<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
REGISTRATION STATEMENT NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RIDDELL SPORTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3949 22-2890400
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OF INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
------------------------
RIDDELL SPORTS INC.
900 THIRD AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10022
(212) 826-4300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
LISA J. MARRONI
RIDDELL SPORTS INC.
900 THIRD AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10022
(212) 826-4300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
SHELDON S. ADLER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME OF ADDITIONAL REGISTRANTS* INCORPORATION NUMBER NUMBER
- --------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
ALL AMERICAN SPORTS CORPORATION DELAWARE 3949 34-1688715
CHEER ACQUISITION CORP. TENNESSEE 3949 --**
EQUILINK LICENSING CORPORATION DELAWARE 3949 51-0342202
PROACQ CORP. DELAWARE 3949 34-1688714
RHC LICENSING CORPORATION DELAWARE 3949 51-0342201
RIDDELL, INC. ILLINOIS 3949 36-3581631
RIDMARK CORPORATION DELAWARE 3949 22-2908352
INTERNATIONAL LOGOS, INC. TENNESSEE 2389 62-1392810
VARSITY/INTROPA TOURS, INC. TENNESSEE 4724 62-1584148
VARSITY SPIRIT CORPORATION TENNESSEE 7032 62-1169661
VARSITY SPIRIT FASHIONS & SUPPLIES INC. MINNESOTA 2389 41-1459853
VARSITY USA, INC. TENNESSEE 7032 62-1601179
</TABLE>
- ------------------
* Address and telephone number of principal executive offices are same as those
of Riddell Sports Inc.
** An I.R.S. Employer Identification Number has been ordered, but has not been
received yet.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------ ------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
10 1/2% Senior Notes Due 2007
of Riddell Sports Inc....... $115,000,000 100% $115,000,000 $34,849
Guarantees of the 10 1/2%
Senior Notes Due 2007 by
Registrants Other than
Riddell Sports Inc.......... $115,000,000 (2) (2) (2)
</TABLE>
- ------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(n), no separate registration fee is required with
respect to the Guarantees.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities of any such State.
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 18, 1997
OFFER TO EXCHANGE
10 1/2% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2007 OF
RIDDELL SPORTS INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
------------------------
Riddell Sports Inc., a Delaware corporation (the 'Company'), hereby offers
(the 'Exchange Offer'), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the 'Letter of
Transmittal'), to exchange its outstanding 10 1/2% Senior Notes Due 2007 (the
'Old Senior Notes'), of which $115,000,000 aggregate principal amount is
outstanding as of the date hereof, for a like aggregate principal amount of its
newly issued 10 1/2% Senior Notes Due 2007, which have been registered under the
Securities Act of 1933, as amended (the 'New Senior Notes'). The New Senior
Notes are being offered hereby in order to satisfy certain obligations of the
Company and the Guarantors (as defined herein) under the Registration Rights
Agreement, dated June 19, 1997, among the Company and certain other signatories
thereto (the 'Registration Rights Agreement'). The form and terms of the New
Senior Notes will be the same as those of the Old Senior Notes except that the
New Senior Notes will have been registered under the Securities Act of 1933, as
amended (the 'Securities Act'), and consequently will not be subject to certain
transfer restrictions, registration rights and related liquidated damages
provisions applicable to the Old Senior Notes. The New Senior Notes will
evidence the same debt as the Old Senior Notes and will be entitled to the
benefits of an indenture (the 'Indenture'), dated as of June 19, 1997, by and
among the Company, the Guarantors and Marine Midland Bank, as trustee (the
'Trustee'). The Indenture provides for the issuance of both the Old Senior Notes
and the New Senior Notes. The Old Senior Notes and the New Senior Notes are
referred to herein collectively as the 'Senior Notes' and holders of the Senior
Notes are sometimes referred to herein as the 'Holders.'
The Old Senior Notes were issued on June 19, 1997 pursuant to an offering
(the 'Offering') which was exempt from registration under the Securities Act.
The Old Senior Notes were issued in connection with the acquisition (the
'Acquisition') by the Company of Varsity Spirit Corporation ('Varsity') through
the consummation of the Varsity Tender Offer (as defined herein), as a result of
which Varsity became a subsidiary of the Company.
The Senior Notes mature on July 15, 2007, unless previously redeemed.
Interest on the New Senior Notes will be payable semiannually on January 15 and
July 15, commencing January 15, 1998. The Senior Notes will be redeemable at the
option of the Company, in whole or in part, on or after July 15, 2002, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any thereon, to the redemption date.
In addition, at any time on or prior to July 15, 2000, the Company may redeem up
to 35% of the aggregate principal amount of the Senior Notes with the net
proceeds of one or more equity offerings of the common stock of the Company, at
a redemption price equal to 110 1/2% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption; provided that at least $75.0 million aggregate principal amount of
the Senior Notes remains outstanding after such redemption. Upon a Change of
Control (as defined herein), the Company will be required to offer to repurchase
all outstanding Senior Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase.
The Old Senior Notes are, and the New Senior Notes will be, general
unsecured obligations of the Company, ranking senior in right of payment to all
existing and future Indebtedness (as defined herein) of the Company that is
subordinated to the Senior Notes and ranking pari passu in right of payment with
all current and future unsecured unsubordinated Indebtedness of the Company,
including indebtedness under the New Credit Facility (as defined herein). The
Old Senior Notes are, and the New Senior Notes will be, unconditionally
guaranteed on a senior basis (the 'Subsidiary Guarantees') by each of the
Company's current and future domestic Restricted Subsidiaries (as defined
herein) (the 'Guarantors'), including Varsity. The Subsidiary Guarantees are
senior unsecured obligations, ranking senior in right of payment to all existing
and
(Cover continued on next page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD SENIOR NOTES
IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1997.
<PAGE>
(Continued from previous page)
future subordinated Indebtedness of the Guarantors and ranking pari passu in
right of payment with all other existing and future senior obligations of the
Guarantors. Loans, if any, under the Company's New Credit Facility will be
secured by a security interest in substantially all of the tangible assets of
the Company and will be guaranteed by the Material Subsidiaries (as defined
herein), which guarantees will be secured by a security interest in
substantially all of the tangible assets of the Guarantors. Accordingly, the
Senior Notes and the Subsidiary Guarantees will be effectively subordinated to
the loans outstanding under the New Credit Facility and the guarantees of such
loans, respectively, to the extent of the value of the assets securing such
loans and guarantees. As of March 31, 1997, on a pro forma basis after giving
effect to the Transactions (as defined herein), including the Acquisition and
the Offering and the application of the estimated net proceeds therefrom, the
Company would have had $12.7 million of senior Indebtedness outstanding other
than the Senior Notes, all of which would have been secured debt, and $7.5
million of subordinated Indebtedness outstanding. The terms of the Indenture
will permit the Company and the Guarantors to incur additional Indebtedness,
subject to certain limitations. See 'Description of the Senior Notes.'
For each Old Senior Note accepted for exchange, the Holder of such Old
Senior Note will receive a New Senior Note having a principal amount equal to
that of the surrendered Old Senior Note. The New Senior Notes will bear interest
from the most recent date to which interest has been paid on the Old Senior
Notes, or if no interest has been paid on the Old Senior Notes, from June 19,
1997. Accordingly, if the relevant record date for interest payment occurs after
the consummation of the Exchange Offer, registered Holders of New Senior Notes
on such record date will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from June 19,
1997. If, however, the relevant record date for interest payment occurs prior to
the consummation of the Exchange Offer, registered Holders of Old Senior Notes
on such record date will receive interest accruing from the most recent date to
which interest has been paid, or if no interest has been paid, from June 19,
1997. Old Senior Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer, except as set forth in
the immediately preceding sentence. Holders of Old Senior Notes whose Old Senior
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Senior Notes otherwise payable on any interest payment date
the record date for which occurs on or after consummation of the Exchange Offer.
Based on interpretations by the staff of the Securities and Exchange
Commission (the 'SEC') as set forth in no action letters issued to third
parties, the Company believes that New Senior Notes issued pursuant to the
Exchange Offer in exchange for Old Senior Notes may be offered for resale,
resold and otherwise transferred by Holders thereof (other than any such Holder
which is an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Senior Notes are
acquired in the ordinary course of such Holder's business and such Holder has no
arrangement with any person to participate in the distribution of such New
Senior Notes. However, the Company does not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Senior Notes and has no arrangement or understanding to participate in a
distribution of New Senior Notes. Each broker-dealer that receives New Senior
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Senior
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Senior Notes received in
exchange for Old Senior Notes where such Old Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See 'Plan of
Distribution.'
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Tenders of Old Senior Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Senior Notes, the Company will promptly return
the Old Senior Notes to the Holders thereof. See 'The Exchange Offer.'
There is no existing trading market for the New Senior Notes, and there can
be no assurance regarding the future development of a market for the New Senior
Notes, or the ability of Holders of the New Senior Notes to sell their New
Senior Notes or the price at which such Holders may be able to sell their New
Senior Notes. NationsBanc Capital Markets, Inc. and First Chicago Capital
Markets, Inc. (the 'Initial Purchasers') have advised the Company that they
currently intend to make a market in the New Senior Notes. The Initial
Purchasers are not obligated to do so, however, and any market-making with
respect to the New Senior Notes may be discontinued at any time without notice.
The Company does not intend to apply for listing or quotation of the New Senior
Notes on any securities exchange or to seek approval for quotation on any
automated quotation system.
2
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the SEC a registration
statement on Form S-4 (herein, together with all amendments and exhibits,
referred to as the 'Registration Statement') under the Securities Act with
respect to the New Senior Notes offered hereby. This Prospectus, which forms a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. For further information with respect to the Company and the New
Senior Notes offered hereby, reference is made to the Registration Statement.
Any statements made in this Prospectus concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports and other information with the SEC. The Registration
Statement, the exhibits and schedules forming a part thereof and the periodic
reports, proxy statements and other information filed in accordance with the
Exchange Act by the Company with the SEC may be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. Such
reports, proxy and information statements and other information may be found on
the SEC's site address, http://www.sec.gov. Copies of such material also can be
obtained from the Company upon request. The Company's common stock is quoted on
The Nasdaq National Market System under the symbol 'RIDL'; reports and other
information concerning Riddell can also be inspected at the offices of The
Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the SEC, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and file with the SEC
(unless the SEC will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the SEC on Forms 10-Q and 10-K if the Company were required to file such forms
pursuant to the Securities Exchange Act of 1934, as amended, including a
'Management's Discussion and Analysis of Results of Operations and Financial
Condition' and, with respect to the annual financial statements only, a report
thereon by the Company's certified independent accountants and (ii) all reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus 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 the sections 'Prospectus
Summary,' 'Summary Unaudited Pro Forma Financial Data,' 'The Acquisition,'
'Unaudited Pro Forma Condensed Consolidated Financial Data' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
include, without limitation, the Company's expectation and estimates as to the
Company's business operations following the Acquisition, including the
integration of Varsity's business with Riddell's and the achievement of certain
synergies related thereto, the introduction of new products, future financial
performance, including growth in net sales and earnings, cash flows from
operations, capital expenditures, the ability to refinance indebtedness, and the
sale of assets. In addition, in those and other portions of this Prospectus, the
words 'anticipates,' 'believes,' 'estimates,' 'expects,' 'plans,' 'intends' and
similar expressions, as they relate to the Company and its subsidiaries or the
Company's, Riddell's or Varsity'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, including the risk factors described in this
Prospectus. In addition to factors that may be described in this Prospectus, the
following factors, among others, could cause the actual results to differ
materially from those expressed in any forward-looking
3
<PAGE>
statements made by Riddell or Varsity: (i) the outcome of certain litigation
pending against the Company; (ii) difficulties or delays in developing and
introducing anticipated new products or failure of customers to accept new
product offerings; (iii) the continuing popularity of athletic and school spirit
programs in the youth, junior high, high school and college markets; (iv)
changes in consumer preferences and the ability of the Company to adequately
anticipate such changes; (v) the highly seasonal nature of the Company's
operations; (vi) effects of and changes in general economic and business
conditions; (vii) actions by competitors, including new product offerings and
marketing and promotional successes; (viii) the ability of Varsity to secure
desirable camp locations and camper accommodations at competitive prices and to
secure desirable locations for its special events programs; (ix) claims which
might be made against the Company, including product liability claims; (x) the
ability of the Company to combine the Riddell and Varsity businesses and to
realize the expected benefits from the Acquisition; (xi) the ability of the
respective sales forces of Riddell and Varsity to cross-market each others'
products; (xii) the loss of any significant suppliers or sponsors or foreign
sourcing; (xiii) changes in business strategy or new product lines; and (xiv)
performance by licensees. 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.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references herein to (i)
'Riddell' are to (x) Riddell Sports Inc., a Delaware corporation, and its
subsidiaries prior to giving effect to the Acquisition and (y) the Riddell Group
Division of the Company, consisting of Riddell Sports Inc. and its subsidiaries
(other than Varsity and Varsity's subsidiaries), after giving effect to the
Acquisition; (ii) 'Varsity' are to (x) Varsity Spirit Corporation, a Tennessee
corporation, and its subsidiaries prior to giving effect to the Acquisition and
(y) the Varsity Group Division of the Company, consisting of Varsity and its
subsidiaries, after giving effect to the Acquisition; and (iii) the 'Company'
are to Riddell Sports Inc. and its subsidiaries following the Acquisition,
including Varsity, or to Riddell Sports Inc., as the offeree or the obligor on
the Senior Notes. Pro forma information gives effect to the Offering and the
application of the estimated net proceeds therefrom, and the Acquisition and the
other Transactions (as defined herein) referred to herein, as if each of the
foregoing transactions had occurred on January 1, 1996, with respect to the pro
forma condensed combined statement of operations for the year ended December 31,
1996; on January 1, 1997, with respect to the pro forma condensed combined
statement of operations for the three months ended March 31, 1997; and as of
March 31, 1997 with respect to the pro forma condensed combined balance sheet at
March 31, 1997.
THE COMPANY
General
The Company is the world's leading manufacturer and reconditioner of
football protective equipment and is the nation's leading supplier of products
and services to the school spirit industry. The Company conducts its business
through two principal operating divisions: the Riddell Group Division and the
Varsity Group Division. The Company believes that the Riddell brand is one of
the best known and recognizable in all of sports. Management estimates that
Riddell football equipment is worn by more than 80% of all professional National
Football League ('NFL') players, and by more than 50% of all high school and
collegiate players. In addition to the sale of new protective athletic
equipment, Riddell is the only national reconditioner of athletic equipment.
Additionally, Riddell markets both full-size and miniature collectible helmets
and other collectible products, and licenses its Riddell(Registered) and
MacGregor(Registered) trademarks for use in athletic footwear and apparel.
Varsity designs and markets innovative cheerleader, dance team, and booster club
uniforms and accessories for sale to the school spirit industry. Varsity is also
a leading operator of high school and college cheerleader and dance team camps.
Varsity 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 believes that
it has one of the largest nationwide direct sales forces that focuses on the
extracurricular activities segment of the educational institutional market (the
'Institutional market'). The Company sells these products primarily to high
schools and colleges within the Institutional market. After giving effect to the
Transactions, including the Acquisition and the Offering, the Company would have
had net revenues and pro forma EBITDA of approximately $160.8 million and $18.1
million, respectively, for the year ended December 31, 1996.
Riddell
Riddell is the world's leading manufacturer of high school, college and
professional football helmets, with market share estimated at over 50%, and
believes it has a leading market share in other protective equipment, such as
shoulder pads. Riddell sells in excess of 200,000 football helmets a year, over
100,000 of which are used by high school, collegiate and professional players.
Riddell also sells shoulder pads, including a line of premium pads under the
Power(Registered) name, as well as a line of accessory pads which include thigh,
hip, rib and knee pads.
5
<PAGE>
Through its subsidiary, All American Sports Corporation ('All American'),
Riddell is the world's leading reconditioner of football helmets, shoulder pads
and other related equipment, and the only football helmet manufacturer that
provides reconditioning services to the Institutional market. Reconditioning
typically involves cleaning, sanitizing, buffing or painting, and recertifying
helmets as conforming to the National Operating Committee on Standards for
Athletic Equipment ('NOCSAE') standards. NOCSAE establishes industrywide
standards for protective athletic equipment. Riddell may also replace face
guards, interior pads and chin straps. In addition, Riddell reconditions
shoulder pads, as well as equipment for other sports, including baseball and
lacrosse helmets, catchers' masks and baseball gloves. Riddell believes its
customer relationships are strengthened by providing reconditioning services
through its Institutional market sales force to the same athletic coaches
generally responsible for athletic equipment purchases.
Riddell maintains a promotional rights agreement with the NFL's licensing
division (the 'NFL Agreement') which requires the Riddell name to appear on the
front and on the chin straps of each Riddell helmet used in NFL play. The NFL
Agreement further requires all teams in the NFL to cover any indicia of brand
identification of other manufacturers which might otherwise appear on helmets,
face masks or chin straps not manufactured by Riddell but used during league
play. The recognition resulting from the frequent appearance of the Riddell name
on helmets in televised football games as well as in photographs in newspapers
and magazines such as Sports Illustrated is viewed by management as important to
its overall sales, marketing and licensing efforts. The NFL Agreement, which
originated in 1989, expires in April 1999 and automatically extends for
unlimited successive five-year periods thereafter, provided that the quality of
Riddell's helmets and shoulder pads remains comparable to the best available
technology as reasonably determined by the NFL.
To better capitalize on Riddell's premium brand name, in 1993, David Mauer,
the former President of Mattel U.S.A., became Riddell's Chief Executive Officer
and initiated a strategic repositioning of Riddell's business, including
assembling Riddell's current management team. In October 1994, management
implemented a significant change in its Institutional distribution system by
eliminating the network of independent team dealers which historically sold
products to the Institutional market and began selling athletic equipment
directly to its Institutional customers. Riddell implemented its strategy by
utilizing the All American reconditioning sales force that had previously been
selling reconditioning services to its Institutional customers. Management
subsequently increased All American's full-time sales force from 80 in 1994 to
114 in 1996. The change to direct sales has (i) enabled Riddell to increase its
sales and profitability, (ii) facilitated the introduction and cross-selling of
Riddell's non-football-related products such as practicewear and baseball
equipment, (iii) improved control over the sales efforts to Institutions and
(iv) provided better access to detailed sales information for analysis.
In addition to repositioning its Institutional marketing effort, management
also refocused its retail collectible business. Riddell's retail collectible
business began with miniature and full size collectible football helmets
displaying NFL and college team logos. Management's strategy with respect to the
retail collectible market has been to (i) reduce production costs, (ii)
segregate products by distribution channels and (iii) accelerate new product
development. Riddell introduced several new collectible products, including
miniature hockey goalie masks displaying National Hockey League ('NHL') team
logos in 1995 and miniature baseball batter helmets displaying Major League
Baseball ('MLB') team logos in 1997. Riddell was granted a license from
Lucasfilm, Ltd. to sell half-scale Star Wars miniature collectibles in the
United States, Riddell's first non-sports collectible product. Riddell began
shipping Star Wars collectibles in the second quarter of 1997 and this license
extends through December 1998.
Under management's strategic plan, effective since 1993, Riddell's
operating performance has significantly improved. Its net revenues have
increased from $48.8 million in fiscal 1993 to $72.4 million in fiscal 1996 and
EBITDA has increased from a $3.8 million deficit to $7.9 million over that same
time period.
Varsity
Varsity is a leading provider of products and services to the school spirit
industry. Varsity designs and markets cheerleader, dance team and booster club
uniforms and accessories and is one of the nation's leading operators of youth,
junior high, high school and college cheerleader and dance team camps, clinics
and competitions. Varsity promotes its products and services, as well as the
school spirit industry, by organizing and
6
<PAGE>
producing various nationally televised cheerleading and dance team championships
and other special events. Varsity's primary market includes the approximately
37,500 Institutions located throughout the United States.
Varsity's cheerleader and dance team fashion division maintains an
excellent reputation for quality, design and on time delivery of its products.
Such products, which bear the Varsity(Trademark) label, include custom-made
cheerleader, dance team and booster club uniforms and accessories, including
sweaters, sweatshirts, jumpers, vests, skirts, warm-up suits, t-shirts, shorts,
pompons, socks, shoes, pins, jackets and gloves. Exclusive contracts are
maintained with several independent manufacturers who provide knitting, sewing,
finishing and shipping for all orders. By relying on independent manufacturers
to produce its uniforms, Varsity is able to minimize its fixed costs and retain
the flexibility necessary to adjust the manufacturing to its highly seasonal
production needs. Varsity provides its manufacturers with patterns, fabrics,
yarn and manufacturing specifications for its products. Varsity also provides
some cutting, knitting and lettering for the manufacturers at its specialized
production facility located at its Memphis headquarters. Varsity considers
itself an innovator in the design of uniforms and campwear garments and
maintains an in-house design staff to maintain its leadership in setting design
trends.
Varsity's camp division commenced operations in 1975 with 20 cheerleading
camps and 4,000 participants. Today, through its Universal Cheerleaders
Association ('UCA') division and United Spirit Association ('USA') subsidiary,
Varsity is a leading operator of cheerleader and dance camps in the U.S. Camp
enrollment has increased every year since Varsity has been in business, has
grown at a compounded annual rate of 14.6% since 1991 (excluding growth from
acquisitions) and totalled 188,000 participants in 1996. Camp sessions, which
are primarily held on college campuses in the summer, were conducted in every
state as well as in Canada and Japan in 1996. Participants in Varsity's 1996
summer camps included the cheerleading and/or dance team squads of approximately
65% of the universities comprising the Atlantic Coast, Big East, Big Ten, Big
Twelve, Pacific 10 and Southeastern collegiate athletic conferences. Varsity
instructors are typically college cheerleaders who may have previously attended
a Varsity camp, and management believes that its training of many of the top
college cheerleading squads augments its recruiting of high school and junior
high school camp participants.
Varsity promotes its products and services through active and visible
association with the following championships and television specials: the
National College Cheerleading and Dance Team Championship(Trademark) (nationally
televised for 12 consecutive years), the National High School Cheerleading
Championship(Trademark) (17 consecutive years), the National Dance Team
Championship(Trademark) (10 consecutive years) and the National All Star
Cheerleading Championship(Trademark) (2 consecutive years). In addition to
promoting cheerleading and dance team activities, these championships,
television specials and events are a revenue source to Varsity during its off-
season. In 1996, approximately 25,000 persons, including cheerleaders and their
families, participated in Varsity's special events, such as championships and
holiday parades in the U.S., London and Paris.
In December, 1994, Varsity acquired Intropa International/U.S.A., Inc.
('Intropa'), a Varsity supplier since 1988. Intropa specializes in providing
international and domestic tours for special interest, performing, youth and
educational groups including Varsity's London and Paris trips. Management
expects to expand Intropa's travel offerings through referrals from its
Institutional sales force.
Varsity's strategy has been to increase revenue and market share by (i)
expanding its school spirit product lines, (ii) strengthening its sales force,
(iii) increasing enrollment in its cheerleader and dance team camps as a vehicle
to increase participation in special events such as parades and bowl games and
cross-sell products, such as uniforms and (iv) actively promoting its business
as well as the school spirit industry, primarily through its nationally
televised cheerleading and dance team championships. Since fiscal 1987, Varsity
has significantly expanded the variety and selection of its uniforms and
accessories and increased its direct sales force to approximately 135 full-time
professional sales representatives. Varsity believes it currently has the
largest nationwide full-time direct sales force in the school spirit industry.
Varsity has experienced significant growth over the last five years.
Revenues have increased at a compounded annual growth rate of 22.1% from
approximately $41.6 million in the year ended March 31, 1993 to approximately
$88.4 million in the year ended December 31, 1996 and EBITDA has increased at a
compounded annual growth rate of 22.1% from $4.6 million to $9.8 million over
the same period.
7
<PAGE>
Market and Industry
The 1997 edition of Patterson's American Education has reported that there
are approximately 14,900 junior high schools, 19,300 high schools (of which the
Company believes over 15,000 have a football program), 1,750 junior colleges and
1,500 colleges located throughout the United States. According to the National
Federation of State High School Associations, there are more than 5,800,000
students participating in organized athletic programs at high schools located in
the United States. The level of participation in high school football has
remained relatively stable over the past 10 years with participants averaging in
excess of 900,000 per year. The Company believes that there are in excess of
1,000,000 participants in the school spirit industry.
THE ACQUISITION
On May 5, 1997, Riddell, Merger Sub (as defined herein) and Varsity entered
into a definitive merger agreement (the 'Merger Agreement'), pursuant to which
Varsity will be merged with Merger Sub (the 'Merger') and become a wholly owned
subsidiary of Riddell. On June 19, 1997, Merger Sub completed its cash tender
offer for all outstanding shares of common stock of Varsity (the 'Varsity Tender
Offer'). A total of 4,511,415 Varsity shares, or approximately 98.5% of
Varsity's then outstanding shares, were purchased pursuant to the Varsity Tender
Offer. Pursuant to the terms of the Merger Agreement, all Varsity common stock
not tendered and purchased in the Varsity Tender Offer will be acquired in a
subsequent second-step merger transaction at the same price per share. The
Merger is currently expected to occur on or about July 25, 1997. Because Merger
Sub owns more than 90% of the outstanding shares, under the Tennessee Business
Corporation Act, no vote is required by the shareholders of Varsity to effect
the Merger. See 'The Acquisition.' In addition, Riddell's then existing credit
agreement (the 'Former Credit Agreement') was refinanced with the proceeds of
the Offering and the New Credit Facility, which refinancing occurred
simultaneously with the Acquisition on June 19, 1997. The Company used the net
proceeds from the Offering and the initial borrowings under the New Credit
Facility to finance the Acquisition, to refinance the Former Credit Agreement,
and to pay fees and expenses of the Transactions. The Acquisition, the Merger,
the Offering and the application of the net proceeds therefrom, the refinancing
of the Former Credit Agreement and the incurrence of the initial borrowings
under the New Credit Facility are collectively referred to as the
'Transactions.'
The Company believes that the Acquisition will better position it to pursue
growth opportunities in the Institutional market. The Company regards the
Acquisition as an opportunity to achieve certain strategic objectives, including
providing the Company with the scale necessary to expand the direct marketing of
its products to include the more female dominated segment of the Institutional
market. The Acquisition will allow Riddell to benefit from Varsity's strong and
consistent growth record, providing a foundation for future growth through
product development, product line extensions and complementary acquisitions. The
Acquisition will improve its ability to serve the Institutional market by: (i)
enhancing the size and scope of its Institutional sales force; (ii) expanding
and enhancing the Company's 'unique' relationships with the decision-makers for
athletic equipment and services; (iii) accelerating new product development and
entry into new markets; (iv) facilitating the implementation of its
Institutional sales force information systems; and (v) broadening management.
Specifically, the Company believes the Acquisition will result in the following:
o ENHANCING INSTITUTIONAL SALES FORCE. As a result of the Acquisition, the
Company's full-time sales force increased from 114 to 249. The Company
anticipates having separate sales forces for male and female sports and
activities. The combined Institutional sales force of Riddell and Varsity
will command a greater market presence than would either company's sales
force on a stand-alone basis. The Company intends to widen the focus of the
Varsity sales force from the cheerleading coach to coaches of all female
sports and activities. Historically, these coaches have been served
primarily by independent dealers. The Company expects to derive other
benefits from the Riddell and Varsity sales forces working together, such
as (i) leveraging relationships to provide referrals, or cross-leads, in
schools not currently served by both Riddell and Varsity, (ii)
cross-marketing its product lines to provide increased sales (e.g., Riddell
relationships used to sell Varsity camps, clinics, competitions and tours
and Varsity relationships used to sell Riddell's practicewear) and (iii)
improving customer service by increasing the ratio of sales representatives
to schools.
The Company intends to continue to increase the size of its sales
force, due to the competitive advantages of the direct sales strategy. By
increasing the size of its sales force, reducing the size of sales
8
<PAGE>
territories and increasing the number of products available for sale, the
Company expects that its sales people will be able to spend more time
productively in each school.
o ENHANCING UNIQUE SELLING RELATIONSHIPS. The Company sells product-related
services which strengthen relationships with its customers who make the
equipment purchasing decisions. Riddell, as a factory-direct supplier and
reconditioner, builds strong relationships through quick repair or
replacement on game-day as well as pick-up, cleaning and safety
recertification for football and baseball protective equipment at the end
of the season. No other football helmet manufacturer that services the
Institutional market provides reconditioning services. Varsity develops
strong relationships with its customers for cheerleading and dance uniforms
during the camp experience through its sponsorship of special events,
including popular holiday parades and regional and national championships,
and its group travel tour activities. In addition, Varsity offers special
training sessions and instructional manuals specifically aimed at the
coaches or other persons responsible for supervising the cheerleading and
dance team activities.
o ACCELERATING NEW PRODUCT DEVELOPMENT AND NEW MARKET ENTRY. Management
believes that the Acquisition will position the Company to expand into the
booster/fund raising market and the market for sports camps. Cheerleading
and other school activities, such as band, are often participant-funded
activities, not school-funded. Cheerleaders may sponsor fundraising
activities and sell various products to fund their activity. The Company
believes that by combining Varsity's relationship with cheerleaders and
Riddell's product development knowledge, it has the ability to become a
significant participant in the booster/fundraising market. Many of the
Company's existing products (such as mini-football and baseball batter
helmets and silk-screened t-shirts, shorts and sweatshirts) are
particularly well suited for the booster/fund raising market, and through
Riddell's expertise in molded plastic design and manufacturing, the Company
intends to develop new booster products. Management also expects that the
Company's experience in licensing its brands could be extended to licensing
Varsity's brands.
o FACILITATING IMPLEMENTATION OF SALES FORCE INFORMATION SYSTEMS. The
Company plans to expand its automated order entry processing system over
the next few years and to provide laptop computers to each sales person for
information collection and order processing. While Varsity has already
begun to automate its sales information system, Riddell has not yet done
so. Varsity's sales force uses laptop computers and Varsity has developed
its own proprietary software. Management expects that Varsity's experience
should accelerate and facilitate Riddell's automation of its order entry
processing system. Management expects that the in-field automation of sales
information will enhance its competitive advantage by providing Company
personnel with faster access to information concerning its customers and
speeding the order entry process, thereby enabling sales personnel to spend
more time selling and less time writing sales orders.
o BROADENING MANAGEMENT. The Acquisition combines two strong management
teams with diverse and complementary backgrounds. The Company operates
Riddell and Varsity as two separate divisions under a broadened management
team. Varsity's management team has been together over eight years and has
consistently produced a record of growth and profitability. Riddell's
management has significant experience in the sporting goods industry and in
managing large public corporations. In connection with the Acquisition, the
top four executives of Varsity purchased $4.4 million of newly issued
Riddell common stock.
BUSINESS STRATEGY
The Company's objective is to increase its importance as a major supplier
of products and services that serves the extracurricular activities segment of
the Institutional market. The Company will continue to focus on and increase its
sales of athletic equipment and services and maintain its leadership position as
the largest supplier of services and products to the school spirit industry. The
key components of the Company's business strategy are as follows: (i) maximize
the benefits of the Acquisition; (ii) continue to increase the size of and
expand the productivity of its Institutional sales force; (iii) broaden its
product line; (iv) pursue strategic acquisitions; and (v) improve profitability
and cash flow through revenue growth and limited fixed cost expansion.
9
<PAGE>
Riddell's common stock is quoted on The Nasdaq National Market System under
the symbol 'RIDL.' Riddell's principal executive office is located at 900 Third
Avenue, 27th Floor, New York, New York 10022. Riddell's telephone number is
(212) 826-4300.
THE EXCHANGE OFFER
Securities Offered....... Up to $115,000,000 aggregate principal amount of
10 1/2% Senior Notes due 2007, which have been
registered under the Securities Act. The form and
terms of the New Senior Notes will be the same as
those of the Old Senior Notes except that the New
Senior Notes will have been registered under the
Securities Act, and consequently will not be subject
to certain transfer restrictions, registration rights
and related liquidated damages provisions applicable
to the Old Senior Notes. See 'Description of the
Senior Notes--Registration Rights; Liquidated
Damages.'
The Exchange Offer....... The New Senior Notes are being offered in exchange for
a like principal amount of Old Senior Notes. The
issuance of the New Senior Notes is intended to
satisfy obligations of the Company contained in the
Registration Rights Agreement. For procedures for
tendering, see 'The Exchange Offer--Procedures for
Tendering Old Senior Notes.'
Tenders; Expiration Date;
Withdrawal............. The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, or such later
date and time to which it is extended. The tender of
Old Senior Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Senior Note not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See 'The Exchange Offer--Terms of the Exchange
Offer; Period for Tendering Old Senior Notes' and 'The
Exchange Offer--Withdrawal Rights.'
Certain Conditions to
Exchange Offer......... The Company shall not be required to accept for
exchange, or to issue New Senior Notes in exchange
for, any Old Senior Notes and may terminate or amend
the Exchange Offer if at any time before the
acceptance of the Old Senior Notes for exchange or the
exchange of the New Senior Notes for such Old Senior
Notes certain events have occurred, which in the
reasonable judgment of the Company, make it
inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such
exchange. Such events include (i) any threatened,
instituted or pending action seeking to restrain or
prohibit the Exchange Offer, (ii) a general suspension
of trading in securities on any national securities
exchange or in the over-the-counter market, (iii) a
general banking moratorium, (iv) the commencement of a
war or armed hostilities involving the United States
and (v) a material adverse change or development
involving a prospective material adverse change in the
Company's business, properties, assets, liabilities,
financial condition, operations, results of operations
or prospects that may affect the value of the Old
Senior Notes or the New Senior Notes. In addition, the
Company will not accept for exchange any Old Senior
Notes tendered, and no New Senior Notes will be issued
in exchange for any such Old Senior Notes, at any such
time any stop
10
<PAGE>
order shall be threatened or in effect with respect to
the Registration Statement of which the Prospectus
constitutes a part or the qualification of the
Indenture under the Trust Indenture Act of 1939. See
'The Exchange Offer--Certain Conditions to the
Exchange Offer.'
Federal Income Tax
Consequences........... The exchange pursuant to the Exchange Offer should not
result in gain or loss to the holders or the Issuer
for federal income tax purposes. See 'Certain U.S.
Federal Income Tax Considerations.'
Use of Proceeds.......... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. See 'Use of
Proceeds.'
Exchange Agent........... Marine Midland Bank is serving as exchange agent (the
'Exchange Agent') in connection with the Exchange
Offer.
CONSEQUENCES OF EXCHANGING OLD SENIOR NOTES
Holders of Old Senior Notes who do not exchange their Old Senior Notes for
New Senior Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the Old
Senior Notes and the restrictions on transfer of such Old Senior Notes as set
forth in the legend thereon as a consequence of the issuance of the Old Senior
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Old Senior Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Old Senior
Notes under the Securities Act. See 'Description of the Senior Notes--
Registration Rights; Liquidated Damages.' Based on interpretations by the staff
of the SEC, as set forth in no-action letters issued to third parties, the
Company believes that New Senior Notes issued pursuant to the Exchange Offer in
exchange for Old Senior Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder which is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Senior Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Senior Notes. However, the
Company does not intend to request the SEC to consider, and the SEC has not
considered, the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of New Senior Notes and has no
arrangement or understanding to participate in a distribution of New Senior
Notes. If any holder is an affiliate of the Company, is engaged or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the New Senior Notes to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives New Senior Notes for its own account in
exchange for Old Senior Notes must acknowledge that such Old Senior Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such New Senior Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Senior Notes received
in exchange for Old Senior Notes where such Old Senior Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.' In addition,
to comply with the state securities laws, the New Senior Notes may not be
offered or sold in any state
11
<PAGE>
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The offer and sale of the New Senior Notes to 'qualified institutional buyers'
(as such term is defined under Rule 144A of the Securities Act) is generally
exempt from registration or qualification under the state securities laws. The
Company currently does not intend to register or qualify the sale of the New
Senior Notes in any state where an exemption from registration or qualification
is required and not available. See 'The Exchange Offer--Consequences of
Exchanging Old Senior Notes' and 'Description of the Senior Notes--Registration
Rights; Liquidated Damages.'
SUMMARY DESCRIPTION OF THE NEW SENIOR NOTES
The form and terms of the New Senior Notes will be the same as those of the
Old Senior Notes except that the New Senior Notes will have been registered
under the Securities Act, and consequently will not be subject to certain
transfer restrictions, registration rights and related liquidated damages
provisions applicable to the Old Senior Notes. See 'Description of the Senior
Notes--Registration Rights; Liquidated Damages.'
Securities Offered....... Up to $115.0 million aggregate principal amount of
10 1/2% Senior Notes Due 2007 of the Company, which
have been registered under the Securities Act.
Maturity Date............ July 15, 2007
Interest Payment Dates... January 15 and July 15, commencing January 15, 1998.
Ranking.................. The Old Senior Notes are, and the New Senior Notes
will be, senior unsecured obligations, ranking senior
in right of payment to all existing and future
Indebtedness (as defined herein) of the Company that
is subordinated to the Senior Notes and ranking pari
passu in right of payment with all other existing and
future senior Indebtedness of the Company. Loans under
the Company's New Credit Facility (as defined herein)
will be secured by substantially all of the assets of
the Company and accordingly, the Senior Notes will be
effectively subordinated to the loans outstanding
under the New Credit Facility to the extent of the
value of the assets securing such loans. As of March
31, 1997, on a pro forma basis after giving effect to
the Transactions, including the Acquisition and the
Offering and the application of the net proceeds
therefrom, the Company would have had $12.7 million of
senior Indebtedness outstanding other than the Senior
Notes, all of which would have been secured debt, and
$7.5 million of subordinated Indebtedness outstanding.
The terms of the indenture pursuant to which the Old
Senior Notes were, and the New Senior Notes will be,
issued (the 'Indenture') will permit the Company and
the Guarantors to incur additional Indebtedness,
subject to certain limitations. See 'Description of
the Senior Notes.'
Optional Redemption...... The Senior Notes may be redeemed at the option of the
Company, in whole or in part, on or after July 15,
2002, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages (as
defined herein), if any, to the redemption date. In
addition, at any time on or prior to July 15, 2000,
the Company may redeem up to 35% of the aggregate
principal amount of the Senior Notes with the net
proceeds of one or more equity offerings of the common
stock of the Company, at a redemption price equal to
110 1/2% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to
the date of redemption; provided that at least $75.0
million aggregate principal amount of
12
<PAGE>
the Senior Notes remains outstanding immediately after
such redemption.
Guarantees............... The Old Senior Notes are, and the New Senior Notes
will be, unconditionally guaranteed (the 'Subsidiary
Guarantees') on a senior basis by each of the
Company's current and future domestic Restricted
Subsidiaries (as defined herein) (collectively, the
'Guarantors'). The Subsidiary Guarantees rank senior
in right of payment to all existing and future
subordinated Indebtedness of the Guarantors and rank
pari passu in right of payment with all other
unsubordinated Indebtedness of the Guarantors,
including the guarantees of Indebtedness under the New
Credit Facility. Any Guarantor's obligations under the
New Credit Facility, however, will be secured by a
lien on substantially all of the assets of such
Guarantor, and the Indenture restricts, but does 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. See
'Description of the Senior Notes--Subsidiary
Guarantees.'
Mandatory Redemption..... None.
Change of Control........ Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
repurchase all outstanding Senior Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to
the date of repurchase.
Covenants................ The Indenture restricts, among other things, the
ability of the Company and its subsidiaries to incur
additional Indebtedness, pay dividends or make certain
other restricted payments, apply net proceeds from
certain asset sales, enter into certain transactions
with affiliates, agree to certain payment restrictions
applicable to Restricted Subsidiaries (as defined
herein), sell stock of Restricted Subsidiaries,
designate subsidiaries as Restricted or Unrestricted
Subsidiaries (as defined herein), incur liens or enter
into consolidations or mergers. See 'Description of
the Senior Notes--Certain Covenants.'
Use of Proceeds.......... The Company will not receive any proceeds from the
Exchange Offer. The Company used the estimated $109.7
million net proceeds of the Offering, together with
borrowings under the New Credit Facility, to finance
the Acquisition, to refinance the Former Credit
Agreement and to pay related fees and expenses. See
'Use of Proceeds.'
RISK FACTORS
For a discussion of certain matters that should be considered by Holders in
connection with the Exchange Offer, see 'Risk Factors.'
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following sets forth summary unaudited pro forma financial data derived
from the unaudited pro forma condensed consolidated financial data contained
elsewhere herein, as if the Acquisition and the Offering had occurred on January
1, 1997. The summary pro forma statement of operations data of the Company for
the year ended December 31, 1996 and the three months ended March 31, 1997 give
effect to, among other things, the Acquisition and the Offering, as if they had
occurred on January 1, 1996. The following unaudited pro forma condensed balance
sheet data of the Company give effect to, among other things, the Acquisition
and the Offering, as if they had occurred on March 31, 1997. Certain management
assumptions and adjustments relating to the Acquisition and the Offering are
described in the accompanying notes hereto. This pro forma information is not
necessarily indicative of the results that would have occurred had the
Acquisition and the Offering been completed on the dates indicated or the
Company's actual or future results or financial position. The summary pro forma
financial data should be read in conjunction with the information contained in
the financial statements of Riddell and Varsity and the notes thereto,
'Unaudited Pro Forma Condensed Consolidated Financial Data,' 'Selected Financial
Data of Riddell,' 'Selected Financial Data of Varsity' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
included elsewhere herein.
14
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND RATIO INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
OPERATING DATA:
Net revenues.................................... $160,831 $ 26,916
Cost of revenues................................ 92,426 15,881
------------ ------------
Gross profit.................................... 68,405 11,035
Selling, general and administrative expenses.... 52,949 12,981
Product liability expense....................... 2,484 625
------------ ------------
Income (loss) from operations................... 12,972 (2,571)
Interest expense, net........................... 13,927 3,431
------------ ------------
Income (loss) before taxes...................... (955) (6,002)
Income tax credits.............................. -- (2,265)
------------ ------------
Net income (loss)............................... $ (955) $ (3,737)
------------ ------------
------------ ------------
Net income (loss) per share..................... $ (0.10) $ (0.40)
Weighted average common and equivalent shares
outstanding................................... 9,595 9,236
OTHER DATA:
Depreciation and amortization................... $ 5,107 $ 1,351
EBITDA(1)....................................... 18,079 (1,220)
Capital expenditures............................ 2,967 566
Cash interest expense(2)........................ 13,213 3,235
Ratio of EBITDA to cash interest expense........ 1.4x *
Ratio of earnings to fixed charges(3)........... 0.9x *
BALANCE SHEET DATA AT MARCH 31, 1997:
Working capital................................................ $ 48,390
Total assets................................................... 187,126
Long-term debt, less current portion........................... 135,180
Shareholders' equity........................................... 29,166
</TABLE>
- ------------------
* Amounts result in a deficiency.
(1) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes and
interest, depreciation and amortization expense. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
(2) Cash interest expense excludes amortization of deferred financing costs, a
portion of which arises from pro forma adjustments.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs) whether expensed or capitalized
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings would be
inadequate to cover fixed charges by approximately $6.0 million for the
three months ended March 31, 1997.
15
<PAGE>
SUMMARY FINANCIAL DATA
RIDDELL
The following table sets forth summary financial and other data of Riddell
for the fiscal years 1992 through 1996, which have been derived from
Consolidated Financial Statements of Riddell. The summary financial data as of
and for the three months ended March 31, 1996 and 1997 have been derived from
Riddell's Unaudited Condensed Consolidated Financial Statements for those
periods included elsewhere in this Prospectus and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the entire year. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Riddell--Results of Operations,' 'Selected
Financial Data of Riddell' and the Consolidated Financial Statements of Riddell
and the Condensed Consolidated Financial Statements of Riddell and related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues:
Net sales..................................... $52,978 $45,202 $51,567 $63,603 $69,888 $19,036 $18,001
Royalty income................................ 3,425 3,551 3,845 3,440 2,494 808 574
------- ------- ------- ------- ------- ------- -------
56,403 48,753 55,412 67,043 72,382 19,844 18,575
Cost of sales................................... 31,575 28,885 29,792 35,794 38,813 10,211 10,094
------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 24,828 19,868 25,620 31,249 33,569 9,633 8,481
Selling, general and administrative expenses.... 19,215 20,436 21,087 23,332 25,369 6,991 7,207
Product liability expenses...................... 2,473 2,959 2,927 2,651 2,484 664 625
Product liability litigation loss(1)............ -- -- 4,600 -- -- -- --
Other charges(2)................................ -- 2,170 1,188 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations................... 3,140 (5,697) (4,182) 5,266 5,716 1,978 649
Interest expense................................ 1,902 2,029 2,001 2,795 2,763 628 666
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes, extraordinary item
and cumulative effect of changes in accounting
principles(3)................................. 1,238 (7,726) (6,183) 2,471 2,953 1,350 (17)
Income taxes (credits).......................... 591 (2,245) (1,250) 100 110 60 --
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles(3)................................. $ 647 $(5,481) $(4,933) $ 2,371 $ 2,843 $ 1,290 $ (17)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
OTHER DATA:
Depreciation and amortization................... $ 1,870 $ 1,922 $ 1,883 $ 2,167 $ 2,209 $ 494 $ 554
EBITDA(4)....................................... 5,010 (3,775) (2,229) 7,433 7,925 2,472 1,203
EBITDA as a percentage of net revenues.......... 8.9% (7.7)% (4.0)% 11.1% 10.9% 12.5% 6.5%
Capital expenditures............................ $ 908 $ 702 $ 662 $ 750 $ 1,139 $ 429 $ 70
Ratio of earnings to fixed charges(5)........... 1.6x * * 1.8x 1.9x 2.8x 1.0x
BALANCE SHEET DATA AT MARCH 31, 1997:(6)
Working capital.................................................................................................. $28,295
Total assets..................................................................................................... 79,494
Long-term debt, less current portion............................................................................. 31,939
Shareholders' equity............................................................................................. 27,728
</TABLE>
- ------------------
* Amounts result in a deficiency.
(1) In 1994, a charge was recorded of $4.6 million to establish a reserve for
the full uninsured portion of a jury award granted against Riddell in a
product liability suit, and certain related costs. In 1995, Riddell settled
with the plaintiff in such case for an amount that was less than the initial
jury award. See Note 8 to the Consolidated Financial Statements of Riddell
included elsewhere in this Prospectus relating to product liability
litigation matters and contingencies.
(Footnotes continued on next page)
16
<PAGE>
SUMMARY FINANCIAL DATA (CONTINUED)
(2) In 1993, other charges consisted of the following: (i) a $1.3 million charge
to establish a reserve against litigation costs and expenses relating to a
stockholder class action suit that was subsequently settled in February 1994
and (ii) a $870,000 charge relating to the loss realized on the
discontinuance of certain foam molding operations. In 1994, other charges
consisted of certain transitional costs relating to Riddell's conversion to
an in-house Institutional sales force.
(3) In 1993, a charge was recorded for the cumulative effect on prior years of a
change in accounting principles for income taxes of $51,000 and a change in
accounting principles for contingent product liability of $214,948. An
extraordinary item in 1995 consisted of a $1.9 million provision for costs
relating to fraudulent transfer litigation.
(4) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes, interest,
depreciation and amortization expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service
indebtedness. However, EBITDA should not be considered as an alternative to
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs) whether expensed or capitalized
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
inadequate to cover fixed charges by approximately $7.7 million in 1993 and
approximately $6.2 million in 1994.
(6) See Note 8 to the Consolidated Financial Statements of Riddell included
elsewhere in this Prospectus relating to product liability litigation
matters and other contingent liabilities.
17
<PAGE>
SUMMARY FINANCIAL DATA (CONTINUED)
VARSITY
The following table sets forth summary financial and other data of Varsity
for the fiscal periods 1993 through 1996, which have been derived from the
historical Consolidated Financial Statements of Varsity for those periods. The
summary financial data as of and for the three months ended March 31, 1996 and
1997 have been derived from Varsity's Unaudited Condensed Consolidated Financial
Statements for those periods included elsewhere in this Prospectus and include,
in the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
interim periods. Results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
To aid in annual comparisons, selected unaudited consolidated financial data
have also been presented for the twelve month period ended December 31, 1994.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Varsity--Results of Operations,' 'Selected
Financial Data of Varsity' and the Consolidated Financial Statements of Varsity
and the Condensed Consolidated Financial Statements of Varsity and related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS TWELVE
YEAR ENDED ENDED MONTHS YEAR ENDED THREE MONTHS
MARCH 31, DEC. ENDED DECEMBER 31, ENDED MARCH 31,
----------------- 31, DEC. 31 ------------------ ------------------
1993 1994 1994(1) 1994(2) 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:(3)
Revenues:
Uniforms and accessories............. $25,765 $31,193 $35,866 $37,635 $44,049 $49,472(5) $ 2,277 $ 2,814(5)
Camps and events..................... 15,822 18,560 23,721(4) 24,968 31,449(4) 38,977(4)(5) 4,139(4) 5,527(4)(5)
------- ------- ------- ------- ------- ------- ------- -------
41,587 49,753 59,587 62,603 75,498 88,449 6,416 8,341
Cost of revenues:
Uniforms and accessories............. 13,205 15,828 18,659 19,867 23,379 26,849 1,618 1,996
Camps and events..................... 10,873 13,094 16,826 17,696 23,114 26,764 3,094 3,791
------- ------- ------- ------- ------- ------- ------- -------
24,078 28,922 35,485 37,563 46,493 53,613 4,712 5,787
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................... 17,509 20,831 24,102 25,040 29,005 34,836 1,704 2,554
Selling, general and administrative
expenses............................. 13,522 15,994 16,117 18,920 22,679 26,388 4,250 5,455
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 3,987 4,837 7,985 6,120 6,326 8,448 (2,546) (2,901)
Other income (loss).................... 44 121 150 183 178 166 47 62
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes............. 4,031 4,958 8,135 6,303 6,504 8,614 (2,499) (2,839)
Taxes (benefit) on income.............. 1,604 1,936 3,218 2,485 2,341 3,414 (992) (1,125)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ 2,427 $ 3,022 $ 4,917 $ 3,818 $ 4,163 $ 5,200 $(1,507) $(1,714)
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
OTHER DATA:
Depreciation and amortization.......... $ 629 $ 653 $ 577 $ 743 $ 992 $ 1,318 $ 301 $ 411
EBITDA(6).............................. 4,616 5,490 8,562 6,863 7,318 9,766 (2,245) (2,490)
EBITDA as a percentage of revenues..... 11.1% 11.0% 14.4% 11.0% 9.7% 11.0% (35.0)% (29.9)%
Capital expenditures................... $ 357 $ 938 $ 667 $ 1,192 $ 1,984 $ 1,828 $ 681 $ 496
BALANCE SHEET DATA AT MARCH 31, 1997:
Working capital.................................................................................................... $15,744
Total assets....................................................................................................... 35,299
Long-term debt, less current portion............................................................................... 480
Shareholders' equity............................................................................................... 27,976
</TABLE>
- ------------------
(1) Effective April 1, 1994, Varsity changed its fiscal year end from March 31
to December 31. Accordingly, Varsity's results of operations for fiscal 1994
do not include the three months ended March 31, which has historically
resulted in a net loss. See note (3) below.
(2) Presented for purposes of comparability with fiscal 1995 and 1996.
(Footnotes continued on next page)
18
<PAGE>
SUMMARY FINANCIAL DATA (CONTINUED)
(3) The business and results of operations of Varsity are highly seasonal. A
substantial portion of Varsity's annual revenues and all of Varsity's net
income historically have been generated in the three months ended June 30
and September 30. The three months ended March 31 and December 31 have
historically resulted in net losses. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Varsity.'
(4) Includes $2,065,000, $5,814,000, $5,814,000, $839,000 and $386,000 for the
nine months ended December 31, 1994, the twelve months ended December 31,
1995 and December 31, 1996, and the three months ended March 31, 1996 and
March 31, 1997, respectively, as a result of the December 1, 1994
acquisition of the business of Intropa.
(5) Includes $261,000 and $4,199,000 for (i) uniforms and accessories and (ii)
camps and events, respectively, for the year ended December 31, 1996, and
$62,000 and $967,000 for (i) uniforms and accessories and (ii) camps and
events, respectively, for the three months ended March 31, 1997 as a result
of the May 15, 1996 acquisition of the camp business of United Special
Events, Inc.
(6) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes and
interest, depreciation and amortization expense. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
19
<PAGE>
RISK FACTORS
Prospective Holders of New Senior Notes should carefully consider the
specific factors set forth below, as well as the other information included in
this Prospectus before deciding to tender their Old Senior Notes in the Exchange
Offer, although the risk factors set forth below (other than '--Consequences of
Failure to Exchange and Requirements for Transfer of New Senior Notes') are
generally applicable to the Old Senior Notes as well as the New Senior Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW SENIOR
NOTES
Holders of Old Senior Notes who do not exchange their Old Senior Notes for
New Senior Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the Old
Senior Notes and the restrictions on transfer of such Old Senior Notes as set
forth in the legend thereon as a consequence of the issuance of the Old Senior
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Old Senior Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Old Senior
Notes under the Securities Act. The Company currently does not intend to
register or qualify the sale of the New Senior Notes in any state where an
exemption from registration or qualification is required and not available. See
'The Exchange Offer--Consequences of Exchanging Old Senior Notes.'
SIGNIFICANT LEVERAGE AND INDEBTEDNESS SERVICE
The Company incurred substantial indebtedness in connection with the
financing of the Acquisition and will remain highly leveraged following the
Exchange Offer. As of March 31, 1997, on a pro forma basis after giving effect
to the Transactions, the Company would have had total consolidated indebtedness
of approximately $135.2 million. The Company's earnings on a pro forma basis
after giving effect to the Transactions, for the year ended December 31, 1996,
were inadequate to cover fixed charges by $1.0 million. Subject to the
restrictions in the New Credit Facility and the Indenture, the Company and its
subsidiaries may incur additional indebtedness from time to time to finance
capital expenditures and acquisitions and for other general corporate purposes.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources of the Company.'
The degree to which the Company is leveraged could have important
consequences to the holders of the Senior Notes, including: (i) the possible
limitation in the future on the Company's ability to obtain additional financing
for working capital, capital expenditures, debt service requirements or other
purposes; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of the principal of and interest on its
indebtedness, thereby reducing funds available for operations; (iii) certain of
the Company's borrowings, primarily the borrowings under the New Credit
Facility, will be at variable rates of interest which could cause the Company to
be vulnerable to increases in interest rates; (iv) the Company may be more
vulnerable to economic downturns and be more limited in its ability to withstand
competitive pressures than its competitors that are not as highly leveraged; and
(v) the Senior Notes will mature after substantially all of the Company's other
indebtedness, including all borrowings under the New Credit Facility. See
'Description of Other Indebtedness.'
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance, its indebtedness, including the Senior Notes, will
depend on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond its control,
as well as the availability of borrowings under the New Credit Facility or
successor facilities. However, based upon the current and anticipated level of
operations, the Company believes that its cash flow from operations, together
with amounts available under the New Credit Facility, will be adequate to meet
its anticipated cash requirements for the next several years for working
capital, capital expenditures, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to service
its indebtedness, it may be required to refinance all or a portion of its
existing indebtedness, including the Senior Notes, or to obtain
20
<PAGE>
additional financing or to dispose of material assets or operations. The New
Credit Facility and the Indenture restrict the Company's ability to sell assets
and the use of proceeds therefrom. There can be no assurance that any such
refinancing or asset sales would be possible under the Company's debt
instruments existing at such time, that the proceeds which the Company could
realize from such refinancing or asset sales would be sufficient to meet the
Company's obligations then due or that any additional financing could be
obtained.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The New Credit Facility and the Indenture contain numerous restrictive
covenants which limit the discretion of the management of the Company with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make other restricted payments, to make investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The New Credit Facility also contains a number
of financial covenants that require the Company to meet certain financial ratios
and tests and provide that a Change of Control (as defined in the New Credit
Facility) constitutes an event of default. A failure to comply with the
obligations contained in the New Credit Facility or the Indenture, if not cured
or waived, could permit acceleration of the related indebtedness and
acceleration of indebtedness under other instruments that contain
cross-acceleration or cross-default provisions. In addition, the obligations of
the Company under the New Credit Facility are secured by substantially all of
the assets of the Company. In the case of an event of default under the New
Credit Facility, the lenders under the New Credit Facility would be entitled to
exercise the remedies available to a secured lender under applicable law. If the
Company were obligated to repay all or a significant portion of its
indebtedness, there can be no assurance that the Company would have sufficient
cash to do so or that the Company could successfully refinance such
indebtedness. Other indebtedness of the Company that may be incurred in the
future may contain financial or other covenants more restrictive than those
applicable to the New Credit Facility or the Senior Notes. See 'Description of
the Senior Notes--Certain Covenants' and 'Description of Other Indebtedness--The
New Credit Facility.'
