Date, the Purchaser reserves the right
(but shall not be obligated) to (i) decline to purchase any of the Shares
tendered and terminate the Offer, subject to the terms of the Merger Agreement,
(ii) waive any of the conditions to the Offer, to the extent permitted by
applicable law and the provisions of the Merger Agreement, and, subject to
complying with applicable rules and regulations of the Commission, purchase all
Shares validly tendered or (iii) extend the Offer and, subject to the right of
shareholders to withdraw Shares until the Expiration Date, retain the Shares
which will have been tendered during the period or periods for which the Offer
is extended.
Subject to the terms of the Merger Agreement, the Purchaser expressly
reserves the right, in its sole discretion, at any time or from time to time,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of, and the payment for, any Shares, by giving oral
or written notice of such extension to the Depositary and (ii) to amend the
Offer in any respect (including, without limitation, by decreasing or increasing
the Offer Price to holders of Shares and/or by decreasing the number of Shares
being sought in the Offer), by giving oral or written notice of such amendment
to the Depositary. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the Offer as described in
Section 10. Any extension, amendment or termination will be followed as promptly
as practicable by public announcement thereof, the announcement in the case of
an extension to be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date in accordance
with the public announcement requirements of Rule 14d-4(c) under the Exchange
Act. Without limiting the obligation of the Purchaser under such Rule or the
manner in which the Purchaser may choose to make any public
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announcement, the Purchaser currently intends to make announcements by issuing a
release to the Dow Jones News Service.
The Merger Agreement provides that, without the written consent of the
Company, the Purchaser will not amend or waive the Minimum Condition, decrease
the price per Share to be paid or the number of Shares sought pursuant to the
Offer, or amend the conditions of the Offer in any manner adverse to the holders
of Shares.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in Section 3. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-l(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances then existing, including
the relative materiality of the changed terms or information. In a public
release, the Commission has stated that in its view an offer must remain open
for a minimum period of time following a material change in the terms of the
Offer and that waiver of a material condition, such as the Minimum Condition, is
a material change in the terms of the Offer. The release states that an offer
should remain open for a minimum of five business days from the date a material
change is first published, sent or given to security holders and that, if
material changes are made with respect to information not materially less
significant than the offer price and the number of shares being sought, a
minimum of ten business days may be required to allow adequate dissemination and
investor response. The requirement to extend the Offer will not apply to the
extent that the number of business days remaining between the occurrence of the
change and the then-scheduled Expiration Date equals or exceeds the minimum
extension period that would be required because of such amendment. As used in
this Offer to Purchase, 'business day' has the meaning set forth in Rule 14d-1
under the Exchange Act.
The Company has provided the Purchaser with the Company's shareholders
lists and security position listings for the purpose of disseminating the Offer
to holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed by the Purchaser to record holders of Shares and will
be furnished by the Purchaser to brokers, dealers, banks and similar persons
whose names, or the names of whose nominees, appear on the shareholders lists
or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. PROCEDURES FOR TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message (as defined below), and any
other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either certificates for tendered Shares must be received by
the Depositary at one of such addresses or such Shares must be delivered
pursuant to the procedures for book-entry transfer set forth below (and a
Book-Entry Confirmation (as defined below) received by the Depositary), in each
case prior to the Expiration Date, or (ii) the tendering shareholders must
comply with the guaranteed delivery procedures set forth below.
The Depositary will establish accounts with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company (each, a
'Book-Entry Transfer Facility' and, collectively, the 'Book-Entry Transfer
Facilities') for purposes of the Offer within two business days after the date
of this Offer to Purchase. Any financial institution that is a participant in
any of the Book-Entry Transfer Facilities' systems may
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make book-entry delivery of Shares by causing a Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account in accordance with that
Book-Entry Transfer Facility's procedure for such transfer. However, although
delivery of Shares may be effected through book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message, and any other required
documents must, in any case, be transmitted to, and received by, the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering shareholders must comply with the
guaranteed delivery procedures described below. The confirmation of a book-entry
transfer of Shares into the Depositary's account at a Book-Entry Transfer
Facility as described above is referred to herein as a 'Book-Entry
Confirmation.' DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term 'Agent's Message' means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDERS. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
any of the Book Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) of Shares tendered
therewith and such registered holder has not completed either the box entitled
'Special Delivery Instructions' or the box entitled 'Special Payment
Instructions' on the Letter of Transmittal or (ii) if such Shares are tendered
for the account of a bank, broker, dealer, credit union, savings association or
other entity that is a member in good standing of the Securities Transfer
Agent's Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee Program or the Stock Exchange Medallion Program (each, an 'Eligible
Institution' and, collectively, 'Eligible Institutions'). In all other cases,
all signatures on Letters of Transmittal must be guaranteed by an Eligible
Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the
certificates for Shares are registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made or certificates
for Shares not tendered or not accepted for payment are to be returned to a
person other than the registered holder of the certificates surrendered, then
the tendered certificates for such Shares must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holders or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as aforesaid. See Instructions 1
and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholders' certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such shareholders' tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser, is received by the
Depositary, as provided below, prior to the Expiration Date; and
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(iii) the certificates for all physically tendered Shares, in proper form
for transfer (or a Book-Entry Confirmation with respect to all such
Shares), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and any other required documents are received by the
Depositary within three trading days after the date of execution of
such Notice of Guaranteed Delivery. A 'trading day' is any day on
which the New York Stock Exchange (the 'NYSE') is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering shareholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations with respect to
Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE OFFER PRICE TO BE PAID BY THE PURCHASER FOR THE SHARES,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering shareholders and
the Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing the Letter of Transmittal as set forth above,
the tendering shareholders will irrevocably appoint designees of the Purchaser,
and each of them, as such shareholders' attorneys-in-fact and proxies in the
manner set forth in the Letter of Transmittal, each with full power of
substitution, to the full extent of such shareholders' rights with respect to
the Shares tendered by such shareholders and accepted for payment by the
Purchaser and with respect to any and all other Shares or other securities or
rights issued or issuable in respect of such Shares on or after May 5, 1997. All
such proxies will be considered coupled with an interest in the tendered Shares.
Such appointment will be effective when, and only to the extent that, the
Purchaser accepts for payment Shares tendered by such shareholders as provided
herein. Upon such appointment, all prior powers of attorney, proxies and
consents given by such shareholders with respect to such Shares or other
securities or rights will, without further action, be revoked and no subsequent
powers of attorney, proxies, consents or revocations may be given by such
shareholders (and, if given, will not be deemed effective). The designees of the
Purchaser will thereby be empowered to exercise all voting and other rights with
respect to such Shares and other securities or rights, including, without
limitation, in respect of any annual, special or adjourned meeting of the
Company's shareholders, actions by written consent in lieu of any such meeting
or otherwise, as they in their sole discretion deem proper. The Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon the Purchaser's acceptance for payment of such
Shares, the Purchaser must be able to exercise full voting, consent and other
rights with respect to such Shares and other related securities or rights,
including voting at any meeting of shareholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Purchaser in its
sole discretion, which determination will be final and binding. The Purchaser
reserves the absolute right to reject any or all tenders of any Shares
determined by it not to be in proper form or the acceptance for payment of, or
payment for which may, in the opinion of the Purchaser's counsel, be unlawful.
The Purchaser also reserves the absolute right, subject to the provisions of the
Merger Agreement, to waive any of the conditions of the Offer or any defect or
irregularity in the tender of any Shares of any particular shareholders, whether
or not similar defects or irregularities are waived in the case of other
shareholders. No tender of Shares will be deemed to have been validly made until
all defects or irregularities relating thereto have been cured or waived. None
of the Purchaser, Parent, the Company, the Depositary, the Information Agent,
the Dealer Manager or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to
35
<PAGE>
give any such notification. The Purchaser's interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Backup Withholding. In order to avoid 'backup withholding' of U.S. federal
income tax on payments of cash pursuant to the Offer, shareholders surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such shareholders' correct taxpayer identification number ('TIN') on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such shareholders are not subject to backup withholding. If a
shareholder does not provide such shareholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the 'IRS') may
impose a penalty on such shareholder and payment of cash to such shareholder
pursuant to the Offer may be subject to backup withholding of 31%. All
shareholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Purchaser and the Depositary). Certain shareholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Foreign shareholders, if
exempt, should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
3. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by the Purchaser pursuant
to the Offer, may also be withdrawn at any time after July 10, 1997, or at such
later time as may apply if the Offer is extended.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase
and must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of the Shares to be withdrawn, if different from the name of the person
who tendered the Shares. If certificates for Shares have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution, the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant to
the procedures for book-entry transfer as set forth in Section 2, any notice of
withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 2 any time on or prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, Parent, the Company, the Depositary, the Information Agent, the
Dealer Manager or any other person will be under any duty to give notification
of any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay, promptly
after the Expiration Date, for all Shares validly tendered prior to the
Expiration Date and not properly withdrawn in accordance with Section 3. All
determinations concerning the satisfaction of such terms and conditions will be
within the Purchaser's discretion, which determinations will be final and
binding. See Sections 1 and 14. The Purchaser expressly reserves the right, in
its sole discretion, to delay acceptance for payment of or payment for Shares in
order to comply in whole or in part with any applicable law. Any such
36
<PAGE>
delays will be effected in compliance with Rule 14e-l(c) under the Exchange Act
(relating to a bidder's obligation to pay for or return tendered securities
promptly after the termination or withdrawal of such bidder's offer).
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates for such
Shares (or a timely Book-Entry Confirmation with respect thereto), (ii) a Letter
of Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message, and (iii) any other documents required by the
Letter of Transmittal. The per Share consideration paid to any shareholders
pursuant to the Offer will be the highest per Share consideration paid to any
other shareholders pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to the Purchaser
and not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares. Payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payments from the Purchaser
and transmitting payments to tendering shareholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER
PRICE TO BE PAID BY THE PURCHASER FOR THE SHARES, REGARDLESS OF ANY EXTENSION OF
THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The Purchaser's acceptance for payment of Shares tendered pursuant to the
Offer will constitute a binding agreement between the tendering shareholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
If the Purchaser is delayed in its acceptance for payment of, or payment
for, Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (including such rights as are set forth in Sections 1 and 14) (but
subject to compliance with Rule 14e-1(c) under the Exchange Act), the Depositary
may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to exercise, and duly exercise, withdrawal rights as described in
Section 3.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, without expense to
the tendering shareholders (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 2, such Shares will be
credited to an account maintained at the appropriate Book-Entry Transfer
Facility), as promptly as practicable after the expiration or termination of the
Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to Parent, or to one or more direct or indirect wholly
owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to
the Offer, but any such transfer or assignment will not relieve the Purchaser of
its obligations under the Offer and will in no way prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
37
<PAGE>
5. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES.
The Shares are traded on the Nasdaq Stock Market's National Market System
('NASDAQ') under the symbol 'VARS.' The following table sets forth, for each of
the periods indicated, the high and low reported sale price per Share as
reported by the NASDAQ.
<TABLE>
<CAPTION>
MARKET PRICE
-------------
FISCAL YEAR HIGH LOW
- ----------------------------------------------------------------------------------------------- ---- ---
<S> <C> <C>
1995
First Quarter................................................................................ $13 53/64 $11 53/64
Second Quarter............................................................................... 14 1/4 12 3/4
Third Quarter................................................................................ 18 1/8 13 1/2
Fourth Quarter............................................................................... 18 13 1/2
1996
First Quarter................................................................................ 15 3/4 14 1/2
Second Quarter............................................................................... 16 3/4 14 1/2
Third Quarter................................................................................ 16 3/4 15 3/4
Fourth Quarter............................................................................... 16 15
1997
First Quarter................................................................................ 16 14 1/2
Second Quarter (through May 9, 1997)......................................................... 19 14
</TABLE>
On May 5, 1997, the last full trading day prior to the first public
announcement of the intention to commence the Offer, the last reported sale
price of the Shares on the NASDAQ was $14 1/2 per Share. On May 6, 1997, prior
to the commencement of trading, Parent announced the intention to commence the
Offer. On May 9, 1997, which was the last full trading day prior to the
commencement of the Offer, the last reported sale price of the Shares on the
NASDAQ was $18 1/2 per Share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE SHARES.
The Company has advised the Purchaser that the Company paid dividends of
$0.12 and $0.16 per Share, respectively in each of fiscal 1995 and 1996. In the
first quarter of 1997, the Company paid dividends of $0.055 per Share. Pursuant
to the Merger Agreement, prior to the time the directors of the Purchaser have
been elected to, and shall constitute a majority of, the Board of Directors of
the Company, the Company has agreed not to pay any dividends with respect to its
capital stock other than dividends paid by subsidiaries of the Company to the
Company or any of its subsidiaries in the ordinary course of business.
6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ LISTING; EXCHANGE
ACT REGISTRATION; MARGIN REGULATIONS.
The purchase of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and, depending upon the number of Shares so purchased, could adversely effect
the liquidity and market value of the remaining Shares held by the public and
have other consequences with respect to NASDAQ listing, Exchange Act
registration and availability of margin credit. See 'SPECIAL FACTORS--Certain
Effects of the Transaction.'
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Tennessee corporation which sells products and services to
the school spirit industry. The Company designs and markets cheerleader, dance
team and booster club uniforms and accessories and is an operator of youth,
junior high, high school and college cheerleader and dance team camps, clinics
and competitions. The Company promotes its products and services, as well as the
school spirit industry, by organizing and producing various nationally-televised
cheerleading and dance team championships and other special events. The Company
targets the youth market and sells custom-made uniforms and accessories to
customers, and operates cheerleader and dance team camps and clinics, in all 50
states, Japan and Germany. The Company also operates a travel agency that
organizes group travel tours within the United States and abroad, including
tours for school spirit groups. The Company's principal executive offices are
located at 2525 Horizon Lake Drive, Memphis, Tennessee 38133. The telephone
number of the Company at such offices is (901) 387-4300.
Selected Financial Information. Set forth below is certain selected
consolidated financial information with respect to the Company, excerpted or
derived from the Company's 1996 Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the '1996 10-K'), filed with the Commission pursuant to
the Exchange Act. A copy of the Company's consolidated financial statements for
the fiscal years ended December 31, 1995
38
<PAGE>
and 1996 is attached as Exhibit B hereto. The Company has had no significant
debt and has net interest income and therefore the ratio of earnings to fixed
charges is not meaningful.
More comprehensive financial information is included in such reports and in
other documents filed by the Company with the Commission. The following summary
is qualified in its entirety by reference to such reports and other documents
and all of the financial information (including any related notes) contained
therein. Such reports and other documents may be inspected and copies may be
obtained from the Commission in the manner set forth below.
VARSITY SPIRIT CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
---------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1995 1994(1) 1994
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenues............................................ $ 88,449 $ 75,498 $ 59,587 $49,753
Operating income........................................ 8,448 6,326 7,985 4,837
Net income.............................................. 5,200 4,163 4,917 3,022
Net income per share.................................... 1.10 0.89 1.07 0.66
BALANCE SHEET DATA (at end of period):
Working capital......................................... $ 18,006 $ 15,212 $ 12,413 $ 8,611
Total assets............................................ 37,791 29,243 24,870 18,701
Total liabilities....................................... 7,894 4,449 4,129 2,965
Shareholders' equity.................................... 29,897 24,794 20,741 15,736
Book value per share.................................... 6.32 -- -- --
</TABLE>
- ------------------
(1) Effective April 1, 1994, the Company changed its fiscal year end. The fiscal
period ended December 31, 1994 consists of nine months rather than a
complete year.
Certain Estimates Prepared by the Company. During the course of the
discussions between Parent and the Company that led to the execution of the
Merger Agreement, the Company provided Parent with certain information about the
Company which is not publicly available. The information provided included
financial forecasts which contain, among other things, the summary financial
information set forth below.
THE COMPANY DOES NOT, AS A MATTER OF COURSE, PUBLICLY DISCLOSE
FORWARD-LOOKING INFORMATION (SUCH AS THE FINANCIAL FORECASTS REFERRED TO ABOVE)
AS TO FUTURE REVENUES, EARNINGS OR OTHER FINANCIAL INFORMATION. PROJECTIONS OF
THIS TYPE ARE BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO
SIGNIFICANT ECONOMIC, INDUSTRY AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES,
ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY OF WHICH ARE BEYOND THE CONTROL
OF THE COMPANY. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED
RESULTS WOULD BE REALIZED OR THAT ACTUAL RESULTS WOULD NOT BE SIGNIFICANTLY
HIGHER OR LOWER THAN THOSE PROJECTED. IN ADDITION, THESE PROJECTIONS WERE
PREPARED BY THE COMPANY SOLELY FOR INTERNAL USE AND NOT FOR PUBLICATION OR WITH
A VIEW TO COMPLYING WITH THE PUBLISHED GUIDELINES OF THE COMMISSION REGARDING
PROJECTIONS OR WITH THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS GUIDE
FOR PROSPECTIVE FINANCIAL STATEMENTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE
ONLY BECAUSE THEY WERE FURNISHED TO PARENT. THE FINANCIAL FORECASTS NECESSARILY
MAKE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS
AND ECONOMIC CONDITIONS, ACCESS TO MARKETS AND DISTRIBUTION CHANNELS,
AVAILABILITY AND PRICING OF RAW MATERIALS, FOREIGN CURRENCY RATES AND OTHER
MATTERS, ALL OF WHICH ARE INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND
CONTINGENCIES AND MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ONE CANNOT
PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE FINANCIAL FORECASTS WILL
BE ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE
CONTAINED IN THE FORECASTS. THE INCLUSION OF THIS FORWARD-LOOKING INFORMATION
SHOULD NOT BE REGARDED AS FACT OR AN INDICATION THAT PARENT, THE PURCHASER, THE
COMPANY OR ANYONE WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE
PREDICTOR OF FUTURE RESULTS, AND THIS INFORMATION SHOULD NOT BE RELIED ON AS
SUCH. NONE OF PARENT, THE PURCHASER OR THE COMPANY ASSUMES ANY RESPONSIBILITY
FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE FORECASTS AND
THE COMPANY HAS MADE NO REPRESENTATION TO PARENT OR THE PURCHASER REGARDING THE
FORECASTS.
39
<PAGE>
VARSITY SPIRIT CORPORATION
SELECTED ESTIMATED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998 FISCAL 1999 FISCAL 2000 FISCAL 2001
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues........................... $101.2 $115.4 $131.5 $147.3 $165.0
Gross Profit............................. 38.8 44.2 50.4 56.5 63.3
EBITDA................................... 11.2 12.7 14.4 16.1 17.8
EBIT..................................... 10.0 11.4 13.0 14.6 16.3
Net Income............................... 6.0 6.9 7.9 8.8 9.9
Earnings Per Share....................... 1.27 1.45 1.66 1.85 2.08
</TABLE>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a 'safe
harbor' for forward-looking statements to encourage companies to provide
prospective information about themselves without fear of litigation so long as
those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors which could cause
actual results to differ materially from those projected in the statement. This
Offer to Purchase contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in this section and
include, without limitation, the Company's expectation and estimates as to the
Company's business operations, including the introduction of new products,
future financial performance, including growth in net sales and earnings, cash
flows from operations and capital expenditures. In addition, in this and other
portions of this Offer to Purchase, the words 'anticipates,' 'believes,'
'estimates,' 'expects,' 'plans,' 'intends' and similar expressions, as they
relate to the Company and its subsidiaries or the Company's management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions. In addition to factors that may be
described in this Offer to Purchase, the following factors, among others, could
cause the actual results to differ materially from those expressed in any
forward-looking statements made by the Company: (i) difficulties or delays in
developing and introducing new products or failure of customers to accept new
product offerings; (ii) the continuing popularity of athletic and school spirit
programs in the youth, junior high, high school and college markets; (iii)
changes in consumer preferences and the ability of the Company to adequately
anticipate such changes; (iv) the highly seasonal nature of the Company's
operations; (v) effects of and changes in general economic and business
conditions; (vi) actions by competitors, including new product offerings and
marketing and promotional successes; (vii) the ability of the Company to secure
desirable camp locations and camper accommodations at competitive prices and to
secure desirable locations for its special events programs; (viii) the loss of
any significant suppliers or sponsors; and (ix) changes in business strategy or
new product lines. Most of these factors are not unique to the Company but are
generally applicable to companies in the manufacturing and 'spirit' industries.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is obligated to file reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information as of particular dates
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interests of such persons in transactions with the Company is required
to be disclosed in proxy statements distributed to the Company's shareholders
and filed with the Commission. Such reports, proxy statements and other
information should be available for inspection at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, NY 10048 and Citicorp Center, 500 West Madison
Street (Suite 1400), Chicago, IL 60661. Copies of such information should be
obtainable by mail, upon payment of the Commission's customary charges, by
writing to the Commission's principal office at 450 Fifth Street,
40
<PAGE>
N.W., Washington, D.C. 20549. In addition, the Commission maintains a web site
on the Internet which can be accessed at http://www.sec.gov which contains
information regarding the Company.
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or based upon
publicly available documents on file with the Commission and other publicly
available information. Although neither the Purchaser nor Parent has any
knowledge that any information acquired from publicly available documents or
directly from the Company is untrue, neither the Purchaser nor Parent takes any
responsibility for the accuracy or completeness of such information or for any
failure by the Company to disclose events that may have occurred and may affect
the significance or accuracy of any such information but which are unknown to
the Purchaser and Parent.
8. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER.
The Purchaser, a Tennessee corporation, is a wholly owned subsidiary of
Parent. Purchaser was recently organized to acquire the Company and has
conducted no activities unrelated to such purpose since its organization. All of
the issued and outstanding shares of capital stock of the Purchaser are
beneficially owned by Parent. The principal executive offices of the Purchaser
are located at the principal executive offices of Parent. The telephone number
of the Purchaser at such offices is (212) 826-4300.
Parent is engaged in the businesses of manufacturing and selling athletic
products to schools and other institutions. Historically, Parent has been
principally known for its protective football equipment but recently also began
to expand its distribution of other athletic products, such as baseball items,
through its institutional sales force. Parent reconditions football helmets,
shoulder pads and other sports protective equipment. Parent also markets full
size and miniature collectible helmets and other products bearing the Parent
trademark through retail outlets. The Riddell Sports and MacGregor trademarks
are licensed to other companies primarily for use on athletic footwear apparel
and equipment.
Parent is the world's leading manufacturer of football helmets, which it
sells under the Riddell Sports brand name. Parent is also the world's leading
reconditioned of football helmets, shoulder pads and other sports protective
equipment. Recently, Parent began to expand the categories of athletic products
sold to institutions by its direct sales force to include baseball items and,
beginning in the 1997 season, a full line of practicewear for team sports. In
addition, Parent continues to focus on expanding its marketing of collectible
products to retail channels. In 1996, Parent introduced several new collectible
products including miniature hockey goalie masks displaying the National Hockey
League team logos, and in 1997, Parent introduced miniature baseball helmets of
Major League baseball teams. Also in 1997, Parent plans to begin shipping its
new line of Star Wars collectible products.
Parent was organized as a Delaware corporation in May 1988 to acquire
substantially all of the assets and business of two former second-tier
subsidiaries of MacGregor Sporting Goods, Inc. The businesses of the two
subsidiaries constituted of manufacturing and selling Parent football helmets
and other protective products and the licensing of the MacGregor trademark. In
September 1991, Parent acquired certain assets and liabilities of the protective
equipment operations (the 'Protective Equipment Division') of BSN Corp, now
known as Aurora Electronics Inc. The Protective Equipment Division consisted of
BSN's reconditioner of protective sports equipment and certain other businesses.
Parent is a holding company that operates through various subsidiaries.
Parent's subsidiary, Riddell, Inc., manufacturers or sources new sports products
for both institutional and retail customers. All American Sports Corporation
maintains an institutional sales force that sells reconditioning services and
new equipment directly to schools and other institutions. RHC Licensing
Corporation and Ridmark Corporation license the Riddell Sports trademarks.
Equilink Licensing Corp. licenses the MacGregor trademarks. Proacq Corp.
licenses Parent's Maxpro trademark. The principal executive offices of Parent
are located at 900 Third Avenue, New York, New York 10022. Its telephone number
at such address is (212) 826-4300.
Selected Financial Information. Set forth below is certain selected
consolidated financial information with respect to Parent for the fiscal years
ended December 31, 1996, 1995, 1994, and 1993 and for the fiscal quarter ended
March 31, 1997. Such financial information has been taken from the periodic
reports and other documents filed by Parent with the Commission and from
Parent's press release announcing the results of the first quarter
41
<PAGE>
issued by Parent on May 6, 1997. More comprehensive information concerning
Parent is included in such reports and other documents and the financial
information that follows is qualified in its entirety by reference to such
reports and other documents and all of the financial information and notes
contained therein. Such reports and other documents may be inspected and copies
may be obtained from the Commission in the manner set forth below.
RIDDELL SPORTS INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
MARCH 31, FISCAL YEARS ENDED DECEMBER 31,
-------------- -----------------------------------------
1997 1996 1995 1994 1993
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS DATA:
Net Revenues............................ $18,575 $72,382 $67,043 $55,412 $48,753
Income before income taxes.............. (17) 2,953 2,470 (6,182) (5,696)
Net income.............................. (17) 2,843 471 (4,933) (5,747)
Earnings per common share............... 0.00 0.34 0.06 (0.62) (0.73)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................... $28,295 $25,957 $19,287 $11,037 $13,231
Total assets............................ 79,494 76,361 74,124 72,252 60,656
Total liabilities....................... 51,766 48,616 49,222 47,821 31,197
Shareholders' equity.................... 27,728 27,745 24,902 24,431 29,459
</TABLE>
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of Parent and the Purchaser are set forth in Schedule I and
Schedule II hereto.
Except as set forth in this Offer to Purchase, none of Parent, the
Purchaser or any of its affiliates or, to the best of their knowledge, any of
the persons listed on Schedule I or Schedule II, or any associate or majority
owned subsidiary of any of the foregoing, beneficially owns or has a right to
acquire any Shares, and none of Parent, the Purchaser or any of their affiliates
or, to the best of their knowledge, any of the persons or entities referred to
above, or any of the respective executive officers, directors or subsidiaries of
any of the foregoing, has effected any transactions in Shares during the past 60
days.
Except as set forth in this Offer to Purchase, neither the Purchaser,
Parent, any of their respective affiliates nor, to the best of their knowledge,
any of the persons listed on Schedule I or Schedule II, has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of the Company, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss, or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, neither
the Purchaser, Parent, any of their respective affiliates, nor, to the best of
their knowledge, any of the persons listed on Schedule I or Schedule II, has
had, since January 1, 1994, any business relationships or transactions with the
Company or any of its executive officers, directors or affiliates that would
require reporting under the rules of the Commission. Except as set forth in this
Offer to Purchase, since January 1, 1994, there have been no contacts,
negotiations or transactions between the Purchaser, Parent, any of their
respective affiliates or, to the best of their knowledge, any of the persons
listed on Schedule I or Schedule II, and the Company or its affiliates
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, election of directors or a sale or other transfer of
a material amount of assets.
Parent is subject to the informational filing requirements of the Exchange
Act and, in accordance therewith, is obligated to file reports, proxy statements
and other information with the Commission relating to its business, financial
condition and other matters. Information as of particular dates concerning
Parent's directors and officers, their remuneration, options granted to them,
the principal holders of Parent's securities and any material
42
<PAGE>
interests of such persons in transactions with Parent is required to be
disclosed in proxy statements distributed to Parent's shareholders and filed
with the Commission. Such reports, proxy statements and other information should
be available for inspection from the offices of the Commission in the same
manner as set forth with respect to information concerning the Company in
Section 7.
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of the Merger Agreement, the Company should (a)
split, combine or reclassify the outstanding Shares, (b) redeem, purchase or
otherwise acquire any of its capital stock or (c) issue, sell, pledge dispose of
or encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the Company or its
subsidiaries, other than Shares reserved for issuance on the date of the Merger
Agreement pursuant to the exercise of Company Options outstanding on the date of
the Merger Agreement, then, without prejudice to the Purchaser's rights under
Sections 1 and 10 hereof, the Purchaser, in its sole discretion, may make such
adjustments as it deems appropriate in the Offer Price and other terms of the
Offer, including, without limitation, the number of type of securities offered
to be purchased.
If, on or after the date of the Merger Agreement, the Company should
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock, other than dividends paid
by subsidiaries of the Company to the Company or its subsidiaries in the
ordinary course of business, then, without prejudice to the Purchaser's rights
under Sections 1 and 10 hereof, (a) the Offer Price may, in the sole discretion
of the Purchaser, be reduced by the amount of any such cash dividend or cash
distribution and (b) the whole of any such noncash dividend, distribution or
issuance to be received by the tendering stockholders will (i) be received and
held by the tendering stockholders for the account of the Purchaser and will be
required to be promptly remitted and transferred by each tendering stockholder
to the Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer, or (ii) at the direction of the Purchaser, be
exercised for the benefit of the Purchaser, in which case the proceeds of such
exercise will promptly be remitted to the Purchaser. Pending such remittance and
subject to applicable law, the Purchaser will be entitled to all rights and
privileges as owner of any such dividend, distribution or right and may withhold
the entire purchase price for Shares tendered in the Offer or deduct from the
purchase price the amount or value thereof, as determined by the purchaser in
its sole discretion.
The Merger Agreement generally prohibits the Company from taking any of the
foregoing actions without the prior written consent of the Purchaser.
10. CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion (subject to the terms of the Merger Agreement),
the Purchaser will not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-l(c)
under the Exchange Act (relating to the Purchaser's obligation to pay for or
return tendered Shares promptly after termination or withdrawal of the Offer),
pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Shares, and may
terminate or amend the Offer as to any Shares not then paid for, if (i) the
Minimum Condition shall not have been satisfied, or (ii) at any time on or after
May 5, 1997 and prior to the acceptance for payment of any such Shares, any of
the following events shall have occurred:
(a) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity (as defined in the Merger Agreement)
against the Purchaser, Parent, the Company or any subsidiary of the Company
(i) seeking to prohibit or impose any material limitations on Parent's or
the Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or to compel Parent or the Purchaser or
their respective subsidiaries and affiliates to dispose of or hold separate
any material portion of the business or assets of the Company or Parent and
their respective subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or the Purchaser of any Shares under
the Offer, seeking to restrain or prohibit the making or consummation of
the Offer or the Merger or the performance of any of the other transactions
contemplated
43
<PAGE>
by the Merger Agreement, or seeking to obtain from the Company, Parent or
the Purchaser any damages that are material in relation to the Company and
its subsidiaries taken as a whole, (iii) seeking to impose material
limitations on the ability of the Purchaser, or render the Purchaser
unable, to accept for payment, pay for or purchase any or all of the Shares
pursuant to the Offer and the Merger, (iv) seeking to impose material
limitations on the ability of Purchaser or Parent effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented
to the Company's shareholders, or (v) which otherwise is reasonably likely
to have a Company Material Adverse Effect (as defined in the Merger
Agreement);
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated, or deemed applicable,
pursuant to an authoritative interpretation by or on behalf of a Government
Entity, to the Offer or the Merger, or any other action shall be taken by
an Governmental Entity, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above;
(c) there shall have occurred any other event, charge or effect after
the date of the Merger Agreement which, either individually or in the
aggregate, would have, or be reasonably likely to have, a Company Material
Adverse Effect;
(d)(i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger or the
Merger Agreement, or approved or recommended any Acquisition Proposal or
(ii) the Company shall have entered into any agreement with respect to any
Superior Proposal in accordance with the Merger Agreement;
(e) the representations and warranties of the Company set forth in the
Agreement shall not be true and correct, in each case (i) as of the date
referred to in any representation or warranty which addresses matters as of
a particular date, or (ii) as to all other representations and warranties,
as of the date of the Merger Agreement and as of the scheduled expiration
of the Offer, unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or materiality
exceptions contained therein) under such representations and warranties,
taking all the inaccuracies under all such representations and warranties
together in their entirety, do not, individually or in the aggregate,
result in a Company Material Adverse Effect;
(f) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant to be performed or complied with by
it under the Merger Agreement other than any failure which would not have,
either individually or in the aggregate, a Company Material Adverse Effect
or the persons who are party to the Shareholders Agreement or the Stock
Purchase Agreements shall have failed to comply with their obligations
under the Shareholders Agreement or Stock Purchase Agreements, as the case
may be;
(g) any person acquires beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act), of at least 30% of the outstanding
Shares (other than any person not required to file a Schedule 13D under the
rules promulgated under the Exchange Act); or
(h) the Merger Agreement shall have been terminated in accordance with
its terms;
which, in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser, may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to such condition (including any action or inaction by
Parent or the Purchaser not in violation of the Merger Agreement) or may be
waived by Parent or the Purchaser in whole or in part at any time and from time
to time in the sole discretion of Parent or the Purchaser, subject in each case
to the terms of the Merger Agreement. The failure by Parent or the Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right and may be
asserted at any time and from time to time.
44
<PAGE>
11. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. Except as otherwise described herein, based on information
provided by the Company, none of the Company, Purchaser or Parent is aware of
any license or regulatory permit that appears to be material to the business of
the Company and its subsidiaries, taken as a whole, that might be adversely
affected by the Purchaser's acquisition of Shares (and the indirect acquisition
of the stock of the Company's subsidiaries) as contemplated herein or of any
approval or other action by a domestic or foreign governmental, administrative
or regulatory agency or authority that would be required or desirable for the
acquisition and ownership of the Shares (and the indirect acquisition of the
stock of the Company's subsidiaries) by the Purchaser as contemplated herein.
Should any such approval or other action be required or desirable, the Purchaser
and Parent presently contemplate that such approval or other action will be
sought, except as described below under 'State Takeover Laws.' While, except as
otherwise described in this Offer to Purchase, the Purchaser does not presently
intend to delay the acceptance for payment of or payment for Shares tendered
pursuant to the Offer pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the Company's business or that certain parts of the Company's business might not
have to be disposed of or other substantial conditions complied with in the
event that such approvals were not obtained or such other actions were not taken
or in order to obtain any such approval or other action. If certain types of
adverse action are taken with respect to the matters discussed below, the
Purchaser could decline to accept for payment or pay for any Shares tendered.
See Section 10 for certain conditions to the Offer, including conditions with
respect to governmental actions.
State Takeover Laws. Under the Tennessee Investor Protection Act (TBCA
Section 48-35-101 et seq.) (the 'Act'), no offeror who beneficially owns,
directly or indirectly, five percent or more of any class of equity securities
of an offeree company, any of which shares were acquired within one year before
the proposed takeover, shall make a tender offer or request or invitation for
tenders ('takeover offer'), if after the acquisition thereof, the offeror would
be the owner of ten percent or more of any class of outstanding equity
securities of the offeree company, unless, before making such purchase, the
offeror has made a public announcement of the offeror's intention with respect
to changing or influencing the management or control of the offeree company, has
made a full, fair and effective disclosure of such intention to be persons from
whom the offeror intends to acquire such securities and has filed with the
Tennessee Commissioner of the Department of Commerce and Insurance
('Commissioner') and with the offeree company a statement signifying such
intentions.
The offeror is required to provide in the takeover offer that any equity
securities of an offeree company deposited or tendered pursuant to a takeover
offer may be withdrawn by or on behalf of any offeree at any time within seven
days from the date the offer has become effective under the Act or after 60 days
from the date the offer has become effective under the Act.
Under the Act, it is unlawful to make a tender offer or to acquire any
equity security of an offeree company pursuant to a takeover offer unless the
offer is effective under the Act. Before a takeover offeror can become effected,
the offeror is required to file with the Commissioner a registration statement
containing certain specified information and mail a copy by certified mail to
the offeree company at its principal office and publicly disclose the material
terms of the proposed offer. Copies of all advertisements, circulars, letters
and other materials of the offeror or the offeree company soliciting or
recommending acceptance or rejection of the takeover offer are also required to
be filed with the Commissioner and sent to the offeree company or offeror.
The Act makes it unlawful for any offeror or offeree company or any
affiliate or associate of an offeror or offeree company or any broker-dealer,
acting on behalf of any offeror or offeree company, to engage in any fraudulent,
deceptive or manipulative acts or practices in connection with a takeover offer.
The Act also imposes criminal penalties for knowing violations of the Act and
provides for civil liabilities.
Under the TBCA and the Company's Amended and Restated Charter, dated as of
January 1992 (the 'Company's Charter'), the approval of the Board of Directors
of the Company, and the affirmative vote of the holders of a majority of the
outstanding Shares are required to approve and adopt the Merger Agreement and
the transactions contemplated thereby, including the Merger. Section 48-35-205
of the TBCA prevents certain
45
<PAGE>
'business combinations' with an 'interested shareholders' (generally, any person
who owns or has the right to acquire 10% or more of a corporation's outstanding
voting stock) for a period of five years following the time such person became
an interested shareholder unless, among other things, prior to the time the
interested shareholder became such the board of directors of the corporation
approved either the business combination or the transaction in which the
interested shareholder became such.
The Board of Directors of the Company has unanimously approved the Offer,
the Merger and the Merger Agreement and the transactions contemplated thereby
for the purposes of Section 48-35-205 of the TBCA. Unless the Merger is
consummated pursuant to the short-form merger provisions under the TBCA
described below (in which case, no further corporate action by the shareholders
of the Company will be required to complete the Merger), the only remaining
required corporate action of the Company will be the approval and adoption of
the Merger Agreement and the transactions contemplated thereby by the
affirmative vote of the holders of a majority of the Shares.
Under Article Twelve of the Company's Charter, a business combination
transaction involving a beneficial owner of 10% or more of the outstanding
Shares requires the affirmative vote of holders of 80% of the outstanding Shares
and the affirmative vote of holders of two-thirds of the outstanding Shares not
otherwise held by such beneficial owner; provided, however, that such a business
combination may be approved by a majority of the outstanding Shares if the
transaction was approved by a majority of the Continuing Directors (as such term
is defined in the Company's Charter). The Company has represented in the Merger
Agreement that such approval was obtained and that, accordingly, the provisions
of Article Twelve shall not be applicable to the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However in 1987, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of the remaining presenting shareholders.
The state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of shareholders in the state and were
incorporated there.
Except as described above with respect to Section 48-35-205 of the TBCA,
the Purchaser has not attempted to comply with the takeover laws of any other
state. Should any person seek to apply any state takeover law, the Purchaser
will take such action as then appears desirable, which may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state takeover laws is
applicable to the Offer or the Merger, and an appropriate court does not
determine that it is inapplicable or invalid as applied to the Offer, the
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined, the
Purchaser might be unable to accept for payment any Shares tendered pursuant to
the Offer, or be delayed in continuing or consummating the Offer and the Merger.
In such case, the Purchaser may not be obligated to accept for payment any
Shares tendered. See 'THE OFFER--Conditions to the Offer.'
Short Form Merger. Under the TBCA, if the Purchaser acquires at least 90%
of the outstanding Shares, the Purchaser will be able to approve the Merger
without a vote of the Company's shareholders. In such event, the Purchaser
anticipates that it will take all necessary and appropriate action to cause the
Merger to become effective as soon as reasonably practicable after such
acquisition without a meeting of the Company's shareholders. If the Purchaser
does not otherwise acquire at least 90% of the outstanding Shares pursuant to
the Offer or otherwise, a significantly longer period of time may be required to
effect the Merger, because a vote or the consent of the Company's shareholders
would be required under the TBCA.
Pursuant to the Merger Agreement, the Company has agreed to take all action
necessary under the TBCA and the Company's Charter and by-laws to convene a
meeting of its shareholders promptly following consummation of the Offer to
consider and vote on the Merger, if a shareholders' vote is required. If the
46
<PAGE>
Purchaser owns a majority of the outstanding Shares, approval of the Merger can
be obtained without the affirmative vote of any other shareholders of the
Company.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. See 'DISSENTERS' RIGHTS' for a discussion of appraisal rights in
connection with the Merger.
Federal Reserve Board Regulations. Regulations G, U and X (the 'Margin
Regulations') of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly by margin stock. Such
secured credit may not be extended or maintained in an amount that exceeds the
maximum loan value of all the direct and indirect collateral securing the
credit, including margin stock and other collateral.
Antitrust. The parties are not required to file a Premerger Notification
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
'HSR Act')(15 U.S.C. Section 18a), as neither party satisfies the jurisdictional
threshold of Section 7a(a)(2) of the HSR Act, which requires that at least one
of the parties have total assets or annual net sales of $100,000,000 or more.
12. FEES AND EXPENSES.
Parent has engaged Berenson Minella to act as financial advisor to Parent
in connection with the proposed acquisition of the Company and as Dealer Manager
in connection with the Offer. Parent has also agreed to reimburse Berenson
Minella for its reasonable travel and other out of pocket expenses and to
indemnify Berenson Minella and certain related persons against certain
liabilities and expenses in connection with its services as financial advisor,
including liabilities under federal securities laws. See 'SPECIAL
FACTORS--Presentation of Berenson Minella & Company to the Board of Directors of
Parent' for a description of the fees payable to Berenson Minella and 'SPECIAL
FACTORS--Opinion of Goldman, Sachs & Co. to the Board of Directors of the
Company' for a description of the fees payable to Goldman Sachs.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and American Stock Transfer & Trust Company to act as the
Depositary in connection with the Offer. Such firms each will receive reasonable
and customary compensation for their services. The Purchaser has also agreed to
reimburse each such firm for certain reasonable out-of-pocket expenses and to
indemnify each such firm against certain liabilities and expenses in connection
with their services, including certain liabilities under the federal securities
laws.
It is estimated that the expenses incurred in connection with the
Transaction (other than the fees payable in connection with the Rule 144A
private placement) will be approximately as set forth below:
<TABLE>
<S> <C>
Filing Fees............................................................................... $ 19,557
Bank Financing Fees....................................................................... 4,525,000
Berenson Minella Fees..................................................................... 1,430,000
Goldman Sachs Fees........................................................................ 1,570,000
Information Agent Fees.................................................................... 10,000
Depositary Fees........................................................................... 7,500
Legal Fees................................................................................ 1,500,000
Accounting Fees........................................................................... 100,000
Printing and Mailing Costs................................................................ 250,000
Miscellaneous............................................................................. 100,000
----------
Total................................................................................... $9,512,057
----------
----------
</TABLE>
Except as set forth above, the Purchaser will not pay any fees or
commissions to any broker or dealer or other person for soliciting tenders of
Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will
be reimbursed by the Purchaser for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
47
<PAGE>
13. MISCELLANEOUS.
The Offer is being made to all holders of Shares other than the Company.
The Purchaser is not aware of any jurisdiction in which the making of the Offer
or the tender of Shares in connection therewith would not be in compliance with
the laws of such jurisdiction. If the Purchaser becomes aware of any
jurisdiction in which the making of the Offer would not be in compliance with
applicable law, the Purchaser will make a good faith effort to comply with any
such law. If, after such good faith effort, the Purchaser cannot comply with any
such law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares residing in such jurisdiction. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Purchaser by the Dealer Manager or one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED HEREIN OR IN
THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser and Parent have filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act furnishing certain additional
information with respect to the Offer. The Purchaser, Parent, the Company and
Messrs. Jeffrey G. Webb and Gregory C. Webb have filed with the Commission a
Transaction Statement on Schedule 13E-3 (the 'Schedule 13E-3') pursuant to Rule
13e-3 under the Exchange Act furnishing certain additional information with
respect to the Transaction. The Schedule 14D-1 and the Schedule 13E-3 and any
amendments thereto, including exhibits, may be examined and copies may be
obtained from the offices of the Commission in the manner set forth in Section 7
of this Offer to Purchase (except that they will not be available at the
regional offices of the Commission).
CHEER ACQUISITION CORP.
May 12, 1997
48
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
Directors and Executive Officers of Parent. The following table sets forth
the name, business address and present principal occupation or employment, and
material occupations, positions, offices or employments for the past five years
of each director and executive officer of Parent. Unless otherwise indicated,
each such person is a citizen of the United States of America and the business
address of each such person is c/o Riddell Sports Inc., 900 Third Avenue, New
York, New York 10022. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with Parent. Unless otherwise
indicated, each such person has held his or her present occupation as set forth
below, or has been an executive officer at Parent, or the organization
indicated, for the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND PRESENT MATERIAL POSITIONS HELD DURING THE PAST
BUSINESS ADDRESS FIVE YEARS
- --------------------------------------- ---------------------------------------
<S> <C>
1. DIRECTORS OF PARENT
Robert E. Nederlander.................. Mr. Nederlander has been Chairman of the Board of the Parent since May 1988 and was the
Parent's Chief Executive Officer from May 1998 through May 1, 1993. From
February until June 1992, Mr. Nederlander was also the Parent's interim President and
Chief Operating Officer. Mr. Nederlander has been President and a Director since November
1981 of the Nederlander Organization, Inc., owner and operator of one of the world's
largest chains of legitimate theaters. He served as the Managing General Partner of the
New York Yankees from August 1990 until December 1991, and has been a limited partner since
1973. Mr. Nederlander has been President since October 1985 of the Nederlander Television
and Film Productions, Inc.; Chairman of the Board since January 1988 of Mego Corporation
and Vice Chairman of the Board since February 1988 to early 1993 of Vacation Spa Resorts,
Inc., an affiliate of Mego Corporation and Chairman of the Board of Allis-Chalmers Corp.
from May 1989 to 1993, when he became Vice Chairman. In 1995, Mr. Nederlander became a
director of HFS Incorporated. Mr. Nederlander was a senior partner in the law firm of
Nederlander, Dodge and Rollins in Detroit, Michigan, between 1960 and 1989.
David M. Mauer......................... Mr. Mauer became the Parent's Chief Executive Officer on May 1, 1993, succeeding
Mr. Nederlander. Mr. Mauer was President of Mattel U.S.A. from late 1990 through the
beginning of 1993 and was President of Tonka U.S.A. Toy Group from 1988 until 1990. In
1995, Mr. Mauer was elected a member of the Board of Directors of The Topps Company, Inc.
Leonard Toboroff....................... Mr. Toboroff has been Vice President of the Parent since May 1988. Since May 1989,
Mr. Toboroff has been a Vice President and Vice Chairman of the Board of Allis-Chalmers
Corp. Mr. Toboroff has been a practicing attorney since 1961 and from January 1, 1988 to
December 31, 1990, was counsel to Summit Solomon & Feldesman in New York City, which was
counsel to the Parent from May 1988 through February 1993. He has been a Director since
August 1987 and was Chairman and Chief Executive Officer from December 1987 to May 1988 of
</TABLE>
S-I-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND PRESENT MATERIAL POSITIONS HELD DURING THE PAST
BUSINESS ADDRESS FIVE YEARS
- --------------------------------------- ---------------------------------------
<S> <C>
Ameriscribe Corp. Mr. Toboroff was Chairman and Chief Executive Officer from May-July 1982,
and then was Vice Chairman from July 1982 through September 1988 of American Bakeries
Company. Mr. Toboroff has been a director of Banner Aerospace, Inc., a supplier of aircraft
parts, since September 1992. He has been a director of Engex, Inc. and director of Saratoga
Springs Beverage Co. since 1993.
Don R. Kornstein....................... Mr. Kornstein has been a member of the Board of Directors, Chief Executive Officer and
President of Jackpot Enterprises, Inc. since September 1994. Prior to this he was a Senior
Managing Director at Bear, Stearns & Co. Inc. for 17 years through September 1994.
John McConnaughy, Jr................... Mr. McConnaughy is Chairman and Chief Executive Officer of JEMC Corp. From 1969 to 1986,
Mr. McConnaughy served as Chairman and Chief Executive Officer of Peabody International
Corp. ('Peabody'). From 1981 to 1992, he served as Chairman and Chief Executive Officer of
GEO International Corp. when it was spun off from Peabody in 1981. Mr. McConnaughy is a
Director of DeVlieg Bullard Inc., Mego Corp., Transact International, Inc., Pantapec
International, Inc., Enviropur Waste Refining and Technologies, Inc., Wave Systems, Inc.,
Oxigene, Inc. and Commonwealth Snack Co. Geo International Inc. filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in October 1993.
Glenn E. 'Bo' Schembechler............. Mr. Schembechler was President of the Detroit Tigers from January 1990 through August
1992 and a member of the Tigers Board of Directors from 1989 through 1990. He is also a
Director of Midland Company. From 1968 through 1989, Mr. Schembechler was head football
coach of the University of Michigan and served as its Athletic Director in 1988 and 1989.
Dan Cougill............................ Mr. Cougill was appointed President and Chief Operating Officer of the Parent in June
1995 and of its subsidiary, Riddell Sports, in February 1, 1994. Prior to his appointment,
Mr. Cougill was employed in various capacities by Wilson Sporting Goods since 1977 and was
a Vice President of Wilson Sporting Goods and the General Manager of its Team Sports
Division prior to joining Parent.
David Groelinger....................... In March of 1996, Mr. David Groelinger was appointed the Parent's Chief Financial
Officer. Before joining the Parent and from 1994 he was a member of the Board of Directors,
Executive Vice President and Chief Financial Officer of Regency Holdings (Cayman) Inc.,
which owned and operated a major international cruise line. Prior to this Mr. Groelinger
served in various senior financial capacities during twelve years at Chiquita Brands
International, Inc. In 1990, he was promoted to Vice President reporting to the Chiquita's
President and Chief Operating Officer. Regency Holdings (Cayman) Inc. filed a petition to
reorganize under Chapter 11 of the United States Bankruptcy Code in November 1995.
</TABLE>
S-I-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND PRESENT MATERIAL POSITIONS HELD DURING THE PAST
BUSINESS ADDRESS FIVE YEARS
- --------------------------------------- ---------------------------------------
<S> <C>
Lawrence F. Simon...................... Mr. Simon was Controller of Parent from May 1988 until appointed Treasurer and
Chief Financial Officer of the Parent in October 1990. Mr. Simon was Vice President,
Chief Financial Officer and Treasurer from September 1993 through March 1996, when he was
appointed Senior Vice President and Treasurer.
William Sherman........................ Mr. Sherman joined Riddell Sports (one of Parent's principal operating subsidiaries) in
September 1994 as its Vice President-Institutional Marketing and was elected Senior Vice
President in December 1995. Prior to joining Parent, Mr. Sherman was employed by Wilson
Sporting Goods since 1984. Most recently before joining Riddell Sports Mr. Sherman was
Wilson's Vice President of Business Development, responsible for development for new
business categories. Prior to that he was Vice President/Business Director responsible for
research and development, marketing, purchasing, manufacturing and finance for Wilson's
Team Sports Division. Mr. Sherman also was responsible for license management and strategic
planning for Wilson's licensing program.
Robert Brasser......................... Mr. Brasser was appointed Senior Vice President, Consumer Products of Riddell Sports
(one of the Parent's principal operating subsidiaries) in December 1995 after joining
Riddell Sports, as Vice President of Retail marketing in July 1994. Prior to joining
Riddell Sports, Mr. Brasser served as Vice President of Sales and Marketing for Matrix
Marketing, Inc. from September 1991 to June 1994, and from November 1988 to September 1991
was President of Waveland Associates. Prior to this Mr. Brasser held marketing positions
with Kimberly-Clark and Helene Curtis.
2. EXECUTIVE OFFICERS OF PARENT
Robert E. Nederlander.................. Chairman of the Board. For further information see paragraph 1. above.
David M. Mauer......................... Chief Executive Officer. For further information see paragraph 1. above.
Dan Cougill............................ President and Chief Operating Officer. For further information see paragraph 1. above.
David Groelinger....................... Chief Financial Officer. For further information see paragraph 1. above.
Lawrence F. Simon...................... Senior Vice President. For further information see paragraph 1. above.
Leonard Toboroff....................... Vice President. For further information see paragraph 1. above.
William Sherman........................ Senior Vice President, Institutional Marketing. For further information see paragraph 1.
above.
Robert Brasser......................... Senior Vice President, Consumer Products. For further information see paragraph 1. above.
</TABLE>
S-I-3
<PAGE>
SCHEDULE II
DIRECTORS AND OFFICERS OF THE PURCHASER
Directors and Executive Officers of the Purchaser. The following table
sets forth the name, business address and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years of each director and executive officer of the Purchaser. Each
person listed is a director of the Purchaser. Unless otherwise indicated, each
such person is a citizen of the United States of America and the business
address of each such person is c/o Riddell Sports Inc., 900 Third Avenue, New
York, New York 10022. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with the Purchaser.
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------------------------------ ---------------------------------------------------------
<S> <C>
David Mauer........................................... President. For additional information, see Schedule I, above.
David Groelinger...................................... Vice President and Treasurer. For additional information, see Schedule I,
above.
Lisa Marroni.......................................... Vice President and Secretary. Lisa Marroni has been Vice President,
Secretary and General Counsel of Parent since 1993. Prior to this, Ms.
Marroni was an associate at Curtis, Mallet-Prevost, Colt & Mosle, a New York
law firm. Ms. Marroni has also been an associate at Paul, Weiss, Wharton,
Rifkind, Sterling & Garrison in New York and Skadden, Arps, Slate, Meagher &
Flom in Los Angeles.
</TABLE>
S-II-1
<PAGE>
SCHEDULE III
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers of the Company. The following table sets
forth the name, business address and present principal occupation or employment,
and material occupations, positions, offices or employments for the past five
years of each director and executive officer of the Company. Unless otherwise
indicated, each such person is a citizen of the United States of America and the
business address of each such person is c/o Varsity Spirit Corporation, 2525
Horizon Lake Drive, Memphis, Tennessee 38133. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with the
Company. Unless otherwise indicated, each such person has held his or her
present occupation as set forth below, or has been an executive officer at the
Company, or the organization indicated, for the past five years.
<TABLE>
<CAPTION>
NAME AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
1. DIRECTORS OF THE COMPANY.
Jeffrey G. Webb................... Chairman, President, Chief Executive Officer and Director of Company (since 1983).
Gregory C. Webb and Jeffrey G. Webb are brothers. Mr. Jeffrey Webb has been Chairman,
President and Chief Executive Officer and a director of the Company since its formation in
1983 and was the founder and sole general partner of the Company's predecessor, Universal
Sports Camps, Ltd., a Texas limited partnership formed in 1974. Prior to founding the Company,
Mr. Webb was Vice President/General Manager of the National Cheerleaders Association from
January 1972 to September 1974.
Gregory C. Webb................... Senior Vice President and Director of Company (since 1989); General Manager of Universal
Cheerleaders Association (since 1986). Mr. Gregory Webb has been with the Company for over
seventeen years, has been a director and a Senior Vice President of the Company since 1989,
and General Manager of Universal Cheerleaders Association since 1986. Prior to being named to
his present position, Mr. Webb served in various similar capacities for the Company. Jeffrey
G. Webb and Gregory C. Webb are brothers.
Roy F. Kramer..................... Director of Company (since 1995); Commissioner of the Southeastern Athletic Conference (since
1990); Athletic Director of Vanderbilt University (from 1978 to 1990); head Football Coach of
Central Michigan University (from 1967 to 1977).
Richard F. Strup.................. Director of Company (since 1995); Senior Vice President--International and Global Properties
of Miller Brewing Company (since 1994); various senior executive positions in Marketing,
Miller Brewing Company (1990-1994); Vice President, Marketing of PepsiCo Foods International,
Inc. (1988-1989); Director, Miller Brewing Company and Associated Bank, Inc.
Alan D. Gordon.................... Director of Company (since 1989); President of Richland, Gordon & Company, an investment
banking concern based in Chicago, Illinois (since 1983).
Randall S. Sturges................ Director of Company (since 1989); investor in operating companies (from 1988 to date); General
partner (from 1984 to 1988) with First Chicago Venture Capital.
</TABLE>
S-III-1
<PAGE>
<TABLE>
<S> <C>
William C. Willis, Jr............. Director of Company (since 1992); Executive Vice President and Chief Operating Officer, North
America of Tiger Eye Investments Holdings, Ltd. (since may 1995); President, Chief Operating
Officer and Director of MBf USA, Inc. (from May 1994 to May 1995); President and Chief
Executive Officer (from 1990 to December 1993) of Insituform Technologies, Inc.; President of
Paper Art Company, a division of The Mennen Company (from 1986 to 1990).
2. EXECUTIVE OFFICERS OF THE COMPANY.
Jeffrey G. Webb................... President and Chief Executive Officer. For further information see paragraph 1. above.
Gregory C. Webb................... Senior Vice President and General Manager--USE. For further information see paragraph 1.
above.
W. Kline Boyd..................... Senior Vice President and General Manager--Varsity Spirit Fashions. Mr. Boyd has been with
the Company in his present position since March 1989 and has been an investor in the Company
and its predecessor since 1974. Prior to joining the Company, Mr. Boyd was, and he continues
to be, a partner of Boyd & McWilliams Oil & Gas Properties of Midland, Texas.
J. Kristyn Shepherd............... Senior Vice President--USE. Ms. Sheperd has been with the Company in her present position
since 1989 and has served in various other capacities since joining the Company in 1979. Ms.
Shepherd oversees UCA's special events, television productions and video marketing materials.
John M. Nichols................... Senior Vice President, Finance and Chief Financial Officer. Mr. Nichols joined the Company on
April 1, 1992 as Vice President, Accounting and Income Taxes and has been Senior Vice
President, Finance since July 1992 and Chief Financial Officer since April 1994. From October
1988 through March 1992, Mr. Nichols owned and operated an independent certified public
accounting practice, during the course of which he provided accounting and financial
consulting services to the Company. Prior to October 1988, Mr. Nichols was Chief Financial
Officer of French Quarter Inn, Inc. and a partner with the independent certified public
accounting firm of BDO Seidman, LLP. In the late 1980's, Mr. Nichols acquired minority general
partnership interests in certain land development and hotel operating partnerships and, in
connection with his interest in the land development partnership, guaranteed the repayment of
certain bank loans that were made to the partnership. The land development and hotel operating
partnerships were not as successful as planned and the partnerships filed petitions under
Chapter 11 of the federal bankruptcy laws and, as a consequence of his involvement in the land
development partnership, on July 1, 1992, Mr. Nichols filed a petition under Chapter 7 of the
federal bankruptcy laws, which petition was certified on February 13, 1997.
</TABLE>
S-III-2
<PAGE>
<TABLE>
<S> <C>
Robert Dunseath................... Secretary of the Company. Mr. Dunseath has been with the Company for over ten years and has
been Secretary since September 1989. From September 1989 to April 1994, Mr. Dunseath also
served as Chief Financial Officer of the Company, and from September 1989 to September 1996,
Mr. Dunseath also served as Senior Vice President of the Company, a position which Mr.
Dunseath relinquished for medical reasons. Prior to September 1989, Mr. Dunseath served in
various other executive capacities with the Company. Prior to affiliating with the Company in
1983, Mr. Dunseath served in various capacities with Taco Hut, Inc. and was a financial
analyst with Dobbs Houses, Inc.
Deana Roberts..................... Senior Vice President, Varsity/Intropa Tours. Ms. Roberts joined the Company in December 1994
as a Senior Vice President concurrent with the acquisition by the Company of the Varsity/
Intropa Tours business. Ms. Roberts' responsibilities include the oversight of Varsity/
Intropa's operations in San Jose, California and Houston, Texas. Prior to her current
position, Ms. Roberts served as President of Intropa from October 1992 to December 1994. From
August 1986 to September 1992, she was Director of Sales and Marketing for Intropa
International USA, Inc. Prior thereto, she was Vice President of Ace Group Travel for three
years and, earlier still, was employed by various airline companies.
Richard R. Bowers................. Senior Vice President, Marketing and Strategic Planning. Mr. Bowers joined the Company in June
1993 as Senior Vice President--Marketing and Strategic Planning. Prior to joining the Company,
Mr. Bowers served as Senior Vice President with World Cup USA from February 1993 to July 1993.
From August 1992 to February 1993, he was Director of Marketing for World Cup USA. Prior
thereto, Mr. Bowers spent seven years in international marketing with Mattel Toys, with his
most recent position being Director of International Marketing. Mr. Bowers also spent ten
years in marketing and operations with Kimberly-Clark's Consumer Products Group.
</TABLE>
S-III-3
<PAGE>
SCHEDULE IV
TRANSACTIONS IN SHARES DURING THE PAST 60 DAYS
BY THE PURCHASER, PARENT AND THE COMPANY AND THEIR AFFILIATES
None
S-IV-1
<PAGE>
(GOLDMAN SACHS LETTERHEAD)
EXHIBIT A
PERSONAL AND CONFIDENTIAL
May 5, 1997
Board of Directors
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the 'Shares'), of
Varsity Spirit Corporation (the 'Company') of the $18.90 per Share in cash
proposed to be paid by Cheer Acquisition Corp. ('Purchaser') in the Tender Offer
and the Merger (as defined below) pursuant to the Agreement and Plan of Merger
dated as of May 5, 1997 by and among Riddell Sports, Inc. ('Parent'), Purchaser
and the Company (the 'Agreement'). The Agreement provides for a tender offer for
all of the Shares (the 'Tender Offer') pursuant to which Purchaser, a
wholly-owned subsidiary of Parent, will pay $18.90 per Share in cash for each
Share accepted. The Agreement further provides that following completion of the
Tender Offer, Purchaser will be merged with and into the Company (the 'Merger')
and each outstanding Share will be converted into the right to receive $18.90 in
cash.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1996; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its stockholders; and certain internal financial analyses
and forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company regarding its
past and current business operations, financial condition and future prospects.
In addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the apparel industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement and such opinion does not constitute a recommendation as to
whether any holder of Shares should tender such Shares in the Tender Offer.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $18.90 per
Share in cash to be received by the holders of Shares in the Tender Offer and
the Merger is fair to such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
________________________
(GOLDMAN, SACHS & CO.)
<PAGE>
EXHIBIT B
VARSITY SPIRIT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Varsity Spirit Corporation
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of Varsity Spirit
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years ended December 31, 1996 and 1995 and the nine-month period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Varsity Spirit
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years ended December 31,
1996 and 1995 and the nine-month period ended December 31, 1994, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Memphis, Tennessee
February 12, 1997
B-2
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents................................................................. $ 5,080 $ 9,360
Accounts receivable, less allowance of $170 and $220 for possible losses.................. 6,650 7,162
Inventories (Note 2)...................................................................... 4,926 5,419
Prepaid expenses (Note 3)................................................................. 2,272 2,616
Refundable income taxes................................................................... 383 238
Deferred tax benefit (Note 8)............................................................. 176 259
------------ ------------
Total Current Assets........................................................................ 19,487 25,054
Property and Equipment, less accumulated depreciation (Note 4).............................. 3,127 4,010
Goodwill, less accumulated amortization of $972 and $1,193 (Note 1)......................... 5,929 7,928
Other Assets................................................................................ 700 799
------------ ------------
$ 29,243 $ 37,791
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................................... $ 1,678 $ 1,993
Accruals:
Compensation and payroll taxes......................................................... 266 849
Income taxes (Note 8).................................................................. 167 117
Other.................................................................................. 99 156
Customer deposits......................................................................... 2,065 3,813
Current maturities of long-term debt (Note 6)............................................. -- 120
------------ ------------
Total Current Liabilities................................................................... 4,275 7,048
Deferred Income Taxes (Note 8).............................................................. 174 366
Long-term Debt (Notes 1 and 6).............................................................. -- 480
------------ ------------
Total Liabilities........................................................................... 4,449 7,894
------------ ------------
Commitments and Contingencies (Notes 7 and 10)
Shareholders' Equity (Notes 7 and 11)
Preferred stock, $.01 par value--shares authorized 5,000,000; none issued................. -- --
Common stock, $.01 par value--shares authorized 10,000,000; shares issued 4,710,386 and
4,735,961.............................................................................. 47 47
Additional paid-in capital................................................................ 13,523 14,144
Excess of purchase price over predecessor basis........................................... (2,517) (2,517)
Retained earnings......................................................................... 13,777 18,253
------------ ------------
24,830 29,927
Treasury stock, at cost, 215,504 and 179,378 shares......................................... (36) (30)
------------ ------------
Total Shareholders' Equity.................................................................. 24,794 29,897
------------ ------------
$ 29,243 $ 37,791
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-3
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, ------------------
1994 1995 1996
----------------- ------- -------
<S> <C> <C> <C>
REVENUES:
Uniforms and accessories.............................................. $35,866 $44,049 $49,472
Camps and events...................................................... 23,721 31,449 38,977
----------------- ------- -------
59,587 75,498 88,449
----------------- ------- -------
COSTS OF REVENUES:
Uniforms and accessories.............................................. 18,659 23,379 26,849
Camps and events...................................................... 16,826 23,114 26,764
----------------- ------- -------
35,485 46,493 53,613
----------------- ------- -------
Gross profit....................................................... 24,102 29,005 34,836
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................ 16,117 22,679 26,388
----------------- ------- -------
Operating income................................................... 7,985 6,326 8,448
----------------- ------- -------
OTHER
Interest income--net.................................................. 150 178 166
----------------- ------- -------
Income before taxes on income...................................... 8,135 6,504 8,614
TAXES ON INCOME (Note 8)................................................ 3,218 2,341 3,414
----------------- ------- -------
NET INCOME.............................................................. $ 4,917 $ 4,163 $ 5,200
----------------- ------- -------
----------------- ------- -------
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENT SHARES OUTSTANDING (Note 7)................................ 4,587 4,679 4,734
----------------- ------- -------
----------------- ------- -------
NET INCOME PER SHARE (Note 7)........................................... $ 1.07 $ 0.89 $ 1.10
----------------- ------- -------
----------------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
B-4
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
EXCESS OF
PURCHASE
COMMON STOCK ADDITIONAL PRICE OVER
-------------- PAID-IN PREDECESSOR RETAINED TREASURY
SHARES AMOUNT CAPITAL BASIS EARNINGS STOCK TOTAL
------ ------ ---------- ------------ --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, MARCH 31, 1994........................... 4,699 $ 47 $ 13,016 $ (2,517) $ 5,234 $(44) $15,736
Net income for the period........................ -- -- -- -- 4,917 -- 4,917
Issuance of common stock upon exercise of stock
options........................................ -- -- 62 -- -- 2 64
Tax benefit related to exercise of stock
options........................................ -- -- 24 -- -- -- 24
------ ------ ---------- ------------ --------- -------- -------
BALANCES, DECEMBER 31, 1994........................ 4,699 47 13,102 (2,517) 10,151 (42) 20,741
Net income for the period........................ -- -- -- -- 4,163 -- 4,163
Issuance of common stock upon exercise of stock
options........................................ 11 -- 279 -- -- 6 285
Tax benefit related to exercise of stock
options........................................ -- -- 142 -- -- -- 142
Cash dividends ($.12 per share).................. -- -- -- -- (537) -- (537)
------ ------ ---------- ------------ --------- -------- -------
BALANCES, DECEMBER 31, 1995........................ 4,710 47 13,523 (2,517) 13,777 (36) 24,794
Net income for the period........................ -- -- -- -- 5,200 -- 5,200
Issuance of common stock upon exercise of stock
options........................................ 26 -- 453 -- -- 6 459
Tax benefit related to exercise of stock
options........................................ -- -- 168 -- -- -- 168
Cash dividends ($.16 per share).................. -- -- -- -- (724) -- (724)
------ ------ ---------- ------------ --------- -------- -------
BALANCES, DECEMBER 31, 1996........................ 4,736 $ 47 $ 14,144 $ (2,517) $18,253 $(30) $29,897
------ ------ ---------- ------------ --------- -------- -------
------ ------ ---------- ------------ --------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
B-5
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NINE MONTHS ENDED ------------------
DECEMBER 31, 1994 1995 1996
----------------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 4,917 $ 4,163 $ 5,200
Deferred income taxes.................................................. (15) 21 109
Depreciation and amortization.......................................... 577 992 1,318
Changes in operating assets and liabilities, net of effect of
businesses acquired (Note 1)
Accounts receivable................................................. (3,073) (1,544) (482)
Inventories......................................................... 61 (1,039) (242)
Prepaid expenses.................................................... 3,778 (859) (209)
Refundable income taxes............................................. -- (383) 145
Accounts payable.................................................... (193) 210 62
Accruals............................................................ 100 (695) 741
Customer deposits................................................... (3,103) 890 1,650
-------- ------- -------
Net cash provided by operating activities......................... 3,049 1,756 8,292
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of USE (Note 1)............................................ -- -- (1,926)
Net cash received upon acquisition of Intropa (Note 1)................. 764 -- --
Purchase of property and equipment..................................... (667) (1,984) (1,828)
Decrease (increase) in other assets.................................... 19 (319) 7
-------- ------- -------
Net cash provided (used) by investing activities.................. 116 (2,303) (3,747)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................. 64 286 459
Cash dividends......................................................... -- (537) (724)
-------- ------- -------
Net cash provided (used) by financing activities.................. 64 (252) (265)
-------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (Note 9)................................................... 3,229 (799) 4,280
CASH AND CASH EQUIVALENTS, at beginning of period........................ 2,650 5,879 5,080
-------- ------- -------
CASH AND CASH EQUIVALENTS, at end of period.............................. $ 5,879 $ 5,080 $ 9,360
-------- ------- -------
-------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
B-6
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
Business
Varsity Spirit Corporation (the 'Company') is involved in the business of
organizing, administering, and producing instructional camps, clinics, and
special events predominantly in the United States for spirit groups associated
with secondary schools, colleges, and universities through its divisions,
Universal Cheerleaders Association ('UCA'), Universal Dance Association ('UDA'),
Varsity Sports Gyms ('VSG') and Varsity Deutschland ('VSD') and its wholly-owned
subsidiary, Varsity USA, Inc. ('USA'), which acquired the camp business assets
of United Special Events, Inc., on May 15, 1986. Instructional camps and clinics
include large residential camps and smaller private individual squad level
camps. Its wholly-owned subsidiary, Varsity Spirit Fashions & Supplies, Inc.
('Varsity'), designs and markets cheerleader uniforms and accessories to spirit
groups associated with secondary schools, colleges and universities primarily in
the United States. The selling cycle of the Company is highly seasonal.
Varsity/Intropa Tours, Inc. ('Intropa'), a wholly-owned subsidiary acquired
December 1, 1994, organizes group performance tours, primarily in Europe, for
cheerleaders, bands, orchestras and choirs.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions are
eliminated.
Business Acquisitions
Effective May 15, 1996, the Company's subsidiary, USA, acquired certain of
the assets of United Special Events, Inc. ('USE'), a company which specializes
in organizing, administering, and producing instructional camps, clinics, and
special events, predominately in the western United States, for spirit groups
associated with secondary schools, colleges, and universities. The purchase
price was approximately $1.95 million, of which $1.35 million was paid at
closing and the $600,000 balance was financed by a five-year unsecured
convertible promissory note, bearing interest at 8%. The acquisition was
accounted for using the purchase method. The purchase price and liabilities
assumed were allocated to assets acquired based on their estimated fair values,
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Purchase price, including out of pocket expenses of $88........................ $2,038
Current liabilities assumed.................................................... 369
Bank debt retired at closing................................................... 644
Current assets................................................................. (530)
Fixed assets................................................................... (120)
Covenant not to compete........................................................ (120)
-------
Goodwill....................................................................... $2,281
-------
-------
</TABLE>
The USA operations since the date of acquisition have been included in the
Company's consolidated results of operations. The operating results would not
have been materially different, if the acquisition had occurred on January 1,
1996.
Effective December 1, 1994, a subsidiary acquired certain of the assets of
Intropa International U.S.A., Inc. ('Intropa'), a tour company which specializes
in performance tours for cheerleaders, bands, orchestras and choruses. Total
cash consideration was approximately $1.25 million, of which $961,000 was paid
at closing. $240,000 of the balance was included in accounts payable at December
31, 1994 and was paid 120 days after the closing date. The acquisition was
accounted for using the purchase method.
The Intropa operations since the date of acquisition have been included in
the Company's consolidated results of operations.
B-7
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles ('GAAP') requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, accounts payable and accruals meeting the definition of a
financial instrument approximate fair value.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method.
Samples
The Company provides samples of merchandise carried in the catalogs to its
sales representatives. All costs related to samples used in the sale of the
Company's uniforms and accessories are amortized ratably over three years.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Computer equipment..................................................................... 5
Computer software...................................................................... 3
Machinery and equipment................................................................ 5-7
Furniture and fixtures................................................................. 5
Leasehold improvements................................................................. 2-6
Vehicles............................................................................... 3-5
</TABLE>
For income tax purposes, depreciation is computed using primarily
accelerated methods.
Goodwill
Goodwill, stated at cost less accumulated amortization, represents the
purchase cost allocated to the earning capacity of acquired companies, and is
amortized over periods from 35 to 40 years on the straight-line basis. The
Company continually evaluates the market coverage and earning capacity of its
acquirees to determine if the unamortized goodwill can be recovered from their
undiscounted future cash flows over the remaining amortization period. Should
this evaluation indicate that goodwill will not be recoverable, the Company's
carrying value of the goodwill will be reduced by the estimated shortfall of
undiscounted cash flows.
Catalog Costs
Cost of producing catalogs are deferred and amortized over the selling
season for uniforms and accessories.
Revenue Recognition
Revenue is recognized on sales of uniforms at the time of shipment and on
camps, clinics, special events and tours on the start date of the respective
activity. Expenses incurred and payments received that are associated with the
camps, clinics, events or tours are deferred until the revenue is recognized.
B-8
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Taxes on Income
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' ('FAS 109').
Net Income Per Share
Net income per share is computed based on the weighted average number of
common shares outstanding during each period, after giving effect to the
exercise of dilutive options (see Note 7) and assuming the repurchase, at fair
market value of shares using the proceeds from such exercise.
Stock Options
Stock options are granted to certain officers, employees, directors and
consultants generally at the prevailing market price on the date of the grant.
The Company makes no charge to earnings with respect to stock options, except
where the option price is less than the market price at date of grant. Proceeds
from the sale of unissued common stock under these options are credited to
common stock and additional paid-in capital at the time the options are
exercised. If treasury stock is issued, the Company's treasury stock is reduced
by the cost of the treasury shares reissued and additional paid-in capital is
increased for the excess of the option price over the cost of the treasury
stock.
Statement of Financial Accounting Standards No. 123, 'Accounting for
Stock-Based Compensation' ('SFAS No. 123') issued by the Financial Accounting
Standards Board is effective for transactions entered into in fiscal years that
begin after December 15, 1995. As allowed under the provisions of SFAS No. 123,
the Company will continue to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees,' and has made pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied (see Note 7).
Employee Benefits
The Company provides a defined contribution retirement plan for
substantially all of its full-time employees which meets the requirements of
Section 401(k) of the Internal Revenue Code. The Company's policy is to fund the
retirement plan costs accrued.
Fiscal Year End
Effective April 1, 1994, the Company's Board of Directors approved a change
in the Company's fiscal year from March 31 to December 31.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, 'Earnings Per Share' ('SFAS 128'). This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, 'Earnings Per Share' as the presentation of primary and fully-diluted EPS is
replaced with Basic and Diluted EPS. Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, and applies to entities with publicly-held common stock
or potential common stock. The Company will adopt SFAS 128 in financial
statements issued for the year ending December 31, 1997. If the provisions of
SFAS 128 had been applied to the year ended December 31, 1996, estimated Basic
EPS and Diluted EPS would have been $1.15 and $1.10, respectively.
B-9
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Finished products.......................................................... $3,217 $3,608
Raw materials.............................................................. 1,709 1,811
------ ------
Inventories................................................................ $4,926 $5,419
------ ------
------ ------
</TABLE>
NOTE 3--PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred costs:
Catalogs................................................................. $ 250 $ 330
Camps, clinics and championships......................................... 575 612
Prepaid insurance.......................................................... 413 218
Supplies and samples....................................................... 342 414
Prepaid commissions........................................................ 164 450
Prepaid tour costs......................................................... 339 207
Other...................................................................... 189 385
------ ------
Prepaid expenses........................................................... $2,272 $2,616
------ ------
------ ------
</TABLE>
Deferred catalog costs consist of the Company's expenses associated with
planning, processing, and distributing the Company's uniform and accessory,
danceware and youth catalogs to schools and universities throughout the United
States. The catalogs are mailed in the Company's first quarter of the following
year and the costs of the catalogs are amortized over the Company's selling
season for uniforms and accessories.
Deferred camps and clinics costs are costs incurred in connection with the
organization of the Company's summer cheerleader camp and clinic programs for
the following summer season. These costs are amortized during June, July and
August, which are the months in which the cheerleading camps and clinics are
held.
Deferred championship costs comprise costs associated with organizing and
producing the National Dance Team, High School and College Cheerleading
Championships sponsored by the Company. These costs and associated revenues are
recognized in the month the event occurs.
Direct costs related to organizing, scheduling and arranging upcoming group
tours are recorded as prepaid tour costs and the costs and revenues associated
with the tour are recognized when the tour begins.
B-10
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software.......................................... $ 2,735 $ 4,013
Machinery and equipment.................................................. 1,786 1,999
Furniture and fixtures................................................... 1,347 1,665
Leasehold improvements................................................... 278 414
Vehicles................................................................. 68 69
------- -------
6,214 8,160
Less accumulated depreciation............................................ (3,087) (4,150)
------- -------
Net property and equipment............................................... $ 3,127 $ 4,010
------- -------
------- -------
</TABLE>
Depreciation expense charged to operations was $793,000 and $1,065,000,
respectively, for each of the years ended December 31, 1995 and 1996 and
$444,000 for the nine months ended December 31, 1994.
NOTE 5--REVOLVING CREDIT AGREEMENT
The Company has a revolving credit agreement with a bank which is available
through June 30, 1997, and provides for maximum borrowings of $9,000,000. Under
the agreement, outstanding borrowings bear interest at the lower of prime (8.25%
at December 31, 1996) or LIBOR plus 1% (6.53% at December 31, 1996). The line of
credit is unsecured, but the Company has agreed not to subordinate any
additional assets except in the ordinary course of business without the bank's
approval. The line of credit also requires that the Company maintain certain
financial ratios and meet a minimum tangible net worth. There were no amounts
outstanding under this revolving line of credit agreement at December 31, 1995
or 1996.
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Promissory note bearing interest at 8%, payable in annual
installments of $120,000, plus interest, through May
2001..................................................... $ 600
Current portion............................................ (120)
--------------
Long-term debt............................................. $ 480
--------------
--------------
</TABLE>
On any payment date, the holder of the note shall be entitled, at their
discretion, to convert not less than 75% of any installment of unpaid principal
amount of the note into shares of the Company's common stock based upon a
conversion price of $14.97 per share.
Management believes the carrying value of the Company's long-term debt
approximates fair value based on the current rates offered to the Company.
NOTE 7--COMMON STOCK
On January 31, 1995, the Company's Board of Directors authorized a
three-for-two stock split to be effected in the form of a 50% stock dividend to
be distributed on February 24, 1995 to shareholders of record on February 14,
1995. Shareholders' equity has been restated to give retroactive recognition to
the stock split for all periods presented by reclassifying from retained
earnings to common stock the par value of the additional shares
B-11
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMON STOCK--(CONTINUED)
arising from the split. In addition, all references in the financial statements
to number of shares, per share amounts and stock option data of the Company's
common stock have been restated.
The Company maintains two stock option plans, the 1989 Stock Option Plan
and the 1991 Stock Option Plan. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion 25, Accounting for Stock Issued to Employees, and related
Interpretations. Under APB Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation cost is recognized. Under the 1989 plan,
270,000 options were granted to certain employees at an initial exercise price
of $5.00 per share. The options vested in three equal annual installments ending
April 1, 1995 and expire ten years from date of grant. The Company acquired the
shares to cover the exercise of the 1989 options from its two largest
stockholders for $.17 per share. In November 1991, the 1989 plan was amended to
provide that cancelled options would become available for additional grants at
an exercise price equal to fair market value of the shares at the date of such
grants.
The 1991 plan, as amended, provides options to acquire 600,000 shares that
may be granted to officers, directors and key employees at an exercise price
equal to fair market value at date of grant (110% of fair market value for
options issued to holders of more than 10% of Company stock). Options may be
exercised for a term determined by the Board of not less than one year or more
than ten years from the date of grant.
At December 31, 1996, 21,049 options are available for grant under the 1989
plan, and 159,408 options remain available for grants under the 1991 plan, as
amended.
SFAS No. 123, 'Accounting for Stock-Based Compensation' requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in SFAS
123. The Company estimates the fair value of each stock option on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the years ended December 31,
1995 and 1996, respectively; dividend yield of 1.8597% for both years; expected
volatility of 40.59% for both years; risk-free interest rates of 6.5% for both
years; and expected option lives of 7 years for both years.
Under the accounting provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS
EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income--as reported............................................... $ 4,163 $ 5,200
Net income--pro forma................................................. $ 4,012 $ 4,867
Earnings per share--as reported....................................... $ 0.89 $ 1.10
Earnings per share--pro forma......................................... $ 0.86 $ 1.03
------- -------
------- -------
</TABLE>
B-12
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMON STOCK--(CONTINUED)
Information regarding the status of the Company's two fixed stock option
plans as of December 31, 1994, 1995 and 1996 and changes during the nine months
ended December 31, 1994 and the years ending December 31, 1995 and 1996 is
presented below:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
WEIGHTED- WEIGHTED-
1994 AVERAGE AVERAGE
-------- EXERCISE EXERCISE
SHARES SHARES PRICE SHARES PRICE
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding, beginning of period................ 373,055 353,533 $ 6.40 457,508 $ 8.35
Options granted......................................... -- 162,475 11.96 179,890 14.63
Options exercised....................................... (12,224) (47,878) 5.97 (61,701) 7.44
Options cancelled....................................... (7,298) (10,622) 9.23 (7,251) 12.71
-------- -------- --------- -------- ---------
Options outstanding, end of period...................... 353,533 457,508 $ 8.35 568,446 $ 10.36
Option price range at end of period..................... $5.00 to $5.00 to $5.00 to
$9.50 $13.50 $15.95
Option price range for exercised shares................. $5.00 to $5.00 to $5.00 to
$8.67 $9.34 $9.34
Options available for grant at end of period............ 204,949 203,096 180,457
-------- -------- --------- -------- ---------
Weighted-average fair value of options, granted during
the period............................................ $ 5.82 $ 7.14
--------- ---------
--------- ---------
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS
WEIGHTED- -------------------------
AVERAGE WEIGHTED- WEIGHTED-
EXERCISABLE REMAINING AVERAGE AVERAGE
- ----------------------- NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.00- 8.67.... 226,206 5.3 years $6.07 226,206 $6.07
9.50- 9.54.... 20,475 6.5 years 9.53 20,475 9.53
11.83-13.01.... 145,775 8.0 years 11.98 48,592 11.98
14.50-15.95.... 175,990 9.2 years 14.64 N/A
----------- --------- ----------- ---------
5$.00-15.95.... 568,446 295,273
----------- -----------
----------- -----------
</TABLE>
B-13
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--TAXES ON INCOME
Under FAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Taxes on income in the consolidated statements of income are made up of the
following components:
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, ----------------
1994 1995 1996
------------------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $2,763 $1,950 $2,802
State............................................... 470 370 499
------- ------ ------
3,233 2,320 3,301
------- ------ ------
Deferred:
Federal............................................. (13) 19 96
State (2) 2 17
------- ------ ------
(15) 21 113
------- ------ ------
Taxes on income....................................... $3,218 $2,341 $3,414
------- ------ ------
------- ------ ------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory........................................................ $ 109 $ 172
Bad debt allowance............................................... 67 87
----- -----
Total deferred tax assets.......................................... 176 259
Deferred tax liabilities:
Property and equipment........................................... (174) (329)
Goodwill and other assets........................................ -- (37)
----- -----
Total deferred tax liabilities..................................... (174) (366)
----- -----
Net deferred tax asset (liability)................................. $ 2 $(107)
----- -----
----- -----
</TABLE>
The effective tax rate on income was different from the federal statutory
tax rate. The following summary reconciles taxes at the federal statutory tax
rate with the effective rate:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1994 1995 1996
------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Taxes on income at federal statutory rate..... 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal tax
benefit.................................. 3.8 3.8 3.9
Amortization of goodwill.................... .5 .7 .6
Non-deductible meals and entertainment...... 1.3 1.9 1.7
Other items................................. -- (4.4) (.6)
----- ----- -----
Taxes on income at effective rate............. 39.6% 36.0% 39.6%
----- ----- -----
----- ----- -----
</TABLE>
B-14
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company
considers cash on hand and in checking, savings and money market accounts to be
cash equivalents.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1994 1995 1996
----------------------- ----------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Income taxes........................... $ 3,186 $ 2,826 $ 3,035
Interest............................... $ 1 $ 28 $ 27
------- ------- -------
------- ------- -------
</TABLE>
Non-cash investing and financing activities:
During the years ended December 31, 1996 and 1995, and the nine-month
period ended December 31, 1994, additional paid-in capital was increased by a
reduction in income taxes payable of $168,000, $142,000, and $24,000,
respectively, arising from the exercise of stock options.
In May 1996, the Company purchased certain assets of United Special Events,
Inc. for cash consideration of approximately $1.95 million. In conjunction with
the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired.............................. $3,051
Cash paid to seller and transaction costs.................. (2,082)
Deferred consideration (Note 6)............................ (600)
-------
Liabilities assumed........................................ $ 369
-------
-------
</TABLE>
In December 1994, the Company purchased all of the assets of
Varsity/Intropa Tours for cash consideration of approximately $1.25 million. In
conjunction with the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired.............................. $5,394
Cash paid to the seller and transactions costs............. (1,018)
Deferred consideration..................................... (292)
-------
Liabilities assumed........................................ $4,084
-------
-------
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
A. Leases
The Company's office facilities and warehouse space are leased under
noncancellable operating leases which expire at various times from October 1997
through November 2000. Rent expense for the years ended December 31, 1996 and
1995, and the nine-month period ended December 31, 1994 was $739,000, $684,000,
and $388,000, respectively.
B-15
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
As of December 31, 1996, future net minimum rental payments required under
operating leases that have initial or remaining noncancellable terms in excess
of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
- ----------------------------------------------------------- --------------
<S> <C>
1997....................................................... $591
1998....................................................... 155
1999....................................................... 142
2000....................................................... 89
------
Total minimum lease payments............................... $977
------
------
</TABLE>
B. Concentration of Credit Risk
The Company earns substantially all of its revenues from sales to and
events and activities sponsored primarily by secondary schools, colleges and
universities throughout the United States. The Company generally requires
deposits for mail order sales of merchandise and for camp registrations. The
Company maintains reserves for potential losses and such losses have not
exceeded management's expectations.
C. Litigation
The Company is involved in various legal matters in the ordinary course of
its business. None of these matters are expected to have a material adverse
effect on the Company's consolidated financial statements.
D. Supplier Agreements
The Company has multi-year agreements with independent manufacturers to
produce its uniforms under which garment prices and production levels are
negotiated annually.
E. Retirement Plan
Effective January 1, 1993, the Company adopted a tax-qualified employee
benefit plan which meets the criteria of Section 401(k) of the Internal Revenue
Code. Under the Plan, participants may elect to defer from 2% to 15% of their
compensation and the Company may make discretionary contributions, as determined
annually by the Company's management, of up to 1.25% of the employees'
compensation. Each participant is fully vested at all times in their respective
contribution. Participants become fully vested in contributions made by the
Company on a graduated scale over a seven-year period. Operations were charged
with $35,000 related to this plan in the nine-month period ended December 31,
1994, $25,000 for the year ended December 31, 1995 and $27,500 for the year
ended December 31, 1996.
NOTE 11--SUBSEQUENT EVENT
On February 13, 1997, the Company's Board of Directors declared a $.055 per
share cash dividend to be paid on March 6, 1997, to shareholders of record as of
February 24, 1997.
B-16
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RIDDELL SPORTS INC.
CHEER ACQUISITION CORP.
AND
VARSITY SPIRIT CORPORATION
DATED AS OF
MAY 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE I
THE OFFER AND MERGER....................................................................................... I-1
Section 1.1 The Offer.................................................................................. I-1
Section 1.2 Company Actions............................................................................ I-2
Section 1.3 Directors.................................................................................. I-3
Section 1.4 The Merger................................................................................. I-4
Section 1.5 Effective Time............................................................................. I-4
Section 1.6 Closing.................................................................................... I-4
Section 1.7 Directors and Officers of the Surviving Corporation........................................ I-5
Section 1.8 Shareholders' Meeting...................................................................... I-5
Section 1.9 Merger Without Meeting of Shareholders..................................................... I-5
ARTICLE II
CONVERSION OF SECURITIES................................................................................... I-5
Section 2.1 Conversion of Capital Stock................................................................ I-5
Section 2.2 Exchange of Certificates................................................................... I-6
Section 2.3 Dissenters' Rights......................................................................... I-7
Section 2.4 Company Plans.............................................................................. I-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................. I-7
Section 3.1 Organization............................................................................... I-7
Section 3.2 Capitalization............................................................................. I-8
Section 3.3 Authorization; Validity of Agreement; Company Action....................................... I-8
Section 3.4 Consents and Approvals; No Violations...................................................... I-9
Section 3.5 SEC Reports and Financial Statements....................................................... I-9
Section 3.6 Absence of Certain Changes................................................................. I-9
Section 3.7 No Undisclosed Liabilities................................................................. I-10
Section 3.8 Litigation................................................................................. I-10
Section 3.9 Employee Benefit Plans..................................................................... I-10
Section 3.10 Tax Matters; Government Benefits........................................................... I-11
Section 3.11 Intellectual Property...................................................................... I-12
Section 3.12 Employment Matters......................................................................... I-13
Section 3.13 Compliance with Laws....................................................................... I-13
Section 3.14 Vote Required.............................................................................. I-13
Section 3.15 Environmental Laws......................................................................... I-13
Section 3.16 Information in Proxy Statement............................................................. I-14
Section 3.17 Opinion of Financial Advisor............................................................... I-14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER................................................. I-14
Section 4.1 Organization............................................................................... I-14
Section 4.2 Authorization; Validity of Agreement; Necessary Action..................................... I-14
Section 4.3 Consents and Approvals; No Violations...................................................... I-15
Section 4.4 Information in Proxy Statement............................................................. I-15
Section 4.5 Financing.................................................................................. I-15
Section 4.6 Capitalization............................................................................. I-15
Section 4.7 Reports and Financial Statements........................................................... I-16
Section 4.8 Absence of Undisclosed Liabilities......................................................... I-16
Section 4.9 Litigation................................................................................. I-16
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V
COVENANTS.................................................................................................. I-16
Section 5.1 Interim Operations of the Company.......................................................... I-16
Section 5.2 Access; Confidentiality.................................................................... I-18
Section 5.3 Consents and Approvals..................................................................... I-18
Section 5.4 No Solicitation............................................................................ I-19
Section 5.5 Brokers or Finders......................................................................... I-19
Section 5.6 Additional Agreements...................................................................... I-20
Section 5.7 Publicity.................................................................................. I-20
Section 5.8 Notification of Certain Matters............................................................ I-20
Section 5.9 Directors' and Officers' Insurance and Indemnification..................................... I-20
Section 5.10 Notice of Prepayment....................................................................... I-21
Section 5.11 Certain Options............................................................................ I-21
Section 5.12 Board Representation....................................................................... I-21
Section 5.13 Tax Election............................................................................... I-21
ARTICLE VI
CONDITIONS................................................................................................. I-21
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger................................. I-21
Section 6.2 Condition to Parent's and the Purchaser's Obligations to Effect the Merger................. I-21
ARTICLE VII
TERMINATION................................................................................................ I-22
Section 7.1 Termination................................................................................ I-22
Section 7.2 Effect of Termination...................................................................... I-23
ARTICLE VIII
MISCELLANEOUS.............................................................................................. I-23
Section 8.1 Fees and Expenses.......................................................................... I-23
Section 8.2 Amendment and Modification................................................................. I-23
Section 8.3 Nonsurvival of Representations and Warranties.............................................. I-23
Section 8.4 Notices.................................................................................... I-23
Section 8.5 Interpretation............................................................................. I-24
Section 8.6 Counterparts............................................................................... I-24
Section 8.7 Entire Agreement; No Third Party Beneficiaries............................................. I-24
Section 8.8 Severability............................................................................... I-24
Section 8.9 Governing Law.............................................................................. I-24
Section 8.10 Assignment................................................................................. I-25
Annex A Certain Conditions of the Offer A-1
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION NO.