SEASONALITY AND QUARTERLY FLUCTUATIONS
The business and results of operations of both Riddell and Varsity are
highly seasonal and both follow a similar annual pattern. With respect to
Riddell, orders for football products and reconditioning services are solicited
over a sales cycle that begins in the fall of each year and continues until the
start of football play at the end of the following summer. Delivery of products
and performance of reconditioning services reach a low point during the football
playing season. These activities contribute most to profitability in the first
through third quarters of each calendar year. Riddell sells most of its
competitive football products and reconditioning services on dated payment terms
with payments from customers generally due the following July or August.
Accordingly, trade receivables increase throughout the year as sales are made on
these dated payment terms. The increase in trade receivables continues
throughout an annual cycle until reduced at the end of the cycle the following
July or August, as the dated receivables become due. In order to finance the
resulting large receivable levels, Riddell requires a revolving line of credit.
The outstanding balance on the revolving line of credit generally follows the
receivable cycle described above, increasing as the level of receivables
increase until the late summer or fall of each year when collections of the
dated receivables are used to reduce the outstanding balance on the line.
Varsity's cheerleader and dance team camps are held exclusively in the
summer months. Sales of Varsity's cheerleader, dance team and booster club
uniforms and accessories primarily occur prior to the beginning of the school
year. Accordingly, a substantial portion of Varsity's annual revenues and all of
its net income is generated in the second and third quarters of each calendar
year, respectively, while the first and fourth quarters have historically
resulted in net losses. Varsity's working capital needs have generally followed
a similar pattern reaching their peak at the end of the first calendar quarter
and continuing through the second quarter. This period follows Varsity's
off-season period during which it generates only nominal revenues while
incurring expenditures in preparation for its approaching peak season. Varsity
has typically incurred seasonal borrowings during this period which it has
historically eliminated during the third quarter as it receives prepayments on
camp tuition and fees. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality.'
21
<PAGE>
DEPENDENCE ON THIRD-PARTY FOREIGN MANUFACTURING
A large portion of Riddell's merchandise sold through retail channels and
certain protective athletic equipment, such as shoulder pads, are currently
manufactured to its specifications by independent manufacturers located
throughout the world. In particular, all of Riddell's mini-helmet collectibles
are manufactured in China. Riddell has no long term contracts with its
manufacturers and competes with other companies for production capacity.
Riddell's arrangements with its non-U.S. suppliers are subject to the risks
generally associated with doing business abroad, such as changes in import
duties, tariffs, foreign governmental regulations, political unrest, foreign
currency fluctuations, disruptions or delays in shipments, changes in economic
conditions in countries in which Riddell's manufacturing sources are located and
other factors. Additionally, manufacturing in foreign countries adds weather and
time risk largely associated with transoceanic shipping. Riddell cannot predict
the effect that such factors will have on its manufacturers. If any such factors
were to render the conduct of business in a particular country undesirable or
impractical, or if Riddell's current foreign manufacturers were to cease doing
business with Riddell for any reason, Riddell's business and operating results
could be severely impacted. Riddell cannot predict whether additional United
States quotas, duties, taxes or other charges or restrictions will be imposed
upon the importation of its products in the future, or what effect any such
actions would have on its business, financial condition and results of
operations.
PRODUCT LIABILITY CLAIMS; UNCERTAINTY OF INSURANCE COVERAGE; AND PERSONAL INJURY
CLAIMS
Given the nature of the products manufactured by Riddell, particularly its
line of football helmets, Riddell has in the past and will continue in the
future to be subject to product liability claims. Currently its subsidiary,
Riddell, Inc., is a defendant in various product liability suits relating to
personal injuries allegedly related to the use of Riddell helmets. The ultimate
outcome of these claims, or potential future claims, and their effect on the
Company's business, financial condition and results of operations cannot
presently be determined. Riddell estimates that the uninsured portion of future
costs and expenses related to these claims, and incurred but not reported
claims, would amount to at least $4.1 million at March 31, 1997 and,
accordingly, a reserve in this amount is included in the Consolidated Balance
Sheet of Riddell as of March 31, 1997 included elsewhere in this Prospectus as
part of accrued liabilities and other liabilities. These reserves are based on
estimates of losses and defense costs anticipated to result from such claims
based on available information, including an analysis of historical data such as
the rate of occurrence and the settlement amounts of past cases. However, due to
the uncertainty involved with estimates, actual results have at times varied
substantially from earlier estimates and could do so in the future. Accordingly
there can be no assurance that the ultimate costs of such claims will fall
within the established reserves. Riddell's current insurance provides a combined
aggregate of $47.5 million of insurance, considering both basic and excess
coverages subject to deductibles and per case, annual and other limitations. See
'Business--The Company--Product Liability Proceedings and Insurance.' However,
there can be no assurance that such insurance coverage will remain available
after the coverage expires in 2001, that Riddell's insurer will remain viable or
that the insured amounts will be sufficient to cover all future claims in excess
of Riddell's uninsured retention. Furthermore, future rate increases might make
such insurance uneconomical for Riddell to maintain after 2001.
Cheerleading is a vigorous athletic activity involving jumps, tumbling,
partner stunts and pyramids, with which there are associated risks of personal
injury. Varsity actively promotes safety among cheerleaders, dance team
participants and coaches and was a founding member of and is an active
participant in the American Association of Cheerleading Coaches and Advisors, an
industry trade group whose mission is to improve the quality of cheerleading and
to maintain established safety standards. During the past 17 years, Varsity has
been subject to three personal injury claims arising from its cheerleader and
dance team camps, and is presently subject to one such claim, none of which was
or is material to Varsity's operations. Varsity believes it is adequately
insured against such risks. There can be no assurance, however, that one or more
meritorious claims against Varsity for serious personal injury would not have an
adverse effect upon the Company's business, financial condition and results of
operations.
22
<PAGE>
OTHER LEGAL PROCEEDINGS
The trustee for MacGregor Sporting Goods, Inc. ('Mac I'), which filed for
bankruptcy protection in March 1989, and the trustee for M. Holdings, Inc.
(collectively, the 'Trustees'), commenced an action against Riddell in March
1995 seeking monetary damages in an unspecified amount plus interest and/or
rescission in connection with Riddell's acquisitions in 1988 and 1989 of
substantially all the assets and businesses of two former second-tier
subsidiaries of Mac I, on the ground that Riddell failed to pay adequate
consideration at a time when Mac I was insolvent. The businesses acquired
included the core new football helmet business, the MacGregor licensing business
and the non-football uses of the Riddell trademark. Additionally, Innovative
Promotions, Inc. and certain other purported unsecured creditors of Mac I
initiated a state law debtor and creditor action against Riddell making similar
allegations seeking rescission of, and/or monetary damages in excess of $22
million, exclusive of interest. Although Riddell believes it has meritorious
defenses to these actions, there can be no assurance that Riddell will be
successful. See 'Business--The Company--Legal Proceedings--Mac I Fraudulent
Transfer Action and State Law Debtor and Creditor Claim.'
In connection with Riddell's suit against its former President, Frederic
Brooks, for alleged breaches of his consulting agreement and certain other
matters, Mr. Brooks filed counterclaims against Riddell, certain of its
subsidiaries and two of its officers and directors. Mr. Brooks alleges Riddell
breached its indemnification obligation to him as a former officer and director
of Riddell and seeks damages in excess of $3.9 million, plus future attorneys
fees and interest. Mr. Brooks also seeks combined compensatory and punitive
damages of at least $15 million. Riddell believes that Mr. Brooks' claims
against Riddell are without merit and absent a settlement, intends to vigorously
defend against them. There can be no assurance, however, that Riddell will be
successful. See 'Business--The Company--Legal Proceedings--Employee Litigation.'
On June 20, 1997, the Company entered into a Settlement Agreement (as
defined herein) for the proposed settlement of the above pending litigations.
Finalization of the proposed settlement is conditioned upon, among other things,
obtaining the approval of three bankruptcy courts. See 'Business--The Company--
Legal Proceedings--Memorandum of Understanding and Settlement Agreement.'
RISK OF LOSS OF MATERIAL LICENSE AND OTHER CONTRACTUAL RELATIONSHIPS
Riddell is currently a party to several license agreements as a licensor
and has recently retained an independent licensing agent to help expand its
licensing program. Approximately 2% of the Company's consolidated revenues and
approximately 14% of the Company's EBITDA for the year ended December 31, 1996
on a pro forma basis after giving effect to the Transactions would have resulted
from its licensing activities. Royalties paid to the Company by Kmart for the
use of the MacGregor trademark constituted approximately 70% of licensing
revenues for 1996 and constituted approximately 82% of the Company's licensing
revenues from the MacGregor trademark rights for 1996. Of such royalties paid to
the Company by Kmart, 36% were derived with respect to the Company's athletic
footwear and 41% with respect to apparel. An agreement in principal has been
reached with Meldisco, a division of Footstar, Inc. pursuant to which Meldisco
will continue to sell athletic footwear bearing the MacGregor trademark in Kmart
stores under the Kmart license. Kmart has an exclusive license to use the
MacGregor trademark on certain athletic apparel (e.g., jogging suits and sweat
separates). The Company anticipates establishing a new license for the apparel
category effective when the Kmart license expires in June 1998. See 'Business--
Riddell--Trademarks, Service Marks and License Agreements.' A material decline
in the royalties from the MacGregor trademark rights could have a material
adverse effect on the Company's results of operations. The unamortized cost of
the related MacGregor trademark rights and license agreements included in
intangible assets at December 31, 1996 was approximately $14.4 million. If there
were a material decline in the revenues from the MacGregor trademark, then the
carrying amount of the MacGregor trademark rights could be deemed to have been
impaired. A write-down for such impairment could have a material adverse effect
on the Company's business, financial condition and results of operations. While
the Company believes Riddell will be successful in replacing the MacGregor
license in a manner which will continue to generate revenues sufficient to
support the carrying value of the trademark rights, there can be no assurance
that it will be successful in doing so. While Riddell believes its relationships
with its other licensees and licensors are good, there can be no assurance that
such license agreements will be renewed upon expiration or that the Company will
continue to derive benefits therefrom, or that the Company will be successful in
entering into new license agreements in the future.
23
<PAGE>
In addition to the foregoing licensing agreements, the Company has formed
several strategic alliances to promote its business. Since April 1989 Riddell
has had an exclusive promotional rights agreement with the NFL pursuant to which
the Riddell brand is the only name that can be displayed on helmets used in NFL
play. Riddell's agreement with the NFL expires in April 1999 and automatically
extends for unlimited successive five-year periods thereafter, provided that the
quality of Riddell's helmets and shoulder pads remain comparable to the best
available technology as reasonably determined by the NFL. See 'Business--
Riddell--General.' Since 1989, Varsity has organized and produced various
national cheerleading and dance team championships for exclusive broadcast on
the ESPN, Inc. ('ESPN') cable channel. Varsity's current agreement with ESPN
expires after the 1998 season. In 1996, Varsity entered into several agreements
with Walt Disney Attractions, Inc. ('Walt Disney Attractions') pursuant to which
its national cheerleading and dance team championships through 1999 will be held
at Walt Disney World(Registered) Resort in Florida. While the Company believes
that it will be successful in renewing or replacing the agreements with the NFL,
ESPN and Walt Disney Attractions in a manner which will continue to promote the
Company's products and services, there can be no assurance that it will be
successful in doing so or that it will be able to do so on economically
favorable terms. Although the Company believes that the failure to renew any one
of the agreements with the NFL, ESPN and Walt Disney Attractions would not have
a material effect on the Company, there can be no assurance that the loss of all
or any combination of such agreements would not have a material adverse effect
on the Company's business, financial condition and results of operations.
COMPETITION AND MARKET SHARE DATA
In its Institutional athletic products business, Riddell competes with
several larger national companies, such as Rawlings Sporting Goods Company,
Inc., Diamond Sports Co., Wilson Sporting Goods Company, and in its practicewear
business, with national companies such as Champion Products, Inc. and Russell
Athletic, Inc. While none of such national competitors manufacture football
helmets, some of Riddell's competitors offer a broad line of sports equipment
and are significantly larger and have substantially greater financial and other
resources at their disposal than Riddell. Riddell also competes with numerous
smaller manufacturers and suppliers of sporting goods, services and
collectibles. In particular, the protective equipment reconditioning and the
sports collectibles industries are highly fragmented. In late 1994, in response
to Riddell's move to direct sales, AHI, Riddell's primary competitor in new
football equipment, cancelled the designation of All American (Riddell's
reconditioning subsidiary) as an authorized reconditioner of AIR(Registered)
helmets and refused to sell parts for their helmets to All American. This move
has had no measurable impact on Riddell's ability to recondition AIR helmets and
no significant volume was lost in 1995 or 1996. Although Riddell will continue
to source parts from outside suppliers that meet or exceed AHI's standards and
to recertify all AIR helmets to NOCSAE standards as it had before, AHI's actions
could have some limited impact on the reconditioning volume of All American in
future years. See 'Business--Riddell--Marketing and Promotion.'
Varsity is one of two major national companies that designs and markets
cheerleader, dance team and booster club uniforms and accessories and is one of
two major national operators of camps. While Varsity's only national competitor
is National Spirit Group Limited ('NSG'), it also competes with other smaller
national and regional competitors that serve the uniform and accessories market
or that operate cheerleader and dance team camps and clinics. Competitive
pressure could have a material adverse effect on the Company's business,
financial condition and results of operations.
The market share and other market data contained in this Prospectus are
based on independent industry publications and the good faith belief of the
Company's management. However, market share data cannot always be verified with
complete certainty due to the unavailability of raw data in certain
circumstances and the voluntary nature of the data gathering process, and
estimates may be incorrect, possibly to a material degree. In particular, the
Company is not aware of the availability of reliable statistics with respect to
the actual size of the high school football helmet market. Management's
estimates with respect to this market are based only on the limited data in the
public domain and the Company's participation in the football helmet industry
which contains only one major competitor, a private company that does not reveal
distribution information with respect to the high school market. Accordingly, no
assurance can be given as to the accuracy of management's estimates.
Management's estimates with respect to the collegiate market are based on the
Company's market share data with respect to NCAA teams. Prospective Holders of
the New Senior Notes should not place undue emphasis on
24
<PAGE>
the market share data and predictions of future trends contained in this
Prospectus, as there can be no assurance that such data or predictions are
accurate in all material respects.
REGULATION
At present, no national governing body regulates cheerleading and dance
team activities at the collegiate level. Although voluntary guidelines relating
to safety and sportsmanship have been issued by the NCAA and some of the
athletic conferences, to date cheerleading and dance teams generally are free
from rules and restrictions similar to those imposed on other competitive
athletics at the college level. However, if rules limiting off-season training
are applied to cheerleading and/or dance teams (similar to rules imposed by the
NCAA on other sports), it is likely that Varsity would be unable to offer a
significant number of its camps either because participants would be prohibited
from participating during the summer or because suitable sites would not be
available. Although the Company is not aware of any school officially adopting
these activities as a competitive sport, recognition of cheerleading and/or
dance teams as 'sports' would increase the possibility that these activities may
become regulated. If Varsity were restricted from providing its training
programs to colleges and high schools, or if cheerleaders and dance teams were
restricted from training during the off-season, such regulations would likely
have a material adverse effect on Varsity's business, financial condition and
results of operations. However, the Company currently does not believe that any
regulation of collegiate cheerleading or dance teams as a 'sport' is forthcoming
in the foreseeable future, and in the event any rules are proposed to be adopted
by athletic associations, the Company expects to participate in the formulation
of such rules to the extent permissible.
At the high school level, some state athletic associations have classified
cheerleading as a sport and have in some cases imposed certain restrictions on
off-season practices and out-of-state travel to competitions. However, in all
cases to date, Varsity has been able to work with these state athletic
associations to designate acceptable times for the cheerleaders within these
states to attend camps. Varsity has also signed agreements with several state
associations to assist with sponsoring and execution of official competitions
with these states. To date, state regulations have not had a material effect on
Varsity's ability to conduct its normal business activities within those states.
DEPENDENCE ON KEY PERSONNEL
The Company's executive officers and certain other key employees of Riddell
and Varsity have been primarily responsible for the development and expansion of
their respective business, and the loss of the services of one or more of these
individuals could have an adverse effect on the Company. The Acquisition
combined two separate management teams under the ownership of one company. The
Company's future success will be dependent in part upon its continued ability to
recruit, motivate and retain qualified personnel, as well as the successful
integration of the two management teams. There can be no assurance that the
Company will be successful in this regard. The Company has employment and
non-competition agreements with certain key personnel. See 'Management.'
RISKS RELATING TO BENEFITS OF THE ACQUISITION
Management expects certain economic benefits to result from the
Acquisition, such as those described under 'Business--General--The Acquisition.'
Some of the anticipated benefits include the potential introduction of new
products such as booster products and new types of sports camps. There can be no
assurance that the Company will be able to successfully launch any of these
products which may involve new business areas for the Company. There can be no
assurance that following the Acquisition the Company will achieve the economic
benefits that management expects. Realization of such economic benefits from the
Acquisition could also be affected by a number of factors beyond the Company's
control, such as general economic conditions, increased operating costs, the
response of the Company's customers or competitors, and regulatory developments.
INABILITY TO PURCHASE SENIOR NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control as defined in the Indenture, the Company will be
required to offer to repurchase all outstanding Senior Notes at 101% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase. However, there can be no assurance
that sufficient funds will be available at the time of any Change of Control to
make any required repurchases of Senior Notes tendered, or that restrictions in
the New Credit Facility or under the Company's debt instruments existing at such
25
<PAGE>
time will allow the Company to make such required repurchases. Notwithstanding
these provisions, the Company could enter into certain transactions, including
certain recapitalization, that would not constitute a Change of Control but
would increase the amount of debt outstanding at such time. See 'Description of
the Senior Notes--Repurchase at the Option of Holders--Change of Control.'
RANKING AND FRAUDULENT CONVEYANCE CONSIDERATIONS
Following the Acquisition, the Company continues to be a holding company
whose business is conducted through its subsidiaries. As a result, the Company's
ability to make scheduled payments of principal and interest on its
indebtedness, including the Senior Notes, will depend on the future operating
performance and cash flows of its subsidiaries and on the ability of the
Company's subsidiaries to pay dividends or make loans to the Company. The
ability of the Company's subsidiaries to pay such dividends or make payments on
intercompany indebtedness will be subject to applicable state laws.
The Senior Notes and the Subsidiary Guarantees will be effectively
subordinated to the loans outstanding under the New Credit Facility and the
guarantees of such loans to the extent of the value of the assets securing such
loans and guarantees. In addition, claims of creditors of the Company's
subsidiaries, including trade creditors, will generally have priority as to the
assets of the subsidiaries over the claims and equity interests of the Company,
and indirectly, the holders of indebtedness of the Company. Holders of the
Senior Notes have a direct claim on the assets of the Guarantors pursuant to the
Subsidiary Guarantees. However, each Guarantor's guarantee of the obligations of
the Company under the Senior Notes may be subject to review under relevant
federal and state fraudulent conveyance statutes (the 'Fraudulent Conveyance
Statutes') in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of such Guarantors.
If a court were to find under relevant Fraudulent Conveyance Statutes that, at
the time the Senior Notes were issued, (a) a Guarantor guaranteed the Senior
Notes with the intent of hindering, delaying or defrauding current or future
creditors or (b)(i) a Guarantor received less than reasonably equivalent value
or fair consideration for guaranteeing the Senior Notes and (ii)(A) was
insolvent or was rendered insolvent by reason of such Subsidiary Guarantee, (B)
was engaged, or about to engage, in a business or transaction for which its
assets constituted unreasonably small capital, (C) intended to incur, or
believed that it would incur, obligations beyond its ability to pay as such
obligations matured (as all of the foregoing terms are defined in or interpreted
under such Fraudulent Conveyance Statutes) or (D) was a defendant in an action
for money damages, or had a judgment for money damages docketed against it (if,
in either case, after final judgment, the judgment is unsatisfied), such court
could avoid or subordinate such guarantee of the Senior Notes to presently
existing and future indebtedness of such Guarantor and take other action
detrimental to the holders of the Senior Notes, including, under certain
circumstances, invalidating such guarantee of the Senior Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, a Subsidiary Guarantor would be considered
insolvent if either (i) the fair market value (or fair saleable value) of its
assets is less than the amount required to pay the probable liability on its
total existing indebtedness and liabilities (including contingent liabilities)
as they become absolute and mature or (ii) it is incurring obligations beyond
its ability to pay as such obligations mature or become due.
The Boards of Directors and management of each of Riddell and Varsity
believe that at the time of issuance of the Senior Notes and the guarantees of
the Senior Notes, each Guarantor (i) will be (a) neither insolvent nor rendered
insolvent thereby, (b) in possession of sufficient capital to meet its
obligations as the same mature or become due and to operate its business
effectively and (c) incurring obligations within its ability to pay as the same
mature or become due and (ii) will have sufficient assets to satisfy any
probable judgment against it in any pending action. There can be no assurance,
however, that such beliefs will prove to be correct or that a court passing on
such questions would reach the same conclusions.
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
The New Senior Notes are being offered to the holders of the Old Senior
Notes. The Old Senior Notes were issued on June 19, 1997 to a small number of
institutional investors and institutional accredited investors and are eligible
for trading in the Private Offerings, Resales and Trading through Automated
Linkages (PORTAL)
26
<PAGE>
Market, the National Association of Securities Dealers' screen-based, automated
market for trading of securities eligible for resale under Rule 144A. To the
extent that Old Senior Notes are tendered and accepted in the Exchange Offer,
the trading market for the remaining untendered Old Senior Notes could be
adversely affected. There is no existing trading market for the New Senior
Notes, and there can be no assurance regarding the future development of a
market for the New Senior Notes, or the ability of holders of the New Senior
Notes to sell their New Senior Notes or the price at which such holders may be
able to sell their New Senior Notes. Although the Initial Purchasers have
informed the Company that they currently intend to make a market in the New
Senior Notes, they are not obligated to do so and any such market making may be
discontinued at any time without notice. As a result, the market price of the
New Senior Notes could be adversely affected. The Company does not intend to
apply for listing or quotation of the New Senior Notes on any securities
exchange or stock market.
THE ACQUISITION
On May 5, 1997, Riddell, Cheer Acquisition Corp., a wholly owned subsidiary
of Riddell and a Tennessee corporation ('Merger Sub' or 'Cheer'), and Varsity
entered into the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub
offered to purchase in the Varsity Tender Offer all outstanding shares of Common
Stock, par value $0.01 per share, of Varsity (the 'Shares') at $18.90 per share,
net to the seller in cash. Pursuant to a shareholders agreement (the
'Shareholders Agreement'), dated as of May 5, 1997, by and among Riddell, Merger
Sub and certain shareholders of Varsity, such shareholders tendered 1,738,530
Shares representing approximately 38% of the outstanding Shares of Varsity in
accordance with the terms and conditions of the Varsity Tender Offer. On June
19, 1997, Merger Sub completed the Varsity Tender Offer and purchased a total of
4,511,415 Varsity shares, or approximately 98.5% of Varsity's then outstanding
shares. In addition, each outstanding Varsity Common Stock option was
surrendered and cancelled in exchange for a cash payment equal to the number of
Shares underlying such option, multiplied by $18.90, less the aggregate exercise
price of such option.
Pursuant to stock purchase agreements (the 'Stock Purchase Agreements'),
dated as of May 5, 1997, by and among Riddell, Merger Sub and certain
shareholders of Varsity (the 'Shareholders'), within five business days
following the consummation of the Offer, the Shareholders purchased
approximately $4.4 million of Riddell common stock subject to an agreed upon
formula and certain limitations. Approximately 986,000 shares were purchased,
representing approximately 10.9% of Riddell's shares then outstanding after
giving effect to such purchase. Pursuant to the Merger Agreement, as soon as
practicable after the completion of the Offer and satisfaction or waiver of all
conditions, Merger Sub will be merged with and into Varsity (the 'Merger') with
Varsity surviving the Merger as a wholly owned subsidiary of the Company (the
'Surviving Corporation'). At the time at which the Merger is consummated (the
'Effective Time'), each Share then outstanding (other than Shares held in the
treasury of Varsity, Shares held by the Company, Merger Sub or any other wholly
owned subsidiary of the Company and Shares held by stockholders of Varsity who
exercise 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.
Under the TBCA, because Merger Sub acquired in excess of 90% of each class
and series of outstanding voting shares of Varsity in the Varsity Tender Offer,
Merger Sub was able to approve the Merger Agreement and the transactions
contemplated thereby without a vote of Varsity shareholders. Riddell, Merger Sub
and Varsity have agreed to take, at Riddell's request and subject to the
satisfaction of the conditions set forth in the Merger Agreement, all necessary
and appropriate actions to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of the shareholders, in
accordance with the TBCA (which requires a 30-day notice period to the Varsity
shareholders). The Merger is currently expected to occur on or about July 25,
1997.
27
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the issuance of the Old Senior Notes of
approximately $109.7 million (after deducting the discounts to Initial
Purchasers and estimated fees and expenses of the Offering), together with
borrowings under the New Credit Facility, were used to finance the Acquisition,
to refinance the Former Credit Agreement and other indebtedness and to pay
related fees and expenses. The Former Credit Agreement would have expired by its
terms on April 30, 1998 and all outstanding borrowings thereunder bore interest
at the prime rate (8.5% at April 30, 1997).
The approximate sources and uses of funds in connection with the
Transactions are presented in the following table, assuming the Transactions
occurred as of March 31, 1997 (dollars in millions):
Sources of Funds:
Senior Notes.............................................. $115.0
New Credit Facility....................................... 12.7
Common shares of Riddell to be purchased by certain
Varsity shareholders................................... 4.4
Cash...................................................... 1.0
------
Total sources.......................................... $133.1
------
------
Uses of Funds:
Cash merger consideration and related costs............... $ 98.8
Refinancing of Former Credit Agreement and other
indebtedness and paying related costs.................. 29.0
Fees and expenses of the Offering......................... 5.3
------
Total uses............................................. $133.1
------
------
28
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of
Riddell at March 31, 1997 and (ii) such consolidated capitalization as adjusted
to give effect to the Transactions and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the 'Unaudited
Pro Forma Condensed Consolidated Financial Data' and the Consolidated Financial
Statements of each of Riddell and Varsity, including the notes thereto, and the
other information contained in this Prospectus.
MARCH 31, 1997
---------------------------------
PRO FORMA FOR
HISTORICAL(1) THE TRANSACTIONS
------------- ----------------
(IN THOUSANDS)
Long-term debt (including current
maturities):
Former Credit Agreement
Term loans............................. $ 5,000 $ --
Revolving credit facility.............. 22,021 --
New Credit Facility(2).................... -- 12,680
10 1/2% Senior Notes Due 2007............. -- 115,000
Convertible subordinated note............. 7,500 7,500
Subordinated note payable................. 439 --
Note payable.............................. 155 --
------------- ----------------
Total long-term debt................... 35,115 135,180
Shareholders' equity........................ 27,728 29,166
------------- ----------------
Total capitalization................... $62,843 $164,346
------------- ----------------
------------- ----------------
- ------------------
(1) The historical amounts shown above exclude long-term debt of Varsity. At
March 31, 1997, Varsity's long-term debt consisted solely of a $0.6 million
convertible note which is assumed to be converted and acquired as part of
the Transactions.
(2) The New Credit Facility consists of a five year revolving credit and working
capital facility in a maximum amount not to exceed $40.0 million through
September 30, 1997 and $35.0 million thereafter with amounts borrowed
thereunder subject to a borrowing base of inventory and accounts receivable.
See 'Description of Other Indebtedness--The New Credit Facility.'
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
INTRODUCTION
The accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet
and Unaudited Pro Forma Condensed Consolidated Statements of Operations have
been prepared reflecting: (i) the Acquisition, which will be accounted for under
the purchase method of accounting; (ii) the Offering of the Senior Notes; and
(iii) the New Credit Facility.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet presents the
pro forma financial condition of the Company as if the Acquisition and Offering
had occurred as of March 31, 1997. The Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the fiscal year ended December 31,
1996 and the three months ended March 31, 1997 include the results of Riddell's
and Varsity's operations and give effect to the Acquisition and Offering as if
they had occurred on January 1, 1996.
In accordance with the purchase method of accounting, the excess of the
purchase price over fair values of the net identifiable assets and liabilities
acquired is recorded as goodwill. The carrying values of Varsity's net assets
are assumed to equal their fair values for purposes of these pro forma financial
statements, unless indicated otherwise in the Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet. These values and the resulting allocation
of the purchase price are subject to revision following the results of any
appraisals after consummation of the Acquisition. However, management does not
believe that the results of any such appraisals will yield materially different
values from the carrying values.
The unaudited pro forma financial data is presented for informational
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred had the Acquisition and Offering
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial position. The unaudited pro forma
condensed consolidated financial data should be read in conjunction with the
financial statements of Riddell and Varsity and the related notes thereto
included elsewhere herein.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
----------------- -----------------------------
RIDDELL VARSITY ACQUISITION(A) OFFERING(B) PRO FORMA
------- ------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............ $ 304 $ 2,077 $ (5,127)(1) $ 93,371 $ 1,131
(90,932)(2)
4,438(3)
(3,000)(4)
Accounts receivable, trade, less
allowance for doubtful accounts... 21,142 4,347 25,489
Inventories.......................... 14,620 8,642 23,262
Other current assets................. 6,297 7,122 2,030(1) 15,449
------- ------- -------------- ----------- ---------
Total current assets................... 42,363 22,188 (92,591) 93,371 65,331
Property and equipment, less
accumulated depreciation............. 3,421 4,167 7,588
Intangible assets and deferred charges,
less accumulated amortization........ 33,645 7,856 65,453(2) 6,100 113,054
Other assets........................... 65 1,088 1,153
------- ------- -------------- ----------- ---------
Total assets........................... $79,494 $35,299 $ (27,138) $ 99,471 $187,126
------- ------- -------------- ----------- ---------
------- ------- -------------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt.... $ 3,176 $ 120 $ (120)(1) $ (3,176) $ --
Accounts payable..................... 4,049 3,589 7,638
Accrued liabilities.................. 6,843 493 (275) 7,061
Customer deposits.................... -- 2,242 2,242
------- ------- -------------- ----------- ---------
Total current liabilities.............. 14,068 6,444 (120) (3,451) 16,941
Long-term debt, less current portion... 31,939 480 (480)(1) 103,241 135,180
Deferred taxes......................... 1,820 399 2,219
Other liabilities...................... 3,939 -- (319) 3,620
Shareholders' equity:
Common stock......................... 81 47 (47)(2) 93
12(3)
Capital in excess of par and
additional paid in capital........ 31,457 11,641 600(1) 35,883
(12,241)(2)
4,426(3)
Retained earnings (accumulated
deficit).......................... (3,810) 16,288 (3,097)(1) (6,810)
(13,191)(2)
(3,000)(4)
------- ------- -------------- ----------- ---------
Total shareholders' equity............. 27,728 27,976 (26,538) 29,166
------- ------- -------------- ----------- ---------
Total liabilities and shareholders'
equity............................... $79,494 $35,299 $ (27,138) $ 99,471 $187,126
------- ------- -------------- ----------- ---------
------- ------- -------------- ----------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOTE A. PRO FORMA ADJUSTMENTS--ACQUISITION
(1) To record option termination payments of approximately $4,877,000 and
certain bonus payments of $250,000 made by Varsity, immediately prior
to the Acquisition, net of the effect of tax benefits of $2,030,000,
and to reflect the call of outstanding debt of $600,000 and subsequent
conversion thereof into 40,080 Varsity shares.
(2) To reflect the acquisition of Varsity and the allocation of the
purchase price based upon preliminary estimates of fair values of the
assets acquired and the liabilities assumed, as follows:
(IN THOUSANDS)
--------------
Components of purchase price:
Purchase of outstanding shares (at
$18.90 per share).................. $ 87,002
Estimated Acquisition related costs... 3,930
--------------
Total purchase price.................... 90,932
Allocation of purchase price:
Historical book value of net assets
acquired........................... (25,479)
--------------
65,453
Net book value of goodwill acquired... 7,856
--------------
Excess of purchase price over book value
of net assets purchased (goodwill).... $ 73,309
--------------
--------------
(3) To reflect purchase of Riddell common stock by certain Varsity
shareholders for $4,438,000.
(4) To reflect payment by Riddell of $3,000,000 to secure stand-by bridge
financing commitment.
NOTE B. PRO FORMA ADJUSTMENTS--OFFERING
To reflect financing transactions related to the Acquisition, as follows:
(IN THOUSANDS)
--------------
Issuance of Senior Notes................ $115,000
Initial borrowings on New Credit
Facility.............................. 12,680
--------------
127,680
Riddell debt to be refinanced, including
accrued
interest.............................. (28,209)
Debt issuance costs:
Old Senior Notes...................... (5,290)
New Credit Facility................... (810)
--------------
Net cash received....................... $ 93,371
--------------
--------------
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ ------------------------
RIDDELL VARSITY ACQUISITION OFFERING PRO FORMA
------------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................... $72,382 $88,449 $ $ $160,831
Cost of revenues............................... 38,813 53,613 92,426
------------- ------- ---------
Gross profit................................... 33,569 34,836 68,405
Selling, general and administrative expenses... 25,369 26,388 1,580(1) 52,949
150(2)
(443)(3)
(95)(4)
Product liability expense...................... 2,484 -- 2,484
------------- ------- ----------- ---------
Income from operations......................... 5,716 8,448 (1,192) 12,972
Interest expense (income), net................. 2,763 (166) 11,330(6) 13,927
------------- ------- ----------- -------- ---------
Income (loss) before taxes..................... 2,953 8,614 (1,192) (11,330) (955)
Income taxes................................... 110 3,414 (154)(5) (3,370)(5) --
------------- ------- ----------- -------- ---------
Net income (loss) from continuing operations... $ 2,843 $ 5,200 $(1,038) $ (7,960) $ (955)
------------- ------- ----------- -------- ---------
------------- ------- ----------- -------- ---------
Net income (loss) from continuing operations
per share.................................... $ 0.34 $ (0.10)
------------- ---------
------------- ---------
Weighted average common and equivalent shares
outstanding.................................. 8,427 986(7) 9,413
OTHER DATA:
Depreciation and amortization.................. $ 2,209 $ 1,318 $ 1,580 $ 5,107
EBITDA (8)..................................... 7,925 9,766 388 18,079
Capital expenditures........................... 1,139 1,828 2,967
Cash interest expense (9)............................................................................. 13,213
Ratio of earnings to fixed charges.................................................................... 0.9x
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Statements of Operations.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------ -------------------------------------------
RIDDELL VARSITY ACQUISITION OFFERING PRO FORMA
------- ------- ------------------------ --------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues........................... $18,575 $ 8,341 $ $ $ 26,916
Cost of revenues....................... 10,094 5,787 15,881
------- ------- ---------
Gross profit........................... 8,481 2,554 11,035
Selling, general and administrative
expenses............................. 7,207 5,455 386(1) 12,981
38(2)
(88)(3)
(17)(4)
Product liability expense.............. 625 -- 625
------- ------- ----------- ---------
Income (loss) from operations.......... 649 (2,901) (319) (2,571)
Interest expense (income), net......... 666 (62) 2,827(6) 3,431
------- ------- ----------- --------------- ---------
Loss before taxes...................... (17) (2,839) (319) (2,827) (6,002)
Income taxes (credits)................. -- (1,125) (27)(5) (1,113)(5) (2,265)
------- ------- ----------- --------------- ---------
Net loss............................... $ (17) $(1,714) $ (292) $ (1,714) $ (3,737)
------- ------- ----------- --------------- ---------
------- ------- ----------- --------------- ---------
Net loss per share..................... $ (0.00) $ (0.41)
------- ---------
------- ---------
Weighted average common and equivalent
shares outstanding................... 8,068 986(7) 9,054
OTHER DATA:
Depreciation and amortization.......... $ 554 $ 411 $ 386 $ 1,351
EBITDA (8)............................. 1,203 (2,490) 67 (1,220)
Capital expenditures................... 70 496 566
Cash interest expense (9).................................................................................. 3,235
Ratio of earnings to fixed charges (10).................................................................... *
</TABLE>
- ------------------
* Amount results in a deficiency.
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Statements of Operations.
34
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Reflects the amortization expense arising from the Acquisition for goodwill
(as determined in the Pro Forma Balance Sheet) of $73,309 over 40 years,
less amortization expense included in Varsity's historical results for the
periods, for a net adjustment of $1,580 and $386 for the year ended December
31, 1996 and the three months ended March 31, 1997, respectively.
(2) Varsity salary increase pursuant to contract entered into in conjunction
with the Acquisition.
(3) Adjustment to eliminate costs incurred by Varsity to maintain its status as
a separate public corporation including costs for maintaining a separate
board of directors, costs related to issuance of annual and quarterly
reports, and other costs related to maintaining Nasdaq listings and
shareholder records.
(4) Adjustments to reflect cost reductions for certain freight and travel
expenses incurred by Varsity or Riddell which would not have been incurred
had these expenses been administered under programs which existed during the
years within the other company.
(5) Reflects income tax effect of the pro forma adjustments.
(6) Reflects the increase in interest expense arising from the transaction due
to debt incurred to finance the purchase and net debt refinanced in
conjunction with the transaction, determined as follows:
Total purchase price and related costs............... $ 90,932
Option termination payments.......................... 4,877
Financing costs, including bridge costs.............. 9,100
Less proceeds generated from sale of Riddell stock... (4,438)
--------
100,471
Senior Notes......................................... 115,000
--------
Funds, from Offering, available to refinance existing
debt............................................... $ 14,529
--------
--------
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
-------------------- -----------------
<S> <C> <C>
Incremental Interest Expense:
Interest expense on the Senior Notes and net interest
expense on the New Credit Facility for incremental
borrowings and debt refinanced, computed using
historical rates and balances, but under revised
borrowing terms, including commitment fees, with an
estimated weighted average interest rate of 10.25%
and 10.40%, for the period ended December 31, 1996
and March 31, 1997, respectively..................... $ 13,038 $ 3,139
Less historical net interest expense of existing debt
refinanced net of funds historically invested by
Varsity.............................................. (2,399) (485)
Amortization of debt issue costs:
Senior Notes (over 10 years)......................... 529 132
New Credit Facility costs (over 5 years)............. 162 41
---------- -------
Incremental interest expense........................... $ 11,330 $ 2,827
---------- -------
---------- -------
</TABLE>
A 1/8% increase in the assumed weighted average interest rates would increase
pro forma interest expense by $158 and $37, respectively.
35
<PAGE>
(7) Reflects purchase of approximately 986,000 common shares by certain members
of Varsity management. The Riddell stock options to be issued to Varsity
employees have been excluded from equivalent shares as the effect would be
anti-dilutive.
(8) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes and
interest, depreciation and amortization expense. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
(9) Cash interest expense excludes amortization of deferred financing costs of
$706 and $197 (of which $691 and $173 arise from the Transactions) for the
year ended December 31, 1996 and the three month period ended March 31,
1997, respectively.
(10) Earnings would be insufficient to cover fixed charges by approximately $6.0
million for the three months ended March 31, 1997.
36
<PAGE>
SELECTED FINANCIAL DATA OF RIDDELL
The balance sheet data presented below as of December 31, 1992, 1993, 1994,
1995 and 1996 and the statement of operations data presented below for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 have been derived from
Riddell's audited Consolidated Financial Statements for those years. The summary
financial data as of and for the three months ended March 31, 1996 and 1997 have
been derived from Riddell's Unaudited Condensed Consolidated Financial
Statements for those periods included elsewhere in this Prospectus and include,
in the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
interim periods. Results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Riddell--Results of Operations' and the
Consolidated Financial Statements of Riddell and the Condensed Consolidated
Financial Statements of Riddell and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues:
Net sales....................................... $52,978 $45,202 $51,567 $63,603 $69,888 $19,036 $18,001
Royalty income.................................. 3,425 3,551 3,845 3,440 2,494 808 574
------- ------- ------- ------- ------- ------- -------
56,403 48,753 55,412 67,043 72,382 19,844 18,575
Cost of sales..................................... 31,575 28,885 29,792 35,794 38,813 10,211 10,094
------- ------- ------- ------- ------- ------- -------
Gross profit...................................... 24,828 19,868 25,620 31,249 33,569 9,633 8,481
Selling, general and administrative expenses ..... 19,215 20,436 21,087 23,332 25,369 6,991 7,207
Product liability expenses........................ 2,473 2,959 2,927 2,651 2,484 664 625
Product liability litigation loss(1).............. -- -- 4,600 -- -- -- --
Other charges(2).................................. -- 2,170 1,188 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations..................... 3,140 (5,697) (4,182) 5,266 5,716 1,978 649
Interest expense.................................. 1,902 2,029 2,001 2,795 2,763 628 666
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes, extraordinary item and
cumulative effect of changes in accounting
principles(3)................................... 1,238 (7,726) (6,183) 2,471 2,953 1,350 (17)
Income taxes (credits)............................ 591 (2,245) (1,250) 100 110 60 --
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles(3)................................... $ 647 $(5,481) $(4,933) $ 2,371 $ 2,843 $ 1,290 $ (17)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Earnings (loss) per share before extraordinary
item and cumulative effect of changes in
accounting principles(7)........................ $ 0.08 $ (0.69) $ (0.62) $ 0.29 $ 0.34 $ 0.15 $ 0.00
OTHER DATA:
Depreciation and amortization..................... $ 1,870 $ 1,922 $ 1,883 $ 2,167 $ 2,209 $ 494 $ 554
EBITDA(4)......................................... 5,010 (3,775) (2,229) 7,433 7,925 2,472 1,203
EBITDA as a percentage of net revenues............ 8.9% (7.7)% (4.0)% 11.1% 10.9% 12.5% 6.5%
Capital expenditures.............................. $ 908 $ 702 $ 662 $ 750 $ 1,139 $ 429 $ 70
Ratio of earnings to fixed charges(5)............. 1.6x * * 1.8x 1.9x 2.8x 1.0x
BALANCE SHEET DATA:(6)
Working capital................................... $18,221 $13,231 $11,036 $19,286 $25,957 $22,491 $28,295
Total assets...................................... 69,982 60,656 72,252 74,124 76,361 79,404 79,494
Long-term debt, less current portion.............. 17,332 17,442 20,168 23,600 29,984 25,464 31,939
Shareholders' equity.............................. 34,306 29,459 24,431 24,902 27,745 26,192 27,728
</TABLE>
(Footnotes on next page)
37
<PAGE>
SELECTED FINANCIAL DATA OF RIDDELL (CONTINUED)
- ------------------------
* Amounts result in a deficiency.
(1) In 1994, a charge was recorded of $4.6 million to establish a reserve for
the full uninsured portion of a jury award granted against Riddell in a
product liability suit, and certain related costs. In 1995, Riddell settled
with the plaintiff in such case for an amount that was less than the initial
jury award. See Note 8 to the Consolidated Financial Statements of Riddell
included elsewhere in this Prospectus relating to product liability
litigation matters and contingencies.
(2) In 1993, other charges consisted of the following: (i) a $1.3 million charge
to establish a reserve against litigation costs and expenses relating to a
stockholder class action suit that was subsequently settled in February 1994
and (ii) a $870,000 charge relating to the loss realized on the
discontinuance of certain foam molding operations. In 1994, other charges
consisted of certain transitional costs relating to Riddell's conversion to
an in-house Institutional sales force.
(3) In 1993, a charge was recorded for the cumulative effect on prior years of a
change in accounting principles for income taxes of $51,000 and a change in
accounting principles for contingent product liability of $214,948. An
extraordinary item in 1995 consisted of a $1.9 million provision for costs
relating to fraudulent transfer litigation.
(4) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes, interest,
depreciation and amortization expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service
indebtedness. However, EBITDA should not be considered as an alternative to
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs) whether expensed or capitalized
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
inadequate to cover fixed charges by approximately $7.7 million in 1993 and
approximately $6.2 million in 1994.
(6) See Note 8 to the Consolidated Financial Statements of Riddell included
elsewhere in this Prospectus relating to product liability litigation
matters and other contingent liabilities.
(7) Computed based on weighted average number of common and common equivalent
shares outstanding of 7,890,207, 7,890,207, 7,973,982, 8,067,985, and
8,427,633 in 1992, 1993, 1994, 1995 and 1996, respectively and 8,456,962 and
8,067,985 for the three months ended March 31, 1997 and 1996, respectively.
No cash dividends per share were paid during the periods presented. Since
its inception, Riddell has not declared or paid, and does not currently
intend to declare or pay, cash dividends on shares of its common stock.
38
<PAGE>
SELECTED FINANCIAL DATA OF VARSITY
The balance sheet data presented below as of March 31, 1993, 1994, and
December 31, 1994, 1995 and 1996 and the statement of operations data presented
below for the fiscal years 1993 through 1996 and the nine months ended December
31, 1994 have been derived from the historical Consolidated Financial Statements
of Varsity. The summary financial data as of and for the three months ended
March 31, 1996 and 1997 have been derived from Varsity's Unaudited Condensed
Consolidated Financial Statements for those periods included elsewhere in this
Prospectus and include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the results for the unaudited interim periods. Results for the three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year. To aid in annual comparisons, selected unaudited
consolidated financial data have also been presented for the twelve month period
ended December 31, 1994. The information presented below is qualified in its
entirety by, and should be read in conjunction with, 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Varsity--Results
of Operations' and the Consolidated Financial Statements of Varsity and the
Condensed Consolidated Financial Statements of Varsity and related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE TWELVE
YEAR ENDED MONTHS MONTHS YEAR ENDED THREE MONTHS
MARCH 31, ENDED ENDED DECEMBER 31, ENDED MARCH 31,
----------------- DEC. 31, DEC. 31 ------------------ ------------------
1993 1994 1994(1) 1994(2) 1995 1996 1996 1997
------- ------- -------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:(3)
Revenues:
Uniforms and accessories.......... $25,765 $31,193 $35,866 $37,635 $44,049 $49,472(5) $ 2,277 $ 2,814(5)
Camps and events.................. 15,822 18,560 23,721(4) 24,968 31,449(4) 38,977(4)(5) 4,139(4) 5,527(4)(5)
------- ------- -------- -------- ------- ------- ------- -------
41,587 49,753 59,587 62,603 75,498 88,449 6,416 8,341
Cost of revenues:
Uniforms and accessories.......... 13,205 15,828 18,659 19,867 23,379 26,849 1,618 1,996
Camps and events.................. 10,873 13,094 16,826 17,696 23,114 26,764 3,094 3,791
------- ------- -------- -------- ------- ------- ------- -------
24,078 28,922 35,485 37,563 46,493 53,613 4,712 5,787
------- ------- -------- -------- ------- ------- ------- -------
Gross profit........................ 17,509 20,831 24,102 25,040 29,005 34,836 1,704 2,554
Selling, general and administrative
expenses.......................... 13,522 15,994 16,117 18,920 22,679 26,388 4,250 5,455
------- ------- -------- -------- ------- ------- ------- -------
Operating income (loss)............. 3,987 4,837 7,985 6,120 6,326 8,448 (2,546) (2,901)
Other income (expense).............. 44 121 150 183 178 166 47 62
------- ------- -------- -------- ------- ------- ------- -------
Income (loss) before taxes.......... 4,031 4,958 8,135 6,303 6,504 8,614 (2,499) (2,839)
Taxes (benefit) on income........... 1,604 1,936 3,218 2,485 2,341 3,414 (992) (1,125)
------- ------- -------- -------- ------- ------- ------- -------
Net income (loss)................... $ 2,427 $ 3,022 $ 4,917 $ 3,818 $ 4,163 $ 5,200 $(1,507) $(1,714)
------- ------- -------- -------- ------- ------- ------- -------
------- ------- -------- -------- ------- ------- ------- -------
OTHER DATA:
Depreciation and amortization....... $ 629 $ 653 $ 577 $ 743 $ 992 $ 1,318 $ 301 $ 411
EBITDA(6)........................... 4,616 5,490 8,562 6,863 7,318 9,766 (2,245) (2,490)
EBITDA as a percentage of revenues.. 11.1% 11.0% 14.4% 11.0% 9.7% 11.0% (35.0)% (29.9)%
Capital expenditures................ $ 357 $ 938 $ 667 $ 1,192 $ 1,984 $ 1,828 $ 681 $ 496
BALANCE SHEET DATA:
Working capital..................... $ 5,825 $ 8,611 $12,413 $12,413 $15,212 $18,006 $13,237 $15,744
Total assets........................ 16,045 18,701 24,870 24,870 29,243 37,791 28,825 35,299
Long-term debt, less current
portion........................... -- -- -- -- -- 480 -- 480
Shareholders' equity................ 12,678 15,736 20,741 20,741 24,794 29,897 23,225 27,976
</TABLE>
- ------------------
(1) Effective April 1, 1994, Varsity changed its fiscal year end from March 31
to December 31. Accordingly, Varsity's results of operations for fiscal 1994
do not include the three months ended March 31, which has historically
resulted in a net loss. See note (3) below.
(2) Presented for purposes of comparability with fiscal 1995 and 1996.
(Footnotes continued on next page)
39
<PAGE>
SELECTED FINANCIAL DATA OF VARSITY (CONTINUED)
(3) The business and results of operations of Varsity are highly seasonal. A
substantial portion of Varsity's annual revenues and all of Varsity's net
income historically have been generated in the three months ended June 30
and September 30. The three months ended March 31 and December 31 have
historically resulted in net losses. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Varsity.'
(4) Includes $2,065,000, $5,814,000, $5,814,000, $839,000 and $386,000 for the
nine months ended December 31, 1994, the twelve months ended December 31,
1995 and December 31, 1996, and the three months ended March 31, 1996 and
March 31, 1997, respectively, as a result of the December 1, 1994
acquisition of the business of Intropa.
(5) Includes $261,000 and $4,199,000 for (i) uniforms and accessories and (ii)
camps and events, respectively, for the year ended December 31, 1996, and
$62,000 and $967,000 for (i) uniforms and accessories and (ii) camps and
events, respectively, for the three months ended March 31, 1997 as a result
of the May 15, 1996 acquisition of the camp business of United Special
Events, Inc.
(6) EBITDA is the sum of income before extraordinary item and cumulative effect
of changes in accounting principles (as applicable), income taxes and
interest, depreciation and amortization expense. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following should be read in conjunction with 'Unaudited Pro Forma
Condensed Combined Financial Data' and the Consolidated Financial Statements of
each of Riddell and Varsity and the related notes thereto included elsewhere in
this Prospectus. Following the Acquisition, the Company conducts its business
through two distinct operating divisions: the Riddell Group Division, consisting
of Riddell and its subsidiaries (other than Varsity and its subsidiaries), and
the Varsity Group Division, consisting of Varsity and its subsidiaries. Each of
the divisions continues to maintain its own sales, marketing, financial,
accounting and operating personnel. As a result, the Company does not anticipate
significant cost savings as a result of the Acquisition, other than the
elimination of certain costs incurred by Varsity to comply with its public
reporting obligations, the elimination of certain travel agent commissions paid
by Riddell to third parties for services to be provided by a subsidiary of
Varsity following the Acquisition and the reduction of certain freight costs
incurred by Varsity which would not have been incurred under programs
administered by Riddell.
The Company incurred certain non-recurring costs and expenses relating to
the Transactions which will be charged to earnings during the period in which
the Transactions occurred. These costs and expenses include, but are not limited
to, payments by Varsity to terminate outstanding employee stock options
estimated at $4.9 million, payments on change in control provisions contained in
certain Varsity employees' contracts estimated at $0.3 million and costs of
bridge loan commitments of $3.0 million.
SEASONALITY
The Company's businesses are highly seasonal. Riddell's operations in
recent years have been most profitable in the first through third quarters of
each calendar year, with offsetting losses occurring in the fourth quarter.
Varsity's net income has historically been generated in the second and third
quarters of the calendar year while its first and fourth quarters have resulted
in net losses. See 'Business--The Company--Seasonality and Backlog' for further
discussion of the causes of these seasonal patterns. These seasonal patterns
have been heightened by a decrease in Riddell's sales of sports collectible
products sold to retailers during the first quarter of 1997 which resulted in a
near break even loss for Riddell in the period. Riddell believes that the
decline was due to a change in the seasonal pattern in the sale of these
products due to differences in the timing of the product introductions and
deliveries which had shifted sales of these products into the first quarter
during the previous two years. See '--Riddell--Results of Operations--Three
Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996.'
The following table sets forth certain unaudited operating results of
Riddell and Varsity on a pro forma basis for each of the four consecutive
quarters in the period ending December 31, 1996, after giving effect to the
Transactions as if they had occurred on January 1, 1996. This information should
be read in conjunction with 'Unaudited Pro Forma Condensed Combined Financial
Data' and the Consolidated Financial Statements and the related notes thereto of
Riddell and Varsity included elsewhere in this Prospectus.
PRO FORMA
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
Year ended December 31, 1996:
Total revenues............... $26,260 $51,265 $57,779 $25,527
Operating income (loss)...... (880) 7,173 8,178 (1,499)
Net income (loss) from
continuing operations...... (2,486) 2,464 2,803 (3,736)
Riddell sells a portion of its competitive football products and
reconditioning services on dated payment terms with payments from customers
(primarily high schools and colleges in these cases) generally due the following
July to October period. Accordingly, trade receivables increase throughout the
year as sales are made on these dated payment terms. The increase in trade
receivables continues throughout an annual cycle until reduced at the end of the
cycle as the dated receivables become due. In order to finance the resulting
large
41
<PAGE>
receivable levels, Riddell has maintained a revolving line of credit. The
outstanding balance on the revolving line of credit generally follows the
seasonal receivable cycle described above, increasing as the level of
receivables increase until the fall of each year when collections of the dated
receivables are used to reduce the outstanding balance on the line.
Varsity's working capital needs have generally followed a similar pattern
reaching their peak at the end of the first calendar quarter and continuing
through the second quarter. This period follows Varsity's off-season period
during which it generates only nominal revenues while incurring expenditures in
preparation for its approaching business season. Varsity has typically incurred
seasonal borrowings during this period which it has historically eliminated
during the third quarter as it receives prepayments on camp tuition and fees.
After the Acquisition, the Company will use the New Credit Facility to
finance these seasonal working capital needs.
RIDDELL
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of Riddell as a
percentage of total net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues:
Net sales.................................... 93.1% 94.9% 96.6% 95.9% 96.9%
Royalty income............................... 6.9 5.1 3.4 4.1 3.1
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of sales.................................. 53.8 53.4 53.6 51.5 54.3
----- ----- ----- ----- -----
Gross profit................................... 46.2 46.6 46.4 48.5 45.7
Selling, general and administrative expenses... 38.1 34.8 35.0 35.2 38.8
Product liability expenses..................... 5.3 4.0 3.4 3.3 3.4
Product liability litigation loss.............. 8.3 -- -- -- --
Other charges.................................. 2.1 -- -- -- --
----- ----- ----- ----- -----
Income (loss) from operations.................. (7.6) 7.9 7.8 10.0 3.5
Interest expense............................... 3.6 4.2 3.8 3.2 3.6
Income taxes (credits)......................... (2.3) 0.1 0.2 0.3 --
----- ----- ----- ----- -----
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles................................... (8.9)% 3.5% 3.9% 6.5% (0.1)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Overview. Operations for the first quarter of 1997 resulted in a net loss
of $17,119, or $0.00 per share, compared to first quarter 1996 net income of
approximately $1.3 million or $0.15 per share. Total revenues for the three
months ended March 31, 1997 decreased by 6% to approximately $18.6 million from
approximately $19.8 million for the three months ended March 31, 1996.
Riddell realized gains in the sale of athletic products and services sold
directly to its Institutional customers of approximately 15% as further
discussed below. However, these gains were offset primarily by a decline in
sales of sports collectible products sold to retailers. In summary, the overall
decrease in profitability for the quarter was a result of the quarter's decline
in sales while related selling and marketing expenses continued at comparatively
fixed levels coupled with an increase in certain other expenses.
The effect of these factors are further described in the following
discussion of operating results by line item together with other matters having
a significant effect on Riddell's results of operations.
42
<PAGE>
Revenues. Net sales of Riddell's sports products and services segment
(which comprises all revenues other than trademark licensing royalties)
decreased by 5% to approximately $18.0 million for the three months ended March
31, 1997 from approximately $19.0 million during the comparable period of 1996.
Within this segment Riddell achieved gains in sales of competitive products and
services sold directly to schools and other Institutional customers. This gain
was offset by a decline in sales of sports collectible products sold to
retailers. Riddell also experienced a decrease in sales of other product lines
including competitive youth football products sold through recreational dealers
and products sold internationally.
Sales of competitive athletic products and services sold to schools and
other Institutions increased approximately $1.9 million or 15% in comparison to
the first quarter of 1996. Sales of reconditioning services, which increased 7%
over the first quarter of 1996, accounted for approximately $0.5 million of this
gain. This improvement reflects increased unit volume as well as moderate price
increases. Riddell benefitted from a volume increase in its core football helmet
and shoulder pad products. This has occurred as Riddell gains additional
experience marketing these items direct to Institutional customers (a change
adopted at the end of 1994 as discussed elsewhere in this Prospectus) and
continues to place emphasis on expanding sales of these products. Riddell
benefitted from initial sales of its newly introduced line of athletic practice
clothing and experienced strong growth in its line of baseball products
introduced last year. Sales of baseball products to Institutions have increased
as Riddell gains experience in selling the products and the products themselves
gain acceptance in the field.
Sales of sports collectible products sold to retailers for the first
quarter of 1997 decreased by approximately 42% or approximately $1.9 million, in
comparison to the first quarter of 1996. Riddell believes that the decline is
principally due to the trade adjusting its inventory intake based on Riddell's
improved order fulfillment record and to the timing of product introductions. In
the prior period, customers stockpiled inventory because of product shortages in
the preceding Christmas selling season. This led retailers to take inventory
early to ensure availability for later in the year. During 1996, Riddell
demonstrated sufficient order fulfillment capability which allows retailers to
postpone orders and to match inventory receipt more closely with consumer
demand.
In the first quarter of 1996, Riddell also benefitted from sales of sports
collectible products which were in their introductory phase, such as Riddell's
miniature hockey goalie mask. In contrast, Riddell had no new products shipping
in volume during the first quarter of 1997. While Riddell has several new
collectible products slated for 1997 introduction, these will not be available
for shipment in volume until the second and third quarter of the year. These new
products include a line of miniature baseball helmets bearing major league
baseball logos, and a line of miniature collectibles based on the Star Wars
Trilogy(Registered) which is the first line of retail collectible products sold
by Riddell that is not associated with sports.
Royalty income from trademark licensing decreased by approximately $0.2
million or 30%, to approximately $0.6 million for the three months ended March
31, 1997 from approximately $0.9 million during the comparable period of 1996.
This decrease was primarily attributable to a decline in royalties from the
licensing of the MacGregor trademark which decreased by 26%, or approximately
$0.2 million. MacGregor licensing income decreased principally due to a decline
in royalties from Kmart. Additionally, as discussed elsewhere in this
Prospectus, licenses which had accounted for approximately $80,000 of royalties
in the first quarter of 1996 expired at the end of 1996. Royalties from the
licensing of the Riddell trademark decreased 53%, or approximately $40,000. The
decrease results from a decline in royalties realized from Riddell's licensee
for the Riddell trademark on athletic footwear. The Riddell footwear licensee
remains in bankruptcy proceedings as discussed elsewhere in this Prospectus. The
licensee must continue to comply with the terms of the license, including
payment of royalties. On June 20, 1997, the Company entered into the Settlement
Agreement, the finalization of which is conditioned upon, among other things,
obtaining the approval of three bankruptcy courts. The Settlement Agreement
requires the Company, among other things, to assign to the Levitt Trustees (or
any successor trustee or other person approved by the New Jersey Bankruptcy
Court) and to Brooks up to $3.0 million of royalties from the 'Riddell' footwear
license, to the extent such royalties are paid under this or any footwear
license replacing the current footwear license. See 'Business--The Company--
Legal Proceedings-- Memorandum of Understanding and Settlement Agreement.'
Gross Profit. Gross profit decreased by 12%, to approximately $8.5 million
for the three months ended March 31, 1997 from approximately $9.6 million during
the comparable period in 1996. The decline includes a
43
<PAGE>
decrease in gross profits from sports products and services as well as the
decline in royalty income from trademark licensing discussed above. While
trademark licensing does have certain costs included in selling, general, and
administrative expenses, there are no related costs which are deducted in
arriving at gross profit. Accordingly, each increase or decrease in royalty
income results in an equal change in gross profit.
Gross profit attributable to the sports products and services segment
decreased by 10%, to approximately $7.9 million for the three months ended March
31, 1997 from approximately $8.8 million during the comparable period in 1996.
Gross profit margin rates for the segment decreased to 43.9% of sales for the
three months ended March 31, 1997 compared to 46.4% of sales for the three
months ended March 31, 1996. The decrease in gross profits and gross margin
rates is principally due to the overall decline in sales discussed above, which
impacted gross margin rates through decreased efficiencies arising from lower
utilization of fixed cost operations. Margins were also negatively impacted by
increased reconditioning costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to approximately $7.2 million for the three
months ended March 31, 1997 from approximately $7.0 million for the three months
ended March 31, 1996. The increase is principally due to an increase in
litigation related legal expenses of approximately $0.4 million. Additionally,
overall selling and marketing expenses remained relatively constant despite the
decrease in sales discussed above due to the fixed nature of a large portion of
these costs. An increase in promotional and other variable selling expenses
incurred to generate the increase in sales of competitive athletic products
offset any reduction in variable expenses related to the decrease in sales of
sports collectible products. Legal expenses are anticipated to remain at high
levels through the remainder of the year.
Interest Expense. Interest expense increased 6%, or $38,753, to
approximately $0.7 million for the first quarter of 1997. This increase reflects
an increase in average debt levels offset in part by a decline in average
interest rates. Debt increased due to increases in working capital and overall
decreases in non-interest bearing liabilities. Average interest rates declined
principally due to the November 1996 sale of $7.5 million of 4.1% Convertible
Subordinated Notes. As discussed elsewhere in this Prospectus, the proceeds of
the sale of these notes were used, in part, to repay indebtedness which carried
a higher interest rate.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Overview. Operations for the year ended December 31, 1996, resulted in a
20% increase in net income before an extraordinary item to approximately $2.8
million, or $0.34 per share, in comparison to 1995 earnings of approximately
$2.4 million or $0.29 per share. Tax expense for both 1996 and 1995 was reduced
by the benefit of net operating loss carryforwards recognized during the years.
The recognition of these tax benefits had the effect of decreasing tax expense
approximately $1.2 million, or $0.14 per share, in 1996 and approximately $0.9
million, or $0.11 per share, in 1995. Riddell anticipates that any remaining
unrecognized net operating loss benefit for financial reporting purposes would
be phased out upon the generation of approximately $2.0 million in future income
before tax.
An extraordinary item in 1995 consisted of a $1.9 million charge to
establish a provision for costs related to certain fraudulent transfer
litigation. At the time the provision was established, a settlement had been
agreed to between the parties. However, as described in 'Business--The Company--
Legal Proceedings,' the proposed settlement never materialized and the
litigation remains ongoing.
In 1996, Riddell benefitted from increased sales volume over most of its
product lines which, combined with a favorable sales mix, improved Riddell's
gross margins from sales of sports products and services. These gains were
offset by a decrease in royalties from trademark licensing. The impact of the
volume and margin gains were also offset in part by increased selling costs
resulting from increased promotional expenses and higher commissions.
These factors are further described in the following discussion of
operating results by line item, together with other matters having a significant
effect on Riddell's results of operations.
Net Sales. Net sales of Riddell's sports products and services segment
(which includes the manufacture, sale and reconditioning of football helmets,
other athletic products and sports collectible products) increased 10% to
approximately $69.9 million in 1996 from approximately $63.6 million in 1995.
Riddell experienced sales gains in most of its product lines, including overall
increases in sales of athletic products, sports collectible products and
reconditioning services.
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<PAGE>
Sales of competitive athletic products increased 8% to approximately $27.3
million in 1996 from approximately $25.3 million in 1995. Sales of these
products, principally football helmets and shoulder pads sold to schools and
other Institutions, reflects increased volume and selected price increases to
offset rising costs. Unit volume increases have occurred as Riddell has gained
experience in direct distribution of Institutional products, a change that has
been implemented over the past two years. Riddell is also benefitting from other
actions taken in recent periods to increase Institutional sales. These actions
include increases in the number of salesmen calling on schools, more intensive
sales training, incremental field sales managers, new sales incentive programs,
and the introduction of additional athletic products. Riddell also benefitted
from an increase in the volume of competitive youth products which continue to
be sold by independent dealers and distributors to youth recreational groups
such as Pop Warner rather than to elementary schools. Riddell experienced an
anticipated decline in sales of these products in 1995 as many dealers stopped
purchasing Riddell youth products when they were no longer offered Riddell's
Institutional product lines. Sales of youth products have increased as Riddell
has expanded its distribution through new dealers and distributors.
Riddell believes that it will be able to further increase sales of athletic
products sold to Institutions as it continues to gain experience in direct sales
of its traditional product lines as well as newer lines of products such as
baseball equipment. Riddell also anticipates it can expand sales in this area
through the introduction of additional products such as its new line of athletic
practice clothing introduced late in 1996 for the 1997 season. However, there
can be no assurance that such sales increases will materialize.
Sales of reconditioning services increased 3% to approximately $21.7
million in 1996 from approximately $21.0 million in 1995. This improvement was
principally due to moderate price increases.
Sales of sports collectible products increased approximately 20% to
approximately $20.8 million in 1996 from approximately $17.3 million in 1995.
This improvement was due to increased volume in sales of Riddell's line of
miniature helmets, including miniature hockey goalie masks, which Riddell
started shipping in late 1995. Sales of consumer products have been the
strongest area of growth for Riddell in recent periods. Riddell is continuing to
place a high level of marketing emphasis on the retail collectible business and
has recently introduced two new product lines which will begin shipping in 1997.
These include miniature baseball helmets and miniature collectibles based on the
Star Wars Trilogy, Riddell's first line of retail collectible products not
associated with sports.
Royalty Income. Royalty income decreased 27% to approximately $2.5 million
in 1996 from approximately $3.4 million in 1995. MacGregor licensing royalties
decreased 20% in 1996 to approximately $2.1 million from approximately $2.7
million in 1995 due a to decline in royalties from Kmart and the inclusion in
1995 of certain non-recurring royalties. Royalties from other MacGregor
licensees remained stable at minimum contractual levels. Royalty income for 1996
included approximately $0.3 million in royalties from licenses which expired at
the end of 1996. The larger of these two licenses was with Thom McAn which had
licensed the MacGregor trademark for athletic shoes but has withdrawn from the
athletic shoe market in recent years. See '--MacGregor Trademark' and
'Business--Riddell--Trademarks, Service Marks and License Agreements.'
Royalties from the licensing of the Riddell trademark decreased 52% to
approximately $0.4 million in 1996 from approximately $0.8 million in 1995. The
decline was principally due to two previously announced events which took place
near the end of 1995. First, Riddell terminated a license for certain athletic
equipment due to the licensee's failure to pay royalties. Secondly, Riddell
revised the terms of a license for Riddell branded leisure apparel in
conjunction with the related licensee's restructuring of its product lines. The
revised leisure apparel license called for a lower level of minimum royalties
than those paid in 1995. Riddell also saw a decrease in royalties received from
its Riddell athletic footwear licensee as the licensee offset certain amounts
against royalties due Riddell in 1996. While the Riddell footwear licensee has
resumed payment of royalties to Riddell, the licensee remains in bankruptcy
proceedings. Although this licensee must continue to comply with the terms of
the license, including payment of royalties, in view of the contested bankruptcy
of the licensee, there can be no assurance that royalties will be received in
the long term from this licensee. See '--MacGregor Trademark' and 'Business--
Riddell--Trademarks, Service Marks and License Agreements.'
Gross Profit. Gross profit attributable to the sports products and
services segment increased 12% to approximately $31.1 million in 1996 from
approximately $27.8 million in 1995. Gross profit margin rates for the
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<PAGE>
segment increased to 44.5% of sales in 1996 from 43.7% of sales for 1995. The
increase in gross profit is principally due to sales increases discussed above.
Other factors contributing to the improvement in gross margins were changes to
the sales mix, efficiencies due to higher volumes and selective price increases
taken to offset rising costs.
While trademark licensing does have certain costs including selling,
general and administrative expenses, there are no costs which are deducted in
arriving at gross profit. Accordingly, each incremental dollar of royalty income
results in a dollar increase in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 9% to approximately $25.4 million in 1996 from
approximately $23.3 million in 1995. These increases are attributable to higher
levels of selling, marketing and promotional expenses relating to Riddell's
sales of competitive athletic products sold to schools and other Institutions.
These selling expense increases were incurred in taking certain actions to
increase sales of competitive athletic products as discussed above. These
increases in selling expenses were offset in part by a modest decline in
administrative expenses with the end result that overall selling, general and
administrative expenses remained relatively stable as a percentage of revenues,
increasing to 35.0% of revenues in 1996 from 34.8% of revenues in 1995. In 1996,
Riddell charged $0.5 million of legal expenses relating to the Mac I fraudulent
transfer action against a reserve established for the matter in 1995. See
'Business--The Company--Legal Proceedings.' Had this reserve not existed, these
amounts would have been charged against selling, general and administrative
expenses in 1996.
Product Liability Expenses. Product liability expenses showed a moderate
decrease in 1996. See 'Business--The Company--Product Liability Proceedings and
Insurance.'
Interest Expense. Interest expense was relatively stable at approximately
$2.8 million between the two years with an overall decrease of approximately 1%.
An overall decrease in average interest rates was offset, in part, by increases
in average indebtedness relating to increased levels of overall business volume.
A substantial portion of Riddell's borrowings are based on its bank's prime
rate, which averaged 8.27% in 1996, a 6% decrease from an average rate of 8.83%
in 1995. Average interest rates also decreased as a result of Riddell's issuance
of a $7.5 million, 4.1% convertible subordinated note in November 1996. The
majority of the proceeds of this note were used to repay indebtedness which
carried higher interest rates.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Overview. Operations for the year ended December 31, 1995, resulted in a
significant improvement over 1994 operating results. Earnings before an
extraordinary item, for the year were approximately $2.4 million, or $0.29 per
share. This compares to a loss of approximately $4.9 million, or $0.62 per
share, for fiscal 1994. The 1994 operations generated net losses due, in large
part, to approximately $6.5 million of pre-tax charges including: (1) a $4.6
million charge for a product liability verdict (subsequently settled) and (2)
approximately $1.9 million of non-recurring costs relating to Riddell's
transition to direct sales of athletic equipment used by schools and other
Institutions, including a special transitional sales return program for
discontinued dealers. The 1995 income reflects lower than normal tax expense due
to the benefit of a net operating loss carry forward which was recognized during
the year. The recognition of this tax benefit had the effect of decreasing tax
expense approximately $0.9 million, or $0.11 per share, for 1995.
An extraordinary item in 1995 consisted of a $1.9 million charge to
establish a provision for costs related to certain fraudulent transfer
litigation. This provision had been recorded in light of a settlement which had
been proposed at the time, but which subsequently failed to materialize. See
'Business--The Company--Legal Proceedings.'
Excluding the effect of the approximately $6.5 million in pre-tax charges
for 1994 discussed above, operating income before interest and taxes for 1995
increased approximately 130% to approximately $5.3 million in 1995 from
approximately $2.3 million in 1994.
Operations for the 1995 and 1994 periods must be viewed in the context of
changes that were occurring at the time in Riddell's method of distributing
competitive athletic equipment used by schools and other Institutions and by
Riddell's increased emphasis on the marketing of sports collectible products. In
October 1994 Riddell announced a significant change in its method of
distributing Institutional products. Sales of these products,
46
<PAGE>
principally football helmets, shoulder pads and related accessories, had
historically been made to independent team sports dealers for resale to schools
and other Institutions. At the end of 1994 Riddell started marketing these
products to schools and other Institutions on a factory direct basis. While the
unit volume of certain products declined in 1995, as was anticipated given the
magnitude of this difficult change, overall margins on competitive products
increased.
Riddell benefitted from substantial increases in sales of collectible
sports products which continue to be the strongest area of growth for Riddell.
Profits from these sales were the leading contributor to the increase in
operating profitability. Riddell also benefitted from certain managed expense
reductions.
The effects of these factors are described in the following discussion of
operating results by line item, together with other matters having a significant
effect on Riddell's results of operations.
Net Sales. Net sales of Riddell's sports products and services segment
increased 23% to approximately $63.6 million in 1995 from approximately $51.6
million in 1994. Sales of competitive athletic products were stable in
comparison to 1994 levels with an increase of less than 1% after adjusting to
eliminate the effect of a special transitional return program for discontinued
dealers, which had decreased 1994 sales by $1.4 million. As a result of the
change to direct sales, the selling prices of these products increased due to
Riddell's ability to capture a portion of the former dealers' markup to
Institutional customers. The increases were offset by a decline in the unit
volume of these competitive athletic products. Riddell anticipated the potential
of a decline in new equipment volume due to the complexity of converting its
Institutional sales organization to a factory direct basis.
Sales of sports collectible products nearly doubled in 1995 increasing
approximately 94% from approximately $8.9 million in 1994 to approximately $17.3
million in 1995. Sales of these consumer products, which had also increased more
than 80% between 1993 and 1994, have been the strongest area of growth for
Riddell in recent periods due to an overall increase in marketing focus,
including the introduction of a new line of miniature football helmets in 1994.
Sales of reconditioning services increased 12% to approximately $21.0
million in 1995 from approximately $18.8 million in 1994. The year-to-date
increase in reconditioning sales was principally due to increased volume from
Riddell's acquisition of Raleigh Athletic Equipment Corporation in January 1995.
Royalty Income. Royalty income decreased 11% to approximately $3.4 million
in 1995 from approximately $3.8 million in 1994. MacGregor licensing royalties
increased 4% to approximately $2.7 million in 1995 from approximately $2.6
million in 1994 due to increased royalties from Kmart and certain non-recurring
royalties. Royalties from other MacGregor licensees remained stable at minimum
contractual levels (licensees generally pay Riddell the higher of royalties
based on a percentage of their related business volume or an annual minimum
guaranteed royalty).
The increase in MacGregor royalties was offset by a decline in royalties
from the licensing of the Riddell trademark. Riddell royalties decreased 40% to
approximately $0.8 million in 1995 from approximately $1.3 million in 1994. In
addition to current royalties, Riddell licensing income for 1994 had included
approximately $0.5 million received from its Riddell athletic footwear licensee
at the time certain litigation between the licensee and Riddell was settled.
Royalties from the Riddell athletic footwear licensee were approximately $0.3
million for 1995.
Gross Profit. Gross profit attributable to the sports products and
services segment increased 28% to approximately $27.8 million in 1995 from
approximately $21.8 million in 1994. Gross profit margin rates for the segment
increased to 43.7% of sales in 1995 from 42.2% of sales for 1994. The increase
in gross margin rates reflects a number of factors. First, Riddell experienced
increased margins on competitive protective athletic products sold to schools
and other Institutions due to Riddell's ability to capture a portion of the
former dealers' markup to Institutional customers as a result of the change to
direct sales. However, this increase was offset somewhat by the effect of the
unit volume decreases of these products discussed above. These volume decreases
resulted in higher unit costs since fixed manufacturing and distribution
overhead costs do not vary with lower volume. Margin rates were also favorably
impacted by increases in sales of sports collectible products, as the increases
were in product lines which carry margins higher than the average for other
products.
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<PAGE>
While trademark licensing does have certain costs including selling,
general and administrative expenses, there are no costs which are deducted in
arriving at gross profit. Accordingly, each incremental dollar of royalty income
results in a dollar increase in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 11% to approximately $23.3 million in 1995
from approximately $21.1 million in 1994. These increases are attributable to
increased selling and marketing expenses relating to both Riddell's change to
Institutional sales for competitive products sold to schools and other
Institutions and Riddell's increased efforts in the marketing and sales of
sports collectible products. These increases also include related costs
associated with operations acquired during the past year. The increased selling
and marketing expenses were offset by managed reductions in administrative
expenses of approximately $0.5 million. As a result of these reductions and
sales volume increases, overall selling, general and administrative expenses
decreased as a percentage of revenues from 38.1% of revenues in 1994 to 34.8% of
revenues in 1995, despite the increased marketing efforts. Legal expenses
relating to non-operating litigation matters remained relatively constant in
relation to 1994 levels.
Product Liability Expenses. Product liability expenses decreased 65% to
approximately $2.7 million in 1995 from approximately $7.5 million in 1994, as
1994 expense included the effects of a $1.5 million adjustment to product
liability reserves taken in the fourth quarter, and the effects of a $4.6
million charge (reported as a separate item in Riddell's Consolidated Statement
of Operations for the year ended December 31, 1994). Product liability expense
for 1995 was impacted by the cost of an insurance program implemented at the end
of 1994, which exceeded that expense in the prior year by approximately $1.0
million. See 'Business--The Company--Product Liability Proceedings and
Insurance.'
Interest Expense. Interest expense increased 40% in 1995 to approximately
$2.8 million from approximately $2.0 million in 1994. The increase was due to an
increases in average interest rates and average indebtedness during the year. A
substantial portion of Riddell's borrowings are based on its bank's prime rate.
The average prime rate for 1995 was 8.83%, a 24% increase over the average prime
rate of 7.14% in 1994. The prime rate was 8.5% at December 31, 1995. Average
indebtedness increased due to increased working capital demands.
MACGREGOR TRADEMARK
Riddell acquired certain rights to the MacGregor trademark and related
license agreements as part of an acquisition in 1988 at an allocated cost of
approximately $20.1 million. Riddell is amortizing the trademark rights over a
period of forty years, and the license agreements over their terms. The
unamortized cost of these assets included in intangible assets at December 31,
1996 was approximately $14.4 million. See Note 4 to the Consolidated Financial
Statements of Riddell included elsewhere in this Prospectus. Riddell considers
licensing revenues derived from the MacGregor trademark rights to be a material
part of its business. A material decline in the royalties from the MacGregor
trademark rights could have a material adverse effect on Riddell's results of
operations. Furthermore, if there were a material decline in the revenues from
the MacGregor trademark, then the carrying amount of the MacGregor trademark
rights could be deemed to have been impaired. A write-down for such impairment
could have a material adverse effect on Riddell's financial position and results
of operations. As disclosed in 'Business--Riddell--Trademarks, Service Marks and
License Agreements,' Riddell and Meldisco recently reached an agreement in
principal, subject to negotiation and execution of final documentation, that
Meldisco will continue to sell athletic footwear bearing the MacGregor trademark
at Kmart stores pursuant to a license expected to be effective when the Kmart
license expires in 1998. Kmart has an exclusive license to use the MacGregor
trademark on certain athletic apparel (e.g., jogging suits and sweat separates),
athletic bags and knapsacks and a non-exclusive license on other products such
as athletic socks. Riddell plans to establish a new license for the apparel
category effective when the Kmart license expires in 1998. While Riddell
believes it will be successful in renewing or replacing the license in a manner
which will continue to generate revenues sufficient to support the carrying
value of the trademark rights, there can be no assurance that it will be
successful in doing so.
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<PAGE>
VARSITY
GENERAL
Over the past three years, Varsity's revenues and net income have grown
substantially. Revenues have grown from approximately $62.6 million in the
twelve-month period ended December 31, 1994 to approximately $88.4 million in
the twelve months ended December 31, 1996, and net income has grown from
approximately $3.8 million in the twelve months ended December 31, 1994 to
approximately $5.2 million in the twelve months ended December 31, 1996. This
growth is due to Varsity's strategy of expanding its school spirit product lines
and sales force, increasing enrollment in its cheerleader and dance team camp
sessions increasing participation in special events such as parades and bowl
games and visibly promoting its business, as well as the school spirit industry,
primarily through nationally televised cheerleading and dance team
championships. In addition, in December 1994, Varsity acquired the group tour
business of Intropa International/USA, Inc., with whom Varsity had worked in the
past in promoting its international and domestic travel events, further
contributing to revenue growth from Varsity's special events. In May 1996,
through its subsidiary, Varsity USA, Inc. ('USA'), Varsity purchased the camp
business of United Special Events, Inc., a California-based company with a
strong position in the western region of the United States, which complemented
Varsity's existing camp operations. Varsity plans to increase its revenues and
market penetration in the future by continuing to implement its growth strategy
(primarily focusing on the youth, junior high, high school, and junior college
markets) and by utilizing its reputation for quality, design, and on-time
delivery of its cheerleading and dance uniforms and for professional instruction
and supervision at its cheerleader and dance team camps and special events.
Varsity is also analyzing new growth opportunities in the school spirit and
cheerleading industries.
Effective April 1994, Varsity changed its fiscal year end from March 31 to
December 31. Therefore, the fiscal period ended December 31, 1994 consists of a
nine-month period as compared to the twelve-month period ended December 31,
1995. Accordingly, a discussion of significant changes between the twelve-month
periods ended December 31, 1995 and 1994, has also been included herein. Each of
these discussions should be read with the discussion set forth above under
'--Seasonality.'
RESULTS OF OPERATIONS
The following table sets forth statement of income data of Varsity as a
percentage of total net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MOS.
NINE MOS. TWELVE MOS. YEAR ENDED ENDED
ENDED ENDED DEC. DECEMBER 31, MARCH 31,
DEC. 31, 31, -------------- --------------
1994 1994 1995 1996 1996 1997
--------- ----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Uniforms and accessories..................... 60.2% 60.1% 58.3% 55.9% 35.5% 33.7%
Camps and events............................. 39.8 39.9 41.7 44.1 64.5 66.3
--------- ----------- ----- ----- ----- -----
Total........................................ 100.0 100.0 100.0 100.0 100.0 100.0
--------- ----------- ----- ----- ----- -----
Cost of revenues:
Uniforms and accessories..................... 31.3 31.7 31.0 30.3 25.2 23.9
Camps and events............................. 28.2 28.3 30.6 30.3 48.2 45.5
--------- ----------- ----- ----- ----- -----
Gross profit................................... 40.5 40.0 38.4 39.4 26.6 30.6
Selling, general and administrative expenses... 27.1 30.2 30.0 29.8 66.2 65.4
--------- ----------- ----- ----- ----- -----
Operating income (loss)........................ 13.4 9.8 8.4 9.6 (39.6) (34.8)
Other income (expense)......................... 0.3 0.3 0.2 0.1 0.7 0.7
--------- ----------- ----- ----- ----- -----
Income (loss) before taxes on income........... 13.7 10.1 8.6 9.7 (39.0) (34.1)
Taxes (benefit) on income...................... 5.4 4.0 3.1 3.9 (15.5) (13.5)
--------- ----------- ----- ----- ----- -----
Net income (loss).............................. 8.3% 6.1% 5.5% 5.8% (23.5)% (20.5)%
--------- ----------- ----- ----- ----- -----
--------- ----------- ----- ----- ----- -----
</TABLE>
49
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues. Total revenues increased 30.0% to approximately $8.3 million in
the three months ended March 31, 1997 from approximately $6.4 million in the
three months ended March 31, 1996.
Revenues from the sale of uniforms and accessories increased by 23.6% to
approximately $2.8 million in the three months ended March 31, 1997 from
approximately $2.3 million in the three months ended March 31, 1996. This
increase was primarily attributable to a strong increase in campwear and
accessories sales at Varsity's annual championship events for college
cheerleading and dance, high school cheerleading, high school dance and All
Stars (as hereinafter defined).
Camp and event revenues increased by 33.5%, to approximately $5.5 million
in the three months ended March 31, 1997, from approximately $4.1 million in the
three months ended March 31, 1996. This increase was primarily attributable to
approximately $1.0 million of additional championships and special events
revenues associated with the USA camp business acquired in May 1996, combined
with a current period increase in the number of participants at each of the
college cheerleading and dance, high school dance and the All Star
championships.
Gross Profit. Gross profit increased by 49.9% to approximately $2.6
million in the three months ended March 31, 1997 from approximately $1.7 million
in the three months ended March 31, 1996.
Gross profit from the sale of uniforms and accessories as a percentage of
such sales increased to 29.1% in the three months ended March 31, 1997 from
28.9% in the three months ended March 31, 1996. This increase is primarily due
to the increase in campwear and accessories sales at Varsity's national
championships, which have slightly higher margins than the Varsity's other
purchased product lines.
Gross profit margins associated with camps and special events as a
percentage of such sales increased to 31.4% in the three months ended March 31,
1997 from 25.2% for the three month period ended March 31, 1996. The gross
profit margins were positively impacted by the higher gross profit margins
realized by the championships and special events associated with the recently
acquired USA camp business, as compared to Varsity's other such events. Further,
economies of scale were realized by spreading Varsity's related fixed costs over
a larger revenue base.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses in the three months ended March 31, 1997 were
approximately $5.5 million as compared to approximately $4.3 million in the
three months ended March 31, 1996. Selling, general and administrative expenses
as a percentage of sales decreased to 65.4% for the three months ended March 31,
1997 from 66.2% in the three months ended March 31, 1996, primarily due to the
economies of scale realized by spreading all of Varsity's administrative costs
over a greater revenue base. The increase of approximately $1.2 million in
selling, general and administrative expenses was primarily due to increases of
approximately $0.7 million in payroll and personnel costs, including
approximately $63,000 in additional selling commissions and related expenses,
and approximately $0.2 million attributable to USA personnel. There were also
increases of approximately $0.3 million of operating costs (excluding payroll)
incurred by USA, and approximately $65,000 associated with equipment repairs.
Additional depreciation expense of approximately $76,000, primarily relating to
recent acquisitions of computer equipment and software, also contributed to the
increase.
Net Loss. The net loss increased 13.7% to approximately $1.7 million for
the three months ended March 31, 1997 as compared to approximately $1.5 million
in the same period last year. The increase in the loss is primarily attributable
to an increase of approximately $1.2 million in operating costs, partially
offset by an increase of approximately $0.9 million in gross profit. The net
loss per share for the period was $0.36 as compared to $0.32 for the same period
last year.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 17.1% to approximately $88.4 million in
the year ended December 31, 1996 from approximately $75.5 million in the year
ended December 31, 1995.
Revenues from the sale of uniforms and accessories increased 12.3% to
approximately $49.5 million in the year ended December 31, 1996 from
approximately $44.0 million in the year ended December 31, 1995. The
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increase was primarily attributable to a strong increase in shoe and accessory
sales combined with an 8.5% sales growth in other product lines. Other factors
contributing to the sales increase include a combination of expansion within
existing product lines and the introduction of new designs, and, to a much
lesser extent, a small price increase on certain items. In addition, Varsity
increased its inventory levels in an effort to service greater anticipated
demand. The increased availability of inventory further contributed to the sales
volume increases by improving on-time delivery.
Camp and event revenues increased approximately $7.5 million, or 23.9%, to
approximately $39.0 million in the year ended December 31, 1996 from
approximately $31.5 million in the year ended December 31, 1995. This increase
was primarily attributable to approximately $4.2 million of 1996 revenues
associated with the USA camp business acquired in May 1996, combined with higher
incremental revenues derived from a 21.4% increase in camp participants (or 7.1%
exclusive of USA participants), and a 3.7% increase in the average gross tuition
per camp participant during the 1996 summer season.
The revenue increase was also attributable to an increase in the number of
participants in the 1996 National High School Dance and Cheerleading
Championships as compared to the same events held in 1995 and to two new Company
sponsored championships, the All Star Championship in March 1996 and the
National Jumprope Championship in June 1996.
Gross Profit. Gross profit increased 20.1% to approximately $34.8 million
in the year ended December 31, 1996 from approximately $29.0 million in the year
ended December 31, 1995. Gross profit as a percentage of total revenues
increased to 39.4% in the year ended December 31, 1996 from 38.4% in the year
ended December 31, 1995.
Gross profit from sales of uniforms and accessories as a percentage of such
sales decreased to 45.7% in the year ended December 31, 1996 from 46.9% in the
year ended December 31, 1995. A significant portion of the overall sales
increase related to the purchased product lines, such as shoes and accessories,
which have lower margins than custom manufactured goods, such as uniforms.
Specifically, 46.4% of the revenues from merchandise was attributable to the
sale of uniforms and 53.6% to the sale of accessories in the year ended December
31, 1996, compared with 47.7% of such revenue attributable to uniforms, and
52.3% to accessories in the year ended December 31, 1995. Varsity expects this
shift in mix to continue for the foreseeable future.
Gross profit margins associated with camps and special events increased to
31.3% in the year ended December 31, 1996 from 26.5% in the year ended December
31, 1995. This increase was primarily due to more efficient staffing at summer
camps, resulting in savings in instructor payroll, travel and training costs.
The increase is also attributable to economies of scale realized from spreading
certain administrative costs over a larger number of camp participants and to
decreased travel costs associated with Varsity's group tour business. The gross
profit margins were negatively impacted in 1996 by the lower gross profit
margins realized by the camp business acquired in May 1996 by USA, as compared
to Varsity's other camp business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 16.4% to approximately $26.4 million in 1996
from approximately $22.7 million in 1995. Selling, general and administrative
expenses as a percentage of sales decreased to 29.8% for the year ended December
31, 1996 from 30.0% for the year ended December 31, 1995, primarily due to the
economies of scale realized by spreading all of Varsity's fixed administrative
costs over a greater revenue base. The increase of $3.7 million in selling,
general and administrative was partially due to increases of approximately $2.8
million in payroll and personnel costs, including approximately $0.7 million in
additional selling commission and related expenses, approximately $0.3 million
in additional consulting fees, partially associated with the additional
championships and approximately $0.5 million attributable to USA personnel.
There were also increases of approximately $0.4 million of operating costs
(excluding payroll) incurred by USA, approximately $0.1 million of additional
costs associated with the publication and distribution of annual catalogs and
brochures, and approximately $0.3 million in additional telephone expenses.
Additional depreciation expense of approximately $0.3 million, primarily related
to recent acquisitions of computer equipment and software, contributed to the
increase.
Income Taxes. As a result of the above, income before income taxes
increased 32.4% to approximately $8.6 million for the year ended December 31,
1996 from approximately $6.5 million for the year ended December 31, 1995. The
effective income tax rate was 39.6% for the year ended December 31, 1996
compared
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with 36.0% for the year ended December 31, 1995. The increase in the effective
tax rate primarily results from the favorable settlement of a tax matter in the
year ended December 31, 1995.
Net Income. Net income increased 25.0% to approximately $5.2 million in
the year ended December 31, 1996 from approximately $4.2 million in the year
ended December 31, 1995 and net income per share increased by 23.6% to $1.10 per
share in the year ended December 31, 1996 from $0.89 per share in the year ended
December 31, 1995. The weighted average common shares and equivalent shares
increased to 4,734,000 in the year ended December 31, 1996 from 4,679,000 in the
year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1994
Revenues. Total revenues increased 26.7% to approximately $75.5 million in
the year ended December 31, 1995 from approximately $59.6 million in the nine
months ended December 31, 1994 ('short period').
Revenues from the sale of uniforms and accessories increased 22.8% to
approximately $44.0 million in 1995 from approximately $35.9 million in the
short period. The increase in uniform and accessory revenues was due to a
combination of new designs and expansion within existing product lines,
increased unit sales, and, to a much lesser extent, a small price increase on
certain items. Varsity also continued its early order sales incentive program
(first implemented in March 1994 and made available to all customers who
submitted orders prior to April 15), resulting in an increased response over the
prior year. In addition, Varsity increased its inventory levels in an effort to
service greater anticipated demand. The increased availability of inventory
further contributed to the sales volume increase by improving on-time delivery.
Camp and event revenues increased 32.6% to approximately $31.4 million in
1995 from approximately $23.7 million in the short period. This increase was due
to (1) incremental revenues of approximately $3.8 million recognized from the
group travel business of Intropa, which was acquired by Varsity in December,
1994, and (2) higher revenues derived from a combination of a 13.9% increase in
camp participants, to approximately 156,000 in the 1995 summer season from
approximately 137,000 in the 1994 summer season and an increase of 1.8% in gross
tuition per camp participant during the 1995 summer season. In addition,
calendar 1995 included revenues from the National Dance Team Championship held
in February, which were not included in the short period. These increases were
partially offset by decreases in participation in certain of Varsity-sponsored
holiday parade and bowl game performances in the last quarter of 1995, as
compared to record participation that it experienced at certain of these events
in the prior period.
Gross Profit. Gross profit increased 20.3% to approximately $29.0 million
in 1995 from approximately $24.1 million in the short period. Gross profit as a
percentage of total revenues decreased to 38.4% in calendar 1995 from 40.5% in
the short period.
Gross profit from sales of uniforms and accessories as a percentage of such
sales decreased to 46.9% in 1995 from 48.0% in the short period. The percentage
decrease was partially attributable to increases in overhead, including
additional facilities and warehouse space required to service increased sales
volumes. A portion of the remaining decrease was attributable to a shift in the
mix of products sold between uniforms, which have higher margins, and
accessories, which have lower margins. Specifically, 47.7% of the revenues from
merchandise were attributable to the sale of uniforms and 52.3% to the sale of
accessories in 1995, compared to 49.1% of such revenue attributable to uniforms
and 50.9% to accessories in the short period. Varsity expects this shift in mix
to continue in the future.
Gross profit margins associated with camps and special events decreased to
26.5% in 1995 from 29.1% in the short period. This percentage decrease was
partially attributable to greater than anticipated increases in instructor
payroll, travel, and training costs, which resulted from the 1995
regionalization of certain administrative functions in the summer camp program.
In addition, the gross margin generated by Intropa has historically been and is
expected to continue to be lower than the margin generated by Varsity in its
camps and other special events. Finally, Varsity incurred additional student
housing costs resulting from camp closings due to Hurricane Erin in the
Southeast and intense summer heat in the Midwest and Northeast. In certain
instances, Varsity was also required to pay guaranteed student housing costs
resulting from last-minute cancellations of camp reservations in excess of
cancellation fees received from the camp participants. These decreases were
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partially offset by improved margins earned on certain of the company-sponsored
1995 holiday parade and bowl game performances.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses in 1995 increased 40.7% to approximately $22.7 million,
or 30.0% of revenues in 1995, from approximately $16.1 million, or 27.1% of
revenues in the short period. This increase as a percentage of revenues
primarily reflects that the short period figures do not include the months of
January, February, and March, during which revenues are generally nominal and
during which considerable fixed selling, general, and administrative expenses
are incurred. The increase of approximately $6.6 million in selling, general,
and administrative expenses was partially due to an increase of approximately
$2.4 million in payroll and personnel costs, including approximately $1.3
million in increased selling commissions, sales representative training, and
other expenses which are impacted by increased sales volume, as well as
approximately $0.5 million in payroll costs attributable to Intropa personnel.
Varsity's results also include increases of approximately $0.7 million
attributable to additional fixed costs (including rent, depreciation, and
insurance) relating to the expansion of office and storage space, approximately
$0.3 million associated with the publication and distribution of annual catalogs
and brochures, and approximately $0.5 million of operating costs (excluding
payroll) incurred by Intropa. Postage/express mail and travel increased
approximately $0.4 million and approximately $0.3 million, respectively,
relating to an increased revenue and customer base.
Income Taxes. As a result of the above, income before income taxes
decreased 20.0% to approximately $6.5 million in 1995 from approximately $8.1
million in the short period. The effective income tax rate was 36.0% in 1995
compared to 39.6% in the short period. The decrease in the effective tax rate
primarily results from the favorable conclusion of an income tax examination and
a corresponding reversal reduction in the related tax accrual liability
recognized in the short period.
Net Income. Net income decreased 15.3% to approximately $4.2 million from
approximately $4.9 million in the short period and net income per share
decreased 16.8% to $.89 per share in 1995 from $1.07 per share in the short
period. The weighted average common shares and equivalent shares outstanding
increased to 4,679,000 in 1995 from 4,587,000 in the short period.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994 (UNAUDITED)
Revenues. Total revenues increased 20.6% to approximately $75.5 million in
the year ended December 31, 1995 from approximately $62.6 million in the year
ended December 31, 1994.
Revenues from the sale of uniforms and accessories increased 17.0% to
approximately $44.0 million in 1995 from approximately $37.6 million in 1994.
The increase in uniform and accessory revenues was due to a combination of new
designs and expansion within existing product lines, increased unit sales, and,
to a much lesser extent, a small price increase on certain items. Varsity also
continued its early order sales incentive program (first implemented in March,
1994 and made available to all customers who submitted orders prior to April
15), resulting in an increased response over the prior year. In addition,
Varsity has increased its inventory levels in an effort to service greater
anticipated demand. The increased availability of inventory has further
contributed to the sales volume increase by improving on-time delivery.
Camp and event revenues increased 26.0% to approximately $31.4 million in
1995 from approximately $25.0 million in 1994. The increase was due to (i)
incremental revenues of approximately $3.8 million recognized from the group
travel business of Intropa, which was acquired by Varsity in December, 1994, and
(ii) higher incremental revenues derived from a combination of a 13.9% increase
in camp participants, to approximately 156,000 in the 1995 summer season from
approximately 137,000 in the 1994 summer season, and (iii) an increase of 1.8%
in gross tuition per camp participant during the 1995 summer season. These
increases were partially offset by decreases in participation in certain of
Varsity-sponsored holiday parade and bowl game performances in the last quarter
of 1995, as compared to record participation that it had at certain of these
events in the prior year.
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Gross Profit. Gross profit increased 15.8% to approximately $29.0 million
in 1995 from approximately $25.0 million in 1994. Gross profit as a percentage
of total revenues decreased to 38.4% in 1995 from 40.0% in 1994.
Gross profit from sales of uniforms and accessories as a percentage of such
sales decreased to 46.9% in 1995 from 47.2% in 1994. The percentage decrease was
partially attributable to increases in overhead, resulting from additional
facilities and warehouse space required to service increased sales volumes. A
portion of the remaining decrease was attributable to a shift in the mix of
products sold between uniforms, which have higher margins, and accessories,
which have lower margins. Specifically, 47.7% of the revenues from merchandise
were attributable to the sale of uniforms and 52.3% to the sale of accessories
in 1995, compared to 49.1% of such revenue attributable to uniforms and 50.9% to
accessories in 1994. Varsity expects this shift in mix to continue in the
future.
Gross profit margins associated with camps and special events decreased to
26.5% in 1995 from 29.1% in 1994. This percentage decrease was partially
attributable to greater than anticipated increases in instructor payroll,
travel, and training costs, resulting from the 1995 regionalization of certain
administrative functions in the summer camp program. In addition, the gross
margin generated by Intropa has historically been and is expected to continue to
be lower than the margin generated by Varsity in its camps and other special
events. Finally, Varsity incurred additional housing costs resulting from camp
closings due to Hurricane Erin in the Southeast and intense summer heat in the
Midwest and Northeast. In certain instances, Varsity was also required to pay
guaranteed student housing costs resulting from last-minute cancellations of
camp reservations in excess of cancellation fees received from the camp
participants. These decreases were partially offset by improved margins earned
on certain of the 1995 Varsity-sponsored holiday parade and bowl game
performances.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses in 1995 increased 19.9% to approximately $22.7 million,
or 30.0% of revenues, from approximately $18.9 million, or 30.2% of revenues in
1994. The increase of approximately $3.8 million in selling, general, and
administrative expenses was partially due to an increase of approximately $1.7
million in payroll and personnel costs, including approximately $0.9 million in
increased selling commissions, sales representative training, and other related
selling expenses which are impacted by increased sales volume, as well as
approximately $0.5 million in payroll costs attributable to Intropa personnel.
Varsity incurred increases of approximately $0.3 million attributable to
additional fixed costs (including rent, depreciation, and insurance) relating to
the expansion of office and storage space, approximately $0.3 million associated
with the publication and distribution of annual catalogs and brochures, and
approximately $0.5 million of operating costs (excluding payroll) incurred by
Intropa. Postage/express mail and travel increased approximately $0.3 million
and approximately $0.2 million, respectively, relating to an increased revenue
and customer base.
Income Taxes. As a result of the above, income before income taxes
increased 3.2% to approximately $6.5 million in 1995 from approximately $6.3
million in 1994. The effective income tax rate was 36.0% in 1995 compared to
39.4% in 1994. The decrease in the effective tax rate primarily results from the
favorable conclusion of an income tax examination.
Net Income. Net income increased 9.0% to approximately $4.2 million from
approximately $3.8 million in 1994 and net income per share increased by 7.2% to
$.89 per share in 1995 from $.83 per share in 1994. The weighted average common
shares and equivalent shares outstanding increased to 4,679,000 in 1995 from
4,587,000 in 1994.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, 'Earnings Per Share' ('SFAS 128'), which
simplifies the standards for computing earnings per share ('EPS') previously
found in Accounting Principles Board 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
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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. The effect of adopting this new standard has not been determined.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Acquisition will have a significant impact on the Company's financial
condition. At March 31, 1997, Riddell had total consolidated indebtedness of
$35.1 million and Varsity had total consolidated indebtedness of $0.6 million.
On a pro forma basis, after giving effect to the Transactions, the Company's
total consolidated indebtedness would have been $135.2 million at that date.
After giving effect to the Offering and anticipated borrowings under the
New Credit Facility, interest payments on the Senior Notes and interest and
principal payments under the New Credit Facility will significantly increase the
interest charges of the Company. The Senior Notes will require semi-annual
interest payments commencing in January 1998. Borrowings under the New Credit
Facility bear interest at a variable rate. The New Credit Facility consists of a
five year revolving credit and working capital facility in a maximum amount not
to exceed $40.0 million through September 30, 1997 and $35.0 million thereafter
with amounts borrowed thereunder to be subject to a borrowing base of inventory
and accounts receivable. See 'The Acquisition' and 'Description of Other
Indebtedness--The New Credit Facility.'
In addition to its debt service obligations, the Company requires liquidity
for working capital and capital expenditures. The Company experiences seasonal
changes in its working capital as discussed under '--Seasonality' above. In
1996, combined capital expenditures were approximately $3.0 million which the
Company believes is representative of amounts to be expected in 1997.
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the New Credit Facility. Immediately after consummation of
the Transactions, approximately $27.3 million will be available to the Company
from borrowings under the New Credit Facility, subject to inventory and accounts
receivable levels on a pro forma basis at March 31, 1997, after giving effect to
the Transactions. The Company anticipates that its working capital requirements,
capital expenditures and debt service requirements for fiscal 1997 will be
satisfied through a combination of cash flow from operations and funds available
under the New Credit Facility.
55
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SENIOR NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Senior Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term 'Expiration Date' means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term 'Expiration Date' means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of the Old Senior Notes were outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1997, to all
holders of Old Senior Notes known to the Company. The Company's obligation to
accept Old Senior Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth below under
'--Certain Conditions to the Exchange Offer.'
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Senior Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Senior Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Senior Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable after
the expiration or termination of the Exchange Offer.
Old Senior Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Senior Notes not therefore
accepted for exchange, upon the occurrence of any of the events specified below
under '--Certain Conditions to the Exchange Offer.' The Company will give oral
or written notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Senior Notes as promptly as practicable, such notice in
the case of any extension to be issued by means of a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
PROCEDURES TOR TENDERING OLD SENIOR NOTES
The tender to the Company of Old Senior Notes by a Holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Senior Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to Marine Midland Bank, as
Exchange Agent, at the address set forth below under '--Exchange Agent' on or
prior to the Expiration Date. In addition, either (i) certificates for such Old
Senior Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
'Book-Entry Confirmation') of such Old Senior Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the 'Book-Entry Transfer Facility') pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD SENIOR NOTES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Senior Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of
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the Old Senior Notes who has not completed the box entitled 'Special Issuance
Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined herein). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States
(collectively, 'Eligible Institutions'). If Old Senior Notes are registered in
the name of a person other than a signer of the Letter of Transmittal, the Old
Senior Notes surrendered for exchange must be endorsed by, or be accompanied by
a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Company in its sole discretion, duly executed by, the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Senior Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Senior Notes not properly tendered or to not
accept any particular Old Senior Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Senior Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Senior Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old
Senior Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Senior Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Senior Notes for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Senior Notes, such Old Senior Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Old Senior Notes.
If the Letter of Transmittal or any Old Senior Notes or powers of attorney
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, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the New Senior Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Senior Notes, whether or not such person is the holder, and that neither the
holder nor such other person has any arrangement or understanding with any
person to participate in the distribution of the New Senior Notes. In the case
of a Holder that is not a broker-dealer, each such holder, by tendering, will
also represent to the Company that such holder is not engaged in, or does not
intend to engage in, a distribution of the New Senior Notes. If any Holder or
any such other person is an 'affiliate,' as defined under Rule 405 of the
Securities Act, of the Company, or is engaged in or intends to engage in or has
an arrangement or understanding with any person to participate in a distribution
of such New Senior Notes to be acquired pursuant to the Exchange Offer, such
Holder or any such other person (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Senior Notes for its own account in exchange for Old Senior Notes, where such
Old Senior Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Senior
Notes. See 'Plan of Distribution.' The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
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ACCEPTANCE OF OLD SENIOR NOTES FOR EXCHANGE; DELIVERY OF NEW SENIOR NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Senior
Notes properly tendered and will issue the New Senior Notes promptly after
acceptance of the Old Senior Notes. See '--Certain Conditions to the Exchange
Offer.' For purposes of the Exchange Offer, the Company shall be deemed to have
accepted properly tendered Old Senior Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent, with
written confirmation of any oral notice to be given promptly thereafter.
For each Old Senior Note accepted for exchange, the holder of such Old
Senior Note will receive a New Senior Note having a principal amount equal to
that of the surrendered Old Senior Note. The New Senior Notes will bear interest
from the most recent date to which interest has been paid on the Old Senior
Notes, or if no interest has been paid on the Old Senior Notes, from June 19,
1997. Accordingly, if the relevant record date for interest payment occurs after
the consummation of the Exchange Offer, registered Holders of New Senior Notes
on such record date will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid from June 19,
1997. If, however, the relevant record date for interest payment occurs prior to
the consummation of the Exchange Offer, registered Holders of Old Senior Notes
on such record date will receive interest accruing from the most recent date to
which interest has been paid, or if no interest has been paid, from June 19,
1997. Old Senior Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer, except as set forth in
the immediately preceding sentence. Holders of Old Senior Notes whose Old Senior
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Senior Notes otherwise payable on any interest payment date
the record date for which occurs on or after consummation of the Exchange Offer.
If the Exchange Offer is not consummated within the time period set forth herein
under the heading 'Description of the Senior Notes--Registration Rights;
Liquidation Rights,' special interest in the form of Liquidated Damages will
accrue and be payable on the Old Senior Notes until the Exchange Offer is
consummated.
In all cases, issuance of New Senior Notes for Old Senior Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Senior Notes
or a timely Book-Entry Confirmation of such Old Senior Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Senior Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Senior Notes are submitted for a
greater principal amount than the holder desired to exchange, such unaccepted or
non-exchanged Old Senior Notes will be resumed without expense to the tendering
holder thereof (or, in the case of Old Senior Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Old
Senior Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Senior Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Senior Notes by causing
the Book-Entry Transfer Facility to transfer such Old Senior Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Senior Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under '--Exchange Agent' on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
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GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Senior Notes desires to tender Old Senior
Notes held by such holder and such Old Senior Notes are not immediately
available, or time will not permit such holder's Old Senior Notes or other
required documents to reach the Exchange Agent before the Expiration Date, or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Issuer (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Senior Notes and the amount of Old Senior Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ('NYSE') trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Senior Notes, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal will
be deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Senior Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within three NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Senior Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
'--Exchange Agent.' Any such notice of withdrawal must specify the name of the
person having tendered the Old Senior Notes to be withdrawn, identify the Old
Senior Notes to be withdrawn (including the principal amount of such Old Senior
Notes), and (where certificates for Old Senior Notes have been transmitted)
specify the name in which such Old Senior Notes are registered, if different
from that of the withdrawing holder. If certificates for Old Senior Notes have
been delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Old Senior Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Senior Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Senior Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Senior
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Senior Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Senior Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Senior Notes) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Old Senior Notes may be
retendered by following one of the procedures described under '--Procedures for
Tendering Old Senior Notes' above at any time on or prior to the Expiration
Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Senior Notes in
exchange for, any Old Senior Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Senior Notes for
exchange or the exchange of the New Senior Notes for such Old Senior Notes, any
of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or
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assessing or seeking any damages as a result thereof, or (ii) resulting in
a material delay in the ability of the Company to accept for exchange or
exchange some or all of the Old Senior Notes pursuant to the Exchange
Offer; or any statute, rule, regulation, order or injunction shall be
sought, proposed, introduced, enacted, promulgated or deemed applicable to
the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or
any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign,
that in the reasonable judgment of the Company might directly or indirectly
result in any of the consequences referred to in clauses (i) or (ii) above
or, in the reasonable judgment of the Company, might result in the holders
of New Senior Notes having obligations with respect to resales and
transfers of New Senior Notes which are greater than those described in the
interpretation of the SEC referred to on the cover page of this Prospectus,
or would otherwise make it inadvisable to proceed with the Exchange Offer;
or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
reasonable judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the reasonable
judgment of the Company, have or may have adverse significance with respect
to the value of the Old Senior Notes or the New Senior Notes;
which in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company 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.
In addition, the Company will not accept for exchange any Old Senior Notes
tendered, and no New Senior Notes will be issued in exchange for any such Old
Senior Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus constitutes
a part or the qualification of the Indenture under the Trust Indenture Act of
1939 (the 'TIA').
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Delivery To: Marine Midland Bank, Exchange Agent
By Facsimile: By Mail, Overnight Courier or Hand:
(212) 658-2292 Marine Midland Bank
140 Broadway, Level A
Confirm by Telephone: New York, New York 10005-1180
(212) 658-5931 Attn: Corporate Trust Operations
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$200,000.
TRANSFER TAXES
Holders who tender their Old Senior Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register New Senior Notes in the name of, or request
that Old Senior Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Senior Notes will be recorded at the same carrying value as the Old
Senior Notes, which is face value, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Senior Notes will be
amortized over the term of the New Senior Notes.
CONSEQUENCES OF EXCHANGING OLD SENIOR NOTES
Holders of Old Senior Notes who do not exchange their Old Senior Notes for
New Senior Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the Old
Senior Notes and the restrictions on transfer of such Old Senior Notes as set
forth in the legend thereon as a consequence of the issuance of the Old Senior
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Old Senior Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Old Senior
Notes under the Securities Act. See 'Description of the Senior Notes--
Registration Rights; Liquidated Damages.' Based on interpretations by the staff
of the SEC, as set forth in no-action letters issued to third parties, the
Company believes that New Senior Notes issued pursuant to the Exchange Offer in
exchange for Old Senior Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Senior Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with any person to participate in the distribution of such New
Senior Notes. However, the Company does not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of New
Senior Notes and has no arrangement or understanding to participate in a
distribution of New Senior Notes. If any Holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Senior Notes to be acquired pursuant
to the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Senior Notes for its own account in exchange for Old Senior Notes, where such
Old Senior Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Senior
Notes. See 'Plan
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of Distribution.' In addition, to comply with state securities laws, the New
Senior Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
New Senior Notes to 'qualified institutional buyers' (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from registration or
qualifcation under the state securities laws. The Company currently does not
intend to register or qualify the sale of the New Senior Notes in any state
where an exemption from registration or qualification is required and not
available.
BUSINESS
GENERAL
OVERVIEW
The Company is the world's leading manufacturer and reconditioner of
football protective equipment and is the nation's leading supplier of products
and services to the school spirit industry. The Company conducts its business
through two principal operating divisions: the Riddell Group Division and the
Varsity Group Division. The Company believes that the Riddell brand is one of
the best known and recognizable in all of sports. Management estimates that
Riddell football equipment is worn by more than 80% of all professional NFL
players, and by more than 50% of all high school and collegiate players. In
addition to the sale of new protective athletic equipment, Riddell is the only
national reconditioner of athletic equipment. Additionally, Riddell markets both
full-size and miniature collectible helmets and other collectible products, and
licenses its Riddell(Registered) and MacGregor(Registered) trademarks for use in
athletic footwear and apparel. Varsity designs and markets innovative
cheerleader, dance team, and booster club uniforms and accessories for sale to
the school spirit industry. Varsity is also a leading operator of high school
and college cheerleader and dance team camps. Varsity 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 believes that it has one of the largest nationwide
direct sales forces that focuses on the extracurricular activities segment of
the educational Institutional market. After giving effect to the Transactions,
including the Acquisition and the Offering, the Company would have had net
revenues and pro forma EBITDA of approximately $160.8 million and $18.1 million,
respectively, for the year ended December 31, 1996.
EDUCATIONAL ATHLETIC MARKET
The 1997 edition of Patterson's American Education has reported that there
are approximately 14,900 junior high schools, 19,300 high schools (of which the
Company believes over 15,000 have a football program), 1,750 junior colleges and
1,500 colleges located throughout the United States. According to the National
Federation of State High School Associations, there are more than 5,800,000
students participating in organized athletic programs at high schools located in
the United States. The level of participation in high school football has
remained relatively stable over the past 10 years with participants averaging in
excess of 900,000 per year. The Company believes that there are in excess of
1,000,000 participants in the school spirit industry.
THE ACQUISITION
On May 5, 1997, Riddell, Merger Sub and Varsity entered into the Merger
Agreement, pursuant to which Varsity will be merged with Merger Sub and become a
wholly owned subsidiary of the Company. On June 19, 1997, Merger Sub completed
its cash tender offer for all outstanding shares of common stock of Varsity (the
'Varsity Tender Offer'). A total of 4,511,415 Varsity shares, or approximately
98.5% of Varsity's then outstanding shares, were purchased pursuant to the
Varsity Tender Offer. Pursuant to the terms of the Merger Agreement, all Varsity
common stock not tendered and purchased in the Varsity Tender Offer will be
acquired in a subsequent second-step merger transaction at the same price per
share. The Merger is currently expected to occur on or about July 25, 1997.
Because Merger Sub owns more than 90% of the outstanding shares, under the TBCA,
no vote is required by the shareholders of Varsity to effect the Merger.