- ------------ -----------
<S> <C>
Agreement............................................................................................. Recitals
Acquisition Proposal.................................................................................. 5.4(a)
Appointment Date...................................................................................... 5.1
Balance Sheet......................................................................................... 3.10(a)
By-laws............................................................................................... 1.4
Business Combination Act.............................................................................. 1.2(a)
Certificates.......................................................................................... 2.2(b)
Charter............................................................................................... 1.4
Closing............................................................................................... 1.6
Closing Date.......................................................................................... 1.6
Code.................................................................................................. 3.9(a)
Company............................................................................................... Recitals
Company Agreements.................................................................................... 3.4
Company Disclosure Schedule........................................................................... 3.0
Company Material Adverse Effect....................................................................... 3.1(a)
Company SEC Documents................................................................................. 3.5
Company Option........................................................................................ 2.4(a)
Confidentiality Agreement............................................................................. 5.2(a)
Copyrights............................................................................................ 3.11(c)
DGCL.................................................................................................. 1.2(a)
Dissenting Shareholders............................................................................... 2.1(d)
D&O Insurance......................................................................................... 5.9(b)
Effective Time........................................................................................ 1.5
Encumbrances.......................................................................................... 3.2(b)
Environmental Claim................................................................................... 3.15(g)
Environmental Laws.................................................................................... 3.15(g)
ERISA................................................................................................. 3.9(a)
ERISA Affiliate....................................................................................... 3.9(a)
Exchange Act.......................................................................................... 1.1(a)
Expense Reimbursement Amount.......................................................................... 8.1(b)
Financial Statements.................................................................................. 3.5
fully diluted basis................................................................................... 1.1(a)
GAAP.................................................................................................. 3.5
Goldman Sachs......................................................................................... 3.17
Governmental Entity................................................................................... 3.4
Hazardous Materials................................................................................... 3.15(g)
Indemnified Party..................................................................................... 5.9(a)
Independent Directors................................................................................. 1.3(c)
Intellectual Property................................................................................. 3.11(c)
Licenses.............................................................................................. 3.11(c)
Merger................................................................................................ 1.4
Merger Consideration.................................................................................. 2.1(d)
Minimum Condition..................................................................................... 1.1(a)
Offer................................................................................................. 1.1(a)
Offer Documents....................................................................................... 1.1(b)
Offer Price........................................................................................... 1.1(a)
Offer to Purchase..................................................................................... 1.1(a)
Option Plans.......................................................................................... 2.4(a)
Options............................................................................................... 2.4(a)
Parent................................................................................................ Recitals
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION NO.
- ------------ -----------
<S> <C>
Parent Common Stock................................................................................... 4.6
Parent Disclosure Schedule............................................................................ 4.0
Parent Material Adverse Effect........................................................................ 4.1
Parent Options........................................................................................ 5.11
Parent SEC Reports.................................................................................... 4.7
Patents............................................................................................... 3.11(c)
Paying Agent.......................................................................................... 2.2(a)
PCBs.................................................................................................. 3.15(e)
Plans................................................................................................. 3.9(a)
Preferred Stock....................................................................................... 3.2(a)
Proxy Statement....................................................................................... 1.8(a)
Purchaser............................................................................................. Recitals
Purchaser Common Stock................................................................................ 2.1
Schedule 13E-3........................................................................................ 1.2(b)
Schedule 14D-1........................................................................................ 1.1(b)
Schedule 14D-9........................................................................................ 1.2(b)
SEC................................................................................................... 1.1(b)
Secretary of State.................................................................................... 1.5
Securities Act........................................................................................ 3.5
Shareholders Agreement................................................................................ 1.2(a)
Shares................................................................................................ 1.1(a)
Special Meeting....................................................................................... 1.8(a)
Subsidiary............................................................................................ 3.1(a)
Superior Proposal..................................................................................... 5.4(b)
Surviving Corporation................................................................................. 1.4
Tax................................................................................................... 3.10(k)
Taxes................................................................................................. 3.10(k)
Tax Return............................................................................................ 3.10(k)
TBCA.................................................................................................. 1.4
Term Note............................................................................................. 5.10
Title IV Plan......................................................................................... 3.9(a)
Trademarks............................................................................................ 3.11(c)
Transactions.......................................................................................... 1.2(a)
USE................................................................................................... 5.10
Voting Debt........................................................................................... 3.2(a)
1996 Premium.......................................................................................... 5.9(b)
</TABLE>
I-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this 'Agreement'),
dated as of May 5, 1997, by and among Riddell Sports Inc., a Delaware
corporation ('Parent'), Cheer Acquisition Corp., a Tennessee corporation and a
wholly owned subsidiary of Parent (the 'Purchaser'), and Varsity Spirit
Corporation, a Tennessee corporation (the 'Company').
WHEREAS, the Board of Directors of each of Parent, the Purchaser and the
Company has approved, and deems it advisable and in the best interests of its
respective stockholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
(a) As promptly as practicable (but in no event later than five
business days after the public announcement of the execution hereof), the
Purchaser shall commence (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act')) a tender
offer (the 'Offer') for all of the outstanding shares of Common Stock, par
value $.01 per share (the 'Shares'), of the Company at a price of $18.90
per Share, net to the seller in cash (such price, or any such higher price
per Share as may be paid in the Offer, being referred to herein as the
'Offer Price'), subject to there being validly tendered and not withdrawn
prior to the expiration of the Offer, that number of Shares which
represents at least a majority of the Shares outstanding on a fully diluted
basis (the 'Minimum Condition') and to the other conditions set forth in
Annex A hereto, and shall consummate the Offer in accordance with its terms
('fully diluted basis' means issued and outstanding Shares and Shares
subject to issuance under outstanding employee stock options). The
obligations of the Purchaser to accept for payment and to pay for any
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn shall be subject only to the Minimum Condition and the other
conditions set forth in Annex A hereto. The Offer shall be made by means of
an offer to purchase (the 'Offer to Purchase') containing the terms set
forth in this Agreement, the Minimum Condition and the other conditions set
forth in Annex A hereto. The Purchaser shall not amend or waive the Minimum
Condition and shall not decrease the Offer Price or decrease the number of
Shares sought, or amend any other condition of the Offer in any manner
adverse to the holders of the Shares without the written consent of the
Company; provided, however, that, notwithstanding the satisfaction of the
conditions of the Offer on the initial scheduled expiration date of the
Offer (the 'Initial Expiration Date'), which shall be 20 business days
after the date the Offer is commenced, the Purchaser shall have the right,
in its sole discretion, during the fifteen business days following the
Initial Expiration Date, to extend the expiration date from time to time
until not later than fifteen business days after the Initial Expiration
Date. The Purchaser shall, on the terms and subject to the prior
satisfaction or waiver of the conditions of the Offer, accept for payment
and pay for Shares tendered as soon as it is legally permitted to do so
under applicable law; provided, however, that if, immediately prior to the
initial expiration date of the Offer (as it may be extended pursuant to the
preceding sentence or otherwise), the Shares tendered and not withdrawn
pursuant to the Offer equal less than 90% of the outstanding Shares but
more than 80% of the outstanding Shares, the Purchaser may extend the Offer
for a period not to exceed seven business days, notwithstanding that all
conditions to the Offer are satisfied as of such expiration date of the
Offer.
(b) As soon as practicable on the date the Offer is commenced, Parent
and the Purchaser shall file with the United States Securities and Exchange
Commission (the 'SEC') a Tender Offer Statement on Schedule 14D-1 with
respect to the Offer (together with all amendments and supplements thereto
and including the exhibits thereto, the 'Schedule 14D-l') and any statement
to be filed with the Tennessee Department of Commerce and Insurance under
the Tennessee Investor Protection Act. The Schedule 14D-1 will include
disclosure sufficient to satisfy the requirements of Rule 13e-3 under the
Exchange Act. The Schedule 14D-1 will include, as exhibits, the Offer to
Purchase and a form of letter of transmittal and summary
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advertisement (collectively, together with any amendments and supplements
thereto, the 'Offer Documents'). The Offer Documents will comply in all
material respects with the provisions of applicable federal securities laws
and, on the date filed with the SEC and on the date first published, sent
or given to the Company's shareholders, shall not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except that no representation is made by Parent or the Purchaser with
respect to information furnished by the Company to Parent or the Purchaser,
in writing, expressly for inclusion in the Offer Documents. The Company
shall furnish to Parent and the Purchaser all information concerning the
Company and its affiliates required to be set forth in the Offer Documents
including all information required to satisfy the disclosure requirements
of a Transaction Statement on Schedule 13E-3. The information supplied by
the Company to Parent or the Purchaser, in writing, expressly for inclusion
in the Offer Documents and by Parent or the Purchaser to the Company, in
writing, expressly for inclusion in the Schedule 14D-9 (as hereinafter
defined) will not, at the time so provided, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Each of Parent and the Purchaser will take all steps necessary to
cause the Offer Documents to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and the Purchaser, on
the one hand, and the Company, on the other hand, will promptly correct any
information provided by it for use in the Offer Documents if and to the
extent that it shall have become false or misleading in any material
respect and the Purchaser will take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required by
applicable federal securities laws. The Company and its counsel shall be
given the opportunity to review the Schedule 14D-1 (including, without
limitation, all documents filed therewith as exhibits) before it is filed
with the SEC. In addition, Parent and the Purchaser will provide the
Company and its counsel in writing with any comments, whether written or
oral, Parent, the Purchaser or their counsel may receive from time to time
from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and
represents that the disinterested members of its Board of Directors, at a
meeting duly called and held, have (i) unanimously determined that the
terms of the Offer and the Merger (as defined in Section 1.4) are fair to
and in the best interests of the shareholders of the Company, (ii) approved
this Agreement and the transactions contemplated hereby, including the
Offer, the Merger and the Shareholders Agreement ('Shareholders
Agreement'), dated the date of this Agreement, among Parent, the Purchaser
and certain shareholders of the Company (collectively, the 'Transactions'),
and such approval constitutes approval of the Offer, this Agreement and the
other Transactions, including the Merger and the Shareholders Agreement,
for purposes of Section 48-103-205 of the Tennessee Business Combination
Act, as amended (the 'Business Combination Act'), such that Section
48-103-205 of the Business Combination Act will not apply to the
transactions contemplated by this Agreement, and (iii) resolved to
recommend that the shareholders of the Company accept the Offer, tender
their Shares thereunder to the Purchaser and approve and adopt this
Agreement and the Merger; provided, that such recommendation may be
withdrawn, modified or amended if, in the opinion of the Board of
Directors, only after receipt of advice from outside legal counsel, failure
to withdraw, modify or amend such recommendation would reasonably be
expected to result in the Board of Directors violating its fiduciary duties
to the Company's shareholders under applicable law and the Company pays the
fees and expenses required by Section 8.1 hereof. The Company represents
that the actions set forth in this Section 1.2(a) and all other actions it
has taken in connection therewith are sufficient to render the relevant
provisions of such Section 48-103-205 of the Business Combination Act
inapplicable to the Offer, the Merger and the Shareholders Agreement.
(b) Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto and including the
exhibits thereto, the 'Schedule 14D-9') which shall, subject to the
provisions of
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Section 5.4(b), contain the recommendation referred to in clause (iii) of
Section 1.2(a) hereof. The Company will also file with the SEC a
Transaction Statement on Schedule 13E-3 (together with all amendments and
supplements thereto and including the exhibits thereto, the 'Schedule
13E-3'). The Schedule 14D-9 and Schedule 13E-3 will comply in all material
respects with the provisions of applicable federal securities laws and, on
the date filed with the SEC and on the date first published, sent or given
to the Company's shareholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
no representation is made by the Company with respect to information
furnished by Parent or the Purchaser for inclusion in the Schedule 14D-9 or
Schedule 13E-3. The Company further agrees to take all steps necessary to
cause the Schedule 14D-9 and Schedule 13E-3 to be filed with the SEC and to
be disseminated to holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. Each of the Company, on the
one hand, and Parent and the Purchaser, on the other hand, agrees promptly
to correct any information provided by it for use in the Schedule 14D-9 and
Schedule 13E-3 if and to the extent that it shall have become false and
misleading in any material respect and the Company further agrees to take
all steps necessary to cause the Schedule 14D-9 and Schedule 13E-3 as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given the opportunity to
review the Schedule 14D-9 and Schedule 13E-3 before it is filed with the
SEC. In addition, the Company agrees to provide Parent, the Purchaser and
their counsel with any comments, whether written or oral, that the Company
or its counsel may receive from time to time from the SEC or its staff with
respect to the Schedule 14D-9 and Schedule 13E-3 promptly after the receipt
of such comments or other communications.
(c) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing, or computer file containing the names
and addresses of all recordholders of the Shares as of a recent date, and
shall furnish the Purchaser with such additional information (including,
but not limited to, updated lists of holders of the Shares and their
addresses, mailing labels and lists of security positions) and assistance,
and cause its representatives and advisors to provide such assistance, as
the Purchaser or its agents may reasonably request in communicating the
Offer to the record and beneficial holders of the Shares. Except for such
steps as are necessary to disseminate the Offer Documents, Parent and the
Purchaser shall hold in confidence the information contained in any of such
labels and lists and the additional information referred to in the
preceding sentence, will use such information only in connection with the
Offer, and, if this Agreement is terminated, will upon request of the
Company deliver or cause to be delivered to the Company all copies of such
information then in its possession or the possession of its agents or
representatives.
Section 1.3 Directors.
(a) Promptly upon the purchase of and payment for any Shares by Parent
or any of its subsidiaries which represents at least a majority of the
outstanding Shares (on a fully diluted basis, as defined in Section
1.1(a)), Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Board of Directors of the
Company as is equal to the product of the total number of directors on such
Board (giving effect to the directors designated by Parent pursuant to this
sentence) multiplied by the percentage that the number of Shares so
accepted for payment bears to the total number of Shares then outstanding.
In furtherance thereof, the Company shall, upon request of the Purchaser,
use its best reasonable efforts promptly either to increase the size of its
Board of Directors or secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable Parent's designees
to be so elected to the Company's Board, and shall take all actions
available to the Company to cause Parent's designees to be so elected. At
such time, the Company shall, if requested by Parent, also cause persons
designated by Parent to constitute at least the same percentage (rounded up
to the next whole number) as is on the Company's Board of Directors of (i)
each committee of the Company's Board of Directors, (ii) each board of
directors (or similar body) of each Subsidiary (as defined in Section 3.1)
of the Company and (iii) each committee (or similar body) of each such
board.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder in
order to fulfill its obligations under Section 1.3(a), including
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<PAGE>
mailing to stockholders together with Schedule 14D-9 the information
required by such Section 14(f) and Rule 14f-1 as is necessary to enable
Parent's designees to be elected to the Company's Board of Directors.
Parent or the Purchaser will supply the Company and be solely responsible
for any information with respect to either of them and their nominees,
officers, directors and affiliates required by such Section 14(f) and Rule
14f-1. The provisions of this Section 1.3 are in addition to and shall not
limit any rights which the Purchaser, Parent or any of their affiliates may
have as a holder or beneficial owner of Shares as a matter of law with
respect to the election of directors or otherwise.
(c) In the event that Parent's designees are elected to the Company's
Board of Directors, until the Effective Time (as defined below), the
Company's Board shall have at least two directors who are directors on the
date hereof (the 'Independent Directors'), provided that, in such event, if
the number of Independent Directors shall be reduced below two for any
reason whatsoever, any remaining Independent Directors (or Independent
Director, if there be only one remaining) shall be entitled to designate
persons to fill such vacancies who shall be deemed to be Independent
Directors for purposes of this Agreement or, if no Independent Director
then remains, the other directors shall designate two persons to fill such
vacancies who shall not be stockholders, affiliates or associates of Parent
or the Purchaser and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. Notwithstanding anything in this
Agreement to the contrary, in the event that Parent's designees are elected
to the Company's Board, after the acceptance for payment of Shares pursuant
to the Offer and prior to the Effective Time, the affirmative vote of a
majority of the Independent Directors shall be required to (a) amend or
terminate this Agreement by the Company, (b) exercise or waive any of the
Company's rights, benefits or remedies hereunder, or (c) take any other
action by the Company's Board under or in connection with this Agreement.
Section 1.4 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company and the Purchaser shall consummate
a merger (the 'Merger') pursuant to which (a) the Purchaser shall be merged with
and into the Company and the separate corporate existence of the Purchaser shall
thereupon cease, (b) the Company shall be the successor or surviving corporation
in the Merger (sometimes hereinafter referred to as the 'Surviving Corporation')
and shall continue to be governed by the laws of the State of Tennessee, and (c)
the separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in this Section 1.4. Pursuant to the Merger, (x) the
Company's Amended and Restated Charter ('Charter') shall be amended in its
entirety to read as the Charter of the Purchaser, in effect immediately prior to
the Effective Time, except that Article FIRST thereof shall promptly be amended
to read as follows: 'FIRST: The name of the corporation is Varsity Spirit
Corporation.' and, as so amended, shall be the Charter of the Surviving
Corporation until thereafter amended as provided by law and such Charter, and
(y) the By-Laws of the Purchaser (the 'By-laws'), as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, by such Charter or by such By-laws. The
Merger shall have the effects specified in the Tennessee Business Corporation
Act ('TBCA').
Section 1.5 Effective Time. Parent, the Purchaser and the Company will
cause an Articles of Merger to be executed and filed on the Closing Date (as
defined in Section 1.6) (or on such other date as Parent and the Company may
agree) with the Secretary of State of Tennessee (the 'Secretary of State') as
provided in the TBCA. The Merger shall become effective on the date on which the
Articles of Merger is duly filed with the Secretary of State or such time as is
agreed upon by the parties and specified in the Articles of Merger, and such
time is hereinafter referred to as the 'Effective Time.'
Section 1.6 Closing. The closing of the Merger (the 'Closing') shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the 'Closing Date'), at the corporate
offices of Parent, unless another date or place is agreed to in writing by the
parties hereto.
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Section 1.7 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser and the officers of the Company at the Effective Time
shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed or qualified or until their earlier death,
resignation or removal in accordance with the Charter and the By-laws.
Section 1.8 Shareholders' Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting
of its shareholders (the 'Special Meeting') as promptly as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and the adoption of this
Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use
its best efforts (x) to obtain and furnish the information required to
be included by the SEC in the Proxy Statement (as hereinafter defined)
and, after consultation with Parent, to respond promptly to any comments
made by the SEC with respect to the preliminary proxy or information
statement and cause a definitive proxy or information statement,
including any amendment or supplement thereto (the 'Proxy Statement') to
be mailed to its shareholders, provided that no amendment or supplement
to the Proxy Statement will be made by the Company without consultation
with Parent and its counsel and (y) to obtain the necessary approvals of
the Merger and this Agreement by its shareholders; and
(iii) include in the Proxy Statement the recommendation of the
Board that shareholders of the Company vote in favor of the approval of
the Merger and the adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of the Shares then owned
by it, the Purchaser or any of its other subsidiaries and affiliates in favor of
the approval of the Merger and the approval and adoption of this Agreement.
Section 1.9 Merger Without Meeting of Shareholders. Notwithstanding
Section 1.8 hereof, in the event that Parent, the Purchaser and any other
Subsidiaries of Parent shall acquire in the aggregate at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties hereto shall, at the request of Parent and
subject to Article VI hereof, take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after such acquisition,
without a meeting of shareholders of the Company, in accordance with Section
48-21-105 of the TBCA.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or holders of common stock, par value $.01 per share, of the Purchaser
(the 'Purchaser Common Stock'):
(a) The Purchaser Common Stock. Each issued and outstanding share of
the Purchaser Common Stock shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All Shares
that are owned by the Company as treasury stock and any Shares owned by
Parent, the Purchaser or any other wholly owned Subsidiary of Parent shall
be cancelled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share and Shares,
if any, subject to outstanding options then outstanding not theretofore
cancelled as provided in Section 2.4 hereof (other than Shares to be
cancelled in accordance with Section 2.1(b) and any Shares which are held
by stockholders exercising dissenters' rights pursuant to Chapter 23 of the
TBCA ('Dissenting Shareholders')) shall be converted into the right to
receive the Offer Price, payable to the holder thereof, without interest
(the 'Merger
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<PAGE>
Consideration'), upon surrender of the certificate formerly representing
such Share in the manner provided in Section 2.2. All such Shares, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section
2.2, without interest, or the right, if any, to receive payment from the
Surviving Corporation of the 'fair value' of such Shares as determined in
accordance with Chapter 23 of the TBCA.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust company
reasonably acceptable to the Company to act as agent for the holders of the
Shares in connection with the Merger (the 'Paying Agent') to receive in
trust the funds to which holders of the Shares shall become entitled
pursuant to Section 2.1(c). Such funds shall be invested by the Paying
Agent as directed by Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the 'Certificates'), whose Shares were
converted pursuant to Section 2.1 into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Paying Agent and
shall be in such form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such
Certificate and the Certificate so surrendered shall forthwith be
cancelled. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form
for transfer and that the person requesting such payment shall have paid
any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the
Shares on the records of the Company. From and after the Effective Time,
the holders of Certificates evidencing ownership of the Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided for herein or by
applicable law. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following six
months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) which had been made available
to the Paying Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificate for Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by Parent, the posting by
such Person of a bond in customary amount as indemnity against any claim
that may be made against it with respect to such Certificate, the
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Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate $18.90 per Share pursuant to Section 2.2(b) upon due surrender
of and deliverable in respect of the Shares represented by such Certificate
pursuant to this Agreement.
Section 2.3 Dissenters' Rights. If any Dissenting Stockholder shall be
entitled to be paid the fair value of such holder's Shares, as provided in
Chapter 23 of the TBCA, the Company shall give Parent notice thereof and Parent
shall have the right to participate in all negotiations and proceedings with
respect to any such demands. Neither the Company nor the Surviving Corporation
shall, except with the prior written consent of Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment. If any Dissenting Shareholder shall fail to perfect or shall have
effectively withdrawn or lost the right to dissent, the Shares held by such
Dissenting Shareholder shall thereupon be treated as though such Shares had been
converted into the Merger Consideration pursuant to Section 2.1.
Section 2.4 Company Plans.
(a) On the expiration date of the Offer, immediately prior to the
acceptance for payment of Shares pursuant to the Offer, each outstanding
employee stock option to purchase Shares (a 'Company Option') granted under
the 1991 Stock Option Plan and the 1989 Non-qualified Stock Option Plan
(collectively, 'Option Plans'), shall be surrendered to the Company and
shall be forthwith cancelled and the Company shall pay to each holder of a
Company Option, by check, an amount equal to (i) the product of the number
of the Shares which are issuable upon exercise of such Company Option,
multiplied by the Offer Price, less (ii) the aggregate exercise price of
such Company Option. Prior to the Closing, the Company shall use its best
efforts to take all actions (including, without limitation, soliciting any
necessary consents from the holders of the Company Options) required to
effect the matters set forth in this Section 2.4, including the surrender,
cancellation and payment in consideration for the Company Options described
in this Section 2.4(a). The Company shall withhold all income or other
taxes as required under applicable law prior to distribution of the cash
amount received under this Section 2.4(a) to the holders of Company
Options.
(b) Except as may be otherwise agreed to by Parent or the Purchaser
and the Company, the Company's Option Plans shall terminate as of the
Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any of its Subsidiaries shall be deleted as
of the Effective Time and no holder of Company Options or any participant
in the Option Plans or any other plans, programs or arrangements shall have
any rights thereunder to acquire any equity securities of the Company, the
Surviving Corporation or any subsidiary thereof.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as set forth in the schedule attached to this Agreement setting
forth exceptions to the Company's representations and warranties set forth
herein (the 'Company Disclosure Schedule'), the Company represents and warrants
to Parent and the Purchaser as set forth below. The Company Disclosure Schedule
will be arranged in sections corresponding to sections of this Agreement to be
modified by such disclosure schedule.
Section 3.1 Organization. (a) Each of the Company and its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority, and governmental approvals would
not, individually or in the aggregate, have a Company Material Adverse Effect
(as defined below). As used in this Agreement, the term 'Subsidiary' shall mean
all corporations or other entities in which the Company or the Parent, as the
case may be, owns, directly or indirectly, a majority of the issued and
outstanding capital stock or similar interests or has the right to elect a
majority of the members of the Board of Directors or similar governing body. As
used in this Agreement, 'Company Material Adverse Effect' shall mean any event,
change or effect that has, or is reasonably likely to have, a material adverse
effect (A) on the condition (financial or otherwise), business, assets,
liabilities, results of operations or cash flows of the Company and its
Subsidiaries, taken as a
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whole or (B) on the ability of the Company to perform its obligations under this
Agreement or to consummate the transactions contemplated by this Agreement.
(b) The Company and each of its Subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not individually or in
the aggregate have a Company Material Adverse Effect. Except as set forth in
Section 3.1 of the Company Disclosure Schedule, the Company does not own (i) any
equity interest in any corporation or other entity or (ii) marketable securities
where the Company's equity interest in any entity exceeds five percent of the
outstanding equity of such entity on the date hereof.
Section 3.2 Capitalization. (a) The authorized capital stock of the
Company consists of 10,000,000 Shares and 5,000,000 shares of preferred stock,
par value $.01 per share (the 'Preferred Stock'). As of the date hereof, (i)
4,563,183 Shares are issued and outstanding, (ii) 176,072 Shares are issued and
held in the treasury of the Company, (iii) no shares of Preferred Stock are
issued and outstanding, and (iv) 870,000 Shares are reserved for issuance to
employees pursuant to the Option Plans, of which 127,098 Shares have been issued
pursuant to option exercises and 570,464 Shares are subject to outstanding,
unexercised options. Section 3.2(a) of the Company Disclosure Schedule sets
forth a true and complete list of the holders of Company Options, including such
person's name, the number of options (vested, unvested and total) held by such
person and the exercise price for each such option. Since the date hereof, the
Company has not issued or granted additional options under the Options Plans.
All the outstanding shares of the Company's capital stock are, and all Shares
which may be issued pursuant to the exercise of outstanding Company Options will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and non-assessable. Except as disclosed
in Section 3.2 of the Company Disclosure Schedule, there are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ('Voting Debt') of the Company
or any of its Subsidiaries issued and outstanding. Except as set forth above,
except as described in Section 3.2 of the Company Disclosure Schedule and except
for the transactions contemplated by this Agreement, as of the date hereof, (i)
there are no shares of capital stock of the Company authorized, issued or
outstanding (ii) there are no existing options, warrants, calls, pre-emptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character, relating to the issued or unissued capital stock of the
Company or any of its Subsidiaries, obligating the Company or any of its
Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest in,
the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of its Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment and
(iii) except as set forth in Section 3.2(a) of the Company Disclosure Schedule,
there are no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Shares, or the
capital stock of the Company, or any Subsidiary or affiliate of the Company or
to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity other than
loans to Subsidiaries in the ordinary course of business.
(b) All of the outstanding shares of capital stock of each of the
Subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either the Company or one of its Subsidiaries free and clear of
all liens, charges, claims or encumbrances of whatever nature ('Encumbrances').
(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries.
Section 3.3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
Transactions, have been duly authorized by its Board of Directors and, except
for obtaining the approval of its shareholders as contemplated by Section 1.8
hereof, no other corporate action on the part of the Company is necessary to
authorize the execution and delivery by the Company of this Agreement and the
consummation by it of the Transactions. This Agreement has been duly executed
and delivered by the Company and, assuming due and
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valid authorization, execution and delivery hereof by Parent and the Purchaser,
is a valid and binding obligation of the Company enforceable against the Company
in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the filings
set forth in Section 3.4 of the Company Disclosure Schedule and the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the laws of any foreign
jurisdictions, state securities or blue sky laws, and the TBCA, none of the
execution, delivery or performance of this Agreement by the Company, the
consummation by the Company of the Transactions or compliance by the Company
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the Charter, the By-laws or similar organizational documents
of the Company or any of its Subsidiaries, (ii) require any filing with, or
permit, authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a 'Governmental Entity'), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
(the 'Company Agreements') or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their properties or assets, excluding from the foregoing clauses (ii),
(iii) and (iv) such violations, breaches or defaults which would not,
individually or in the aggregate, have a Company Material Adverse Effect. The
Company has not adopted a provision of its Charter or By-laws that would make
the Company subject to the provisions of the Tennessee Control Share Acquisition
Act (T.C.A. Section 48-103-301 et seq.) or the Tennessee Authorized Corporation
Protection Act (T.C.A. Section 48-103-401 et seq.), and neither this Agreement
nor the transactions contemplated hereby, including the Offer, the Merger and
the Shareholders Agreement, are regulated by the foregoing statutes. Section 3.4
of the Company Disclosure Schedule sets forth a list of all third party consents
and approvals required to be obtained in connection with this Agreement under
the Company Agreements prior to the consummation of the transactions
contemplated by this Agreement, except such third party consents and approvals
the failure of which to obtain would not have a Company Material Adverse Effect.
Section 3.5 SEC Reports and Financial Statements. The Company has timely
filed with the SEC, and has heretofore made available to Parent, true and
complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 1994 under the Exchange
Act or the Securities Act of 1933, as amended (the 'Securities Act') (as such
documents have been amended since the time of their filing, collectively, the
'Company SEC Documents'). As of their respective dates or, if amended, as of the
date of the last such amendment, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. None of the
Company's Subsidiaries is required to file any forms, reports or other documents
with the SEC. The financial statements of the Company included in the Company
SEC Documents (the 'Financial Statements') have been prepared from, and are in
accordance with, the books and records of the Company and its consolidated
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States generally
accepted accounting principles ('GAAP') applied on a consistent basis during the
period involved (except in the case of unaudited statements, as permitted by
Form 10-Q under the Exchange Act and as may be otherwise indicated in the notes
thereto) and fairly present (subject, in the case of unaudited statements, to
normal recurring year-end adjustments and any other adjustments described
therein) the consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if any) of the
Company and its consolidated Subsidiaries as of the times and for the periods
referred to therein.
Section 3.6 Absence of Certain Changes. Except as disclosed in Section 3.6
of the Company Disclosure Schedule or in the Company SEC Documents filed prior
to the date hereof, since December 31, 1996, the Company and its Subsidiaries
have conducted their respective businesses only in the ordinary and usual course
and there has not occurred any events or changes (including the incurrence of
any liabilities of any nature,
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whether or not accrued, contingent or otherwise) having, individually or in the
aggregate, a Company Material Adverse Effect and the Company has not taken any
action which would have been prohibited under Section 5.1 hereof.
Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the
Financial Statements and (b) for liabilities and obligations (i) incurred in the
ordinary course of business and consistent with past practice since December 31,
1996, or (ii) as otherwise disclosed in the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries has any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that have, or would
be reasonably likely to have, a Company Material Adverse Effect or that would be
required by GAAP to be reflected in, reserved against or otherwise described in
a consolidated balance sheet of the Company (including the notes thereto).
Section 3.8 Litigation. Except as set forth in Section 3.8 of the Company
Disclosure Schedule, there are no suits, claims, actions, proceedings,
including, without limitation, arbitration proceedings or alternative dispute
resolution proceedings, or investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries before any
Governmental Entity that, either individually or in the aggregate, would be
reasonably likely to have a Company Material Adverse Effect.
Section 3.9 Employee Benefit Plans.
(a) For purposes of this Agreement, the term 'Plans' shall include:
each deferred compensation and each incentive compensation, stock purchase,
stock option and other equity compensation plan, program, agreement or
arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other 'welfare' plan, fund or program
(within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ('ERISA')); each profit-sharing, stock
bonus or other 'pension' plan, fund or program (within the meaning of
section 3(2) of ERISA); each employment, termination or severance
agreement; and each other employee benefit plan, fund, program, agreement
or arrangement, in each case, that is sponsored, maintained or contributed
to or required to be contributed to by the Company or by any trade or
business, whether or not incorporated (an 'ERISA Affiliate'), that together
with the Company would be deemed a 'single employer' within the meaning of
section 4001(b) of ERISA, or to which the Company or an ERISA Affiliate is
party, whether written or oral, for the benefit of any employee or former
employee of the Company or any Subsidiary (the 'Plans'). Each of the Plans
that is subject to section 302 or Title IV of ERISA or section 412 of the
Internal Revenue Code of 1986, as amended (the 'Code') is hereinafter
referred to in this Section 3.9 as a 'Title IV Plan.' Neither the Company,
any Subsidiary nor any ERISA Affiliate has any commitment or formal plan,
whether legally binding or not, to create any additional employee benefit
plan or modify or change any existing Plan that would affect any employee
or former employee of the Company or any Subsidiary.
(b) No liability under Title IV or section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to the
Company or any ERISA Affiliate of incurring any such liability. No Plan is
a Title IV Plan.
(c) Neither the Company or any Subsidiary, any Plan, any trust created
thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which the Company or any Subsidiary, any
Plan, any such trust, or any trustee or administrator (as defined in
Section 3(16)(A) of ERISA) thereof, or any party in interest (as defined in
ERISA Section 3(14)) or fiduciary with respect to any Plan or any such
trust could be subject to either a civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a tax imposed pursuant to section 4975 or
4976 of the Code, which would be material in amount.
(d) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(e) Each Plan intended to be 'qualified' within the meaning of section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service with respect to the qualified status of such Plan
under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986, and nothing has occurred since the issuance of such
letter which could reasonably be expected to cause the loss of the
tax-qualified status of such Plan and the related trust maintained
thereunder. The Company has no Plans intended to satisfy the requirements
of Section 501(c)(9).
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(f) No Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees
of the Company or any Subsidiary for periods extending beyond their
retirement or other termination of service, other than (i) coverage
mandated by applicable law, (ii) death benefits under any 'pension plan,'
or (iii) benefits the full cost of which is borne by the current or former
employee (or his beneficiary) or (iv) post-death exercise periods in effect
under outstanding Company Options.
(g) Except as disclosed in Section 3.9 of the Company Disclosure
Schedule, or as set forth in Section 5.11 of this Agreement, the
consummation of the transactions contemplated by this Agreement will not,
either alone or in combination with another event, (i) entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee or officer.
(h) There are no pending, or to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan, or otherwise involving
any such Plan (other than routine claims for benefits) which would have a
material adverse effect upon the Plans or a Company Material Adverse
Effect.
Section 3.10 Tax Matters; Government Benefits.
(a) The Company and each of its Subsidiaries have duly filed all Tax
Returns (as hereinafter defined) that are required to be filed and have
duly paid or caused to be duly paid in full or made adequate provision in
accordance with GAAP (or there has been paid or provision has been made on
their behalf) for the payment of all Taxes (as hereinafter defined) shown
due on such Tax Returns and all other Taxes for which the Company or any of
its Subsidiaries is or might be liable. All such Tax Returns are correct
and complete in all material respects and accurately reflect all liability
for Taxes for the periods covered thereby. All Taxes owed and due by the
Company and each of its Subsidiaries for results of operations through
December 31, 1996 (whether or not shown on any Tax Return) have been paid
or have been adequately reflected on the Company's balance sheet as of
December 31, 1996 included in the Financial Statements (the 'Balance
Sheet'). Since December 31, 1996, the Company has not incurred liability
for any Taxes other than in the ordinary course of business. Neither the
Company nor any of its Subsidiaries has received notice of any claim made
by an authority in a jurisdiction where neither the Company nor any of its
Subsidiaries file Tax Returns that the Company is or may be subject to
taxation by that jurisdiction.
(b) The federal income Tax Returns of the Company and its Subsidiaries
have been examined by the Internal Revenue Service (or the applicable
statutes of limitation for the assessment of federal income Taxes for such
periods have expired) for all periods through and including March 31, 1992,
and no material deficiencies were asserted as a result of such examinations
that have not been resolved or fully paid. Neither the Company nor any of
its Subsidiaries has waived any statute of limitations in any jurisdiction
in respect of Taxes or Tax Returns or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(c) Except as set forth on Section 3.10 of the Company Disclosure
Schedule, no federal, state, local or foreign audits, examinations or other
administrative proceedings have been commenced or, to the Company's
knowledge, are pending with regard to any Taxes or Tax Returns of the
Company or of any of its Subsidiaries. No written notification has been
received by the Company or by any of its Subsidiaries that such an audit,
examination or other proceeding is pending or threatened with respect to
any Taxes due from or with respect to or attributable to the Company or any
of its Subsidiaries or any Tax Return filed by or with respect to the
Company or any of its Subsidiaries. To the Company's knowledge, there is no
dispute or claim concerning any Tax liability of the Company or any of its
Subsidiaries either claimed or raised by any taxing authority.
(d) Neither the Company nor any of its Subsidiaries is a party to any
agreement, plan, contract or arrangement that could result, separately or
in the aggregate, in a payment of any 'excess parachute payments' within
the meaning of Section 280G of the Code.
(e) Neither the Company nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor
provision) concerning collapsible corporations, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a 'subsection (f) asset'
(as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its Subsidiaries.
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(f) No taxing authority is asserting or, to the knowledge of the
Company, threatening to assert a claim against the Company or any of its
Subsidiaries under or as a result of Section 482 of the Code or any similar
provision of state, local or foreign law.
(g) Neither the Company nor any of its Subsidiaries is a party to any
material tax sharing, tax indemnity or other agreement or arrangement with
any entity not included in the Company's consolidated financial statements
most recently filed by the Company with the SEC.
(h) None of the Company or any of its Subsidiaries has been a member
of any affiliated group within the meaning of Section 1504(a) of the Code,
or any similar affiliated or consolidated group for tax purposes under
state, local or foreign law (other than a group the common parent of which
is the Company), or has any liability for Taxes of any person (other than
the Company and its Subsidiaries) under Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign law as a
transferee or successor, by contract or otherwise.
(i) No liens for Taxes exist with respect to any of the assets or
properties of any of the Company or its Subsidiaries, except for statutory
liens for Taxes not yet due or payable.
(j) Neither the Company nor any of its Subsidiaries is or has been a
United States real property holding company within the meaning of Section
897(c)(2) of the Code.
(k) As used in this Agreement, the following terms shall have the
following meanings:
(i) 'Tax' or 'Taxes' shall mean all taxes, charges, fees,
duties, levies, penalties or other assessments imposed by any
federal, state, local or foreign governmental authority, including,
but not limited to, income, gross receipts, excise, property, sales,
gain, use, license, custom duty, unemployment, capital stock,
transfer, franchise, payroll, withholding, social security, minimum
estimated, and other taxes, and shall include interest, penalties or
additions attributable thereto; and
(ii) 'Tax Return' shall mean any return, declaration, report,
claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 3.11 Intellectual Property.
(a) The Company and its Subsidiaries own or have adequate rights to
use all items of Intellectual Property (as defined below) utilized in the
conduct of the business of the Company and its Subsidiaries as presently
conducted or as currently proposed to be conducted, free and clear of all
Encumbrances (other than Encumbrances which, individually or in the
aggregate, are not expected to have a Company Material Adverse Effect).
(b) To the best knowledge of the Company, the conduct of the Company's
and its Subsidiaries' business and the Intellectual Property owned or used
by the Company and its Subsidiaries, do not infringe any Intellectual
Property rights or any other proprietary right of any person other than
infringements which, individually or in the aggregate, are not expected to
have a Company Material Adverse Effect. The Company and its Subsidiaries
have received no notice of any allegations or threats that the Company's
and its Subsidiaries' use of any of the Intellectual Property infringes
upon or is in conflict with any Intellectual Property or proprietary rights
of any third party other than infringements or conflicts which individually
or in the aggregate are not expected to have a Company Material Adverse
Effect.
(c) As used in this Agreement, 'Intellectual Property' means all of
the following: (i) U.S. and foreign registered and unregistered trademarks,
trade dress, service marks, logos, trade names, corporate names and all
registrations and applications to register the same (the 'Trademarks');
(ii) issued U.S. and foreign patents and pending patent applications,
patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, reexaminations, and extension thereof, any
counterparts claiming priority therefrom, utility models, patents of
importation/confirmation, certificates of invention and like statutory
rights (the 'Patents'); (iii) U.S. and foreign registered and unregistered
copyrights (including, but not limited to, those in computer software and
databases) rights of publicity and all registrations and applications to
register the same (the 'Copyrights'); (iv) all categories of trade secrets
as defined in the Uniform Trade Secrets Act including, but not limited to,
business information; (v) all licenses and agreements pursuant to which the
Company has acquired rights in or to any Trademarks, Patents, rights of
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publicity or Copyrights, or licenses and agreements pursuant to which the
Company has licensed or transferred the right to use any of the foregoing
('Licenses').
Section 3.12 Employment Matters. Neither the Company nor any of its
Subsidiaries has experienced any strikes, collective labor grievances, other
collective bargaining disputes or Claims of unfair labor practices in the last
five years. To the Company's knowledge, there is no organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company and its Subsidiaries.
Section 3.13 Compliance with Laws. The Company and its Subsidiaries are in
material compliance with, and have not violated in any material respect any
applicable law, rule or regulation of any United States federal, state, local,
or foreign government or agency thereof which affects the business, properties
or assets of the Company and its Subsidiaries, and no notice, charge, claim,
inquiry, investigation action or assertion has been received by the Company or
any of its Subsidiaries or has been filed, commenced or, to the Company's
knowledge, threatened against the Company or any of its Subsidiaries alleging
any such violation. To the knowledge of the Company, all licenses, permits and
approvals required under such laws, rules and regulations are in full force and
effect except where the failure to be in full force and effect would not have a
Company Material Adverse Effect.
Section 3.14 Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock which may be necessary to approve this
Agreement or any of the Transactions.
Section 3.15 Environmental Laws.
(a) The Company and its Subsidiaries are in compliance with all
applicable Environmental Laws (as defined below) (which compliance
includes, without limitation, the possession by the Company and its
Subsidiaries of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof), except where failure to be in compliance, either
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(b) There is no Environmental Claim (as defined below) pending or, to
the Company's knowledge, threatened against the Company or any of the
Subsidiaries or, to the Company's knowledge, against any person or entity
whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law which Environmental Claim would have, either individually
or in the aggregate, a Company Material Adverse Effect.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release
or presence of any Hazardous Material, which have formed the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to
the Company's knowledge, against any person or entity whose liability for
any Environmental Claim the Company or any of its Subsidiaries has or may
have retained or assumed either contractually or by operation of law, which
Environmental Claim would have, either individually or in the aggregate, a
Company Material Adverse Effect.
(d) The Company and its Subsidiaries have not, and to the Company's
knowledge, no other person has, placed, stored, deposited, discharged,
buried, dumped or disposed of Hazardous Materials or any other wastes
produced by, or resulting from, any business, commercial or industrial
activities, operations or processes, on, beneath or adjacent to any
property currently or formerly owned, operated or leased by the Company or
any of its Subsidiaries, except (x) for inventories of such substances to
be used, and wastes generated therefrom, in the ordinary course of business
of the Company and its Subsidiaries, or (y) which would not, either
individually or in the aggregate, have a Company Material Adverse Effect.
(e) Without in any way limiting the generality of the foregoing, none
of the properties owned, operated or leased by the Company or any of its
Subsidiaries contain any: underground storage tanks; asbestos;
polychlorinated biphenyls ('PCBs'); underground injection wells;
radioactive materials; or septic tanks or waste disposal pits in which
process wastewater or any Hazardous Materials have been discharged or
disposed the existence of which, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect.
(f) The Company has made available to Parent for review copies of all
environmental reports or studies in its possession prepared since January
1, 1994.
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(g) For purposes of this Agreement, (i) 'Environmental Laws' means all
federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment, including,
without limitation, laws relating to releases or threatened releases of
Hazardous Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, release, disposal, transport or
handling of Hazardous Materials and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials; (ii) 'Environmental Claim' means any claim,
action, cause of action, investigation or written notice by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a) the
presence, or release, of any Hazardous Materials at any location, whether
or not owned, leased or operated by the Company or any of its Subsidiaries,
or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law; (iii) 'Hazardous Materials' means all
substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution
Contingency Plan, 40 C.F.R. Section 300.5, or defined as such by, or
regulated as such under, any Environmental Law.
Section 3.16 Information in Proxy Statement. The Proxy Statement, if any
(or any amendment thereof or supplement thereto), will, at the date mailed to
Company stockholders and at the time of the meeting of Company stockholders to
be held in connection with the Merger, not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or the Purchaser for inclusion in the
Proxy Statement. The Proxy Statement will comply in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder.
Section 3.17 Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Goldman, Sachs & Co. ('Goldman Sachs')
addressed to such Board, dated the date hereof, to the effect that, as of such
date, the $18.90 per Share to be received by the holders of Shares pursuant to
this Agreement is fair to such holders, a copy of which opinion has been
delivered to Parent and the Purchaser for information purposes only. Each of
Parent and Purchaser acknowledges and agrees that it may not, and is not
entitled to, rely on the opinion of Goldman Sachs delivered to the Board of
Directors of the Company. The Company will obtain the consent of Goldman Sachs
to include the opinion of Goldman Sachs in the Offering Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
Except as set forth in the schedule attached to this Agreement setting
forth exceptions to the Parent's and Purchaser's representations and warranties
set forth herein (the 'Parent Disclosure Schedule'), the Parent and Purchaser
represent and warrant to the Company as set forth below. The Parent Disclosure
Schedule will be arranged in sections corresponding to sections of this
Agreement to be modified by such disclosure schedule.
Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and Tennessee, respectively, and has all requisite corporate or
other power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority, and governmental approvals would not have,
individually or in the aggregate, a Parent Material Adverse Effect. As used in
this Agreement, 'Parent Material Adverse Effect' shall mean any event, change or
effect that has, or is reasonably likely to have, a material adverse effect (A)
on the condition (financial or otherwise), business, assets, liabilities,
results of operations or cash flows of Parent and its Subsidiaries, taken as a
whole, or (B) on the ability of Parent or the Purchaser to perform its
obligations under this Agreement or to consummate the transactions contemplated
by this Agreement.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the Transactions.
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The execution, delivery and performance by Parent and the Purchaser of
this Agreement and the consummation of the Merger and of the Transactions
have been duly authorized by the Board of Directors of Parent and the
Purchaser and by Parent as the sole stockholder of the Purchaser and no
other corporate action on the part of Parent and the Purchaser is
necessary to authorize the execution and delivery by Parent and the
Purchaser of this Agreement and the consummation of the Transactions.
This Agreement has been duly executed and delivered by Parent and the
Purchaser, as the case any be, and, assuming due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding
obligation of each of Parent and the Purchaser, as the case may be,
enforceable against each of them in accordance with its respective terms.
Section 4.3 Consents and Approvals; No Violations. Except for the filings
as set forth in Section 4.3 of the Parent Disclosure Schedule and except for the
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the laws of any
foreign jurisdiction, state securities or blue sky laws and the TBCA, none of
the execution, delivery or performance of this Agreement by Parent or the
Purchaser, the consummation by Parent or the Purchaser of the Transactions or
compliance by Parent or the Purchaser with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of the respective
certificate of incorporation or by-laws of Parent or the Purchaser, (ii) require
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its Subsidiaries or the Purchaser is a party or by which any of them or any of
their respective properties or assets may be bound, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Parent, any
of its Subsidiaries or any of their properties or assets, excluding from the
foregoing clauses (ii), (iii) and (iv) such violations, breaches or defaults
which would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
Section 4.4 Information in Proxy Statement. None of the information
supplied by Parent or the Purchaser specifically for inclusion or incorporation
by reference in the Proxy Statement will, at the date mailed to stockholders and
at the time of the meeting of stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
Section 4.5 Financing. At the closing of the Offer, and at the Effective
Time, Parent and Purchaser will have sufficient cash resources available to
finance the transactions contemplated hereby, subject to compliance by the
Company with the provisions of Section 5.6.