Riddell's Former Credit Agreement was refinanced with the proceeds of the
Offering and the New Credit Facility, which refinancing will occur
simultaneously with the Acquisition. The Company used the net proceeds from the
Offering and the initial
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borrowings under the New Credit Facility to finance the Acquisition, to
refinance the Former Credit Agreement, and to pay fees and expenses of the
Transactions.
The Company believes that the Acquisition will better position it to pursue
growth opportunities in the Institutional market. The Company regards the
Acquisition as an opportunity to achieve certain strategic objectives, including
providing the Company with the scale necessary to expand the direct marketing of
its products to include the more female dominated segment of the Institutional
market. The Acquisition will allow Riddell to benefit from Varsity's strong and
consistent growth record, providing a foundation for future growth through
product development, product line extensions and complementary acquisitions. The
Acquisition will improve its ability to serve the Institutional market by: (i)
enhancing the size and scope of the Institutional sales force; (ii) expanding
and enhancing the Company's 'unique' relationships with the decision-makers for
athletic equipment and services; (iii) accelerating new product development and
entry into new markets; (iv) facilitating the implementation of its
Institutional sales force information systems; and (v) broadening management.
Specifically, the Company believes that it will derive the following benefits
from the Acquisition:
o ENHANCING INSTITUTIONAL SALES FORCE. As a result of the Acquisition, the
Company's full-time sales force increased from 114 to 249. The Company
anticipates having separate sales forces for male and female sports and
activities. The combined Institutional sales force of Riddell and Varsity
will command a greater market presence than would either company's sales
force on a stand-alone basis. The Company intends to widen the focus of the
Varsity sales force from the cheerleading coach to coaches of all female
sports and activities. Historically, these coaches have been served
primarily by independent dealers. The Company expects to derive other
benefits from the Riddell and Varsity sales forces working together, such
as (i) leveraging relationships to provide referrals, or cross-leads, in
schools not currently served by both Riddell and Varsity, (ii)
cross-marketing its product lines to provide increased sales (e.g., Riddell
relationships used to sell Varsity camps, clinics, competitions and tours
and Varsity relationships used to sell Riddell's practicewear) and (iii)
improving customer service by increasing the ratio of sales representatives
to schools.
The Company intends to continue to increase the size of its sales
force, due to the competitive advantages of the direct sales strategy. By
increasing the size of its sales force, reducing the size of sales
territories, and increasing the number of products available for sale, the
Company expects that its sales people will be able to spend more time
productively in each school.
o ENHANCING UNIQUE SELLING RELATIONSHIPS. The Company sells product-related
services which strengthen relationships with its customers who make the
equipment purchasing decisions. Riddell, as a factory-direct supplier and
reconditioner, builds strong relationships through quick repair or
replacement on game-day as well as pick-up, cleaning and safety
recertification for football and baseball protective equipment at the end
of the season. No other football helmet manufacturer that services the
Institutional market provides reconditioning services. Varsity develops
strong relationships with its customers for cheerleading and dance uniforms
during the camp experience through its sponsorship of special events,
including popular holiday parades and regional and national championships,
and its group travel tour activities. In addition, Varsity offers special
training sessions and instructional manuals specifically aimed at the
coaches or other persons responsible for supervising the cheerleading and
dance team activities.
o ACCELERATING NEW PRODUCT DEVELOPMENT AND NEW MARKET ENTRY. Management
believes that the Acquisition will position the Company to expand into the
booster/fund raising market, the broader market for sports camps.
Cheerleading and other school activities, such as band, are often
participant-funded activities, not school-funded. Cheerleaders may sponsor
fundraising activities and sell various products to fund their activity.
The Company believes that by combining Varsity's relationship with
cheerleaders and Riddell's product development knowledge, it has the
ability to become a significant participant in the booster/fundraising
market. Many of the Company's existing products (such as mini-football and
baseball batter helmets and silk-screened t-shirts, shorts and sweatshirts)
are particularly well suited for the booster/fund raising market, and
through Riddell's expertise in molded plastic design and manufacturing, the
Company intends to develop new booster products. Management also expects
that the Company's experience in licensing its brands could be extended to
licensing Varsity's brands.
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o FACILITATING IMPLEMENTATION OF SALES FORCE INFORMATION SYSTEMS. The
Company plans to expand its automated order entry processing system over
the next few years and to provide laptop computers to each sales person for
information collection and order processing. While Varsity has already
begun to automate its sales information system, Riddell has not yet done
so. Varsity's sales force uses laptop computers and Varsity has developed
its own proprietary software. Management expects that Varsity's experience
should accelerate and facilitate Riddell's automation of its order entry
processing system. Management expects that the in-field automation of sales
information will enhance its competitive advantage by providing Company
personnel with faster access to information concerning its customers and
speeding the order entry process, thereby enabling sales personnel to spend
more time selling and less time writing sales orders.
o BROADENING MANAGEMENT. The Acquisition combines two strong management
teams with diverse and complementary backgrounds. The Company operates
Riddell and Varsity as two separate divisions under a broadened management
team. Varsity's management team has been together over eight years and has
consistently produced a record of growth and profitability. Riddell's
management has significant experience in the sporting goods industry and in
managing large public corporations. In connection with the Acquisition, the
top four executives of Varsity purchased $4.4 million of newly issued
Riddell common stock.
RIDDELL
GENERAL
Riddell is the world's leading manufacturer of high school, college and
professional football helmets, with market share estimated at over 50%, and
believes it has a leading market share in other protective equipment, such as
shoulder pads. Riddell sells these products primarily to high schools, colleges
and other Institutions. The Company sells in excess of 200,000 football helmets
a year, over 100,000 of which are used by high school, collegiate and
professional players. Riddell also sells shoulder pads, including a line of
premium pads under the Power(Registered) name, as well as a line of accessory
pads which include thigh, hip, rib and knee pads.
Through its subsidiary, All American, Riddell is the world's leading
reconditioner of football helmets, shoulder pads and other related equipment,
and the only football helmet manufacturer that provides reconditioning services
to the Institutional market. Reconditioning typically involves cleaning,
sanitizing, buffing or painting, and recertifying helmets as conforming to
NOCSAE standards. NOCSAE establishes industrywide standards for protective
athletic equipment. Riddell may also replace face guards, interior pads and chin
straps. In addition, Riddell reconditions shoulder pads, as well as equipment
for other sports, including baseball and lacrosse helmets, catchers' masks and
baseball gloves. Riddell believes its customer relationships are strengthened by
providing reconditioning services through its Institutional market sales force
to the same athletic coaches generally responsible for athletic equipment
purchases.
Riddell maintains a promotional rights agreement with the NFL's licensing
division which requires the Riddell name to appear on the front and on the chin
straps of each Riddell helmet used in NFL play. The NFL Agreement further
requires all teams in the NFL to cover any indicia of brand identification of
other manufacturers which might otherwise appear on helmets, face masks or chin
straps not manufactured by Riddell but used during league play. The recognition
resulting from the frequent appearance of the Riddell name on helmets in
televised football games as well as in photographs in newspapers and magazines
such as Sports Illustrated is viewed by management as important to its overall
sales, marketing and licensing efforts. The NFL Agreement, which originated in
1989, expires in April 1999 and automatically extends for unlimited successive
five-year periods thereafter, provided that the quality of Riddell's helmets and
shoulder pads remains comparable to the best available technology as reasonably
determined by the NFL.
To better capitalize on Riddell's premium brand name, in 1993, David Mauer,
the former President of Mattel U.S.A., became Riddell's Chief Executive Officer
and initiated a strategic repositioning of Riddell's business, including
assembling Riddell's current management team. In October 1994, management
implemented a significant change in its Institutional distribution system by
eliminating the network of independent team dealers which historically sold
products to the Institutional market and began selling athletic equipment
directly to its Institutional customers. Riddell implemented its strategy by
utilizing the All American reconditioning sales force that had previously been
selling reconditioning services to its Institutional customers. Management
subsequently increased All
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American's full-time sales force from 80 in 1994 to 114 in 1996. The change to
direct sales has (i) enabled Riddell to increase its sales and profitability,
(ii) facilitated the introduction and cross-selling of Riddell's
non-football-related products such as practicewear and baseball equipment, (iii)
improved control over the sales efforts to Institutions and (iv) provided better
access to detailed sales information for analysis.
In addition to repositioning its Institutional marketing effort, management
also refocused its retail collectible business. Riddell's retail collectible
business began with miniature and full-size collectible football helmets
displaying NFL and college team logos. Management's strategy with respect to the
retail collectible market has been to (i) reduce production costs, (ii)
segregate products by distribution channels and (iii) accelerate new product
development. Riddell introduced several new collectible products, including
miniature hockey goalie masks displaying NHL team logos in 1995 and miniature
baseball batter helmets displaying MLB team logos in 1997. Riddell was granted a
license from Lucasfilm, Ltd. to sell half-scale Star Wars miniature collectibles
in the United States, Riddell's first non-sports collectible product. Riddell
began shipping Star Wars collectibles in the second quarter of 1997 and this
license extends through December 1998.
Under management's strategic plan, effective since 1993, of (i) eliminating
Riddell's network of independent team dealers and selling its new athletic
equipment directly to its Institutional customers through its in-house
reconditioning services sales force; (ii) introducing new products to
Institutional customers such as baseball and practicewear; and (iii) focusing on
new retail product development, including miniature collectibles, Riddell's
operating performance has significantly improved. Its net revenues have
increased from $48.8 million in fiscal 1992 to $72.4 million in fiscal 1996 and
EBITDA has increased from a $3.8 million deficit to $7.9 million over that same
period.
Riddell is a holding company that operates through various wholly owned
subsidiaries. Riddell's subsidiaries include Riddell, Inc., which manufactures
or sources new sports products for both Institutional and retail customers, All
American, which maintains an Institutional sales force that sells reconditioning
services and new athletic products directly to schools and other Institutions,
RHC Licensing Corporation ('RHC') and Ridmark Corporation ('Ridmark'), each of
which licenses the Riddell trademark, Equilink Licensing Corp. ('Equilink'),
which licenses the MacGregor trademark and Proacq. Corp. ('Proacq'), which
licenses Riddell's Maxpro(Registered) trademark.
Riddell was organized in April 1988 to acquire substantially all of the
assets and businesses of two subsidiaries of MacGregor Sporting Goods, Inc. The
businesses of the two former second tier subsidiaries consisted of manufacturing
and selling Riddell football helmets and other protective products and the
licensing of the MacGregor trademark. In September 1991, Riddell 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.
INDUSTRY SEGMENTS
Riddell has historically operated primarily in two segments of the sporting
goods industry: sports products and services (including sales of athletic
products, reconditioning of athletic equipment and sales of sports collectible
products) and trademark licensing.
SPORTS PRODUCTS AND SERVICES
Athletic Products and Reconditioning
Original Line of Athletic Products: Riddell is the world's leading
manufacturer of football helmets, which it sells under the Riddell brand. For
the years ended December 31, 1994, 1995, and 1996 sales of football helmets for
competitive use constituted approximately 25%, 20% and 21% respectively, of
Riddell's consolidated revenues and 9% of the Company's 1996 pro forma
consolidated revenues.
Riddell football helmets are worn by football players throughout the world,
including players on all NFL teams, certain other professional leagues and on
most teams in the NCAA. High school teams, however, have historically been the
largest market segment for Riddell football helmets. Riddell offers several
types of varsity and youth helmets which are different in their configurations
and types of padding and other fitting features. Riddell helmets are known for
their quality and performance and meet the standards of NOCSAE, which sets the
standards for the industry.
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Riddell also believes it has a leading market share position in the
shoulder pad market. The Company sells a professional and collegiate line of
shoulder pads under the Power(Registered) name and several other lines of
shoulder pads used mostly by high school and college players. Football shoulder
pad sales for the years ended December 31, 1994, 1995 and 1996 constituted
approximately 11%, 9% and 9% respectively, of Riddell's consolidated revenues
and 4% of the Company's 1996 pro forma consolidated revenues. Riddell also sells
accessory pads, including thigh, hip, rib and knee pads.
Expanded Line of Athletic Products: Riddell recently began increasing the
categories of athletic products it sells to the Institutional market. In 1996
Riddell introduced a line of baseball and softball athletic products designed
for high school and college players, marketed under the ProEDGE(Trademark)
brand. This new line includes baseballs and softballs, protective baseball
equipment such as chest protectors, leg guards and catchers' masks and certain
other products including bases, bags and field equipment. In late 1995, Riddell
introduced a newly redesigned line of professional and youth batting helmets,
including the first batting helmet designed specifically for women's softball.
The new baseball product line includes professional quality models that are
similar to the best quality products available from Riddell's competitors.
Riddell's helmets meet the standards set by NOCSAE.
Late in 1996 Riddell further expanded its line of Institutional products to
include practicewear such as t-shirts, shorts, fleece warm-ups and other basic
athletic clothing. Practicewear is the first broad line of products sold by
Riddell to the Institutional market that are used by both male and female
athletes. Riddell offers customized silkscreen printing as an option for its
practicewear line. Riddell believes its practicewear is comparable to the
highest quality products available from its competitors.
Reconditioning: Riddell's subsidiary, All American, is the leading
reconditioner of football helmets, shoulder pads and related equipment with over
50% of the reconditioning market. Reconditioning typically involves the
cleaning, sanitizing, buffing or painting, and recertifying of helmets as
conforming to NOCSAE standards. Riddell may also replace face guards, interior
pads and chin straps. Riddell also reconditions shoulder pads, as well as
equipment for other sports, including baseball and lacrosse helmets, catchers'
masks and baseball gloves. Riddell believes that providing reconditioning
services, which are sold by its Institutional sales force to the same athletic
coaches responsible for equipment purchases, strengthens its customer
relationships. Riddell's reconditioning customers are primarily high schools,
colleges and youth recreational groups. Reconditioning constituted 34%, 31% and
30% of Riddell's consolidated revenues in the years ended December 31, 1994,
1995 and 1996, respectively. Riddell is the only national reconditioner of
football helmets, shoulder pads and related equipment. Competition is fragmented
with approximately 30 other smaller companies providing reconditioning services.
Sports Collectible Products
Riddell's sports collectible products are sold to consumers through the
retail market channel. Sales of these products have been the strongest area of
growth for Riddell in recent years, and Riddell intends to continue to focus on
the sale of these and other retail products in the future. For the years ended
December 31, 1994, 1995 and 1996 sales of sports collectible products have
constituted approximately 16%, 26% and 29% of Riddell's consolidated revenues
and 13% of the Company's 1996 pro forma consolidated revenues.
The sports collectible product line consists primarily of authentic and
replica football helmets of professional and college teams. These helmets are
offered in various miniature and full size models bearing the colors and logos
of NFL and other professional or collegiate teams. Riddell's full size authentic
football helmets are the same helmets used by players on these teams.
Nonauthentic helmets are not constructed with the same material as authentic
helmets, and are therefore less expensive. Riddell recently expanded its line of
collectible items to include a new line of smaller, less expensive miniature
football helmets tailored for the mass market, miniature hockey goalie masks
bearing NHL team logos and miniature baseball batters helmets bearing MLB logos,
among other products.
In connection with the sale of Riddell's collectible helmets, NFL
Properties has granted Riddell a license to use the names, symbols, emblems,
designs and colors of the member clubs of the NFL and the 'League Marks' (i.e.,
'National Football League,' 'NFL,' 'NFC,' 'AFC,' 'Super Bowl,' 'Pro Bowl,' the
'NFL Shield' design and other insignia adopted by the NFL) on authentic and
replica football helmets sold for display purposes. The term of the license is
concurrent with the term of the NFL Agreement. See '--Marketing and Promotion.'
The NFL Agreement has a term expiring April 1999 and automatically extending for
unlimited successive five-year periods thereafter unless, in general, Riddell
helmets fail to continue to meet certain quality standards.
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In addition, Riddell has license agreements for other collectible products
from organizations such as the NHL, MLB and Lucasfilm, Ltd. which, late in 1996
granted Riddell a license through December 1998 to sell half-scale Star
Wars(Registered) miniature collectibles in the United States. Riddell has
introduced three Star Wars miniature collectible products thus far in 1997, and
has plans to introduce additional products, based upon Darth Vader, C-3PO and
other characters. Riddell has completed the design of, and has commenced
marketing, these products. Riddell began shipping its new Star Wars collectible
products in the second quarter of 1997.
Riddell's goal is to continue to develop new collectible products for sale
to appropriate retail channels in the United States and certain international
markets, and, when appropriate, to seek licenses allowing Riddell to display
well-known logos on these products. There can be no assurance that Riddell will
successfully develop and market any new products.
TRADEMARK LICENSING
Riddell licenses its Riddell and MacGregor trademarks in various
categories, primarily including athletic products, clothing and footwear. For
the years ended 1994, 1995 and 1996, Riddell's revenues from licenses of its
trademarks constituted approximately 7%, 5% and 3% of consolidated revenues,
respectively and 2% of the Company's 1996 pro forma consolidated revenues. See
'--Trademarks, Service Marks and License Agreements' for a discussion of
Riddell's principal license agreements and its licensing program.
MARKETING AND PROMOTION
General
Since April 1989, Riddell has been a party to the NFL Agreement. The NFL
Agreement requires the Riddell name to appear on the front immediately above the
center front forehead and on the chin straps of each Riddell helmet used in NFL
play and, further, requires all teams in the NFL to cover any indicia of brand
identification of other manufacturers which might otherwise appear on helmets,
face masks or chin straps not manufactured by Riddell used during league play.
The NFL Agreement has a term expiring in April 1999 and automatically
extends for unlimited successive five year periods thereafter, provided that the
quality of Riddell's helmets and shoulder pads remains comparable to the best
available technology as reasonably determined by the NFL. Riddell agrees to
supply specified quantities of Riddell helmets, shoulder pads and related
equipment, either at no cost or at reduced cost to each NFL team with a
requisite percentage of its roster using the Riddell helmet. For the 1996/97
professional football season, Riddell believes that more than 80% of NFL players
used Riddell helmets. Riddell also has supply agreements with certain other
professional leagues.
Riddell utilizes a variety of promotional techniques to build brand
awareness. The NFL Agreement provides Riddell with a unique marketing and
promotional tool. The recognition resulting from the frequent appearance of the
Riddell name on helmets in televised football games as well as in photographs in
newspapers and magazines such as Sports Illustrated is viewed by management as
important to its overall sales, marketing and licensing efforts. Riddell
believes that this arrangement increases sales of products by Riddell and its
Riddell brand licensees through enhanced visibility of the Riddell name and
improves licensing opportunities.
Sports Products and Services
Athletic Products and Reconditioning: Riddell's athletic products and
equipment reconditioning services are sold directly to schools and other
Institutions through a direct sales force of approximately 114 salespeople.
Prior to October 1994, sales of protective athletic equipment to Institutional
customers had historically been made through independent team sports dealers who
in turn sold to schools and other Institutions. Riddell now markets products to
these Institutional customers on a factory-direct basis utilizing the sales
force of All American, which previously sold only Riddell's reconditioning
services.
Riddell's youth football products are marketed to youth recreational
groups, such as Pop Warner, rather than to elementary schools. Accordingly,
Riddell's youth football products are sold through retail stores, independent
team sports dealers and other distributors.
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To further reinforce and support Riddell's brand recognition, Riddell
conducts a variety of marketing and promotional events in support of its line of
athletic products. Riddell participates in coaches' clinics and equipment shows
throughout the year. At these events, Riddell's entire athletic products line is
displayed and promoted along with Riddell's reconditioning services.
Sports Collectible Products: Riddell's replica and collectible products are
sold primarily to retail and specialty sporting goods stores through
approximately 40 independent sales representatives who are paid commissions.
Riddell has in recent years hired additional retail staff to develop and market
retail products. Riddell strategically targets channels of trade that it
determines to be most appropriate for the type and price of each retail product.
Riddell believes sales of retail products will increase along with new product
introductions and heightened marketing, but cannot assure it will attain any
such increase.
In support of its sports collectible products, Riddell has initiated
various advertising and public relations efforts. Riddell is a sponsor of the
'NFL Experience,' an event conducted each year during the week of the Super Bowl
at which the public can experience various aspects of playing football and the
businesses which supply football products. This event reaches a significant
number of consumers. The retail collectible line has appeared on QVC and the
Home Shopping Network, generating national awareness. Riddell advertises in
publications targeted toward the sports collectible industry as well as other
licensed products retailers. Riddell also provides incentives to retail outlets
to advertise and display Riddell products during promotional periods, and
participates in various national sporting goods shows, where it promotes these
products.
Licensing
Through its licensing subsidiaries, Riddell has granted certain third
parties the right to use the Riddell and MacGregor trademarks in connection with
the sale of athletic shoes, clothing and other products. Riddell is seeking to
further capitalize upon television and media exposure of the Riddell name on
helmets worn during NFL games. In 1996, Riddell hired an independent licensing
agent to help expand its licensing program for both the Riddell and MacGregor
marks and to administer Riddell's trademark programs. Also, Riddell is actively
considering proposals for new license agreements for certain categories of the
MacGregor and Riddell trademarks. There can be no assurance that any new
licenses will be entered into or, if executed, that any such agreements will be
successful.
PRODUCTION
Sports Products and Services
Protective Helmets: Riddell engineers, manufactures and packages all of its
protective football and baseball helmets at its plant in Chicago, Illinois.
Helmet shells are manufactured entirely by Riddell using a custom grade of
plastic resin and precision injection molding techniques.
Shoulder Pads: Production of Power shoulder pads has recently been shifted
to a single source in Canada. Riddell has a facility in Pennsylvania which
customizes shoulder pads upon request. All of Riddell's other shoulder pads are
imported as finished products from sources in the Far East.
Other Athletic Products: Riddell purchases its baseball products from
suppliers in the Far East. Riddell sources its practicewear from four domestic
suppliers. Riddell believes alternative sources for these products are readily
available. Riddell's Elk Grove, Illinois facility has a screen printing
operation which can customize the practicewear with almost any logo, team name
or other design that the customer requests.
Reconditioning: Riddell's reconditioning services include the sanitizing,
buffing or painting, replacing certain parts and recertifying of athletic
equipment as conforming to NOCSAE standards. These services are performed at
Riddell's reconditioning facilities strategically located throughout the United
States and Canada. In late 1994, in response to Riddell's move to direct sales,
Riddell's primary competitor in new football equipment, Schutt Sports Group
('Schutt'), manufacturer of the AIR helmet, canceled Riddell's reconditioning
subsidiary's designation as an authorized reconditioner of AIR helmets and
refused to sell parts for their helmets to this entity. This move has had no
measurable impact on Riddell's ability to recondition AIR helmets and no
significant volume has been lost in 1996. Riddell will source parts from outside
suppliers and will recertify all AIR helmets to NOCSAE standards as it had
before. It is possible that Schutt's action could have some limited impact on
Riddell's reconditioning volume in future
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years. See 'Risk Factors--Competition and Market Share Data.' As a policy,
Riddell does not recondition helmets over 10 years old.
Collectible Products: Riddell engineers, manufactures and packages its full
size collectible helmets at its plant in Chicago, Illinois in a process similar
to that used for protective helmets. Riddell purchases its miniature helmets and
other collectible products from two sources in China. Riddell believes that
alternative sources for these products are readily available. See, however,
'Risk Factors--Dependence on Third-Party Foreign Manufacturing.'
Quality Testing
All protective products manufactured by Riddell are subjected to at least
four separate quality control procedures. Quality control inspections for
helmets are conducted when the product is molded, when liners are inserted, when
face guards are attached and when the product is finished. Samples of all models
produced are tested in accordance with NOCSAE standards. Riddell continually
monitors its sourced products to check that they meet the Company's quality
standards.
Warranty
All varsity protective football helmet shells are covered by a five year
warranty. Youth football helmet shells are covered by a three year warranty.
Helmet liners, protective padding and shoulder pads are covered by a one year
warranty. The rate of product returns for warranty claims has averaged
approximately 0.2% annually over the last 3 years.
Research and engineering studies conducted by Riddell and its suppliers
indicate that certain physical properties of the plastics used in football
helmets deteriorate over time. While Riddell recommends that football helmets
not be used for more than five years, its policy is to refuse to recondition
helmets that are more than ten years old.
RAW MATERIALS
Principal raw materials purchased by Riddell for use in its products
include various custom and standard grades of plastic and foam, metal fasteners,
paints and cardboard. Similar materials are used in most purchased components
and finished products along with steel wire used in purchased face guard
components. Riddell has not experienced and does not expect in the near future
to experience shortages in raw materials.
PRODUCT DESIGN AND ENGINEERING
The activities of Riddell's engineering staff relate principally to the
design, development and improvement of its helmets and padding and to the
testing of raw materials which are used in, or could be used to improve, Riddell
products and, to a lesser extent, to the development of new products. Riddell
has seven employees devoted principally to design, development and quality.
Riddell has several patents and patents pending that are applicable to its
protective padding products. See '--Patents and Trade Secrets.' Riddell has
retained a design company to assist it in developing new retail collectible
products on terms that Riddell believes are customary in the industry, and from
time to time works with other design companies.
COMPETITION
Sports Products and Services
Athletic Products: Riddell's principal competitor in the football helmet
market is Schutt, manufacturer of the AIR helmet. Riddell competes principally
with Bike Athletic Co., Inc., Douglas, Inc., Gear 2000, Inc. and Rawlings
Sporting Goods Company, Inc. ('Rawlings') in the football shoulder pad business.
Riddell competes with Diamond Sports Co., Rawlings, Wilson Sporting Goods
Company and other companies for baseball and softball products. Riddell competes
with Champion Products, Inc., Russell Athletic, Inc., and other companies for
practicewear. Some of Riddell's competitors in the athletic products business
are substantially larger and have greater financial and other resources than
Riddell.
Riddell believes it competes in the football market on the basis of
quality, price, reliability, service, comfort and ease of maintenance. With
respect to football and other athletic products, Riddell believes that its
direct sales force
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provides a competitive advantage in terms of its ability to provide superior
products and customer services and a significant price advantage due to the
elimination of independent dealers. Riddell believes it has the only national
direct sales force for Institutional athletic products and services which
management believes gives Riddell a competitive advantage and would be difficult
to duplicate.
Reconditioning: The protective equipment reconditioning industry is highly
fragmented. Management believes that Riddell serves approximately 50% of the
reconditioning market and that it has approximately 30 regional competitors.
Riddell is the only national supplier of reconditioning services. Reconditioners
compete on the basis of quality, pricing, reputation, convenience and customer
loyalty.
Retail Collectible Products: Riddell believes that its sales of sports
collectible products compete with a large number and wide array of manufacturers
and sellers of sports and other collectible and memorabilia products, some of
which have greater resources than Riddell. Among its competitors in this large
marketplace are sellers of products such as autographed photographs and uniforms
and other memorabilia and manufacturers of clothing, such as caps and jackets.
Licensing
Competition in the licensing of sports equipment, apparel and footwear is
very substantial. The Riddell and MacGregor brands compete with numerous
companies having significant brand recognition, many of which have greater
financial, distribution, marketing and other resources than Riddell. Competing
brands include Adidas(Registered), Champion(Registered), Converse(Registered),
Nike(Registered), Rawlings(Registered), Reebok(Registered), Russell(Registered)
and Wilson(Registered). Brand recognition and reputation for quality are
important competitive factors in Riddell's licensing business.
PATENTS AND TRADE SECRETS
Certain of Riddell's football helmet liner systems are protected by patents
and trade secrets, including a patent on its inflatable liner expiring 2010.
Other patents on these liners expire 1998 and 2008. Riddell also has patents
expiring in 2006, 2007 and 2008 on various components of its shoulder pads which
increase the impact area of contact and permit better absorption of the related
shock. While management believes certain of these patents are material to the
success of Riddell's products, based on currently competing technology, it also
believes that experience, reputation, brand recognition and its distribution
network are more significant to its business.
TRADEMARKS, SERVICE MARKS AND LICENSE AGREEMENTS
General
Riddell considers the MacGregor, Riddell, ProEdge and Power trademarks to
be material to its business. All of Riddell's football helmets are marketed
under the Riddell name. Riddell's football shoulder pads are sold under the
Riddell and Power trademarks. Riddell markets footballs and certain baseball
equipment, other than helmets, under the ProEdge trademark. Riddell's
reconditioning services are conducted under the name Riddell/All American.
Riddell licenses the Riddell trademark for certain types of athletic
clothing and for athletic footwear. It licenses the MacGregor trademark
primarily for sales of athletic footwear and certain clothing.
Riddell Trademark and Licensing
Riddell owns all domestic rights to the Riddell trademark. The Riddell
trademark is registered in the United States Patent and Trademark Office and
with the trademark registration offices in certain foreign countries, and
registration is being sought in other major foreign markets. Trademark
registrations generally have terms of 10 years, renewable for successive ten
year periods.
In 1992, Riddell granted a license to Signal Apparel Company ('Signal') to
use the Riddell trademark on certain athletic apparel. In May 1996, in
connection with Signal's restructuring of certain of its product lines, Riddell
replaced the original license with a short term license agreement granting
Signal the rights to use the Riddell trademark on certain types of athletic
clothing which also bear the mark of the NFL Properties, Inc. or one of its
member teams. The license is renewable at the option of Riddell and requires a
lower minimum royalty than the original license entered into in 1992.
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Late in 1995, Riddell's licensee for the Riddell trademark on footwear
filed for protection under Chapter 11 of the U.S. Bankruptcy Code in Delaware.
By order dated February 12, 1996, the licensee assumed the license agreement in
the bankruptcy proceeding and must comply with its terms, including full payment
of royalties. On June 20, 1997, the Company entered into the Settlement
Agreement, the finalization of which is conditioned upon, among other things,
obtaining the approval of three bankruptcy courts. The Settlement Agreement
requires the Company, among other things, to assign to the Levitt Trustees (or
any successor trustee or other person approved by the New Jersey Bankruptcy
Court) and to Brooks up to $3.0 million of royalties, to the extent such
royalties are paid under this or any 'Riddell' footwear license. In addition,
under the terms of the Settlement Agreement, the Company has agreed under
certain circumstances to waive its objections to the reorganization of, and has
agreed to enter into a new licensing agreement with, its existing 'Riddell'
footwear licensee on substantially the same terms as the existing license. See
'--The Company--Legal Proceedings--Memorandum of Understanding and Settlement
Agreement.'
MacGregor Trademark and Licensing
Riddell owns 50% of the stock of MacMark Corporation which owns the
MacGregor trademark for sports apparel, footwear and equipment. The MacGregor
trademark is registered in the United States Patent and Trademark Office, and
registration is being sought in major foreign markets. The remaining 50% of the
stock of MacMark is owned by Hutch Sports USA, Inc. ('Hutch'), a subsidiary of
RDM Sports Group, Inc.
Riddell has a perpetual, exclusive, royalty-free license from MacMark to
use (and to sublicense others to use) the MacGregor trademark in connection with
the manufacture and sale of certain products. The MacMark license allows Riddell
to use (and sublicense others to use) the MacGregor trademark for all products
other than products which MacMark has licensed to Hutch and SSG, as discussed
below.
Hutch has, subject to certain conditions, a perpetual, exclusive and
royalty-free license from MacMark to use (and, with the consent of MacMark and
Riddell, to sublicense others to use) the MacGregor trademark principally for
sports equipment products used in certain major classes of sports, such as
baseball, soccer and basketball, for sale to retail stores only. MacMark has
also granted to Sports Supply Group, Inc. ('SSG') a license to use the MacGregor
trademark for sales of the same classes of goods as it licenses to Hutch, but
restricts SSG to selling these goods only to the Institutional team sports
market.
MacMark and its licensees (including Riddell) are bound by a settlement
agreement entered into in 1981 with a company that owns trademark rights in the
similar trademark, McGregor. Under this agreement, the parties have agreed on
certain restrictions in the use of their respective trademarks. Additionally,
under a separate agreement, Riddell is precluded from using the MacGregor
trademark in connection with the sale of products used in the sport of golf.
Accordingly, Riddell's use of the MacGregor trademark generally is limited to
sporting goods, certain apparel and athletic footwear, but specifically
excluding any of these products that MacMark has licensed to Hutch and products
used in connection with the sport of golf.
Riddell has in turn entered into sublicense agreements for the MacGregor
trademark with Kmart for products including shoes, athletic socks and athletic
apparel. Meldisco, now a division of Footstar, Inc., has historically sold
MacGregor footwear under the Kmart license in Kmart stores. Riddell and Meldisco
recently reached an agreement in principal, subject to negotiation and execution
of final documentation, that Meldisco will continue to sell athletic footwear
bearing the MacGregor trademark at Kmart stores pursuant to a license expected
to be effective when the Kmart license expires in 1998. Kmart has an exclusive
license to use the MacGregor trademark on certain athletic apparel (e.g.,
jogging suits and sweat separates), athletic bags and knapsacks and a
non-exclusive license on other products such as athletic socks. Riddell plans to
establish a new license for the apparel category effective when the Kmart
license expires in 1998. Riddell believes there are long term benefits to
broadening the distribution of MacGregor apparel. However, there can be no
assurance that Riddell will be successful in its efforts to establish a new
apparel license. Royalties from sales of athletic clothing bearing the MacGregor
trademark at Kmart stores constituted 1% of Riddell's total revenues and 29% of
Riddell's total licensing revenues in 1996. No decision has been made with
respect to licensing the use of the MacGregor trademark after June 1998 on
socks, athletic bags or knapsacks currently marketed by Kmart.
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Riddell is exploring additional opportunities for licensing the MacGregor
trademark, and in this connection has retained an independent Licensing Agent.
See '--Marketing and Promotion--Licensing.'
VARSITY
GENERAL
Varsity is a leading provider of products and services to the school spirit
industry. Varsity designs and markets cheerleader, dance team and booster club
uniforms and accessories and is one of the nation's leading operators of youth,
junior high, high school and college cheerleader and dance team camps, clinics
and competitions. Varsity 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. Varsity's
primary market includes the approximately 37,500 Institutions located throughout
the United States.
Varsity's cheerleader and dance team fashion division maintains an
excellent reputation for quality, design and on time delivery of its products.
Such products, which bear the Varsity(Trademark) label, include custom-made
cheerleader, dance team and booster club uniforms and accessories, including
sweaters, sweatshirts, jumpers, vests, skirts, warm-up suits, t-shirts, shorts,
pompons, socks, shoes, pins, jackets and gloves. Exclusive contracts are
maintained with several independent manufacturers who provide knitting, sewing,
finishing and shipping for all orders. By relying on independent manufacturers
to produce its uniforms, Varsity is able to minimize its fixed costs and retain
the flexibility necessary to adjust the manufacturing to its highly seasonal
production needs. Varsity monitors its contractors closely for quality control
and financial performance. Varsity provides its manufacturers with patterns,
fabrics, yarn and manufacturing specifications for its products. Varsity also
provides some cutting, knitting and lettering for the manufacturers at its
specialized production facility located at its Memphis headquarters. Varsity
considers itself an innovator in the design of uniforms and campwear garments
and maintains an in-house design staff to maintain its leadership in setting
design trends.
Varsity's camp division commenced operations in 1975 with 20 cheerleading
camps and 4,000 participants. Today, through its UCA division and USA
subsidiary, Varsity is a leading operator of cheerleader and dance camps in the
U.S. Camp enrollment has increased every year since Varsity has been in
business, has grown at a compounded annual rate of 14.6% since 1991 (excluding
growth from acquisitions) and totalled 188,000 participants in 1996. Camp
sessions, which are primarily held on college campuses in the summer, were
conducted in every state as well as in Canada and Japan in 1996. Participants in
Varsity's 1996 summer camps included the cheerleading and/or dance team squads
of approximately 65% of the universities comprising the Atlantic Coast, Big
East, Big Ten, Big Twelve, Pacific 10 and Southeastern collegiate athletic
conferences. Varsity instructors are typically college cheerleaders who may have
previously attended a Varsity camp, and management believes that its training of
many of the top college cheerleading squads augments its recruiting of high
school and junior high school camp participants.
Varsity promotes its products and services through active and visible
association with the following championships and television specials: the
National College Cheerleading and Dance Team Championship(Trademark) (nationally
televised for 12 consecutive years), the National High School Cheerleading
Championship(Trademark) (17 consecutive years), the National Dance Team
Championship(Trademark) (10 consecutive years) and the National All Star
Cheerleading Championship(Trademark) (2 consecutive years). In addition to
promoting cheerleading and dance team activities, these championships,
television specials and events are a revenue source to Varsity during its off-
season. In 1996, approximately 25,000 persons, including cheerleaders and their
families, participated in Varsity's special events, such as championships and
holiday parades in the U.S., London and Paris.
In December, 1994, Varsity acquired Intropa, a Varsity supplier since 1988.
Intropa specializes in providing international and domestic tours for special
interest, performing, youth and educational groups including Varsity's London
and Paris trips. Management expects to expand Intropa's travel offerings through
referrals from its Institutional sales force.
Varsity's strategy has been to increase revenue and market share by (i)
expanding its school spirit product lines, (ii) strengthening its sales force,
(iii) increasing enrollment in its cheerleader and dance team camps as a
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vehicle to increase participation in special events such as parades and bowl
games and cross-sell products, such as uniforms and (iv) actively promoting its
business as well as the school spirit industry, primarily through its nationally
televised cheerleading and dance team championships. Since fiscal 1987, Varsity
has significantly expanded the variety and selection of its uniforms and
accessories and increased its direct sales force to approximately 135 full-time
professional sales representatives. Varsity believes it currently has the
largest nationwide full-time direct sales force in the school spirit industry.
Varsity has experienced significant growth over the last five years.
Revenues have increased at a compounded annual growth rate of 22.3% from
approximately $41.6 million in the year ended March 31, 1993 to approximately
$88.4 million in the year ended December 31, 1996 and EBITDA has increased at a
compounded annual growth rate of 22.1% from $4.6 million to $9.8 million over
the same period.
MARKET AND SCHOOL SPIRIT INDUSTRY
The market for school spirit products and services has evolved and grown
with the development of high school and college athletic programs. The 1997
edition of Patterson's American Education has reported that there are
approximately 14,900 junior high schools, 19,300 high schools, 1,750 junior
colleges and 1,500 colleges located throughout the United States. According to
the National Federation of State High School Associations, there are more than
5,800,000 students participating in organized athletic programs at high schools
located in the United States and, according to the National Collegiate Athletic
Association, there are approximately 260,000 students participating in organized
athletic programs at NCAA universities and colleges. Since commencing operations
in 1974, Varsity has focused primarily on the school spirit market segment
consisting of cheerleader and dance team camps and cheerleader uniforms and
accessories and special events.
Varsity believes the school spirit industry, and, in particular, the market
for cheerleader and dance team camps, clinics, uniforms and accessories, is
expanding. This expansion is primarily attributable to the following factors:
o Multiple Squads. Many high schools and junior high schools have
formed multiple cheerleader squads, which follows a trend set by
many colleges and universities. Separate squads are often organized
for each major sports program, such as football and basketball. In
addition, some schools have formed separate squads for other men's
sports and for women's sports.
o Younger Participants. Participation in cheerleading is increasing
among younger students, and formal squads are being organized at
junior high school and even elementary school levels.
o New Market. New non-school related teams are being formed. These
teams (typically called 'All Stars') are organized by private gyms
and function strictly to compete and to perform at local special
events.
o Dance and Pompon Teams. In addition to traditional cheerleader
squads, dance and pompon squads are becoming increasingly popular.
o Focus on Fashion and Competitions. A trend has developed among
cheerleaders and dance teams to purchase and wear different uniforms
for various athletic events and to participate in cheerleading and
dance team competition.
o Increase in Students. According to the U.S. National Center for
Education Statistics, the number of students attending high school
in the United States is increasing and is expected to increase over
the next five years.
o Increased Exposure. Increased national media exposure, including
television broadcasts of sporting events and cheerleading and dance
team competitions, has heightened the interest in and awareness of
cheerleader and dance team activities.
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VARSITY CHEERLEADER UNIFORMS AND ACCESSORIES
Through its subsidiary, Varsity Spirit Fashions & Supplies, Inc. ('Varsity
Fashions'), Varsity designs and markets cheerleader, dance team and booster club
uniforms and accessories, including sweaters, sweatshirts, jumpers, vests,
skirts, warm-up suits, t-shirts, shorts, pompons, socks, jackets, pins and
gloves. Varsity believes it is the industry leader in cheerleader and dance team
uniform fashion and that it has an excellent reputation for quality, design and
on-time delivery of its products. Varsity considers itself an innovator in the
design of uniforms and campwear garments and maintains an in-house design staff
to maintain its leadership in setting design trends. Varsity Fashions employs
two full-time fashion designers, both of whom are former college cheerleaders
and one of whom was trained at the Fashion Institute of Technology in New York
City. Varsity Fashions also utilizes specialized computer software to create its
new fashion designs and patterns.
Cheerleading and dance team uniforms designed and marketed by Varsity
Fashions are made to order. During 1996, Varsity Fashions contracted for its
production requirements with seven independent garment manufacturers utilizing
ten manufacturing facilities. Varsity Fashions has exclusive contracts with
these manufacturers, under which the manufacturers provide knitting, cutting,
sewing, finishing and shipping for all orders. Varsity Fashions provides these
manufacturers with patterns, fabrics, yarn and manufacturing specifications and
quality control supervision. Varsity Fashions also provides some cutting,
knitting and lettering for the manufacturers at its specialized production
facility located at Varsity's Memphis headquarters. The use of independent
manufacturing facilities to fulfill the Varsity's production needs affords
Varsity flexibility to adjust its production output to meet its highly seasonal
selling cycle. The use of independent manufacturers also reduces Varsity's fixed
costs, which Varsity believes is beneficial in a highly seasonal business.
Varsity believes that the loss or termination of its relationship with any
single independent manufacturer would not have a material adverse effect on
Varsity.
Varsity Fashions purchases from various suppliers many of the cheerleading
accessories that it markets, including shoes, pompons and campwear. Varsity
Fashions purchases products from Nike, Capezio and Converse, among others.
Varsity Fashions has expanded the variety and number of accessories it markets,
which has contributed to the increase in merchandise sales revenue experienced
by Varsity Fashions in the past five fiscal years. Varsity believes that the
loss or termination of its relationship with any single supplier would not have
a material adverse effect on Varsity.
Varsity markets its uniforms, accessories and other merchandise through
sales representatives and, to a lesser extent, through its direct mail catalog
and telemarketing programs. As of March 31, 1997 Varsity had approximately 135
full-time sales representatives operating in a total of 50 states. Varsity
representatives are employed directly by Varsity or are representatives of one
marketing firm with which Varsity has contracted for marketing services. These
sales representatives, who typically cover one or more major metropolitan areas
on an exclusive basis, call on substantially all of the junior high, high school
and college accounts within their respective territories. The sales
representatives are typically compensated on a percentage of sales basis.
Varsity closely and continuously monitors the performance of its sales
representatives and periodically meets with the representatives to discuss and
review sales goals.
VARSITY CHEERLEADER AND DANCE TEAM CAMPS
Varsity operates cheerleader and dance team camps in the United States.
During the 1996 summer camp season, approximately 188,000 participants
(consisting of students and their coaches) attended UCA and USA camps, including
over 6,300 participants representing colleges and junior colleges. During the
summer of 1996, cheerleading and/or dance team squads from approximately 65% of
the universities comprising the Atlantic Coast, Big East, Big Ten, Big Twelve,
Pacific 10 and Southeastern collegiate athletic conferences attended Varsity
camps. On May 15, 1996, Varsity acquired the camp business of United Spirit
Association from United Special Events, Inc. This business consists of
instructional spirit camps and clinics primarily in the western United States.
Varsity camp sessions for high school and junior high school students are
held primarily in June and July, while camp sessions for college cheerleaders
and dance team participants are held primarily in August. Mascot training
clinics are also provided at certain of Varsity's cheerleader and dance team
camps.
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The following map depicts Varsity camp locations throughout the continental
U.S. during 1996.
[MAP OF CONTINENTAL UNITED STATES DEPICTING VARSITY CAMP LOCATIONS IS OMITTED]
A significant majority of Varsity cheerleader and dance team camps are
conducted on college or junior college campuses. The camps generally are
conducted over a four day period and are attended by resident and commuting
students. Varsity generally markets the camp, establishes registration fees,
registers students, collects the registration fees, provides instruction and
performs all related administrative services. Varsity contracts with the
colleges and universities for provision of housing, food and conference
facilities. During the summer of 1996, resident fees for high school cheerleader
and dance team camps sponsored by Varsity ranged from $70 to $236, with commuter
fees ranging from $40 to $139. In addition to registration fees, Varsity also
generates revenues at cheerleading and dance team camps through the sale of
t-shirts, shorts, caps, patches and various other accessories.
The staff of a Varsity summer camp includes instructors, administrators and
trainers. On average, one instructor is provided for every 23 students, which
Varsity believes is the most favorable instructor to student ratio among the
major operators of cheerleader and dance team camps. Camp administration staff,
including administrators and trainers, are provided at the ratio of
approximately one to 75 students. Varsity's instructors, all of whom are
required to complete an intensive training session prior to each summer season,
typically are college or former high school cheerleaders who also have attended
Varsity camps in the past.
Varsity also operates two cheerleading practice facilities located in
Dallas, Texas and Decatur, Georgia. These gyms are year round facilities at
which cheerleaders and other spirit group participants can enroll in
instructional and recreational programs offered by Varsity.
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SPECIAL EVENTS
Varsity promotes its products and services, as well as the school spirit
industry, through active and visible association with the following
championships and television specials:
o National High School Cheerleading Championship(Trademark)
o National Dance Team Championship(Trademark)
o National College Cheerleading and Dance Team Championship(Trademark)
o National All Star Cheerleading Championship(Trademark)
These championships and specials have been regularly televised on the ESPN
television networks in recent years and have been sponsored by various companies
and products, including Nike, Unilever, Capezio, the Walt Disney World Resort,
Johnson & Johnson, Pepsi Cola and Wal-Mart.
Varsity also conducts and promotes special cheerleading events, such as
parades and half-time shows at college football bowl games. In 1996,
approximately 25,000 persons, including cheerleaders and their families,
participated in Varsity's special events, such as championships and holiday
parades in the U.S., London and Paris. For example, in 1990 Varsity began its
annual involvement with the Lord Mayor of Westminster's New Year's Day Parade
held in London, England, and registered over 1,490 participants for this parade
in 1997. Varsity also registered over 380 participants for the 1997 parade held
in Paris, France, over 710 participants for the 1996 Thanksgiving Day Parade
held in Walt Disney World(Registered) Resort, Florida, over 1,050 participants
for the 1996 Macy's Thanksgiving Day Parade held in New York, over 740
participants for the half-time show at the 1997 Outback Bowl Game held in Tampa,
Florida and over 540 participants for the Christmas Parade held in Hollywood,
California.
These championships, television specials and events are a revenue source to
Varsity during its off-season and promote consumer awareness of
Varsity(Trademark) and Universal Cheerleaders Association(Trademark) products
and services, as well as cheerleader and dance team activities in general.
MARKETING PROGRAMS
Varsity believes that the marketing talents of its personnel are
fundamental to its past and future growth. Varsity's marketing programs include
certain activities described below.
Varsity markets its uniforms and accessories under the Varsity trademark.
The distinctive Varsity logo patch appears on the front of all uniforms
manufactured by or for Varsity. Varsity annually mails to schools and school
spirit advisors and coaches over 150,000 Varsity catalogs containing color
photographs and descriptions of Varsity's uniforms and accessories. Varsity
supplements its direct and catalog sales efforts with a telemarketing sales
force of 12 full and part-time employees operating from its Memphis
headquarters.
Varsity annually publishes several newsletters which are directed toward
cheerleaders and school spirit advisors. Varsity also annually distributes, in
certain targeted areas, a professionally produced video tape containing
highlights of Varsity's cheerleader and dance team camps and special events.
Varsity distributes each year by direct mail over 178,000 four-color promotional
brochures describing Varsity's cheerleader and dance team camps to schools,
school principals, head cheerleaders, coaches, dance team captains and school
spirit advisors.
Varsity has developed various cross-marketing programs to promote both its
cheerleader and dance team camps and its uniforms and accessories. Specifically,
Varsity's sales force of approximately 135 full-time representatives also
promote Varsity's cheerleader and dance team camps. Similarly, the more than
1,525 instructors at Varsity's cheerleader and dance team camps promote sales of
Varsity's merchandise.
OTHER OPERATIONS
Varsity, through a wholly owned subsidiary, Varsity/Intropa Tours, Inc.
('Varsity/Intropa'), operates a tour company that specializes in organizing
tours primarily for cheerleaders, bands, choirs and orchestra, dance and theater
groups and other school affiliated or performing groups. Most tours are planned
around a performance event. Therefore, the revenues from this business are
seasonal. Prices are negotiated on a tour-by-tour basis and
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fluctuate based on factors such as the availability of discounts on air fares
and the exchange rates, in the case of international tours. The tours are
marketed to targeted existing groups via direct mailings, conventions, trade
magazines, advertisements, and, more importantly, repeat business and referrals.
Last year, Intropa handled the travel and concert arrangements for over 5,000
persons, excluding cheerleaders, who toured the continental United States,
Hawaii, Canada, Europe and Israel.
TRAINING
Varsity emphasizes the training of its Varsity instructors and believes it
has the premier instructor training program in its industry. Prior to the
commencement of the camps, the instructors participate in an intensive six-day
training session where they are taught new cheerleading and dance material, as
well as up-to-date teaching and safety techniques. Varsity hires its instructors
by utilizing applications given to talented camp participants, supervisor
evaluations and numerous nationwide tryouts. As a result of this process,
Varsity believes it hires the most qualified and talented instructors available.
Varsity believe it is the industry leader in the promotion of safety among
cheerleaders and dance team participants and coaches. Varsity was a founding
member of and is an active participant in the American Association of
Cheerleading Coaches and Advisors ('AACCA'), an industry trade group whose
mission is to improve the quality of cheerleading and to maintain established
safety standards. In 1990, AACCA published comprehensive certification and
safety guidelines for cheerleading coaches, which guidelines were edited by Dr.
Gerald George, a nationally recognized expert on sports safety and training. An
updated version of that manual is scheduled to be released during 1997. Varsity
follows the AACCA safety guidelines in the training of its professional
instructional staff and in the conduct of its cheerleader and dance team camps
and competitions.
COMPETITION
Varsity is one of two major companies that designs and markets cheerleader,
dance team and booster club uniforms and accessories on a national basis. In
addition to Varsity and its major national competitor, NSG, there are other
smaller national and regional competitors serving the uniform and accessories
market in the United States. Varsity believes that the principal factors
governing the selection of cheerleader and dance team uniforms and accessories
are the quality, variety, design, delivery, service and, to a lesser extent,
price of the merchandise.
Varsity is also one of two companies that annually operate a significant
number of cheerleader and dance team camps in the United States (the other being
NSG). There are also many other companies and schools that operate camps and
clinics on a regional basis. Varsity believes the principal factors governing
the selection of a cheerleader or dance team camp or clinic are the reputation
of the camp operator for providing quality instruction and supervision,
accessibility of camp locations, timing of the camps and the tuition charged for
camp participation.
TRADEMARKS AND SERVICE MARKS
Varsity has registered various trademarks with the U.S. Patent and
Trademark Office, including the following: the Universal Cheerleaders
Association logo, the Varsity logo, the United Spirit Association logo, the
National High School Cheerleading Championship logo, the Universal Dance
Association logo, Universal Dance Camps, Varsity Spirit Fashions and The
National Dance Team Championship. Varsity believes that these trademarks have
significant value and are important to its marketing efforts.
THE COMPANY
SEASONALITY AND BACKLOG
Riddell has historically experienced and expects to continue to experience
seasonal fluctuations in its sales and profitability. The move to direct
Institutional sales has shifted peak sales of Riddell's competitive products to
a later point in the year than that experienced prior to going direct.
Orders for competitive football products and reconditioning services are
solicited over a sales cycle that begins in the fall of each year and continues
until the start of football play at the end of the following summer. Delivery of
competitive football products and performance of reconditioning services reach a
low point during
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the football playing season. These activities contribute most to profitability
in the first through third quarters of each calendar year.
Riddell's sports collectible products are sold to retailers throughout the
year. However, sales are at their peak during the third and fourth quarters as
retailers build inventory in anticipation of both the football and the holiday
shopping seasons. Volume shipment of newly introduced products in the early part
of both 1995 and 1996 moderated this seasonality. However, shipment of new
products planned for 1997 introduction are anticipated to impact later points of
the year with a resulting shift in revenues and profitability towards the second
half of 1997.
Due in large part to the lull in sales of competitive football products and
services during the football season, Riddell has normally experienced operating
losses during the fourth quarter of recent years. While the growth of the
collectible business and other products has softened this seasonality and should
continue to do so, Riddell anticipates that the overall pattern of lower fourth
quarter profitability will continue due to the significance of Riddell's sales
of football products and services.
Backlog for all of Riddell's products and services at April 30, 1997 was
approximately $17.2 million, a 12% decrease from the April 30, 1996 backlog of
approximately $19.5 million. The decrease is principally due to changes in
Riddell's procedures and policies for solicitation and acceptance of certain
classes of orders for sports collectible products. In early 1996 certain
retailers placed large orders for sports collectible products which they later
reduced by a material amount. These orders were for collectible products which,
at the time, had recently been introduced by Riddell and were new to these
retailers.
Varsity's business and the results of its operations are highly seasonal.
Varsity's cheerleader and dance team camps are held exclusively in the summer
months, and sales of uniforms and accessories occur primarily in the six months
prior to the beginning of the school year. A substantial portion of Varsity's
annual revenues and all of Varsity's net income are generated in the second and
third quarters of the calendar year, while the first and fourth quarters have
historically resulted in net losses. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Seasonality.'
GOVERNMENTAL REGULATION
Riddell's products and accessories are subject to the Federal Consumer
Product Safety Act, which empowers the Consumer Product Safety Commission (the
'CPSC') to protect consumers from hazardous sporting goods and other articles.
The CPSC has the authority to exclude from the market certain articles which are
found to be hazardous and can require a manufacturer to repurchase such goods.
The CPSC's determination is subject to court review. Similar laws exist in some
states and cities in the United States, Canada and Europe. Riddell maintains a
quality control program for its protective equipment operations and retail
products that is designed to ensure compliance with applicable laws. To date,
none of these products has been deemed to be hazardous by any governmental
agency.
At present, no national governing body regulates cheerleading and dance
team activities at the collegiate level. Although voluntary guidelines relating
to safety and sportsmanship have been issued by the NCAA and some of the
athletic conferences, to date cheerleading and dance teams generally are free
from rules and restrictions similar to those imposed on other competitive
athletics at the college level. However, if rules limiting off-season training
are applied to cheerleading and/or dance teams (similar to rules imposed by the
NCAA on other sports), it is likely that Varsity would be unable to offer a
significant number of its camps either because participants would be prohibited
from participating during the summer or because suitable sites would not be
available. Although the Company is not aware of any school officially adopting
these activities as a competitive sport, recognition of cheerleading and/or
dance teams as 'sports' would increase the possibility that these activities may
become regulated. If Varsity were restricted from providing its training
programs to colleges and high schools, or if cheerleaders and dance teams were
restricted from training during the off-season, such regulations would likely
have a material adverse effect on Varsity's business and operations. However,
the Company currently does not believe that any regulation of collegiate
cheerleading or dance teams as a 'sport' is forthcoming in the foreseeable
future, and in the event any rules are proposed to be adopted by athletic as
sociations, the Company expects to participate in the formulation of such rules
to the extent permissible.
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At the high school level, some state athletic associations have classified
cheerleading as a sport and in some cases have imposed certain restrictions on
off-season practices and out-of-state travel to competitions. However, in all
cases to date, Varsity has been able to work with these state athletic
associations to designate acceptable times for the cheerleaders within these
states to attend camps. Varsity has also signed agreements with several state
associations to assist with sponsoring and execution of official competitions
with these states. To date, state regulations have not had a material effect on
Varsity's ability to conduct its normal business activities within those states.
Each of Riddell's and Varsity's operations at all of its facilities are
subject to regulation by the Occupational Safety and Health Agency and various
other regulatory agencies.
The Company's operations are also subject to environmental regulations and
controls. While some of the raw materials used by Riddell may be potentially
hazardous, it has not received any material environmental citations or
violations and has not been required to spend significant amounts to comply with
applicable law.
EMPLOYEES
At March 31, 1997, Riddell had 613 employees. The employees are engaged as
follows: 7 in product design, engineering and testing, 112 in manufacturing, 312
in reconditioning, 141 in sales and marketing and 41 in administration.
Approximately 40 of Riddell's employees are represented by the Chicago and
Central States Joint Board, Amalgamated Clothing and Textile Workers Union,
under a collective bargaining agreement which will expire in January 1999.
Approximately 33 of Riddell's employees are represented by the Local #500A
United Food and Commercial Workers Union (AFL-CIO) under a collective bargaining
agreement that expires in January 2000. Riddell believes that relations with its
employees are satisfactory.
At March 31, 1997, Varsity employed 401 full-time employees and 214
part-time employees. In addition, during the summer of 1996, Varsity employed
approximately 1,670 summer camp instructors, trainers and administrators. None
of Varsity's employees is covered by a collective bargaining agreement. Varsity
considers its relationship with its employees to be satisfactory.
PRODUCT LIABILITY PROCEEDINGS AND INSURANCE
As part of its ongoing business, Riddell is routinely a defendant in
various product liability suits relating to personal injuries allegedly related
to the use of Riddell helmets.
Insurance
Riddell maintains product liability insurance under a policy bound in
December 1994. In October 1996 the policy term was extended until December 2001
and certain coverage limits were increased. The policy is an occurrence-based
policy generally covering claims relating to injuries occurring prior to
December 2001 even if such claims are filed after the end of the policy period.
The insurance program provides certain basic and excess coverage on product
liability claims.
The basic insurance coverage under the policy ('Basic Coverage') provides
coverage against claims currently pending against Riddell and future claims
relating to any injuries occurring prior to December 13, 2001. There is an
aggregate coverage limit of $7.5 million for the Basic Coverage, and the policy
is also subject to certain annual aggregate sub-limits. The Basic Coverage
covers up to $2.25 million per claim in excess of an uninsured retention
(deductible) of $750,000 per occurrence. Until such time as the premiums for the
entire policy have been paid, the Basic Coverage is also limited to 110% of the
premiums paid or which have been guaranteed by a letter of credit.
The insurance program also provides for additional coverage ('Excess
Coverage') of up to $20.0 million per occurrence, in excess of the first $3.0
million of each claim. The Basic Coverage, to the extent available, covers the
initial $3.0 million layer. The Excess Coverage applies to 10 of the 11 claims
pending against Riddell at December 31, 1996 and will apply to any future claims
which relate to injuries occurring prior to December 13, 2001. Claims covered by
the Excess Coverage are subject to one of two separate $20.0 million aggregate
policy limits, depending on the date of the related injury and the date the
claim is filed against Riddell. The first $20.0 million aggregate limit applies
to claims filed before October 4, 1996 for injuries occurring after January 1,
1985 and prior to December 13, 1994 together with any future claims for injuries
occurring before October 4, 1996. The second separate $20.0 million aggregate
limit applies to claims filed before October 4, 1996 for injuries occurring
after December 13, 1994 together with any future claims for injuries occurring
after
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October 4, 1996 and before December 13, 2001. The Excess Coverage is also
limited to certain ratios of paid premiums until such time as the premiums due
under the policy for the entire policy period have been paid. However, this
latter limitation can be eliminated at any time by prepaying the future premiums
due during the remainder of the policy, or by guaranteeing the future premiums
with a letter of credit.
The amount of insurance available under the Excess Coverage discussed above
includes an expansion of coverage obtained in October 1996. Prior to October
1996, the per case limits and two separate aggregate limits under the Excess
Coverage were each $10.0 million as opposed to the $20.0 million amounts
discussed above. The maximum possible payout under the entire policy, combining
the aggregate limit for the Basic Coverage and the two separate aggregate limits
under the Excess Coverage, is currently $47.5 million whereas prior to the
policy expansion this amount would have been $27.5 million. The annual cost of
this product liability insurance coverage for 1995 and 1996 exceeded the cost of
insurance incurred in years prior to 1995 by approximately $1.0 million. The
increase in cost for this expansion of coverage was offset by the benefit of
spreading Basic Coverage policy premiums over two additional years, on a
prospective basis, with the extension of the original policy period from five to
seven years. This has resulted in a net decrease in the annual cost of the
policy for the remaining five years of the policy period. Riddell believes that
the new additional product liability coverage provides a substantial increase in
coverage against future claims.
At the time the new policy was bound there were several preexisting claims
pending against Riddell. The policy provides only limited coverage for these
preexisting claims (only one of which was still pending at April 30, 1997).
Accordingly, in 1994 Riddell entered into an effort to settle several claims
that it believed, considering the substantially reduced level of available
insurance, represented the greatest potential risk to Riddell. Riddell was
successful in carrying out this settlement effort, and in early 1995 settled
certain claims for an aggregate amount of $2.1 million. However, because of the
risks associated with these claims, and given the reduced level of available
insurance, the amount of these settlements was substantially above historical
levels for settlements of similar claims. Accordingly, these settlements,
together with revaluations of reserves for remaining claims, resulted in an
increase in product liability expense for the year ended December 31, 1994 of
approximately $1.5 million.
Riddell's product liability insurance carrier is a division of American
International Group, Inc. which has been rated A++ XV by A.M. Best Property and
Casualty Insurance Ratings Company. There is no certainty that coverage will
remain available to Riddell after 2001, that Riddell's insurer will remain
viable, or that the insured amounts will be sufficient to cover all future
claims in excess of Riddell's uninsured retention. Furthermore, future rate
increases might make such insurance uneconomical for Riddell to maintain after
2001.
Each of Riddell and Varsity carries general liability insurance with
coverage limits which the Company believes will be adequate for its business.
Product Liability Proceedings
A subsidiary of Riddell has historically been a defendant in product
liability suits relating to personal injuries allegedly related to the use of
Riddell football helmets. These claims, and related issues, have had a material
impact on Riddell's operating results and financial position. As of June 6,
1997, seven such cases were pending against Riddell. Riddell has established
reserves for pending product liability claims and determines its reserves based
on estimates of losses and defense and settlement costs which it anticipates
would result from such claims based on information available at the time the
financial statements are issued. Due to the uncertainty involved with estimates,
as demonstrated by the events discussed below, actual results have at times
varied substantially from earlier estimates and could do so in the future.
Accordingly, there can be no assurance that the ultimate costs of these claims
or potential future claims will fall within the established reserves. See Note 8
to the Consolidated Financial Statements of Riddell included elsewhere in this
Prospectus.
In 1994, a jury returned a verdict against Riddell for damages amounting to
approximately $8.0 million in one of these suits. Although Riddell believes that
it was not responsible in the case, and had been in the process of appealing the
verdict, Riddell settled with the plaintiff in late 1995 for an amount that was
less than what was previously awarded. Riddell had taken a charge of $4.6
million before taxes in 1994 to establish a reserve for the full uninsured
portion of the initial award, as well as current and future premiums then due
under a $5.0 million product liability insurance policy (which had a term
running through June 1997) which would be exhausted by payment of the verdict.
As the amount of the settlement was less than the initial award, the settlement
had no
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effect on 1995 income. In 1995, the excess of the reserve over amounts due under
the settlement was added to general reserves established for other product
liability claims as described in Note 8 to the Consolidated Financial Statements
of Riddell. The Consolidated Balance Sheets reflect certain liabilities relating
to this, and other product liability matters, as well as receivables for insured
portions of certain losses, as further described in Note 8 to the Consolidated
Financial Statements of Riddell included elsewhere in this Prospectus. The
settlement does not affect coverage available under Riddell's current product
liability insurance policy.
In September 1991, Riddell acquired the assets of subsidiaries of BSN Corp.
(known now as Aurora Electronics, Inc. ('Aurora')), and Aurora has indemnified
Riddell for any losses it may incur in connection with any product liability
claims asserted prior to September 23, 1994. Upon completing the 1991
acquisition, Riddell immediately discontinued the Maxpro football helmet
business formerly conducted by Aurora. As of April 30, 1997, there were no
product liability claims with respect to Aurora products pending against
Riddell. Some states impose liability for product liability claims on successors
that continue the business of manufacturing or distributing the same products.
The laws of successor liability, which vary from state to state, may result in
Riddell being found liable on some or all of any future claims.
Properties
Riddell has 14 locations, 10 of which are used in its reconditioning
operations. Riddell owns its principal football helmet manufacturing facility
located in Chicago, Illinois. In 1995 Riddell closed a facility that
manufactured certain sports collectible products. In February 1994, Riddell sold
its foam product manufacturing plant in Wauseon, Ohio. Varsity leases its
facilities throughout the U.S. The Company believes its properties, machinery
and equipment are adequate for its current requirements.
Set forth below is certain information regarding the Company's principal
properties:
LEASE
SQUARE EXPIRATION
LOCATION PRINCIPAL USE FOOTAGE DATE
- ---------------------------- ------------------------- ------- --------------
New York, New York Corporate headquarters 3,800 September 1999
Chicago, Illinois Headquarters of Riddell, 95,000 Owned
Inc. and helmet
manufacturing
Elk Grove Village, Illinois Warehouse and 83,000 March 2000
distribution center
Elyria, Ohio Headquarters for All 39,000 May 2000
American Sports Corp.
reconditioning operations
and customer service
San Antonio, Texas(1) Reconditioning 27,000 October 1998
Stroudsburg, Pennsylvania Reconditioning and 44,000 October 1998
shoulder pad customizing
Belton, Missouri Reconditioning 6,600 January 1999
Buffalo, New York(2) Warehouse 6,400 Month-to-month
Burgettestown, Pennsylvania Reconditioning 17,000 September 2013
Franklin Park, Illinois Reconditioning 16,000 June 2000
Fort Valley, Georgia(2) Reconditioning 15,000 October 1997
Ft. Erie, Ontario, Canada(2) Reconditioning 5,000 September 1997
New Rochelle, New York Reconditioning 23,000 January 2000
Union City, California(3) Reconditioning 23,000 September 1997
Memphis, Tennessee(4) Office/Warehouse/ 63,700 October 1997
Production
Memphis, Tennessee Warehouse 21,500 October 1997
Sunnyvale, California Office/Warehouse 10,030 November 2000
Decatur, Georgia Sport Gym 12,000 July 1998
Carrollton, Texas Sport Gym 11,050 January 2000
Bellaire, Texas Office 2,984 November 1997
- ------------------
(1) Lease is subject to renewal by Riddell for three years.
(2) Riddell is currently negotiating a renewal lease for this property.
(Footnotes continued on next page)
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(Footnotes continued from previous page)
(3) Riddell is currently negotiating a lease for an alternate facility.
(4) This facility is subject to renewal at tenant's option. Varsity is currently
evaluating whether to renew this lease or find alternate facilities.
LEGAL PROCEEDINGS
Riddell and its subsidiaries from time to time become involved in various
claims and lawsuits incidental to their businesses including without limitation,
employment related and product liability litigation. See '--Product Liability
Proceedings and Insurance.' Varsity is not a party to any litigation that is
expected to have a material adverse effect on its business.
Mac I Fraudulent Transfer Action and State Law Debtor and Creditor Claim
MacGregor Sporting Goods, Inc. ('Mac I') filed for bankruptcy protection in
March 1989 in the United States Bankruptcy Court in New Jersey. Mac I, its
creditors' committee and the bankruptcy trustee of MGS Acquisition, Inc. ('MGS')
jointly brought an action against Riddell, its principal lender, NBD Bank, and
others in the New Jersey Bankruptcy Court (Official Unsecured Creditors'
Committee of MacGregor Sporting Goods, Inc. v. Riddell Sports Inc., No. 93-2214
(RG) (Bankr. D.N.J.)). By order dated November 3, 1994 the court dismissed this
complaint as time-barred. The court also appointed a trustee in the bankruptcy
of Mac I, but did not decide whether the trustee would be time-barred if it
decided to bring a similar action against Riddell and its lender. Plaintiffs in
the action had sought monetary damages and/or the rescission of Riddell's
acquisitions (the 'MacGregor Acquisitions') in 1988 and 1989 of substantially
all the assets and businesses of two former, second-tier subsidiaries of Mac I,
including, among other things, the football protective division, the MacGregor
licensing business and the nonfootball uses of the Riddell trademark for, among
other claims, alleged failure to pay fair consideration at a time when Mac I was
insolvent or as a result of which Mac I became insolvent or undercapitalized.
The monetary damages alleged in connection with the MacGregor Acquisitions
exceeded $28.5 million. In addition to seeking monetary damages and/or
rescission from Riddell, the complaint sought to void the liens of NBD Bank in
the property at issue.
After the above action was dismissed, the trustees in the Mac I and MGS
bankruptcy proceedings (the 'MacGregor Trustees') commenced a substantially
similar action against the Company in March of 1995 entitled Bruce Levitt,
Bankruptcy Trustee for MacGregor Sporting Goods, Inc., now known as M. Holdings,
Inc., Paul Swanson, Bankruptcy Trustee for MGS Acquisition, Inc. v. Riddell
Sports Inc., et al., No. 95-2261 (RG) (Bankr. D.N.J.) in the Chapter 11
bankruptcy case of Mac I (the 'Levitt Action'). The complaint seeks monetary
damages in an unspecified amount plus interest and/or rescission in connection
with the MacGregor Acquisitions on the grounds, among others, that Riddell
allegedly failed to pay fair consideration at a time when Mac I was insolvent
and/or undercapitalized. In addition to seeking monetary damages and/or
rescission from Riddell, the complaint seeks to void the liens of NBD Bank in
the property at issue. The complaint also seeks damages against Frederic H.
Brooks ('Brooks'), a former President of Riddell, for breaches of fiduciary
duties to Mac I for failing to obtain fair consideration in connection with
these transactions.
Additionally, Innovative Promotions, Inc. and certain other purported
unsecured creditors of Mac I initiated a state law debtor and creditor action
against Riddell based on substantially the same claims as were made in the
Trustees' (as defined herein) actions in the New Jersey Bankruptcy Court. This
action is now pending in the New Jersey Bankruptcy Court (Innovative Promotions,
Inc. et al. v. Riddell Sports Inc. et al. (in re MacGregor Sporting Goods,
Inc.), Adv. Proc. No. 94-2656(RG) (the 'Innovative Action'). The plaintiffs in
the Innovative Action seek rescission of, and/or monetary damages in excess of
$22 million exclusive of interest relating to the MacGregor Acquisitions for
alleged failure to pay fair consideration at a time when Mac I was insolvent, or
as a result of which Mac I became insolvent or undercapitalized. Plaintiffs also
seek judgments voiding the liens of NBD Bank with respect to the assets. In June
1995, the trustees in the Levitt action (the 'Levitt Trustees,' and together
with the MacGregor Trustees, the 'Trustees') intervened as plaintiffs in the
Innovative Action purportedly to preserve their rights in the event they lost
the Levitt Action.
In April 1996, Riddell entered into a settlement agreement with the
Trustees in which Riddell agreed to pay an aggregate of $1.4 million, and the
Trustees released Riddell and other defendants from all claims and liabilities
in the litigation matters. The settlement was subject to, among other things,
approval of two bankruptcy
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courts. On June 24, 1996 the Trustees withdrew their motion to approve the
settlement agreement in light of a Plan of Reorganization of Mac I submitted by
the Mac I Creditors' Committee in opposition to the settlement agreement.
Riddell notified the Trustees that their actions breached, and caused
termination of, the proposed settlement agreement. The Creditors' Committee's
Plan of Reorganization is subject to acceptance by the creditors and court
approval.
Riddell has answered the complaints in both the Levitt Action and the
Innovative Action. Riddell remains confident that the fraudulent transfer cases
are without merit and intends to vigorously defend against them, including
without limitation by asserting the cases are time-barred.
On October 31, 1996 in the Levitt Action, Brooks filed an answer and
counterclaim against the estate of Mac I and a cross-claim against the other
defendants in the Levitt Action, including Riddell and several of its
subsidiaries. The cross-claim against Riddell and such subsidiaries seeks
indemnification and contribution under state law, Riddell's Bylaws and Brooks'
employment agreements with Riddell in an indeterminate amount. On May 7, 1997,
the Bankruptcy Court dismissed Brooks' cross-claim for contribution and the
parties agreed to stay Brooks' cross-claim for indemnification until a later
date. Riddell believes these cross-claims are without merit and intends to
vigorously defend against them.
The Company has recently entered into the Settlement Agreement for the
proposed settlement of the claims against it in these actions. See '--The
Company--Legal Proceedings--Memorandum of Understanding and Settlement
Agreement.'
Employee Litigation
From time to time Riddell is party to employee litigation claims. In June
1995, a subsidiary of the Company was served with a complaint entitled, Beverly
A. Eichler v. Riddell, Inc. (D. Ct, N.D. III., E. Div.), No. 95-C-3782. The
complaint, brought by a former employee of one of Riddell's subsidiaries who was
terminated in December 1993, alleged sex and age discrimination and sought past
and future wages and punitive damages in an undisclosed amount. In early 1997, a
jury awarded Ms. Eichler damages in the amount of $59,000 and the court assessed
front-pay damages of $420,000. Plaintiff filed a motion for her attorneys' fees
and expenses in the amount of $386,000. In July 1997, the Company settled this
action for less than the total of (i) damages previously awarded and assessed
and (ii) plaintiff's attorneys' fees and expenses.
In connection with Riddell's suit against its former President, Brooks, for
alleged breaches of his consulting agreement and certain other matters, Brooks
filed counterclaims against Riddell and two of its officers and directors. The
action is captioned Riddell Sports Inc. v. Frederic H. Brooks (D.C., SDNY), 92
Civ. 7851 (JGK) (the 'Brooks Action'). Brooks generally alleges that Riddell
breached its indemnification obligations to him as a former officer and director
of Riddell and seeks damages in excess of $3.9 million, plus future attorneys'
fees and interest. Brooks also seeks compensatory and punitive damages combined
of at least $15 million against Riddell, two of its officers and directors and
an entity controlled by them.
Brooks' counterclaims originally alleged claims for breach of contract,
declaratory relief, tortious interference with contract and prospective
advantage (including in connection with the Riddell footwear licensee),
injurious falsehood, prima facie tort and abuse of process. On January 5, 1995,
the Court dismissed Brooks' claims for injurious falsehood and abuse of process
with prejudice and dismissed Brooks' tortious interference with prospective
advantage and prima facie tort claims without prejudice. On February 3, 1995,
Brooks amended his counterclaims to reassert claims for tortious interference
with prospective advantage and prima facie tort. In connection with a settlement
of certain actions between Riddell and its Riddell footwear licensee, Riddell
agreed to indemnify the licensee and certain of its affiliates in the event they
are impleaded by Brooks into Riddell's suit against Brooks for breach of his
consulting agreement. Brooks has impleaded Riddell's Riddell footwear licensee
and other affiliates of the footwear licensee for indemnification for all
damages that may be assessed against him in Riddell's suit against Brooks for
certain alleged breaches of his consulting agreement relating to among other
things, alleged attempts to disparage and take control of Riddell and to Brooks'
alleged cooperation with the Unsecured Creditors' Committee of MacGregor. Mr.
Brooks' claims against the footwear licensee (but not its affiliates) was stayed
as a result of its filing a bankruptcy petition.
In March 1996, Brooks filed a motion for summary judgment dismissing the
claims against him and requesting consulting fees of $587,000 under his
consulting agreement (which Riddell has previously paid into an escrow account),
and Riddell filed a motion for partial summary judgment dismissing certain of
Brooks' claims
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<PAGE>
against it and its affiliates. Late in 1996, Brooks clarified that the relief he
was seeking in his motion for summary judgment included, among other things,
consulting fees pursuant to Brooks' consulting agreement with Riddell's Riddell
footwear licensee in an amount exceeding $850,000, approximately $1.5 million
for the loss of prospective opportunities and attorney's fees and expenses of
approximately $1.5 million incurred through April 30, 1996 in connection with
Brooks' counterclaims, plus interest on all such amounts.
On March 22, 1996, all of the parties filed motions for summary judgment in
Riddell v. Brooks. On January 7, 1997, a United States Magistrate Judge issued a
Report and Recommendation, and on March 25, 1997, a United States District Judge
issued an Opinion and Order regarding the summary judgment motions. The District
Court essentially denied Riddell's motion for summary judgment dismissing Mr.
Brooks' counterclaims, although it held that any recovery by Mr. Brooks for
legal fees must be offset by $324,000 which Mr. Brooks received from Riddell's
directors' and officers' insurance carrier. Riddell intends to argue at trial
that any recovery by Mr. Brooks should be offset by a greater amount. The Court
also denied Mr. Brooks' motion for summary judgment seeking the dismissal of
Riddell's claims against Mr. Brooks for breach of a consulting agreement and for
breach of fiduciary duty. The Court also dismissed Mr. Brooks' claims for
contribution against certain parties affiliated with Riddell's licensee of the
Riddell trademark for footwear. However, Mr. Brooks' claims against this
licensee were not ruled upon because of the automatic stay of litigation against
this licensee resulting from this licensee's filing of a bankruptcy petition. In
April 1997, the judge presiding over this licensee's bankruptcy petition lifted
the automatic stay, and the Company's footwear licensee has filed a summary
judgement motion seeking dismissal of Mr. Brooks' claim against it; Mr. Brooks
has opposed the motion.
Riddell believes Brooks' claims against Riddell for breach of contract,
tortious interference with contract, tortious interference with prospective
advantage and prima facie tort are without merit and absent a settlement,
intends to vigorously defend against them. The Company has recently entered into
the Settlement Agreement for the proposed settlement of the claims against it in
this action. See '--The Company--Legal Proceedings--Memorandum of Understanding
and Settlement Agreement.'
Memorandum of Understanding and Settlement Agreement
On June 4, 1997, Riddell announced that it had entered into a Memorandum of
Understanding for the settlement of claims asserted against it and certain of
its officers and directors in several separate actions. The actions proposed to
be settled include, among others, the Levitt Action, the Innovative Action as
well as the counterclaims asserted against Riddell and its affiliates and two
directors in the Brooks action. On June 20, 1997, the Company entered into a
settlement agreement (the 'Settlement Agreement') upon substantially the same
terms as the Memorandum of Understanding.
The proposed settlement is conditioned upon, among other things, receipt of
certain consents and approvals, including approval of the New Jersey Bankruptcy
Court, the Delaware bankruptcy court and the Eastern District of Wisconsin
bankruptcy court. There can be no assurance that all of the requisite consents
and approvals will be received. If all Settlement Conditions (as defined in the
Settlement Agreement) are not satisfied on or before August 4, 1997, then,
unless otherwise agreed by each of the parties to the Settlement Agreement, the
Settlement Agreement will terminate and shall be null and void and of no force
and effect. Generally, the proposed settlement would release Riddell and its
affiliates from all claims in these actions and require Riddell to pay an
aggregate of $2.2 million of which Riddell previously reserved $1.4 million and
of which Riddell previously escrowed and expensed approximately $0.7 million.
Pursuant to the proposed settlement, the Company will assign to the Levitt
Trustees (or any successor trustee or other person approved by the New Jersey
Bankruptcy Court) and to Brooks royalties, to the extent paid, of up to $3.0
million, on a present value basis, generally over ten years from its present or
any future 'Riddell' footwear licensee. The proposed settlement contemplates
that, subject to certain conditions, Riddell will enter into a new license
agreement with its current footwear licensee on substantially the same terms as
its existing license. See '--Riddell--Trademarks, Service Marks and License
Agreements.'
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of each of the
individuals that are expected to serve as directors and executive officers of
the Company upon the consummation of the Merger. All directors will hold office
until the next annual meeting of stockholders of the Company and until their
successors are duly elected and qualified, and all executive officers will hold
office at the pleasure of the Board of Directors.
NAME AGE POSITIONS
- -------------------------- --- -----------------------------------------------
Robert E. Nederlander 64 Chairman of the Board
David M. Mauer 48 Director, President and Chief Executive Officer
Jeffrey G. Webb* 47 Vice Chairman of the Board of the Company and
President and Chief Operating Officer of the
Varsity Group Division
Leonard Toboroff 65 Director and Vice President
Don R. Kornstein 45 Director
John McConnaughy, Jr. 68 Director
Glenn E. 'Bo' Schembechler 68 Director
Dan Cougill 44 President and Chief Operating Officer of the
Riddell Group Division
David Groelinger 46 Executive Vice President and Chief Financial
Officer
- ------------------
* Pursuant to the Merger Agreement, the Board of Directors has agreed to appoint
Mr. Webb as a director of the Company at the effective time of the Merger. Mr.
Webb has the right, pursuant to the Merger Agreement, to designate an
additional director to serve on the Board at the effective time of the Merger.
Robert E. Nederlander has been Chairman of the Board of the Company since
the Acquisition. Prior thereto, Mr. Nerderlander served as Chairman of the Board
of Riddell from May 1988 until the Acquisition and was Riddell's Chief Executive
Officer from May 1988 through May 1, 1993. From February until June 1992, Mr.
Nederlander was also Riddell's interim President and Chief Operating Officer.
Mr. Nederlander has been President and Director since November 1981 of the
Nederlander Organization, Inc., owner and operator of one of the world's largest
chains of live 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 Financial Corporation and Vice President of the Board since
February 1988 to early 1993 of Vacation Spa Reports, Inc. (an affiliate of Mego
Financial Corporation). Mr. Nederlander became a director of Mego Mortgage
Corporation in September 1996. Mr. Nederlander became Chairman of the Board of
Allis-Chalmers Corp. in May 1989; from 1993 through October 1996, he was Vice
Chairman and, thereafter, he remained solely a director. In 1995, Mr.
Nederlander became a director of HFS Incorporated. In October 1996, Mr.
Nederlander became a director of New Communications, Inc., a publisher of
community-oriented free circulation newspapers. 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 has been President, Chief Executive Officer and a Director
of the Company since the Acquisition. Prior thereto, Mr. Mauer served as
Riddell's Chief Executive Officer from April 1993 until the Acquisition, when he
succeeded Mr. Nederlander. Mr. Mauer was a member of the Board of Directors of
Riddell from September 1993 until the Acquisition. 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.
Jeffrey G. Webb has been the Chairman of the Board, President and Chief
Executive Officer of Varsity since its formation in 1974. Following the Merger,
Mr. Webb will serve as the Vice Chairman of the Board of the Company and the
President and Chief Operating Officer of the Varsity Group Division.
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<PAGE>
Leonard Toboroff has been Vice President and a Director of the Company
since the Acquisition. Prior thereto, Mr. Toboroff served as a member of the
Board of Directors and a Vice President of Riddell from April 1988 until the
Acquisition. 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 Riddell
from April 1988 though February 1993. He has been a Director since August 1987
and was Chairman and Chief Executive Officer from December 1987 to May 1988 of
Ameriscribe Corp. Mr. Toboroff was Chairman and Chief Executive from May through
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. In
1995, Mr. Toboroff became a director of Xplor Corporation.
Don R. Kornstein has been a Director of the Company since the Acquisition.
Prior thereto, Mr. Kornstein served as a member of the Board of Directors of
Riddell from April 1995 until the Acquisition. Mr. Kornstein has been a member
of the Board of Directors, Chief Executive Officer and President of Jackpot
Enterprises, Inc. since September 1994. Mr. Kornstein was a Senior Managing
Director at Bear, Stearns & Co. Inc. for 17 years through September 1994.
John McConnaughy, Jr. has been a Director of the Company since the
Acquisition. Prior thereto, Mr. McConnaughy served as a member of the Board of
Directors of Riddell from September 1989 until the Acquisition. Mr. McConnaughy
has been Chairman and Chief Executive Officer of JEMC Corp. since 1988. 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., after which it
was spun off from Peabody in 1981. Mr. McConnaughy is a Director of DeVlieg
Bullard Inc., Mego Financial Corporation, Transact International, Inc., Levcor
International, Inc., and Wave Systems, Inc. GEO International Inc. filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
October 1993.
Glenn E. 'Bo' Schembechler has been a Director of the Company since the
Acquisition. Prior thereto, Mr. Schembechler served as a member of the Board of
Directors of Riddell from September 1991 until the Acquisition. Mr. Schembechler
was President of the Detroit Tigers from January 1990 through August 1992 and a
member of the Detroit Tigers Board of Directors from 1989 through 1990. He is
also 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 has been President and Chief Operating Officer of the Company's
Riddell Group Division since the Acquisition. Prior thereto, Mr. Cougill was
President and Chief Operating Officer of Riddell from June, 1995 until the
Acquisition and of its subsidiary, Riddell, Inc. from February, 1994 until the
Acquisition. Prior to his appointment, Mr. Cougill was previously employed in
various capacities by Wilson Sporting Goods since 1977 and was Vice President of
Wilson Sporting Goods and the General Manager of its Team Sports Division prior
to joining Riddell.
David Groelinger has been Executive Vice President and Chief Financial
Officer of the Company since the Acquisition. Prior thereto, Mr. Groelinger was
Riddell's Chief Financial Officer from March 1996 and Executive Vice President
from June 1996 until the Acquisition. From 1994 to 1995, 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 1994, Mr. Groelinger served in various senior financial
capacities during his twelve years at Chiquita Brands International, Inc. In
1990, he was promoted to Vice President reporting to 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.
COMPENSATION OF DIRECTORS
Directors who are not officers of Riddell received fees in 1996 of $15,000
per annum. Directors who are members of the Audit and Compensation Committees of
the Board (Messrs. McConnaughy, Kornstein and Schembechler) are also each paid
an aggregate additional amount of $5,000 per annum for their Committee
memberships. In 1996, the Company paid Mr. McConnaughy consulting fees of
$75,000; Mr. McConnaughy
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<PAGE>
waived his directors' fees in 1996. In 1996, Mr. Schembechler was paid fees of
$20,000 for services rendered in connection with a series of promotional
football clinics sponsored by the Company in addition to his director's fees.
During 1996, directors other than Mr. Mauer were granted options to
purchase 7,500 shares of the Company's Common Stock at an exercise price of
$4.75 per share. Mr. Mauer was granted an option in 1996 to acquire 50,000
shares of Common Stock at an exercise price of $4.50 per share.
Riddell has agreed to indemnify each director against certain claims and
expenses for which the director might be held liable in connection with services
on the Board. In addition, the Company maintains an insurance policy insuring
its directors and officers against such liabilities.
During the calendar year ended December 31, 1996, there were 6 meetings of
the Board of Directors of Riddell, and all members attended each meeting. There
was one meeting of each of the Audit, Compensation and Executive Committees,
attended by all members in each case. Additionally, there was one Action by
Unanimous Written Consent of the Compensation Committee in 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth the cash compensation paid to or accrued for
Riddell's Chief Executive Officer and its four most highly paid executive
officers in 1996 for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(4)
- ------------------------------- ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David M. Mauer ................ 1996 $500,000 -- -- 50,000 $ 4,620
Chief Executive Officer 1995 457,500 $170,000 -- 50,000 4,620
1994 420,000 120,000 -- 100,000(3) 1,100
Robert E. Nederlander ......... 1996 $180,656 -- -- 7,500 --
Chairman of the Board 1995 173,355 -- -- 15,000 --
1994 166,565 -- -- 15,000 --
Leonard Toboroff .............. 1996 $180,656 -- -- 7,500 $13,614
Vice President 1995 173,355 -- -- 15,000 11,647
1994 166,565 -- -- 15,000 1,422
Dan Cougill ................... 1996 $230,000 -- -- 15,000 $ 4,750
President and Chief Operating 1995 206,923 $ 60,000 -- 15,000 4,322
Officer 1994 180,000 110,000 -- 75,000 --
David Groelinger .............. 1996 $143,308(5) $ 25,000(6) -- 65,000 --
Chief Financial Officer and
Executive Vice President
</TABLE>
- ------------------
(1) Perquisites and other personal benefits paid in 1996 for the named executive
officers aggregated less than the lesser of $50,000 and 10% of the total
annual salary and bonus set forth in the columns entitled, 'Salary' and
'Bonus' for each named executive officer and, accordingly, are omitted from
the table as permitted by the rules of the Commission.
(2) These options were issued under Riddell's 1991 Stock Option Plan.
(Footnotes continued on next page)
87
<PAGE>
(Footnotes continued from previous page)
(3) In 1994 Riddell canceled an option previously granted to Mr. Mauer to
acquire 100,000 shares of Common Stock and in its place issued an option to
acquire an equal number of shares at a lower exercise price per share.
(4) Represents Riddell's contribution to its 401K Plan on behalf of the
employee, and in the case of Mr. Toboroff, includes the dollar value of
approximately $9,000 and $7,000 of insurance premiums paid on behalf of Mr.
Toboroff for 1996 and 1995, respectively under an Indeterminate Premium One
Year Term Life Policy pursuant to which he will receive the cash surrender
value.
(5) Based on an annual salary of $180,000 pursuant to an employment agreement
between Riddell and Mr. Groelinger. See '--Employment Agreements.'
(6) Paid pursuant to the employment agreement between Riddell and Mr.
Groelinger. See '--Employment Agreements.'
STOCK OPTIONS GRANTED IN 1996
The following table sets forth information concerning individual grants of
stock options made during 1996 to each executive officer listed below pursuant
to the Riddell's 1991 Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK
SECURITIES OPTIONS GRANTED EXERCISE PRICE APPRECIATION
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION FOR
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE OPTION TERM(5)
- ------------------------ --------------- --------------- --------- ---------- -------------------
5% 10%
-------- --------
<S> <C> <C> <C> <C> <C> <C>
David M. Mauer.......... 50,000(1) 21% $4.50 7/16/06 $141,501 $358,592
Dan Cougill............. 15,000(2) 6 4.31 12/17/06 40,682 103,095
David Groelinger........ 65,000(3) 27 4.63 3/7/06 189,061 479,119
Robert Nederlander...... 7,500(4) 3 4.75 6/27/06 22,404 56,777
Leonard Toboroff........ 7,500(4) 3 4.75 6/27/06 22,404 56,777
</TABLE>
- ------------------
(1) This option expires July 16, 2006, vests as to 25% of the underlying shares
on each of the first, second, third and fourth anniversaries of the date of
grant. The option is canceled upon a termination of employment for cause. In
the event Mr. Mauer's employment is terminated by Riddell, generally, other
than for cause, this stock option becomes fully exercisable for 90 days.
(2) Mr. Cougill's option vests as to 25% of the underlying shares on each of the
first, second, third and fourth anniversaries of the date of grant and
expires December 17, 2006. The option is canceled upon a termination of
employment for cause. In the event Mr. Cougill's employment is terminated by
Riddell, generally, other than for cause, the option becomes fully
exercisable for 90 days.
(3) Mr. Groelinger's option vests as to 25% of the underlying shares on each of
the first, second, third and fourth anniversaries of the date of grant and
expires March 7, 2006. The option is canceled upon a termination of
employment for cause. In the event Mr. Groelinger's employment is terminated
by Riddell, generally, other than for cause, the option becomes fully
exercisable for 90 days.
(4) Messrs. Nederlander and Toboroff were granted options together with the
other members of Riddell's Board of Directors (other than Mr. Mauer) in 1996
under Riddell's 1991 Stock Option Plan. The options are fully exercisable
commencing June 27, 1997 through June 27, 2006. Each option is canceled upon
a termination of employment for cause. In the event the individual's Board
membership terminates, generally, other than for cause, each stock option
becomes fully exercisable for 90 days.
(5) Based upon the per share market price on the date of grant and an annual
appreciation of such market price at the rate stated in the table through
the expiration date of such options. Gains, if any, are dependent upon the
(Footnotes continued on next page)
88
<PAGE>
(Footnotes continued from previous page)
actual performance of the Common Stock, as well as the continued employment
of the executive officers through the vesting period. The potential
realizable values indicated have not taken into account amounts required to
be paid as income tax under the Internal Revenue Code and any applicable
state laws.
STOCK OPTIONS HELD AT END OF 1996
The following table indicates the total number of exercisable and
unexercisable stock options held by each executive officer listed below on
December 31, 1996. No options to purchase Riddell's Common Stock were exercised
during 1996. On December 31, 1996, the last sales price of the Common Stock on
NASDAQ was $4.63 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David M. Mauer.......... 230,000 170,000 $ 268,950 $98,050
Dan Cougill............. 78,750 26,250 159,375 18,750
David Groelinger........ -- 65,000 -- --
Robert E. Nederlander... 71,000 7,500 69,375 --
Leonard Toboroff........ 71,000 7,500 69,375 --
</TABLE>
EMPLOYMENT AGREEMENTS
In June 1992, Riddell entered into an employment agreement with each of
Messrs. Nederlander and Toboroff. Each agreement continues until terminated by
Riddell, with termination being effective three years after Riddell delivers
notice of termination or, if earlier, upon the death or disability of the
employee. The agreements are immediately terminable by Riddell for Cause (as
defined therein). Bonuses are discretionary with the Board. Each agreement
provides a base salary of $162,500 which may be increased in the discretion of
the Board, provided that, in any event, each year the salaries are increased at
least by the percentage increase in the Consumer Price Index. The current salary
of Messrs. Nederlander and Toboroff is $194,135. Each agreement provides that in
the event the Company terminates the employee's employment, generally, other
than for Cause, the employee will receive his full salary through the end of the
term of his agreement and annual bonuses for the remainder of the term equal to
the average of the annual bonuses awarded to the employee prior to termination.
Each agreement acknowledges that the employee will devote time and provide
services to entities other than the Company.
In April 1993, Riddell entered into an employment agreement with Mr. Mauer.
The agreement, as amended in 1994, provides an annual base salary in such amount
in excess of $400,000 as the Board of Directors may determine from time to time.
The agreement provides for years after 1993 that the Board of Directors and Mr.
Mauer establish target bonuses based upon measures to be agreed upon before the
beginning of each calendar year, and that Mr. Mauer's bonus will be a
percentage, not to exceed 100%, of his base salary based upon the percent of the
targets achieved. The agreement continues until terminated by Riddell, with
termination effective three years after Riddell delivers notice of termination
or, if earlier, until Mr. Mauer's death or disability. The agreement is
immediately terminable for Cause (as defined therein). Pursuant to his
employment agreement, Mr. Mauer was granted an option for ten years to acquire
300,000 shares of the Company's Common Stock at an average price of $3.63 per
share. In the event Mr. Mauer's employment is terminated, generally, other than
for Cause, Mr. Mauer will receive his salary for a period of three years plus a
pro rata portion of the bonus earned through the date of termination, and his
options become fully exercisable for one year.
Riddell entered into an employment agreement with Mr. Cougill as of
February 1, 1994, providing for a $50,000 signing bonus, an annual salary of
$200,000 per annum and minimum bonus of $50,000 for 1994. Pursuant to his
employment agreement, Mr. Cougill was granted an Option for five years to
purchase 75,000 shares of the Company's Common Stock at $2.56 per share. In the
event Mr. Cougill's employment is terminated
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by the Company, generally, other than for Cause (as defined therein), Mr.
Cougill will receive his full salary for a period of one year plus the pro rata
portion of his bonus earned through the date of termination by the Company, and
his options become exercisable in full for one year. The agreement is
immediately terminable for Cause and, unless renewed, expires in May 1998.
Riddell entered into a two year employment agreement with Mr. Groelinger
effective March 1996 in connection with his joining Riddell as Chief Financial
Officer. The agreement provides for an annual base salary of $180,000 and a
guaranteed minimum bonus for 1996 of $25,000. Thereafter, bonuses will be a
percentage of his salary, with a target of 40%. Pursuant to his employment
agreement, Mr. Groelinger was granted a ten year option to purchase 65,000
shares of the Company's Common Stock at an exercise price of $4.63 per share.
The agreement is immediately terminable for Cause (as defined therein). The
agreement provides generally that if Mr. Groelinger's employment is terminated
other than for Cause, he will be paid no less than one year's salary (two years'
salary in the event termination arises in connection with a Change of Control
(as defined therein)) plus a pro rata portion of his bonus through the date of
termination, and his stock options become immediately exercisable for one year
to the extent then vested.
In addition, in connection with the Transactions, the Company has entered
into an employment agreement with Mr. Webb on May 5, 1997 which will become
effective after the Merger is consummated. Under the terms of such agreement,
which has a three-year term, Mr. Webb will serve as Vice Chairman of the Board
of Directors of the Company, as well as President and Chief Operating Officer of
the Varsity Group Division. Mr. Webb will be entitled to a base salary of no
less than $375,000 per year and will be eligible to participate in those bonus
arrangements which are made available to other senior officers of the Company at
a target level of 40% of his base salary. Pursuant to his employment agreement,
Mr. Webb will receive options to purchase 50,000 shares of common stock of the
Company and 'special options' to purchase an additional 347,760 shares. The per
share exercise price of the 50,000 options shall be equal to the average closing
price of a share of the Company's Common Stock over the ten consecutive trading
days ending on the date immediately prior to the date of grant. The per share
exercise price of the 347,760 special options will be $3.80. Upon termination of
Mr. Webb's employment (i) by the Company without Cause (as defined therein),
(ii) by Mr. Webb with Good Reason (as defined therein, 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 therein), Mr. 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), as well as certain benefits. Mr.
Webb is subject to a noncompetition covenant generally for a period of two years
following the termination of his employment for any reason. Pursuant to his
employment agreement, Mr. Webb agreed to become a party to the Stockholders
Agreement.
The stock options granted to Messrs. Mauer, Webb, Cougill and Groelinger in
connection with their employment agreements become immediately exercisable in
the event of a change of control (as defined in their respective employment
agreements).
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of July 11, 1997
regarding the ownership of the capital stock of the Company with respect to (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of any class of its voting capital stock, (ii) each of the
Company's directors, (iii) each of the executive officers of the Company and
(iv) all directors and executive officers as a group. Except as otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
SHARES BENEFICIALLY
OWNED
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------- --------- ------
M.L.C. Partners Limited Partnership(1) ........... 830,281 9.1%
c/o Robert Nederlander
810 Seventh Avenue
New York, NY 10019
Robert E. Nederlander(2) ......................... 5,260,387 51.9%
810 Seventh Avenue
New York, NY 10019
David M. Mauer(3) ................................ 361,525 3.9%
Riddell Sports Inc.
900 Third Avenue/27th Fl.
New York, NY 10022
Jeffrey G. Webb(4) ............................... 1,109,887 11.8%
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, TN 38133
Leonard Toboroff(5) .............................. 1,342,003 14.7%
Riddell Sports Inc.
900 Third Avenue/27th Fl.
New York, NY 10022
Don R. Kornstein(6) .............................. 35,000 *
Riddell Sports Inc.
900 Third Avenue/27th Fl.
New York, NY 10022
John McConnaughy, Jr.(7) ......................... 714,308 7.8%
300 Atlantic Street
Stamford, CT 06901
Glenn E. 'Bo' Schembechler(6) .................... 37,500 *
870 Arlington
Ann Arbor, MI 48104
Dan Cougill(8) ................................... 88,927 1.0%
Riddell, Inc.
3670 N. Milwaukee Avenue
Chicago, IL 60641
David Groelinger(9) .............................. 19,750 *
Riddell Sports Inc.
900 Third Avenue/27th Fl.
New York, NY 10022
All executive officers and directors listed above,
as a group(10).................................. 5,352,637 52.8%
Angelo, Gordon & Co., L.P.(11) ................... 1,395,000 13.4%
245 Park Avenue
New York, NY 10167
- ------------------
* Less than 1%
(Footnotes continued on next page)
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(Footnotes continued from previous page)
(1) Includes 43,750 shares underlying a warrant (the 'Warrant') which are
currently exercisable. M.L.C. Partners Limited Partnership ('MLC') is the
direct beneficial owner of all shares, which (other than shares underlying
the Warrant) are subject to a voting trust (the 'Voting Trust') pursuant to
which Robert Nederlander is voting trustee (the 'Voting Trustee') and has
the sole voting power. Mr. Nederlander, as controlling stockholder of the
corporation which is the general partner of MLC, may be deemed to
beneficially own these shares. Mr. McConnaughy is the sole owner of a
corporation that is a limited partner in MLC. A corporation controlled by
Mr. Nederlander is also a limited partner in MLC.
(2) Of the 5,260,387 shares beneficially owned by Mr. Nederlander: (i)
1,643,737 shares are owned by Mr. Nederlander directly or through entities
controlled by him having dispositive power over these shares (105,989 of
these 1,643,737 shares underlie options granted under the Company's 1991
Stock Option Plan or the Warrant which are exercisable within 60 days of
July 11, 1997, 830,281 of such 1,643,737 shares are owned by MLC and
983,123 of such 1,643,737 shares are subject to the Voting Trust) and (ii)
an additional 3,616,650 shares are beneficially owned by Mr. Nederlander as
Voting Trustee under the Voting Trust and pursuant to a shareholders
agreement (the 'Principal Shareholders Agreement') dated as of August 1995,
as amended, pursuant to which, generally, the parties thereto agree to vote
the outstanding shares of the Company's Common Stock owned by them directly
and beneficially in the same manner that Mr. Nederlander votes the shares
of stock in the Voting Trust with respect to which he is Voting Trustee.
Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended, Mr.
Nederlander is deemed to beneficially own the shares of stock subject to
the Voting Trust and the Principal Shareholders Agreement and owned by MLC.
(3) The 361,525 shares of Common Stock beneficially owned by Mr. Mauer are
subject to the Principal Shareholders Agreement and 305,259 of these shares
are issuable in connection with options granted under the Company's 1991
Stock Option Plan and the Warrant that are exercisable within 60 days of
July 11, 1997.
(4) The 1,109,887 shares of Common Stock beneficially owned by Mr. Webb are
subject to the Principal Shareholders Agreement and 347,760 of these shares
underlie an option the Company has agreed to grant upon consummation of the
Merger (anticipated to occur on or about July 25, 1997) and which will be
fully exercisable on the date of grant.
(5) The 1,342,003 shares of Common Stock beneficially owned by Mr. Toboroff are
subject to the Principal Shareholders Agreement and 91,038 of these shares
underlie options granted under the Company's 1991 Stock Option Plan and the
Warrant that are exercisable within 60 days of July 11, 1997.
(6) Represents shares underlying an option granted under the Company's 1991
Stock Option Plan that are exercisable within 60 days of July 11, 1997.
(7) Of the 714,308 shares of Common Stock beneficially owned by Mr.
McConnaughy: (i) 147,444 are subject to the Voting Trust, (ii) 566,864 are
subject to the Principal Shareholders Agreement and (iii) 62,239 shares
underlie options granted under the Company's 1991 Stock Option Plan and the
Warrant that are exercisable within 60 days of July 11, 1997.
(8) The 88,927 shares of Common Stock beneficially owned by Mr. Cougill are
subject to the Principal Shareholders Agreement and 79,225 of these shares
underlie options granted under the Company's 1991 Stock Option Plan and the
Warrant that are exercisable within 60 days of July 11, 1997.
(9) Includes 16,250 shares underlying that portion of an option to acquire an
aggregate of 65,000 shares that is exercisable within 60 days of July 11,
1997.
(10) Includes the 830,281 shares owned by MLC.
(11) Based on a Schedule 13G filed February 13, 1997, Angelo, Gordon & Co., L.P.
may be deemed to be the beneficial owner of 1,395,000 shares as a result of
voting and dispositive powers it holds with respect to $1,000,000 principal
amount of the Company's 4.1% Convertible Subordinated Note due November 1,
2004 (the 'Convertible Note') convertible at $5.3763 per share into 186,000
shares of the Company's Common Stock held for its own account and
$6,500,000 principal amount of the Convertible Note convertible into
1,209,000 shares of Common Stock which it holds for the account of private
investment funds for which it acts as general partner and/or investment
advisor or investment manager.
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CERTAIN TRANSACTIONS
In September 1988, Riddell issued a subordinated secured term note (the
'Subordinated Note') in the original principal amount of $2.0 million to M.L.C.
Partners Limited Partnership ('MLC') in connection with a recapitalization. In
the recapitalization, Riddell issued Common Stock in exchange for (i) Class A
Common Stock of Riddell owned by MLC (which had a preferential right to receive
$4.0 million before any dividends or distributions were to be made to any other
stockholders), (ii) Class B Common Stock owned by Mac I (from certain
subsidiaries of which Riddell acquired its initial businesses in April 1988 for
certain cash consideration, Class B Common Stock, long term notes and assumed
liabilities) and (iii) Class B Common Stock owned by Mr. Frederic Brooks (the
Company's President and Chief Operating Officer until February 1992). Originally
due in 1993, the Subordinated Note was extended until January 1998, subject to
mandatory prepayments relating to cash flow measurement and changes in
capitalization. The outstanding balance of the Subordinated Note was repaid in
accordance with its terms in November 1996. The Subordinated Note bore interest
at 10% per annum, was secured by a lien on substantially all of the assets of
Riddell and was subordinated to Riddell's indebtedness to NBD Bank.
In 1994, Riddell granted MLC a warrant to purchase 150,000 shares of its
Common Stock in consideration for the extension of the Subordinated Note. In
August 1995, certain of the original partners withdrew from MLC, and in
connection with the restructuring of MLC, Messrs. Cougill, Mauer, McConnaughy,
Nederlander and Toboroff or entities controlled by them acquired interests in
the warrant.
In May 1991, Messrs. Nederlander, Toboroff, Epstein, McConnaughy and Brooks
(the 'Investors') acquired from a party not affiliated with Riddell a promissory
note with an aggregate principal amount of $439,000. The note was originally
issued in April 1988 to Mac I in connection with the acquisition described
above. The unaffiliated seller had acquired substantially all of the assets of
Mac I's successor, MacGregor Sports Inc., in a sale authorized during the
successor's bankruptcy proceedings. In August 1995, Mr. Epstein transferred his
interest in the note to Messrs. Cougill, Mauer, McConnaughy, Nederlander and
Toboroff in connection with the restructuring of MLC. The note was paid in full
in June 1997 in connection with the refinancing relating to the New Credit
Facility. The note was due in April 1998, bore simple interest at the rate of 8%
per annum and was unsecured.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of the Company contains provisions
eliminating the personal liability of directors for monetary damages for
breaches of their duty of care, except in certain prescribed circumstances. The
Bylaws of the Company also provides that directors and officers will be
indemnified to the fullest extent authorized by law, as it now exists or may in
the future be amended, against all expenses and liabilities reasonably incurred
in connection with service for or on behalf of the Company. The Bylaws of the
Company provide that the right of directors and officers to indemnification is
not exclusive of any other right now possessed or hereinafter acquired under any
statute, agreement or otherwise.
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DESCRIPTION OF THE SENIOR NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture (the 'Indenture')
between the Company, the Guarantors and Marine Midland Bank, as trustee (the
'Trustee'), a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the 'Trust Indenture Act'). The Notes are subject
to all such terms, and Holders of Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under '--Certain
Definitions.' The form and terms of the New Senior Notes will be the same as
those of the Old Senior Notes except that the New Senior Notes will have been
registered under the Securities Act, and consequently will not be subject to
certain transfer restrictions, registration rights and related Liquidated
Damages provisions applicable to the Old Senior Notes. See '--Registration
Rights; Liquidated Damages' below. As of the date of this Prospectus, all of the
Company's Subsidiaries are Restricted Subsidiaries; however, under certain
circumstances, the Company will be able to designate Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture and will not be required
to provide Subsidiary Guarantees. For purposes of this summary, the term
'Company' refers only to Riddell Sports Inc. and not to any of its Subsidiaries.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Senior Notes. As of
the date of this Prospectus, all of the Company's Subsidiaries will be
Guarantors.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $115.0
million and mature on July 15, 2007. The Indenture provides for the issuance of
up to $25.0 million aggregate principal amount of additional Senior Notes having
identical terms and conditions to the Old Senior Notes (the 'Additional Senior
Notes'), subject to compliance with the covenants contained in the Indenture.
Any Additional Senior Notes will be part of the same issue as the Senior Notes
and will vote on all matters with the Senior Notes. For purposes of this
'Description of the Senior Notes' references to the Senior Notes do not include
Additional Senior Notes. Interest on the Senior Notes accrues at the rate of
10 1/2% per annum and will be payable semi-annually in arrears on January 15 and
July 15, commencing on January 15, 1998, to Holders of record on the immediately
preceding January 1 and July 1, respectively. Interest on the Senior Notes
accrues from the most recent date to which interest has been paid or, if no
interest has been paid, from June 19, 1997. Interest is computed on the basis of
a 360-day year comprised of twelve 30-day months. Principal, premium, if any,
and interest and Liquidated Damages, if any, on the Senior Notes will be payable
at the office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, payment of interest
and Liquidated Damages, if any, may be made by check mailed to the Holders of
the Senior Notes at their respective addresses set forth in the register of
Holders of Senior Notes; provided that all payments of principal, premium,
interest and Liquidated Damages with respect to Senior Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Senior Notes will be issued in denominations of
$1,000 and integral multiples thereof.
RANKING
The Old Senior Notes are, and the New Senior Notes will be, general
unsecured obligations of the Company, ranking senior in right of payment to all
existing and future Indebtedness of the Company that is subordinated to the
Senior Notes and ranking pari passu in right of payment with all current and
future unsecured unsubordinated Indebtedness of the Company. All borrowings
under the New Credit Facility are secured by a Lien on substantially all of the
assets of the Company and its Subsidiaries and the Indenture restricts, but does
not
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prohibit, the Company and its Subsidiaries from incurring certain other
indebtedness and which can be secured with Liens on the assets of the Company
and its Subsidiaries. Consequently, the obligations of the Company under the
Senior Notes are effectively subordinated to its obligations under the New
Credit Facility and such other indebtedness to the extent of such assets. As of
March 31, 1997 on a pro forma basis after giving effect to the Acquisition, the
Company and its Subsidiaries would have had approximately $27.2 million
principal amount of secured indebtedness and $12.8 million would have been
available to be borrowed under the revolving portion of the New Credit Facility.
See 'Risk Factors--Ranking and Fraudulent Conveyance Considerations.' The
Company's obligations under the Indenture and the Senior Notes are guaranteed on
a senior, unsecured basis by each of the Guarantors. See '--Subsidiary
Guarantees.'
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Notes are jointly and
severally guaranteed on a senior unsecured basis (the 'Subsidiary Guarantees')
by the Guarantors. All of the Company's Subsidiaries, including Riddell, Inc.
and Varsity, are Restricted Subsidiaries and Guarantors of the Senior Notes. The
obligations of each Guarantor under its Subsidiary Guarantee are limited so as
not to constitute a fraudulent conveyance under applicable law. See, however,
'Risk Factors--Ranking and Fraudulent Conveyance Considerations.'
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than a
Guarantor or the Company) assumes all the obligations of such Guarantor,
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Senior Notes, the Indenture and the
Subsidiary Guarantee and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See '--Repurchase at
the Option of Holders--Asset Sales.'
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
July 15, 2002. Thereafter, the Senior Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 15 of the years
indicated below:
REDEMPTION
YEAR PRICE
---------------------- ----------
2002.................. 105.25%
2003.................. 103.50%
2004.................. 101.75%
2005 and thereafter... 100.00%
Notwithstanding the foregoing, at any time on or before July 15, 2000, the
Company may (but shall not have the obligation to) redeem, on one or more
occasions, up to 35% of the aggregate principal amount of the Senior Notes at a
redemption price equal to 110 1/2% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the redemption
date, with the net cash proceeds of one or more Equity Offerings; provided that
at least $75.0 million aggregate principal amount of Senior Notes remain
outstanding immediately after the occurrence of such redemption; and provided
further, that such redemption shall occur within 45 days of the date of the
closing of such Equity Offering.
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SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed or purchased in an
offer to purchase at any time, selection of Senior Notes for redemption or
purchase will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Senior Notes are
listed, or, if the Senior Notes are not so listed, on a pro rata basis; provided
that no Senior Notes of $1,000 or less shall be redeemed or purchased in part.
Notices of redemption may not be conditional. Notices of redemption or purchase
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date or purchase date to each Holder of Senior Notes to be
redeemed or purchased at its registered address. If any Senior Note is to be
redeemed or purchased in part only, the notice of redemption or purchase that
relates to such Senior Note shall state the portion of the principal amount
thereof to be redeemed or purchased. A new Senior Note in principal amount equal
to the unredeemed or unpurchased portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Senior Note. On and after
the redemption or purchase date, interest ceases to accrue on Senior Notes or
portions of them called for redemption or purchase.
MANDATORY REDEMPTION
Except as set forth below under '--Repurchase at the Option of Holders,'
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the 'Change of Control Offer') at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the 'Change of Control Payment'). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the 'Change of Control Payment Date'), pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior Notes
as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Notes to require that the
Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's other senior Indebtedness, including the New Credit Facility,
contains prohibitions of certain events that would constitute a Change of
Control. In addition, the exercise by the Holders of Senior Notes of their right
to require the Company to repurchase the Notes could cause a default under such
other senior
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indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchases on the Company. Finally, the Company's
ability to pay cash to the Holders of Senior Notes upon a repurchase may be
limited by the Company's then existing financial resources. See 'Risk Factors
- --Inability to Purchase Senior Notes upon a Change of Control.'