Section 4.6 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
Parent consists of 40 million shares of common stock, $.01 par value per
share ('Parent Common Stock'), of which 8,067,985 shares are issued and
outstanding; 5 million shares of preferred stock, par value $.01 per share,
none of which are issued and outstanding. As of the date of this Agreement,
options to acquire 1,186,050 shares of Parent Common Stock (the 'Parent
Stock Options') are outstanding under all stock option plans of Parent,
1,415,000 shares of Parent Common Stock are reserved for issuance pursuant
to the Parent Stock Options, 1,395,011 shares of Parent Common Stock are
reserved for issuance upon conversion of Parent's 4.10% convertible
subordinated notes due 2004, 222,152 shares of Parent Common Stock are
reserved for issuance upon exercise of existing Warrants and 10,000 shares
are reserved for issuance upon exercise of an option issued to J. C. Wing.
(b) The authorized capital stock of Purchaser consists of 1,000 shares
of Purchaser Common Stock, and, as of the date hereof, 100 shares of common
stock are issued and outstanding, all of which are owned by Parent and such
outstanding shares are validly issued, fully paid and nonassessable.
(c) Except as disclosed in this Section 4.6 or in the Parent SEC
Reports (as hereinafter defined) and except as provided in the Shareholders
Agreement or as contemplated by this Agreement, as of the date
hereof (i) there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement or arrangement of
any kind to purchase or otherwise to receive from Parent or Purchaser
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any of the outstanding authorized but unissued or treasury shares of the
capital stock or any other security of Parent or Purchaser; (ii) there is
no outstanding security of any kind convertible into or exchangeable for
such capital stock, and (iii) there is no voting trust or other agreement
or understanding to which Parent or Purchaser is a party or is bound with
respect to the voting of the capital stock of Parent or Purchaser.
(d) Except for the qualifying shares required by certain foreign
jurisdictions and except as set forth on Section 4.6 of the Parent
Disclosure Schedule, all of the issued and outstanding capital stock of
each of the Subsidiaries of Parent has been validly issued, is fully paid
and nonassessable and is owned of record and beneficially, directly or
indirectly, by Parent or one of its Subsidiaries, free of any Lien,
preemptive rights or other restriction with respect thereto.
Section 4.7 Reports and Financial Statements. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act since January 1, 1995 (collectively, the 'Parent SEC Reports')
and has previously made available to the Company true and complete copies of all
such Parent SEC Reports. Such Parent SEC Reports, as of their respective dates,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such Parent
SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Parent included in the Parent SEC
Reports have been prepared in accordance with GAAP consistently applied
throughout the periods indicated (except as otherwise noted therein or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) and fairly
present (subject to, in the case of unaudited statements, to normal, recurring
year-end adjustments and any other adjustments described therein) the
consolidated financial position of Parent and its consolidated Subsidiaries as
at the dates thereof and the consolidated results of operations and cash flows
of Parent and its consolidated Subsidiaries for the periods then ended. Since
January 1, 1996, there has been no change in any of the significant accounting
(including tax accounting) policies, practices or procedures of the Parent or
any of its consolidated Subsidiaries.
Section 4.8 Absence of Undisclosed Liabilities. Except for liabilities or
obligations which are accrued or reserved against in Parent's financial
statements (or reflected in the notes thereto) included in the Parent SEC
Reports filed as of the date of this Agreement or which were incurred after
December 31, 1996 in the ordinary course of business and consistent with past
practices, none of Parent and Parent's Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in the consolidated balance sheet (or reflected
in the notes thereto) or which could reasonably expect it to have a Parent
Material Adverse Effect.
Section 4.9 Litigation. Except as set forth in Parent's Annual Report on
Form 10-K for the year ended December 31, 1996, there are no suits, claims,
actions, proceedings, including without limitation arbitration proceedings or
alternative dispute resolution proceedings, or investigations pending or, to the
knowledge of Parent, threatened against Parent or any of its Subsidiaries before
any Governmental Entity that, either individually or in the aggregate, would be
reasonably likely to have a Parent Material Adverse Effect.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement, or (ii) as
agreed in writing by Parent, after the date hereof, and prior to the time the
directors of the Purchaser have been elected to, and shall constitute a majority
of, the Board of Directors of the Company pursuant to Section 1.3 (the
'Appointment Date'):
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use
its best reasonable efforts to preserve its business organization intact
and maintain its existing relations with customers, suppliers, employees,
creditors and business partners;
(b) the Company will not, directly or indirectly, (i) except upon
exercise of employee stock options outstanding on the date hereof, issue,
sell, transfer or pledge or agree to sell, transfer or pledge any treasury
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stock of the Company or any capital stock of any of its Subsidiaries
beneficially owned by it; (ii) amend its Charter or By-laws or similar
organizational documents; or (iii) split, combine or reclassify the
outstanding Shares or Preferred Stock or any outstanding capital stock of
any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock other than
dividends paid by Subsidiaries of the Company to the Company or any of its
Subsidiaries in the ordinary course of business; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of capital stock of any class of
the Company or its Subsidiaries, other than Shares reserved for issuance on
the date hereof pursuant to the exercise of Company Options outstanding on
the date hereof; (iii) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any assets other than in the ordinary and usual
course of business and consistent with past practice, or incur or modify
any indebtedness or other liability, other than in the ordinary and usual
course of business and consistent with past practice; or (iv) redeem,
purchase or otherwise acquire directly or indirectly any of its capital
stock;
(d) neither the Company nor any of its Subsidiaries shall: (i) grant
any increase in the compensation payable or to become payable by the
Company or any of its Subsidiaries to any of its executive officers or (ii)
(A) adopt any new, or (B) amend or otherwise increase, or accelerate the
payment or vesting of the amounts payable or to become payable under any
existing bonus, incentive compensation, deferred compensation, severance,
profit sharing, stock option, stock purchase, insurance, pension,
retirement or other employee benefit plan, agreement or arrangement; or
(iii) enter into any employment or severance agreement with or, except in
accordance with the existing written policies of the Company, grant any
severance or termination pay to any officer, director or employee of the
Company or any of its Subsidiaries, provided, however, that nothing in this
Section 5.1 shall prevent the Company from entering into written or oral
employment agreements with seasonal employees if such agreements do not (i)
obligate the Company to make severance payments to the employee, (ii)
extend in duration for a period in excess of six (6) months or (iii)
provide for salary in excess of $30,000 or hourly wages in excess of $15
per hour;
(e) neither the Company nor any of its Subsidiaries shall permit any
insurance policy naming it as a beneficiary or a loss payable payee to be
cancelled or terminated without notice to Parent, except in the ordinary
course of business and consistent with past practice;
(f) neither the Company nor any of its Subsidiaries shall enter into
any contract or transaction relating to the purchase of assets other than
in the ordinary course of business consistent with prior practice;
(g) neither the Company nor any of its Subsidiaries shall change any
of the accounting methods used by it unless required by GAAP, neither the
Company nor any of its Subsidiaries shall make any material Tax election
except in the ordinary course of business consistent with past practice,
change any material Tax election already made, adopt any material Tax
accounting method except in the ordinary course of business consistent with
past practice, change any material Tax accounting method unless required by
GAAP, enter into any closing agreement, settle any Tax claim or assessment
or consent to any Tax claim or assessment or any waiver of the statute of
limitations for any such claim or assessment;
(h) neither the Company nor any of its Subsidiaries shall: (i) incur
or assume any long-term debt; (ii) except in the ordinary course of
business and consistent with past practice and in an aggregate amount not
to exceed $5,000,000 (not including any indebtedness incurred in connection
with the payments made pursuant to Section 2.4(a) hereof), incur or assume
any short-term indebtedness; (iii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person; (iv) make any loans, advances or
capital contributions to, or investment in, any other person (other than to
wholly-owned Subsidiaries of the Company or customary loans or advances to
employees in accordance with past practice); or (v) enter into any material
commitment or transaction (including, but not limited to, any borrowing,
capital expenditure or purchase, sale or lease of assets);
(i) neither the Company nor any of its Subsidiaries shall settle or
compromise any claim, lawsuit, liability or obligation, and neither the
Company nor any of its Subsidiaries shall pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other
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than the payment, discharge or satisfaction of any such claims,
liabilities or obligation, (x) to the extent reflected or reserved
against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of the Company and its consolidated Subsidiaries,
(y) incurred in the ordinary course of business and consistent with
past practice or (z) which are legally required to be paid, discharged
or satisfied;
(j) neither the Company nor any of its Subsidiaries will take, or
agree to commit to take, any action that would make any representation or
warranty of the Company contained herein inaccurate in any respect at, or
as of any time prior to, the Effective Time;
(k) except as otherwise permitted by Section 5.4(b) hereof, neither
the Company nor any of its Subsidiaries will take any action with the
intent of causing any of the conditions to the Offer set forth in Annex A
not to be satisfied; and
(l) except as otherwise permitted by Section 5.4(b) hereof, neither
the Company nor any of its Subsidiaries will enter into an agreement,
contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. (a) Upon reasonable notice, the
Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Parent, access, during normal business hours during the
period prior to the Appointment Date, to all its properties, employees, books,
contracts, commitments and records and, during such period, the Company shall
(and shall cause each of its Subsidiaries to) furnish promptly to the Parent (a)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. After the Appointment
Date, the Company shall provide Parent and such persons as Parent shall
designate with all such information, at such time as Parent shall request.
Unless otherwise required by law and until the Appointment Date, Parent will
hold any such information which is nonpublic in confidence in accordance with
the provisions of a letter agreement dated November 22, 1996, as amended,
between the Company and the Parent (the 'Confidentiality Agreement'). The
Company shall promptly, and in any event within ten business days following the
date of this Agreement, deliver to Parent true and complete copies of all Plans
not previously delivered to Parent and any amendments thereto (or if the Plan is
not a written Plan, a description thereof), any related trust or other funding
vehicle, any summary plan description required under ERISA or the Code and the
most recent determination letter received from the Internal Revenue Service with
respect to each Plan intended to qualify under section 401 of the Code.
(b) Following the execution of this Agreement, Parent and the Company shall
cooperate with each other and make all reasonable efforts to minimize any
disruption to the business which may result from the announcement of the
Transactions.
Section 5.3 Consents and Approvals. (a) Each of the Company, Parent and
the Purchaser will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to this Agreement
and the Transactions and will promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon any of them or
any of their Subsidiaries in connection with this Agreement and the
Transactions. Each of the Company, Parent and the Purchaser will, and will cause
its Subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Parent, the Purchaser,
the Company or any of their Subsidiaries in connection with the Merger or the
taking of any action contemplated thereby or by this Agreement.
(b) The Company and Parent shall take all reasonable actions necessary to
file as soon as practicable, if applicable, notifications under the Hart Scott
Rodino Antitrust Improvements Act of 1976, as amended, and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters.
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Section 5.4 No Solicitation. (a) Neither the Company nor any of its
Subsidiaries shall (and the Company shall use its best efforts to cause its
officers, directors, employees, representatives and agents, including, but not
limited to, investment bankers, attorneys and accountants, not to), directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any proposal or offer to acquire all or a
substantial part of the business and properties of the Company or any of its
Subsidiaries or any capital stock of the Company or any of its Subsidiaries,
whether by merger, tender offer, exchange offer, sale of assets or similar
transactions involving the Company or any Subsidiary, division or operating or
principal business unit of the Company (an 'Acquisition Proposal'), except that
nothing contained in this Section 5.4 or any other provision hereof shall
prohibit the Company or the Company's Board from (i) taking and disclosing to
the Company's stockholders a position with respect to a tender or exchange offer
by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act, or (ii) making such disclosure to the Company's stockholders as,
in the good faith judgment of the Board, after receiving advice from outside
counsel, is required under applicable law, provided that the Company may not,
except as permitted by Section 5.4(b), withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer or the Merger or
approve or recommend, or propose to approve or recommend any Acquisition
Proposal, or enter into any agreement with respect to any Acquisition Proposal.
The Company will immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
(b) Notwithstanding the foregoing, prior to the acceptance of Shares
pursuant to the Offer, the Company may furnish information concerning the
Company and its Subsidiaries to any corporation, partnership, person or other
entity or group pursuant to appropriate confidentiality agreements, and may
negotiate and participate in discussions and negotiations with such entity or
group concerning an Acquisition Proposal if (x) such entity or group has on an
unsolicited basis submitted a bona fide written proposal to the Company relating
to any such transaction which the Board determines in good faith, after
consulting with a nationally recognized investment banking firm, represents a
superior transaction to the Offer and the Merger and (y) in the opinion of the
Board of Directors of the Company, only after receipt of advice from outside
legal counsel to the Company, the failure to provide such information or access
or to engage in such discussions or negotiations would reasonably be expected to
cause the Board of Directors to violate its fiduciary duties to the Company's
shareholders under applicable law (an Acquisition Proposal which satisfies
clauses (x) and (y) being referred to herein as a 'Superior Proposal'). The
Company will immediately notify Parent of the existence of any proposal or
inquiry received by the Company, the identity of the party making such proposal
or inquiry, and the terms (both initial and modified) of any such proposal or
inquiry (and will disclose any written materials delivered in connection
therewith) and the Company will keep Parent reasonably informed of the status
(including amendments or proposed amendments) of any such proposal or inquiry.
The Company will promptly provide to Parent any material non-public information
regarding the Company provided to any other party which was not previously
provided to Parent. At any time after two business days following notification
to Parent of the Company's intent to do so (which notification shall include the
identity of the bidder and the material terms and conditions of the proposal)
and if the Company has otherwise complied with the terms of this Section 5.4(b),
the Board of Directors may withdraw or modify its approval or recommendation of
the Offer and may enter into an agreement with respect to a Superior Proposal,
provided it shall concurrently with entering into such agreement pay or cause to
be paid to Parent the Termination Fee (as defined below) plus any amount payable
at the time for reimbursement of expenses pursuant to Section 8.1(b). If the
Company shall have notified Parent of its intent to enter into an agreement with
respect to a Superior Proposal in compliance with the preceding sentence and has
otherwise complied with such sentence, the Company may enter into an agreement
with respect to such Superior Proposal (with the bidder and on terms no less
favorable than those specified in such notification) after the expiration of the
initial two business day period without any further notification.
Section 5.5 Brokers or Finders. The Company represents, as to itself and
its Subsidiaries and affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee from the Company or any
of its Subsidiaries in connection with any of the transactions contemplated by
this Agreement except for Goldman, Sachs & Co., whose engagement letter has
been provided to Parent.
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Section 5.6 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, legal or otherwise, to
achieve the satisfaction of the Minimum Condition and all conditions set forth
in Annex A and Article VI, and to consummate and make effective the Merger and
the other transactions contemplated by this Agreement. Without limiting the
foregoing, the Company shall, and shall cause its representatives and advisors
to, without cost to Parent or Purchaser, assist Parent and Purchaser in
connection with their financing of the transactions contemplated hereby,
including, without limitation, (i) making available on a timely basis any
financial information of the Company and its Subsidiaries that may be requested,
(ii) obtaining comfort letters and updates thereof from the Company's
independent certified public accountants and opinion letters from the Company's
attorneys, with such letters to be in customary form and to cover matters of the
type customarily covered by accountants and attorneys in such financing
transactions, and (iii) making available representatives of the Company and its
accountants and attorneys in connection with any such financing, including for
purposes of due diligence and marketing efforts related thereto. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
the Company, Parent and the Purchaser shall use all reasonable efforts to take,
or cause to be taken, all such necessary actions. The Company shall use its
reasonable best efforts to effect the retention of the individuals set forth in
Section 5.6 of the Company Disclosure Schedule as employees of the Company
following consummation of the Transactions.
Section 5.7 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, so long as this Agreement is in effect, neither the
Company, Parent nor any of their respective affiliates shall issue or cause the
publication of any press release or other announcement with respect to the
Merger, this Agreement or the other Transactions without the prior consultation
of the other party, except as such party believes, after receiving the advice of
outside counsel, may be required by law or by any listing agreement with a
national securities exchange or trading market.
Section 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (ii) any material failure of the Company, Parent or the Purchaser, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.9 Directors' and Officers' Insurance and Indemnification. (a)
For six years after the Effective Time, the Surviving Corporation (or any
successor to the Surviving Corporation) shall indemnify, defend and hold
harmless the present and former officers and directors of the Company and its
Subsidiaries, and persons who become any of the foregoing prior to the Effective
Time (each an 'Indemnified Party') against all losses, claims, damages,
liabilities, costs, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the written consent of the Parent or the Surviving Corporation which consent
shall not unreasonably be withheld)) arising out of actions or omissions
occurring at or prior to the Effective Time to the full extent required under
applicable Tennessee law, the terms of the Company's Charter or the By-laws, as
in effect at the date hereof, and the terms of any indemnification agreement
entered into with the Company prior to the date hereof; provided that, in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until disposition of any and all such claims.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ('D&O Insurance') for a
period of not less than six years after the Effective Time; provided, that the
Parent may substitute therefor policies of substantially equivalent coverage and
amounts containing terms no less favorable to such former directors or officers;
provided, further, if the existing D&O Insurance expires, is terminated or
cancelled during such period, Parent or the Surviving Corporation will use all
reasonable efforts to obtain substantially similar D&O Insurance; provided,
further, however, that in no event shall Parent, the Surviving Corporation or
the Company be required to pay aggregate premiums for insurance under this
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Section 5.9(b) in excess of 150% of the aggregate premiums paid by the Company
in 1996 on an annualized basis for such purpose (the '1996 Premium'); and
provided, further, that if the Parent or the Surviving Corporation is unable to
obtain the amount of insurance required by this Section 5.9(b) for such
aggregate premium, Parent or the Surviving Corporation shall obtain as much
insurance as can be obtained for an annual premium not in excess of 150% of the
1996 Premium.
Section 5.10 Notice of Prepayment. Promptly following the execution of
this Agreement, the Company shall provide notice to United Special Events, Inc.
('USE') of its intention to prepay in full the principal amount due, and any
interest due thereon, pursuant to the terms of a term note, dated as of May 15,
1996, by and among the Company and USE (the 'Term Note'), and shall prepay such
Term Note in accordance with the terms thereof unless USE exercises its right to
convert all or a portion of the prepayment amount into Shares of the Company.
Section 5.11 Certain Options. Effective as of the Effective Time and
subject to any required shareholder approval necessary to effectuate the
following grants, Parent shall grant options to acquire an aggregate of 500,000
shares of common stock of Parent ('Parent Options') to certain employees of the
Company, in accordance with Schedule 5.11 hereto (which Schedule may be amended
from time to time by executives of the Company prior to the Effective Time,
provided (i) such amendment shall have received the consent of Parent and (ii)
no amendment shall provide for the grant of shares of common stock of Parent in
excess of 500,000 shares). Except as set forth in Schedule 5.11, the Parent
Options shall be subject to the terms and conditions set forth in the applicable
option plan of Parent (as the same may be amended) and the applicable option
agreement.
Section 5.12 Board Representation. At the Effective Time, Parent shall
take all actions necessary to (i) appoint Mr. Jeffrey G. Webb as a director of
Parent's Board of Directors and as Vice Chairman of the Board of Directors and
to such other officer positions as shall be specified in the Employment
Agreement between Mr. Webb and Parent executed contemporaneously with this
Agreement, and (ii) appoint another individual selected by Mr. Webb and
reasonably acceptable to the Board of Directors of Parent as a director of
Parent's Board of Directors (it being understood that any person who is a Senior
Vice President or Director of the Company on the date hereof is reasonably
acceptable to the Board of Directors of Parent without further action).
Section 5.13 Tax Election. Neither Parent nor Purchaser shall make an
election under Code Section 338 without the prior written consent of the
Company.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company, Parent or the Purchaser, as the case may be, to the extent
permitted by applicable law:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the holders of the Shares, if required by
applicable law, in order to consummate the Merger.
(b) Statutes; Court Orders. No statute, rule or regulation shall have
been enacted or promulgated by any governmental authority which prohibits
the consummation of the Merger; and there shall be no order or injunction
of a court of competent jurisdiction in effect precluding consummation of
the Merger.
(c) Purchase of Shares in Offer. Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer, except that
this condition shall not apply if Parent, the Purchaser or their affiliates
shall have failed to purchase Shares pursuant to the Offer in breach of
their obligations under this Agreement.
Section 6.2 Condition to Parent's and the Purchaser's Obligations to Effect
the Merger. The obligations of Parent and the Purchaser to consummate the
Merger are further subject to the fulfillment of the condition that all actions
contemplated by Section 2.4 hereof shall have been taken, which may be waived in
whole or in part by Parent and the Purchaser.
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ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after shareholder approval thereof:
(a) By the mutual written consent of Parent and the Company.
(b) By either of the Company or Parent:
(i) if the Offer shall have expired without any Shares being
purchased therein; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of Parent or the
Purchaser, as the case may be, to purchase the Shares pursuant to the
Offer on or prior to such date;
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
acceptance for payment of, or payment for, Shares pursuant to the Offer
or the Merger and such order, decree, ruling or other action shall have
become final and non-appealable; or
(iii) if the Offer has not been consummated prior to September 5,
1997; provided, that the right to terminate this Agreement under this
Section 7.1(b)(iii) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of Parent or the Purchaser, as the case may be,
to purchase Shares pursuant to the Offer on or prior to such date.
(c) By the Company:
(i) if Parent, the Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to five business days following
the date of the initial public announcement of the Offer; provided, that
the Company may not terminate this Agreement pursuant to this Section
7.1(c)(i) if the Company is at such time in breach of its obligations
under this Agreement such as to cause a material adverse effect on the
Company and its Subsidiaries, taken as a whole;
(ii) in connection with entering into a definitive agreement in
accordance with Section 5.4(b), provided it has complied with all
provisions thereof, including the notice provisions therein, and that it
(x) makes simultaneous payment of the amount equal to Parent's good
faith estimate of its expenses, and (y) acknowledges in writing its
obligation to promptly reimburse Parent for its actual expenses in
excess of such estimated expenses payment, all as contemplated by, and
subject to the limits set forth in, Section 8.1(b); or
(iii) if Parent or the Purchaser shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which breach
cannot be or has not been cured, in all material respects, within 30
days after the giving of written notice to Parent or the Purchaser, as
applicable.
(d) By Parent:
(i) if, due to an occurrence, not involving a breach by Parent or
the Purchaser of their obligations hereunder, which makes it impossible
to satisfy any of the conditions set forth in Annex A hereto, Parent,
the Purchaser, or any of their affiliates shall have failed to commence
the Offer, and shall have delivered written notice to the Company
specifying the reason or reasons the Offer has not been commenced and
indicating that Parent is terminating this Agreement pursuant to this
Section 7.1(d)(i), on or prior to five business days following the date
of the initial public announcement of the Offer;
(ii) if prior to the purchase of Shares pursuant to the Offer, the
Company shall have breached any representation, warranty, covenant or
other agreement contained in this Agreement which (A) would give rise to
the failure of a condition set forth in Annex A hereto and (B) cannot be
or has not been cured, in all material respects, within 30 days after
the giving of written notice to the Company; or
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(iii) if either Parent or the Purchaser is entitled to terminate
the Offer as a result of the occurrence of any event set forth in
paragraph (d) of Annex A hereto.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to its terms, written notice thereof shall forthwith be given
to the other party or parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall forthwith become null and
void, and there shall be no liability on the part of the Parent, the Purchaser
or the Company except (A) for fraud or for willful breach of this Agreement and
(B) as set forth in Section 5.2(a) (the penultimate sentence thereof), this
Section 7.2 and Section 8.1.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. (a) Except as contemplated by this
Agreement, including Section 8.1(b) hereof, all costs and expenses incurred in
connection with this Agreement and the consummation of the Transactions shall be
paid by the party incurring such expenses, provided that the Company agrees to
pay $650,000 of the commitment fee payable to Nationsbank pursuant to the
commitment letter dated as of May 2, 1997. Any amounts paid pursuant to the
Nationsbank commitment letter that may be refunded shall be divided equally
between Parent and the Company; provided that the Company shall not be entitled
to any refund in excess of $650,000.
(b) If (x) the Company shall terminate this Agreement pursuant to Section
7.1(c)(ii), (y) Parent shall terminate this Agreement pursuant to Section
7.1(d)(iii) hereof, or (z) either the Company or Parent terminates this
Agreement pursuant to Section 7.1(b)(i) and prior thereto there shall have been
publicly announced another Acquisition Proposal, the Company shall pay to
Parent, an amount (the 'Expense Reimbursement Amount'), not to exceed $4,250,000
in the aggregate, equal to Parent's actual and reasonably documented
out-of-pocket fees and expenses incurred by Parent and Purchaser in connection
with the Offer, the Merger, this Agreement and the consummation of the
Transactions (including the financing thereof), which shall be payable in same
day funds. The estimated Expense Reimbursement Amount shall be paid concurrently
with any such termination, together with delivery of a written acknowledgement
by the Company of its obligation to reimburse Parent for its actual Expense
Reimbursement Amount in excess of the estimated payment made at the time of such
termination.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of the Company contemplated
hereby, by written agreement of the parties hereto, by action taken by their
respective Boards of Directors (which in the case of the Company shall include
approvals as contemplated in Section 1.3(b)), at any time prior to the Closing
Date with respect to any of the terms contained herein; provided, however, that
after the approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce the amount or change the form
of the Merger Consideration.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
Telephone No.: (212) 826-4300
Telecopy No.: (212) 826-5006
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Sheldon S. Adler, Esq.
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
and
(b) if to the Company, to:
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Attention: Jeffrey G. Webb
Telephone No.: (901) 387-4370
Telecopy No.: (901) 387-4356
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
Telephone number: (312) 245-8446
Telecopy number: (312) 644-3381
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words 'include', 'includes' or 'including' are
used in this Agreement they shall be deemed to be followed by the words 'without
limitation.' As used in this Agreement, the term 'affiliates' shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
Section 8.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
and the Confidentiality Agreement (including the documents and the instruments
referred to herein and therein): (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Section 5.9 is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.8 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
asking such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
Section 8.9 Governing Law. This Agreement (other than the provisions
relating to the mechanics of the Merger and the obligations of the directors of
the Company under Section 5.4, each of which shall be governed by the laws of
the State of Tennessee) shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to the principles of
conflicts of law thereof.
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<PAGE>
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
RIDDELL SPORTS INC.
By: /s/ DAVID MAUER
----------------------------------
Name: David M. Mauer
Title: Chief Executive Officer
CHEER ACQUISITION CORP.
By: /s/ DAVID MAUER
----------------------------------
Name: David M. Mauer
Title: President
VARSITY SPIRIT CORPORATION
By: /s/ ALAN D. GORDON
----------------------------------
Name: Alan D. Gordon
Title: Director
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<PAGE>
ANNEX A
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion (subject to the provisions of the Merger
Agreement), the Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-l(c) under the Exchange Act (relating to the Purchaser's obligation to pay
for or return tendered Shares promptly after termination or withdrawal of the
Offer), pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Shares, and may
terminate or amend the Offer as to any Shares not then paid for, if (i) the
Minimum Condition has not been satisfied, or (ii) at any time on or after the
date of the Merger Agreement and before the time of acceptance for payment for
any such Shares, any of the following events shall have occurred:
(a) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity against the Purchaser, Parent, the
Company or any Subsidiary of the Company (i) seeking to prohibit or impose
any material limitations on Parent's or the Purchaser's ownership or
operation (or that of any of their respective Subsidiaries or affiliates)
of all or a material portion of their or the Company's businesses or
assets, or to compel Parent or the Purchaser or their respective
Subsidiaries and affiliates to dispose of or hold separate any material
portion of the business or assets of the Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (ii) challenging
the acquisition by Parent or the Purchaser of any Shares under the Offer,
seeking to restrain or prohibit the making or consummation of the Offer or
the Merger or the performance of any of the other transactions contemplated
by the Agreement, or seeking to obtain from the Company, Parent or the
Purchaser any damages that are material in relation to the Company and its
Subsidiaries taken as a whole, (iii) seeking to impose material limitations
on the ability of the Purchaser, or render the Purchaser unable, to accept
for payment, pay for or purchase some or all of the Shares pursuant to the
Offer and the Merger, (iv) seeking to impose material limitations on the
ability of Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
the Shares purchased by it on all matters properly presented to the
Company's stockholders, or (v) which otherwise is reasonably likely to have
a Company Material Adverse Effect;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated, or deemed applicable,
pursuant to an authoritative interpretation by or on behalf of a Government
Entity, to the Offer or the Merger, or any other action shall be taken by
any Governmental Entity that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above;
(c) there shall have occurred any other event, change or effect after
the date of the Agreement which, either individually or in the aggregate,
would have, or be reasonably likely to have, a Company Material Adverse
Effect;
(d)(i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger or the
Agreement, or approved or recommended any Acquisition Proposal or (ii) the
Company shall have entered into any agreement with respect to any Superior
Proposal in accordance with Section 5.4(b) of the Agreement;
(e) the representations and warranties of the Company set forth in the
Agreement shall not be true and correct, in each case (i) as of the date
referred to in any representation or warranty which addresses matters as of
a particular date, or (ii) as to all other representations and warranties,
as of the date of the Agreement and as of the scheduled expiration of the
Offer, unless the inaccuracies (without giving effect to any materiality or
material adverse effect qualifications or materiality exceptions contained
therein) under such representations and warranties, taking all the
inaccuracies under all such representations and warranties together in
their entirety, do not, individually or in the aggregate, result in a
Company Material Adverse Effect;
(f) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant to be performed or complied with by
it under the Agreement other than any failure which would
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<PAGE>
not have, either individually or in the aggregate, a Company Material
Adverse Effect or the persons who are a party to the Shareholders Agreement
and Stock Purchase Agreement shall have failed to comply with their
obligations under the Shareholders Agreement and Stock Purchase Agreement,
as the case may be;
(g) any person acquires beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act), of at least 30% of the outstanding
Common Stock of the Company (other than any person not required to file a
Schedule 13D under the rules promulgated under the Exchange Act); or
(h) the Agreement shall have been terminated in accordance with its
terms;
which, in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser, may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to such condition (including any action or inaction by
Parent or the Purchaser not in violation of the Agreement) and may be waived by
Parent or the Purchaser in whole or in part at any time and from time to time in
the sole discretion of Parent or the Purchaser, subject in each case to the
terms of the Merger Agreement. The failure by Parent or the Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
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ANNEX II
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of May 5, 1997, among Riddell Sports Inc.,
a Delaware corporation ('Parent'), Cheer Acquisition Corp., a Tennessee
corporation and a wholly owned subsidiary of Parent (the 'Purchaser'), and the
shareholders of Varsity Spirit Corporation, a Tennessee corporation (the
'Company'), set forth on the signature page hereto (collectively referred to
herein as the 'Shareholders' and each, a 'Shareholder').
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and the Company have entered into an Agreement and Plan of
Merger (as such Agreement may hereafter be amended from time to time, the
'Merger Agreement'), pursuant to which Purchaser will be merged with and into
the Company (the 'Merger');
WHEREAS, in furtherance of the Merger, Parent and the Company desire that
as soon as practicable (and not later than five business days) after the
execution and delivery of the Merger Agreement, the Purchaser shall commence a
cash tender offer (the 'Offer') to purchase at a price of $18.90 per share all
outstanding shares of Company Common Stock (as defined in Section 1 hereof); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholders agree, and the Shareholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Definitions. For purposes of this Agreement:
(a) 'Beneficially Own' or 'Beneficial Ownership' with respect to
any securities shall mean having 'beneficial ownership' of such
securities (as determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the 'Exchange Act')), including
pursuant to any agreement, arrangement or understanding, whether or not
in writing. Without duplicative counting of the same securities by the
same holder, securities Beneficially Owned by a Person shall include
securities Beneficially Owned by all other Persons with whom such Person
would constitute a 'group' as within the meaning of Section 13(d)(3) of
the Exchange Act.
(b) 'Company Common Stock' shall mean at any time the common stock,
$.01 par value, of the Company.
(c) 'Person' shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other
entity.
(d) Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
2. Tender of Shares.
(a) In order to induce Parent and the Purchaser to enter into the
Merger Agreement, each of the Shareholders hereby agrees to validly
tender (or cause the record owner of such shares to validly tender), and
not to withdraw, pursuant to and in accordance with the terms of the
Offer, not later than the fifth business day after commencement of the
Offer pursuant to Section 1.1 of the Merger Agreement and Rule 14d-2
under the Exchange Act, the number of shares of Company Common Stock set
forth opposite such Shareholder's name under the caption 'Tender Shares'
on Schedule I hereto, all of which are Beneficially Owned by such
Shareholder. Each Shareholder hereby acknowledges and agrees that
Parent's and the Purchaser's obligation to accept for payment and pay
for the Shares in the Offer, including the Shares Beneficially Owned by
such Shareholder, is subject to the terms and conditions of the Offer.
The total number of shares of Company Common Stock set forth opposite
such
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<PAGE>
Shareholder's name on Schedule I under the caption 'Total Shares', and
together with any shares acquired by such Shareholder in any capacity
after the date hereof and prior to the termination of this Agreement
whether upon the exercise of options or by means of purchase, dividend,
distribution, gift or otherwise, are referred to herein as the 'Shares'.
(b) The transfer by the Shareholders of the Shares to Purchaser in
the Offer shall pass to and unconditionally vest in the Purchaser good
and valid title to the Tender Shares, free and clear of all
Encumbrances.
(c) The Shareholders hereby permit Parent and the Purchaser to
publish and disclose in the Offer Documents and, if approval of the
Company's shareholders is required under applicable law, the Proxy
Statement (including all documents and schedules filed with the SEC)
their identity and ownership of the Company Common Stock and the nature
of their commitments, arrangements and understandings under this
Agreement.
3. Additional Agreements.
(a) Voting Agreement. During the Term, (as defined in Section 8
herein) each Shareholder shall, at any meeting of the holders of Company
Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, vote (or cause to be voted) the
Shares (if any) then held of record or Beneficially Owned by such
Shareholder, (i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval of the terms
thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance
thereof and hereof; and (ii) against any Acquisition Proposal (as
defined in the Merger Agreement) and against any action or agreement
that would impede, frustrate, prevent or nullify this Agreement, or
result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the
Merger Agreement or which would result in any of the conditions set
forth in Annex A to the Merger Agreement or set forth in Article VI of
the Merger Agreement not being fulfilled. The parties hereto agree and
acknowledge that nothing in this Section 3 or any other part of this
Agreement shall be construed as requiring any Shareholder who also is a
director of the Company to propose, endorse, approve or recommend the
Merger Agreement or any transaction contemplated thereby in such
Shareholder's capacity as a director of the Company.
(b) No Inconsistent Arrangements. Each of the Shareholders hereby
covenants and agrees that, except as contemplated by this Agreement and
the Merger Agreement, during the Term it shall not (i) tender, or
consent to any tender of, any or all of such Shareholder's Shares,
pursuant to any Acquisition Proposal (as defined in the Merger
Agreement), (ii) transfer (which term shall include, without limitation,
any sale, gift, pledge or other disposition), or consent to any transfer
of, any or all of such Shareholder's Shares, Company Options or any
interest therein, (iii) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of
such Shares, Company Options or any interest therein, (iv) grant any
proxy, power-of-attorney or other authorization in or with respect to
such Shares or Company Options, (v) deposit such Shares or Company
Options into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares or Company Options, or (vi) take
any other action that would in any way restrict, limit or interfere with
the performance of its obligations hereunder or the transactions
contemplated hereby or by the Merger Agreement. Without limiting the
foregoing sentence, each of the Shareholders hereby covenants and agrees
to be bound by the provisions of Section 5.4(a) of the Merger Agreement
to the same extent as the Company.
(c) Grant of Irrevocable Proxy; Appointment of Proxy.
(i) Each Shareholder hereby irrevocably grants to, and appoints,
Parent and David Mauer (as Chief Executive Officer) and Lisa Marroni
(as General Counsel), or either of them, in their respective
capacities as officers of Parent, and any individual who shall
hereafter succeed to any such office of Parent, and each of them
individually, such Shareholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of
such Shareholder, to
II-2
<PAGE>
vote such Shareholder's Shares, or grant a consent or approval in
respect of the Shares in favor of the various transactions
contemplated by the Merger Agreement (the 'Transactions') and against
any Acquisition Proposal.
(ii) Each Shareholder represents that any proxies heretofore
given in respect of such Shareholder's Shares are not irrevocable,
and that any such proxies are hereby revoked.
(iii) Each Shareholder understands and acknowledges that Parent
is entering into the Merger Agreement in reliance upon such
Shareholder's execution and delivery of this Agreement. Each
Shareholder hereby affirms that the irrevocable proxy set forth in
this Section 3(c) is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to secure
the performance of the duties of such Shareholder under this
Agreement. Each Shareholder hereby further affirms that the
irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. Each Shareholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to
be done by virtue hereof. SUCH IRREVOCABLE PROXY IS EXECUTED AND
INTENDED TO BE IRREVOCABLE IN ACCORDANCE WITH THE PROVISIONS OF
ARTICLE 48-17-203 OF THE TENNESSEE BUSINESS CORPORATIONS ACT.
(d) Company Options. Each of the Shareholders that holds Company
Options to acquire shares of Company Common Stock, as identified on the
signature pages hereof, shall, if requested by the Company, consent to
the cancellation or substitution of such Shareholder's Company Options
in accordance with the terms of the Merger Agreement and shall execute
all appropriate documentation in connection with such cancellation or
substitution.
(e) Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and the Merger Agreement. Each party
shall promptly consult with the other and provide any necessary
information and material with respect to all filings made by such party
with any Governmental Entity in connection with this Agreement and the
Merger Agreement and the transactions contemplated hereby and thereby.
(f) Waiver of Rights to Dissent. Each Shareholder hereby waives
any rights of appraisal or rights to dissent from the Merger that such
Shareholder may have.
4. Representations and Warranties of the Shareholders. Each
Shareholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Shareholder is the record and
Beneficial Owner of the Shares, as set forth on Schedule I. On the date
hereof, the Existing Shares constitute all of the Shares owned of record
or Beneficially Owned by such Shareholder. Such Shareholder has sole
voting power and sole power to issue instructions with respect to the
matters set forth in Sections 2, and 3 hereof, sole power of
disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Existing Shares with
no limitations, qualifications or restrictions on such rights, subject
to applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Such Shareholder has the legal
capacity, power and authority to enter into and perform all of such
Shareholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Shareholder will not violate
any other agreement to which such Shareholder is a party including,
without limitation, any voting agreement, proxy arrangement, pledge
agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Shareholder and
constitutes a valid and binding agreement of such Shareholder,
enforceable against such Shareholder in accordance with its terms. There
is no beneficiary or holder of a voting trust certificate or other
interest of any trust of which such Shareholder is a trustee whose
consent is required for the execution and delivery of this Agreement or
the consummation by such Shareholder of the transactions contemplated
hereby.
II-3
<PAGE>
(c) No Conflicts. Except for filings under the HSR Act and the
Exchange Act, (i) no filing with, and no permit, authorization, consent
or approval of, any Governmental Entity for the execution of this
Agreement by such Shareholder and the consummation by such Shareholder
of the transactions contemplated hereby and (ii) none of the execution
and delivery of this Agreement by such Shareholder, the consummation by
such Shareholder of the transactions contemplated hereby or compliance
by such Shareholder with any of the provisions hereof shall (A) conflict
with or result in any breach of any organizational documents applicable
to the Shareholder, (B) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
(or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which such
Shareholder is a party or by which such Shareholder or any of its
properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation
applicable to such Shareholder or any of its properties or assets.
(d) No Encumbrances. Except as permitted by this Agreement, the
Shares and the certificates representing such Shares are now, and at all
times during the term hereof will be, held by such Shareholder, or by a
nominee or custodian for the benefit of such Shareholder, free and clear
of all Encumbrances, proxies, voting trusts or agreements,
understandings or arrangements or any other rights whatsoever, except
for any such Encumbrances or proxies arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of such Shareholder.
(f) Reliance by Parent. Each Shareholder understands and
acknowledges that Parent is entering into, and causing Purchaser to
enter into, the Merger Agreement in reliance upon such Shareholder's
execution and delivery of this Agreement.
5. Representations and Warranties of Parent and the Purchaser. Each
of Parent and the Purchaser hereby represents and warrants to the
Shareholders as follows:
(a) Power; Binding Agreement. Parent and the Purchaser each has
the corporate power and authority to enter into and perform all of its
obligations under this Agreement. The execution, delivery and
performance of this Agreement by each of Parent and the Purchaser will
not violate any other agreement to which either of them is a party. This
Agreement has been duly and validly executed and delivered by each of
Parent and the Purchaser and constitutes a valid and binding agreement
of each of Parent and the Purchaser, enforceable against each of Parent
and the Purchaser in accordance with its terms.
(b) No Conflicts. Except for filings under the HSR Act and the
Exchange Act, (i) no filing with, and no permit, authorization, consent
or approval of, any Governmental Entity is necessary for the execution
of this Agreement by each of Parent and the Purchaser and the
consummation by each of Parent and the Purchaser of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by each of Parent and the Purchaser, the consummation by each
of Parent and the Purchaser of the transactions contemplated hereby or
compliance by each of Parent and the Purchaser with any of the
provisions hereof shall (A) conflict with or result in any breach of any
organizational documents applicable to either of Parent or the
Purchaser, (B) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to
any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which either of Parent or
the Purchaser is a party or by which either of Parent or the Purchaser
or any of their properties or assets may be bound, or (C) violate any
order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to either of Parent or the Purchaser or any of
their properties or assets.
II-4
<PAGE>
6. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute
and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective,
in the most expeditious manner practicable, the transactions contemplated
by this Agreement.
7. Stop Transfer. The Shareholders shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such
transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Company Common Stock by
reason of any stock dividend, split-up, recapitalization, combination,
exchange of shares or the like, the term 'Shares' shall refer to and
include the Shares as well as all such stock dividends and distributions
and any shares into which or for which any or all of the Shares may be
changed or exchanged.
8. Termination. The covenants and agreements contained herein with
respect to the Shares shall terminate upon the earlier of the consummation
of the Merger and four months following the termination of the Merger
Agreement in accordance with its terms (the period during which this
Agreement is in effect being referred to herein as the 'Term').
9. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) Binding Agreement. This Agreement and the obligations
hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of such Shares
shall pass, whether by operation of law or otherwise, including, without
limitation, a Shareholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations of the transferor
under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation
of law or otherwise without the prior written consent of the other
parties, provided that Parent may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent of its
obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed
by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if given) by hand delivery or
telecopy (with a confirmation copy sent for next day delivery via
courier service, such as
II-5
<PAGE>
Federal Express), or by any courier service, such as Federal Express,
providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to a Shareholder: to such Shareholder's address set
forth on Schedule I hereto
If to Parent or the Purchaser: Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
Telephone No.: (212) 826-4300
Telecopy No.: (212) 826-5006
copy to: Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Sheldon S. Adler, Esq.
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
or to such other address as the person to whom notice is given may
have previously furnished to the others in writing in the manner set
forth above.
(f) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to
be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the parties hereto recognizes
and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain
damages for which it would not have an adequate remedy at law for money
damages, and therefore in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such
covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in
equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of
any thereof by any party shall not preclude the simultaneous or later
exercise of any other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and
any custom or practice of the parties at variance with the terms hereof,
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended
to be for the benefit of, and shall not be enforceable by, any person or
entity who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Tennessee, without giving
effect to the principles of conflicts of law thereof.
(l) Jurisdiction. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Courts of the State of New York and the
United States District Court for the Southern District of New
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<PAGE>
York in any action, suit or proceeding arising in connection with this
Agreement, and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
conveniens or any other objection to venue therein). Each party hereto
hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
(m) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Parent, the Purchaser and the Shareholders have caused
this Agreement to be duly executed as of the day and year first above written.
RIDDELL SPORTS INC.
By: /s/ DAVID MAUER
-----------------------------------
Name: David Mauer
Title: Chief Executive Officer
CHEER ACQUISITION CORP.
By: /s/ DAVID MAUER
-----------------------------------
Name: David Mauer
Title: President
/s/ JEFFREY G. WEBB
--------------------------------------
Jeffrey G. Webb
/s/ GREGORY C. WEBB
--------------------------------------
Gregory C. Webb
/s/ ALAN D. GORDON
--------------------------------------
Alan D. Gordon
/s/ RANDALL S. STURGES
--------------------------------------
Randall S. Sturges
II-7
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES AND COMPANY OPTIONS
BENEFICIALLY OWNED
---------------------------------------
TOTAL TENDER COMPANY
NAME AND ADDRESS OF SHAREHOLDER SHARES SHARES OPTIONS
- --------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Alan D. Gordon ...................................................... 648,500 648,500
9330 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Randall S. Sturges .................................................. 460,000 460,000
1936 North Clark Street
11th Floor
Chicago, Illinois 60614
Jeffrey G. Webb ..................................................... 650,958 553,455 91,325
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Gregory C. Webb ..................................................... 123,450 76,575 46,875
2525 Horizon Lake Drive
Memphis, Tennessee 38133
</TABLE>
II-8
<PAGE>
ANNEX III
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 5, 1997 (the 'Agreement'), by and
between Jeffrey G. Webb ('Executive'), Chairman, President and Chief Executive
Officer of Varsity Spirit Corporation, a Tennessee corporation (collectively
with any successor to its business, 'Varsity'), and Riddell Sports Inc., a
Delaware corporation (the 'Seller').
Seller, Cheer Acquisition Corp. and Varsity have entered into an Agreement
and Plan of Merger (the 'Merger Agreement'), dated as of May 5, 1997, pursuant
to which, among other things, Varsity will become a wholly owned subsidiary of
Seller.
This Agreement sets forth the terms and conditions upon which Seller is
selling to Executive, and Executive is purchasing from Seller, a number of
shares of Common Stock, par value $0.01 per share (the 'Common Stock'), of
Seller equal to the net after-tax proceeds (assuming a 28% tax rate and a basis
in the shares of $.1666) received by the Executive in the Offer or Merger as a
result of the sale of 251,165 of his 553,455 shares of common stock of Varsity
('Target Common Stock') divided by the Purchase Price (as defined in Section 2
hereof) (such number of shares being referred to herein as the 'Shares').