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of 'all or substantially all'
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase 'substantially
all,' there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) for any Asset Sale
other than an Asset Sale of Unrestricted Margin Stock, at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Senior Notes or any guarantee thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale
other than an Asset Sale of Unrestricted Margin Stock, the Company may apply
such Net Proceeds, at its option, (a) to permanently reduce Indebtedness under
the Credit Facilities (and correspondingly reduce commitments thereunder) or to
permanently reduce other Senior Indebtedness of the Company or any Guarantor or
(b) to the acquisition of a controlling interest in a Permitted Business, the
making of a capital expenditure or the acquisition of other long-term assets
(collectively 'Replacement Assets'). Pending the final application of any such
Net Proceeds, the Company may temporarily reduce revolving credit Indebtedness
or otherwise invest such Net Proceeds in any manner that is not prohibited by
the Indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph will be deemed to
constitute 'Excess Proceeds.' When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be required to make an offer to all
Holders of Senior Notes and Additional Senior Notes (an 'Asset Sale Offer') to
purchase the maximum principal amount of Senior Notes and Additional Senior
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase,
in accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Senior Notes and Additional Senior Notes tendered
pursuant to an Asset Sale Offer is less than or equal to the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Senior Notes and Additional
Senior Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Senior Notes and Additional Senior Notes
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company), provided that each Restricted Subsidiary of
the Company will be permitted to declare and pay dividends to the holders of
such Restricted Subsidiary's common Equity Interests on a pro rata basis; (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company, any Restricted Subsidiary of the
Company or any Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Restricted Subsidiary of the Company); (iii) make
any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value, any Indebtedness that is subordinated to the Senior
Notes, except (x) a payment of interest or principal at Stated Maturity or (y)
pursuant to a change of control provision applicable to such subordinated
Indebtedness, provided that the Company has complied with the terms described
above under the caption '--Repurchase at the Option of Holders--Change of
Control' and has paid, or has made adequate provision in the reasonable judgment
of the Board of Directors for the payment of, the Senior Notes that have been or
may be tendered in response to a Change of Control Offer; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as 'Restricted Payments'),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption '--Incurrence of
Indebtedness and Issuance of Preferred Stock'; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (including all Restricted
Payments permitted by the next succeeding paragraph but excluding
Restricted Payments permitted by clauses (ii), (iii) and (vi) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the date of
the Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the date of the Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment and (C)
the amount resulting from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case, such amount to be valued as provided
in the second succeeding paragraph) not to exceed the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary and which was treated as a Restricted Payment under
the Indenture.
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The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of pari passu or subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(iv) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its Restricted Subsidiaries')
management, employees or consultants pursuant to any management, employee or
consultant equity subscription agreement or stock option agreement; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $500,000 in any twelve-month period
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) cash payments in lieu of fractional
shares issuable as dividends on preferred securities of the Company or any of
its Restricted Subsidiaries; provided that such cash payments shall not exceed
$50,000 in the aggregate in any twelve-month period and no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction; and (vi) payments pursuant to the Varsity Merger Documents.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by Riddell, Inc. and
Varsity be transferred to or held by an Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation and (y) the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. Any such designation by the Board of Directors shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the provisions of this covenant. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption '--Incurrence of Indebtedness and
Issuance of Preferred Stock,' the Company shall be in default of such covenant).
The Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption '--Incurrence of Indebtedness and
Issuance of Preferred Stock,' calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
In computing the Consolidated Net Income of the Company under the foregoing
clause (c)(i), (i) the Company may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company will be permitted to
rely in good faith on the financial statements and other financial data derived
from its books and records that are available on the date of determination. If
the Company makes a Restricted Payment that, at the time of the making of such
Restricted Payment, would in the good faith determination of the Company be
permitted under the requirements of the Indenture, such Restricted Payment
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will be deemed to have been made in compliance with the Indenture
notwithstanding any subsequent adjustments made in good faith to the Company's
financial statements affecting Consolidated Net Income of the Company for any
period.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant '--Restricted
Payments' were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, 'incur') any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock
(except that a Subsidiary of the Company may issue preferred stock to the
Company or to any Guarantor); provided, however, that the Company or the
Guarantors may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1, if such incurrence or issuance is on or prior to September 30,
1999, or 2.25 to 1, if such incurrence or issuance is after September 30, 1999,
in each case, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The Indenture also provides that the Company will not incur any
Indebtedness that is contractually subordinated to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated to the
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually subordinated to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
'Permitted Debt'):
(i) the incurrence by the Company and the Guarantors of Indebtedness
(including letters of credit) pursuant to the Credit Facilities (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and the Guarantors thereunder)
outstanding under all Credit Facilities after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refinance or replace any Indebtedness incurred pursuant to this clause (i),
does not exceed the greater of (a) $40.0 million or (b) the amount of the
Borrowing Base minus Indebtedness incurred pursuant to clause (iv) of this
covenant;
(ii) the incurrence by the Company and the Guarantors of the Existing
Indebtedness;
(iii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Senior Notes (other than any Additional Senior Notes)
and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of the Guarantors of
Indebtedness in an aggregate principal amount not to exceed $3.0 million at
any time outstanding (x) incurred in connection with the settlement of, or
the payment of any judgment with respect to, any outstanding litigation in
existence as of the date of the Indenture, which may include the payment of
legal fees and expenses relating to such litigation, or (y) represented by
Capital Lease Obligations, mortgage financings or purchase money
obligations, in each
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case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Guarantor; provided,
however, that any indebtedness incurred pursuant to clause (x) shall have
been incurred no later than 18 months after the date of the Indenture.
(v) the incurrence by the Company or any of the Guarantors of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of the Guarantors of
intercompany Indebtedness between or among the Company and any of the
Guarantors; provided, however, that (A) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Guarantor and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Guarantor shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Guarantor, as the
case may be;
(vii) the incurrence by the Company or any of the Guarantors of
Hedging Obligations that are incurred for the purpose of fixing or hedging
currency exchange risk or interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(ix) Indebtedness incurred in respect of performance, surety and
similar bonds provided by the Company in the ordinary course of business,
and refinancings thereof;
(x) Indebtedness arising from guarantees of Indebtedness of the
Company or any Subsidiary or other agreements of the Company or a
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition, provided that the maximum aggregate liability in respect
of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Subsidiaries in connection with
such disposition;
(xi) the guarantee by any of the Guarantors of Indebtedness of the
Company or another Guarantor that was permitted to be incurred under the
Indenture; and
(xii) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except Permitted Liens.
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Dividend and other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and the
Senior Notes, (d) applicable law, (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into or acquired in
the ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced or (i) restrictions contained in
agreements for the sale or disposition of assets or of all of the capital stock
of Subsidiaries that are otherwise in compliance with the terms of the Indenture
to the extent such agreements contain restrictions with respect to assets or the
Subsidiary sold or disposed of thereunder.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
'--Incurrence of Indebtedness and Issuance of Preferred Stock.'
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Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an 'Affiliate Transaction'),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $500,000, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that (w) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries consistent with the past practice of the
Company or such Restricted Subsidiary, or any employee benefit plan available to
employees or senior executives of the Company or any Restricted Subsidiary
generally, in each case in the ordinary course of business, (x) transactions
between or among the Company and/or its Restricted Subsidiaries, (y) dividends,
distributions, Restricted Payments and Investments that are permitted by the
provisions of the Indenture described above under the caption '--Restricted
Payments' and (z) any transactions pursuant to the Varsity Merger Documents, in
each case, shall not be deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Restricted Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Restricted Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption '--Repurchase at the Option of Holders--Asset Sales,' and (ii) will
not permit any Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Guarantor.
Lines of Business
The Indenture provides that the Company will, and will cause the Guarantors
to, engage only in Permitted Businesses.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Senior Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Senior Notes unless such consideration is
offered to be paid or is paid to all Holders of the Senior Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create another Subsidiary after the date of the Indenture, then such
newly acquired or created Subsidiary shall execute a Subsidiary Guarantee and
deliver an opinion of counsel, in accordance with the terms of the Indenture,
except for (i) all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries in accordance with the
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Indenture for so long as they continue to constitute Unrestricted Subsidiaries
and (ii) all Subsidiaries organized outside of the United States and its
territories.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the 'Commission'), so
long as any Senior Notes are outstanding, the Company will furnish to the
Holders of Senior Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, at any time after the Company files the Exchange Offer
Registration Statement, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Guarantors have agreed that, for so long as any Senior Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Senior Notes; (ii) default in payment
when due of the principal of or premium, if any, on the Senior Notes; (iii)
failure by the Company to comply with the provisions described under the
captions '--Repurchase at the Option of Holders--Change of Control,'
'--Repurchase at the Option of Holders--Asset Sales,' '--Certain Covenants--
Restricted Payments' or '--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock'; (iv) failure by the Company for 60 days after
notice from the Trustee or the Holders of at least 25% of the Senior Notes and
Additional Senior Notes, if any (voting as a single class) then outstanding to
comply with any of its other agreements in the Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
'Payment Default') or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Restricted Subsidiaries.
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If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
and Additional Senior Notes, if any (voting as a single class) may declare all
the Senior Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Guarantor
constituting a Significant Restricted Subsidiary, all outstanding Senior Notes
will become due and payable without further action or notice. Holders of the
Senior Notes may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Senior Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders of
the Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to July 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to July 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually an officer's
certificate regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee an officer's certificate specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the Senior Notes, the Indenture or the
Subsidiary Guarantees or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Senior Notes by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Senior Notes. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ('Legal
Defeasance') except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Senior Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Senior Notes concerning issuing temporary Senior Notes, registration of Senior
Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of
an office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ('Covenant Defeasance')
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-
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payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under '--Events of Default and Remedies' will no longer constitute an
Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Senior Notes on the stated maturity or on
the applicable redemption date, as the case may be, and the Company must specify
whether the Senior Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Senior Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Senior Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Company and
the Trustee may amend or supplement the Indenture, the Subsidiary Guarantees or
the Senior Notes with the consent of the Holders of at least a majority in
principal amount of the Senior Notes and Additional Senior Notes then
outstanding, voting as a single class, (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Notes), and any existing default or compliance with any provision of
the Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with
the consent of the Holders of a majority in
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principal amount of the then outstanding Senior Notes and Additional Senior
Notes, voting as a single class, (including consents obtained in connection with
a tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption '--Repurchase at the Option of Holders'), (iii) reduce the
rate of or change the time for payment of interest on any Senior Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Senior Notes (except a rescission of acceleration of
the Senior Notes by the Holders of at least a majority in aggregate principal
amount of the Senior Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Senior Note payable in money other than
that stated in the Senior Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Senior Notes to receive payments of principal of or premium, if any, or interest
on the Senior Notes, (vii) waive a redemption payment with respect to any Senior
Note (other than a payment required by one of the covenants described above
under the caption '--Repurchase at the Option of Holders'), (viii) release any
Guarantor from any of its obligations under its Subsidiary Guarantee or the
Indenture, except in accordance with the terms of the Indenture, or (ix) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Senior Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Notes in addition
to or in place of certificated Senior Notes, to provide for the assumption of
the Company's or a Guarantor's obligations to Holders of Senior Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Senior Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to issue
Additional Senior Notes in accordance with the limitations set forth in the
Indenture on the Issuance Date.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The Old Senior Notes were offered and sold (i) to 'qualified institutional
buyers' in reliance on Rule 144A under the Securities Act, (ii) to institutional
'accredited investors' as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also Qualified Institutional Buyers and (iii) in
reliance on Regulation S under the Securities Act, and in each case are
represented by a separate note in registered, global form without interest
coupons (respectively, the '144A Global Note,' 'IAI Global Note' and 'Regulation
S Global Note' and, collectively, the 'Restricted Global Notes'). Except as
described below under '--Certificated Securities,' the New Senior Notes will be
represented by a separate note in registered, global form without interest
coupons
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(the 'Unrestricted Global Note' and, collectively with the Restricted Global
Notes, the 'Global Notes'). Each Global Note will be issued in a denomination
equal to the outstanding principal amount of the Senior Notes represented
thereby. The Restricted Global Notes were, and the Unrestricted Global Notes
will be, deposited with, or on behalf of, The Depository Trust Company (the
'Depositary') and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the 'Global Note Holder'),
in each case for credit to an account of a direct or indirect participant as
described below.
Senior Notes that are issued as described below under '--Certificated
Securities' will be issued in the form of registered definitive certificates
(the 'Certificated Securities'). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless all Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in a Global
Note representing the principal amount of Senior Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the 'Participants'
or the 'Depositary's Participants') and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
'Indirect Participants' or the 'Depositary's Indirect Participants') that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Notes and (ii) ownership of the Senior Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some jurisdictions require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Senior Notes evidenced by
the Global Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Senior Notes evidenced by the Global Note. Beneficial owners of
Senior Notes evidenced by the Global Notes will not be considered the owners or
Holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Senior
Notes.
Payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on any Senior Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Senior Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Senior Notes. The Company believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
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Certificated Securities
Subject to certain conditions contained in the Indenture, any person having
a beneficial interest in the Global Notes may, upon request to the Trustee,
exchange such beneficial interest for Senior Notes in the form of Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). In addition, if (i) the
Company notifies the Trustee in writing that the Depositary is no longer willing
or able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Senior Notes in the
form of Certificated Securities under the Indenture, then, upon surrender by the
Global Note Holder of the Global Notes, Senior Notes in such form will be issued
to each person that the Global Note Holder and the Depositary identify as being
the beneficial owner of the related Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes and the Company and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Notes (including principal, premium, if any, and
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, and interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Senior Notes represented by the Global Notes
are expected to trade in the Depositary's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such Senior Notes will,
therefore, be required by the Depositary to be settled in immediately available
funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Holders of the New Senior Notes are not entitled to any registration
rights with respect to the New Senior Notes. The Company, the Guarantors and the
Initial Purchasers have entered into the Registration Rights Agreement, dated as
of June 19, 1997. Pursuant to the Registration Rights Agreement, the Company
agreed to file with the Commission the Exchange Offer Registration Statement on
the appropriate form under the Securities Act with respect to the New Notes. The
Registration Statement of which this Prospectus forms a part constitutes the
Exchange Offer Registration Statement. If (i) the Company is not required to
file the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
SEC policy or (ii) any Holder of Transfer Restricted Securities notifies the
Company within the specified time period that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) that it may
not resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) that it is a broker-dealer and owns Senior Notes acquired directly from the
Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Senior Notes
by the Holders thereof who satisfy certain conditions relating to the provision
of information in connection with the Shelf Registration Statement. The Company
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, 'Transfer Restricted Securities' means each Senior Note until (i)
the date on which an Old Senior Note has been exchanged by a person other than a
broker-dealer for a New Senior Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Senior Note for a
New Senior Note, the date on which such New Senior Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Senior Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf
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Registration Statement or (iv) the date on which such Senior Note is distributed
to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company use its
best efforts to have the Registration Statement, of which this Prospectus forms
a part, declared effective by the Commission on or prior to October 17, 1997,
(ii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer and use its best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
New Senior Notes in exchange for all Senior Notes tendered prior thereto in the
Exchange Offer and (iii) if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 30 days after such filing obligation arises
(and in any event within 150 days after June 19, 1997) and to cause the Shelf
Registration to be declared effective by the SEC on or prior to 60 days after
such obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the SEC on or prior to the date specified for such
effectiveness (the 'Effectiveness Target Date'), or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a 'Registration Default'), then the Company will pay
Liquidated Damages to each Holder of Senior Notes, with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $0.05 per week per $1,000 principal amount of Senior Notes
held by such Holder. The amount of the Liquidated Damages will increase by an
additional $0.05 per week per $1,000 principal amount of Senior Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $0.50 per week per
$1,000 principal amount of Senior Notes. All accrued Liquidated Damages will be
paid by the Company on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Senior Notes to be included in a Shelf Registration Statement
will be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Senior Notes included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
'Acquired Debt' means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
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'control' (including, with correlative meanings, the terms 'controlling,'
'controlled by' and 'under common control with'), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
'Asset Sale' means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or other current assets in the ordinary
course of business consistent with past practices (provided that transactions
governed by the provisions of the Indenture described above under the caption
'--Repurchase at the Option of Holders--Change of Control' and/or the provisions
described above under the caption '--Certain Covenants--Merger, Consolidation or
Sale of Assets' will be governed by such provisions and not by the provisions of
the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions that have a fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million. Notwithstanding
the foregoing: (i) a transfer of assets by the Company to a Guarantor or by a
Guarantor to the Company or to another Guarantor, (ii) an issuance of Equity
Interests by a Guarantor to the Company or to another Guarantor, (iii) a
dividend, distribution, Restricted Payment or Investment that is permitted by
the covenant described above under the caption '--Certain Covenants--Restricted
Payments' and (iv) the transfer of any royalty payment by the Company or any
Subsidiary as contemplated by the MOU, and as modified by the terms of any
definitive settlement agreement negotiated thereunder (provided that aggregate
payouts under the MOU are not materially more expensive to the Company than the
terms of the MOU), will not be deemed to be Asset Sales.
'Borrowing Base' means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
and (b) 60% of the book value of all inventory owned by the Company and its
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to the
amount of accounts receivable or inventory or trade payables as of a specific
date, the Company may utilize the most recent available information provided to
the lenders under the Credit Facilities for purposes of calculating the
Borrowing Base.
'Capital Lease Obligation' means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
'Capital Stock' means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
'Cash Equivalents' means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the full faith and credit of the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any lender party to the New Credit Facility or with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Keefe Bank
Watch Rating of 'B' or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper of a
domestic issuer having a rating of at least A-1 by Standard and Poor's Rating
Group ('S&P') or P-1 by Moody's Investors Service, Inc. ('Moody's') maturing
within six months after the date of acquisition.
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'Change of Control' means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any 'person' (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person (as defined
above), other than the Principals and their Related Parties, becomes the
beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act) directly or indirectly, of 35% or more of the Voting Stock of the Company,
(iv) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors or (v) the Company consolidates
with, or merges with or into, any Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of the
Company outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
'Consolidated Cash Flow' means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest of such Person and its Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, net
payments (if any) pursuant to Hedging Obligations and any deferred financing
fees incurred, and other financing fees expensed, in connection with the
acquisition of Varsity), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) any other fees or expenses
expensed in connection with the acquisition of Varsity, in each case, without
duplications and on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
'Consolidated Net Income' means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
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rule or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
'Continuing Directors' means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
'Credit Facilities' means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Old Senior Notes are first issued and
authenticated under the Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (i) of the definition of
Permitted Debt.
'Default' means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
'Disqualified Stock' means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature; provided,
however, that a class of Capital Stock shall not be Disqualified Stock hereunder
solely as the result of any maturity or redemption that is conditioned upon, and
subject to, compliance with the covenant under the caption 'Restricted
Payments.'
'Equity Interests' means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
'Equity Offering' means a public or private offering of Capital Stock
(other than Disqualified Stock) of the Company.
'Existing Indebtedness' means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
'Fixed Charges' means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations but excluding amortization of debt issuance costs and
excluding any deferred financing fees incurred, and other financing fees
expensed, in connection with the acquisition of Varsity) and (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all cash dividend payments on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests (other
than Disqualified Stock) of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person and its Restricted
Subsidiaries, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
'Fixed Charge Coverage Ratio' means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted
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Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than
revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the 'Calculation Date'), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the date of the Indenture.
'Guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
'Guarantors' means each Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and its respective successors
and assigns.
'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
'Indebtedness' means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, in each
case, except any amount that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
'Investments' means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted
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Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Restricted Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption '--Certain Covenants--Restricted Payments.'
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
'MOU' means the Memorandum of Understanding entered into as of the 3rd day
of June, 1997, by and among the Company, RHC, Riddell, Inc., Equilink, Ridmark,
MacMark, NBD Bank N.A., MLC Partners Limited Partnership, Robert Nederlander,
Leonard Toboroff, John McConnaughy, Jr., Frederic H. Brooks, Connecticut
Economics Corporation, Robert Weisman, Bruce H. Levitt, as Bankruptcy Trustee of
M Holdings Corporation, Paul Swanson, as Bankruptcy Trustee of MGS Acquisition,
Inc., Official Unsecured Creditors Committee of MacGregor Sporting Goods, Inc.,
and MacGregor Sports, Inc., Official Unsecured Creditors' Committee of MacGregor
Sporting Goods, Inc., M Holdings Corporation, f/k/a MacGregor Sporting Goods,
Inc., Innovative Promotions, Inc., Ernest Wood, Jr., Harry Wood, Pursuit
Athletic Footwear, Inc., and Riddell Athletic Footwear, Inc. in the form set
forth on a schedule to the New Credit Facility.
'Net Income' means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
'Net Proceeds' means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
'New Credit Facility' means that certain credit facility, dated as of June
19, 1997, by and among the Company and NationsBank, N.A. and NBD Bank, as agents
and lenders, providing for up to $40.0 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
extended, modified, renewed, refunded, replaced or refinanced from time to time.
'Non-Recourse Debt' means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
'Obligations' means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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'Permitted Businesses' means (i) the lines of businesses that the Company
or any of the Guarantors were engaged in on the date of the Indenture or that
are contemplated by the final confidential Offering Memorandum dated June 13,
1997 relating to the Offering of the Old Senior Notes, (ii) the businesses
engaged in by any acquired businesses, provided that a substantial portion of
their business at the time of acquisition was related or ancillary to the
Company's then existing lines of business, (iii) extensions of the businesses
referred to in clauses (i) and (ii), including, without limitation, new products
and services to its markets or new distribution channels, (iv) any other lines
of business or activities that are related or ancillary to the businesses
referred to in clauses (i)-(iii), and (v) unrelated lines of business that
individually are not material to the Company and the Guarantors taken as a
whole.
'Permitted Investments' means (a) any Investment in the Company or in a
Guarantor, (b) any continuing 50% equity Investment in MacMark Corporation by
the Company or any Guarantor; (c) any Investment in Cash Equivalents; (d) any
Investment by the Company or any Guarantor in a Person, if as a result of such
Investment (i) such Person becomes a Guarantor or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Guarantor; (e) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption '--Repurchase at the Option of Holders--Asset
Sales'; (f) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; and (g) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (g) that are at the time outstanding, not to exceed $5.0 million.
'Permitted Liens' means (i) Liens on assets of the Company and its
Subsidiaries securing Indebtedness under the Credit Facilities that was
permitted by the terms of the Indenture to be incurred; provided that such Liens
will be permitted only to the extent they cover assets securing such
Indebtedness as of the date of the Indenture; (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or such Subsidiary; (iv)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure the performance of
statutory or regulatory obligations, leases, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the third paragraph of the covenant
entitled '--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock' covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of the Indenture; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $2.5
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (x)
Liens on assets of any Guarantor to secure senior Indebtedness of such Guarantor
that is permitted to be incurred pursuant to the terms of Indenture; (xi) Liens
on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; and (xii) Liens on Unrestricted Margin Stock.
'Permitted Refinancing Indebtedness' means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith including
premiums paid, if any, to the holders thereof); (ii) such Permitted Refinancing
Indebtedness has a final maturity date at or later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than the
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Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Senior Notes, such Permitted Refinancing
Indebtedness has a final maturity date at or later than the final maturity date
of, and is subordinated in right of payment to, the Senior Notes on terms at
least as favorable to the Holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
'Principals' means Robert E. Nederlander, Leonard Toboroff, John
McConnaughy, Jr., David Mauer, Dan Cougill or Jeffrey G. Webb.
'Related Party' with respect to any Principal means (A) any spouse or
former spouse or immediate family member of such Principal, (B) the estate or
any heir of such Principal, (C) any Subsidiary of any of the Principals or any
other Related Party or (D) any trust, the beneficiaries of whom are Principals
or Related Parties.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
'Senior Indebtedness' means any Indebtedness which by its terms is not
expressly subordinated in right of payment to the Senior Notes.
'Significant Restricted Subsidiary' means a subsidiary, including its
subsidiaries, which meets any of the following conditions:
(1) The Company's and its other subsidiaries' investments in and
advances to the subsidiary exceed 10 percent of the total assets of the
Company and its subsidiaries consolidated as of the end of the most
recently completed fiscal year (for a proposed business combination to be
accounted for as a pooling of interests, this condition is also met when
the number of common shares exchanged or to be exchanged by the registrant
exceeds 10 percent of its total common shares outstanding at the date the
combination is initiated); or
(2) The Company's and its other subsidiaries' proportionate share of
the total assets (after intercompany eliminations) of the subsidiary
exceeds 10 percent of the total assets of the Company and its subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
(3) The Company's and its other subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary
exceeds 10 percent of such income of the Company and its subsidiaries
consolidated for the most recently completed fiscal year.
For purposes of this definition under the Indenture, a 'significant subsidiary'
will be determined in accordance with the Computational Note Article 1, Rule
1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is
in effect on the date hereof.
'Stated Maturity' means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
'Subsidiary' means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
'Unrestricted Margin Stock' means the capital stock of Varsity that
constitutes 'margin stock' (as defined in Regulation G of the Board of Governors
of the Federal Reserve System as from time to time in effect), if, and to the
extent that the value of such margin stock exceeds 25% of the total assets of
the Company and its Subsidiaries, subject to the restrictions contained in the
provisions of the Indenture described under the captions
117
<PAGE>
'Certain Covenants--Asset Sales' and 'Certain Covenants--Liens'; provided that
it is understood that upon completion of the merger pursuant to the Varsity
Merger Documents there shall be no Unrestricted Margin Stock outstanding.
'Unrestricted Subsidiary' means any Subsidiary (other than Riddell, Inc. or
Varsity or any successor to either of them) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only
to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company (as determined in good faith by the Board of Directors); (c) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; (d) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e)
has at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
'Varsity Merger Documents' means the Agreement and Plan of Merger by and
among Riddell Sports Inc., Cheer Acquisition Corp. and Varsity Spirit
Corporation, dated as of May 5, 1997, and the several Stock Purchase Agreements,
dated as of May 5, 1997, between Riddell Sports Inc. and certain employees of
Varsity Spirit Corporation, in each case as amended from to time.
'Voting Stock' means, with respect to any Person, the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
'Wholly Owned Restricted Subsidiary' of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
118
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW CREDIT FACILITY
Riddell has entered into a credit agreement dated as of June 19, 1997 (the
'New Credit Facility') with Riddell, Inc., Equilink Licensing Corporation
('Equilink'), RHC Licensing Corporation ('RHC'), Ridmark Corporation
('Ridmark'), All American Sports Corporation ('AASC'), Varsity, Cheer, Varsity
Spirit Fashions & Supplies, Inc. ('VSFS'), International Logos, Inc. ('Logos'),
Varsity/Intropa Tours, Inc. ('Intropa'), Varsity U.S.A., Inc. ('USA' and
together with Riddell, Inc., Equilink, RHC, Ridmark, AASC, Varsity, Cheer, VSFS,
Logos, and Intropa, collectively, the 'Material Subsidiaries'), NBD Bank and
NationsBank, N.A. (together, the 'Bank Lenders'). The Bank Lenders provide for
the New Credit Facility on a senior secured basis, including a sublimit for the
issuance of standby and trade letters of credit line (the 'Letters of Credit').
Riddell paid certain fees to the Bank Lenders for their own account in
extending the New Credit Facility as follows: (i) an upfront fee of $525,000 and
(ii) an agent's administrative fee, payable to NBD Bank (the 'Administrative
Agent'), in the amount of $10,000. The upfront fee and the administrative fee
were paid on the date of the closing of the New Credit Facility. Riddell will
pay a commitment fee of up to 0.5% per annum of the unused portion of the
commitment under the New Credit Facility, accruing from the date of acceptance
of the Bank Commitment Letter dated May 5, 1997 among Riddell and the Bank
Lenders, and thereafter Riddell will pay a commitment fee with the same terms
quarterly in arrears. The administrative fee is payable annually.
Pursuant to its terms and conditions, the New Credit Facility provides for
a five year revolving credit and working capital facility available to Riddell
in a maximum principal amount (the 'Revolving Commitment Amount') not to exceed
$40.0 million through September 30, 1997 and $35.0 million thereafter,
outstanding at any time, a portion of which may be used for the issuance of
Letters of Credit.
The Material Subsidiaries unconditionally guarantee the obligations arising
under the New Credit Facility. The New Credit Facility, and the guarantee
obligations in respect thereof, are secured by a security interest in
substantially all of the tangible assets of the Company and the Material
Subsidiaries. Additionally, Riddell and the Material Subsidiaries granted a
negative pledge on substantially all of their unencumbered assets in favor of
the Bank Lenders.
Borrowings outstanding under the New Credit Facility are required to be
prepaid in the event and to the extent that the outstanding principal amount
exceeds the Revolving Commitment Amount. The New Credit Facility requires that
Riddell deliver to the Bank Lenders a borrowing base certificate twice a month.
An event of default exists under the New Credit Facility if utilizations, as of
the date of each borrowing base certificate, exceed a certain percentage of the
value of each of the eligible inventory, accounts receivable and work in process
(the 'Borrowing Base') as determined on two consecutive borrowing base
certificates delivered by Riddell. Voluntary reduction or prepayment of the New
Credit Facility is permitted without penalty subject to reimbursement of the
Bank Lenders' breakage costs with respect to LIBOR (as defined herein) based
borrowings. Indebtedness outstanding under the New Credit Facility will bear an
initial interest rate for the first year of the New Credit 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%. Riddell has
the option of selecting the type of the borrowing and the length of the interest
period applicable thereto. Following the first year of the New Credit Facility,
the LIBOR and Alternate Base Rate margins will be subject to performance pricing
adjustments based upon the ratio (the 'Leverage Ratio') of Riddell's total
funded debt to EBITDA (as such terms are defined in the New Credit Facility).
The Leverage Ratio will be computed quarterly in arrears on a rolling four
quarter basis. If the Leverage Ratio (i) equals or exceeds 5.0x, the margin on
LIBOR loans shall be 2.50% and the margin on Alternate Base Rate loans shall be
1.0%, (ii) equals or exceeds 4.5x but less than 5.0x, the margin on LIBOR loans
shall be 2.25% and the margin on Alternate Base Rate loans shall be .75%, (iii)
equals or exceeds 4.0x but is less than 4.5x, the margin on LIBOR loans shall be
2.00% and the margin on Alternate Base Rate loans shall be .50%, (iv) equals or
exceeds 3.5x but is less than 4.0x, the margin on LIBOR loans shall be 1.75% and
the margin on Alternate Base Rate loans shall be .25% and (v) is less than 3.5x,
the margin on LIBOR loans shall be 1.50% and the margin on Alternate Base Rate
based loans shall be 0%.
'Alternate Base Rate' means the higher of (i) the Administrative Agent's
prime rate and (ii) the Federal Funds rate plus .50%.
119
<PAGE>
Fees payable in respect of standby letters of credit are in an amount equal
to the appropriate applicable percentages corresponding to the Leverage Ratio in
effect at such time of drawing under the New Credit Facility on the average
daily maximum amount available to be drawn under each such Letter of Credit from
the date of issuance to the date of expiration due quarterly in arrears. The
Administrative Agent will be paid a per annum fee of .25% on the outstanding
amount of all standby letters of credit, due quarterly in arrears. Additionally,
Riddell will pay the Administrative Agent its customary letter of credit charges
as in effect from time to time.
The New Credit Facility contains certain representations and warranties,
negative and affirmative covenants, conditions and events of default which are
customarily required for similar financings. Representations and warranties
apply to Riddell and the Material Subsidiaries. Such covenants include, among
other things, restrictions and limitations on dividends and stock redemptions,
capital expenditures, leases, incurrences of debt, transactions with affiliates,
investments and acquisitions, and mergers, consolidations and asset sales.
Furthermore, the Company is required to maintain compliance with certain
financial covenants including, but not limited to, the Leverage Ratio, a
coverage ratio, a minimum net worth ratio and a minimum net income test for the
fiscal quarters ended June 30, 1997 and September 30, 1997.
Events of default under the New Credit Facility include, among other
things, (i) failure to pay principal, interest, fees or other amounts when due;
(ii) violation of covenants; (iii) failure of any representation or warranty
made by Riddell or the Material Subsidiaries to the Bank Lenders to be true in
all material aspects; (iv) cross default and cross acceleration with certain
other indebtedness; (v) Change of Control (as defined in the New Credit
Facility); (vi) bankruptcy or other insolvency proceedings; (vii) certain
material judgments; (viii) certain ERISA events; and (ix) the invalidity of the
guarantees given by the Material Subsidiaries or of the security interests
granted to the Bank Lenders, in certain cases with appropriate grace periods.
The foregoing summary of the New Credit Facility is qualified in its
entirety by reference to such agreement, a copy of which has been filed with the
SEC as an exhibit to the Registration Statement of which this Prospectus forms a
part.
CONVERTIBLE NOTE
In November 1996, the Company completed the private placement of its 4.1%
Convertible Subordinated Note due November 1, 2004 (the 'Convertible Note') in
the principal amount of $7.5 million pursuant to an exemption from registration
under Section 4(2) of the Securities Act. The Convertible Note was purchased by
Silver Oak Capital L.L.C., an affiliate of Angelo, Gordon & Co. A portion of the
proceeds from the sale of the Convertible Note was used to repay the remaining
$870,834 balance of a subordinated term note due to a stockholder in accordance
with its terms. Contemporaneously with the issuance of the Convertible Note, the
Company amended its loan agreement with its senior lender, NBD Bank, to, among
other things, extend the term of its revolving line of credit from April 1997 to
April 1998, and to defer a $1.0 million principal payment due on the term loan
from December 1996 to December 1998.
The Convertible Note is convertible at $5.3763 a share into 1,395,000
shares of the Company's Common Stock (subject to an antidilution adjustment),
constituting approximately 13% of the outstanding shares of the Company's Common
Stock outstanding on May 17, 1997 on a pro forma basis after giving effect to
conversion of the Convertible Note and the Acquisition but without regard to the
exercise of any outstanding options or warrants to buy the Company's Common
Stock.
The Company's obligations to pay principal and interest on the Convertible
Note are guaranteed on a subordinated basis by the Company's subsidiaries,
including Varsity following the Acquisition. The Senior Notes and the Subsidiary
Guarantees will rank senior in right of payment to the respective obligations of
the Company and its subsidiaries under the Convertible Note and the guarantees
thereof.
The Convertible Note is required to prepay 25% of the then outstanding
principal amount at a redemption price of 100% on November 1, 2002 and 33.33% of
the then outstanding principal amount at a redemption price of 100% on November
1, 2003. The Convertible Note may be redeemed at the option of the Company, in
whole or in part, at any time at a redemption price of (a) 102.25% of the
principal amount if redeemed during the 12-month period ending November 1, 2001,
(b) at 101.5% of the principal amount if redeemed during the 12-month period
ending November 1, 2002, (c) at 100.75% of the principal amount if redeemed
during the
120
<PAGE>
12-month period ending November 1, 2003 and (d) at 100% if redeemed during the
12-month period ending November 1, 2004. Further, upon a change of control of
the Company, the holder of the Convertible Note will have the right to require
the Company to repurchase all or a portion of such holder's Convertible Note at
a repurchase price of 101% of the principal amount plus any accrued and unpaid
interest.
The note purchase agreement pursuant to which the Convertible Note was
issued requires future subsidiaries of the Company to guaranty the Convertible
Note on a subordinated basis and contains customary events of default. Further,
such note purchase agreement contains restrictive covenants that limit, among
other things, (i) transactions with affiliates, (ii) mergers, consolidation and
transfers of substantially all of the Company's assets and (iii) the granting of
certain stock options. The foregoing limitations, however, are subject to a
number of important qualifications.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Senior Notes for New Senior Notes pursuant to the
Exchange Offer will not be considered a taxable exchange for federal income tax
purposes because the New Senior Notes will not differ materially in kind or
extent from the Old Senior Notes and because the exchange will occur by
operation of the terms of the Old Senior Notes. Accordingly, such exchange will
have no federal income tax consequences to Holders of Old Senior Notes. A
Holder's adjused tax basis and holding period in a New Senior Note will be the
same as such Holder's adjusted tax basis and holding period, respectively, in
the Old Senior Note exchanged therefor.
Holders considering the exchange of Old Senior Notes for New Senior Notes
should consult their own tax advisors concerning the United States federal
income tax consequences in light of their particular situations as well as any
consequences arising under state, local and foreign income tax and other tax
law.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Senior Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Senior Notes received in
exchange for Old Senior Notes where such Old Senior Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , 1997,
all dealers effecting transactions in the New Senior Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of New Senior Notes
by broker-dealers. New Senior Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Senior Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Senior Notes. Any
broker-dealer that resells New Senior Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Senior Notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit on any
such resale of New Senior Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of the Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such document
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the
121
<PAGE>
Senior Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Senior Notes
will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
The consolidated financial statements of Riddell as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996
included in this Prospectus have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their report appearing herein.
The financial statements of Varsity as of December 31, 1995 and 1996 and
for the nine months ended December 31, 1994 and the two years ended December 31,
1995 and 1996, included in this Prospectus, have been audited by BDO Seidman,
LLP, independent certified public accountants, as stated in their report
appearing herein.
122
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
RIDDELL SPORTS INC.
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1997 and December 31,
1996................................................................... F-2
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996.......................................... F-3
Condensed Consolidated Statements of Shareholders' Equity for the three
months ended March 31, 1996 and 1997................................... F-4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996.......................................... F-5
Notes to Condensed Consolidated Financial Statements..................... F-6
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants....................... F-10
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-11
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996.................................................... F-12
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996....................................... F-13
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.................................................... F-14
Notes to Consolidated Financial Statements............................... F-15
VARSITY SPIRIT CORPORATION
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1997, December 31,
1996 and March 31, 1996................................................ F-29
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996.......................................... F-30
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996.......................................... F-31
Condensed Consolidated Statements of Shareholders' Equity for the three
months ended March 31, 1997 and 1996................................... F-32
Notes to Condensed Consolidated Financial Statements..................... F-33
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants....................... F-36
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-37
Consolidated Statements of Income for the nine months ended December 31,
1994 and the years ended December 31, 1995 and 1996.................... F-38
Consolidated Statements of Shareholders' Equity for the nine months ended
December 31, 1994 and the years ended December 31, 1995 and 1996....... F-39
Consolidated Statements of Cash Flows for the nine months ended December
31, 1994 and the years ended December 31, 1995 and 1996................ F-40
Notes to Consolidated Financial Statements............................... F-41
F-1
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 304,443 $ 356,670
Accounts receivable, trade, less allowance for
doubtful accounts ($564,000 and $513,000
respectively).............................. 21,142,165 15,144,943
Inventories (Note 3).......................... 14,620,416 16,406,168
Prepaid expenses.............................. 6,050,108 6,654,962
Other receivables............................. 245,978 159,747
----------- ------------
Total current assets............................ 42,363,110 38,722,490
Property, plant and equipment, less accumulated
depreciation ($3,975,095 and $3,819,343,
respectively)................................. 3,421,036 3,506,853
Intangibles and deferred charges, less
accumulated amortization ($10,580,177 and
$10,158,671, respectively).................... 33,645,022 34,066,528
Other assets.................................... 65,158 65,158
----------- ------------
$79,494,326 $ 76,361,029
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............. $ 3,175,893 $ 1,158,198
Accounts payable.............................. 4,048,960 4,866,962
Accrued liabilities........................... 6,843,665 6,739,980
----------- ------------
Total current liabilities....................... 14,068,518 12,765,140
Long-term debt, less current portion:
Shareholders and related parties.............. 439,000 439,000
Banks and other............................... 31,500,000 29,544,892
----------- ------------
31,939,000 29,983,892
Deferred taxes.................................. 1,820,000 1,820,000
Other liabilities............................... 3,938,909 4,046,979
Contingent liabilities (Note 4)
Shareholders' equity
Preferred stock, $.01 par; authorized
1,000,000 shares; none issued
Common stock, $.01 par; authorized 20,000,000
shares; issued and outstanding 8,067,985
shares..................................... 80,680 80,680
Capital in excess of par...................... 31,456,912 31,456,912
Accumulated deficit........................... (3,809,693) (3,792,574)
----------- ------------
27,727,899 27,745,018
----------- ------------
$79,494,326 $ 76,361,029
----------- ------------
----------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues:
Net sales..................................... $18,000,706 $19,036,101
Royalty income................................ 574,197 807,585
----------- -----------
18,574,903 19,843,686
Cost of sales................................... 10,094,012 10,210,492
----------- -----------
Gross profit.................................... 8,480,891 9,633,194
Selling, general and administrative expenses.... 7,207,043 6,991,449
Product liability expense....................... 625,000 664,133
----------- -----------
Income from operations.......................... 648,848 1,977,612
Interest expense................................ 665,967 627,214
----------- -----------
Income (loss) before taxes...................... (17,119) 1,350,398
Income taxes.................................... -- 60,000
----------- -----------
Net income (loss)............................... $ (17,119) $ 1,290,398
----------- -----------
----------- -----------
Net earnings (loss) per share................... $ 0.00 $ 0.15
----------- -----------
----------- -----------
Weighted average number of common and
common equivalent shares outstanding.......... 8,067,985 8,456,962
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS TOTAL
-------------------- EXCESS OF (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT PAR DEFICIT) EQUITY
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996:
Balance, January 1, 1996... 8,067,985 $80,680 $31,456,912 ($ 6,635,750) $ 24,901,842
Net income for the
period................ 1,290,398 1,290,398
--------- ------- ----------- ------------ -------------
Balance, March 31, 1996.... 8,067,985 $80,680 $31,456,912 ($ 5,345,352) $ 26,192,240
--------- ------- ----------- ------------ -------------
--------- ------- ----------- ------------ -------------
FOR THE THREE MONTHS ENDED
MARCH 31, 1997:
Balance, January 1, 1997... 8,067,985 $80,680 $31,456,912 ($ 3,792,574) $ 27,745,018
Net loss for the
period................ (17,119) (17,119)
--------- ------- ----------- ------------ -------------
Balance, March 31, 1997.... 8,067,985 $80,680 $31,456,912 ($ 3,809,693) $ 27,727,899
--------- ------- ----------- ------------ -------------
--------- ------- ----------- ------------ -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ (17,119) $ 1,290,398
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization.............. 577,258 493,656
Provision for losses on accounts
receivable................................ 82,366 153,651
Deferred taxes............................. -- 60,000
Changes in assets and liabilities (net of
effects from acquisitions):
(Increase) decrease in:
Accounts receivable, trade............ (6,079,588) (6,470,098)
Inventories........................... 1,785,752 (355,715)
Prepaid expenses...................... 604,854 924,919
Other receivables..................... (86,231) 30,933
Other assets.......................... -- 200
Increase (decrease) in:
Accounts payable...................... (818,002) (128,787)
Accrued liabilities................... 103,685 (1,760,193)
Other liabilities..................... (108,070) (75,055)
----------- -----------
Net cash used in operating
activities...................... (3,955,095) (5,836,091)
----------- -----------
Cash flows from investing activities:
Capital expenditures.......................... (69,935) (428,855)
----------- -----------
Net cash used in investing
activities...................... (69,935) (428,855)
----------- -----------
Cash flows from financing activities:
Net borrowings under line-of-credit
agreement.................................. 4,131,000 6,034,693
Principal payments on long-term debt, banks
and other.................................. (158,197) (141,571)
Net cash provided by financing
activities...................... 3,972,803 5,893,122
----------- -----------
Net increase in cash............................ (52,227) (371,824)
Cash, beginning................................. 356,670 615,081
----------- -----------
Cash, ending.................................... $ 304,443 $ 243,257
----------- -----------
----------- -----------
</TABLE>
Supplemental cash flow information:
Cash paid for interest was $585,268 and $618,211 for the three month
periods ended March 31, 1997 and 1996, respectively. Income tax payments, or
refunds, were not significant for the periods ended March 31, 1997 and 1996.
See notes to condensed consolidated financial statements.
F-5
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. These statements are unaudited, and in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the Company's
consolidated financial position and the consolidated results of its operations
and cash flows at March 31, 1997 and 1996 and for the periods then ended.
Certain information and footnote disclosures made in the last Annual Report on
Form 10-K have been condensed or omitted for these interim statements.
Accordingly, these consolidated financial statements should be read in
conjunction with the December 31, 1996 Annual Report on Form 10-K. Operating
results for the three months ended March 31, 1997 are not necessarily indicative
of the results to be expected during the remainder of 1997.
Tax expense for the period ended March 31, 1996 was reduced by the benefit
of net operating loss carryforwards recognized during the period. The
recognition of this tax benefit had the effect of decreasing tax expense, and
increasing net income, by approximately $460,000, or $0.05 per share, for the
three month period ended March 31, 1996.
NOTE 2--EARNINGS PER SHARE
For the period ended March 31, 1996, earnings per share were based on the
weighted average number of outstanding common shares and the assumed exercise of
dilutive common stock options and warrants less the number of treasury shares
assumed to be purchased from the proceeds of the assumed exercise. The number of
treasury shares assumed to be purchased from the proceeds is based on the
average market price of the Company's common stock for the period in computing
primary earnings per share, and is based on the end of period market price of
the Company's common stock, if higher than the average market price, in
computing fully diluted earnings per share. For the three month period ended
March 31, 1996, fully diluted earnings per share have not been presented as the
results are approximately the same as primary earnings per share after rounding
to the nearest cent.
For the period ended March 31, 1997, earnings per share were based on the
weighted average number of shares outstanding. Earnings per share were not
adjusted for the assumed exercise of common stock options and warrants or the
assumed conversion of the Convertible Subordinated Notes issued in November
1996, as the effect of these items would not have been dilutive for the period.
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 128 'Earnings Per Share' ('SFAS 128'). This
statement simplifies the standards for computing earnings per share, replacing
current presentations with a dual presentation of basic and diluted earnings per
share. Basic earnings per share excludes dilution while diluted earnings per
share is computed similarly to fully diluted earnings per share. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. If the provisions of SFAS 128 had been applied to the periods presented in
this report, basic earnings per share for the three month periods ended March
31, 1996 and 1995 would have been $0.00 and $0.16, respectively, and diluted
earnings per share would have been $0.00 and $0.15, respectively.
NOTE 3--INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
------------ ---------------
Finished goods .... $ 5,284,318 $ 6,712,249
Work-in-process .... 3,664,052 4,345,056
Raw materials ..... 5,672,046 5,348,863
------------ ---------------
$ 14,620,416 $16,406,168
------------ ---------------
------------ ---------------
F-6
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LITIGATION MATTERS AND CONTINGENCIES
Recorded assets and liabilities
In regards to the product liability and other litigation matters and
contingencies discussed below, the Company has recorded certain liabilities.
While these amounts are discussed in the remaining sections of this note, a
summary of these amounts together with other items comprising the applicable
balance sheet line items is as follows:
ACCRUED
LIABILITIES OTHER LIABILITIES
(CURRENT) (NON-CURRENT)
---------- -----------------
March 31, 1997:
Product liability matters:
Future payments on settled cases ....... $1,750,000 $ --
Reserves for pending and other
contingencies ........................ 600,000 3,500,000
---------- -----------------
Totals for product liability matters.. 2,350,000 3,500,000
Provision for proposed settlement and other
costs relating to fraudulent transfer
litigation ............................. 1,400,000 --
Other litigation contingency reserves ..... 700,000 --
Other (not related to litigation or
contingencies) ......................... 2,393,665 438,909
---------- -----------------
$6,843,665 $ 3,938,909
---------- -----------------
---------- -----------------
December 31, 1996:
Product liability matters:
Future payments on settled cases ....... $1,750,000 $ --
Reserves for pending and other
contingencies ........................ 500,000 3,500,000
---------- -----------------
Totals for product liability matters.. 2,250,000 3,500,000
Provision for proposed settlement and other
costs relating to fraudulent transfer
litigation ............................. 1,400,000 --
Other litigation contingency reserves ..... 400,000 --
Other (not related to litigation or
contingencies) ......................... 2,689,980 546,979
---------- -----------------
$6,739,980 $ 4,046,979
---------- -----------------
---------- -----------------
Product liability
At March 31, 1997, a subsidiary of the Company was a defendant in 9 product
liability suits relating to personal injuries allegedly related to the use of
Riddell helmets. The ultimate outcome of these claims, or potential future
claims, cannot presently be determined. The Company estimates that the uninsured
portion of future costs and expenses related to these claims, and incurred but
not reported claims, will amount to at least $4,100,000 and, accordingly, a
reserve in this amount is included in the Consolidated Balance Sheet at March
31, 1997 as part of accrued liabilities and other liabilities. These reserves
are based on estimates of losses and defense costs anticipated to result from
such claims based on available information, including an analysis of historical
data such as the rate of occurrence and the settlement amounts of past cases.
However, due to the uncertainty involved with estimates actual results have at
times varied substantially from earlier estimates and could do so in the future.
Accordingly there can be no assurance that the ultimate costs of such claims
will fall within the established reserves.
The Consolidated Balance Sheets also include liabilities related to unpaid
portions of cases settled in prior periods at March 31, 1997 and December 31,
1996.
F-7
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
MacGregor fraudulent transfer litigation:
MacGregor Sporting Goods, Inc. (now known as M. Holdings, Inc.) ('Mac I')
filed for bankruptcy in March 1989. In 1993, Mac I's Creditors' Committee and
the bankruptcy trustee of MGS Acquisition Inc. ('MGS') filed a complaint against
the Company seeking rescission of, and/or monetary damages in excess of $28.5
million plus interest relating to, the Company's acquisitions in 1988 and 1989
of substantially all the assets of two of Mac I's former second-tier
subsidiaries (including the football helmet division, MacGregor trademark
licensing business, and the non-football uses of the Riddell trademark) (the
'Acquisition') for alleged failure to pay fair consideration at a time when Mac
I was insolvent or as a result of which Mac I became insolvent or
undercapitalized.
By order in November, 1994, the complaint was dismissed as time-barred. The
court ordered the appointment of a trustee in Mac I's bankruptcy, but did not
decide whether the trustee would be time-barred if it decided to take a similar
complaint against the Company. In March 1995, the newly appointed trustee in Mac
I's bankruptcy, together with the bankruptcy trustee of MGS (collectively the
'Trustees') filed a similar complaint against the Company. Additionally,
Innovative Promotions, Inc. and certain other purported unsecured creditors of
Mac I filed a complaint under state debtor and creditor law against the Company
making similar allegations and claims as the actions described above, seeking
rescission and/or damages in excess of $22 million. The Trustees intervened in
the Innovative action as plaintiffs, purportedly to preserve their rights in the
event they lost their separate action.
In April, 1996 the Company signed an agreement with the Trustees to settle
the 'fraudulent transfer' litigations described above. The proposed settlement
was subject to, among other things, approval by two bankruptcy courts. The
proposed settlement had provided for a payment of approximately $1.4 million by
the Company. However, in June 1996, in view of opposition from the Creditors'
Committee of Mac I, the Trustees withdrew a motion they had filed to approve the
proposed settlement of the actions against the Company, and the proposed
settlement agreement terminated. In October 1996 a former employee of the
Company filed a counterclaim against the Company and several subsidiaries in the
Mac I bankruptcy, seeking indemnity and contribution in an indeterminate amount
from the Company in connection with a suit by the Mac I trustee against such
former employee.
The Company had previously recorded a provision for the proposed settlement
as well as anticipated costs relating to the litigation. The Company has charged
certain litigation costs against the liability reserve reducing the balance to
$1,400,000 at December 31, 1996. The Company has not otherwise adjusted the
liability reserve for these actions as a result of the termination of the
settlement agreement, as the balance remains within the potential range of costs
of resolving the litigation. However, as discussed above, the plaintiffs in the
actions are seeking damages far in excess of this amount and, accordingly, there
can be no assurances that the matter will ultimately be resolved at an amount
within the reserve. The reserve is reflected in the Consolidated Balance Sheets
as part of accrued liabilities at March 31, 1997 and December 31, 1996. The
Company remains confident that the fraudulent transfer cases are without merit,
and intends to vigorously defend against them.
Other contingencies and litigation matters:
In connection with the Company's suit against its former President,
Frederic Brooks, for alleged breaches of his consulting agreement and certain
other matters, Mr. Brooks filed counterclaims against the Company. Mr. Brooks
alleges the Company breached its indemnification obligations to him as a former
officer and director of the Company in connection with the Company's action
against Mr. Brooks, a purported class action (now settled), an action (now
settled) against Mr. Brooks brought by certain stockholders of the Company, and
the action brought by the Mac I trustee, and seeks damages in excess of $3.3
million plus future attorneys' fees and interest. Mr. Brooks also seeks
compensatory and punitive damages combined of at least $15 million against the
Company, two of its officers and directors and an entity controlled by them for
tortious interference with contract and prospective advantage and prima facie
tort. Mr. Brooks has impleaded the Company's 'Riddell' footwear
F-8
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
licensee for contribution for all damages that may be assessed against him in
the Company's suit against Mr. Brooks for certain alleged breaches of his
consulting agreement relating to, among other things, alleged attempts to
disparage and take control of the Company. In connection with a settlement of
certain actions between the Company and its 'Riddell' footwear licensee in early
1994, the Company agreed to indemnify the licensee and certain of its affiliates
in the event they were so impleaded by Mr. Brooks into the Company's suit
against Mr. Brooks for breach of his consulting agreement. Mr. Brooks' claims
against the Company also seek consulting fees of $580,000 plus interest under
his consulting agreement (which the Company has previously deposited in an
escrow type account), consulting fees with the Company's 'Riddell' footwear
licensee exceeding $850,000 and attorney's fees exceeding $1.5 million through
April 1996, plus interest. The Company believes Mr. Brooks' claims against the
Company are without merit and intends to vigorously defend against them.
In January 1995, the Company was named as a co-defendant in a complaint
which alleges wrongful death, failure to warn and other things surrounding the
death of a minor at one of the Company's facilities. The minor was involved in a
fatal accident as he trespassed on the roof of the facility after hours. The
complaint seeks unspecified monetary damages. The Company believes that it has
meritorious defenses to this action and intends to vigorously defend against it.
The defense of the matter has been assumed by the Company's general liability
insurance carrier, subject to a reservation of rights and certain policy limits
and deductibles.
Additionally, the Company has certain other claims or potential claims
against it that may arise in the normal course of business, including claims
relating to employee terminations. The Company has recorded provisions for
certain of these claims and certain of the 'other' litigation matters discussed
above. Reserves for such claims amounted to $700,000 at March 31, 1997 and
$400,000 at December 31, 1996. While these amounts, together with the remaining
$1,400,000 provision relating to the MacGregor fraudulent transfer litigation
discussed above, represents an estimate of certain minimum costs likely to
result from these litigation matters, other than product liability claims, the
Company cannot estimate the full extent of a potential range of loss related to
such litigation matters as their ultimate outcome cannot be presently
determined. Accordingly, there can be no assurance that such claims will be
resolved within such reserves.
NOTE 5--RECENT DEVELOPMENTS
On May 5, 1997 the Company and its newly formed merger subsidiary entered
into an Agreement and Plan of Merger with Varsity Spirit Corporation
('Varsity'), a supplier of cheerleader and dance team uniforms and operator of
cheerleader camps, dance camps and travel tours throughout the United States.
The Merger Agreement calls for purchase of all of Varsity's outstanding shares
at $18.90 per share or approximately $91 million plus other related payments,
costs and expenses (total costs and expenses of the acquisition and the related
financing discussed below are anticipated to approximate $13 million) of
approximately $4 million. The Company commenced a tender offer on May 12, 1997
which expires in June 1997, unless extended.
The Company intends to fund the acquisition and costs and working capital
needs by means of proceeds of borrowings under a $35 million revolving loan
facility to be provided by a bank group to be led by NationsBanc, N.A. and NBD
Bank and proceeds to be obtained from the issuance of $100 million of senior
notes of the Company to be placed through a private placement pursuant to Rule
144A of the Securities Act of 1933, as amended. To the extent the senior notes
are not sold prior to the purchase of the Varsity shares as contemplated, the
transaction will be financed by a bridge loan among NationsBridge L.L.C. and
NBD. The Company has entered into commitment letters with the various
prospective lenders with respect to the revolving loan facility and bridge loan.
Pursuant to related stock purchase agreements, certain executive officers
of Varsity who are also Varsity shareholders will purchase from the Company
shares of its Common Stock in an aggregate amount approximating $4.4 million.
The various agreements contemplate the grant of options to executive officers
and other employees of Varsity to acquire an aggregate of 950,000 shares of
common stock.
F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Riddell Sports Inc.