In consideration of the mutual agreements contained herein, and intending
to be legally bound hereby, the parties agree as follows:
1. Effective Date. This Agreement shall become effective on the
acceptance for payment of shares of Target Common Stock pursuant to the
Offer (as defined in the Merger Agreement) (the 'Effective Date');
provided, however, that if the Merger Agreement is terminated in accordance
with its terms, then, at the time of such termination, this Agreement shall
be deemed cancelled and of no force and effect.
2. Purchase and Sale of Certain Shares. On or before the fifth
business day after the Effective Date, or on such later date as shall be
mutually agreed upon between the parties, Seller shall sell to Executive,
and Executive shall purchase from Seller, all of the Shares for a price
equal to the average closing price of the Common Stock, as reported on the
NASDAQ National Market System for the 20 trading days ending on the day
immediately preceding the Effective Date, provided, that in no event shall
such purchase price per Share be more than $4.50 nor less than $2.80 (the
'Purchase Price'), payable in cash. If Executive shall die prior to the
consummation of the transaction described herein, Executive's estate shall
consummate such transaction in accordance with the terms of this Agreement.
3. Closing; Deliveries at the Closing. At the closing of the sale and
purchase of the Shares contemplated by Section 2 hereof (the 'Closing'),
(a) Seller will deliver to Executive (i) stock certificates representing
all the Shares duly endorsed, together with stock powers duly executed in
blank relating to such certificates, or other evidences of transfer
reasonably satisfactory to Executive and (b) Executive will deliver to
Seller the Purchase Price by a wire transfer of federal funds to a bank
account or accounts previously designated in writing to Executive by
Seller. The Closing shall be held at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York.
4. Representations and Warranties of Seller. Seller represents and
warrants to Executive as follows:
a. Seller has the requisite corporate power and authority to
execute, deliver and carry out the terms and provisions of this
Agreement and to consummate the transactions contemplated hereby, and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement;
b. Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
c. this Agreement has been duly and validly authorized, executed
and delivered by Seller, and constitutes a valid and binding obligation
of Seller, enforceable in accordance with its terms;
d. the Shares, upon receipt of the Purchase Price, will be validly
issued, duly authorized and free of any preemptive rights;
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<PAGE>
e. upon issuance to Executive by Seller of the Shares at the
Closing, Executive will have good and marketable title to the Shares,
free and clear of all Liens;
f. the execution of this Agreement by Seller does not, and the
performance by Seller of its obligations hereunder will not, constitute
a violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Seller is a party or by which Seller is bound or any
judgment, decree or order applicable to Seller; and
g. neither the execution and delivery of this Agreement nor the
performance by Seller of its obligations hereunder will violate any
provision of law applicable to Seller or require any consent or approval
of, or filing with or notice to, any public body or authority under any
provision of law applicable to Seller other than notices or filings
pursuant to the federal securities laws.
5. Representations and Warranties of Executive. Executive represents
and warrants to Seller as follows:
a. Executive has the legal capacity, power and authority to enter
into and perform all of Executive's obligations under this Agreement;
b. this Agreement has been duly and validly authorized, executed
and delivered by Executive and constitutes a valid and binding
obligation of Executive, enforceable in accordance with its terms;
c. the execution of this Agreement by Executive does not, and the
performance by Executive of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Executive is a party or by which
Executive is bound or any judgment, decree or order applicable to
Executive;
d. neither the execution and delivery of this Agreement nor the
performance by Executive of its obligations hereunder will violate any
provision of law applicable to Executive or require any consent or
approval of, or filing with or notice to, any public body or authority
under any provision of law applicable to Executive;
e. Executive is acquiring the Shares solely for Executive's own
account for investment and not with a view to, or for sale in connection
with, any distribution or other disposition thereof;
f. Executive acknowledges receipt of advice from Parent that (i)
the Shares have not been registered under the Securities Act of 1933
(the 'Securities Act') and are 'restricted securities', (ii) the Shares
must be held indefinitely and Executive must continue to bear the
economic risk of the investment in the Shares, unless such Shares are
subsequently registered under the Securities Act, or an exemption from
such registration is available, (iii) an appropriate restrictive legend
shall be placed on the certificate(s) representing the Shares, and (iv)
a notation shall be made in the appropriate records of Parent indicating
that the Shares are subject to restrictions on transfer and appropriate
stop-transfer restrictions will be issued to the transfer agent with
respect to the Shares. In addition, Executive has been given access to
and the opportunity to examine all documents and ask questions of, and
receive answers from, Parent and its representatives concerning the
business, assets, liabilities, results of operations and financial
condition of Parent and its subsidiaries and the terms and conditions of
the Merger and related transactions; and
g. either (i) Executive is an 'accredited investor' as such term is
defined in Rule 501(a) promulgated under the Securities Act or (ii) (A)
Executive's financial situation is such that the Executive can afford to
bear the economic risk of holding the Shares for an indefinite period of
time, (B) Executive can afford to suffer complete loss of his investment
in the Shares, and (c) Executive's knowledge and experience in financial
and business matters are such that Executive is capable of evaluating
the merits and risks of his investment in the Shares.
6. Expenses. All fees and expenses incurred by any of the parties hereto
shall be borne by the party incurring such fees and expenses. All sales,
transfer or other similar taxes payable in connection with this Agreement will
be borne by the party incurring such taxes, except that Seller shall be
responsible for all stock transfer taxes with respect to the transactions
contemplated hereby.
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<PAGE>
7. Brokerage. Each of Executive and Seller represents and warrants to the
other that the negotiations relevant to this Agreement have been carried on by
each of Executive, on the one hand, and Seller, on the other hand, directly with
the other, and that there are no claims for finder's fees or brokerage
commissions or other like payments in connection with this Agreement or the
transactions contemplated hereby. Executive, on the one hand, and Seller, on the
other hand, agree to indemnify and hold harmless the other from and against any
and all claims or liabilities for finder's fees or brokerage commissions or
other like payments incurred by reason of any written or oral agreement entered
into by it.
8. Stop Transfer. The Executive shall not request that the Seller register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Seller's Common Stock, par value $0.01 per
share, by reason of any stock dividend, split-up, recapitalization, combination,
exchange of shares or the like, the term 'Shares' shall refer to and include the
Shares as well as all such stock dividends and distributions and any shares into
which or for which any or all of the Shares may be changed or exchanged.
9. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions will remain in full force and effect and will in no way be
affected, impaired or invalidated.
10. Survival of Representations, Warranties, etc. All representations,
warranties, agreements and covenants made by each of the parties pursuant to
this Agreement will survive the Closing hereunder.
11. Incidental Registration Rights. If Seller proposes to file a
registration statement under the Securities Act with respect to (a) an offering
by Seller for its own account or (b) an offering for the account of any of its
respective securityholders of any shares of Common Stock (other than a
registration statement on Form S-4 or S-8 (or any substitute form therefor that
may be adopted by the Securities and Exchange Commission)), then Seller shall
give written notice of such proposed filing to the Executive as soon as
practicable (but in no event less than 20 days before the anticipated filing
date), and such notice shall offer the Executive the opportunity to register
such number of shares of Common Stock being purchased hereunder as such
Executive may request (a 'Piggy-Back Registration'). With respect to any
offering described in the preceding sentence which is an underwritten offering
(an 'Underwritten Offering'), Seller shall use all reasonable efforts to cause
the managing underwriter or underwriters of such proposed Underwritten Offering
to permit the securities requested to be included in a Piggy-Back Registration
to be included on the same terms and conditions as any similar securities of
Seller included therein. Notwithstanding anything contained herein, if the
managing underwriter or underwriters of an Underwritten Offering determines and
so notifies the Executive in writing that the success of the Underwritten
Offering would be materially and adversely affected by inclusion of any or all
securities requested to be included by Executive, either because of (i) the size
of the offering that the Executive, Seller and any other persons intend to make
or (ii) the kind of securities that the Executive, Seller and any other persons
or entities intend to include in such offering, then in such event the amount of
securities to be offered for the account of Executive shall be reduced (such
reduction to be pro rata based on the number of such securities so proposed to
be sold by the Seller, on the one hand, and the Executive and the three other
Varsity executives executing similar agreements with Seller on the date hereof,
on the other hand) and the Executive) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters. The Seller agrees that
henceforth, and until the earlier of the date the Executive shall have
registered or divested the Shares, it will not grant additional Piggy-Back
Registration rights to any person or entity which provides for rights with
respect to participation in an offering superior to those provided herein to the
Executive. The Executive agrees that he may not participate in any Underwritten
Offering unless he (a) agrees to sell his securities on the basis provided in
any underwriting arrangements approved by the Seller and (b) completes and
executes all customary questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements. The Seller represents and warrants that
except for the Registration Rights Agreement, dated as of November 8, 1996,
between the Seller and Silver Oak Capital, L.L.C., no other agreements executed
by the Seller provide for superior piggy-back registration rights than those
granted herein.
III-3
<PAGE>
12. Miscellaneous.
a. This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, whether oral or written, among
the parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an instrument in
writing signed by each of the parties to this Agreement.
b. (i) Seller will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Seller to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that Seller would be required to perform it if no such
succession had taken place.
(ii) This Agreement is a personal contract and the rights and
obligations of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as
otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the
Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
c. Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
d. This Agreement may be executed in counterparts, each of which
shall, when executed, be deemed to be an original, and both of which
shall be deemed to be one and the same instrument.
e. This Agreement shall be governed by and construed and enforced
in accordance with the substantive laws of the State of Delaware,
without reference to the conflict of laws principles thereof.
f. All notices and other communications under this Agreement shall
be in writing and delivery thereof shall be deemed to have been made
either (i) if mailed, when received, or (ii) when transmitted by hand
delivery, telegram, telex, or facsimile transmission, to the party
entitled to receive the same at the addresses indicated below or at such
other address as such party shall have specified by written notice to
the other parties hereto given in accordance herewith:
(1) If to Seller:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler
(2) If to Executive:
2525 Horizon Lake Drive
Memphis, Tennessee 38133
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
g. This Agreement may not be amended, modified or supplemented
except upon execution and delivery of a written agreement executed by
the parties hereto.
III-4
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Executive and
Seller have executed or caused this Agreement to be executed on the date first
above written.
RIDDELL SPORTS INC.
By: /s/ DAVID M. MAUER
----------------------------------
David M. Mauer
Chief Executive Officer
By: /s/ JEFFREY G. WEBB
----------------------------------
Jeffrey G. Webb
III-5
<PAGE>
ANNEX IV
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 5, 1997 (the 'Agreement'), by and
between Gregory C. Webb ('Executive'), Senior Vice President of Varsity Spirit
Corporation, a Tennessee corporation (collectively with any successor to its
business, 'Varsity'), and Riddell Sports Inc., a Delaware corporation (the
'Seller').
Seller, Cheer Acquisition Corp. and Varsity have entered into an Agreement
and Plan of Merger (the 'Merger Agreement'), dated as of May 5, 1997, pursuant
to which, among other things, Varsity will become a wholly owned subsidiary of
Seller.
This Agreement sets forth the terms and conditions upon which Seller is
selling to Executive, and Executive is purchasing from Seller, a number of
shares of Common Stock, par value $0.01 per share (the 'Common Stock'), of
Seller equal to the net after-tax proceeds (assuming a 28% tax rate and a basis
in the shares of $.1666) received by the Executive in the Offer or Merger as a
result of the sale of 32,500 of his 76,575 shares of common stock of Varsity
('Target Common Stock') divided by the Purchase Price (as defined in Section 2
hereof)(such number of shares being referred to herein as the 'Shares').
In consideration of the mutual agreements contained herein, and intending
to be legally bound hereby, the parties agree as follows:
1. Effective Date. This Agreement shall become effective on the
acceptance for payment of shares of Target Common Stock pursuant to the
Offer (as defined in the Merger Agreement) (the 'Effective Date');
provided, however, that if the Merger Agreement is terminated in accordance
with its terms, then, at the time of such termination, this Agreement shall
be deemed cancelled and of no force and effect.
2. Purchase and Sale of Certain Shares. On or before the fifth
business day after the Effective Date, or on such later date as shall be
mutually agreed upon between the parties, Seller shall sell to Executive,
and Executive shall purchase from Seller, all of the Shares for a price
equal to the average closing price of the Common Stock, as reported on the
NASDAQ National Market System for the 20 trading days ending on the day
immediately preceding the Effective Date, provided, that in no event shall
such purchase price per Share be more than $4.50 nor less than $2.80 (the
'Purchase Price'), payable in cash. If Executive shall die prior to the
consummation of the transaction described herein, Executive's estate shall
consummate such transaction in accordance with the terms of this Agreement.
3. Closing; Deliveries at the Closing. At the closing of the sale and
purchase of the Shares contemplated by Section 2 hereof (the 'Closing'),
(a) Seller will deliver to Executive (i) stock certificates representing
all the Shares duly endorsed, together with stock powers duly executed in
blank relating to such certificates, or other evidences of transfer
reasonably satisfactory to Executive and (b) Executive will deliver to
Seller the Purchase Price by a wire transfer of federal funds to a bank
account or accounts previously designated in writing to Executive by
Seller. The Closing shall be held at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York.
4. Representations and Warranties of Seller. Seller represents and
warrants to Executive as follows:
a. Seller has the requisite corporate power and authority to
execute, deliver and carry out the terms and provisions of this
Agreement and to consummate the transactions contemplated hereby, and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement;
b. Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
c. this Agreement has been duly and validly authorized, executed
and delivered by Seller, and constitutes a valid and binding obligation
of Seller, enforceable in accordance with its terms;
d. the Shares, upon receipt of the Purchase Price, will be validly
issued, duly authorized and free of any preemptive rights;
e. upon issuance to Executive by Seller of the Shares at the
Closing, Executive will have good and marketable title to the Shares,
free and clear of all Liens;
IV-1
<PAGE>
f. the execution of this Agreement by Seller does not, and the
performance by Seller of its obligations hereunder will not, constitute
a violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Seller is a party or by which Seller is bound or any
judgment, decree or order applicable to Seller; and
g. neither the execution and delivery of this Agreement nor the
performance by Seller of its obligations hereunder will violate any
provision of law applicable to Seller or require any consent or approval
of, or filing with or notice to, any public body or authority under any
provision of law applicable to Seller other than notices or filings
pursuant to the federal securities laws.
5. Representations and Warranties of Executive. Executive represents
and warrants to Seller as follows:
a. Executive has the legal capacity, power and authority to enter
into and perform all of Executive's obligations under this Agreement;
b. this Agreement has been duly and validly authorized, executed
and delivered by Executive and constitutes a valid and binding
obligation of Executive, enforceable in accordance with its terms;
c. the execution of this Agreement by Executive does not, and the
performance by Executive of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Executive is a party or by which
Executive is bound or any judgment, decree or order applicable to
Executive;
d. neither the execution and delivery of this Agreement nor the
performance by Executive of its obligations hereunder will violate any
provision of law applicable to Executive or require any consent or
approval of, or filing with or notice to, any public body or authority
under any provision of law applicable to Executive;
e. Executive is acquiring the Shares solely for Executive's own
account for investment and not with a view to, or for sale in connection
with, any distribution or other disposition thereof;
f. Executive acknowledges receipt of advice from Parent that (i)
the Shares have not been registered under the Securities Act of 1933
(the 'Securities Act') and are 'restricted securities', (ii) the Shares
must be held indefinitely and Executive must continue to bear the
economic risk of the investment in the Shares, unless such Shares are
subsequently registered under the Securities Act, or an exemption from
such registration is available, (iii) an appropriate restrictive legend
shall be placed on the certificate(s) representing the Shares, and (iv)
a notation shall be made in the appropriate records of Parent indicating
that the Shares are subject to restrictions on transfer and appropriate
stop-transfer restrictions will be issued to the transfer agent with
respect to the Shares. In addition, Executive has been given access to
and the opportunity to examine all documents and ask questions of, and
receive answers from, Parent and its representatives concerning the
business, assets, liabilities, results of operations and financial
condition of Parent and its subsidiaries and the terms and conditions of
the Merger and related transactions; and
g. either (i) Executive is an 'accredited investor' as such term is
defined in Rule 501(a) promulgated under the Securities Act or (ii) (A)
Executive's financial situation is such that the Executive can afford to
bear the economic risk of holding the Shares for an indefinite period of
time, (B) Executive can afford to suffer complete loss of his investment
in the Shares, and (c) Executive's knowledge and experience in financial
and business matters are such that Executive is capable of evaluating
the merits and risks of his investment in the Shares.
6. Expenses. All fees and expenses incurred by any of the parties
hereto shall be borne by the party incurring such fees and expenses. All
sales, transfer or other similar taxes payable in connection with this
Agreement will be borne by the party incurring such taxes, except that
Seller shall be responsible for all stock transfer taxes with respect to
the transactions contemplated hereby.
7. Brokerage. Each of Executive and Seller represents and warrants to
the other that the negotiations relevant to this Agreement have been
carried on by each of Executive, on the one hand, and Seller, on the other
hand, directly with the other, and that there are no claims for finder's
fees or brokerage commissions
IV-2
<PAGE>
or other like payments in connection with this Agreement or the
transactions contemplated hereby. Executive, on the one hand, and Seller,
on the other hand, agree to indemnify and hold harmless the other from and
against any and all claims or liabilities for finder's fees or brokerage
commissions or other like payments incurred by reason of any written or
oral agreement entered into by it.
8. Stop Transfer. The Executive shall not request that the Seller
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such
transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Seller's Common Stock, par
value $0.01 per share, by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
'Shares' shall refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or
all of the Shares may be changed or exchanged.
9. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions will remain in full force and effect and will in no way be
affected, impaired or invalidated.
10. Survival of Representations, Warranties, etc. All
representations, warranties, agreements and covenants made by each of the
parties pursuant to this Agreement will survive the Closing hereunder.
11. Incidental Registration Rights. If Seller proposes to file a
registration statement under the Securities Act with respect to (a) an
offering by Seller for its own account or (b) an offering for the account
of any of its respective securityholders of any shares of Common Stock
(other than a registration statement on Form S-4 or S-8 (or any substitute
form therefor that may be adopted by the Securities and Exchange
Commission)), then Seller shall give written notice of such proposed filing
to the Executive as soon as practicable (but in no event less than 20 days
before the anticipated filing date), and such notice shall offer the
Executive the opportunity to register such number of shares of Common Stock
being purchased hereunder as such Executive may request (a 'Piggy-Back
Registration'). With respect to any offering described in the preceding
sentence which is an underwritten offering (an 'Underwritten Offering'),
Seller shall use all reasonable efforts to cause the managing underwriter
or underwriters of such proposed Underwritten Offering to permit the
securities requested to be included in a Piggy-Back Registration to be
included on the same terms and conditions as any similar securities of
Seller included therein. Notwithstanding anything contained herein, if the
managing underwriter or underwriters of an Underwritten Offering determines
and so notifies the Executive in writing that the success of the
Underwritten Offering would be materially and adversely affected by
inclusion of any or all securities requested to be included by the
Executive, either because of (i) the size of the offering that the
Executive, Seller and any other persons intend to make or (ii) the kind of
securities that the Executive, Seller and any other persons or entities
intend to include in such offering, then in such event the amount of
securities to be offered for the account of the Executive shall be reduced
(such reduction to be pro rata based on the number of such securities so
proposed to be sold by the Seller, on the one hand, and the Executive and
the three other Varsity executives executing similar agreements with Seller
on the date hereof, on the other hand) and the Executive) to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or
underwriters. The Seller agrees that henceforth, and until the earlier of
the date the Executive shall have registered or divested the Shares, it
will not grant additional Piggy-Back Registration rights to any person or
entity which provides for rights with respect to participation in an
offering superior to those provided herein to the Executive. The Executive
agrees that he may not participate in any Underwritten Offering unless he
(a) agrees to sell his securities on the basis provided in any underwriting
arrangements approved by the Seller and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements. The Seller represents and warrants that except
for the Registration Rights Agreement, dated as of November 8, 1996,
between the Seller and Silver Oak Capital, L.L.C., no other agreements
executed by the Seller provide for superior piggy-back registration rights
than those granted herein.
IV-3
<PAGE>
12. Miscellaneous.
a. This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, whether oral or written, among
the parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an instrument in
writing signed by each of the parties to this Agreement.
b. (i) Seller will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Seller to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that Seller would be required to perform it if no such
succession had taken place.
(ii) This Agreement is a personal contract and the rights and
obligations of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as
otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the
Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
c. Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
d. This Agreement may be executed in counterparts, each of which
shall, when executed, be deemed to be an original, and both of which
shall be deemed to be one and the same instrument.
e. This Agreement shall be governed by and construed and enforced
in accordance with the substantive laws of the State of Delaware,
without reference to the conflict of laws principles thereof.
f. All notices and other communications under this Agreement shall
be in writing and delivery thereof shall be deemed to have been made
either (i) if mailed, when received, or (ii) when transmitted by hand
delivery, telegram, telex, or facsimile transmission, to the party
entitled to receive the same at the addresses indicated below or at such
other address as such party shall have specified by written notice to
the other parties hereto given in accordance herewith:
(1) If to Seller:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler
(2) If to Executive:
2525 Horizon Lake Drive
Memphis, Tennessee 38133
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
g. This Agreement may not be amended, modified or supplemented
except upon execution and delivery of a written agreement executed by
the parties hereto.
IV-4
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Executive and
Seller have executed or caused this Agreement to be executed on the date first
above written.
RIDDELL SPORTS INC.
By: /s/ DAVID M. MAUER
---------------------------------
Name: David M. Mauer
Title: Chief Executive Officer
By: /s/ GREGORY C. WEBB
---------------------------------
Name: Gregory C. Webb
IV-5
<PAGE>
ANNEX V
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 5, 1997 (the 'Agreement'), by and
between W. Kline Boyd ('Executive'), Senior Vice President of Varsity Spirit
Corporation, a Tennessee corporation (collectively with any successor to its
business, 'Varsity'), and Riddell Sports Inc., a Delaware corporation (the
'Seller').
Seller, Cheer Acquisition Corp. and Varsity have entered into an Agreement
and Plan of Merger (the 'Merger Agreement'), dated as of May 5, 1997, pursuant
to which, among other things, Varsity will become a wholly owned subsidiary of
Seller;
This Agreement sets forth the terms and conditions upon which Seller is
selling to Executive, and Executive is purchasing from Seller, a number of
shares of Common Stock, par value $0.01 per share (the 'Common Stock'), of
Seller equal to the net after-tax proceeds (assuming a 28% tax rate and a basis
in the shares of $.1666) received by the Executive in the Offer or Merger as a
result of the sale of 26,810 of his 60,000 shares of common stock of Varsity
('Target Common Stock') divided by the Purchase Price (as defined in Section 2
here-of)(such number of shares being referred to herein as the 'Shares').
In consideration of the mutual agreements contained herein, and intending
to be legally bound hereby, the parties agree as follows:
1. Effective Date. This Agreement shall become effective on the
acceptance for payment of shares of Target Common Stock pursuant to the
Offer (as defined in the Merger Agreement) (the 'Effective Date');
provided, however, that if the Merger Agreement is terminated in accordance
with its terms, then, at the time of such termination, this Agreement shall
be deemed cancelled and of no force and effect.
2. Purchase and Sale of Certain Shares. On or before the fifth
business day after the Effective Date, or on such later date as shall be
mutually agreed upon between the parties, Seller shall sell to Executive,
and Executive shall purchase from Seller, all of the Shares for a price
equal to the average closing price of the Common Stock, as reported on the
NASDAQ National Market System for the 20 trading days ending on the day
immediately preceding the Effective Date, provided, that in no event shall
such purchase price per Share be more than $4.50 nor less than $2.80 (the
'Purchase Price'), payable in cash. If Executive shall die prior to the
consummation of the transaction described herein, Executive's estate shall
consummate such transaction in accordance with the terms of this Agreement.
3. Closing; Deliveries at the Closing. At the closing of the sale and
purchase of the Shares contemplated by Section 2 hereof (the 'Closing'),
(a) Seller will deliver to Executive (i) stock certificates representing
all the Shares duly endorsed, together with stock powers duly executed in
blank relating to such certificates, or other evidences of transfer
reasonably satisfactory to Executive and (b) Executive will deliver to
Seller the Purchase Price by a wire transfer of federal funds to a bank
account or accounts previously designated in writing to Executive by
Seller. The Closing shall be held at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York.
4. Representations and Warranties of Seller. Seller represents and
warrants to Executive as follows:
a. Seller has the requisite corporate power and authority to
execute, deliver and carry out the terms and provisions of this
Agreement and to consummate the transactions contemplated hereby, and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement;
b. Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
c. this Agreement has been duly and validly authorized, executed
and delivered by Seller, and constitutes a valid and binding obligation
of Seller, enforceable in accordance with its terms;
d. the Shares, upon receipt of the Purchase Price, will be validly
issued, duly authorized and free of any preemptive rights;
e. upon issuance to Executive by Seller of the Shares at the
Closing, Executive will have good and marketable title to the Shares,
free and clear of all Liens;
V-1
<PAGE>
f. the execution of this Agreement by Seller does not, and the
performance by Seller of its obligations hereunder will not, constitute
a violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Seller is a party or by which Seller is bound or any
judgment, decree or order applicable to Seller; and
g. neither the execution and delivery of this Agreement nor the
performance by Seller of its obligations hereunder will violate any
provision of law applicable to Seller or require any consent or approval
of, or filing with or notice to, any public body or authority under any
provision of law applicable to Seller other than notices or filings
pursuant to the federal securities laws.
5. Representation and Warranties of Executive. Executive represents
and warrants to Seller as follows:
a. Executive has the legal capacity, power and authority to enter
into and perform all of Executive's obligations under this Agreement;
b. this Agreement has been duly and validly authorized, executed
and delivered by Executive and constitutes a valid and binding
obligation of Executive, enforceable in accordance with its terms;
c. the execution of this Agreement by Executive does not, and the
performance by Executive of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Executive is a party or by which
Executive is bound or any judgment, decree or order applicable to
Executive;
d. neither the execution and delivery of this Agreement nor the
performance by Executive of its obligations hereunder will violate any
provision of law applicable to Executive or require any consent or
approval of, or filing with or notice to, any public body or authority
under any provision of law applicable to Executive;
e. Executive is acquiring the Shares solely for Executive's own
account for investment and not with a view to, or for sale in connection
with, any distribution or other disposition thereof;
f. Executive acknowledges receipt of advice from Parent that (i)
the Shares have not been registered under the Securities Act of 1933
(the 'Securities Act') and are 'restricted securities', (ii) the Shares
must be held indefinitely and Executive must continue to bear the
economic risk of the investment in the Shares, unless such Shares are
subsequently registered under the Securities Act, or an exemption from
such registration is available, (iii) an appropriate restrictive legend
shall be placed on the certificate(s) representing the Shares, and (iv)
a notation shall be made in the appropriate records of Parent indicating
that the Shares are subject to restrictions on transfer and, appropriate
stop-transfer restrictions will be issued to the transfer agent with
respect to the Shares. In addition, Executive has been given access to
and the opportunity to examine all documents and ask questions of, and
receive answers from, Parent and its representatives concerning the
business, assets, liabilities, results of operations and financial
condition of Parent and its subsidiaries and the terms and conditions of
the Merger and related transactions; and
g. either (i) Executive is an 'accredited investor' as such term is
defined in Rule 501(a) promulgated under the Securities Act or (ii) (A)
Executive's financial situation is such that the Executive can afford to
bear the economic risk of holding the Shares for an indefinite period of
time, (B) Executive can afford to suffer complete loss of his investment
in the Shares, and (c) Executive's knowledge and experience in financial
and business matters are such that Executive is capable of evaluating
the merits and risks of his investment in the Shares.
6. Expenses. All fees and expenses incurred by any of the parties
hereto shall be borne by the party incurring such fees and expenses. All
sales, transfer or other similar taxes payable in connection with this
Agreement will be borne by the party incurring such taxes, except that
Seller shall be responsible for all stock transfer taxes with respect to
the transactions contemplated hereby.
7. Brokerage. Each of Executive and Seller represents and warrants to
the other that the negotiations relevant to this Agreement have been
carried on by each of Executive, on the one hand, and Seller, on the other
hand, directly with the other, and that there are no claims for finder's
fees or brokerage commissions
V-2
<PAGE>
or other like payments in connection with this Agreement or the
transactions contemplated hereby. Executive, on the one hand, and Seller,
on the other hand, agree to indemnify and hold harmless the other from and
against any and all claims or liabilities for finder's fees or brokerage
commissions or other like payments incurred by reason of any written or
oral agreement entered into by it.
8. Stop Transfer. The Executive shall not request that the Seller
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such
transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Seller's Common Stock, par
value $0.01 per share, by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
'Shares' shall refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or
all of the Shares may be changed or exchanged.
9. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions will remain in full force and effect and will in no way be
affected, impaired or invalidated.
10. Survival of Representations, Warranties, etc. All
representations, warranties, agreements and covenants made by each of the
parties pursuant to this Agreement will survive the Closing hereunder.
11. Incidental Registration Rights. If Seller proposes to file a
registration statement under the Securities Act with respect to (a) an
offering by Seller for its own account or (b) an offering for the account
of any of its respective securityholders of any shares of Common Stock
(other than a registration statement on Form S-4 or S-8 (or any substitute
form therefor that may be adopted by the Securities and Exchange
Commission)), then Seller shall give written notice of such proposed filing
to the Executive as soon as practicable (but in no event less than 20 days
before the anticipated filing date), and such notice shall offer the
Executive the opportunity to register such number of shares of Common Stock
being purchased hereunder as such Executive may request (a 'Piggy-Back
Registration'). With respect to any offering described in the preceding
sentence which is an underwritten offering (an 'Underwritten Offering'),
Seller shall use all reasonable efforts to cause the managing underwriter
or underwriters of such proposed Underwritten Offering to permit the
securities requested to be included in a Piggy-Back Registration to be
included on the same terms and conditions as any similar securities of
Seller included therein. Notwithstanding anything contained herein, if the
managing underwriter or underwriters of an Underwritten Offering determines
and so notifies the Executive in writing that the success of the
Underwritten Offering would be materially and adversely affected by
inclusion of any or all securities requested to be included by the
Executive, either because of (i) the size of the offering that the
Executive, Seller and any other persons intend to make or (ii) the kind of
securities that the Executive, Seller and any other persons or entities
intend to include in such offering, then in such event the amount of
securities to be offered for the account of the Executive shall be reduced
(such reduction to be pro rata based on the number of such securities so
proposed to be sold by the Seller, on the one hand, and the Executive and
the three other Varsity executives executing similar agreements with Seller
on the date hereof, on the other hand) and the Executive) to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or
underwriters. The Seller agrees that henceforth, and until the earlier of
the date the Executive shall have registered or divested the Shares, it
will not grant additional Piggy-Back Registration rights to any person or
entity which provides for rights with respect to participation in an
offering superior to those provided herein to the Executive. The Executive
agrees that he may not participate in any Underwritten Offering unless he
(a) agrees to sell his securities on the basis provided in any underwriting
arrangements approved by the Seller and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements. The Seller represents and warrants that except
for the Registration Rights Agreement, dated as of November 8, 1996,
between the Seller and Silver Oak Capital, L.L.C., no other agreements
executed by the Seller provide for superior piggy-back registration rights
than those granted herein.
V-3
<PAGE>
12. Miscellaneous.
a. This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, whether oral or written, among
the parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an instrument in
writing signed by each of the parties to this Agreement.
b. (i) Seller will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Seller to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that Seller would be required to perform it if no such
succession had taken place.
(ii) This Agreement is a personal contract and the rights and
obligations of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as
otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the
Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
c. Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
d. This Agreement may be executed in counterparts, each of which
shall, when executed, be deemed to be an original, and both of which
shall be deemed to be one and the same instrument.
e. This Agreement shall be governed by and construed and enforced
in accordance with the substantive laws of the State of Delaware,
without reference to the conflict of laws principles thereof.
f. All notices and other communications under this Agreement shall
be in writing and delivery thereof shall be deemed to have been made
either (i) if mailed, when received, or (ii) when transmitted by hand
delivery, telegram, telex, or facsimile transmission, to the party
entitled to receive the same at the addresses indicated below or at such
other address as such party shall have specified by written notice to
the other parties hereto given in accordance herewith:
(1) If to Seller:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler
(2) If to Executive:
2525 Horizon Lake Drive
Memphis, Tennessee 38133
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
g. This Agreement may not be amended, modified or supplemented
except upon execution and delivery of a written agreement executed by
the parties hereto.
V-4
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Executive and
Seller have executed or caused this Agreement to be executed on the date first
above written.
RIDDELL SPORTS INC.
By: /s/ DAVID M. MAUER
----------------------------------
Name: David M. Mauer
Title: Chief Executive Officer
By /s/ W. KLINE BOYD
----------------------------------
Name: W. Kline Boyd
V-5
<PAGE>
ANNEX VI
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 5, 1997 (the 'Agreement'), by and
between J. Kristyn Shepherd ('Executive'), Senior Vice President of Varsity
Spirit Corporation, a Tennessee corporation (collectively with any successor to
its business, 'Varsity'), and Riddell Sports Inc., a Delaware corporation (the
'Seller').
Seller, Cheer Acquisition Corp. and Varsity have entered into an Agreement
and Plan of Merger (the 'Merger Agreement'), dated as of May 5, 1997, pursuant
to which, among other things, Varsity will become a wholly owned subsidiary of
Seller;
This Agreement sets forth the terms and conditions upon which Seller is
selling to Executive, and Executive is purchasing from Seller, a number of
shares of Common Stock, par value $0.01 per share (the 'Common Stock'), of
Seller equal to the net after-tax proceeds (assuming a 28% tax rate and a basis
in the shares of $.1666) received by the Executive in the Offer or Merger as a
result of the sale of 14,525 of her 32,502 shares of common stock of Varsity
('Target Common Stock') divided by the Purchase Price (as defined in Section 2
hereof) (such number of shares being referred to herein as the 'Shares').
In consideration of the mutual agreements contained herein, and intending
to be legally bound hereby, the parties agree as follows:
1. Effective Date. This Agreement shall become effective on the
acceptance for payment of shares of Target Common Stock pursuant to the
Offer (as defined in the Merger Agreement) (the 'Effective Date');
provided, however, that if the Merger Agreement is terminated in accordance
with its terms, then, at the time of such termination, this Agreement shall
be deemed cancelled and of no force and effect.
2. Purchase and Sale of Certain Shares. On or before the fifth
business day after the Effective Date, or on such later date as shall be
mutually agreed upon between the parties, Seller shall sell to Executive,
and Executive shall purchase from Seller, all of the Shares for a price
equal to the average closing price of the Common Stock, as reported on the
NASDAQ National Market System for the 20 trading days ending on the day
immediately preceding the Effective Date, provided, that in no event shall
such purchase price per Share be more than $4.50 nor less than $2.80 (the
'Purchase Price'), payable in cash. If Executive shall die prior to the
consummation of the transaction described herein, Executive's estate shall
consummate such transaction in accordance with the terms of this Agreement.
3. Closing; Deliveries at the Closing. At the closing of the sale and
purchase of the Shares contemplated by Section 2 hereof (the 'Closing'),
(a) Seller will deliver to Executive (i) stock certificates representing
all the Shares duly endorsed, together with stock powers duly executed in
blank relating to such certificates, or other evidences of transfer
reasonably satisfactory to Executive and (b) Executive will deliver to
Seller the Purchase Price by a wire transfer of federal funds to a bank
account or accounts previously designated in writing to Executive by
Seller. The Closing shall be held at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York.
4. Representations and Warranties of Seller. Seller represents and
warrants to Executive as follows:
a. Seller has the requisite corporate power and authority to
execute, deliver and carry out the terms and provisions of this
Agreement and to consummate the transactions contemplated hereby, and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement;
b. Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
c. this Agreement has been duly and validly authorized, executed
and delivered by Seller, and constitutes a valid and binding obligation
of Seller, enforceable in accordance with its terms;
d. the Shares, upon receipt of the Purchase Price, will be validly
issued, duly authorized and free of any preemptive rights;
e. upon issuance to Executive by Seller of the Shares at the
Closing, Executive will have good and marketable title to the Shares,
free and clear of all Liens;
VI-1
<PAGE>
f. the execution of this Agreement by Seller does not, and the
performance by Seller of its obligations hereunder will not, constitute
a violation of, conflict with or result in a default under any contract,
commitment, agreement, understanding, arrangement or restriction of any
kind to which Seller is a party or by which Seller is bound or any
judgment, decree or order applicable to Seller; and
g. neither the execution and delivery of this Agreement nor the
performance by Seller of its obligations hereunder will violate any
provision of law applicable to Seller or require any consent or approval
of, or filing with or notice to, any public body or authority under any
provision of law applicable to Seller other than notices or filings
pursuant to the federal securities laws.
5. Representation and Warranties of Executive. Executive represents
and warrants to Seller as follows:
a. Executive has the legal capacity, power and authority to enter
into and perform all of Executive's obligations under this Agreement;
b. this Agreement has been duly and validly authorized, executed
and delivered by Executive and constitutes a valid and binding
obligation of Executive, enforceable in accordance with its terms;
c. the execution of this Agreement by Executive does not, and the
performance by Executive of its obligations hereunder will not,
constitute a violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Executive is a party or by which
Executive is bound or any judgment, decree or order applicable to
Executive;
d. neither the execution and delivery of this Agreement nor the
performance by Executive of its obligations hereunder will violate any
provision of law applicable to Executive or require any consent or
approval of, or filing with or notice to, any public body or authority
under any provision of law applicable to Executive;
e. Executive is acquiring the Shares solely for Executive's own
account for investment and not with a view to, or for sale in connection
with, any distribution or other disposition thereof;
f. Executive acknowledges receipt of advice from Parent that (i)
the Shares have not been registered under the Securities Act of 1933
(the 'Securities Act') and are 'restricted securities', (ii) the Shares
must be held indefinitely and Executive must continue to bear the
economic risk of the investment in the Shares, unless such Shares are
subsequently registered under the Securities Act, or an exemption from
such registration is available, (iii) an appropriate restrictive legend
shall be placed on the certificate(s) representing the Shares, and (iv)
a notation shall be made in the appropriate records of Parent indicating
that the Shares are subject to restrictions on transfer and, appropriate
stop-transfer restrictions will be issued to the transfer agent with
respect to the Shares. In addition, Executive has been given access to
and the opportunity to examine all documents and ask questions of, and
receive answers from, Parent and its representatives concerning the
business, assets, liabilities, results of operations and financial
condition of Parent and its subsidiaries and the terms and conditions of
the Merger and related transactions; and
g. either (i) Executive is an 'accredited investor' as such term is
defined in Rule 501(a) promulgated under the Securities Act or (ii) (A)
Executive's financial situation is such that the Executive can afford to
bear the economic risk of holding the Shares for an indefinite period of
time, (B) Executive can afford to suffer complete loss of her investment
in the Shares, and (c) Executive's knowledge and experience in financial
and business matters are such that Executive is capable of evaluating
the merits and risks of her investment in the Shares.
6. Expenses. All fees and expenses incurred by any of the parties
hereto shall be borne by the party incurring such fees and expenses. All
sales, transfer or other similar taxes payable in connection with this
Agreement will be borne by the party incurring such taxes, except that
Seller shall be responsible for all stock transfer taxes with respect to
the transactions contemplated hereby.
7. Brokerage. Each of Executive and Seller represents and warrants to
the other that the negotiations relevant to this Agreement have been
carried on by each of Executive, on the one hand, and Seller, on the other
hand, directly with the other, and that there are no claims for finder's
fees or brokerage commissions or other like payments in connection with
this Agreement or the transactions contemplated hereby.
VI-2
<PAGE>
Executive, on the one hand, and Seller, on the other hand, agree to
indemnify and hold harmless the other from and against any and all claims
or liabilities for finder's fees or brokerage commissions or other like
payments incurred by reason of any written or oral agreement entered into
by it.
8. Stop Transfer. The Executive shall not request that the Seller
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such
transfer is made in compliance with this Agreement. In the event of a stock
dividend or distribution, or any change in the Seller's Common Stock, par
value $0.01 per share, by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
'Shares' shall refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or
all of the Shares may be changed or exchanged.
9. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions will remain in full force and effect and will in no way be
affected, impaired or invalidated.
10. Survival of Representations, Warranties, etc. All
representations, warranties, agreements and covenants made by each of the
parties pursuant to this Agreement will survive the Closing hereunder.
11. Incidental Registration Rights. If Seller proposes to file a
registration statement under the Securities Act with respect to (a) an
offering by Seller for its own account or (b) an offering for the account
of any of its respective securityholders of any shares of Common Stock
(other than a registration statement on Form S-4 or S-8 (or any substitute
form therefor that may be adopted by the Securities and Exchange
Commission)), then Seller shall give written notice of such proposed filing
to the Executive as soon as practicable (but in no event less than 20 days
before the anticipated filing date), and such notice shall offer the
Executive the opportunity to register such number of shares of Common Stock
being purchased hereunder as such Executive may request (a 'Piggy-Back
Registration'). With respect to any offering described in the preceding
sentence which is an underwritten offering (an 'Underwritten Offering'),
Seller shall use all reasonable efforts to cause the managing underwriter
or underwriters of such proposed Underwritten Offering to permit the
securities requested to be included in a Piggy-Back Registration to be
included on the same terms and conditions as any similar securities of
Seller included therein. Notwithstanding anything contained herein, if the
managing underwriter or underwriters of an Underwritten Offering determines
and so notifies the Executive in writing that the success of the
Underwritten Offering would be materially and adversely affected by
inclusion of any or all securities requested to be included by the
Executive, either because of (i) the size of the offering that the
Executive, Seller and any other persons intend to make or (ii) the kind of
securities that the Executive, Seller and any other persons or entities
intend to include in such offering, then in such event the amount of
securities to be offered for the account of the Executive shall be reduced
(such reduction to be pro rata based on the number of such securities so
proposed to be sold by the Seller, on the one hand, and the Executive and
the three other Varsity executives executing similar agreements with Seller
on the date hereof, on the other hand) and the Executive) to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or
underwriters. The Seller agrees that henceforth, and until the earlier of
the date the Executive shall have registered or divested the Shares, it
will not grant additional Piggy-Back Registration rights to any person or
entity which provides for rights with respect to participation in an
offering superior to those provided herein to the Executive. The Executive
agrees that he may not participate in any Underwritten Offering unless he
(a) agrees to sell her securities on the basis provided in any underwriting
arrangements approved by the Seller and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements. The Seller represents and warrants that except
for the Registration Rights Agreement, dated as of November 8, 1996,
between the Seller and Silver Oak Capital, L.L.C., no other agreements
executed by the Seller provide for superior piggy-back registration rights
than those granted herein.
12. Miscellaneous.
a. This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, whether oral or written, among
the parties hereto with respect to the subject matter
VI-3
<PAGE>
hereof. This Agreement may not be amended orally, but only by an
instrument in writing signed by each of the parties to this Agreement.
b. (i) Seller will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Seller to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that Seller would be required to perform it if no such
succession had taken place.
(ii) This Agreement is a personal contract and the rights and
obligations of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as
otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the
Executive and her personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
c. Section headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
d. This Agreement may be executed in counterparts, each of which
shall, when executed, be deemed to be an original, and both of which
shall be deemed to be one and the same instrument.
e. This Agreement shall be governed by and construed and enforced
in accordance with the substantive laws of the State of Delaware,
without reference to the conflict of laws principles thereof.
f. All notices and other communications under this Agreement shall
be in writing and delivery thereof shall be deemed to have been made
either (i) if mailed, when received, or (ii) when transmitted by hand
delivery, telegram, telex, or facsimile transmission, to the party
entitled to receive the same at the addresses indicated below or at such
other address as such party shall have specified by written notice to
the other parties hereto given in accordance herewith:
(1) If to Seller:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: Lisa Marroni, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler
(2) If to Executive:
2525 Horizon Lake Drive
Memphis, Tennessee 38133
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
g. This Agreement may not be amended, modified or supplemented
except upon execution and delivery of a written agreement executed by
the parties hereto.
VI-4
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Executive and
Seller have executed or caused this Agreement to be executed on the date first
above written.
RIDDELL SPORTS INC.
By: /s/ DAVID M. MAUER
---------------------------------
Name: David M. Mauer
Title: Chief Executive
Officer
By: /s/ J. KRISTYN SHEPHERD
---------------------------------
Name: J. Kristyn Shepherd
VI-5
<PAGE>
ANNEX VII
48-23-102. RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required for the merger by Section
48-21-104 or the charter and the shareholder is entitled to vote on the
merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Section 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash
under Section 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under Section 6 of the Securities Exchange Act
of 1934, as amended, or is a 'national market system security,' as defined in
rules promulgated pursuant to the Securities Exchange Act of 1934, as amended.
VII-1
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for Shares and
any other required documents should be sent or delivered by each shareholders of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary, at one of the addresses set forth below:
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Hand, Mail or Overnight Courier:
40 Wall Street
46th Floor
New York, New York 10005
By Facsimile Transmission:
(For Eligible Institutions Only)
(718) 234-5001
Confirm Receipt of Facsimile by Telephone:
(718) 921-8200
Questions or requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
directed to the Information Agent or the Dealer Manager at their respective
locations and telephone numbers set forth below. Shareholders may also contact
their broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent for the Offer is:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
BERENSON MINELLA & COMPANY
667 Madison Avenue
New York, New York 10021
(212) 935-7676 (Call Collect)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
PURSUANT TO THE OFFER TO PURCHASE
DATED MAY 12, 1997
BY
CHEER ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
RIDDELL SPORTS INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 9, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail, Hand or Overnight Delivery:
40 Wall Street By Facsimile Transmission:
46th Floor (For Eligible Institutions Only)
New York, New York 10005 (718) 234-5001
Confirm Receipt of Facsimile
by Telephone:
(718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to an account maintained by the Depositary at The Depository
Trust Company or the Philadelphia Depository Trust Company (hereinafter
collectively referred to as the 'Book-Entry Transfer Facilities') pursuant to
the procedures set forth in Section 2 under the heading 'THE OFFER' in the Offer
to Purchase (as defined below). Stockholders who deliver Shares by book-entry
transfer are referred to herein as 'Book-Entry Stockholders' and other
stockholders are referred to herein as 'Certificate Stockholders.'
Stockholders whose certificates are not immediately available or who cannot
deliver their Shares and all other documents required hereby to the Depositary
or complete the procedures for book-entry transfer prior to the Expiration Date
(as defined in the Offer to Purchase) must tender their Shares according to the
guaranteed delivery procedure set forth in Section 2 under the heading 'THE
OFFER' in the Offer to Purchase. See Instruction 2. Delivery of documents to a
Book-Entry Transfer Facility does not constitute delivery to the Depositary.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution: ____________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number: ___________________________________________________________
Transaction Code Number: __________________________________________________
<PAGE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s): ___________________________________________
Window Ticket Number (if any): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Institution which Guaranteed Delivery: ____________________________
Check Box of Applicable Book-Entry Transfer Facility, if Delivered by
Book-Entry Transfer:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number: ___________________________________________________________
Transaction Code Number: __________________________________________________
BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
DESCRIPTION OF SHARES TENDERED
CERTIFICATE(S) TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
NAME(S) AND ADDRESS(ES) OF -------------------------------------------
REGISTERED HOLDER(S) TOTAL NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY SHARES NUMBER
AS NAME(S) CERTIFICATE REPRESENTED BY OF SHARES
APPEAR(S) ON CERTIFICATE(S)) NUMBER(S)* CERTIFICATE(S)* TENDERED**
- --------------------------------------------------------------------------------
___________________________________________
___________________________________________
___________________________________________
___________________________________________
TOTAL SHARES ____________________________
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by
any certificates delivered to the Depositary are being tendered.
See Instruction 4.
[ ] CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE ASSISTANCE
IN REPLACING THEM. UPON RECEIPT OF NOTIFICATION BY THIS LETTER OF
TRANSMITTAL, THE COMPANY'S STOCK TRANSFER AGENT WILL CONTACT YOU DIRECTLY
WITH REPLACEMENT INSTRUCTIONS.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Cheer Acquisition Corp., a Tennessee
corporation (the 'Purchaser') and a wholly owned subsidiary of Riddell Sports
Inc., a Delaware corporation ('Parent'), the above-described shares of Common
Stock, par value $.01 per share the ('Shares'), of Varsity Spirit Corporation, a
Tennessee corporation (the 'Company'), pursuant to the Purchaser's offer to
purchase all outstanding Shares at a price of $18.90 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated May 12, 1997 (the 'Offer to Purchase'), receipt of which
is hereby acknowledged, and in this Letter of Transmittal (which, together with
the Offer to Purchase, as they may be amended or supplemented from time to time,
constitute the 'Offer'). The undersigned understands that the Purchaser reserves
the right to transfer or assign, in whole or in part from time to time, to one
or more direct or indirect wholly owned subsidiaries of Parent, the right to
purchase Shares tendered pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), subject to, and effective upon, acceptance for payment of and
payment for the Shares tendered herewith, the undersigned hereby sells, assigns,
and transfers to, or upon the order of, the Purchaser all right, title and
interest in and to all the Shares that are being tendered hereby (and any and
all other Shares or other securities, cash or other property issued, issuable or
distributed in respect thereof on or after May 5, 1997 (collectively,
'Distributions')) and irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares and all Distributions, with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (a) deliver certificates for such Shares and all
<PAGE>
Distributions, or transfer ownership of such Shares and all Distributions on the
account books maintained by any of the Book-Entry Transfer Facilities, together,
in any such case, with all accompanying evidences of transfer and authenticity,
to or upon the order of the Purchaser, upon receipt by the Depositary, as the
undersigned's agent, of the purchase price (adjusted, if appropriate, as
provided in the Offer to Purchase), (b) present such Shares and all
Distributions for cancellation and transfer on the Company's books and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares and all Distributions, all in accordance with the terms of the
Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the tendered
Shares and all Distributions and that, when the same are accepted for payment by
the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, claims, charges and
encumbrances, and the same will not be subject to any adverse claims. The
undersigned will, upon request, execute any signature guarantees or additional
documents deemed by the Depositary or the Purchaser to be necessary or desirable
to complete the sale, assignment and transfer of the tendered Shares and all
Distributions. In addition, the undersigned shall promptly remit and transfer to
the Depositary for the account of the Purchaser any such Distributions issued to
the undersigned, in respect of the tendered Shares, accompanied by documentation
of transfer, and pending such remittance or appropriate assurance thereof, the
Purchaser shall be entitled to all rights and privileges as owner of any such
Distributions and, subject to the terms of the Merger Agreement (as defined in
the Offer to Purchase), may withhold the entire purchase price or deduct from
the purchase price the amount or value thereof, as determined by the Purchaser
in its sole discretion.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned hereby irrevocably appoints David Mauer, Robert Nederlander
and Lisa Marroni, and each of them, and any other designees of the Purchaser,
the attorneys and proxies of the undersigned, each with full power of
substitution, to vote at any annual, special or adjourned meeting of the
Company's stockholders or otherwise act (including pursuant to written consent)
in such manner as each such attorney and proxy or his substitute shall in his
sole discretion deem proper, to execute any written consent concerning any
matter as each such attorney and proxy or his substitute shall in his sole
discretion deem proper with respect to, and to otherwise act with respect to,
all the Shares tendered hereby which have been accepted for payment by the
Purchaser prior to the time any such vote or action is taken (and any and all
Distributions issued or issuable in respect thereof) and with respect to which
the undersigned is entitled to vote. This appointment is effective when and only
to the extent that the Purchaser accepts for payment such Shares as provided in
the Offer to Purchase. This power of attorney and proxy is coupled with an
interest in the tendered Shares, is irrevocable and is granted in consideration
of the acceptance for payment of such Shares in accordance with the terms of the
Offer. Such acceptance for payment shall revoke all prior powers of attorney and
proxies given by the undersigned at any time with respect to such Shares and no
subsequent powers of attorney or proxies may be given by the undersigned (and,
if given, will not be deemed effective). The Purchaser reserves the right to
require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Shares, the Purchaser must
be able to exercise full voting and other rights with respect to such Shares,
including voting at any meeting of stockholders then scheduled.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 2 under the heading 'THE OFFER' in
the Offer to Purchase and in the instructions hereto will constitute a binding
agreement between the undersigned and the Purchaser upon the terms and subject
to the conditions of the Offer. The undersigned recognizes that under certain
circumstances set forth in the Offer to Purchase, the Purchaser may not be
required to accept for payment any of the tendered Shares. The Purchaser's
acceptance for payment of Shares pursuant to the Offer will constitute a binding
agreement between the undersigned and the Purchaser upon the terms and subject
to the conditions of the Offer.
Unless otherwise indicated herein under 'Special Payment Instructions,'
please issue the check for the purchase price of any Shares purchased, and/or
return any certificates for Shares not tendered or accepted for payment, in the
name(s) of the registered holder(s) appearing under 'Description of Shares
Tendered.' Similarly, unless otherwise indicated under 'Special Delivery
Instructions,' please mail the check for the purchase price of any Shares
purchased, and/or any certificates for Shares not tendered or accepted for
payment (and accompanying documents, as appropriate) to the address(es) of the
registered holder(s) appearing under 'Description of Shares Tendered.' In the
event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price of any
Shares purchased, and/or return any certificates for Shares not tendered or
accepted for payment in the name(s) of, and mail said check and/or any
certificates to, the person or persons so indicated. In the case of a book-entry
delivery of Shares, please credit the account maintained at the Book-Entry
Transfer Facility indicated above with any Shares not accepted for payment. The
undersigned acknowledges that the Purchaser has no obligation pursuant to the
Special Payment Instructions to transfer any Shares from the name of the
registered holder(s) thereof if the Purchaser does not accept for payment any of
the Shares so tendered.
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
TO BE COMPLETED ONLY IF CERTIFICATES FOR SHARES NOT TENDERED OR NOT
PURCHASED AND/OR THE CHECK FOR THE PURCHASE PRICE OF SHARES ARE TO BE ISSUED IN
THE NAME OF SOMEONE OTHER THAN THE UNDERSIGNED.
Issue: [ ] Check [ ] Certificate(s) to:
Name ___________________________________________________________________________
(Please Print)
Address ________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
________________________________________________________________________________
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
TO BE COMPLETED ONLY IF CERTIFICATES FOR SHARES NOT TENDERED OR NOT
PURCHASED AND/OR THE CHECK FOR THE PURCHASE PRICE OF SHARES PURCHASED ARE TO BE
DELIVERED TO SOMEONE OTHER THAN THE UNDERSIGNED OR TO THE UNDERSIGNED AT AN
ADDRESS OTHER THAN THAT APPEARING UNDER 'DESCRIPTION OF SHARES TENDERED.'
Deliver: [ ] Check [ ] Certificate(s) to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security Number)
(See Substitute Form W-9 Included Herein)
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURE. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. ('NASD') or a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of the Securities Transfer Agent's Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each an 'Eligible Institution,' and collectively, 'Eligible
Institutions'). No signature guarantee is required on this Letter of Transmittal
(i) if this Letter of Transmittal is signed by the registered holder(s) (which
term, for purposes of this document, shall include any participant in a
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) of Shares tendered herewith, unless such holder(s) has
completed either the box entitled 'Special Delivery Instructions' or the box
entitled 'Special Payment Instructions' on the facing page hereto or (ii) if
such Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders
either if certificates for Shares are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 2 under the heading 'THE OFFER' in the Offer to
Purchase. For Shares to be validly tendered pursuant to the Offer, (i) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (as
defined in the Offer to Purchase) in the case of a book-entry delivery, and any
other documents required by this Letter of Transmittal, must be received by the
Depositary at one of the Depositary's addresses set forth herein and either
certificates or a timely Book-Entry Confirmation for tendered Shares must be
received by the Depositary at one of such addresses, in each case prior to the
Expiration Date (as defined in the Offer to Purchase), or (ii) the tendering
stockholder must comply with the guaranteed delivery procedure set forth below.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date may tender their Shares by properly completing and duly
executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedure set forth in Section 2 under the heading 'THE OFFER' in the Offer to
Purchase. Pursuant to such procedures, (i) such tender must be made by or
through an Eligible Institution, (ii) a properly completed and duly executed
Notice of Guaranteed Delivery provided by the Purchaser (or facsimile thereof)
must be received by the Depositary prior to the Expiration Date and (iii) the
certificates for all physically tendered Shares, or a Book-Entry Confirmation
with respect to all tendered Shares, together with this properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three trading days after
the date of execution of such Notice of Guaranteed Delivery, all as provided in
Section 2 under the heading 'THE OFFER' in the Offer to Purchase. A 'trading
day' is any day on which the New York Stock Exchange is open for business.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR
SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY
BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE STOCKHOLDERS ONLY). If
fewer than all the Shares evidenced by any certificate submitted are to be
tendered, fill in the number of Shares which are to be tendered in the box
entitled 'Number of Shares Tendered.' In such case, new certificate(s) for the
remainder of the Shares that were evidenced by the old certificate(s) will be
sent to the registered holder, unless otherwise provided in the appropriate box
on this Letter of Transmittal, as soon as practicable after the expiration or
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment or certificates for Shares not
tendered or accepted for payment are to be issued to a person other than the
registered owner(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the shares tendered hereby, the certificates evidencing
the Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the name(s) of the registered owner(s)
appear(s) on the certificates for such Shares. Signatures on such certificates
or stock powers must be guaranteed by an Eligible Institution. See Instruction
1.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay, or cause to be paid, any stock transfer taxes with respect
to the transfer and sale of Shares to it or its assignee pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or if certificates
for Shares not tendered or accepted for payment are to be registered in the name
of, any persons other than the registered holder(s), or if tendered certificates
are registered in the name
<PAGE>
of any person other than the person(s) signing this Letter of Transmittal, the
amount of any stock transfer taxes (whether imposed on the registered holder or
such person) payable on the account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes or exemption therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of and/or certificates for Shares not accepted for payment are to be
returned to a person other than the signer of this Letter of Transmittal or if a
check is to be sent and/or such certificates are to be returned to a person
other than the signer of this Letter of Transmittal or to an address other than
that shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Any stockholder tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
8. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to
Purchase, the Purchaser expressly reserves the absolute right in its sole
discretion to waive any of the specified conditions of the Offer or any defect
or irregularity in tender with regard to any Shares tendered.
9. SUBSTITUTE FORM W-9. The tendering stockholder (or other payee) is
required to provide the Depositary with a correct Taxpayer Identification Number
('TIN'), generally the stockholder's social security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided under 'Important Tax Information' below, and to certify
that the stockholder (or other payee) is not subject to backup withholding. If a
tendering stockholder is subject to backup withholding, he or she must cross out
item (2) of the Certification Box on Substitute Form W-9 before signing such
Form. Failure to provide the information on the Substitute Form W-9 may subject
the tendering stockholder (or other payee) to a $50 penalty imposed by the
Internal Revenue Service and to 31% federal income tax withholding on the
payment of the purchase price. If the tendering stockholder has not been issued
a TIN and has applied for a number or intends to apply for a number in the near
future, he or she should write 'Applied For' in the space provided for the TIN
in Part I, sign and date the Substitute Form W-9 and sign and date the
Certificate of Awaiting Taxpayer Identification Number. If 'Applied For' is
written in Part I and the Depositary is not provided with a TIN by the time of
payment, the Depositary will withhold 31% of all such payments for surrendered
Shares thereafter until a TIN is provided to the Depositary.
10. LOST OR DESTROYED CERTIFICATES. If any certificate(s) representing
Shares has been lost or destroyed, the stockholder should check the appropriate
box on the front of the Letter of Transmittal. The Company's stock transfer
agent will then instruct such stockholder as to the procedure to be followed in
order to replace the certificate(s). This Letter of Transmittal and related
documents cannot be processed until procedures for replacing lost or destroyed
certificates have been followed.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent or the Dealer Manager at their respective
locations set forth below.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF)
TOGETHER WITH CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF
GUARANTEED DELIVERY (OR A FACSIMILE COPY THEREOF) MUST BE RECEIVED BY THE
DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder surrendering Shares must
provide the Depositary with his correct TIN on Substitute Form W-9 on this
Letter of Transmittal. If the stockholder is an individual, his TIN is his
social security number. If the correct TIN is not provided, the stockholder may
be subject to a $50 penalty imposed by the Internal Revenue Service and payments
made in exchange for the surrendered Shares may be subject to backup withholding
of 31%.
Certain persons (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding and
reporting requirements. In order for an exempt foreign stockholder to avoid
backup withholding, that person should complete, sign and submit a Form W-8,
Certificate of Foreign Status, signed under penalties of perjury, attesting to
his exempt status. A Form W-8 can be obtained from the Depositary. Exempt
stockholders, other than foreign stockholders, should furnish their TIN, write
'Exempt' on the face of the Substitute Form W-9 and sign, date and return the
Substitute Form W-9 to the Depositary. See the enclosed 'Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9' for
additional instructions.
If federal income tax backup withholding applies, the Depositary is
required to withhold 31% of any payment made to payee. Backup withholding is not
an additional tax. Rather, the federal income tax liability of persons subject
to backup withholding will be reduced by the amount of tax withheld. If backup
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent Federal income tax backup withholding on payments that are made
to a stockholder with respect to Shares purchased pursuant to the Offer, the
stockholder is required to notify the Depositary of his or her correct TIN (or
the TIN of any other payee) by completing the Substitute Form W-9 included in
this Letter of Transmittal certifying (1) that the TIN provided on the
Substitute Form W-9 is correct (or that such payee is awaiting a TIN) and that
(2) the stockholder is not subject to backup withholding because (i) the
stockholder has not been notified by the Internal Revenue Service that the
stockholder is subject to federal income tax backup withholding as a result of a
failure to report all interest and dividends or (ii) the Internal Revenue
Service has notified the stockholder that the stockholder is no longer subject
to federal income tax backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the TIN, generally the
social security number or employer identification number of the record owner of
the Shares. If the Shares are in more than one name or are not in the name of
the actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future, he or
she should write 'Applied For' in the space provided for the TIN in Part I, sign
and date the Substitute Form W-9 and sign and date the Certificate of Awaiting
Taxpayer Identification Number, which appears in a separate box below the
Substitute Form W-9. If 'Applied For' is written in Part I and the Depositary is
not provided with a TIN by the time of payment, the Depositary will withhold 31%
of all payments of the purchase price until a TIN is provided to the Depositary.
<PAGE>
IMPORTANT
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Owner(s))
(MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
STOCK CERTIFICATE(S) OR ON A SECURITY POSITION LISTING OR BY PERSON(S)
AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS
TRANSMITTED HEREWITH. IF SIGNATURE IS BY TRUSTEE, EXECUTOR, ADMINISTRATOR,
GUARDIAN, ATTORNEY-IN-FACT, AGENT, OFFICER OF A CORPORATION OR ANY OTHER PERSON
ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH FULL TITLE
BELOW. SEE INSTRUCTION 5.)
Dated ___________________________, 1997
Name(s) ___________________________________________________________________
(Please Print)
Capacity (full title) _____________________________________________________
Address ___________________________________________________________________
(Include Zip Code)
Daytime Area Code and Telephone Number ____________________________________
Taxpayer Identification or
Social Security Number _______________________________________________
(See Substitute Form W-9 Below)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature ______________________________________________________
Name ______________________________________________________________________
(Please Print)
Name of Firm ______________________________________________________________
Address ___________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ____________________________________________
Dated ___________________________, 1997
<PAGE>
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
PART I -- PLEASE PROVIDE
YOUR TIN IN THE BOX AT _____________________________________
RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW:
OR ___________________________________
Employer Identification No.
(If awaiting TIN write 'Applied for')
PART II -- For Payees NOT subject to backup withholding, see the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 and complete as instructed therein.
Certifications--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because either (a) I am exempt from
backup withholding, (b) I have not been notified by the Internal Revenue
Service ('IRS') that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.) The Internal Revenue Service does not require your consent to any
provision of this document other than the certificates required to avoid backup
withholding.
SIGNATURE ___________________________________________ DATE ____________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE 'APPLIED FOR' IN
PART I OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under the penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a number.
Signatures __________________________________________ Date _____________________
QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES OF THE OFFER TO
PURCHASE, LETTER OF TRANSMITTAL AND OTHER TENDER OFFER MATERIALS MAY BE DIRECTED
TO THE INFORMATION AGENT OR THE DEALER MANAGER AS SET FORTH BELOW:
The Information Agent for the Offer is:
MacKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
Banks and Brokers Call Collect: (212) 929-5500
Call Toll Free: (800) 322-2885
The Dealer Manager for the Offer is:
BERENSON MINELLA & COMPANY
667 Madison Avenue
New York, New York 10021
(212) 935-7676 (Call Collect)
<PAGE>
[LETTERHEAD OF BERENSON MINELLA & CO.]
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
BY
CHEER ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
RIDDELL SPORTS INC.
AT
$18.90 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 9, 1997, UNLESS THE OFFER IS EXTENDED.
May 12, 1997
To Brokers, Dealers, Banks, Trust
Companies and Other Nominees:
We have been engaged by Cheer Acquisition Corp., a Tennessee corporation
(the 'Purchaser') and a wholly owned subsidiary of Riddell Sports Inc., a
Delaware corporation ('Parent'), to act as Dealer Manager in connection with the
Purchaser's offer to purchase all outstanding shares of Common Stock, par value
$.01 per share (the 'Shares'), of Varsity Spirit Corporation, a Tennessee
corporation (the 'Company'), at $18.90 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in the Purchaser's Offer to Purchase dated May 12, 1997 (the 'Offer to
Purchase'), and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the 'Offer'). Please
furnish copies of the enclosed materials to those of your clients for whom you
hold Shares registered in your name or in the name of your nominee.
Enclosed herewith are copies of the following documents:
1. Offer to Purchase dated May 12, 1997;
2. Letter of Transmittal to be used by stockholders of the Company in
accepting the Offer;
3. A printed form of letter that may be sent to your clients for
whose account you hold Shares in your name or in the name of a nominee,
with space provided for obtaining such clients' instructions with regard to
the Offer;
4. Notice of Guaranteed Delivery;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9;
6. A letter to shareholders of the Company from the President and
Chief Executive Officer of the Company accompanied by the Company's
Solicitation/Recommendation Statement on Schedule 14D-9; and
7. A return envelope addressed to the Depositary.
The Offer is conditioned upon, among other things, there having been
validly tendered and not withdrawn prior to the expiration of the Offer that
number of Shares that would constitute a majority of all outstanding Shares on a
fully diluted basis.
<PAGE>
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will promptly after the
Expiration Date (as defined in the Offer to Purchase) pay for all shares validly
tendered prior to the Expiration Date and not properly withdrawn as, if and when
the Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares. Payment for Shares accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of (i)
certificates for such Shares (or a timely Book-Entry Confirmation (as defined in
the Offer to Purchase) with respect thereto), (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined in the Offer to Purchase), and (iii) any other documents
required by the Letter of Transmittal.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to deliver their certificates on or prior to the Expiration Date or to
comply with the book-entry transfer procedures on a timely basis, a tender may
be effected by following the guaranteed delivery procedures specified in Section
2 under the heading 'THE OFFER' in the Offer to Purchase.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS
PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JUNE 9, 1997, UNLESS EXTENDED.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other person (other than the Dealer Manager and Information
Agent as described in the Offer to Purchase) in connection with the solicitation
of tenders of Shares pursuant to the Offer. The Purchaser will, however, upon
request, reimburse brokers, dealers, commercial banks and trust companies for
reasonable and necessary costs and expenses incurred by them in forwarding
materials to their customers. The Purchaser will pay all stock transfer taxes
applicable to its purchase of Shares pursuant to the Offer, subject to
Instruction 6 of the Letter of Transmittal.
Any questions or requests for assistance may be directed to the Dealer
Manager or the Information Agent at their respective telephone numbers and
addresses set forth on the back cover of the Offer to Purchase. Additional
copies of the enclosed materials may be obtained by contacting the Dealer
Manager or the Information Agent at their respective addresses and telephone
numbers set forth on the back cover of the enclosed Offer to Purchase.
Very truly yours,
BERENSON MINELLA & COMPANY
667 Madison Avenue
New York, New York 10021
(212) 935-7676 (Call Collect)
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR
ANY OTHER PERSON THE AGENT OF THE PURCHASER, PARENT, THE DEPOSITARY, THE
INFORMATION AGENT OR THE DEALER MANAGER OR AUTHORIZE YOU OR ANY OTHER PERSON TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH
RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF
TRANSMITTAL.
2
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
BY
CHEER ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
RIDDELL SPORTS INC.
AT
$18.90 PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 9, 1997, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated May 12, 1997
(the 'Offer to Purchase'), and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
'Offer') relating to the Offer by Cheer Acquisition Corp., a Tennessee
corporation (the 'Purchaser'), and a wholly owned subsidiary of Riddell Sports
Inc., a Delaware corporation ('Riddell'), to purchase for cash all outstanding
shares of Common Stock, par value $.01 per share (the 'Shares'), of Varsity
Spirit Corporation, a Tennessee corporation (the 'Company') at a price of $18.90
per Share, net to the Seller in cash, upon the terms and subject to the
conditions set forth in the Offer. Also enclosed is the Letter to Shareholders
of the Company from the President and Chief Executive Officer of the Company
accompanied by the Company's Solicitation/Recommendation Statement on Schedule
14D-9.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES HELD BY US FOR YOUR
ACCOUNT.
Accordingly, we request your instructions as to whether you wish to tender
any of or all of the Shares held by us for your account upon the terms and
subject to the conditions set forth in the Offer.
Your attention is directed to the following:
1. The offer price is $18.90 per Share, net to the seller in cash,
without interest thereon.
2. The Offer is being made for all outstanding Shares.
3. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (WITH TWO
INTERESTED DIRECTORS ABSTAINING) APPROVED THE OFFER AND DETERMINED THAT
TERMS OF THE OFFER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES.
4. The Offer and withdrawal rights expire at 12:00 midnight, New York
City time, on Monday, June 9, 1997, unless extended.
<PAGE>
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the Expiration Date (as defined
in the Offer to Purchase) that number of Shares that would represent a
majority of all outstanding Shares on a fully diluted-basis on the date of
purchase.
6. Any stock transfer taxes applicable to a sale of Shares to the
Purchaser pursuant to the Offer will be borne by the Purchaser, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED PROMPTLY TO PERMIT US TO SUBMIT
A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. If you wish to
have us tender any of or all of the Shares held by us for your account, please
so instruct us by completing, executing and returning to us the instruction form
set forth opposite this letter. An envelope to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified on the instruction form. Your instructions
should be forwarded to us in ample time to permit us to submit a tender on your
behalf prior to the expiration of the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. The Offer is not being
made to, nor will tenders be accepted from, or on behalf of, holders of Shares
in any jurisdiction in which the making or acceptance of the Offer would not be
in compliance with the laws of such jurisdiction. In any jurisdiction where the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by the Dealer Manager or by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
The undersigned acknowledge(s) receipt of your letter, the enclosed Offer
to Purchase, dated May 12, 1997, and the related Letter of Transmittal, in
connection with the offer by Cheer Acquisition Corp., a Tennessee corporation
and a wholly owned subsidiary of Riddell Sports Inc., a Delaware corporation, to
purchase all outstanding shares of common stock, par value $.01 per share (the
'Shares'), of Varsity Spirit Corporation, a Tennessee corporation.
This will instruct you to tender the number of Shares indicated below held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in such Offer to Purchase and related Letter of
Transmittal.
Dated: , 1997
NUMBER OF SHARES TO BE TENDERED*
____________ SHARES
I (we) understand that if I (we) sign this instruction form without
indicating a lesser number of Shares in the space above, all Shares held by you
for my (our) account will be tendered.
____________________________________________________________
Signature(s)
____________________________________________________________
Print Name(s)
____________________________________________________________
Print Address(es)
____________________________________________________________
Area Code and Telephone Number
____________________________________________________________
Tax Identification or Social Security Number
- ------------------
* Unless otherwise indicated, it will be assumed that all Shares held by your
firm for my (our) account are to be tendered.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
As set forth in Section 2 under the heading 'THE OFFER' in the Offer to
Purchase (as defined below), this form or one substantially equivalent hereto
must be used to accept the Offer (as defined below) (i) if certificates
evidencing shares of Common Stock, par value $.01 per share (the 'Shares'), of
Varsity Spirit Corporation, a Tennessee corporation (the 'Company'), are not
immediately available, or (ii) if the procedure for book-entry transfer cannot
be completed on a timely basis or time will not permit all required documents to
reach the Depositary at the address set forth below prior to the Expiration Date
(as defined in the Offer to Purchase). This form may be delivered by hand or
overnight delivery to the Depositary or transmitted by telegram, facsimile
transmission or mail to the Depositary and must include a guarantee by an
Eligible Institution (as defined in the Offer to Purchase). See Section 2 under
the heading 'THE OFFER' in the Offer to Purchase.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
40 Wall Street (For Eligible Institutions Only)
46th Floor (718) 234-5001
New York, New York 10005
Confirm Receipt of
Facsimile by Telephone:
(718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Cheer Acquisition Corp., a Tennessee
corporation (the 'Purchaser') and a wholly owned subsidiary of Riddell Sports
Inc., a Delaware corporation, upon the terms and subject to the conditions set
forth in the Purchaser's Offer to Purchase, dated May 12, 1997 (the 'Offer to
Purchase'), and the related Letter of Transmittal, receipt of which is hereby
acknowledged, the number of Shares (as such term is defined in the Offer to
Purchase) set forth below, all pursuant to the guaranteed delivery procedures
set forth in Section 2 under the heading 'THE OFFER' in the Offer to Purchase.
Number of Shares: ______________________________________________________________
Certificate Nos. (if available): _______________________________________________
________________________________________________________________________________
(Check ONE box if Shares will be tendered by book-entry transfer)
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number: ________________________________________________________________
Dated: ___________________________________________________________________, 1997
Name(s) of Record Holder(s): ___________________________________________________
Please Print
________________________________________________________________________________
________________________________________________________________________________
Address(es): ___________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code
and Tel. No.: __________________________________________________________________
Signature(s): __________________________________________________________________
________________________________________________________________________________
Dated: ___________________________________________________________________, 1997
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange, or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees to deliver to the Depositary either the
certificates representing the Shares tendered hereby, in proper form for
transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase)
with respect to such Shares, in any such case together with a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof), with any required signature guarantees, or an Agent's Message (as
defined in the Offer to Purchase), and any other required documents within three
trading days (as defined in the Offer to Purchase) after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
All capitalized terms used herein have the meanings set forth in the Offer to
Purchase.
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Tel. No.: ________________________________________________________
________________________________________________________________________________
(Authorized Signature)
Name: __________________________________________________________________________
(Please Print)
Title: _________________________________________________________________________
Dated: ___________________________________________________________________, 1997
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR
SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
GIVE THE TAXPAYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account(1)
3. Husband and wife The actual owner of the account or,
(joint account) if joint funds, either person(1)
4. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
5. Adult and minor The adult or, if the minor is the
(joint account) only contributor, the minor(1)
6. Account in the name of guardian or The ward, minor, or incompetent
committee for a designated ward, person(3)
minor, or incompetent person
7. a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust under
state law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or pension The legal entity (Do not furnish the
trust identifying number of the personal
representative or trustee unless the
legal entity itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or educational The organization
organization account
12. Partnership account held in the name The partnership
of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
- ----------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show your individual name. You may also enter your business name. You may
use either your social security number or your employer identification
number.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the 'IRS') and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except a corporation that
provides medical and health care services or bills and collects payments for
such services is not exempt from backup withholding or information reporting.
Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries, Inc.,
Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under Section 1441 of
the Code.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
o Payments described in Section 6049(b)(5) of the Code to non-resident aliens.
o Payments on tax-free covenant bonds under Section 1451 of the Code.
o Payments made by certain foreign organizations.
o Payments of mortgage interest to you.
o Payments made to an appropriate nominee.
Exempt payees described above should file substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE 'EXEMPT' ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6045, and 6050A and 6050N
of the Code and the regulations promulgated thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
N E W S R E L E A S E
RIDDELL SPORTS INC. VARSITY SPIRIT CORPORATION
For Immediate Release
Contact:
David Groelinger John Nichols
Chief Financial Officer Chief Financial Officer
Riddell Sports Inc. Varsity Spirit Corporation
(212) 826-4300 (901) 387-4370
RIDDELL SPORTS INC. TO ACQUIRE VARSITY SPIRIT CORPORATION
FOR $18.90 PER SHARE
-------------------------------
VARSITY'S JEFF WEBB TO JOIN THE RIDDELL BOARD
New York, New York and Memphis, Tennessee, May 6, 1997 --
Riddell Sports Inc. (NASDAQ/NM: RIDL) and Varsity Spirit Corporation
(NASDAQ/NM:VARS) announced today that they entered into a definitive merger
agreement in which Riddell will acquire all of the outstanding stock of Varsity
Spirit at a price of $18.90 per share in cash. The transaction, which was
approved by both companies' Boards of Directors, is valued at approximately $91
million. Varsity Spirit's stock closed Monday at $14.50.
The merger agreement provides for a newly formed subsidiary of
Riddell to commence promptly a cash tender offer for all of Varsity Spirit's
outstanding shares of common stock. Following the tender offer, Varsity Spirit
will be merged with and into the newly formed subsidiary of Riddell, and
shareholders not tendering their shares pursuant to the tender offer will have
the right to receive $18.90 per share in cash. Based on 1996 results the pro
forma combined entity would have generated revenues of $160.8 million with
assets of $179.1 million.
Riddell is the leading supplier and reconditioner of football
equipment in the U.S., and has the only national sporting goods direct sales
force calling on junior high schools, high schools and colleges. This direct
sales force has recently begun to expand its offerings to baseball products and
athletic clothing. The company also markets sports and entertainment
collectibles.
Varsity Spirit Corporation is the leading supplier of
cheerleader and dance team uniforms and accessories to the youth, junior high,
high school, and college markets. Varsity Spirit is also the largest operator of
cheerleading and dance team camps in the U.S.; conducts nationally televised
cheerleading and dance team championships; and conducts domestic and
international travel tours and sponsors national and international special
events for school spirit groups.
David Mauer, Chief Executive Officer of Riddell stated: "The
combination of our two companies will create a direct sales and market
organization that is uniquely suited to service the athletic departments and
booster organizations in over 40,000 junior high schools, high schools and
colleges.
<PAGE>
Varsity Spirit has over 150 sales people calling directly on cheerleading
coaches and booster organizations, while Riddell has over 100 direct sales
people primarily focused on athletic coaches. By more than doubling our direct
sales organization, we see many cross marketing and sales opportunities."
Jeffrey G. Webb, Varsity Spirit's Chairman, President and
Chief Executive Officer said: "This is a great opportunity for Varsity Spirit,
our shareholders and all of our employees. Our shareholders, who include many of
our employees, are receiving an excellent price for their shares. For our
employees going forward, this combination can only serve to sustain our
leadership position in the school spirit industry. We look forward to another
record year for our summer cheerleading and dance camps and uniform sales."
"In evaluating the merits of this merger, there were
considerable benefits and upside synergies. Not only is this a good cultural
match, but both companies have worked to build customer-driven organizations
that are leaders in their fields. We anticipate lending our camp, competition
and special events expertise to Riddell's traditional business and expect to
benefit from Riddell's skill in direct marketing of athletic products. Together,
we create a significant force in the school spirit and sports fields."
Under the terms of the agreement, Mr. Webb will be President
and Chief Operating Officer of Varsity Spirit and will be named Vice Chairman of
Riddell, reporting to Mr. Mauer. Mr. Webb and one additional Varsity Spirit
designee will become members of the Riddell Board of Directors.
Mr. Webb; Alan D. Gordon, Director; Randall S. Sturges,
Director; and Gregory C. Webb, Senior Vice President of Varsity Spirit, have
entered into a shareholder agreement and agreed to tender all of their shares of
Varsity Spirit common stock, representing in the aggregate 1,738,530 shares, or
approximately 38% of the outstanding shares of Varsity Spirit.
Pursuant to stock purchase agreements, following the
consummation of the tender offer, Mr. Jeffrey Webb and certain others members of
Varsity Spirit management will purchase approximately $4.4 million of Riddell
common stock subject to an agreed upon formula and certain limitations. Assuming
the closing market price of May 5, 1997, approximately 1.2 million shares would
be purchased, representing approximately 13% of Riddell's shares then
outstanding after giving effect to such purchase.
Riddell intends to finance the transaction through the
placement of senior notes pursuant to a Rule 144A offering under the Securities
Act of 1933, as amended. The company has received a commitment issued by
NationsBridge, L.L.C. and NBD Bank providing bridge financing for $100 million
to finance the tender offer if necessary. NationsBank and NBD Bank have also
provided a commitment for a secured working capital revolving credit facility of
$35 million.
Riddell is being advised in the transaction by Berenson
Minella & Company, who will also act as Dealer Manager for the tender offer,
while Varsity Spirit is being advised by Goldman, Sachs & Co.
-END-
<PAGE>
================================================================================
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated May 12,
1997 and the related Letter of Transmittal and is being made to all holders of
Shares. The Offer is not being made to (nor will tenders be accepted from or
on behalf of) the holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. In those jurisdictions where securities, blue
sky or other laws require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on behalf of Cheer
Acquisition Corp. by Berenson Minella & Company ("Berenson
Minella") or one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
VARSITY SPIRIT CORPORATION
AT
$18.90 NET PER SHARE
BY
CHEER ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
RIDDELL SPORTS INC.
Cheer Acquisition Corp., a Tennessee corporation (the "Purchaser") and
a wholly owned subsidiary of Riddell Sports Inc., a Delaware corporation
("Parent"), is offering to purchase all outstanding shares of common stock, par
value $.01 per share (the "Shares"), of Varsity Spirit Corporation, a Tennessee
corporation (the "Company"), at a price of $18.90 per Share, net to the seller
in cash, without interest (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated May 12, 1997 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which, as amended from
time to time, together constitute the "Offer"). Following the consummation of
the Offer, the Purchaser intends to effect the Merger described below.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JUNE 9, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares which constitutes at least a majority of the Shares outstanding on a
fully-diluted basis. The Offer is also subject to other terms and conditions.
The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of May 5, 1997 (the "Merger Agreement"), by and among the Company,
Parent and the Purchaser. The Merger Agreement provides, among other things,
that following completion of the Offer and the satisfaction or waiver of certain
conditions set forth in the Merger Agreement, the Purchaser will be merged with
and into the Company (the "Merger"), with the Company as the surviving
corporation (the "Surviving Corporation"). In the Merger, each outstanding Share
(other than Shares held in the treasury of the Company or owned by Parent, the
Purchaser or any other wholly owned subsidiary of Parent or by Dissenting
Shareholders (as defined in the Merger Agreement), if any) will be converted
into the right to receive the Offer Price or any higher price per Share paid in
the Offer, without interest thereon. As a result of the Merger, the Surviving
Corporation will become a wholly owned subsidiary of Parent.
THE BOARD OF DIRECTORS OF THE COMPANY (WITH TWO DIRECTORS ABSENT AND
NOT VOTING) HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER, HAS DETERMINED
THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
Pursuant to a shareholders agreement (the "Shareholders Agreement"),
dated as of May 5, 1997, by and among Parent, the Purchaser, Jeffrey G. Webb,
Chairman, President and Chief Executive Officer and a Director of the Company,
Gregory C. Webb, Senior Vice President and a Director of the Company, and Alan
D. Gordon and Randall S. Sturges, each Directors of the Company (each a
"Shareholder" and together, the "Shareholders"), the Shareholders have agreed to
tender all of the Shares owned by them at the Offer Price and in accordance with
the terms and conditions of the Offer, representing in the aggregate 1,738,530
Shares, or approximately 38% of the currently outstanding Shares of the Company.
Notwithstanding the satisfaction of the conditions of the Offer on the
initial scheduled expiration date of the Offer (the "Initial Expiration Date"),
the Purchaser has the right, in its sole discretion, during the fifteen business
days following the Initial Expiration Date, to extend the expiration date from
time to time until not later than fifteen business days after the Initial
Expiration Date. In addition, if, immediately prior to the Initial Expiration
Date of the Offer (as it may be extended pursuant to the preceding sentence or
otherwise), the Shares tendered and not withdrawn pursuant to the Offer equal
less than 90% of the outstanding Shares but more than 80% of the outstanding
Shares, the Purchaser may extend the Offer for a period not to exceed seven
business days, notwithstanding that all conditions to the Offer are satisfied as
of such expiration date of the Offer.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares validly tendered and not
properly withdrawn if, as and when the Purchaser gives oral or written notice to
American Stock Transfer & Trust Company (the "Depositary") of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. Upon the terms and
subject to the conditions of the Offer, payment for Shares accepted pursuant to
the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from the Purchaser and transmitting such payments to
tendering stockholders whose Shares have been accepted for payment. Under no
circumstances will interest on the purchase price for Shares be paid by the
Purchaser, regardless of any delay in making such payment. In all cases, payment
for Shares purchased pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) the certificates evidencing such Shares (the
"Share Certificates") or timely confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined under the caption "THE OFFER--Procedures for Tendering
Shares" of the Offer to Purchase) pursuant to the procedures set forth under the
caption "THE OFFER--Procedures for Tendering Shares" of the Offer to Purchase,
(ii) the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees or an Agent's Message (as
defined under the caption "THE OFFER--Procedures for Tendering Shares" of the
Offer to Purchase) and (iii) any other documents required by the Letter of
Transmittal.
The Purchaser expressly reserves the right, in its sole discretion (but
subject to the terms and conditions of the Merger Agreement), at any time and
from time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the events specified under the
caption "THE OFFER--Conditions of the Offer" of the Offer to Purchase, by giving
oral or written notice of such extension to the Depositary. Any such extension
will be followed as promptly as practicable by public announcement thereof, such
announcement to be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date of the Offer. During
any such extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the rights of a tendering stockholder to
withdraw such stockholder's Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except
that such Shares may be withdrawn at any time prior to 12:00 Midnight, New York
City time, on Monday, June 9, 1997 (or the latest time and date at which the
Offer, if extended by the Purchaser, shall expire) and, unless theretofore
accepted for payment by the Purchaser pursuant to the Offer, may also be
withdrawn at any time after July 10, 1997 or at such later time as may apply if
the Offer is extended. For a withdrawal to be effective, a written, telegraphic
or facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover page of the Offer
to Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that of
the person who tendered such Shares. If Share Certificates evidencing Shares to
be withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution (as defined under the caption "THE OFFER--Procedures for Tendering
Shares" of the Offer to Purchase), unless such Shares have been tendered for the
account of an Eligible Institution. If Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth under the caption "THE
OFFER--Procedures for Tendering Shares" of the Offer to Purchase, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares. All
questions as to the form and validity (including time of receipt) of any notice
of withdrawal will be determined by the Purchaser, in its sole discretion, whose
determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) and
Rule 13e-3(e)(1) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is
incorporated herein by reference.
The Company has provided the Purchaser with the Company's stockholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase, the related Letter of Transmittal,
and other relevant materials will be mailed to record holders of Shares whose
names appear on the Company's stockholder list and will be furnished to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the stockholder list or, if applicable,
who are listed as participants in a clearing agency's security position listing
for subsequent transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective telephone numbers
and addresses set forth below. Requests for copies of the Offer to Purchase, the
Letter of Transmittal and other related materials may be directed to the
Information Agent or the Dealer Manager. No fees or commissions will be paid to
brokers, dealers or other persons (other than the Dealer Manager or the
Information Agent) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
BERENSON MINELLA & COMPANY
667 Madison Avenue
New York, New York 10021
(212) 935-7676 (Call Collect)
May 12, 1997
================================================================================
<PAGE>
NATIONSBRIDGE, L.L.C. NBD BANK
100 NORTH TRYON STREET 1116 WEST LONG LAKE ROAD
NC1-007-07-01 BLOOMFIELD HILLS, MICHIGAN 48302
CHARLOTTE, NORTH CAROLINA 28255
The following letter is confidential and
therefore shall not be disclosed by you to any
third party or governmental entity without the
prior written consent of NationsBridge, L.L.C.
and NBD Bank, except to your attorneys,
accountants and financial advisors in
conjunction with the transactions contemplated
herein.
May 2, 1997, as amended and restated as of May 9, 1997
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Attention: David Groelinger
Re: Bridge Commitment Letter
Dear David:
You have advised NationsBridge, L.L.C. ("NationsBridge") and NBD Bank ("NBD",
and, collectively with NationsBridge, the "Purchasers") that Riddell Sports
Inc., a Delaware corporation ("Riddell"), has formed Cheer Acquisition Corp., a
Tennessee corporation ("OPCO"), for the purpose of acquiring (the "Acquisition")
all of the outstanding common stock, par value $.01 per share (the "Target
Stock"), of Varsity Spirit Corporation, a Tennessee corporation (the "Target").
As soon as practicable following the Acquisition, the Target and OPCO will merge
(the "Merger"), with the Target surviving such Merger (as such survivor, the
"Company"). Following the Merger, Riddell will own 100% of the fully-diluted
common stock of the Company, and no other person shall own any share of the
common stock of the Company or any right to acquire any such stock.
We also understand that up to approximately $136.0 million of new funds will be
required to consummate the Acquisition, refinance existing indebtedness of both
Riddell and the Target and to pay transaction costs in connection therewith. Of
such amount, at least $35.0 million would be provided for working capital
purposes through borrowings by Riddell under a revolving loan facility (the
"Bank Financing") made available by a bank group led by NationsBank, N.A. and
NBD. Riddell will contribute the proceeds of the Securities (as defined below)
and the Bank Financing to OPCO for the purpose of consummating the Acquisition.
The Acquisition, the Merger, the Bank Financing and the issuance and sale of the
Securities are herein referred to as the "Transaction."
In connection with the foregoing, we are pleased to advise you that the
Purchasers hereby severally commit (the "Commitment"), subject to the terms and
conditions set out
<PAGE>
Riddell Sports Inc.
May 2, 1997, as amended and
restated as of May 9, 1997
Page 2
below (including the exhibits hereto which are incorporated into and made a part
of this Bridge Commitment Letter), that they and/or one or more of their
respective affiliates or other purchasers arranged by the Purchasers will
purchase $100.0 million in aggregate principal amount of senior secured bridge
notes (the "Bridge Notes"), the proceeds of which, together with the Bank
Financing, will be used to consummate the Acquisition, refinance existing
indebtedness and pay related transaction costs. NationsBridge's commitment, on a
several basis and not jointly with NBD, is to purchase $80.0 million in
aggregate principal amount of Bridge Notes (subject to the limitation set forth
in the proviso to "Principal Amount" contained in Exhibit A hereto). NBD's
commitment, on a several basis and not jointly with NationsBridge, is to
purchase $20.0 million in aggregate principal amount of Bridge Notes. The
principal terms of the Bridge Notes are set forth in Exhibit A.
You have advised us that the Commitment is a condition precedent to the signing
of definitive purchase and sale agreements relating to the Acquisition. You have
also advised us that a copy of this letter (the "Bridge Commitment Letter"), and
the attached Summaries of Indicative Terms and Conditions (Exhibits A and B),
but not Exhibits C and D, will be provided to the Target, but that you
understand that our several obligations to make any monies available to Riddell
are subject expressly to the execution and delivery of definitive documentation,
including without limitation, a definitive securities purchase agreement
satisfactory to us and covering the matters expressly referred to herein and
covering such other matters as we may reasonably request, and related documents
such as an indenture and a warrant agreement (together with the securities
purchase agreement, the "Definitive Documents"), which Definitive Documents
shall be substantially consistent with the terms of this Bridge Commitment
Letter and the exhibits attached hereto, and satisfaction of the other
conditions precedent set out in Exhibit A hereto.
Riddell agrees to pay to the Purchasers a commitment fee (which will be paid to
each Purchaser pro rata based on the Commitment of such Purchaser) in an amount
equal to $3.0 million, which was earned and paid in cash on the acceptance of
the Bridge Commitment Letter dated May 2, 1997, which this Bridge Commitment
Letter amends and restates in its entirety. If the Acquisition does not close
solely as the result of any event described in Section 7.1(b)(ii) of the draft
of the acquisition agreement attached hereto as Annex 1 or in paragraph (a) or
(b) of Annex A to such draft, the Purchasers will refund to Riddell a portion of
such fee in an amount equal to $500,000.
You have also advised us that Riddell intends to proceed with the issuance of up
to $100.0 million in aggregate principal amount of debt or equity securities to
consummate the Transaction and/or to refinance the Bridge Securities (all such
securities, including any Refinancing Securities (as defined below), the
"Securities") of Riddell in a registered public offering or in a private
placement for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), the proceeds of which will be utilized to fund,
in part, the Acquisition in lieu of the Bridge Notes or to refinance the Bridge
Notes (the "Refinancing Securities").
<PAGE>
Riddell Sports Inc.
May 2, 1997, as amended and
restated as of May 9, 1997
Page 3
The Commitment is not assignable by you. Nothing in this Bridge Commitment
Letter, express or implied, shall give any person, other than the parties
hereto, any benefit or any legal or equitable right, remedy or claim under this
Bridge Commitment Letter.