We have audited the accompanying consolidated balance sheets of Riddell Sports
Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statement of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the management of Riddell
Sports Inc. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Riddell Sports
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 14, 1997
F-10
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS (NOTE 5)
Current assets:
Cash.......................................... $ 356,670 $ 615,081
Accounts receivable, trade, less allowance for
doubtful accounts ($513,000 and $620,000
respectively).............................. 15,144,943 14,099,028
Inventories (Note 2).......................... 16,406,168 14,425,882
Prepaid expenses (Note 9)..................... 6,654,962 6,815,009
Other receivables (Note 8).................... 159,747 358,769
----------- -----------
Total current assets....................... 38,722,490 36,313,769
Property and equipment, less accumulated
depreciation (Note 3)......................... 3,506,853 2,966,494
Intangible assets and deferred charges, less
accumulated amortization (Note 4)............. 34,066,528 34,741,533
Other assets.................................... 65,158 102,893
----------- -----------
$76,361,029 $74,124,689
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5).... $ 1,158,198 $ 1,141,572
Accounts payable.............................. 4,866,962 6,304,289
Accrued liabilities (Notes 8 and 10).......... 6,739,980 9,581,548
----------- -----------
Total current liabilities.................. 12,765,140 17,027,409
Long-term debt, less current portion (Note 5):
Shareholders and related parties.............. 439,000 1,309,834
Banks and other............................... 29,544,892 22,290,398
----------- -----------
29,983,892 23,600,232
Deferred taxes (Note 9)......................... 1,820,000 1,990,000
Other liabilities (Notes 8 and 10).............. 4,046,979 6,605,206
Commitments and contingent liabilities (Notes 7
and 8)........................................ -- --
Shareholders' equity (Note 6):
Preferred stock, $.01 par; authorized
5,000,000 shares; none issued.............. -- --
Common stock, $.01 par; authorized 40,000,000
shares; issued and outstanding 8,067,985
shares..................................... 80,680 80,680
Capital in excess of par...................... 31,456,912 31,456,912
Accumulated deficit........................... (3,792,574) (6,635,750)
----------- -----------
27,745,018 24,901,842
----------- -----------
$76,361,029 $74,124,689
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET REVENUES:
Net sales...................... $69,888,094 $63,603,210 $51,567,065
Royalty income................. 2,494,266 3,439,828 3,845,044
----------- ----------- -----------
72,382,360 67,043,038 55,412,109
Cost of sales.................... 38,813,062 35,793,624 29,791,947
----------- ----------- -----------
Gross profit..................... 33,569,298 31,249,414 25,620,162
Selling, general and
administrative expenses........ 25,369,690 23,332,570 21,087,423
Product liability expense........ 2,483,906 2,651,249 2,926,961
Product liability litigation
loss........................... -- -- 4,600,000
Other charges.................... -- -- 1,188,066
----------- ----------- -----------
Income (loss) from operations.... 5,715,702 5,265,595 (4,182,288)
Interest expense................. 2,762,526 2,795,061 2,000,659
----------- ----------- -----------
Income (loss) before taxes and
extraordinary item............. 2,953,176 2,470,534 (6,182,947)
Income taxes (credits)........... 110,000 100,000 (1,250,000)
----------- ----------- -----------
Income (loss) before
extraordinary item............. 2,843,176 2,370,534 (4,932,947)
Extraordinary item, provision for
costs relating to fraudulent
transfer litigation............ -- (1,900,000) --
----------- ----------- -----------
Net income (loss)................ $ 2,843,176 $ 470,534 $(4,932,947)
----------- ----------- -----------
----------- ----------- -----------
EARNINGS (LOSS) PER SHARE:
Income (loss) before
extraordinary item.......... $ 0.34 $ 0.29 $ (0.62)
Extraordinary item, provision
for costs relating to
fraudulent transfer
litigation.................. -- (0.23) --
----------- ----------- -----------
Net income (loss).............. $ 0.34 $ 0.06 $ (0.62)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
common and common equivalent
shares outstanding.......... 8,427,633 8,067,985 7,973,982
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL EARNINGS TOTAL
------------------- IN EXCESS (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT OF PAR DEFICIT) EQUITY
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994..... 7,890,207 $78,902 $31,553,690 $ (2,173,337) $ 29,459,255
Issuance of common stock in
connection with an
acquisition............. 149,535 1,495 398,505 -- 400,000
Net loss for the year...... -- -- -- (4,932,947) (4,932,947)
Other Adjustments.......... -- -- (495,000) -- (495,000)
--------- ------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1994... 8,039,742 80,397 31,457,195 (7,106,284) 24,431,308
Issuance of common stock in
connection with an
acquisition............. 28,243 283 (283) -- --
Net income for the year.... -- -- -- 470,534 470,534
--------- ------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1995... 8,067,985 80,680 31,456,912 (6,635,750) 24,901,842
Net income for the year.... -- -- -- 2,843,176 2,843,176
--------- ------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1996... 8,067,985 $80,680 $31,456,912 $ (3,792,574) $ 27,745,018
--------- ------- ----------- ------------ -------------
--------- ------- ----------- ------------ -------------
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 2,843,176 $ 470,534 $(4,932,947)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization........... 2,208,613 2,167,495 1,882,608
Provision for losses on
accounts receivable.... 436,130 392,956 898,792
Deferred taxes............ -- -- (1,250,000)
Changes in assets and
liabilities (net of
effects from acquisitions):
(Increase) decrease in:
Accounts receivable,
trade................ (1,482,045) (3,759,050) (2,233,810)
Inventories............ (1,980,286) (2,262,551) (1,605,521)
Prepaid expenses....... (9,953) (717,050) (1,356,298)
Other receivables...... 199,022 5,464,234 (5,426,913)
Other assets........... 37,735 5,631 21,277
Increase (decrease) in:
Accounts payable....... (1,437,327) (409,940) 2,720,149
Accrued liabilities.... (2,841,568) (6,467,387) 10,548,903
Other liabilities...... (2,558,227) 2,912,064 934,276
----------- ----------- -----------
Net cash provided by
(used in) oper-
ating activities.. (4,584,730) (2,203,064) 200,516
----------- ----------- -----------
CASH FLOWS FROM INVESTMENT
ACTIVITIES:
Capital expenditures........... (1,138,786) (750,188) (662,395)
Sale of assets (foam molding
operations)................. -- -- 1,000,000
Acquisitions................... -- (641,669) (750,440)
Contingent 'earn-out' payments
on prior acquisitions....... (174,377) -- --
----------- ----------- -----------
Net cash used in investing
activities................ (1,313,163) (1,391,857) (412,835)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under
line-of-credit agreement.... (87,307) 602,937 2,521,511
Proceeds from issuance of
long-term debt.............. 7,500,000 5,000,000 --
Debt issue costs............... (760,804) -- --
Principal payments on long-term
debt:
Shareholders................ (870,834) (1,029,166) (100,000)
Banks and other............. (141,573) (554,094) (2,400,000)
----------- ----------- -----------
Net cash provided by
financing activities... 5,639,482 4,019,677 21,511
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.. (258,411) 424,756 (190,808)
CASH, BEGINNING.................. 615,081 190,325 381,133
----------- ----------- -----------
CASH, ENDING..................... $ 356,670 $ 615,081 $ 190,325
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include
the accounts of Riddell Sports Inc. and its wholly-owned subsidiaries (the
'Company'). All significant intercompany accounts and transactions have been
eliminated.
Inventories: Inventories are stated at the lower of cost (determined in a
first-in, first-out basis) or market, and include material, labor and factory
overhead.
Property and equipment: Property and equipment are stated at cost.
Depreciation is being computed using the straight-line method over the estimated
useful lives (principally 30 years for buildings and improvements and 3 to 7
years for machinery and equipment) of the related assets.
Intangible assets and deferred charges: Amortization of the cost of
license agreements acquired is based on the estimated future revenues over the
terms of those agreements. Debt issue costs are amortized to interest expense
over the term of the related debt. Other intangibles and deferred charges are
being amortized by the straight-line method over their respective estimated
lives.
On an ongoing basis, management reviews the valuation of goodwill and other
intangible assets to determine if there has been impairment by comparing the
related assets' carrying value to the undiscounted estimated future cash flows
and/or operating income from related operations.
Income taxes: Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities (excluding non-deductible goodwill) using enacted tax
rates in effect for the years in which the differences are expected to become
recoverable or payable.
Revenues: Sales are generally recorded by the Company when products are
shipped. Royalty income is generally recorded by the Company when earned based
upon contracts with licensees. These contracts provide for royalties based upon
the licensee's sales or purchases of covered products, subject to minimum
amounts of royalties, for a given time period.
Estimates: In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates. Estimates relating to contingent liabilities
are further discussed in Note 8.
Concentration of credit risk: In 1996, the Company earned approximately
60% of its revenues from sales directly to schools and other institutions. The
Company maintains reserves for potential losses on receivables from these
institutions, as well as receivables from other customers, and such losses have
not exceeded managements expectations.
Earnings (loss) per share: In 1996, earnings per share were based on the
weighted average number of common shares outstanding and common equivalent
shares based on the assumed exercise of dilutive common stock options and
warrants less the number of treasury shares assumed to be purchased from the
proceeds of the assumed exercise. For purposes of computing primary earnings per
share, the number of treasury shares assumed to be purchased from the proceeds
is based on the average market price of the Company's common stock for the
period. For purposes of computing fully diluted earnings per share, the number
of treasury shares assumed to be purchased from the proceeds is based on the
higher of end of period market price or the average market price of the
Company's common stock for the period. Earnings per share for 1996 were not
adjusted for the effect of common equivalent shares related to the Convertible
Subordinated Note issued in November 1996, as the effect of an assumed
conversion of this note would not have been dilutive for the period. Fully
diluted earnings per share for 1996 have not been presented as the results are
approximately the same as primary earnings per share after rounding to the
nearest cent.
F-15
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
For 1995 and 1994 earnings per share were based on the weighted average
number of common shares outstanding. No effect was given to common stock options
or warrants as no material dilutive effect would have resulted from the exercise
of these items in these periods.
Other charges: Other charges included in operating results for the year
ended December 31, 1994, consist of certain transitional costs relating to the
Company's change in its method of distributing protective athletic equipment
sold to schools and other institutions. In October 1994, the Company announced
that it would begin selling such goods on a factory direct basis using its
existing sales force, which, before the change, was utilized principally for
selling reconditioning services. Sales of these goods, principally football
helmets, shoulder pads and related accessories, destined for consumption by
institutional sports teams, had historically been made to independent dealers
who in turn sold the products to schools and other institutions. The costs
relating to the transition, which have been segregated as 'other charges',
consist primarily of costs to settle certain obligations that related to the
former method of distribution, related legal expenses and estimated costs
relating to the collection of receivables from certain discontinued team
dealers. Additional costs relating to goods returned by discontinued dealers,
under a special transition program, are included as a reduction of sales and
gross margins for 1994. The costs of these returns included a reduction of sales
of approximately $1,400,000 with a related reduction in gross margins of
approximately $675,000. Other transitional costs of a recurring nature, such as
marketing expenses, have not been segregated.
Extraordinary item: For the year ended December 31, 1995 the Company
recorded a charge to establish a provision for costs related to certain
fraudulent transfer litigation as further described in Note 8. This charge has
been classified as an extraordinary item due to the unusual and infrequent
nature of the related litigation claim.
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
Finished goods................... $ 6,712,249 $ 4,904,058
Work-in-process.................. 4,345,056 4,043,217
Raw materials.................... 5,348,863 5,478,607
----------- -----------
$16,406,168 $14,425,882
----------- -----------
----------- -----------
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
Land............................. $ 207,000 $ 207,000
Building and improvements........ 1,102,241 1,038,699
Machinery and equipment.......... 6,016,955 4,999,602
----------- -----------
7,326,196 6,245,301
Less accumulated depreciation.... 3,819,343 3,278,807
----------- -----------
$ 3,506,853 $ 2,966,494
----------- -----------
----------- -----------
Depreciation expense relating to all property and equipment amounted to
$598,427, $596,307, and $580,639 for the years ended December 31, 1996, 1995 and
1994, respectively.
F-16
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges consist of the following:
ESTIMATED DECEMBER 31,
LIVES --------------------------
IN YEARS 1996 1995
--------- ----------- -----------
MacGregor trademark rights....... 40 $18,040,000 $18,040,000
MacGregor license agreements..... 8 2,030,000 2,030,000
Trademarks....................... 40 3,250,116 3,250,116
Goodwill......................... 40 16,371,125 16,196,748
Debt issue costs................. 8 760,804 --
Other............................ 7 to 10 3,773,154 3,773,154
----------- -----------
44,225,199 43,290,018
Less accumulated amortization.... 10,158,671 8,548,485
----------- -----------
$34,066,528 $34,741,533
----------- -----------
----------- -----------
5. LONG TERM DEBT
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
Revolving line of credit, bank, at the bank's
prime rate, the prime rate was 8.25% at December
31, 1996. The available line of credit
fluctuates throughout each year from a low of
$20,000,000 from November 1 to December 31, to
$25,000,000 from January 1 to March 31, to
$31,500,000 from April 1 to October 31. The
outstanding balance, if any, matures on April
30, 1998. Collateralized by a first lien on
substantially all assets of the Company. The
loan agreement contains covenants that require
the Company to maintain specified levels of
working capital and net worth and restricts the
payment of dividends to the Company's
shareholders to 60% of net income............... $17,890,000 $17,977,307
Term loans payable, bank, interest at 1/2% over
prime, cross collateralized with, and governed
by the same loan agreement as, the revolving
line of credit discussed above. Interest payable
quarterly, principal of $1,000,000 due in
December 1997 with the remaining balance due in
December 1998................................... 5,000,000 5,000,000
Convertible subordinated note payable, interest at
4.1%, 25% and 33% of the then outstanding
principal is due on November 1, 2002 and 2003,
respectively, with the remaining balance due
November 1, 2004. Interest is payable semi
annually. The note is convertible at $6.00 a
share into 1,250,000 shares of the Company's
Common Stock, subject to antidilution
adjustments. The note is subordinated in right
to prior payment in full of Senior Indebtedness,
which is generally defined in the governing
agreements to include debt under the revolving
line of credit and term loans payable to a bank,
described above, and any refinancing, renewal or
replacement thereof as well as certain other
debt............................................ 7,500,000 --
Subordinated term note, shareholder, interest at
10% per annum. Repaid, according to terms, in
November 1996, out of a portion of the proceeds
from the issuance of the $7,500,000 convertible
subordinated note described above............... -- 870,834
F-17
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG TERM DEBT--(CONTINUED)
Subordinated note payable, shareholders, interest
at 8% per annum, interest not payable until
maturity, due April 18, 1998.................... 439,000 439,000
Notes payable, discounted at 6.5% per annum,
remaining payments, which include imputed
interest, of $178,605 in January 1997 and
$164,961 at maturity in January 1998............ 313,090 454,663
----------- -----------
31,142,090 24,741,804
Less current portion.............................. 1,158,198 1,141,572
----------- -----------
$29,983,892 $23,600,232
----------- -----------
----------- -----------
In February 1996, certain shareholders of the Company provided the
Company's bank with limited guaranties, aggregating $2,000,000, of the term loan
and revolving line of credit. This group of shareholders, all of whom were
directors of the Company, included the Company's Chairman, CEO and a Vice
President. These guarantees were provided in conjunction with certain
modifications of the loans obtained in December 1995. The guarantees were
released by the bank, and terminated, in November 1996.
The aggregate maturities of long-term debt for the periods after December
31, 1996, are as follows:
YEARS ENDING DECEMBER 31,
1997..................... $ 1,158,198
1998..................... 22,483,892
2002..................... 1,875,000
2003..................... 1,875,000
2004..................... 3,750,000
-----------
$31,142,090
-----------
-----------
6. SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS
During 1994, an adjustment was recorded reducing capital in excess of par
and intangible assets by $495,000. This adjustment reduces the value ascribed to
120,000 shares of the Company's common stock issued in October 1993 at the time
certain purchase price adjustments relating to a 1991 acquisition were resolved.
The transaction was initially recorded during the fourth quarter of 1993 based
on the market value of the shares at the time of the acquisition in 1991 ($7.50
per share). The adjustment reduces this valuation to an amount based on the
market value of the shares at the time of issuance in 1993 ($3.375 per share).
Warrants: In 1994, in consideration of an extension of the maturity date
of its the revolving line of credit and other financing matters, the Company
issued warrants to its lender to purchase 172,152 shares of common stock of the
Company exercisable through October 1999 at an exercise price that is currently
$3.37 per share and that increases 5% annually. Warrants to purchase 119,895
shares, previously issued to this lender, expired in 1994. In January 1994, in
consideration of an extension of the maturity date of a $2,000,000 note due to a
shareholder negotiated in 1993, the Company issued warrants to the shareholder
to purchase 150,000 shares of common stock exercisable through 1998 at an
exercise price that is currently $2.69 per share and that increases 5% annually.
Stock option plans: The 1991 Stock Option Plan, as amended in 1996,
provides for the granting of options to key employees, directors, advisors and
independent consultants to the Company for the purchase of up to 1,415,500
shares of the Company's common stock. Options may be granted at an option price
of no less than 85% of the market price of the Company's common stock on the
date of grant and may be exercisable between one and ten years from the date of
grant. Options granted through December 31, 1996 generally have been designated
as non-qualified stock options, have had option prices equal to market values on
the date of grant,
F-18
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS--(CONTINUED)
have had terms of five or ten years, and have had vesting periods of one or four
years. Information relating to stock option transactions over the past three
years is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRICE PRICE
NUMBER PER NUMBER PER
OUTSTANDING SHARE EXERCISABLE SHARE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993... 840,300 $ 5.28 259,500 $ 8.70
Granted.................... 265,000 2.70
Canceled................... (69,750) 6.33
-----------
Balance, December 31, 1994... 1,035,550 4.36 321,638 7.12
Granted.................... 177,000 2.20
Canceled................... (180,500) 4.22
-----------
Balance, December 31, 1995... 1,032,050 4.02 485,775 5.21
Granted.................... 239,500 4.57
Canceled................... (85,500) 7.67
-----------
Balance, December 31, 1996... 1,186,050 3.87 712,913 3.79
-----------
-----------
</TABLE>
Further information about stock options outstanding at December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF AVERAGE PRICE PRICE
EXERCISE NUMBER REMAINING PER NUMBER PER
PRICES OUTSTANDING CONTRACTUAL LIFE SHARE EXERCISABLE SHARE
- -------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.80--$2.49 271,550 2.7 years $ 2.21 232,413 $ 2.18
$2.50--$3.99 370,000 3.5 years 3.00 259,375 2.92
$4.00--$5.38 462,500 7.5 years 4.30 139,125 4.03
$10.75--$10.75 82,000 0.4 years 10.75 82,000 10.75
</TABLE>
At December 31, 1996 there were 229,450 shares available for future option
grants.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, 'Accounting for Stock-Based Compensation' (SFAS 123), the
Company has elected to continue to account for stock-based compensation under
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, 'Accounting for Stock Issued to Employees' (APB
25). Under APB 25, generally, no cost is recorded for stock options issued to
employees unless the option price is below market at the time options are
granted. The following pro forma net income and earnings per share are presented
for informational purposes and have been computed using the fair value method of
accounting for stock-based compensation as set forth in SFAS 123:
1996 1995
---------- --------
Pro forma net income............ $2,668,624 $407,567
Pro forma earnings per share.... 0.32 0.05
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before 1995. The pro forma results include expense related to the
fair value of stock options estimated at the date of grant using the
Black-Scholes option pricing model and the following weighted average
assumptions for the years ended December 31, 1996 and 1995, respectively:
risk-free interest rates of 6.6% and 6.1%; expected volatility of 38.4% and
38.1%; expected option life of 6.9 years and 4.5 years, and no dividend
payments. The weighted average estimated fair value of options granted during
1996 and 1995 was $2.40 and $0.93 per share, respectively.
F-19
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS
Leases: The Company leases various facilities and equipment under
operating leases. Rent expense amounted to approximately $1,451,000, $1,331,000
and $998,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum rental payments for all non-cancelable lease agreements for
periods after December 31, 1996 are as follows:
YEARS ENDING DECEMBER 31,
1997..................... $1,331,000
1998..................... 1,136,000
1999..................... 827,000
2000..................... 242,000
2001..................... 2,000
Later years.............. 12,000
----------
Total minimum payments
required............... $3,550,000
----------
----------
Employee benefits: The Company has two noncontributory defined benefit
pension plans that cover, or have covered, certain employee groups. These plans
consist of a 'Union Plan' covering certain unionized employees and a 'Non-Union
Plan' that covered other employees of certain subsidiaries. The Non-Union Plan
was amended in 1994 to provide that no benefits would accrue under the plan on
or after December 31, 1994. The Company funds pension costs based on minimum
amounts required by the plans. Expense relating to the Non-Union Plan was
$50,000 (net of a curtailment gain of $47,000) for the year ended December 31,
1994. Pension expense for the Union Plan has been less than $30,000 during each
of the years ended December 31, 1996, 1995 and 1994.
Effective August 1, 1994, the Company established a defined contribution
plan covering substantially all of its employees, other than those covered by
the Union Plan. Company contributions to this plan are based on a percentage of
employee contributions and are funded and charged to expense as incurred.
Expense related to the plan amounted to $307,000, $220,000 and $103,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
8. LITIGATION MATTERS AND CONTINGENCIES
Recorded assets and liabilities: In regards to the product liability and
other litigation matters and contingencies discussed below, the Company has
recorded certain liabilities and, in some cases, receivables for insurance
recoveries. While these amounts are discussed in the remaining sections of this
note, a summary of these amounts together with other items comprising the
applicable balance sheet line items is as follows:
<TABLE>
<CAPTION>
ACCRUED OTHER
OTHER LIABILITIES LIABILITIES
RECEIVABLES (CURRENT) (NON-CURRENT)
----------- ----------- -------------
<S> <C> <C> <C>
December 31, 1996:
Product liability matters:
Future payments on settled cases........... $ -- $ 1,750,000 $ --
Reserves for pending and other
contingencies............................ -- 500,000 3,500,000
----------- ----------- -------------
Totals for product liability matters.. 2,250,000 3,500,000
Provision for proposed settlement and other
costs relating to fraudulent transfer
litigation................................. -- 1,400,000
Other litigation contingency reserves......... -- 400,000 --
Other (not related to litigation or
contingencies)............................. 159,747 2,689,980 546,979
----------- ----------- -------------
$ 159,747 $ 6,739,980 $ 4,046,979
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
F-20
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
<TABLE>
<CAPTION>
ACCRUED OTHER
OTHER LIABILITIES LIABILITIES
RECEIVABLES (CURRENT) (NON-CURRENT)
----------- ----------- -------------
<S> <C> <C> <C>
December 31, 1995:
Product liability matters:
Future payments on settled cases........... $ -- $ 1,200,000 $ 1,750,000
Insurance recoveries and liabilities
related to above......................... 250,000 600,000 --
Reserves for pending and other
contingencies............................ -- 900,000 4,200,000
----------- ----------- -------------
Totals for product liability matters.. 250,000 2,700,000 5,950,000
Provision for proposed settlement and other
costs relating to fraudulent transfer
litigation................................. 1,900,000
Other litigation contingency reserves......... -- 100,000 --
Other (not related to litigation or
contingencies)............................. 108,769 4,881,548 655,206
----------- ----------- -------------
$ 358,769 $ 9,581,548 $ 6,605,206
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
Product liability litigation matters and contingencies:
At December 31, 1996, the Company was a defendant in 11 product liability
suits relating to personal injuries allegedly related to the use of Riddell
helmets. The ultimate outcome of these claims, or potential future claims,
cannot presently be determined. The Company estimates that the uninsured portion
of future costs and expenses related to these claims, and incurred but not
reported claims, will amount to at least $4,000,000 and, accordingly, a reserve
in this amount is included in the Consolidated Balance Sheet at December 31,
1996 as part of accrued liabilities and other liabilities. These reserves are
based on estimates of losses and defense costs anticipated to result from such
claims based on available information, including an analysis of historical data
such as the rate of occurrence and the settlement amounts of past cases.
However, due to the uncertainty involved with estimates, as demonstrated by the
matter described below, actual results have at times varied substantially from
earlier estimates and could do so in the future. Accordingly there can be no
assurance that the ultimate costs of such claims will fall within the
established reserves.
In 1994, a jury returned a verdict against the Company for damages
amounting to approximately $8,000,000 in one of these suits. Although the
Company believes that it was not responsible in the case, and had been in the
process of appealing the verdict, the Company settled with the plaintiff in late
1995 for an amount that was less than what was previously awarded. The Company
had taken a charge of $4,600,000 before taxes in 1994 to establish a reserve for
the full uninsured portion of the initial award, as well as current and future
premiums then due under a $5,000,000 product liability insurance policy (which
had a term running through June 1997) which would be exhausted by payment of the
verdict. As the amount of the settlement was less than the initial award, the
settlement had no effect on 1995 income. The excess of the reserve over amounts
due under the settlement was added to general reserves for other product
liability claims (discussed in the preceding paragraph), during 1995, to provide
increased reserves against these other claims. The December 31, 1996 and 1995
Consolidated Balance Sheets include certain liabilities related to this matter,
as well as related insurance receivables at December 31, 1995, as shown in the
preceding table.
The Company maintains additional product liability coverage under a policy
bound in December 1994 (the '1994 Policy'). The 1994 Policy replaced and
expanded on coverage that had been available under a pre-existing policy which
was exhausted by the 1995 settlement described above. The settlement did not
affect coverage available under the 1994 Policy. In late 1996 the Company
extended the term of the 1994 Policy through December 2001 and certain coverage
limits were increased. The 1994 Policy is an occurrence-based policy which
covers injuries occurring prior to December 2001. The policy also covers other
claims which were
F-21
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
pending against the Company at the time the policy was bound in December 1994 as
well as potential claims for injuries which had occurred prior to the policy
date, but had not yet been reported. This additional coverage contains two
components: 'basic' and 'excess' coverage. The basic coverage insures all
covered claims up to $2,250,000 in excess of an uninsured retention (deductible)
of $750,000 per occurrence. The basic coverage is subject to an aggregate policy
limit of $7,500,000 and certain annual aggregate sub-limits. However, until the
premiums for the entire policy period have been paid, the basic coverage is also
limited to 110% of premiums paid. The excess coverage provides for insurance of
up to $20,000,000 per occurrence, in excess of the first $3,000,000 of each
claim. (The first $3,000,000 of each claim would fall under the basic coverage,
to the extent available, and the uninsured retention.) Claims covered by the
excess coverage are subject to one of two separate $20,000,000 aggregate policy
limits, depending on the date of the related injury and the date the claim is
filed against the Company. The first $20,000,000 aggregate limit applies to
claims filed before October 4, 1996 for injuries occurring after January 1, 1985
and prior to December 13, 1994 together with any future claims for injuries
occurring before October 4, 1996. The second $20,000,000 aggregate limit applies
to claims filed before October 4, 1996 for injuries occurring after December 13,
1994 together with any future claims for injuries occurring between October 4,
1996 and December 2001. The excess coverage is also limited to certain ratios of
paid premiums until all premiums due for the entire policy period have been
paid. However, this latter limitation can be eliminated at any time by prepaying
the future premiums due during the remainder of the policy. The Company believes
that this new insurance program provides a substantial increase in coverage, and
protection, against future claims that may be asserted against the Company--
especially considering the coverage provided under the excess component of the
policy. The excess policy does not cover any claims that were asserted prior to
the inception of the policy, one of which was still pending at December 31,
1996.
At the time the additional product liability coverage was bound, in
December 1994, the Company had several claims pending against it. As discussed
above, the new policy provides only the limited coverage under its basic
component for these preexisting claims. Accordingly, the Company entered into an
effort to settle several claims that it believed, considering the substantially
reduced level of available insurance, presented the greatest potential risk to
the Company. The Company was successful in carrying out this settlement effort,
and in early 1995 settled certain claims for an aggregate amount of $2,100,000.
However, because of the risks associated with these claims, given the reduced
level of available insurance, the amount of these settlements was substantially
above historical levels for settlements of similar claims and exceeded reserves
applicable to the claims. Accordingly, these settlements, together with
revaluations of reserves for remaining claims, resulted in an increase in
product liability expense for the year ended December 31, 1994 of approximately
$1,500,000.
MacGregor fraudulent transfer litigation:
MacGregor Sporting Goods, Inc. (now known as M. Holdings, Inc.) ('Mac I')
filed for bankruptcy in March 1989. In 1993, Mac I's Creditors' Committee and
the bankruptcy trustee of MGS Acquisition Inc. ('MGS') filed a complaint against
the Company seeking rescission of, and/or monetary damages in excess of $28.5
million plus interest relating to, the Company's acquisitions in 1988 and 1989
of substantially all the assets of two of Mac I's former second-tier
subsidiaries (including the football helmet division, MacGregor trademark
licensing business, and the non-football uses of the Riddell trademark) (the
'Acquisition') for alleged failure to pay fair consideration at a time when Mac
I was insolvent or as a result of which Mac I became insolvent or
undercapitalized.
By order in November, 1994, the complaint was dismissed as time-barred. The
court ordered the appointment of a trustee in Mac I's bankruptcy, but did not
decide whether the trustee would be time-barred if it decided to take a similar
complaint against the Company. In March 1995, the newly appointed trustee in Mac
I's bankruptcy, together with the bankruptcy trustee of MGS (collectively the
'Trustees') filed a similar complaint against the Company. Additionally,
Innovative Promotions, Inc. and certain other purported unsecured creditors of
Mac I filed a complaint under state debtor and creditor law against the Company
making similar allegations and claims as the actions described above, seeking
rescission and/or damages in excess of $22 million. The
F-22
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
Trustees intervened in the Innovative action as plaintiffs, purportedly to
preserve their rights in the event they lost their separate action.
In April, 1996 the Company signed an agreement with the Trustees to settle
the 'fraudulent transfer' litigations described above. The proposed settlement
was subject to, among other things, approval by two bankruptcy courts. The
proposed settlement had provided for a payment of approximately $1.4 million by
the Company. However, in June 1996, in view of opposition from the Creditors'
Committee of Mac I, the Trustees withdrew a motion they had filed to approve the
proposed settlement of the actions against the Company, and the proposed
settlement agreement terminated. In October 1996 a former employee of the
Company filed a counterclaim against the Company and several subsidiaries in the
Mac I bankruptcy, seeking indemnity and contribution in an indeterminate amount
from the Company in connection with a suit by the Mac I trustee against such
former employee.
The Company had previously recorded a $1.9 million provision, as of
December 31, 1995, for the proposed settlement as well as anticipated costs
relating to the litigation. The Company has charged certain litigation costs
against the liability reserve reducing the balance to $1,400,000 at December 31,
1996. The Company has not otherwise adjusted the liability reserve for these
actions as a result of the termination of the settlement agreement, as the
balance remains within the potential range of costs of resolving the litigation.
However, as discussed above, the plaintiffs in the actions are seeking damages
far in excess of this amount and, accordingly, there can be no assurances that
the matter will ultimately be resolved at an amount within the reserve. The
reserve is reflected in the Consolidated Balance Sheets as part of accrued
liabilities at December 31, 1996 and 1995. The Company remains confident that
the fraudulent transfer cases are without merit, and intends to vigorously
defend against them.
Other contingencies and litigation matters:
In connection with the Company's suit against its former President,
Frederic Brooks, for alleged breaches of his consulting agreement and certain
other matters, Mr. Brooks filed counterclaims against the Company. Mr. Brooks
alleges the Company breached its indemnification obligations to him as a former
officer and director of the Company in connection with the Company's action
against Mr. Brooks, a purported class action (now settled), an action (now
settled) against Mr. Brooks brought by certain stockholders of the Company, and
the action brought by the Mac I trustee, and seeks damages in excess of $3.3
million plus future attorneys' fees and interest. Mr. Brooks also seeks
compensatory and punitive damages combined of at least $15 million against the
Company, two of its officers and directors and an entity controlled by them for
tortious interference with contract and prospective advantage and prima facie
tort. Mr. Brooks has impleaded the Company's 'Riddell' footwear licensee for
contribution for all damages that may be assessed against him in the Company's
suit against Mr. Brooks for certain alleged breaches of his consulting agreement
relating to, among other things, alleged attempts to disparage and take control
of the Company. In connection with a settlement of certain actions between the
Company and its 'Riddell' footwear licensee in early 1994, the Company agreed to
indemnify the licensee and certain of its affiliates in the event they were so
impleaded by Mr. Brooks into the Company's suit against Mr. Brooks for breach of
his consulting agreement. Mr. Brooks' claims against the Company also seek
consulting fees of $580,000 plus interest under his consulting agreement (which
the Company has previously deposited in an escrow type account), consulting fees
with the Company's 'Riddell' footwear licensee exceeding $850,000 and attorney's
fees exceeding $1.5 million through April 1996, plus interest. The Company
believes Mr. Brooks' claims against the Company are without merit and intends to
vigorously defend against them.
F-23
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION MATTERS AND CONTINGENCIES--(CONTINUED)
In January 1995, the Company was named as a co-defendant in a complaint
which alleges wrongful death, failure to warn and other things surrounding the
death of a minor at one of the Company's facilities. The minor was involved in a
fatal accident as he trespassed on the roof of the facility after hours. The
complaint seeks unspecified monetary damages. The Company believes that it has
meritorious defenses to this action and intends to vigorously defend against it.
The defense of the matter has been assumed by the Company's general liability
insurance carrier, subject to a reservation of rights and certain policy limits
and deductibles.
Additionally, the Company has certain other claims or potential claims
against it that may arise in the normal course of business, including claims
relating to employee terminations. The Company has recorded provisions for
certain of these claims and certain of the 'other' litigation matters discussed
above. Reserves for such claims amounted to $400,000 at December 31, 1996 and
$100,000 at December 31, 1995. While these amounts, together with the remaining
$1,400,000 provision relating to the MacGregor fraudulent transfer litigation
discussed above, represents an estimate of certain minimum costs likely to
result from these litigation matters, other than product liability claims, the
Company cannot estimate the full extent of a potential range of loss related to
such litigation matters as their ultimate outcome cannot be presently
determined. Accordingly, there can be no assurance that such claims will be
resolved within such reserves.
9. INCOME TAXES
Income taxes (credits) on income (loss), before extraordinary items, for
the years ended December 31, 1996, 1995 and 1994 is summarized below:
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
-------- -------- -----------
Current tax expense (credit):
Federal..................... $ 50,000 $ 40,000 $ --
State....................... 60,000 60,000 --
-------- -------- -----------
110,000 100,000 --
-------- -------- -----------
Deferred tax expense (credit):
Federal..................... -- -- (1,010,000)
State....................... -- -- (240,000)
-------- -------- -----------
-- -- (1,250,000)
-------- -------- -----------
$110.000 $100,000 $(1,250,000)
-------- -------- -----------
-------- -------- -----------
For the years ended December 31, 1996 and 1995, tax expense was reduced by
offsetting tax benefits of approximately $1,200,000 and $900,000, respectively,
of net operating loss carryforwards which were not recognized in prior years.
F-24
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
Significant components of deferred income tax assets and liabilities at
December 31, 1996, 1995 and 1994 are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Deferred income tax assets:
Accrued expenses and
reserves................ $ 3,509,000 $ 5,029,000 $ 2,527,000
Inventory.................. 492,000 711,000 971,000
Intangible assets.......... 26,000 28,000 25,000
Net operating loss, and
credit, carryforwards... 3,689,000 2,904,000 5,659,000
Other...................... 36,000 35,000 27,000
----------- ----------- -----------
7,752,000 8,707,000 9,209,000
Valuation allowances....... (1,386,000) (2,539,000) (3,452,000)
----------- ----------- -----------
Total deferred income tax
assets.................. 6,366,000 6,168,000 5,757,000
----------- ----------- -----------
Deferred income tax
liabilities:
Intangible assets and
deductible goodwill..... 6,014,000 5,770,000 5,503,000
Prepaid expenses........... 266,000 350,000 189,000
Other...................... 86,000 48,000 65,000
----------- ----------- -----------
Total deferred income tax
liabilities............. 6,366,000 6,168,000 5,757,000
----------- ----------- -----------
Total net deferred income tax
liability.................. $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
The valuation allowance has been established based on the assumption that
the net deferred income tax asset will not be realized.
The net current and non-current components of the deferred income taxes
were recognized in the balance sheet at December 31, 1996, 1995 and 1994 as
follows:
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Net current assets, included
with prepaid expenses....... $1,820,000 $1,990,000 $1,408,000
Net non-current deferred tax
liabilities................. 1,820,000 1,990,000 1,408,000
---------- ---------- ----------
$ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
A reconciliation of effective tax rates to federal statutory tax rates is
as follows:
YEARS ENDED
DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
Statutory Federal tax rate......... 34.0% 34.0% (34.0%)
Differences resulting from:
Effective state tax rate, net of
federal tax benefit.............. 3.1 1.6 (3.3)
Amortization not deductible for
tax purposes.................. 5.8 6.7 1.2
Losses with no current benefit... -- -- 15.2
Benefit of prior periods net
operating losses not
previously recognized......... (40.2) (38.1) --
Other differences................ 1.0 (0.2) 0.7
----- ----- -----
3.7% 4.0% (20.2%)
----- ----- -----
----- ----- -----
During 1994, the Company entered into a settlement agreement with the
Internal Revenue Service relating to an examination of the Company's federal
income tax returns for the years 1988 to 1990. The service had proposed certain
adjustments relating to the allocation, for tax purposes, of an acquisition in
1988 and the deductibility of amortization relating to certain intangible assets
acquired in that acquisition. The effect of the
F-25
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
settlement was to reduce net operating loss carryforwards available to the
Company for tax purposes, and to adjust future tax amortization deductions
available to the Company, by an aggregate of approximately $3.2 million. The
Company has recorded the effect of the settlement, in 1994, by an adjustment
increasing its liability for deferred income taxes by $1,250,000 with a
corresponding increase in goodwill. The effect of the settlement on taxes
currently payable is not material.
At December 31, 1996 the Company had estimated net operating loss
carryforwards for federal income tax purposes of approximately $8,900,000
expiring in the years 2008 to 2011.
10. RELATED PARTY TRANSACTIONS
Interest expense includes interest on debt due shareholders and related
parties of $111,420, $197,526 and $229,107 for the years ended December 31,
1996, 1995 and 1994, respectively. In 1996 the Company paid consulting fees of
$75,000 to one director and paid another director $20,000 for services in
connection with a series of promotional football clinics sponsored by the
Company. Accrued liabilities include accrued interest due a shareholder of
$7,368 at December 31, 1995. Other liabilities (non-current), include accrued
interest due to shareholders of $310,129 and $274,423 at December 31, 1996 and
1995, respectively. In 1995, $1,029,166 of principal payments were made in
advance of their maturity on long-term debt due to a shareholder.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest were $2,661,710, $2,741,654, and $2,002,172, for
the years ended December 31, 1996, 1995 and 1994, respectively. Income tax
payments, or refunds, were not significant for 1996, 1995 or 1994.
In 1994, the value ascribed to certain stock issued the prior year, in
connection with an earlier acquisition, was adjusted from $900,000 to $405,000.
In July 1994, in connection with an acquisition, the Company incurred
liabilities of $1,450,000 and issued common stock valued at $400,000.
In January 1995, in connection with an acquisition, the Company incurred
liabilities of $765,000.
12. ACQUISITION AND DIVESTITURE
In January 1995, the Company acquired the business and operating assets of
Raleigh Athletic Equipment Corporation, a reconditioner of athletic equipment,
for a purchase price, including costs of the transaction and liabilities
assumed, of approximately $1,400,000. The transaction was accounted for as a
purchase, and, accordingly, the results of Raleigh Athletic Equipment
Corporation are included in the consolidated financial statements from the date
of acquisition and the net assets acquired have been recorded at their fair
values. The results of Raleigh Athletic Equipment Corporation prior to the date
of the acquisition are not material to the Company's consolidated financial
statements.
In July 1994, the Company acquired SharCo Corporation, a manufacturer of
sports collectible products, for a purchase price, including costs of the
transaction, of approximately $2,600,000. The transaction was accounted for as a
purchase, and, accordingly, the results of SharCo Corporation are included in
the consolidated financial statements from the date of acquisition and the net
assets acquired have been recorded at their fair values. The results of SharCo
Corporation prior to the date of the acquisition are not material to the
Company's consolidated financial statements.
In February 1994, the Company sold certain foam molding operations operated
by the Company's Ohio Cellular Products Corporation subsidiary ('OCP') in a
stock sale for a gross sales price of $1,000,000 cash and certain contingent
consideration. The Company had announced its intention to sell the operation in
1993, and operating results for the year ended December 31, 1993 were charged
with a provision to provide for a loss on disposition, including operating
losses for the period subsequent to December 31, 1993 and through the date of
F-26
<PAGE>
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. ACQUISITION AND DIVESTITURE--(CONTINUED)
the sale. Accordingly, the effect of the sale and related 1994 operations
through the date of sale, were not material to 1994 operating results.
13. SEGMENT INFORMATION
The Company operates in two segments of the sporting goods industry: sports
products and services (which includes the manufacture, sale and reconditioning
of football helmets, other athletic products and sports collectible products)
and trademark licensing of the Riddell and MacGregor trademarks for use on other
products including athletic footwear, apparel and sports equipment.
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Net Revenues:
Sports products and
services................ $69,888,094 $63,603,210 $51,567,065
Trademark licensing........ 2,494,266 3,439,828 3,845,044
----------- ----------- -----------
$72,382,360 $67,043,038 $55,412,109
----------- ----------- -----------
----------- ----------- -----------
Income (loss) from Operations:
Sports products and
services................ $ 7,929,943 $ 7,184,487 $(2,694,568)
Trademark licensing........ 1,536,204 2,263,497 2,823,336
Corporate and unallocated.. (3,750,445) (4,182,389) (4,311,056)
----------- ----------- -----------
$ 5,715,702 $ 5,265,595 $(4,182,288)
----------- ----------- -----------
----------- ----------- -----------
Depreciation and Amortization:
Sports products and
services................ $ 1,483,601 $ 1,459,142 $ 1,180,804
Trademark licensing........ 702,095 700,895 694,346
Corporate and unallocated.. 22,917 7,458 7,458
----------- ----------- -----------
$ 2,208,613 $ 2,167,495 $ 1,882,608
----------- ----------- -----------
----------- ----------- -----------
Capital Expenditures:
Sports products and
services................ $ 1,138,786 $ 750,188 $ 662,395
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets:
Sports products and
services................ $54,374,016 $51,478,083 $49,378,285
Trademark licensing........ 18,983,249 19,760,209 20,230,728
Corporate and unallocated.. 3,003,764 2,886,397 2,643,301
----------- ----------- -----------
$76,361,029 $74,124,689 $72,252,314
----------- ----------- -----------
----------- ----------- -----------
F-27
<PAGE>
[This page intentionally left blank]
F-28
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996
-------------- ----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents....................... $ 2,077 $ 9,360 $ 842
Accounts receivable, less allowance of $220,
$220, and $170 for possible losses........... 3,681 6,897 3,184
Inventories (Note 4)............................ 8,642 5,419 7,849
Prepaid expenses (Note 5)....................... 5,426 2,616 4,690
Deferred sales (Note 6)......................... 666 265 652
Refundable income taxes......................... 1,440 238 1,239
Deferred tax benefit............................ 256 259 207
-------------- ----------------- --------------
Total Current Assets.............................. 22,188 25,054 18,663
Property and equipment, less accumulated
depreciation.................................... 4,167 4,010 3,556
Goodwill and other assets......................... 8,944 8,727 6,606
-------------- ----------------- --------------
$ 35,299 $37,791 $ 28,825
-------------- ----------------- --------------
-------------- ----------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 3,589 $ 1,993 $ 3,263
Accruals:
Compensation and payroll taxes............... 330 849 307
Income taxes................................. -- 117 --
Other........................................ 163 156 76
Customer deposits................................. 2,242 3,813 1,780
Current maturities of long-term debt.............. 120 120 --
-------------- ----------------- --------------
Total Current Liabilities......................... 6,444 7,048 5,426
Deferred income taxes............................. 399 366 174
Long-term debt.................................... 480 480 --
-------------- ----------------- --------------
Total Liabilities................................. 7,323 7,894 5,600
Contingencies (Note 12)...........................
Shareholders' Equity:
Preferred stock................................. -- -- --
Common stock.................................... 47 47 47
Additional paid-in-capital...................... 14,187 14,144 13,639
Excess of purchase price over predecessor
basis........................................ (2,517) (2,517) (2,517)
Retained earnings............................... 16,288 18,253 12,090
-------------- ----------------- --------------
28,005 29,927 23,259
Treasury stock, at cost........................... (29) (30) (34)
-------------- ----------------- --------------
Total Shareholders' Equity........................ 27,976 29,897 23,225
-------------- ----------------- --------------
$ 35,299 $37,791 $ 28,825
-------------- ----------------- --------------
-------------- ----------------- --------------
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
F-29
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Uniforms and accessories........................ $ 2,814 $ 2,277
Camps and events................................ 5,527 4,139
------- -------
8,341 6,416
------- -------
COSTS OF REVENUES:
Uniforms and accessories........................ 1,996 1,618
Camps and events................................ 3,791 3,094
------- -------
5,787 4,712
------- -------
Gross profit.................................... 2,554 1,704
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES..... 5,455 4,250
------- -------
Operating loss.................................. (2,901) (2,546)
OTHER INCOME 62 47
------- -------
Loss before taxes on income..................... (2,839) (2,499)
TAXES ON INCOME (benefit) (Note 8)................ (1,125) (992)
------- -------
NET LOSS.......................................... $(1,714) $(1,507)
------- -------
------- -------
NET LOSS PER SHARE................................ $ (0.36) $ (0.32)
------- -------
------- -------
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENT
SHARES OUTSTANDING (Notes 9 and 10)............. 4,732 4,705
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
F-30
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(1,714) $(1,507)
Deferred income taxes.............................. 36 (31)
Depreciation....................................... 339 252
Amortization....................................... 72 49
Change in operating assets and liabilities:
Accounts receivable............................. 2,815 2,814
Inventories..................................... (3,223) (2,923)
Prepaid expenses................................ (2,810) (2,418)
Refundable income taxes......................... (1,193) (821)
Other assets.................................... (289) (26)
Accounts payable................................ 1,596 1,585
Accruals........................................ (629) (149)
Customer deposits............................... (1,571) (285)
------- ---------
Net cash used by operating activities........... (6,571) (3,460)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (496) (681)
------- ---------
Net cash used by investing activities........... (496) (681)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid..................................... (251) (180)
Proceeds from issuance of common stock............. 35 83
------- ---------
Net cash used by financing activities........... (216) (97)
------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (Note 11)...... (7,283) (4,238)
CASH AND CASH EQUIVALENTS, beginning of period....... 9,360 5,080
------- ---------
CASH AND CASH EQUIVALENTS, end of period............. $ 2,077 $ 842
------- ---------
------- ---------
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
F-31
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(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, DECEMBER 31, 1996....... 4,736 $ 47 $ 14,144 $(2,517) $ 18,253 $(30) $29,897
Net loss for the period........... -- -- -- -- (1,714) -- (1,714)
Issuance of common stock upon
exercise of stock options....... 4 -- 34 -- -- 1 35
Tax benefit related to exercise of
stock options (Note 11)......... -- -- 9 -- -- -- 9
Cash dividends ($.055 per share).. -- -- -- -- (251) -- (251)
------ ------ ---------- ----------- -------- -------- -------
BALANCES, MARCH 31, 1997.......... 4,740 $ 47 $ 14,187 $(2,517) $ 16,288 $(29) $27,976
------ ------ ---------- ----------- -------- -------- -------
------ ------ ---------- ----------- -------- -------- -------
BALANCES, DECEMBER 31, 1995....... 4,710 $ 47 $ 13,523 $(2,517) $ 13,777 $(36) $24,794
Net loss for the period........... -- -- -- -- (1,507) -- (1,507)
Issuance of common stock upon
exercise of stock options....... -- -- 81 -- -- 2 83
Tax benefit related to exercise of
stock options (Note 11)......... -- -- 35 -- -- -- 35
Cash dividends ($.04 per share)... -- -- -- -- (180) -- (180)
------ ------ ---------- ----------- -------- -------- -------
BALANCES, MARCH 31, 1996.......... 4,710 $ 47 $ 13,639 $(2,517) $ 12,090 $(34) $23,225
------ ------ ---------- ----------- -------- -------- -------
------ ------ ---------- ----------- -------- -------- -------
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
F-32
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The interim statements have been prepared pursuant to the requirements
for reporting on Form 10-Q. The December 31, 1996 balance sheet
presented was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting
principles. The interim financial statements and notes thereto should
be read in conjunction with the Company's latest Annual Report on Form
10-K. In the opinion of management, the interim financial statements
reflect all adjustments necessary for a fair presentation of financial
position and operating results for the interim periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates
and assumptions that effect the reported amounts of 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.
NOTE 2: The results of operations for the three months ended March 31, 1997
and 1996 are not necessarily indicative of results to be expected for
the full year.
NOTE 3: The consolidated financial statements include the accounts of Varsity
Spirit Corporation and its subsidiaries. All material intercompany
accounts and transactions are eliminated.
NOTE 4: Inventories are summarized as follows:
(IN THOUSANDS)
------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
Finished Goods.... $ 6,544 $3,608 $ 5,980
Raw Materials..... 2,098 1,811 1,869
----------- ------------ -----------
$ 8,642 $5,419 $ 7,849
----------- ------------ -----------
----------- ------------ -----------
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
NOTE 5: Prepaid expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Deferred costs:
Catalog and brochures....... $ 1,325 $ 330 $ 1,082
Camps, clinics and
championships............ 888 612 894
Supplies and samples.......... 603 414 616
Commissions................... 1,406 450 995
Prepaid tour costs............ 346 207 284
Insurance..................... 170 218 280
Other......................... 688 385 539
----------- ------------ -----------
$ 5,426 $2,616 $ 4,690
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
NOTE 6: Deferred sales consist of shipped uniform and accessory finished goods
that have not been invoiced. It is the policy of the Company to
reflect the sale in the financial statements during the month in which
the finished goods are shipped to the customer, but not to invoice the
sale until the customer's entire order has been shipped.
F-33
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: The Company has a $9,000,000 bank line of credit which expires on June
30, 1997. No balances were outstanding under the agreement as of March
31, 1997, December 31, 1996, or March 31, 1996. The agreement requires
that the Company maintain certain financial ratios and maintain a
minimum tangible net worth. The line bears interest at the lower of
prime or LIBOR plus 1%.
NOTE 8: Income taxes have been provided based on the estimated annual
effective tax rates for the periods.
NOTE 9: For the three months ended March 31, 1997 and 1996, net income per
share calculations are based upon weighted average common and
equivalent shares outstanding totaling 4,732,000 and 4,705,000,
respectively.
NOTE 10: In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, 'Earnings per
Share' ('SFAS 128'). This statement simplifies the standards for
computing earnings per share ('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 the financial statements issued for the year ended
December 31, 1997. If the provisions of SFAS 128 had been applied to
the three months ended March 31, 1997, estimated Basic EPS and Diluted
EPS would have been $(0.38) and $(0.36), respectively.
NOTE 11: Supplemental cash flow information is as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
1997 1996
------------------ ------------------
(IN THOUSANDS)
Cash paid for:.......
Income taxes....... $158 $ 27
Interest........... $ -- $ --
Non-cash financing activities:
During the three month periods ended March 31, 1997 and 1996,
additional paid-in-capital was increased by a reduction in income
taxes payable of $9,000 and $35,000, respectively, arising from the
exercise of stock options.
NOTE 12: On May 5, 1997, the Company, Riddell Sports, Inc., a Delaware
corporation ('Riddell'), and Cheer Acquisition Corporation, a
Tennessee corporation and a wholly owned subsidiary of Riddell ( the
'Merger Sub'), entered into an Agreement and Plan of Merger (the
'Merger Agreement') pursuant to which Merger Sub will offer to
purchase all outstanding shares of common stock, par value $0.01 per
share, of the Company (the 'Shares') at $18.90 per share, net to the
seller in cash (the 'Offer Price'). In addition to various conditions,
the offer is subject to the receipt of tenders of a majority of the
outstanding shares on a fully-diluted basis. Pursuant to the Merger
Agreement, as soon as practicable after the completion of the offer
and satisfaction or waiver of all conditions, the Merger Sub will be
merged with and into the Company (the 'Merger') with the Company
surviving the Merger as a wholly owned subsidiary of Riddell ( the
'Surviving Corporation'). At the time at which the Merger is
consummated (the 'Effective Time'), each Share then outstanding (other
than Shares held in treasury of the Company, Shares held by Riddell,
the Merger Sub or any
F-34
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
other wholly owned subsidiary of Riddell and Shares held by the
stockholders of the Company who exercise their dissenters' rights, if
any, under the Tennessee Business Corporation Act) will be converted
into the right to receive the Offer Price in cash.
In connection with the Merger Agreement, the Company has agreed to
prepay in full the Term Note issued to United Special Events, Inc.
('USE') in connection with the purchase by the Company's wholly owned
subsidiary, Varsity USA, Inc. of the spirit camp business of USE.
Under the terms of the Term Note, USE has the right to convert the
entire $600,000 principal amount of the Term Note into shares of
Common Stock of the Company at a conversion price of $14.97.
Additionally, the Company has agreed to terminate, immediately prior
to the Merger, outstanding options under its stock option plans,
resulting in option termination payments totalling approximately
$4,877,000.
F-35
<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
F-36
<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.
F-37
<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.
F-38
<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.
F-39
<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.
F-40
<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, 1996. 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:
(IN THOUSANDS)
--------------
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
-------
-------
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.
F-41
<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:
YEARS
-----
Computer equipment.......... 5
Computer software........... 3
Machinery and equipment..... 5-7
Furniture and fixtures...... 5
Leasehold improvements...... 2-6
Vehicles.................... 3-5
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.
F-42
<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.
F-43
<PAGE>
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--INVENTORIES
Inventories are summarized as follows:
DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)
Finished products.... $3,217 $3,608
Raw materials........ 1,709 1,811
------ ------
Inventories.......... $4,926 $5,419
------ ------
------ ------
NOTE 3--PREPAID EXPENSES
Prepaid expenses consist of the following:
DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)
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
------ ------
------ ------
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.
F-44
<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:
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
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
------- -------
------- -------
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:
(IN THOUSANDS)
--------------
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
--------------
--------------
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
F-45
<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:
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
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
------- -------
------- -------
F-46
<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>
F-47
<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:
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, ----------------
1994 1995 1996
------------------ ------ ------
(IN THOUSANDS)
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
------- ------ ------
------- ------ ------
Significant components of the Company's deferred tax liabilities and assets
are as follows:
DECEMBER 31,
--------------
1995 1996
----- -----
(IN THOUSANDS)
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)
----- -----
----- -----
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:
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, -------------
1994 1995 1996
------------------ ---- ----
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%
----- ---- ----
----- ---- ----
F-48
<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.
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, -----------------
1994 1995 1996
----------------------- ------ ------
(IN THOUSANDS)
Cash paid for:
Income taxes........... $ 3,186 $2,826 $3,035
Interest............... $ 1 $ 28 $ 27
------- ------ ------
------- ------ ------
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:
(IN THOUSANDS)
Fair value of assets acquired..................... $3,051
Cash paid to seller and transaction costs......... (2,082)
Deferred consideration (Note 6)................... (600)
-------
Liabilities assumed............................... $ 369
-------
-------
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:
(IN THOUSANDS)
Fair value of assets acquired..................... $5,394
Cash paid to the seller and transactions costs.... (1,018)
Deferred consideration............................ (292)
-------
Liabilities assumed............................... $4,084
-------
-------
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.
F-49
<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:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
1997.................... $591
1998.................... 155
1999.................... 142
2000.................... 89
------
Total minimum lease
payments.............. $977
------
------
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.
F-50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information............................................ 3
Special Cautionary Notice Regarding Forward-Looking Statements... 3
Prospectus Summary............................................... 5
Risk Factors..................................................... 20
The Acquisition.................................................. 27
Use of Proceeds.................................................. 28
Capitalization................................................... 29
Unaudited Pro Forma Condensed Consolidated Financial Data........ 30
Selected Financial Data of Riddell............................... 37
Selected Financial Data of Varsity............................... 39
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 41
The Exchange Offer............................................... 56
Business......................................................... 62
Management....................................................... 85
Principal Stockholders........................................... 91
Certain Transactions............................................. 93
Description of the Senior Notes.................................. 94
Description of Other Indebtedness................................ 119
United States Federal Income Tax Consequences of the Exchange
Offer.......................................................... 121
Plan of Distribution............................................. 121
Legal Matters.................................................... 122
Experts.......................................................... 122
Index to Financial Statements.................................... F-1
UNTIL , 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW SENIOR NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
RIDDELL SPORTS INC.
$115,000,000
10 1/2% SENIOR NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Riddell Sports Inc., All American Sports Corporation, Proacq Corp.,
Ridmark Corporation, Equilink Licensing Corporation and RHC Licensing
Corporation
Section 145 of the Delaware General Corporation Law provides generally that
a person sued as a director, officer, employee or agent of a corporation may be
indemnified by the corporation in nonderivative suits for expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. In the case of criminal
actions and proceedings, such person must have had no reasonable cause to
believe his conduct was unlawful. Indemnification of expenses is authorized in
stockholder derivative suits where such person acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation and so long as he had not been found liable for negligence or
misconduct in the performance of his duty to the corporation. Even in this
latter instance, the court may determine that in view of all the circumstances
such person is entitled to indemnification for such expenses as the court deems
proper. A person sued as a director, officer, employee or agent of a corporation
who has been successful in defense of the action must be indemnified by the
corporation against expenses.
In addition to the indemnification provided as described below, the Company
is a party to employment agreements with each of Messrs. Nederlander, Toboroff,
and Mauer (executive officers and directors of the Company); and Messrs. Cougill
(an executive officer of Riddell, Inc., a wholly owned subsidiary of the
Company) and Gleisner (President of All American Sports Corporation, a wholly
owned subsidiary of the Company) indemnifying such individual against liability
arising out of his actions or the performance of his duties within the scope of
his employment not taken in bad faith. In addition, the employment agreements
entered into by the Company and Messrs. Nederlander, Toboroff and Mauer provide
that the Company shall assume primarily responsibility for legal fees incurred
by such officer in any action as to which such officer is entitled to have his
legal fees paid for by the Company, and that the Company shall pay such fees
directly to counsel rather than reimburse such officer.