Riddell agrees to indemnify and hold the Purchasers and their respective
affiliates harmless to the extent set forth in Exhibit D to this Bridge
Commitment Letter to reimburse the Purchasers for all reasonable costs and
expenses (including but not limited to reasonable legal fees and disbursements)
incurred or made in connection with the Commitment, the Securities and the
preparation, execution and delivery of the Definitive Documents, regardless of
whether or not the Definitive Documents are executed or the Transaction closes.
Additionally, following public announcement of the Acquisition, you agree to
allow each of the Purchasers or any of their respective affiliates to reference
this Commitment for the benefit of promoting the Purchasers and such affiliates.
This Bridge Commitment Letter and the attached Exhibits A, B, C and D set forth
the entire understanding of the parties as to the scope of the Commitment and
the Purchasers' several obligations thereunder. Capitalized terms used in such
Exhibits without definition shall have the meanings provided herein. This
Commitment will expire upon the earliest of (i) the closing of the Acquisition
without the issuance of the Bridge Notes; (ii) termination of the Acquisition;
(iii) the acceptance of an offer for the purchase of the Target other than
Riddell's offer, or (iv) at 5:00 p.m., New York City time, on May 9, 1997 unless
accepted prior to such time; provided, however, after acceptance, the Commitment
hereunder will terminate on September 5, 1997 (unless funding of the Bridge
Notes has occurred by such time).
In conjunction with the services and transactions contemplated hereby, Riddell
agrees that each Purchaser is permitted to access, use or share with any of its
bank or non-bank affiliates, agents or representatives, any information
concerning Riddell, OPCO, the Target and their respective affiliates that is or
may come into the possession of such Purchaser or any of such affiliates. Each
Purchaser and its affiliates will treat confidential information relating to
OPCO, Riddell, the Target (if and so long as the use and/or dissemination of
such information is not otherwise prohibited by the terms of the confidentiality
agreement between Riddell and the Target) and their respective affiliates with
the same degree of care as they treat their own confidential information.
Except as required by applicable law, this Bridge Commitment Letter and the
contents hereof shall not be disclosed by you to any third party without the
prior written consent of the Purchasers, and other than to your attorneys,
financial advisors and accountants and to the Target (including its board of
directors, senior management, attorneys and financial advisors), in each case
only to the extent necessary in your reasonable judgment; provided, however,
that Exhibits C and D hereto shall not be disclosed to the Target (including its
board of directors, senior management, attorneys and financial
<PAGE>
Riddell Sports Inc.
May 2, 1997, as amended and
restated as of May 9, 1997
Page 4
advisors). Without limiting the foregoing, in the event that you disclose the
contents of this letter or any of its Exhibits in contravention of the preceding
sentence, you shall be deemed to have accepted the terms of this letter.
THIS BRIDGE COMMITMENT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF NATIONSBRIDGE, NBD AND RIDDELL HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN NEW YORK CITY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE PROVISIONS OF THE COMMITMENT AND IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION, OR PROCEEDING MAY BE
HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF NATIONSBRIDGE, NBD AND RIDDELL
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDINGS BROUGHT IN ANY SUCH COURT, AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
[Signature Page Follows]
<PAGE>
Riddell Sports Inc.
May 2, 1997, as amended and
restated as of May 9, 1997
Page 5
Please indicate your acceptance of our Commitment and your agreement to the
matters contained in this Bridge Commitment Letter and the exhibits hereto by
executing this document prior to the time of expiration set forth above.
Sincerely,
NATIONSBRIDGE, L.L.C.
By: /s/ Lynne Wertz
Name: Lynne Wertz
Title: Director
NBD BANK
By: /s/ Jon P. Dady
Name: Jon P. Dady
Title: First Vice President
Accepted and Agreed to as of this
9th day of May, 1997:
RIDDELL SPORTS INC.
By: /s/ David Groelinger
Name: David Groelinger
Title: Executive Vice President
and Chief Financial Officer
<PAGE>
The following exhibits are confidential and
therefore shall not be disclosed by you to any
third party or governmental entity without the
prior written consent of NationsBridge, L.L.C.
and NBD Bank, except to your attorneys,
accountants and financial advisors in
conjunction with the transactions contemplated
herein.
EXHIBIT A
RIDDELL SPORTS INC.
SENIOR SECURED BRIDGE NOTES
SUMMARY OF INDICATIVE TERMS AND CONDITIONS
The several Commitments of NationsBridge, L.L.C. and NBD Bank to purchase the
Senior Secured Bridge Notes of Riddell Sports Inc. will be subject to the
negotiation and execution of definitive documentation including a definitive
securities purchase agreement and an indenture or loan agreement which will
contain terms and conditions as set forth herein and such other conditions
precedent, covenants, representations and warranties, events of default and
other provisions as are customary for financings of this kind.
<TABLE>
<S> <C>
ISSUER: Riddell Sports Inc., a Delaware corporation ("Riddell") (unless a different
and/or another entity is the borrower under the Bank Financing, in which case
such entity will be the Issuer and/or a co-Issuer of the Bridge Notes).
Riddell has formed Cheer Acquisition Corp., a Tennessee corporation ("OPCO"),
for the purpose of acquiring (the "Acquisition") all of the outstanding common
stock, par value $.01 per share, of Varsity Spirit Corporation, a Tennessee
corporation (the "Target"). As soon as practicable following the Acquisition,
the Target and OPCO will merge (the "Merger"), with the Target surviving such
Merger (as such survivor, the "Company"). Following the Merger, Riddell will
own 100% of the fully-diluted common stock of the Company, and no other person
shall own any common stock of the Company or any right to acquire any such
stock. The Issuer(s) will also be the borrower(s) under the Bank Financing.
INITIAL
PURCHASERS: NationsBridge, L.L.C. or an affiliate thereof ("NationsBridge"), NBD Bank or
an affiliate thereof ("NBD" and collectively with NationsBridge, the "Initial
Purchasers") and other purchasers arranged by the Purchasers (collectively
with the Initial Purchasers, the "Purchasers"); provided, that the Initial
Purchasers shall at all times prior to the first anniversary of the issuance
of the Bridge Notes retain the
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
right to vote, with respect to major financial covenant changes, at least 50% of
the Bridge Notes or the Rollover Notes, as applicable.
ISSUE: Senior Secured Bridge Notes (the "Bridge Notes").
PRINCIPAL AMOUNT: $100.0 million.
PRICE: 100% of the principal amount.
MATURITY: Twelve months from issuance (the "Bridge Note Maturity Date").
USE OF FUNDS: The proceeds of the sale of the Bridge Notes will be used to consummate the
Acquisition, refinance indebtedness of the Target and Riddell and to pay
transaction costs incurred in connection therewith.
RANKING: The Bridge Notes and the guarantees thereof will be pari passu with all senior
obligations of Riddell and the Guarantors. The Bridge Notes and the
guarantees thereof will be senior to all subordinated obligations of Riddell
and the Guarantors. Neither the Issuer nor any Guarantor shall make any
principal payments on any subordinated debt, including, without limitation,
the Convertible Subordinated Notes, until the Bridge Notes have been paid in
full.
GUARANTEES: The Bridge Notes will be guaranteed on a senior secured basis by any current
or future subsidiaries (including the Target on the date of the closing of the
tender offer) of Riddell (such subsidiaries, collectively, the "Guarantors").
The Guarantors shall not be prohibited from guaranteeing obligations on a
subordinated basis, including, without limitation, the subordinated guarantee
to be entered into by the Target and its subsidiaries in connection with the
4.10% Convertible Subordinated Notes of Riddell due November 1, 2004 (the
"Convertible Subordinated Notes").
SECURITY: The Bridge Notes and the guarantees thereof will be secured by (i) a first
priority perfected security interest in any unencumbered assets (which will
include, without limitation, all assets other than current assets) of Riddell
and any current and future subsidiaries, (ii) a perfected security interest in
all current assets of Riddell and any current and future subsidiaries, second
only to the first priority perfected lien to the lenders under the Bank
Financing, provided that such lien shall not extend to cash deposits made by
customers of the Target or the Company in connection with travel performance
bonds required by state law, and (iii) a pledge of
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
the stock of any current or future subsidiaries (other than the Target prior to
the Merger) of Riddell.
INTEREST RATE: Interest shall be payable at the Base Rate plus the Applicable Margin per
annum. The "Applicable Margin" shall initially be 3.00%, increasing an
additional .50% at the end of each subsequent 3-month period for as long as
the Bridge Notes are outstanding; provided that such rate shall not exceed 18%
per annum; provided, further, that the portion, if any, of any interest
payment representing a rate per annum in excess of 16% may be paid by issuing
additional Bridge Notes with a principal amount equal to such excess portion
of interest. Notwithstanding the foregoing, in the case of an Event of
Default, the Applicable Margin shall be increased by 2.0% per annum. "Base
Rate" means the prime rate as announced by NationsBank, N.A. from time to time
(computed for actual days elapsed on the basis of a year consisting of 360
days).
INTEREST
PAYMENTS: Quarterly in arrears.
OPTIONAL
REDEMPTION: The Bridge Notes are callable up to the Bridge Note Maturity Date, in whole or in
part, upon written notice, at the option of Riddell, at any time at par plus accrued
interest to the redemption date.
MANDATORY
EXCHANGE: If the Bridge Notes have not been previously redeemed in full for cash on or
prior to the Bridge Note Maturity Date, the principal of the Bridge Notes
outstanding on the Bridge Note Maturity Date may, subject to certain
conditions precedent, be satisfied through the delivery of Senior Secured
Rollover Notes with a maturity of 5 years from the Bridge Note Maturity Date
(the "Rollover Notes" and together with the Bridge Notes, the "Bridge
Securities") described in the Exhibit B attached to the Bridge Commitment
Letter. The Rollover Notes will be issued and held in escrow upon the funding
of the Bridge Notes and pending such mandatory exchange (the "Rollover Date").
MANDATORY
REDEMPTION: No sinking fund will be required, however, Riddell will redeem the Bridge
Notes with, subject to certain agreed upon exceptions: (i) the net proceeds
from the issuance of any debt or equity securities of Riddell or any of
Riddell's subsidiaries; or (ii) the net proceeds from material asset sales of
Riddell or any of Riddell's subsidiaries, provided, however, that Riddell will
not be required to redeem the Bridge Notes with the net proceeds from the sale
of any current assets to the extent
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
such proceeds are required to be paid to the lenders under the Bank Financing.
"Material asset sales" shall mean asset sales the net proceeds of which exceed
$50,000.
CHANGE OF
CONTROL: In the event of a Change of Control (to be defined), each Bridge Note holder will have
the right to require Riddell to repurchase the Bridge Notes at 101% of the principal
amount plus accrued and unpaid interest thereon.
CONDITIONS
PRECEDENT: Conditions precedent to initial funding will consist of the following:
(i) the negotiation, execution and delivery of Definitive Documents
with respect to the Bridge Securities reasonably satisfactory to
the Purchasers, which Definitive Documents shall be
substantially consistent with the terms of the Bridge Commitment
Letter and the exhibits thereto and which shall contain usual
and customary representations and warranties (which shall be
true and correct), covenants (with which Riddell and the
Guarantors shall be in compliance) and events of default (which
shall not have occurred and be continuing or which, with the
giving of notice or the lapse of time or both, shall not have
occurred and be continuing, in each case, prior to and
immediately after the initial funding);
(ii) the execution, and delivery to the Purchasers, of an
acquisition agreement, (a) which shall be in a form
substantially similar to the draft of April 30, 1997 (a copy of
which, together with the April 18, 1997 draft of the Company
Disclosure Schedule (as defined therein), is attached hereto as
Annex 1), which has been reviewed and approved by the
Purchasers, (b) with respect to which none of the material terms
or conditions thereof shall have been waived by any of the
parties thereto without the Purchasers consent, and (c) which
shall provide for an aggregate purchase price not in excess of
$18.90 per share;
(iii) the completion of the Bank Financing, in the amount of at least
$35.0 million on terms satisfactory to the Purchasers;
</TABLE>
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<TABLE>
<S> <C>
(iv) the corporate, capital and ownership structure (including
the certificate or articles of incorporation and by-laws) of
the Company (after giving effect to the Merger),
including without limitation the execution of employment
contracts with certain of the employees, shall not have
materially changed from that previously reviewed and
approved by the Purchasers;
(v) the receipt of legal opinions in form and substance reasonably
satisfactory to the Purchasers;
(vi) the receipt of an opinion letter from an independent firm
reasonably satisfactory to the Purchasers attesting to the
solvency of Riddell and each Guarantor after giving effect
to the Acquisition and the incurrence of indebtedness with
respect thereto;
(vii) the delivery of Warrants (as described in Exhibit C attached to
the Bridge Commitment Letter) to an escrow account mutually
agreed upon by the Purchasers, NationsBanc Capital Markets, Inc.
("NCMI"), First Chicago Capital Markets, Inc. (together with
NCMI, the "Investment Banks") and Riddell;
(viii) the receipt of all fees due and payable to the Purchasers
and/or Investment Banks;
(ix) not less than a majority of the shares of the Target (on a
fully-diluted basis) shall have been validly tendered and not
withdrawn prior to the expiration of the tender offer;
(x) fees and expenses incurred in conjunction with the Acquisition
shall be limited to $15.0 million;
(xi) appropriate board and shareholder approvals to the extent
required from Riddell and the Target for the Acquisition and the
Merger;
(xii) each guarantee of the Bridge Securities (other than that of the
Target) shall be in full force and effect;
(xiii) the receipt of (a) a certified copy of the certificate or
articles of incorporation, including all amendments thereto, of
each of Riddell, OPCO, the Target and each of the Guarantors,
and a certificate as to the good standing of each thereof; and
(b) a certificate
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
from each of Riddell, OPCO, the Target and each of the Guarantors
certifying its by-laws, resolutions duly adopted by its Board of Directors,
its certificate or articles of incorporation, the incumbency and specimen
signatures of its officers, and a true and complete copy of the
acquisition agreement;
(xiv) the receipt of duly executed Bridge Notes, in form and substance
reasonably satisfactory to the Purchasers;
(xv) all material governmental and third party approvals necessary
in connection with the transactions contemplated hereby and the
continuing operations of Riddell and its subsidiaries shall have
been obtained and be in full force and effect, and all
applicable waiting periods shall have expired without any action
being taken or threatened by any governmental authority which
would restrain, prevent or otherwise impose adverse conditions
on the transactions contemplated hereby;
(xvi) no injunction, temporary restraining order or other similar relief
shall have been issued and remain in effect with respect to the
transactions contemplated hereby;
(xvii) the receipt of (a) evidence satisfactory to the Purchasers of
the proper filing, registration or recordation of each document
required by law or reasonably requested by the Purchasers to be
filed, registered or recorded in order to create in favor of the
Purchasers a valid, legal and perfected security interest in the
collateral contemplated hereby; (b) certified reports from an
independent search service reasonably satisfactory to the
Purchasers listing (1) any judgment naming Riddell, the Target
or any subsidiary of either thereof as judgment debtor, (2) any
tax lien that names Riddell, the Target or any subsidiary of
either thereof as a delinquent taxpayer in any jurisdiction and
(3) any Uniform Commercial Code financing statement that names
Riddell, the Target or any subsidiary of either thereof as
debtor filed in any jurisdiction; and (c) appropriate duly
executed termination statements signed by all persons disclosed
as secured parties (other than holders of permitted
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C>
liens) in form for filing under the Uniform Commercial Code of
such jurisdiction; and
(xviii) the Purchasers shall have received such other documents as the
Purchasers or their counsel may reasonably request.
FINANCIAL
INFORMATION: Riddell shall furnish to the Purchasers information to include but not be
limited to: unaudited quarterly consolidated financial statements within 45
days of quarter-end and fiscal year-end audited consolidated statements within
90 days of Riddell's year-end.
RIGHT TO RESELL
BRIDGE NOTES: The Purchasers shall have the absolute and unconditional right to resell the
Bridge Notes in whole or in part in compliance with applicable law to any
third parties; provided, that the Initial Purchasers shall at all times prior
to the first anniversary of the issuance of the Bridge Notes retain the right
to vote, with respect to major financial covenant changes, at least 50% of the
Bridge Notes or the Rollover Notes, as applicable. In addition, each
Purchaser may share its commitment with any third party.
GOVERNING LAW: New York.
EXPIRATION DATE: The obligation of the Purchasers to purchase the Bridge Notes will expire upon
the earliest of (i) the completion of the Acquisition without the use of the
Bridge Notes, (ii) termination of the Acquisition Agreement, (iii) the
acceptance of an offer for the purchase of the Target other than Riddell's
offer or (iv) 5:00 p.m., New York time, May 9, 1997 unless accepted prior to
such time; provided, however, that after acceptance, the Commitment hereunder
will terminate on September 5, 1997 (unless funding of the Bridge Notes has
occurred by such time).
FINANCIAL AND
OTHER COVENANTS,
REPRESENTATIONS
AND WARRANTIES,
EVENTS OF DEFAULT,
WAIVERS AND
CONSENTS: Usual and customary for a transaction of this type (including, without
limitation, a cross default to the Bank Financing), without material
exceptions not previously disclosed.
</TABLE>
A-7
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<S> <C>
FUNDING FEE: Riddell agrees to pay to the Purchasers (pro rata based on the Commitment of such
Purchaser) a non-refundable fee of 1.00% of the principal amount of the Bridge Notes,
payable in cash upon the issuance of any Bridge Notes.
WARRANTS: See Exhibit C attached to the Bridge Commitment Letter.
</TABLE>
A-8
<PAGE>
NationsBank, N.A.
NBD Bank
May 5, 1997
Riddell Sports Inc.
900 Third Avenue
27th Floor
New York, New York 10022
Re: Commitment for Credit Facility
Ladies and Gentlemen:
Riddell Sports Inc. (the "Borrower") has requested that NationsBank, N.A.
("NationsBank") and NBD Bank ("NBD")(hereinafter NationsBank and NBD are
sometimes collectively referred to as the "Lenders" and individually referred to
as a "Lender") provide a senior secured revolving credit facility in the amount
of $40 million through September 30, 1997 and $35 million thereafter (the
"Credit Facility") to provide working capital for the Borrower and its
subsidiaries, to provide for the issuance of letters of credit for the benefit
of the Borrower and its subsidiaries, to finance general corporate purposes of
the Borrower and its subsidiaries, to refinance existing indebtedness of the
Borrower and its subsidiaries and to finance the acquisition of Varsity Spirit
Corporation (and the costs and expenses related thereto) to the extent that the
proceeds of the $100 million bridge financing from NBD Bank and NationsBridge,
L.L.C. are insufficient to finance such acquisition (and the costs and expenses
related thereto). NationsBank hereby issues its commitment to provide $20
million of the credit facility (the "NationsBank Commitment") and NBD hereby
issues its commitment to provide $20 million of the Credit Facility (the "NBD
Commitment") (hereinafter the NationsBank Commitment and NBD Commitment are
collectively referred to as the "Commitment").
The Credit Facility is described in the Summary of Terms and Conditions attached
hereto as Annex I (the "Term Sheet"). The Commitment is issued pursuant to the
terms of this letter and the terms and provisions of the Term Sheet (hereinafter
this letter and the Term Sheet shall be referred to as the "Commitment Letter")
and will be subject to the satisfaction of the conditions contained in the
Commitment Letter.
<PAGE>
The terms and conditions of the Commitment are not limited to those set forth
herein or in the Term Sheet. Those matters that are not covered or made clear
herein or in the Term Sheet are subject to mutual agreement of the parties. In
addition, the Commitment is subject to the preparation, execution and delivery
of loan documentation reasonably acceptable to the Borrower and the Lenders,
including a credit agreement incorporating substantially the terms and
conditions outlined herein and in the Term Sheet.
The Borrower will indemnify each Lender and hold it harmless from and against
all liabilities and all reasonable out-of-pocket costs and expenses (including
reasonable fees and disbursements of counsel) of each Lender arising out of or
relating to any litigation or other proceedings (regardless of whether such
Lender is a party thereto) which relate to the financing contemplated hereby,
except as any such costs, expenses and liabilities that result primarily from
the gross negligence or willful misconduct of such Lender.
In further consideration of the Commitment and recognizing that in connection
therewith NationsBank, in its capacity as documentation agent, will incur
customary out-of-pocket costs and expenses in connection with the documentation
and closing of the Credit Facility, including, without limitation, fees and
expenses of counsel, you will agree to pay, from time to time on request, such
out-of-pocket costs and expenses as are reasonable, regardless of whether the
transactions contemplated hereby are consummated or any loan documentation is
entered into.
<PAGE>
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this Commitment Letter no later than the close of business of
May 5, 1997. This letter will become effective upon your delivery to us of
executed counterparts of this Commitment Letter. This agreement shall terminate
if not so accepted by you prior to that time.
Very truly yours,
NATIONSBANK, N.A.
By________________________________
Title_____________________________
NBD BANK
By________________________________
Title_____________________________
Accepted this _____ day
of _________________, 1997
RIDDELL SPORTS INC.
By_________________________
Title:
<PAGE>
RIDDELL SPORTS INC.
Senior Secured Revolving Credit Facility
Summary of Terms and Conditions
May 5, 1997
<TABLE>
<S> <C>
Borrower: Riddell Sports Inc. ("Riddell"), a Delaware corporation
Guarantors: All existing and hereafter acquired subsidiaries of Borrower
Administrative Agent NBD Bank
Documentation Agent: NationsBank, N.A.
Facility: A senior secured revolving credit facility ("Revolver" or the "Credit Facility") in the
amount of $40 million through September 30, 1997 and $35 million thereafter, which will
include a sublimit for the issuance of standby and commercial letters of credit,
with availability subject to a borrowing base as defined herein.
Security: The Lenders shall have a first priority perfected security interest on all
existing and hereafter acquired accounts receivable and inventory of the
Borrower and its subsidiaries. The Lenders shall also have a lien on all
existing and hereafter acquired property, plant and equipment of the Borrower
and its subsidiaries, which lien shall only be subordinate to the lien granted
on such assets to secure the $100 million bridge facility being offered by NBD
Bank and NationsBridge, L.L.C (the "Bridge Facility"). The Lenders shall also
be granted limited licenses on intellectual property to enable the Lenders to
dispose of inventory in the event of a default.
Negative Negative Pledge on all unencumbered assets of the Borrower and its
subsidiaries other than as required under the Bridge Facility.
Borrowing Base: Loans under the Credit Facility may be made, and Letters of Credit may be
issued subject to availability. Subject to the increase set forth in the
following sentence, availability shall be determined by a Borrowing Base equal
to the sum of (a) 80% of eligible accounts receivable of the Borrower and its
subsidiaries plus (b) 50% of eligible raw materials and eligible finished
goods inventory of the Borrower and its subsidiaries. The Borrowing Base
shall be increased by an amount up to $5,000,000 for any 90-day consecutive
period selected by the Borrower during the period commencing on the Closing
Date through December 31, 1998 (hereinafter amounts advanced by the Lenders as
a result of the
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<PAGE>
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<S> <C>
above-described increase in the Borrowing Base shall be referred to as the
"Overadvance"). Eligibility criteria to be mutually agreed upon. Inventory
at leased locations shall become ineligible 90 days after the Closing Date
unless the applicable landlords have signed landlord waivers in form reasonably
satisfactory to the Lenders prior to the expiration of such 90-day period.
Use of Proceeds: Proceeds of the facility may be used for working capital, the issuance of
standby or commercial letters of credit, general corporate purposes, the
refinancing of existing indebtedness of the Borrower and its subsidiaries and
the financing of the acquisition of Varsity Spirit Corporation (and the costs
and expenses related thereto) to the extent that the proceeds of the Bridge
Facility are insufficient to finance such acquisition (and the costs and
expenses related thereto).
Maturity: The Credit Facility shall terminate and all amounts outstanding thereunder
shall be due and payable in full upon five years from the Closing Date.
Mandatory Prepayments
and Commitment
Reductions: Mandatory prepayments will be required in the event and to the extent that the
outstanding principal amount exceeds the Borrowing Base at any time or the
outstanding principal amount exceeds $40 million on or before September 30,
1997 or $35 million at any time thereafter.
Optional Reductions/
Prepayments: The Borrower may permanently reduce and/or prepay the Credit Facility in whole
or in part at any time without penalty subject to reimbursement of the
Lender's breakage costs in the case of prepayment of LIBOR borrowings;
provided, however, the Borrower shall not have the right to prepay and
terminate the Credit Facility if any amounts under the Bridge Facility (or the
rollover facility extended by NBD Bank and NationsBridge, L.L.C. which respect
thereto) remain outstanding.
Interest Rates/Fees: The Credit Facility shall bear interest and fees as set forth on Addendum I,
attached hereto.
Conditions Precedent
To Closing: Closing and initial funding of the Credit Facility will be subject to
satisfaction of the following conditions:
(i) The negotiation, execution and delivery of definitive documentation
with respect to the Credit Facility reasonably satisfactory to the
Lenders, which documentation shall be substantially consistent with
the
</TABLE>
<PAGE>
<TABLE>
<S> <C>
terms of this term sheet, and which shall contain the
representations and warranties described herein (which shall be true
and correct), the covenants described herein (with which the Borrower
and the Guarantors shall be in compliance) and the events of default
described herein (which shall not have occurred and be continuing or
which, with the giving of notice or the lapse of time or both, shall
not have occurred and be continuing, in each case, prior to and
immediately after the initial funding).
(ii) Riddell shall have completed its acquisition of Varsity Spirit
Corporation at a price not to exceed $18.90 per share.
(iii) The Lenders shall have received (a) satisfactory opinions of counsel
to the Borrower (which shall cover, among other things, authority,
legality, validity, binding effect and enforceability of the
documents for the Credit Facility) and such corporate resolutions,
certificates and other documents as the Lenders shall reasonably
require and (b) satisfactory evidence that the Documentation Agent
(on behalf of the Lenders) holds a perfected, first or second
priority lien (as the case may be) in the collateral for the Credit
Facility, subject to no other liens except for permitted liens to be
determined.
(iv) After giving effect to the acquisition of Varsity Spirit Corporation and
the incurrence of indebtedness with respect thereto, the Borrower and
each Guarantor shall be solvent.
(v) Receipt of all material governmental, shareholder and third party
consents and approvals necessary in connection with the financing
contemplated herein.
(vi) The Borrower and its subsidiaries shall be in compliance with all
existing financial obligations (after giving effect to the Closing).
Representations &
Warranties: Usual and customary for transactions of this type, to include without
limitation: (i) corporate status; (ii) corporate power and
authority/enforceability; (iii) no violation of law or contracts or
organizational documents; (iv) no material litigation; (v)
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<PAGE>
<TABLE>
<S> <C>
correctness of specified financial statements and no material adverse
change (provided, however, the funding of the initial loan under the Credit
Facility shall not be subject to the absence of a material adverse
change); (vi) no required governmental or third party approvals; (vii) use
of proceeds/compliance with margin regulations; (viii) status under
Investment Company Act; (ix) ERISA; (x) environmental matters; (xi)
perfected liens and security interests; and (xii) payment of taxes.
Covenants: Usual and customary for transactions of this type, to include without
limitation; (i) delivery of financial statements and other reports; (ii)
delivery of compliance and borrowing base certificates; (iii) notices of
default, material litigation and material governmental and environmental
proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance
of insurance; (vii) limitation on liens on any collateral for the Credit
Facility; (viii) limitations on mergers, consolidations and sales of assets;
(ix) prohibitions on incurrence of debt and guarantees other than in respect
of the Credit Facility and the Senior Notes (and related guaranties thereof by
the Guarantors); (x) limitations on dividends and stock redemptions and the
redemption and/or prepayment of other debt; (xi) limitations on investments
and acquisitions; (xii) ERISA; (xiii) limitation on transactions with
affiliates; and (xiv) limitation on capital expenditures.
Financial covenants to include:
(i) Maintenance on a rolling four quarter basis of a Maximum Leverage
ratio (total funded debt/EBITDA),
(ii) Maintenance on a rolling four quarter basis of a Coverage Ratio
(EBITDA less capital expenditures/Cash Interest)
(iii) Minimum Net Worth
The covenant levels shall be set forth on Addendum II attached hereto.
Events of Default: Usual and customary in transactions of this nature.
Indemnification: The Borrower shall indemnify the Lenders from and against all losses,
liabilities, claims, damages or expenses relating to their loans, the
Borrower's use of loan proceeds or the commitments, including but not limited
to reasonable attorney's fees and settlement costs but excluding lost profits
or any such losses,
</TABLE>
<PAGE>
<TABLE>
<S> <C>
liabilities, claims, damages or expenses resulting from gross negligence or
willful misconduct of the Lenders. This indemnification shall survive and
continue to the benefit of the Lenders' commitment for the Credit Facility,
notwithstanding any failure of the Credit Facility to close.
Closing: No later than September 5, 1997.
Governing Law: State of New York
Other: This term sheet is intended as an outline only and does not purport to summarize all
the conditions, covenants, representations, warranties and other provisions which would
be contained in definitive legal documentation for the Credit Facility.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Addendum I
Fees and Expenses
Upfront Fee: 1.50% of $35,000,000, payable at Closing.
Commitment Fee: 50.0 basis points per annum (calculated on the basis of actual number of days
elapsed in a year of 360 days). Commitment Fee calculated on the unused portion of the
Credit Facility shall commence to accrue upon acceptance by the Borrower of the
commitment letter to which this term sheet is attached and shall be paid at Closing and
thereafter quarterly in arrears.
Interest Rates: The Credit Facility shall bear an initial interest rate for the first year of
the Credit Facility equal to LIBOR plus 225 basis points or the Alternate Base
Rate (defined as the higher of (i) the NBD Bank prime rate and (ii) the
Federal Funds rate plus 1/2%) plus 75 basis points. Thereafter, the LIBOR and
Alternate Base Rate margins for the Credit Facility will be subject to
performance pricing adjustments based upon the Borrower's Consolidated Funded
Debt to EBITDA (the "Pricing Ratio"). The Pricing Ratio will be computed
quarterly in arrears on a rolling four quarter basis, according to the pricing
grid as set forth below:
</TABLE>
<TABLE>
<CAPTION>
Debt/EBITDA LIBOR Alternate Commitment
(x) Spread Base Rate Fee (bps)
----------- ------ --------- ----------
<S> <C> <C> <C> <C>
x more than equal to 5.00 250 100 50
5.00 more than x more than
equal to 4.50 225 75 50
4.50 more than x more than
equal to 4.00 200 50 50
4.00 more than x more than
equal to 3.50 175 25 50
x less than 3.50 150 0 40
</TABLE>
<TABLE>
<S> <C>
The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR
loans, subject to availability.
Notwithstanding the foregoing, the Overadvance shall bear interest at a rate
equal to the NBD prime rate plus 2%.
A penalty rate shall apply on loans in the event of default at a rate per annum
of 2% above the applicable interest rate.
The loan documentation shall contain standard yield protection provisions.
Letter of Credit Fees: The Borrower shall pay a per annum standby letter of credit fee on the
outstanding amount of all standby letters of credit. The
</TABLE>
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<TABLE>
<S> <C>
applicable standby letter of credit fee shall be equal to the interest rate
spread on LIBOR loans. The standby letter of credit fee shall be due quarterly
in arrears and shared proportionately by the Lenders.
The Borrower shall pay the Administrative Agent for its own account a per annum
facing fee of 0.25% on the outstanding amount of all standby letters of credit.
The standby letter of credit facility fee shall be due quarterly in arrears.
The Borrower shall pay on the date of drawing a fee of 0.25% on the amount of any
drawing under a trade letter of credit. The trade letter of credit drawing fee shall
be shared proportionately by the Lenders.
In addition, the Borrower shall pay the Administrative Agent for its own
account the Administrative Agent's customary letter of credit charges as in
effect from time to time.
Administrative Agent's
Fee: Borrower shall pay an Administrative Agent's Fee of $10,000 at the time of
Closing and on each anniversary thereafter.
Expenses: Borrower will pay all reasonable out of pocket costs and expenses associated
with the preparation, due diligence, administrative and enforcements of all
documents executed in connection with the Credit Facility, including without
limitation, reasonable legal fees regardless of whether or not the Credit
Facility is closed (provided, however, the Borrower shall only be responsible
for the legal fees of the Documentation Agent's counsel in connection with the
negotiation and preparation of all documents executed in connection with the
Credit Facility).
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 5, 1997, by and between Riddell Sports Inc., a
Delaware corporation (the "Company"), and Jeffrey G. Webb (the "Executive").
WHEREAS, the Company, Cheer Acquisition Corp., a Tennessee corporation
and Varsity Spirit Corporation, a Tennessee corporation (collectively with any
successor to its business, "Varsity Spirit") have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of May 5, 1997, pursuant to
which, among other things, Varsity Spirit will become a wholly owned subsidiary
of the Company;
WHEREAS, the Executive is currently serving as Chairman, President,
Chief Executive Officer and Director of Varsity Spirit pursuant to the
Employment Agreement dated September 29, 1989, as amended, between the Executive
and Varsity Spirit (the "Former Agreement");
WHEREAS, the Company desires to engage the Executive as Vice Chairman
of the Company and President and Chief Operating Officer of Varsity Spirit and
the Executive desires to be so engaged by the Company in such position, on the
terms and conditions set forth and described herein;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company.
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company upon the terms and subject
to the conditions set forth herein.
2. Term. This Agreement is for the three-year period (the "Term")
commencing on the Effective Time (as defined in the Merger Agreement)
("Effective Date") and terminating on the third anniversary of such date or upon
earlier termination of the Executive's employment; provided, however, that if
the Merger Agreement is terminated, then, at the time of such termination, this
Agreement shall be deemed cancelled and of no force and effect.
<PAGE>
3. Position. During the Term, the Executive shall serve as President
and Chief Operating Officer ("COO") of Varsity Spirit. The Company shall
nominate the Executive and a designee (the "Designee") of the Executive
reasonably acceptable to the Board of Directors of the Company (the "Company
Board") (it being understood that any person who is a Senior Vice President or
Director of Varsity Spirit on the date of this Agreement is an acceptable
Designee to the Company Board without further action) to the Company Board and
the Company shall use its best efforts to (i) cause the Executive and the
Designee to be elected to the Company Board and (ii) cause the Executive to
serve as Vice Chairman of the Company and on the Executive Committee of the
Company, in each case for the duration of the Term. In particular, the Executive
agrees, effective as of the Effective Date, to become a party to the
Stockholders Agreement dated August 14, 1995 ("Voting Agreement") and the
Company agrees to amend such Voting Agreement so that the parties thereto agree,
for the duration of the Term, to vote their shares of Company common stock (i)
in favor of the election of the Executive and the Designee to the Company Board
and (ii) in favor of the Plan (as defined below). At any time that the Executive
is serving as an officer of the Company, the Company shall provide him with
officer liability insurance and/or indemnification to the same extent provided
to other members of the Company Board and other officers of the Company for all
occurrences while executive is or was a member of the Company Board or an
officer of the Company.
4. Duties and Reporting Relationship. During the Term, the Executive
shall, on a full time basis, use his skills and render services to the best of
his abilities in supervising and conducting the operations of Varsity Spirit. As
part of his duties the Executive shall be responsible for and have general
supervisory control over all operations of Varsity Spirit and shall report to,
and be subject to supervision by, the CEO or Chairman of the Company. The
Executive will also perform such other duties for the Company as are consistent
with his position as the CEO or Chairman of the Company shall reasonably assign.
Nothing in this Agreement shall be deemed to prevent Executive from
participating in, or serving on the governing body of, any civic, community or
charitable organization with which the Executive may currently be, or hereafter
become involved.
5. Place of Performance. The Executive shall perform his duties
and conduct his business at the principal offices of Varsity Spirit in Memphis,
Tennessee except for required travel on Varsity Spirit or the Company's
business.
6. Inducement for Employment. (a) As an inducement for the
Executive's entering into this Agreement and undertaking to perform the services
2
<PAGE>
referred to in this Agreement, on the later of (i) Effective Date and (ii) the
Company's 1997 Annual Meeting of Shareholders (such applicable date, the "Grant
Date"), the Company shall grant to the Executive a non-qualified option (the
"Option") to purchase 50,000 shares of the common stock, $0.01 par value
("Common Stock") of the Company, which grant may, at the Company's election, be
pursuant to the Company's 1997 Stock Option Plan (the "Plan"), in which case it
shall be subject to shareholder approval of the Plan. The exercise price of the
Option shall be equal to the average closing price of a share of Common Stock
over the ten (10) consecutive trading days ending on the date immediately prior
to the Grant Date. If the shareholders fail to approve the Plan, the Executive
and the Company shall discuss, in good faith, alternative mechanisms to provide
the Executive with the economic equivalent of the Option.
(b) The Option shall become exercisable as to 1/3 of the
shares originally covered by such Option upon the first anniversary of the Grant
Date and as to an additional 1/3 of the shares originally covered by such Option
on each of the second and third anniversaries of the Grant Date, subject to the
acceleration of vesting provisions contained in Section 6(c) hereof.
(c) The Option shall expire on the earlier of the tenth
anniversary of the Grant Date or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason and may be exercised (to the
extent it has vested), at any time prior to such expiration; provided, however,
that if, (i) prior to the expiration of the Term, the Company terminates the
Executive's employment in breach of this Agreement or the Executive terminates
his employment for Good Reason (as defined below), or (ii) subsequent to the
expiration of the Term, the Company terminates the Executive's employment in a
manner that would have been a breach of this Agreement had the Term not expired
or the Executive terminates his employment on account of actions that would have
constituted Good Reason had the Term not expired, then the Option shall become
fully vested and exercisable and shall remain exercisable for a period of one
year following such termination of employment; and, provided further that if the
Executive's employment is terminated on account of his death or Disability (as
defined below), then upon such termination the Option shall become fully vested
and exercisable and shall remain exercisable for a period of one year following
such termination of employment. The Option shall become fully vested and
exercisable upon the occurrence of a Change in Control (defined below).
(d) As a further inducement for the Executive's entering into
this Agreement and undertaking to perform the services referred to in this
Agreement,
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the Company shall grant, within thirty days immediately following the Effective
Date, to the Executive a non-qualified option (the "Special Option") to purchase
347,760 shares of Common Stock of the Company, which grant may, at the Company's
election be pursuant to the Plan, in which case it shall be subject to
shareholder approval of the Plan. The exercise price of the Special Option shall
be equal to the lower of (i) the average closing price of a share of Common
Stock over the ten (10) consecutive trading days ending on the date immediately
prior to the Effective Date and (ii) $3.80. If the shareholders fail to approve
the Plan, the Executive and the Company shall discuss, in good faith,
alternative mechanisms to provide the Executive with the economic equivalent of
the Special Option. The Special Option shall be fully vested as of the date of
grant and shall become exercisable as of the date of shareholder approval of the
Plan. The Special Option shall expire on the tenth anniversary of the date of
grant.
7. Salary and Annual Bonus.
(a) Base Salary. During the Term, the Executive's base salary
(the "Base Salary") hereunder shall be no less than $375,000 a year, payable no
less often than in monthly installments. The Base Salary shall be subject to
annual review and increase by an amount determined by the Company Board, or an
appropriate committee thereof, after taking into consideration the Executive's
performance, the Company's performance, increases in the cost of living and such
other factors as the Company Board or such committee deems relevant.
(b) Annual Bonus. During the Term, the Executive will
participate in any bonus plan established by the Company at a target level of
40% of his Base Salary. Such bonus shall be payable at such time as bonuses are
paid to other senior executive officers.
8. Vacation, Holidays and Sick Leave. During the Term, the Executive
shall be entitled to paid vacation, paid holidays and sick leave in accordance
with the Company's standard policies for its senior executive officers, which
policies shall provide the Executive with (a) benefits no less favorable than
those provided to any other senior executive officer of the Company and (b) no
fewer than four (4) weeks of paid vacation per year, including no fewer than
three (3) weeks of paid vacation during the calendar year ending December 31,
1997, unless otherwise agreed between the Executive and the Company.
9. Business Expenses. During the Term, the Executive will be
reimbursed for all ordinary and necessary business expenses incurred by him in
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connection with his employment upon timely submission by the Executive of
receipts and other documentation as required by the Internal Revenue Code and in
conformance with the Company's normal procedures.
10. Pension and Welfare Benefits. During the Term, the Executive shall
be eligible to participate fully in all health benefits, insurance programs,
pension and retirement plans and other employee benefit and compensation
arrangements (collectively, the "Employee Benefits") available to officers of
the Company generally, which Employee Benefits shall provide the Executive with
benefits no less favorable than those provided to any other senior executive
officer of the Company. At such time that the Executive becomes covered by any
employee plan, program or policy of the Company, the Executive's service with
Varsity Spirit shall be taken into account for the purpose of determining
eligibility for participation and vesting (but not benefit accrual) under any
such employee plan, program or policy to the same extent that service with the
Company is so taken into account for the executives of the Company.
11. Termination of Employment. (a) General. The Executive's
employment hereunder may be terminated without any breach of this Agreement only
under the circumstances provided in this paragraph 11(a).
(i) Death or Disability. (A) The Executive's employment
hereunder shall automatically terminate upon the death of the Executive.
(B) If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been unable to
perform the essential duties of his position despite the provision of reasonable
accommodations for any six (6) months (whether or not consecutive) during any
twelve (12) month period, the Company may terminate the Executive's employment
hereunder for "Disability."
(ii) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, "Cause" shall
mean (A) gross neglect by the Executive of the Executive's duties hereunder, (B)
conviction of the Executive of any felony, (C) gross or intentional misconduct
by the Executive in connection with the performance of any material portion of
the Executive's duties hereunder or (D) breach by the Executive of any material
provision of this Agreement (including, but not limited to, Sections 15, 16 and
17 hereof) or of any other agreement between the Executive and the Company or
between the Executive and M.L.C. Partners Limited Partnership.
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(iii) Termination by the Executive. The Executive shall be
entitled to terminate his employment hereunder (A) for Good Reason, within
thirty (30) days of the date the Executive becomes aware of the occurrence of
the event constituting the grounds for such Good Reason, or (B) if his health
should become impaired to an extent that makes his continued performance of his
duties hereunder hazardous to his physical or mental health, provided that the
Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided further, that, at the Company's
request, the Executive shall submit to an examination by a doctor selected by
the Company and such doctor shall have concurred in the conclusion of the
Executive's doctor.
For purposes of this Agreement, "Good Reason" shall mean the occurrence
(without the Executive's express written consent) of any one of the following
acts by the Company, or failure by the Company to act, unless, in the case of
any such act or failure to act, such act or failure to act is corrected prior to
the Date of Termination specified in the Notice of Termination in respect
thereof (which Date of Termination shall not be less than thirty days following
the applicable Notice of Termination): (I) a material adverse alteration in the
nature of status or the Execu-tive's responsibilities from those contemplated by
Section 4 above; (II) Executive being required to relocate to a location more
than 50 miles from Memphis, Tennessee; (III) the failure by the Company to pay
to the Executive any material portion of the Executive's current compensation
(upon failure to cure after 15 days' notice) or the failure by the Company to
provide the Executive with the number of paid vacation days to which the
Executive is entitled; (IV) the failure by the Company to continue to provide
the Executive with Employee Benefits no less favorable than those provided to
any other senior executive officer of the Company; (V) any purported termination
of the Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 11(b), and, for purposes of
this Agreement, no such purported termination shall be effective.
(iv) Voluntary Resignation. Should the Executive wish to
resign from his position with the Company or terminate his employment for other
than Good Reason during the Term, the Executive shall give sixty (60) days
written notice to the Company, setting forth the reasons and specifying the date
as of which his resignation is to become effective.
(v) Change in Control. The Executive shall be entitled
to terminate his employment in the event of a Change in Control. For purposes of
this Agreement, a Change in Control of the Company shall have occurred if a
majority
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of the members of the Company Board are representatives or designees of any
"Person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) other than M.L.C. Partners Limited
Partnership, its former (other than Mr. Epstein) and present general or limited
partners, or any Person affiliated with any of the foregoing and their heirs; it
being understood that it shall not be deemed to be a Change in Control of the
Company if no Person shall have designated or nominated a majority of the
members of the Company Board.
(b) Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section 20. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(c) Date of Termination. "Date of Termination" shall mean (i)
if the Executive's employment is terminated because of death, the date of the
Executive's death, (ii) if the Executive's employment is terminated for
Disability, the date Notice of Termination is given, (iii) if the Executive's
employment is terminated pursuant to Subsection 11(a)(ii), (iii) or (iv) hereof
or for any other reason (other than death or Disability), the date specified in
the Notice of Termination (which, in the case of a termination for Good Reason
shall not be less than thirty (30) nor more than sixty (60) days from the date
such Notice of Termination is given, and in the case of a termination for any
other reason thirty (30) days (sixty (60) days in the case of a termination
under Section 11(a)(iv) hereof) from the date such Notice of Termination is
given.
(d) Outplacement Services. If, (i) prior to the expiration of
the Term, the Company terminates the Executive's employment in breach of this
Agreement or the Executive terminates his employment for Good Reason, or (ii)
subsequent to the expiration of the Term, the Company terminates the Executive's
employment in a manner that would have been in breach of this Agreement had the
Term not expired or the Executive terminates his employment on account of
actions that would have constituted Good Reason had the Term not expired, then
the Executive shall be entitled to the services of an outplacement firm for a
period of one (1) year following such termination, which outplacement firm shall
be selected by the executive and the reasonable fees and expenses for which
shall be paid by the Company.
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12. Compensation During Disability, Death or Upon Termination. (a)
During any period that the Executive fails to perform his duties hereunder as a
result of incapacity due to physical or mental illness, the Executive shall
continue to receive (i) his full salary at the rate then in effect until his
employment is terminated pursuant to Section 11(a)(i)(B) hereof and (ii) a pro
rata portion of his bonus that would have been payable pursuant to Section 7(b)
above with respect to the calendar year in which the termination pursuant to
Section 11(a)(i)(B) occurs; provided that such payments shall be reduced by the
sum of the amounts, if any, payable to the Executive with respect to such period
under disability benefit plans of the Company or under the Social Security
disability insurance program, and which amounts were not previously applied to
reduce any such payment.
(b) If the Executive's employment is terminated by his death
or Disability, the Company shall pay (i) any amounts due to the Executive under
Section 7 through the date of such termination (including a pro rata portion of
his bonus that would have been payable pursuant to Section 7(b) above with
respect to the calendar year in which the termination occurs) and (ii) all such
amounts that would have become due (and at the time such amounts would have
become due) to the Executive under Section 7 had the Executive's employment
hereunder continued until the last day of the calendar year in which such
termination of employment occurred, in each case in accordance with Section
14(b), if applicable.
(c) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive for other than Good Reason, the Company
shall pay the Executive his full salary and benefits through the Date of
Termination as in effect at the time Notice of Termination is given, and the
Company shall have no further obligations to the Executive under this Agreement.
(d) If (i) the Company shall terminate the Executive's
employment in breach of this Agreement, or (ii) the Executive shall terminate
his employment for Good Reason or (iii) the Company undergoes a Change in
Control resulting in the termination of Executive's employment, then
(A) the Company shall pay the Executive (x) his full
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, (y) all other unpaid amounts, if any, to which the
Executive is entitled as of the Date of Termination under any compensation plan
or program of the Company, at the time such payments are due and (z) a pro rata
portion of the bonus that would have been payable to the Executive pursuant to
Section 7(b) above with respect to the calendar year in which the Date of
Termination occurs had the
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Executive's employment not terminated, at the time such bonus would otherwise
have become payable; and
(B) for periods subsequent to the Date of
Termination, the Company will continue to pay, on a monthly basis, the
Executive's Base Salary for the longer of (i) the remainder of the Term as if
the Term had not been terminated or (ii) 1 year in the event of a termination
pursuant to Section 12(d)(i) or (ii), or 2 years in the event of a termination
pursuant to Section 12(d)(iii) (in any case, the applicable period, the
"Continuation Period"); and
(C) the Company shall (x) continue coverage for the
Executive under the Company's life insurance, medical, health, disability and
similar welfare benefit plans (or, if continued coverage is barred under such
plans, the Company shall provide to the Executive substantially similar
benefits) for the Continuation Period, and (y) provide the benefits which the
Executive would have been entitled to receive pursuant to any supplemental
retirement plan maintained by the Company had his employment continued at the
rate of compensation specified herein for the Continuation Period. Benefits
otherwise receivable by the Executive pursuant to clause (x) of this Subsection
12(d)(iii)(C) shall be reduced to the extent comparable benefits are actually
received by the Executive from a subsequent employer during the Continuation
Period, and the Executive shall report any such benefits actually received to
the Company.
(e) If the Executive shall terminate his employment under
clause (B) of subsection 11(a)(iii) hereof, the Company shall pay the Executive
(A) his full salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given and (B) a pro rata portion of the bonus that
would have been payable to the Executive pursuant to Section 7(b) above with
respect to the calendar year in which the Date of Termination occurs had the
Executive's employment not terminated.
13. Representations. (a) The Company represents and warrants
that this Agreement has been authorized by all necessary corporate action of the
Company and is a valid and binding agreement of the Company enforceable against
it in accordance with its terms.
(b) The Executive represents and warrants that he is not a
party to any agreement or instrument which would prevent him from entering into
or performing his duties in any way under this Agreement.
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14. Successors; Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
(b) This Agreement is a personal contract and the rights and
interests of the Executive hereunder may not be sold, transferred, assigned,
pledged, encumbered, or hypothecated by him, except as otherwise expressly
permitted by the provisions of this Agreement. This Agreement shall inure to the
benefit of and be enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisee and legatees. If the Executive should die while any amount would still
be payable to him hereunder had the Executive continued to live, all such
amounts, to the extent provided in paragraph 12(b), shall be paid in accordance
with the terms of this Agreement to his devisee, legatee or other designee or,
if there is no such designee, to his estate.
15. Confidentiality. The Executive covenants and agrees that he will
not at any time during and after the end of the Term, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation, other
than authorized officers, directors and employees of the Company or its
subsidiaries, Confidential Information (as hereinafter defined) of the Company.
As used herein, "Confidential Information" of the Company means information of
any kind, nature or description which is disclosed to or otherwise known to the
Executive as a direct or indirect consequence of his association with the
Company or its subsidiaries, which information is not generally known to the
public or to the businesses in which the Company or its subsidiaries are engaged
or which information relates to specific investment opportunities within the
scope of the Company's business which were considered by the Executive or the
Company during the term of this Agreement.
16. Noncompetition. (a) During his employment with the Company or any
of its affiliates, and for the longer of (i) a period of twenty-four (24) months
following the termination of his employment for any reason and (ii) the
Continuation Period, if applicable, (such applicable period, the "Noncompete
Period") the Executive shall not, directly or indirectly, enter the employ of,
or render any services to, any person, firm or corporation engaged in any
business which competes in the business conducted or engaged in by the Company
including but not limited to any business which provides products and services
to the school spirit industry (including, but not limited to design, marketing
or sales of cheerleader, dance team
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and booster club uniforms and accessories and design, operation or marketing of
cheerleader and dance team camps, clinics, competitions or tours); and the
Executive shall not become interested in any such business, directly or
indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship or
capacity; provided, however, that nothing contained in this Section 16 shall be
deemed to prohibit the Executive from acquiring, solely as an investment, up to
three percent (3%) of the outstanding shares of capital stock of any public
corporation; provided, further, however, that if the Company shall fail to pay
any compensation due to the Executive under Section 12 hereof, the Noncompete
Period shall terminate upon failure to cure such non-payment after 15 days'
notice.
17. Nonsolicitation. During the Noncompete Period, the Executive
shall not directly or indirectly, for his benefit or for the benefit of any
other person, firm or entity, do any of the following:
(a) solicit from any customer doing business with the Company
as of Executive's termination, business of the same or of a
similar nature to the business of the Company with such customer;
(b) solicit from any known potential customer of the Company
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer or proposal by the
Company, or of substantial preparation with a view to making such a
bid, proposal or offer, within six (6) months prior to Executive's
termination;
(c) solicit the employment or services of, or hire, any person
who upon the termination of Executive's employment, or within six
(6) months prior thereto, was known to be (i) employed by the Company
or (ii) a consultant to the Company with respect to the business
described in Section 16 hereof; or
(d) otherwise interfere with the business or accounts of the
Company in a manner which results in material harm (economic or
otherwise) to the Company or any of its affiliates.
18. Entire Agreement. This Agreement contains all the
understandings between the parties hereto pertaining to the matters referred to
herein, and supersedes all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto. The Executive
represents that, in
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executing this Agreement, he does not rely and has not relied upon any
representation or statement not set forth herein made by the Company with regard
to the subject matter, basis or effect of this Agreement or otherwise. The
Executive further agrees and represents that upon the Effective Time, all
promises, representations, understandings, arrangements and prior agreements,
including the Former Agreement, between the Executive and the Company or Varsity
Spirit are merged into, and are superseded by, this Agreement.
19. Amendment or Modification, Waiver. No provision of this Agreement
may be amended or waived unless such amendment or waiver is agreed to in
writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
20. Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Executive at:
1855 Wood Oak
Cordova, Tennessee 38015
To the Company at:
Riddell Sports Inc.
900 Third Avenue/27th Floor
New York, New York 10022
Attn: General Counsel
Any notice delivered personally or by courier under this Section 20 shall be
deemed given on the date delivered, and any notice sent by telecopy or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date telecopied or mailed.
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21. Severability. If any provision of this Agreement (including without
limitation Section 16) or the application of any such provision to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid and unenforceable to any extent, the remainder of this Agreement or the
application of such provision to such person or circumstances other than those
to which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision hereof shall be validated and shall be
enforced to the fullest extent permitted by law.
22. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
23. Governing Law; Specific Performance; Certain
Acknowledgements. (a) This Agreement will be governed by and construed in
accordance with the laws of the State of Tennessee, without regard to its
conflicts of laws principles.
(b) Executive acknowledges that the services to be rendered by
him to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in Sections 15, 16 and 17 hereof will cause the Company irreparable
injury. Executive therefore agrees that the Company shall be entitled, in
addition to any other right or remedy, to a temporary, preliminary and permanent
injunction, without the necessity of proving the inadequacy of monetary damages
or the posting of any bond or security, enjoining or restraining Executive from
any such violation or threatened violations.
(c) Executive further acknowledges and agrees that due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth in Sections 15, 16 and 17 are reasonable and
necessary for the protection of the business and goodwill of the Company.
24. No Set-Off: Mitigation. The Company's obligation to make the
payments provided in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, defense, or other
claim, right or action which the Company may have or may allege to have against
the Executive or others. The Executive shall have no duty to mitigate the
amount of any payment provided for in Section 12 herein by seeking other
employment, nor shall
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the amount of any payment provided for in this Agreement be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of termination of the Executive's employment with the
Company, or otherwise.
25. Arbitration. Any dispute arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee in
accordance with the rules of the American Arbitration Association then in
effect. Judgement may be entered on the arbitrator's award in any court having
jurisdiction. All costs and expenses of any such arbitration (including all
legal fees and expenses incurred by the Executive) shall be borne by the
Company; provided, however, that the legal fees and expenses incurred by the
Executive shall be borne by the Executive and not by the Company if such
arbitration results in a determination (a) in the case of a dispute with respect
to termination of the Executive's employment by the company for Cause or upon
Disability, that a proper basis for such termination did exist and appropriate
procedures were followed by the Company or (b) in the case of a dispute with
respect to termination of the Executive's employment for Good Reason, that a
proper basis for such termination did not exist and appropriate procedures were
followed by the Company or (c) in the case of any other dispute, that the
position taken by the Executive was incorrect.
26. Legal Fees. Subject to Section 25 hereof, the Company shall pay the
Executive all reasonable, documented legal and professional fees and expenses
incurred by the Executive in seeking to obtain or enforce any rights provided
for under this Agreement, provided that the Company shall not be required to pay
any such legal fees or expenses relating to obtaining or enforcing any rights if
the Company affords the Executive the rights under this Agreement within ten
days after notification from the Executive that the Company is in breach under
this Agreement. Any such notification shall set forth in reasonable detail the
rights to which the Executive believes he is entitled and the provision of this
Agreement under which he believes afford such rights.
27. Headings. All descriptive headings of sections and paragraphs
in this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
28. Withholdings. All payments to the Executive under this
Agreement shall be reduced by all applicable withholding required by federal,
state or local law.
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29. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
RIDDELL SPORTS INC.
By: /s/ David Mauer
Name: David Mauer
Title: Chief Executive Officer
/s/ Jeffrey G. Webb
Jeffrey G. Webb
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EMPLOYMENT AGREEMENT
AGREEMENT made as of May 5, 1997, by and between Riddell Sports Inc., a
Delaware corporation (the "Corporation"), and Gregory C. Webb (the "Executive").
WHEREAS, the Corporation, Cheer Acquisition Corp., a Tennessee
corporation and Varsity Spirit Corporation, a Tennessee corporation
(collectively with any successor to its business, "Varsity Spirit") have entered
into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May
5, 1997, pursuant to which, among other things, Varsity Spirit will become a
wholly owned subsidiary of the Corporation;
WHEREAS, the Executive is currently serving as Senior Vice President
and General Manager - UCA of Varsity Spirit pursuant to the Employment Agreement
dated as of September 29, 1989, as amended, between the Executive and Varsity
Spirit (the "Former Agreement"); and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
Varsity Spirit and the Corporation (collectively the "Company").
The parties hereto agree as follows:
1. Employment. This Agreement is for the two-year period (the
"Employment Period") commencing on the Effective Time (as defined in the Merger
Agreement) ("Effective Date") and terminating on the second anniversary of such
date or upon earlier termination of the Executive's employment; provided,
however, that if the Merger Agreement is terminated, then, at the time of such
termination, this Agreement shall be deemed cancelled and of no force and
effect.
(a) Salary, Bonus and Benefits. During the Employment Period and
subject to paragraph 1(d) hereof, the Company will pay Executive a base salary
("Base Salary") which shall be no lower than $125,000 per annum. Base Salary
will be paid in equal semi-monthly installments. The Base Salary shall be
subject to annual review and increase by an amount determined by the Board of
Directors of the Corporation (the "Board"), or an appropriate committee thereof,
in its sole discretion, after taking into
<PAGE>
consideration the Executive's performance, the Company's performance, increases
in the cost of living, and such other factors as the Board or such committee
deems relevant. Within 90 days from the end of each of the Company's fiscal
years during the Employment Period, Executive shall be eligible to receive a
bonus determined in the sole discretion of the Board or an appropriate committee
thereof. Executive's Base Salary for any partial year will be prorated based
upon the number of days elapsed in such year.
(b) Additional Benefits. In addition to the salary and any bonus
payable to Executive pursuant to paragraph 1(a), Executive will be entitled
during the Employment Period to such health insurance, life insurance and such
other employment related benefits as the Board, or an appropriate committee
thereof, shall establish from time to time for its key management personnel.
During the Employment Period, the Executive will be entitled to no fewer than
three weeks of vacation per year.
(c) Services. During the Employment Period, Executive will serve as
Senior Vice President and General Manager - UCA of Varsity Spirit and will
render such services of an executive and administrative character to Varsity
Spirit and its subsidiaries as the Board may from time to time direct. Executive
will devote substantially all of his business time and attention (except for
vacation periods and reasonable periods of illness or other incapacity) to the
business of Varsity Spirit and its subsidiaries as shall be necessary for him to
carry out his obligations hereunder.
(d) Place of Performance. The Executive shall perform his duties and
conduct his business at the principal offices of Varsity Spirit in Memphis,
Tennessee except for required travel on Varsity Spirit or the Company's
business.
(e) Termination; Severance Pay. The Employment Period will terminate
upon the first to occur of the following events:
(i) the effective date of Executive's resignation, for
which Executive agrees to give at least 90 days' prior written notice
to the Board;
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(ii) Executive's death;
(iii) if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been unable to
perform the essential duties of his position despite the provision of
reasonable accommodations for any six (6) months (whether or not
consecutive) during any twelve (12) month period ("Disability");
(iv) Executive's termination for Cause (as
hereinafter defined); or
(v) the determination by the Board that
Executive's continued employment is not in the best
interests of the Company.
In the event that Executive's employment hereunder shall be terminated for any
reason other than the Executive's resignation, death, Disability, or termination
for Cause, the Company shall pay severance pay to the Executive by continuing
the Base Salary in effect at the time of such termination for the period from
the date of such termination until six months thereafter. For purposes of this
Agreement, "Cause" shall mean the willful or intentional failure of Executive to
observe the terms of this Agreement or the reasonable directions given to him by
the Company or Executive's willful misconduct or conviction of a felony or any
other crime involving fraud, theft or dishonesty.
2. Inducement for Employment. (a) As an inducement for the Executive's
entering into this Agreement and undertaking to perform the services referred to
in this Agreement, on the later of (i) Effective Date and (ii) the Company's
1997 Annual Meeting of Shareholders (such applicable date, the "Grant Date"),
the Company shall grant to the Executive a non-qualified option (the "Option")
to purchase 20,000 shares of the common stock, $0.01 par value ("Common Stock")
of the Company, which grant may, at the Company's election, be pursuant to the
Corporation's 1997 Stock Option Plan (the "Plan"), in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Option
shall be equal to the average closing price of a share of Common Stock over the
ten (10) consecutive trading days ending on the date immediately prior to the
Grant Date. If the
3
<PAGE>
shareholders fail to approve the Plan, the Executive and the Company shall
discuss, in good faith, alternative mechanisms to provide the Executive with the
economic equivalent of the Option.
(b) The Option shall become exercisable as to 1/3 of the
shares originally covered by such Option upon the first anniversary of the Grant
Date and as to an additional 1/3 of the shares originally covered by such Option
on each of the second and third anniversaries of the Grant Date, subject to the
acceleration of vesting provisions contained in Section 2(c) hereof.
(c) The Option shall expire on the earlier of the tenth
anniversary of the Grant Date or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason and may be exercised (to the
extent it has vested), at any time prior to such expiration; provided, however,
that if, (i) prior to the expiration of the Employment Period, the Company
terminates the Executive's employment without Cause or (ii) subsequent to the
expiration of the Employment Period, the Company terminates the Executive's
employment in a manner that would have been a termination without Cause had the
Employment Period not expired, then the Option shall become fully vested and
exercisable and shall remain exercisable for a period of one year following such
termination of employment; and, provided further that if the Executive's
employment is terminated on account of his death or Disability, then upon such
termination the Option shall become fully vested and exercisable and shall
remain exercisable for a period of one year following such termination of
employment. The Option shall become fully vested and exercisable upon the
occurrence of a Change in Control (defined below). For purposes of this
Agreement, a Change in Control shall have occurred if a majority of the members
of the Board are representatives or designees of any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than M.L.C. Partners Limited Partnership, its former (other than
Mr. Epstein) and present general or limited partners, or any Person affiliated
with any of the foregoing and their heirs; it being understood that it shall not
be deemed a Change in Control if no Person shall have designated or nominated a
majority of the members of the Board.
4
<PAGE>
(d) As a further inducement for the Executive's entering into
this Agreement and undertaking to perform the services referred to in this
Agreement, the Company shall grant, within thirty days immediately following the
Effective Date, to the Executive a non-qualified option (the "Special Option")
to purchase 45,000 shares of Common Stock of the Company, which grant may, at
the Company's election be pursuant to the Plan, in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Special
Option shall be equal to the lower of (i) the average closing price of a share
of Common Stock over the ten (10) consecutive trading days ending on the date
immediately prior to the Effective Date and (ii) $3.80. If the shareholders fail
to approve the Plan, the Executive and the Company shall discuss, in good faith,
alternative mechanisms to provide the Executive with the economic equivalent of
the Special Option. The Special Option shall be fully vested as of the date of
grant and shall become exercisable as of the date of shareholder approval of the
Plan. The Special Option shall expire on the tenth anniversary of the date of
grant.
3. Confidentiality. The Executive covenants and agrees that he will not
at any time during and after the end of the Employment Period, directly or
indirectly, use for his own account, or disclose to any person, firm or
corporation, other than authorized officers, directors and employees of the
Company or its subsidiaries, Confidential Information (as hereinafter defined)
of the Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of his
association with the Company or its subsidiaries, which information is not
generally known to the public or to the businesses in which the Company or its
subsidiaries are engaged or which information relates to specific investment
opportunities within the scope of the Company's business which were considered
by the Executive or the Company during the Employment Period.
4. Noncompetition. (a) During his employment with the Company or
any of its affiliates, and for a period of twenty-four (24) months following the
termination of his employment for any reason (the "Noncompete Period") the
Executive shall not, directly or indirectly, enter the
5
<PAGE>
employ of, or render any services to, any person, firm or corporation engaged in
any business which competes in the business conducted or engaged in by the
Company including but not limited to any business which provides products and
services to the school spirit industry (including, but not limited to design,
marketing or sales of cheerleader, dance team and booster club uniforms and
accessories and design, operation or marketing of cheerleader and dance team
camps, clinics, competitions or tours); and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity; provided, however, that
nothing contained in this Section 4 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to three percent (3%) of the
outstanding shares of capital stock of any public corporation; provided,
further, however, that if the Company shall fail to pay any compensation due to
the Executive under Section 1(e) hereof, the Noncompete Period shall terminate
upon failure to cure such non-payment after 15 days' notice.
5. Nonsolicitation. During the Noncompete Period, the
Executive shall not directly or indirectly, for his benefit or for the benefit
of any other person, firm or entity, do any of the following:
(a) solicit from any customer doing business with the Company
as of Executive's termination, business of the same or of a similar
nature to the business of the Company with such customer;
(b) solicit from any known potential customer of the Company
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer or proposal by the
Company, or of substantial preparation with a view to making such a
bid, proposal or offer, within six (6) months prior to Executive's
termination;
(c) solicit the employment or services of, or hire, any person
who upon the termination of Executive's employment, or within six
(6) months prior thereto, was known to be (i) employed by the Company
or (ii) a consultant to the Company with
6
<PAGE>
respect to the business described in Section 4 hereof; or
(d) otherwise interfere with the business or accounts of the
Company in a manner which results in material harm (economic or
otherwise) to the Company or any of its affiliates.
6. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, or mailed by first class mail,
to the recipient at the address below indicated:
To the Company at: Riddell Sports Inc.
900 Third Avenue/27th Floor
New York, New York 10022
Attn: General Counsel
To Executive: Gregory C. Webb
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, TN 38133
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
7. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
8. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties hereto and supersede and preempt
any prior understandings, agreements or representations by or between the
parties hereto, written
7
<PAGE>
or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Former Agreement).
9. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
10. Successors and Assignability. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and his heirs,
executors or administrators, and to bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns. This Agreement shall
not be assignable by Executive.
11. Governing Law; Specific Performance; Certain
Acknowledgements. (a) This Agreement will be governed by and construed in
accordance with the laws of the State of Tennessee, without regard to its
conflicts of laws principles.
(b) Executive acknowledges that the services to be rendered by
him to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in Sections 3, 4 and 5 hereof will cause the Company irreparable
injury. Executive therefore agrees that the Company shall be entitled, in
addition to any other right or remedy, to a temporary, preliminary and permanent
injunction, without the necessity of proving the inadequacy of monetary damages
or the posting of any bond or security, enjoining or restraining Executive from
any such violation or threatened violations.
(c) Executive further acknowledges and agrees that due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth in Sections 3, 4 and 5 are reasonable and
necessary for the protection of the business and goodwill of the Company.
8
<PAGE>
12. No Set-Off: Mitigation. The Company's obligation to make the
payments provided in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, defense, or other
claim, right or action which the Company may have or may allege to have against
the Executive or others. The Executive shall have no duty to mitigate the amount
of any payment provided for in Section 1(e) herein by seeking other employment,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the date of termination of the Executive's employment with the
Company, or otherwise.
13. Arbitration. Any dispute arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
in accordance with the rules of the American Arbitration Association then in
effect. Judgement may be entered on the arbitrator's award in any court having
jurisdiction. All costs and expenses of any such arbitration (including all
legal fees and expenses incurred by the Executive) shall be borne by the
Company; provided, however, that the legal fees and expenses incurred by the
Executive shall be borne by the Executive and not by the Company if such
arbitration results in a determination (a) in the case of a dispute with respect
to termination of the Executive's employment by the company for Cause or upon
Disability, that a proper basis for such termination did exist or (b) in the
case of any other dispute, that the position taken by the Executive was
incorrect.
14. Amendments and Waivers. Any provision of this Agreement may
be amended or waived only with the prior written consent of the Corporation and
Executive.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
RIDDELL SPORTS INC.
By: /s/ David Mauer
-------------------
Name: David Mauer
Title: Chief Executive Officer
/s/ Gregory C. Webb
----------------------
Gregory C. Webb
10
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 5, 1997, by and between Riddell Sports Inc., a
Delaware corporation (the "Corporation"), and W. Kline Boyd (the "Executive").
WHEREAS, the Corporation, Cheer Acquisition Corp., a Tennessee
corporation and Varsity Spirit Corporation, a Tennessee corporation
(collectively with any successor to its business, "Varsity Spirit") have entered
into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May
5, 1997, pursuant to which, among other things, Varsity Spirit will become a
wholly owned subsidiary of the Corporation;
WHEREAS, the Executive is currently serving as Senior Vice President
and General Manager - Varsity Spirit Fashions of Varsity Spirit pursuant to the
Employment Agreement dated as of September 29, 1989, as amended, between the
Executive and Varsity Spirit (the "Former Agreement"); and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
Varsity Spirit and the Corporation (collectively the "Company").
The parties hereto agree as follows:
1. Employment. This Agreement is for the two-year period (the
"Employment Period") commencing on the Effective Time (as defined in the Merger
Agreement) ("Effective Date") and terminating on the second anniversary of such
date or upon earlier termination of the Executive's employment; provided,
however, that if the Merger Agreement is terminated, then, at the time of such
termination, this Agreement shall be deemed cancelled and of no force and
effect.
(a) Salary, Bonus and Benefits. During the Employment Period and
subject to paragraph 1(d) hereof, the Company will pay Executive a base salary
("Base Salary") which shall be no lower than $125,000 per annum. Base Salary
will be paid in equal semi-monthly installments. The Base Salary shall be
subject to annual review and increase by an amount determined by the Board of
Directors of the Corporation (the "Board"), or an appropriate com-
<PAGE>
mittee thereof, in its sole discretion, after taking into consideration the
Executive's performance, the Company's performance, increases in the cost of
living, and such other factors as the Board or such committee deems relevant.
Within 90 days from the end of each of the Company's fiscal years during the
Employment Period, Executive shall be eligible to receive a bonus determined in
the sole discretion of the Board or an appropriate committee thereof.
Executive's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year.
(b) Additional Benefits. In addition to the salary and any bonus
payable to Executive pursuant to paragraph 1(a), Executive will be entitled
during the Employment Period to such health insurance, life insurance and such
other employment related benefits as the Board, or an appropriate committee
thereof, shall establish from time to time for its key management personnel.
During the Employment Period, the Executive will be entitled to no fewer than
three weeks of vacation per year.
(c) Services. During the Employment Period, Executive will serve as
Senior Vice President and General Manager - Varsity Spirit Fashions of Varsity
Spirit and will render such services of an executive and administrative
character to Varsity Spirit and its subsidiaries as the Board may from time to
time direct. Executive will devote substantially all of his business time and
attention (except for vacation periods and reasonable periods of illness or
other incapacity) to the business of Varsity Spirit and its subsidiaries as
shall be necessary for him to carry out his obligations hereunder.
(d) Place of Performance. The Executive shall perform his duties and
conduct his business at the principal offices of Varsity Spirit in Memphis,
Tennessee except for required travel on Varsity Spirit or the Company's
business.
(e) Termination; Severance Pay. The Employment Period will
terminate upon the first to occur of the following events:
(i) the effective date of Executive's resignation, for
which Executive agrees to give at least 90 days' prior written notice
to the Board;
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<PAGE>
(ii) Executive's death;
(iii) if, as a result of the Executive's inca-pacity due
to physical or mental illness, the Executive shall have been unable to
perform the essential duties of his position despite the provision of
reasonable accommodations for any six (6) months (whether or not
consecutive) during any twelve (12) month period ("Disability");
(iv) Executive's termination for Cause (as
hereinafter defined); or
(v) the determination by the Board that
Executive's continued employment is not in the best
interests of the Company.
In the event that Executive's employment hereunder shall be terminated for any
reason other than the Executive's resignation, death, Disability, or termination
for Cause, the Company shall pay severance pay to the Executive by continuing
the Base Salary in effect at the time of such termination for the period from
the date of such termination until six months thereafter. For purposes of this
Agreement, "Cause" shall mean the willful or intentional failure of Executive to
observe the terms of this Agreement or the reasonable directions given to him by
the Company or Executive's willful misconduct or conviction of a felony or any
other crime involving fraud, theft or dishonesty.
2. Inducement for Employment. (a) As an inducement for the Executive's
entering into this Agreement and undertaking to perform the services referred to
in this Agreement, on the later of (i) Effective Date and (ii) the Company's
1997 Annual Meeting of Shareholders (such applicable date, the "Grant Date"),
the Company shall grant to the Executive a non-qualified option (the "Option")
to purchase 30,000 shares of the common stock, $0.01 par value ("Common Stock")
of the Company, which grant may, at the Company's election, be pursuant to the
Corporation's 1997 Stock Option Plan (the "Plan"), in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Option
shall be equal to the average closing price of a share of Common Stock over the
ten (10) consecutive trading days ending on the date immediately prior to the
Grant Date. If the
3
<PAGE>
shareholders fail to approve the Plan, the Executive and the Company shall
discuss, in good faith, alternative mechanisms to provide the Executive with the
economic equivalent of the Option.
(b) The Option shall become exercisable as to 1/3 of the
shares originally covered by such Option upon the first anniversary of the Grant
Date and as to an additional 1/3 of the shares originally covered by such Option
on each of the second and third anniversaries of the Grant Date, subject to the
acceleration of vesting provisions contained in Section 2(c) hereof.
(c) The Option shall expire on the earlier of the tenth
anniversary of the Grant Date or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason and may be exercised (to the
extent it has vested), at any time prior to such expiration; provided, however,
that if, (i) prior to the expiration of the Employment Period, the Company
terminates the Executive's employment without Cause or (ii) subsequent to the
expiration of the Employment Period, the Company terminates the Executive's
employment in a manner that would have been a termination without Cause had the
Employment Period not expired, then the Option shall become fully vested and
exercisable and shall remain exercisable for a period of one year following such
termination of employment; and, provided further that if the Executive's
employment is terminated on account of his death or Disability, then upon such
termination the Option shall become fully vested and exercisable and shall
remain exercisable for a period of one year following such termination of
employment. The Option shall become fully vested and exercisable upon the
occurrence of a Change in Control (defined below). For purposes of this
Agreement, a Change in Control shall have occurred if a majority of the members
of the Board are representatives or designees of any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than M.L.C. Partners Limited Partnership, its former (other than
Mr. Epstein) and present general or limited partners, or any Person affiliated
with any of the foregoing and their heirs; it being understood that it shall not
be deemed a Change in Control if no Person shall have designated or nominated a
majority of the members of the Board.
4
<PAGE>
(d) As a further inducement for the Executive's entering into
this Agreement and undertaking to perform the services referred to in this
Agreement, the Company shall grant, within thirty days immediately following the
Effective Date, to the Executive a non-qualified option (the "Special Option")
to purchase 36,990 shares of Common Stock of the Company, which grant may, at
the Company's election be pursuant to the Plan, in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Special
Option shall be equal to the lower of (i) the average closing price of a share
of Common Stock over the ten (10) consecutive trading days ending on the date
immediately prior to the Effective Date and (ii) $3.80. If the shareholders fail
to approve the Plan, the Executive and the Company shall discuss, in good faith,
alternative mechanisms to provide the Executive with the economic equivalent of
the Special Option. The Special Option shall be fully vested as of the date of
grant and shall become exercisable as of the date of shareholder approval of the
Plan. The Special Option shall expire on the tenth anniversary of the date of
grant.
3. Confidentiality. The Executive covenants and agrees that he will not
at any time during and after the end of the Employment Period, directly or
indirectly, use for his own account, or disclose to any person, firm or
corporation, other than authorized officers, directors and employees of the
Company or its subsidiaries, Confidential Information (as hereinafter defined)
of the Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of his
association with the Company or its subsidiaries, which information is not
generally known to the public or to the businesses in which the Company or its
subsidiaries are engaged or which information relates to specific investment
opportunities within the scope of the Company's business which were considered
by the Executive or the Company during the Employment Period.
4. Noncompetition. (a) During his employment with the Company or
any of its affiliates, and for a period of twenty-four (24) months following the
termination of his employment for any reason (the "Noncompete Period") the
Executive shall not, directly or indirectly, enter the
5
<PAGE>
employ of, or render any services to, any person, firm or corporation engaged in
any business which competes in the business conducted or engaged in by the
Company including but not limited to any business which provides products and
services to the school spirit industry (including, but not limited to design,
marketing or sales of cheerleader, dance team and booster club uniforms and
accessories and design, operation or marketing of cheerleader and dance team
camps, clinics, competitions or tours); and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity; provided, however, that
nothing contained in this Section 4 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to three percent (3%) of the
outstanding shares of capital stock of any public corporation; provided,
further, however, that if the Company shall fail to pay any compensation due to
the Executive under Section 1(e) hereof, the Noncompete Period shall terminate
upon failure to cure such non-payment after 15 days' notice.
5. Nonsolicitation. During the Noncompete Period, the Executive
shall not directly or indirectly, for his benefit or for the benefit of any
other person, firm or entity, do any of the following:
(a) solicit from any customer doing business with the Company
as of Executive's termination, business of the same or of a
similar nature to the business of the Company with such customer;
(b) solicit from any known potential customer of the Company
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer or proposal by the
Company, or of substantial preparation with a view to making such a
bid, proposal or offer, within six (6) months prior to Executive's
termination;
(c) solicit the employment or services of, or hire, any person
who upon the termination of Executive's employment, or within six
(6) months prior thereto, was known to be (i) employed by the Company
or (ii) a consultant to the Company with
6
<PAGE>
respect to the business described in Section 4 hereof; or
(d) otherwise interfere with the business or accounts of the
Company in a manner which results in material harm (economic or
otherwise) to the Company or any of its affiliates.
6. Notices. Any notice provided for in this
Agreement must be in writing and must be either personally delivered, or mailed
by first class mail, to the recipient at the address below indicated:
To the Company at: Riddell Sports Inc.
900 Third Avenue/27th Floor
New York, New York 10022
Attn: General Counsel
To Executive: W. Kline Boyd
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, TN 38133
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
7. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
8. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties hereto and supersede and preempt
any prior understandings, agreements or representations by or between the
parties hereto, written
7
<PAGE>
or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Former Agreement).
9. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
10. Successors and Assignability. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and his heirs,
executors or administrators, and to bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns. This Agreement shall
not be assignable by Executive.
11. Governing Law; Specific Performance; Certain
Acknowledgements. (a) This Agreement will be governed by and construed in
accordance with the laws of the State of Tennessee, without regard to its
conflicts of laws principles.
(b) Executive acknowledges that the services to be rendered by
him to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in Sections 3, 4 and 5 hereof will cause the Company irreparable
injury. Executive therefore agrees that the Company shall be entitled, in
addition to any other right or remedy, to a temporary, preliminary and permanent
injunction, without the necessity of proving the inadequacy of monetary damages
or the posting of any bond or security, enjoining or restraining Executive from
any such violation or threatened violations.
(c) Executive further acknowledges and agrees that due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth in Sections 3, 4 and 5 are reasonable and
necessary for the protection of the business and goodwill of the Company.
8
<PAGE>
12. No Set-Off: Mitigation. The Company's obligation to make the
payments provided in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, defense, or other
claim, right or action which the Company may have or may allege to have against
the Executive or others. The Executive shall have no duty to mitigate the amount
of any payment provided for in Section 1(e) herein by seeking other employment,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the date of termination of the Executive's employment with the
Company, or otherwise.
13. Arbitration. Any dispute arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee in
accordance with the rules of the American Arbitration Association then in
effect. Judgement may be entered on the arbitrator's award in any court having
jurisdiction. All costs and expenses of any such arbitration (including all
legal fees and expenses incurred by the Executive) shall be borne by the
Company; provided, however, that the legal fees and expenses incurred by the
Executive shall be borne by the Executive and not by the Company if such
arbitration results in a determination (a) in the case of a dispute with respect
to termination of the Executive's employment by the company for Cause or upon
Disability, that a proper basis for such termination did exist or (b) in the
case of any other dispute, that the position taken by the Executive was
incorrect.
14. Amendments and Waivers. Any provision of this Agreement may
be amended or waived only with the prior written consent of the Corporation and
Executive.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
RIDDELL SPORTS INC.
By: /s/ David Mauer
Name: David Mauer
Title: Chief Executive Officer
/s/ W. Kline Boyd
W. Kline Boyd
10
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 5, 1997, by and between Riddell Sports Inc., a
Delaware corporation (the "Corporation"), and J. Kristyn Shepherd (the
"Executive").
WHEREAS, the Corporation, Cheer Acquisition Corp., a Tennessee
corporation and Varsity Spirit Corporation, a Tennessee corporation
(collectively with any successor to its business, "Varsity Spirit") have entered
into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May
5, 1997, pursuant to which, among other things, Varsity Spirit will become a
wholly owned subsidiary of the Corporation;
WHEREAS, the Executive is currently serving as Senior Vice President -
UCA of Varsity Spirit pursuant to the Employment Agreement dated as of September
29, 1989, as amended, between the Executive and Varsity Spirit (the "Former
Agreement"); and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
Varsity Spirit and the Corporation (collectively the "Company").
The parties hereto agree as follows:
1. Employment. This Agreement is for the two-year period (the
"Employment Period") commencing on the Effective Time (as defined in the Merger
Agreement) ("Effective Date") and terminating on the second anniversary of such
date or upon earlier termination of the Executive's employment; provided,
however, that if the Merger Agreement is terminated, then, at the time of such
termination, this Agreement shall be deemed cancelled and of no force and
effect.
(a) Salary, Bonus and Benefits. During the Employment Period and
subject to paragraph 1(d) hereof, the Company will pay Executive a base salary
("Base Salary") which shall be no lower than $115,000 per annum. Base Salary
will be paid in equal semi-monthly installments. The Base Salary shall be
subject to annual review and increase by an amount determined by the Board of
Directors of the Corporation (the "Board"), or an appropriate committee thereof,
in its sole discretion, after taking into
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consideration the Executive's performance, the Company's performance, increases
in the cost of living, and such other factors as the Board or such committee
deems relevant. Within 90 days from the end of each of the Company's fiscal
years during the Employment Period, Executive shall be eligible to receive a
bonus determined in the sole discretion of the Board or an appropriate committee
thereof. Executive's Base Salary for any partial year will be prorated based
upon the number of days elapsed in such year.
(b) Additional Benefits. In addition to the salary and any bonus
payable to Executive pursuant to paragraph 1(a), Executive will be entitled
during the Employment Period to such health insurance, life insurance and such
other employment related benefits as the Board, or an appropriate committee
thereof, shall establish from time to time for its key management personnel.
During the Employment Period, the Executive will be entitled to no fewer than
three weeks of vacation per year.
(c) Services. During the Employment Period, Executive will serve as
Senior Vice President - UCA of Varsity Spirit and will render such services of
an executive and administrative character to Varsity Spirit and its subsidiaries
as the Board may from time to time direct. Executive will devote substantially
all of her business time and attention (except for vacation periods and
reasonable periods of illness or other incapacity) to the business of Varsity
Spirit and its subsidiaries as shall be necessary for her to carry out her
obligations hereunder.
(d) Place of Performance. The Executive shall perform her duties and
conduct her business at the principal offices of Varsity Spirit in Memphis,
Tennessee except for required travel on Varsity Spirit or the Company's
business.
(e) Termination; Severance Pay. The Employment Period will terminate
upon the first to occur of the following events:
(i) the effective date of Executive's resignation, for
which Executive agrees to give at least 90 days' prior written notice
to the Board;
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(ii) Executive's death;
(iii) if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been unable to
perform the essential duties of her position despite the provision of
reasonable accommodations for any six (6) months (whether or not
consecutive) during any twelve (12) month period ("Disability");
(iv) Executive's termination for Cause (as
hereinafter defined); or
(v) the determination by the Board that
Executive's continued employment is not in the best
interests of the Company.
In the event that Executive's employment hereunder shall be terminated for any
reason other than the Executive's resignation, death, Disability, or termination
for Cause, the Company shall pay severance pay to the Executive by continuing
the Base Salary in effect at the time of such termination for the period from
the date of such termination until six months thereafter. For purposes of this
Agreement, "Cause" shall mean the willful or intentional failure of Executive to
observe the terms of this Agreement or the reasonable directions given to her by
the Company or Executive's willful misconduct or conviction of a felony or any
other crime involving fraud, theft or dishonesty.
2. Inducement for Employment. (a) As an inducement for the Executive's
entering into this Agreement and undertaking to perform the services referred to
in this Agreement, on the later of (i) Effective Date and (ii) the Company's
1997 Annual Meeting of Shareholders (such applicable date, the "Grant Date"),
the Company shall grant to the Executive a non-qualified option (the "Option")
to purchase 20,000 shares of the common stock, $0.01 par value ("Common Stock")
of the Company, which grant may, at the Company's election, be pursuant to the
Corporation's 1997 Stock Option Plan (the "Plan"), in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Option
shall be equal to the average closing price of a share of Common Stock over the
ten (10) consecutive trading days ending on the date immediately prior to the
Grant Date. If the
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shareholders fail to approve the Plan, the Executive and the Company shall
discuss, in good faith, alternative mechanisms to provide the Executive with the
economic equivalent of the Option.
(b) The Option shall become exercisable as to 1/3 of the
shares originally covered by such Option upon the first anniversary of the Grant
Date and as to an additional 1/3 of the shares originally covered by such Option
on each of the second and third anniversaries of the Grant Date, subject to the
acceleration of vesting provisions contained in Section 2(c) hereof.
(c) The Option shall expire on the earlier of the tenth
anniversary of the Grant Date or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason and may be exercised (to the
extent it has vested), at any time prior to such expiration; provided, however,
that if, (i) prior to the expiration of the Employment Period, the Company
terminates the Executive's employment without Cause or (ii) subsequent to the
expiration of the Employment Period, the Company terminates the Executive's
employment in a manner that would have been a termination without Cause had the
Employment Period not expired, then the Option shall become fully vested and
exercisable and shall remain exercisable for a period of one year following such
termination of employment; and, provided further that if the Executive's
employment is terminated on account of her death or Disability, then upon such
termination the Option shall become fully vested and exercisable and shall
remain exercisable for a period of one year following such termination of
employment. The Option shall become fully vested and exercisable upon the
occurrence of a Change in Control (defined below). For purposes of this
Agreement, a Change in Control shall have occurred if a majority of the members
of the Board are representatives or designees of any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than M.L.C. Partners Limited Partnership, its former (other than
Mr. Epstein) and present general or limited partners, or any Person affiliated
with any of the foregoing and their heirs; it being understood that it shall not
be deemed a Change in Control if no Person shall have designated or nominated a
majority of the members of the Board.
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(d) As a further inducement for the Executive's entering into
this Agreement and undertaking to perform the services referred to in this
Agreement, the Company shall grant, within thirty days immediately following the
Effective Date, to the Executive a non-qualified option (the "Special Option")
to purchase 20,250 shares of Common Stock of the Company, which grant may, at
the Company's election be pursuant to the Plan, in which case it shall be
subject to shareholder approval of the Plan. The exercise price of the Special
Option shall be equal to the lower of (i) the average closing price of a share
of Common Stock over the ten (10) consecutive trading days ending on the date
immediately prior to the Effective Date and (ii) $3.80. If the shareholders fail
to approve the Plan, the Executive and the Company shall discuss, in good faith,
alternative mechanisms to provide the Executive with the economic equivalent of
the Special Option. The Special Option shall be fully vested as of the date of
grant and shall become exercisable as of the date of shareholder approval of the
Plan. The Special Option shall expire on the tenth anniversary of the date of
grant.
3. Confidentiality. The Executive covenants and agrees that she will
not at any time during and after the end of the Employment Period, directly or
indirectly, use for her own account, or disclose to any person, firm or
corporation, other than authorized officers, directors and employees of the
Company or its subsidiaries, Confidential Information (as hereinafter defined)
of the Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of her
association with the Company or its subsidiaries, which information is not
generally known to the public or to the businesses in which the Company or its
subsidiaries are engaged or which information relates to specific investment
opportunities within the scope of the Company's business which were considered
by the Executive or the Company during the Employment Period.
4. Noncompetition. (a) During her employment with the Company
or any of its affiliates, and for a period of twenty-four (24) months
following the termination of her employment for any reason (the "Noncompete
Period") the Executive shall not, directly or indirectly, enter the
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employ of, or render any services to, any person, firm or corporation engaged in
any business which competes in the business conducted or engaged in by the
Company including but not limited to any business which provides products and
services to the school spirit industry (including, but not limited to design,
marketing or sales of cheerleader, dance team and booster club uniforms and
accessories and design, operation or marketing of cheerleader and dance team
camps, clinics, competitions or tours); and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity; provided, however, that
nothing contained in this Section 4 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to three percent (3%) of the
outstanding shares of capital stock of any public corporation; provided,
further, however, that if the Company shall fail to pay any compensation due to
the Executive under Section 1(e) hereof, the Noncompete Period shall terminate
upon failure to cure such non-payment after 15 days' notice.
5. Nonsolicitation. During the Noncompete Period, the Executive shall
not directly or indirectly, for her benefit or for the benefit of any other
person, firm or entity, do any of the following:
(a) solicit from any customer doing business with the Company
as of Executive's termination, business of the same or of a
similar nature to the business of the Company with such customer;
(b) solicit from any known potential customer of the Company
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer or proposal by the
Company, or of substantial preparation with a view to making such a
bid, proposal or offer, within six (6) months prior to Executive's
termination;
(c) solicit the employment or services of, or hire, any person
who upon the termination of Executive's employment, or within six
(6) months prior thereto, was known to be (i) employed by the Company
or (ii) a consultant to the Company with
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respect to the business described in Section 4 hereof; or
(d) otherwise interfere with the business or accounts of the
Company in a manner which results in material harm (economic or
otherwise) to the Company or any of its affiliates.
6. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, or mailed by first class
mail, to the recipient at the address below indicated:
To the Company at: Riddell Sports Inc.
900 Third Avenue/27th Floor
New York, New York 10022
Attn: General Counsel
To Executive: J. Kristin Shepherd
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, TN 38133
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
7. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
8. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties hereto and supersede and
preempt any prior understandings, agreements or representations by or between
the parties hereto, written
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or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Former Agreement).
9. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same agreement.
10. Successors and Assignability. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and her
heirs, executors or administrators, and to bind and inure to the benefit of and
be enforceable by the Company and its successors and assigns. This Agreement
shall not be assignable by Executive.
11. Governing Law; Specific Performance; Certain Acknowledgements. (a)
This Agreement will be governed by and construed in accordance with the laws of
the State of Tennessee, without regard to its conflicts of laws principles.
(b) Executive acknowledges that the services to be rendered by
her to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by her of any of the provisions
contained in Sections 3, 4 and 5 hereof will cause the Company irreparable
injury. Executive therefore agrees that the Company shall be entitled, in
addition to any other right or remedy, to a temporary, preliminary and permanent
injunction, without the necessity of proving the inadequacy of monetary damages
or the posting of any bond or security, enjoining or restraining Executive from
any such violation or threatened violations.
(c) Executive further acknowledges and agrees that due to the
uniqueness of her services and confidential nature of the information she will
possess, the covenants set forth in Sections 3, 4 and 5 are reasonable and
necessary for the protection of the business and goodwill of the Company.
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12. No Set-Off: Mitigation. The Company's obligation to make the
payments provided in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, defense, or other
claim, right or action which the Company may have or may allege to have against
the Executive or others. The Executive shall have no duty to mitigate the amount
of any payment provided for in Section 1(e) herein by seeking other employment,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the date of termination of the Executive's employment with the
Company, or otherwise.
13. Arbitration. Any dispute arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee in
accordance with the rules of the American Arbitration Association then in
effect. Judgement may be entered on the arbitrator's award in any court having
jurisdiction. All costs and expenses of any such arbitration (including all
legal fees and expenses incurred by the Executive) shall be borne by the
Company; provided, however, that the legal fees and expenses incurred by the
Executive shall be borne by the Executive and not by the Company if such
arbitration results in a determination (a) in the case of a dispute with respect
to termination of the Executive's employment by the company for Cause or upon
Disability, that a proper basis for such termination did exist or (b) in the
case of any other dispute, that the position taken by the Executive was
incorrect.
14. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Corporation and
Executive.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
RIDDELL SPORTS INC.
By: /s/ David Mauer
Name: David Mauer
Title: Chief Executive Officer
/s/ J. Kristyn Shepherd
J. Kristyn Shepherd
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