(i) Riddell Sports Inc., All American Sports Corporation, Proacq Corp. and
Ridmark Corporation
The Certificates of Incorporation, as amended, of Riddell Sports, Inc., All
American Sports Corporation, Proacq Corp. and Ridmark Corporation each contain
the indemnification provisions set forth below:
'NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.'
'TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and
all expenses, liabilities or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person.'
II-1
<PAGE>
(ii) Equilink Licensing Corporation and RHC Licensing Corporation
The Certificates of Incorporation, as amended, of Equilink Licensing
Corporation and RHC Licensing Corporation each contain the indemnification
provisions set forth below:
'EIGHTH: The personal liability of a director to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director is hereby eliminated, provided that this Article shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.'
'NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or
covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may
be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.'
(b) Riddell, Inc.
Section 5/8.75 of the Illinois Business Corporation Act of 1983 provides
generally that a person sued as a director, officer, employee or agent of a
corporation may be indemnified by the corporation in nonderivative suits for
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation. In
the case of criminal actions and proceedings, such person must have had no
reasonable cause to believe his conduct was unlawful. Indemnification of
expenses is authorized in stockholder derivative suits where such person acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and so long as he had not been found liable to
the corporation. Even in this latter instance, the court may determine that in
view of all the circumstances such person is entitled to indemnification for
such expenses as the court deems proper. A person sued as a director, officer,
employee or agent of a corporation who has been successful in defense of the
action must be indemnified by the corporation against expenses.
The By-Laws of Riddell, Inc. (formerly known as EN&T Associates Inc.)
contain the indemnification provisions set forth below:
'ARTICLE IV INDEMNIFICATION
The corporation shall, to the fullest extent permitted by the
provisions of the Business Corporation Act of 1983, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said provisions from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by
said provisions, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any By-Law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent, and shall inure to the benefit of the heirs,
executors, and administrators of such a person.'
(c) Cheer Acquisition Corp., International Logos, Inc., Varsity/Intropa
Tours, Inc., Varsity Spirit Corporation and Varsity USA, Inc.
The Tennessee For-Profit Business Corporations Law set forth in Part 5 of
Section 48-18 of the Tennessee Code provides generally that a corporation may
indemnify a director made a party to a proceeding based on his role as a
director if the director's conduct was in good faith and the director reasonably
believed that his conduct was in, or not opposed to, the best interests of the
corporation. In the case of criminal actions and proceedings, such person must
have had no reasonable cause to believe his conduct was unlawful. A director may
not be indemnified if he has been found liable to the corporation. Unless
limited by its charter, a corporation shall indemnify a director or officer who
was wholly successful, on the merits or otherwise, in the defense of any
II-2
<PAGE>
proceeding to which the director was a party because the director is or was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding ('Mandatory Indemnification'). A director or
officer may be entitled court-ordered indemnification if the court determines he
is entitled to Mandatory Indemnification or believes he is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances (limited
to reasonable expenses incurred). A corporation may advance reasonable expenses
to a director or officer in certain circumstances. A corporation may also
indemnify and advance expenses to an officer who is not a director to the
extent, consistent with public policy, that may be provided by its charter,
bylaws, general or specific action of its board of directors or contract.
(i) Cheer Acquisition Corp.
The Charter of Cheer Acquisition Corp. provides that '8. Indemnification.
The corporation shall have the power to indemnify its directors to the fullest
extent permitted by law.' Cheer Acquisition Corp.'s By-Laws contain the
indemnification provisions set forth below:
'ARTICLE IX--INDEMNIFICATION
Section 1. Authority to Indemnify. The corporation may indemnify any
person who was or is a party or is threatened to be made a defendant or
respondent to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal, by reason of the fact that he is or was a
director of the corporation or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against judgments, settlements, penalties, fines
(including an excise tax assessed with respect to an employee benefit
plan), or reasonable expenses (including counsel fees), incurred with
respect to a proceeding if (a) he conducted himself in good faith and (b)
he reasonably believed (i) in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests; and (ii)
in all other cases, that his conduct was at least not opposed to its best
interests; and (c) with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. A director's conduct
with respect to an employee benefit plan for a purpose he reasonably
believed to be in the interests of the participants in and beneficiaries of
the plan is conduct that satisfies the requirement of (b)(ii). The
termination of a proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not meet the standard of conduct
described in this section.
Section 2. Mandatory Indemnification. The corporation shall
indemnify any director if he was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because
he is or was a director of the corporation against reasonable expenses
incurred by him in connection with the proceeding.
Section 3. Other Determination of Rights. No indemnification under
Section 1 hereof (unless ordered by a court) shall be made by the
corporation unless authorized in the specific case upon a determination
that indemnification of the director is proper in the circumstances because
he has met the applicable standard of conduct set forth in Section 1
hereof. Such determination shall be made.
(a) by a majority vote of a quorum of directors who are not at that
time parties to the proceeding;
(b) if such a quorum is not obtainable by a majority vote of a
committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting
solely of two or more directors who are not at that time parties to the
proceeding;
(c) by independent special legal counsel (compensated by the
corporation) in a written opinion, selected by the board of directors or
committee in the manner described in subsections (a) or (b); provided
however that if the requirements of neither (a) nor (b) can be met, then
by a majority vote of the full board of directors; or
(d) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may
not be voted in the determination.
Section 4. Advances of Expenses. Expenses incurred by a director who
is a party or threatened to be made a defendant or respondent to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal,
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding as determined and
II-3
<PAGE>
authorized in the manner specified in Section 3 of this article, upon (a)
the receipt of a written affirmation by the director of his good faith
belief that he has met the required standard of conduct; (b) the receipt of
an undertaking by or on behalf of the director, constituting such
director's unlimited general obligation, to repay such amount if it is
ultimately determined that he is not entitled to indemnification by the
corporation, and (c) a determination is made that the facts then known to
those making the determination would not preclude indemnification under
this article.
Section 5. Nonexclusiveness; Heirs. The indemnification provided by
this article shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled a matter of law or under the
charter, these bylaws, any agreement, any insurance purchased by the
corporation, or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be director, trustee, officer, or
employee and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 6. Purchase of Insurance. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, trustee, or
employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this article
or of the Tennessee Business Corporation Act.'
(ii) International Logos, Inc.
The By-Laws of International Logos, Inc. contain the indemnification
provisions set forth below:
'6. Indemnification of Directors. The corporation shall indemnify
any and all persons who may serve or who have served at any time as
Directors or officers, or who at the request of the Board of Directors of
the corporation may serve or at any time have served as Directors or
officers of another corporation in which the corporation at such time owned
or may own shares of stock or of which it was or may be a creditor, and
their respective heirs, administrators, successors and assigns, against any
and all expenses, including amounts paid in settlement (before or after
suit is commenced), actually and necessarily incurred by such persons in
connection with the defense or settlement of any claim, action, suit or
proceeding in which they, or any of them, are made parties, or a party, or
which may be asserted against them or any of them, by reason of being or
having been Directors or officers or a Director or officer of the
corporation, or of such other corporation, except in relation to matters as
to which any such Director or officer or former Director or officer or
person shall be adjudged in any action, suit or proceeding to be guilty of
willful misfeasance of malfeasance in the performance of his duty. Such
indemnification shall be in addition to any rights to which those
indemnified may be entitled under any law, bylaw, agreement, vote of
stockholders or otherwise.'
(iii) Varsity Spirit Corporation
The Amended and Restated Charter of Varsity Spirit Corporation contains the
indemnification provisions set forth below:
'ELEVENTH. A. RIGHT TO INDEMNIFICATION. Each person who was or is a
director of the Company and who was or is made a party or is threatened to
be made a party to or is otherwise involved (including, without limitation,
as a witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a 'proceeding'), by reason of
the fact that he or she is or was a director or officer of the Company or
is or was serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an 'Indemnified
Director'), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by
the Company to the fullest extent permitted by the Tennessee Business
Corporation Act, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than such law
permitted the Company to provide prior to such amendment), against all
liability, all reasonable expense and all loss (including, without
limitation, judgments, fines, reasonable attorneys' fees, ERISA excise
taxes or penalties
II-4
<PAGE>
and amounts paid in settlement) incurred or suffered by such Indemnified
Director in connection therewith and such indemnification shall continue as
to an Indemnified Director who has ceased to be a director and shall inure
to the benefit of the Indemnified Director's heirs, executors and
administrators. Each person who was or is an officer of the Company and not
a director of the Company and who was or is made a party or is threatened
to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any proceeding, by reason of the fact that he
or she is or was an officer of the Company or is or was serving at the
request of the Company as a director, officer, partner, trustee, employee
or agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee benefit
plan (hereinafter an 'Indemnified officer'), whether the basis of such
proceeding is alleged action in an official capacity as an officer or in
any other capacity while serving as an officer, shall be indemnified and
held harmless by the Company against all liability, all reasonable expense
and all loss (including, without limitation, judgments, fines, reasonable
attorneys' fees, ERISA excise taxes or penalties and amounts paid in
settlement) incurred or suffered by such Indemnified Officer to the same
extent and under the same conditions that the Company must indemnify an
Indemnified Director pursuant to the immediately preceding sentence and to
such further extent as is not contrary to public policy and such
indemnification shall continue as to an Indemnified Officer who has ceased
to be an officer and shall inure to the benefit of the Indemnified
Officer's heirs, executors and administrators. Notwithstanding the
foregoing and except as provided in Paragraph B of this Article Eleventh
with respect to proceedings to enforce rights to indemnification, the
Company shall indemnify any Indemnified Director or Indemnified Officer in
connection with a proceeding (or part thereof) initiated by such
Indemnified Director or Indemnified Officer only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Company. As
hereinafter used in this Article Eleventh, the term 'indemnitee' means any
Indemnified Director or Indemnified Officer. Any person who is or was a
director or officer of a subsidiary of the Company shall be deemed to be
serving in such capacity at the request of the Company for purposes of this
Article Eleventh. The right to indemnification conferred in this Article
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final deposition
(thereinafter an 'advancement of expenses'); provided, however, that, if
the Tennessee Business Corporation Act requires, an advancement of expenses
incurred by an indemnitee who at the time of receiving such advance is a
director of the Company shall be made only upon: (i) delivery to the
Company of an undertaking (hereinafter an 'undertaking'), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately
be determined by final judicial decision from which there is no further
right to appeal (hereinafter a 'final adjudication') that such indemnitee
is not entitled to be indemnified for such expenses under this Article or
otherwise, (ii) delivery to the Company of a written affirmation of the
indemnitee's good faith belief that he or she has met the standard of
conduct that makes indemnification by the Company permissible under the
Tennessee Business Corporation Act; and (iii) a determination that the
facts then known to those making the determination would not preclude
indemnification under the Tennessee Business Corporation Act. The right to
indemnification and advancement of expenses conferred in this Paragraph A
shall be a contract right.
B. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Paragraph A
of this Article Eleventh is not paid in full by the Company within sixty
days after a written claim has been received by the Company (except in the
case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days), the indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit or in a suit
brought by the Company to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee also shall be entitled to be
paid the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder
(other than a suit to enforce a right to an advancement of expenses brought
by an indemnitee who will not be a director of the Company at the time such
advance is made) it shall be a defense that, and in (ii) any suit by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking the Company shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the standard that makes
it permissible hereunder or under the Tennessee Business Corporation Act
(the 'applicable standard') for the Company to indemnify the indemnitee for
the amount claimed. Neither the failure of the Company (including its Board
of Directors, a committee of the Board of Directors, independent legal
counsel or its
II-5
<PAGE>
shareholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard, nor
an actual determination by the Company (including its Board of Directors, a
committee of the Board of Directors, independent legal counsel or its
shareholders) that the indemnitee has not met the applicable standard,
shall create a presumption that the indemnitee has not met the applicable
standard or, in the case of such a suit brought by the indemnitee, shall be
a defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by
the Company to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that the indemnitee is not entitled
to be indemnified or to such advancement of expenses under this Article
eleventh or otherwise shall be on the Company.
C. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to
the advancement of expenses conferred in this Article Eleventh shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, this Amended and Restated Charter, any By-Law, any
agreement, any vote of shareholders or disinterested directors or
otherwise.
D. INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company
or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the Tennessee Business Corporation Act.
E. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to the
extent authorized from time to time by the Board of Directors, grant rights
to indemnification and to the advancement of expenses to any employee or
agent of the Company and to any person serving at the request of the
Company as an agent or employee of another corporation or of a joint
venture, trust or other enterprise to the fullest extent of the provisions
of this Article Eleventh with respect to the indemnification and
advancement of expenses of either directors or officers of the Company.
F. REPEAL OR MODIFICATION. Any repeal or modification of any
provision of this Article Eleventh shall not adversely affect any rights to
indemnification and to advancement of expenses that any person may have at
the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
G. SEVERABILITY. In case any one or more of the provisions of this
Article Eleventh, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions in this Article Eleventh, and any other
application thereof, shall not in any way be affected or impaired thereby.'
(iv) Varsity/Intropa Tours, Inc. and Varsity USA, Inc.
The By-Laws of Varsity/Intropa Tours, Inc. and Varsity USA, Inc. each
contain the indemnification provisions set forth below:
'ARTICLE 7.
INDEMNIFICATION BY CORPORATION
Section 7.1. Indemnification of Directors and Officers. The
corporation shall, to the fullest extent to which it is empowered to do so
and in accordance with the procedures required by the Tennessee Business
Corporation Act or any other applicable laws, as may from time to time be
in effect, indemnify any person who was or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses, including attorneys' fees, judgments, fines and
amounts incurred by him or her in connection with such action, suit or
proceeding.
Section 7.2. Contract with the Corporation. The provisions of
Section 7.1 of this Article shall be deemed to be a contract between the
corporation and each director or officer who serves in any such capacity at
any time while said Section 7.1 and the relevant provisions of the
Tennessee Business Corporation Act or other applicable laws, if any, are in
effect, and any repeal or modification of any such
II-6
<PAGE>
law or of said Section 7.1 shall not affect any state of facts then or
theretofore existing or any action, suit or proceeding theretofore existing
or thereafter brought or threatened based in whole or in part upon any such
state of facts. In the event a person entitled to indemnification under
this Article claims indemnification, the corporation shall take all
required action to bring about a prompt and good faith determination of
such person's right to indemnification hereunder.
Section 7.3. Indemnification of Employees and Agents. Persons who
are not covered by the foregoing provisions of this Article and who are or
were employees or agents of the corporation, or are or were serving at the
request of the corporation as employees or agents of another corporation,
joint venture, partnership, trust or other enterprise, may be indemnified
to the extent the corporation is empowered to do so by the Tennessee
Business Corporation Act or any other applicable laws, when and as
authorized at any time from time to time by the board of directors in its
sole discretion.
Section 7.4. Advance of Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of a written agreement by or on behalf of a director and an officer
to undertake to repay such amount, unless it shall ultimately be determined
that he or she is entitled to be indemnified by the corporation as
authorized in this article. The provisions of this Section shall apply to
employees or agents when the board of directors has authorized such
indemnification under the provision of Section 7.3 hereof.
Section 7.5. Other Rights of Indemnification. The indemnification
provided or permitted by this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled by law,
agreement or otherwise, and shall continue as to a person who ceased to be
a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
Section 7.6 Liability Insurance. The corporation shall have the
power to purchase and maintain, on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, insurance against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such whether or not the corporation would have the power
to indemnify such person against such liability under the provisions of
this Article.
Section 7.7 Report to Shareholders. If the corporation has paid
indemnity or has advanced expenses to a director, officer, employee, or
agent, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next
shareholders' meeting.'
(d) Varsity Spirit Fashions & Supplies Inc.
Section 302A.521 of the Minnesota Statutes provides generally that a person
sued as a director, officer or employee of a corporation may be indemnified by
the corporation in suits for reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement if such person: (i) has not been
indemnified by another organization for the same, (ii) acted in good faith,
(iii) received no improper personal benefit, (iv) in the case of criminal
proceeding, had no reasonable cause to believe his conduct was unlawful and (v)
reasonably believed his conduct to be in or not opposed to the best interests of
the corporation.
The By-Laws of Varsity Spirit Fashions & Supplies, Inc. contain the
indemnification provisions set forth below:
'ARTICLE 5
INDEMNIFICATION
5.1) The corporation shall indemnify such persons, for such expenses
and liabilities, in such manner, under such circumstances, and to such
extent, as permitted by Minnesota Statutes, Section 302A.521, as now
enacted or hereafter amended.'
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
2.1 Asset Purchase Agreement, dated as of April 11, 1988, among Riddellink
Holding Corporation, EN&T Associates, Inc., Netlink Inc., Riddell,
Inc. (predecessor corporation), Equilink Licensing Corp., MacGregor
Sporting Goods, Inc., as amended on April 18, 1988 (the formal
trademark assignments and license agreements implementing this
agreement are omitted)(2) and Amendment thereto, dated March 1992.(3)
2.2 Agreement and Plan of Merger, dated as of May 5, 1997, by and among
Riddell Sports Inc., Cheer Acquisition Corp. and Varsity Spirit
Corporation.(22)
2.3 Asset Purchase Agreement dated as of December 1, 1994 by and between
Intropa International U.S.A., Inc., Elisabeth Polsterer and Varsity/
Tours, Inc.(27)
2.4 Asset Purchase Agreement dated as of May 15, 1996 by and between
United Special Events, Inc., Michael Olmstead and Varsity USA,
Inc.(26)
3.1 Amended and Restated Articles of Incorporation of Riddell Sports
Inc.(20)
3.2 First Amended and Restated Bylaws of Riddell Sports Inc.(18)
3.3 Certificate of Incorporation of All American Sports Corporation
(formerly known as Ameracq Corp).(1)
3.4 Bylaws of All American Sports Corporation (formerly known as Ameracq
Corp).(1)
3.5 Certificate of Incorporation of Cheer Acquisition Corp.(1)
3.6 Bylaws of Cheer Acquisition Corp.(1)
3.7 Certificate of Incorporation of Equilink Licensing Corporation.(1)
3.8 Bylaws of Equilink Licensing Corporation.(1)
3.9 Certificate of Incorporation of Proacq Corp.(1)
3.10 Bylaws of Proacq Corp.(1)
3.11 Certificate of Incorporation of RHC Licensing Corporation.(1)
3.12 Bylaws of RHC Licensing Corporation.(1)
3.13 Amended and Restated Articles of Incorporation of Riddell, Inc.
(formerly known as EN&T Associates Inc.).(1)
3.14 Bylaws of Riddell, Inc. (formerly known as EN&T Associates Inc.).(1)
3.15 Amended and Restated Articles of Incorporation of Ridmark
Corporation.(1)
3.16 Bylaws of Ridmark Corporation.(1)
3.17 Amended and Restated Charter of Varsity Spirit Corporation.(25)
3.18 Bylaws of Varsity Spirit Corporation.(25)
3.19 Charter of International Logos, Inc.(1)
3.20 Bylaws of International Logos, Inc.(1)
3.21 Charter of Varsity/Intropa Tours, Inc.(1)
3.22 Bylaws of Varsity/Intropa Tours, Inc.(1)
3.23 Amended and Restated Charter of Varsity Spirit Fashions & Supplies,
Inc.(1)
3.24 Bylaws of Varsity Spirit Fashions & Supplies, Inc.(1)
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.25 Amended and Restated Charter of Varsity USA, Inc.(1)
3.26 Bylaws of Varsity USA, Inc.(1)
4.1 Indenture, dated as of June 19, 1997, between Riddell, certain
subsidiaries of Riddell, as Guarantors, and Marine Midland Bank, as
Trustee.(23)
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding validity
of New Senior Notes offered hereby.
9.1 Voting Trust Agreement dated May 1991.(2)
10.1 Settlement Agreement, dated April 9, 1981, among MacGregor-Doniger
Inc., Brunswick Corporation and The Equilink Corporation.(2)
10.2 1997 Stock Option Plan.(22)
10.3 License Agreement, dated as of April 18, 1988, among MacMark
Corporation, Netlink, Inc. and MacGregor Sporting Goods, Inc.(2) as
amended July 30, 1992(16) and November , 1992.(16)
10.4 Agreement, made January 23, 1989, between Equilink Licensing Corp. and
Kmart Corporation, with supplemental agreements dated November 16,
1989, August 30, 1990(2), and June 30, 1994(12).
10.5 Lease, dated November 12, 1993, between the International Brotherhood
of Painters and Allied Trade Union and Industry Pension Fund and
Riddell, Inc., of the premises at 2050 Lively Blvd., Elk Grove
Village, Illinois(16); and amendment dated March 20, 1995(16); and
Amendment dated September 19, 1996.(21)
10.6 Lease Agreement, dated November 2, 1984 by and between ADI Real Estate
Joint Venture No. 2 (predecessor to The School Employees Retirement
Board of Ohio) and Alamo Athletics Inc. (predecessor to All American
Sports Corporation), and Amendments thereto, dated January 30, 1986,
May 11, 1989, August 18, 1989, December 14, 1989, January 10, 1990 of
the premises at 6846 Alamo Downs Parkway, San Antonio, Texas.(3)
10.7 Lease Agreement, dated as of September 1, 1988 by and between Exeter
Management Corporation and All American of the premises at Langeloth,
Pennsylvania (Burgettstown property).(3)
10.8 Lease Agreement, dated April 1991, by and between Stroudsburg Park
Associates and All American Corp. of the premises at 140 Second
Street, Stroudsburg, Pennsylvania(3); as amended March 31, 1995.(18)
10.9 Lease, dated as of September 1, 1968, by and between Munro M. Grant
and the All American Company and Extension and Amendment of Lease,
dated July 11, 1989, of premises at 1320 Taylor Street, Elyria,
Ohio.(3)
10.10 Industrial Real Estate Lease, dated March 4, 1989, between Riverview
Industrial Buildings and All American Corp. and Addendum to the Lease,
dated July 3, 1989, of premises at 1920 Riverview Drive, San
Bernadino, California.(3)
10.11 Lease dated December 12, 1991, between O'Shanter Resources Inc. and
All American Sports, Inc., of premises at 1270 Niagra Street, Buffalo,
New York.(3)
10.12 Lease, dated May 5, 1986, by and between Paul Goldstein, Nathan
Hoffenberg, All American and Medalist Industries, of premises at 3305
and 3307 Scott Street and 9900 Franklin Avenue, Franklin Park,
Illinois(3); amendment dated January 30, 1997.(21)
10.13 Lease, dated October 28, 1987, as amended and extended by letter dated
October 31, 1991, by and between GABT Developments Ltd. and Marcan
Ltd. (a division of All American), of premises at 600 Industrial
Drive, Fort Erie, Ontario(3); amendment dated February 6, 1997(21).
10.14 Consulting Agreement, dated February 16, 1990, between Frederic Brooks
and Woodco Sports, Inc.(2) as amended on February 15, 1994(9).
II-9
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
10.15 NFL Promotional Rights Agreement, dated June 1, 1990, and General
Retail Licensing agreement, dated March 15, 1990 and referred to in
the NFL Promotional Rights Agreement, each between Riddell Inc. and
National Football League Properties, Inc.(2); as supplemented January
20, 1994(9).
10.16 1991 Stock Option Plan(2) as amended by amendments described in
Riddell Sports Inc.'s proxy materials for its annual stockholders
meetings held on August 20, 1992, September 30, 1993, June 27, 1996
and June 24, 1997.
10.17 License Agreement dated May 9, 1991 between MacMark Corporation and
MacGregor Sports Products, Inc.(2); amendment dated February ,
1992(3), amendment dated July 30, 1992, amendment dated November 1,
1992(7) and Memorandum of Understanding dated July 29, 1996(21).
10.18 Perpetual License and Trademark Maintenance Agreements among MacMark
Corporation, Equilink Licensing Corporation and BSN Corp. each dated
February 19, 1992(3) and amendment dated November 1, 1992(7).
10.19 Master Agreement by and among MacGregor Sports Products, Inc., BSN
Corp. and MacMark Corporation dated February 19, 1992(3); amendment
No. 1 dated November 1, 1992.(16)
10.20 License Agreement between Equilink Licensing Corporation and MacGregor
Sports Products, Inc. dated May 9, 1991; Amendment thereto dated
December 3, 1991(3) and Amendment dated July 30, 1992(5); Memorandum
of Understanding dated July 29, 1996(21).
10.21 Agreement, dated April 1, 1995, between Riddell, Inc. and the
Amalgamated Clothing Textile Workers Union AFL-CIO.(18)
10.22 Consulting Agreement, dated April 15, 1992, between Riddell Sports
Inc. and Frederic M. Brooks.(4)
10.23 Employment Agreement, dated June 22, 1992, between Riddell Sports Inc.
and Robert F. Nederlander(5); amended July 27, 1994(12).
10.24 Employment Agreement, dated June 22, 1992, between Riddell Sports Inc.
and Leonard Toboroff(5); amended July 21, 1994.(12)
10.25 Consulting Agreement, dated July 29, 1992, between Riddell Sports Inc.
and Donald Engel.(6)
10.26 Lease, dated September 10, 1992, and Amendment, dated October 22,
1992, and Amendment, dated October 22, 1992, between All American
Sports Corporation and Ronald K. Howell d/b/a Lakewood Land and Cattle
Company of Premises at 2831 Faber Street, Union City, California
94587.(6)
10.27 Lease Addendum letter, dated February 13, 1992, between All American
Sports Corporation and Paul Goldstein and Nathan Hoffenberg extending
lease of premises at Franklin Park, Illinois.(6)
10.28 License Agreement, dated October 1, 1992, between All American Sports
Corporation and NOCSAE.(7)
10.29 Employment Agreement, dated March 19, 1993, commencing March 25, 1993
between David Mauer and Riddell Sports Inc.(7), as amended January 17,
1994(9); November 1, 1994(14); November 28, 1994(16).
10.30 Warrant to purchase 150,000 shares of Riddell Sports Inc.'s Common
Stock in favor of M.L.C. Partners Limited Partnership, dated January
26, 1994.(8)
10.31 License Agreement, dated as of February 15, 1994, among RHC Licensing
Corporation, Pursuit Athletic Footwear, Inc., Silver Eagle Holdings,
Ltd., Save Power Limited, Extravest Holdings Limited, Riddell Athletic
Footwear, Inc. and Ridmark Corporation (confidential treatment).(10)
10.32 Settlement agreement, dated February 15, 1994, among Riddell, Inc.,
Riddell Sports Inc., RHC Licensing Corporation, Ridmark Corporation,
Pursuit Athletic Footwear, Inc., Riddell Athletic Footwear, Inc.,
Ernie Wood, Harry Wood, Silver Eagle Holdings, Ltd., Save Power,
Limited,
II-10
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
Extravest Holdings Limited, Frederic Brooks, Donald Engel, Alan
Tessler, Alan Hirschfield, Jeffrey Steiner, Robert Nederlander,
Leonard Toboroff, Jeffrey Epstein, John McConnaughy, Connecticut
Economics Corporation, Stephen Tannen, Woodco Sports, Inc., Arthur
Tse, Silver Top Limited, Billion Nominees, Limited, Weston Holdings
Limited.(9)
10.33 Employment Agreement, dated as of February 1, 1994, between Riddell,
Inc., and Dan Cougill(11), as amended February 1, 1995.(17)
10.34 Stipulation of Settlement, David Halperin v. Riddell Sports Inc.,
dated October 28, 1994.(13)
10.35 Warrant to Purchase Common Stock in favor of NBD Bank N.A., dated
February 10, 1995.(15)
10.36 Employment Agreement, dated as of March 7, 1996, between Riddell
Sports Inc. and David Groelinger.(19)
10.37 Note Purchase Agreement, dated October 30, 1996, between Riddell
Sports Inc. and Silver Oak Capital, L.L.C., as amended by letter
agreement dated May 2, 1997.(20)
10.38 Subordinated Guaranty, dated November 8, 1996, among Riddell, Inc.,
Equilink Licensing Corporation, and RHC Corporation, All American
Sports Corporation, Ridmark Corporation, Proacq Corp. and SharCo
Corporation.(20)
10.39 Registration Rights Agreement, dated November 8, 1996 between Riddell
Sports Inc. and Silver Oak Capital L.L.C.(20)
10.40 Shareholders Agreement, dated as of May 5, 1997, between Riddell
Sports Inc., Cheer Acquisition Corp. and certain shareholders of
Varsity Spirit Corporation.(31)
10.41 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc., Cheer Acquisition Corp. and Jeffrey G. Webb(31)
10.42 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Gregory C. Webb(31)
10.43 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and W. Kline Boyd(31)
10.44 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and J. Kristyn Shepherd(31)
10.45 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Jeffrey G. Webb(31)
10.46 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Gregory C. Webb(31)
10.47 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and W. Kline Boyd(31)
10.48 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and J. Kristyn Shepherd(31)
10.49 Registration Rights Agreement, dated as of June 19, 1997, between
Riddell, as Issuer, certain subsidiaries of Riddell, as Guarantors,
and NationsBanc Capital Markets, Inc. and First Chicago Capital
Markets, Inc., as Purchasers.(23)
10.50 Credit Agreement among Riddell, as Borrower, the subsidiaries of
Riddell, as Guarantors, and the Lenders identified therein, and NBD
Bank, as Administrative Agent, and NationsBank, N.A., as Documentation
Agent, dated as of June 19, 1997.(23)
10.51 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and W. Kline Boyd(24)
10.52 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Robert Dunseath.(24)
II-11
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
10.53 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Kris Shepherd.(24)
10.54 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Kraig Tallman.(24)
10.55 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Gregory Webb.(24)
10.56 Employment Agreement, dated September 29, 1989 between Varsity Spirit
Corporation and Jeffrey Webb.(24)
10.57 1989 Non-Qualified Stock Option Plan of Varsity Spirit
Corporation.(24)
10.58 1991 Stock Option Plan of Varsity Spirit Corporation.(25)
10.59 Sales Representative Agreement between Varsity Spirit Fashions &
Supplies, Inc. and Stuart Educational Products, Inc., along with
Security Agreement between Varsity Spirit Fashions & Supplies, Inc.
and Gary Stuart and Patti Stuart, both individually and collectively
doing business as Stuart Educational Products.(24)
10.60 Programming Agreement between Universal Cheerleaders Association and
ESPN, Inc.(24)
10.61 Varsity Spirit Corporation 401(k) Profit Sharing Plan.(26)
10.62 Employment Agreement, dated December 1, 1994, between Varsity Spirit
Corporation and Deana Roberts.(27)
10.63 Service Agreement dated as of May 15, 1996 between Varsity Spirit
Corporation and Michael Olmstead.(28)
10.64 Form of Loan Agreement dated as of July 1, 1996 between Varsity Spirit
Corporation and NationsBank of Tennessee, N.A.(29)
10.65 Employment Agreement, dated February 28, 1997, between Varsity Spirit
Corporation and John M. Nichols.(30)
10.66 Employment Agreement between Varsity Spirit Corporation and Richard R.
Bowers.(30)
10.67 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Jeffrey Webb.(30)
10.68 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Gregory Webb.(30)
10.69 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and J. Kristen Shepard.(30)
10.70 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and W. Kline Boyd.(30)
10.71 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Kraig Tallman.(30)
10.72 Amendment No. 1 to 1991 Stock Option Plan of Varsity Spirit
Corporation.(30)
10.73 Amendment No. 2 to 1991 Stock Option Plan of Varsity Spirit
Corporation.(30)
10.74 Settlement Agreement, dated June 20, 1997, by and among Riddell Sports
Inc., RHC Licensing Corporation, Riddell, Inc., Equilink Licensing
Corporation, Ridmark Corporation, Macmark Corporation, NBD Bank, f/k/a
NBD Bank, N.A., MLC Partners Limited Partnership, Robert E.
Nederlander, Leonard Toboroff, John McConnaughy, Jr., Lisa J. Marroni,
Frederic H. Brooks, Connecticut Economics Corporation, Robert Weisman,
Bruce H. Levitt, as Bankruptcy Trustee of M Holdings Corporation, Paul
Swanson, as Bankruptcy Trustee of MGS Acquisition, Inc. and MacGregor
Sports, Inc., Official Unsecured Creditors' Committee of MacGregor
Sporting Goods, Inc., M Holdings Corporation, f/k/a MacGregor Sporting
Goods Inc., Innovative Promotions, Inc.,
II-12
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
Ernest Wood, Jr., Harry Wood, Pursuit Athletic Footwear, Inc., and
Riddell Athletic Footwear, Inc.(1)
11.1 Statement regarding per share earnings of Riddell Sports Inc. for the
twelve months ended December 31, 1996, 1995 and 1994.(1)
11.2 Statement regarding per share earnings of Riddell Sports Inc. for the
three months ended March 31, 1997 and 1996.(1)
12.1 Statement regarding the computation of earnings to fixed charges for
Riddell Sports Inc.(1)
21.1 List of subsidiaries.(1)
23.1 Consent of Grant Thornton LLP regarding Riddell Sports Inc.(1)
23.2 Consent of BDO Seidman, LLP regarding Varsity Spirit Corporation.(1)
23.3 Consent of Jeffrey G. Webb, nominee for director to Riddell Sports
Inc.(1)
*23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1 hereto).
24.1 Powers of Attorney (included on signature pages hereof).
25.1 Statement of Eligibility and Qualification on Form T-1 of trustee
under the Indenture relating to the Senior Notes.(1)
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
*99.4 Form of Letter to Clients.
- ------------------
* To be filed by amendment.
(1) Filed herewith.
(2) Incorporated by reference to Riddell Sports Inc.'s Registration Statement
on Form S-1 (Commission File No. 33-40488) effective June 27, 1991
(including all pre-effective amendments to the Registration Statement).
(3) Incorporated by reference to Riddell Sports Inc.'s Form 10-K report
(Commission File No. 0-19298) for the year ended December 31, 1991.
(4) Incorporated by reference to Riddell Sports Inc.'s Registration Statement
on Form S-1 (Commission File No. 33-40488) effective June 17, 1992
(including all pre-effective amendments to the Registration Statement).
(5) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q report
(Commission File No. 0-19298) for the quarter ended June 30, 1992.
(6) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q report
(Commission File No. 0-19298) for the quarter ended September 30, 1992.
(7) Incorporated by reference to Riddell Sports Inc.'s Form 10-K report
(Commission File No. 0-19298) filed on March 30, 1993.
(8) Incorporated by reference to Riddell Sports Inc.'s Post Effective Amendment
No. 2 to Form S-1 Registration Statement (Commission File No. 33-47884)
filed on January 28, 1994.
(9) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1993.
(Footnotes continued on next page)
II-13
<PAGE>
(Footnotes continued from previous page)
(10) Incorporated by reference to Riddell Sports Inc.'s Form 10-K/A constituting
Amendment No. 1 to Form 10-K for the year ended December 31, 1993, filed
June 21, 1994.
(11) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended March 31, 1994.
(12) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended June 30, 1994.
(13) Incorporated by reference to Riddell Sports Inc.'s Form 8-K filed July 3,
1994.
(14) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended September 30, 1994.
(15) Incorporated by reference to Riddell Sports Inc.'s Form 8-K filed January
11, 1995.
(16) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1994.
(17) Incorporated by reference to Riddell Sports Inc.'s Form 8-K dated June 23,
1995.
(18) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1995, dated November 11, 1996.
(19) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q dated May 14,
1996.
(20) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q dated November
11, 1996.
(21) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1996.
(22) Incorporated by reference to Riddell Sports Inc.'s Proxy Statement filed
June 6, 1997.
(23) Incorporated by reference to Riddell Sports Inc.'s Form 8-K dated June 19,
1997.
(24) Incorporated by reference to the Varsity Spirit Corporation's Registration
Statement on Form S-1 (Registration Statement No. 33-44431) filed on
December 10, 1991.
(25) Incorporated by reference to the Varsity Spirit Corporation's Amendment No.
1 to Registration Statement on Form S-1 (Registration Statement No.
33-44431) filed on January 21, 1992.
(26) Incorporated by reference to the Varsity Spirit Corporation's Annual Report
on Form 10-K for the year ended March 31, 1993 (File No. 0-19790).
(27) Incorporated by reference to the Varsity Spirit Corporation's Transition
Report on Form 10-K for the transition period April 1, 1994 to December 31,
1994 (File No. 0-19790).
(28) Incorporated by reference to the Varsity Spirit Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 (File No. 0-19790).
(29) Incorporated by reference to the Varsity Spirit Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (File No.
0-19790).
(30) Incorporated by reference to the Varsity Spirit Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No. 0-19790).
(31) Incorporated by reference to Varsity Spirit Corporation Schedule 13D filed
June 25, 1997.
(b) Financial Statement Schedules:
Schedule II--Riddell Sports Inc. and Subsidiaries Valuation and
Qualifying Accounts
II-14
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement.
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
RIDDELL SPORTS INC.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chief Executive Officer, July 17, 1997
- --------------------------- President and Director
David M. Mauer
/s/ ROBERT NEDERLANDER Chairman of the Board July 17, 1997
- ---------------------------
Robert Nederlander
/s/ LEONARD TOBOROFF Vice President and Director July 17, 1997
- ---------------------------
Leonard Toboroff
/s/ DAVID GROELINGER Executive Vice President July 17, 1997
- --------------------------- and Chief Financial Officer
David Groelinger (Principal Financial Officer)
/s/ LAWRENCE SIMON Senior Vice President July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ DON KORNSTEIN Director July 17, 1997
- ---------------------------
Don Kornstein
/s/ JOHN MCCONNAUGHY, JR. Director July 17, 1997
- ---------------------------
John McConnaughy, Jr.
/s/ GLENN E. SCHEMBECHLER Director July 17, 1997
- ---------------------------
Glenn E. Schembechler
/s/ DAN COUGILL President and Chief Operating July 17, 1997
- --------------------------- Officer of the Riddell
Dan Cougill Group Division
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
ALL AMERICAN SPORTS CORPORATION
By: /s/ DAVID M. MAUER
--------------------------------
DAVID M. MAUER
Chairman of the Board
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chairman of the Board July 17, 1997
- ---------------------------
David M. Mauer
/s/ DAN COUGILL Chief Executive Officer July 17, 1997
- ---------------------------
Dan Cougill
/s/ DONALD GLEISNER President and Chief Operating July 17, 1997
- --------------------------- Officer
Donald Gleisner
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ LAWRENCE SIMON Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
CHEER ACQUISITION CORP.
By: /s/ DAVID M. MAUER
--------------------------------
DAVID M. MAUER
President
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER President and Director July 17, 1997
- --------------------------- (Principal Executive Officer)
David M. Mauer
/s/ DAVID GROELINGER Vice President, Treasurer and July 17, 1997
- --------------------------- Director (Principal Financial
David Groelinger Officer and Principal Accounting
Officer)
/s/ LISA MARRONI Vice President and Director July 17, 1997
- ---------------------------
Lisa Marroni
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
EQUILINK LICENSING CORPORATION
By: /s/ DAVID M. MAUER
--------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chairman of the Board, Chief July 17, 1997
- --------------------------- Executive Officer and President
David M. Mauer
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ LAWRENCE SIMON Vice President/Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
INTERNATIONAL LOGOS, INC.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chief Executive Officer and July 17, 1997
- --------------------------- Director
David M. Mauer
/s/ JEFFREY G. WEBB President and Director July 17, 1997
- ---------------------------
Jeffrey G. Webb
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ JOHN M. NICHOLS Senior Vice President and July 17, 1997
- --------------------------- Treasurer (Principal Accounting
John M. Nichols Officer)
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
PROACQ CORP.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/DAVID M. MAUER Chairman of the Board and July 17, 1997
- --------------------------- Chief Executive Officer
David M. Mauer
/s/DONALD GLEISNER President July 17, 1997
- ---------------------------
Donald Gleisner
/s/DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/LAWRENCE SIMON Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
RHC LICENSING CORPORATION
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chairman of the Board, Chief July 17, 1997
- --------------------------- Executive Officer and President
David M. Mauer
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ LAWRENCE SIMON Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
RIDDELL, INC.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chairman of the Board and Chief July 17, 1997
- --------------------------- Executive Officer
David M. Mauer
/s/ DAN COUGILL President and Chief Operating July 17, 1997
- --------------------------- Officer
Dan Cougill
/s/ DAVID GROELINGER Vice President (Principal Financial July 17, 1997
- --------------------------- Officer)
David Groelinger
/s/ LAWRENCE SIMON Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
RIDMARK CORPORATION
By: /s/ DAVID M. MAUER
------------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chairman of the Board, Chief July 17, 1997
- --------------------------- Executive Officer and President
David M. Mauer
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ LAWRENCE SIMON Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
Lawrence Simon
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
VARSITY/INTROPA TOURS, INC.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Senior Vice President
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ JEFFREY G. WEBB President and Director July 17, 1997
- ---------------------------
Jeffrey G. Webb
/s/ DAVID M. MAUER Senior Vice President and Director July 17, 1997
- ---------------------------
David M. Mauer
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ JOHN M. NICHOLS Senior Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
John M. Nichols
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
VARSITY SPIRIT CORPORATION
By: DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Senior Vice President
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ JEFFREY G. WEBB Chief Executive Officer and July 17, 1997
- --------------------------- President
Jeffrey G. Webb
/s/ DAVID M. MAUER Senior Vice President and Director July 17, 1997
- ---------------------------
David M. Mauer
/s/ JOHN M. NICHOLS Senior Vice President, Finance and July 17, 1997
- --------------------------- Treasurer (Principal Accounting
John M. Nichols Officer)
/s/ DAVID GROELINGER Senior Vice President and Director July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ ALAN D. GORDON Director July 17, 1997
- ---------------------------
Alan D. Gordon
/s/ LISA MARRONI Director July 17, 1997
- ---------------------------
Lisa Marroni
/s/ ROBERT E. NEDERLANDER Director July 17, 1997
- ---------------------------
Robert E. Nederlander
/s/ RANDALL S. STURGES Director July 17, 1997
- ---------------------------
Randall S. Sturges
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
VARSITY SPIRIT FASHIONS & SUPPLIES, INC.
BY: /S/ DAVID M. MAUER
------------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chief Executive Officer and Director July 17, 1997
- ---------------------------
David M. Mauer
/s/ JEFFREY G. WEBB President and Director July 17, 1997
- ---------------------------
Jeffrey G. Webb
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ JOHN M. NICHOLS Senior Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
John M. Nichols
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of New York, state of New
York, on July 17, 1997.
VARSITY USA, INC.
By: /s/ DAVID M. MAUER
----------------------------------
DAVID M. MAUER
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. MAUER, DAVID GROELINGER AND LISA
MARRONI, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent: full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
/s/ DAVID M. MAUER Chief Executive Officer and Director July 17, 1997
- ---------------------------
David M. Mauer
/s/ JEFFREY G. WEBB President and Director July 17, 1997
- ---------------------------
Jeffrey G. Webb
/s/ DAVID GROELINGER Senior Vice President July 17, 1997
- --------------------------- (Principal Financial Officer)
David Groelinger
/s/ JOHN M. NICHOLS Senior Vice President and Treasurer July 17, 1997
- --------------------------- (Principal Accounting Officer)
John M. Nichols
/s/ LEONARD TOBOROFF Director July 17, 1997
- ---------------------------
Leonard Toboroff
II-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
Riddell Sports Inc.
In connection with our audit of the consolidated financial statements of
Riddell Sports Inc. and Subsidiaries referred to in our report dated March 14,
1997, which is included on page F-2 of this Form 10-K, we have also audited
Schedule II for each of the three years in the period ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Chicago, Illinois
March 14, 1997
S-1
<PAGE>
SCHEDULE II
RIDDELL SPORTS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COL. A COL B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(2)
BALANCE AT (1) CHARGED TO
BEGINNING CHARGED TO OTHER BALANCE AT
OF COSTS AND ACCOUNTS- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts:
Included in current
assets................ $ 1,183,400 $896,240 $ 109,640(a) $1,970,000
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts:
Included in current
assets................ $ 1,970,000 $392,956 $1,742,956(a) $ 620,000
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts:
Included in current
assets................ $ 620,000 $436,130 $ 543,130(a) $ 513,000
</TABLE>
- ------------------
Note: (a) Accounts written off net of recoveries
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of April 11, 1988, among Riddellink
Holding Corporation, EN&T Associates, Inc., Netlink Inc., Riddell,
Inc. (predecessor corporation), Equilink Licensing Corp., MacGregor
Sporting Goods, Inc., as amended on April 18, 1988 (the formal
trademark assignments and license agreements implementing this
agreement are omitted)(2) and Amendment thereto, dated March 1992.(3)
2.2 Agreement and Plan of Merger, dated as of May 5, 1997, by and among
Riddell Sports Inc., Cheer Acquisition Corp. and Varsity Spirit
Corporation.(22)
2.3 Asset Purchase Agreement dated as of December 1, 1994 by and between
Intropa International U.S.A., Inc., Elisabeth Polsterer and
Varsity/Intropa Tours, Inc.(27)
2.4 Asset Purchase Agreement dated as of May 15, 1996 by and between
United Special Events, Inc., Michael Olmstead and Varsity USA,
Inc.(26)
3.1 Amended and Restated Articles of Incorporation of Riddell Sports
Inc.(20)
3.2 First Amended and Restated Bylaws of Riddell Sports Inc.(18)
3.3 Certificate of Incorporation of All American Sports Corporation
(formerly known as Ameracq Corp).(1)
3.4 Bylaws of All American Sports Corporation (formerly known as Ameracq
Corp).(1)
3.5 Certificate of Incorporation of Cheer Acquisition Corp.(1)
3.6 Bylaws of Cheer Acquisition Corp.(1)
3.7 Certificate of Incorporation of Equilink Licensing Corporation.(1)
3.8 Bylaws of Equilink Licensing Corporation.(1)
3.9 Certificate of Incorporation of Proacq Corp.(1)
3.10 Bylaws of Proacq Corp.(1)
3.11 Certificate of Incorporation of RHC Licensing Corporation.(1)
3.12 Bylaws of RHC Licensing Corporation.(1)
3.13 Amended and Restated Articles of Incorporation of Riddell, Inc.
(formerly known as EN&T Associates Inc.).(1)
3.14 Bylaws of Riddell, Inc. (formerly known as EN&T Associates Inc.).(1)
3.15 Amended and Restated Articles of Incorporation of Ridmark
Corporation.(1)
3.16 Bylaws of Ridmark Corporation.(1)
3.17 Amended and Restated Charter of Varsity Spirit Corporation.(25)
3.18 Bylaws of Varsity Spirit Corporation.(25)
3.19 Charter of International Logos, Inc.(1)
3.20 Bylaws of International Logos, Inc.(1)
3.21 Charter of Varsity/Intropa Tours, Inc.(1)
3.22 Bylaws of Varsity/Intropa Tours, Inc.(1)
3.23 Amended and Restated Charter of Varsity Spirit Fashions & Supplies,
Inc.(1)
3.24 Bylaws of Varsity Spirit Fashions & Supplies, Inc.(1)
3.25 Amended and Restated Charter of Varsity USA, Inc.(1)
3.26 Bylaws of Varsity USA, Inc.(1)
4.1 Indenture, dated as of June 19, 1997, between Riddell, certain
subsidiaries of Riddell, as Guarantors, and Marine Midland Bank, as
Trustee.(23)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding validity
of New Senior Notes offered hereby.
9.1 Voting Trust Agreement dated May 1991.(2)
10.1 Settlement Agreement, dated April 9, 1981, among MacGregor-Doniger
Inc., Brunswick Corporation and The Equilink Corporation.(2)
10.2 1997 Stock Option Plan.(22)
10.3 License Agreement, dated as of April 18, 1988, among MacMark
Corporation, Netlink, Inc. and MacGregor Sporting Goods, Inc.(2) as
amended July 30, 1992(16) and November , 1992.(16)
10.4 Agreement, made January 23, 1989, between Equilink Licensing Corp. and
Kmart Corporation, with supplemental agreements dated November 16,
1989, August 30, 1990(2), and June 30, 1994(12).
10.5 Lease, dated November 12, 1993, between the International Brotherhood
of Painters and Allied Trade Union and Industry Pension Fund and
Riddell, Inc., of the premises at 2050 Lively Blvd., Elk Grove
Village, Illinois(16); and amendment dated March 20, 1995(16); and
Amendment dated September 19, 1996.(21)
10.6 Lease Agreement, dated November 2, 1984 by and between ADI Real Estate
Joint Venture No. 2 (predecessor to The School Employees Retirement
Board of Ohio) and Alamo Athletics Inc. (predecessor to All American
Sports Corporation), and Amendments thereto, dated January 30, 1986,
May 11, 1989, August 18, 1989, December 14, 1989, January 10, 1990 of
the premises at 6846 Alamo Downs Parkway, San Antonio, Texas.(3)
10.7 Lease Agreement, dated as of September 1, 1988 by and between Exeter
Management Corporation and All American of the premises at Langeloth,
Pennsylvania (Burgettstown property).(3)
10.8 Lease Agreement, dated April 1991, by and between Stroudsburg Park
Associates and All American Corp. of the premises at 140 Second
Street, Stroudsburg, Pennsylvania(3); as amended March 31, 1995.(18)
10.9 Lease, dated as of September 1, 1968, by and between Munro M. Grant
and the All American Company and Extension and Amendment of Lease,
dated July 11, 1989, of premises at 1320 Taylor Street, Elyria,
Ohio.(3)
10.10 Industrial Real Estate Lease, dated March 4, 1989, between Riverview
Industrial Buildings and All American Corp. and Addendum to the Lease,
dated July 3, 1989, of premises at 1920 Riverview Drive, San
Bernadino, California.(3)
10.11 Lease dated December 12, 1991, between O'Shanter Resources Inc. and
All American Sports, Inc., of premises at 1270 Niagra Street, Buffalo,
New York.(3)
10.12 Lease, dated May 5, 1986, by and between Paul Goldstein, Nathan
Hoffenberg, All American and Medalist Industries, of premises at 3305
and 3307 Scott Street and 9900 Franklin Avenue, Franklin Park,
Illinois(3); amendment dated January 30, 1997.(21)
10.13 Lease, dated October 28, 1987, as amended and extended by letter dated
October 31, 1991, by and between GABT Developments Ltd. and Marcan
Ltd. (a division of All American), of premises at 600 Industrial
Drive, Fort Erie, Ontario(3); amendment dated February 6, 1997(21).
10.14 Consulting Agreement, dated February 16, 1990, between Frederic Brooks
and Woodco Sports, Inc.(2) as amended on February 15, 1994(9).
10.15 NFL Promotional Rights Agreement, dated June 1, 1990, and General
Retail Licensing agreement, dated March 15, 1990 and referred to in
the NFL Promotional Rights Agreement, each between Riddell Inc. and
National Football League Properties, Inc.(2); as supplemented January
20, 1994(9).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
10.16 1991 Stock Option Plan(2) as amended by amendments described in
Riddell Sports Inc.'s proxy materials for its annual stockholders
meetings held on August 20, 1992, September 30, 1993, June 27, 1996
and June 24, 1997.
10.17 License Agreement dated May 9, 1991 between MacMark Corporation and
MacGregor Sports Products, Inc.(2); amendment dated February ,
1992(3), amendment dated July 30, 1992, amendment dated November 1,
1992(7) and Memorandum of Understanding dated July 29, 1996(21).
10.18 Perpetual License and Trademark Maintenance Agreements among MacMark
Corporation, Equilink Licensing Corporation and BSN Corp. each dated
February 19, 1992(3) and amendment dated November 1, 1992(7).
10.19 Master Agreement by and among MacGregor Sports Products, Inc., BSN
Corp. and MacMark Corporation dated February 19, 1992(3); amendment
No. 1 dated November 1, 1992.(16)
10.20 License Agreement between Equilink Licensing Corporation and MacGregor
Sports Products, Inc. dated May 9, 1991; Amendment thereto dated
December 3, 1991(3) and Amendment dated July 30, 1992(5); Memorandum
of Understanding dated July 29, 1996(21).
10.21 Agreement, dated April 1, 1995, between Riddell, Inc. and the
Amalgamated Clothing Textile Workers Union AFL-CIO.(18)
10.22 Consulting Agreement, dated April 15, 1992, between Riddell Sports
Inc. and Frederic M. Brooks.(4)
10.23 Employment Agreement, dated June 22, 1992, between Riddell Sports Inc.
and Robert F. Nederlander(5); amended July 27, 1994(12).
10.24 Employment Agreement, dated June 22, 1992, between Riddell Sports Inc.
and Leonard Toboroff(5); amended July 21, 1994.(12)
10.25 Consulting Agreement, dated July 29, 1992, between Riddell Sports Inc.
and Donald Engel.(6)
10.26 Lease, dated September 10, 1992, and Amendment, dated October 22,
1992, and Amendment, dated October 22, 1992, between All American
Sports Corporation and Ronald K. Howell d/b/a Lakewood Land and Cattle
Company of Premises at 2831 Faber Street, Union City, California
94587.(6)
10.27 Lease Addendum letter, dated February 13, 1992, between All American
Sports Corporation and Paul Goldstein and Nathan Hoffenberg extending
lease of premises at Franklin Park, Illinois.(6)
10.28 License Agreement, dated October 1, 1992, between All American Sports
Corporation and NOCSAE.(7)
10.29 Employment Agreement, dated March 19, 1993, commencing March 25, 1993
between David Mauer and Riddell Sports Inc.(7), as amended January 17,
1994(9); November 1, 1994(14); November 28, 1994(16).
10.30 Warrant to purchase 150,000 shares of Riddell Sports Inc.'s Common
Stock in favor of M.L.C. Partners Limited Partnership, dated January
26, 1994.(8)
10.31 License Agreement, dated as of February 15, 1994, among RHC Licensing
Corporation, Pursuit Athletic Footwear, Inc., Silver Eagle Holdings,
Ltd., Save Power Limited, Extravest Holdings Limited, Riddell Athletic
Footwear, Inc. and Ridmark Corporation (confidential treatment).(10)
10.32 Settlement agreement, dated February 15, 1994, among Riddell, Inc.,
Riddell Sports Inc., RHC Licensing Corporation, Ridmark Corporation,
Pursuit Athletic Footwear, Inc., Riddell Athletic Footwear, Inc.,
Ernie Wood, Harry Wood, Silver Eagle Holdings, Ltd., Save Power,
Limited, Extravest Holdings Limited, Frederic Brooks, Donald Engel,
Alan Tessler, Alan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
Hirschfield, Jeffrey Steiner, Robert Nederlander, Leonard Toboroff,
Jeffrey Epstein, John McConnaughy, Connecticut Economics Corporation,
Stephen Tannen, Woodco Sports, Inc., Arthur Tse, Silver Top Limited,
Billion Nominees, Limited, Weston Holdings Limited.(9)
10.33 Employment Agreement, dated as of February 1, 1994, between Riddell,
Inc., and Dan Cougill(11), as amended February 1, 1995.(17)
10.34 Stipulation of Settlement, David Halperin v. Riddell Sports Inc.,
dated October 28, 1994.(13)
10.35 Warrant to Purchase Common Stock in favor of NBD Bank N.A., dated
February 10, 1995.(15)
10.36 Employment Agreement, dated as of March 7, 1996, between Riddell
Sports Inc. and David Groelinger.(19)
10.37 Note Purchase Agreement, dated October 30, 1996, between Riddell
Sports Inc. and Silver Oak Capital, L.L.C., as amended by letter
agreement dated May 2, 1997.(20)
10.38 Subordinated Guaranty, dated November 8, 1996, among Riddell, Inc.,
Equilink Licensing Corporation, and RHC Corporation, All American
Sports Corporation, Ridmark Corporation, Proacq Corp. and SharCo
Corporation.(20)
10.39 Registration Rights Agreement, dated November 8, 1996 between Riddell
Sports Inc. and Silver Oak Capital L.L.C.(20)
10.40 Shareholders Agreement, dated as of May 5, 1997, between Riddell
Sports Inc., Cheer Acquisition Corp. and certain shareholders of
Varsity Spirit Corporation.(31)
10.41 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc., Cheer Acquisition Corp. and Jeffrey G. Webb(31)
10.42 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Gregory C. Webb(31)
10.43 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and W. Kline Boyd(31)
10.44 Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and J. Kristyn Shepherd(31)
10.45 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Jeffrey G. Webb(31)
10.46 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Gregory C. Webb(31)
10.47 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and W. Kline Boyd(31)
10.48 Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and J. Kristyn Shepherd(31)
10.49 Registration Rights Agreement, dated as of June 19, 1997, between
Riddell, as Issuer, certain subsidiaries of Riddell, as Guarantors,
and NationsBanc Capital Markets, Inc. and First Chicago Capital
Markets, Inc., as Purchasers.(23)
10.50 Credit Agreement among Riddell, as Borrower, the subsidiaries of
Riddell, as Guarantors, and the Lenders identified therein, and NBD
Bank, as Administrative Agent, and NationsBank, N.A., as Documentation
Agent, dated as of June 19, 1997.(23)
10.51 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and W. Kline Boyd(24)
10.52 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Robert Dunseath.(24)
10.53 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Kris Shepherd.(24)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
10.54 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Kraig Tallman.(24)
10.55 Employment Agreement, dated September 29, 1989, between Varsity Spirit
Corporation and Gregory Webb.(24)
10.56 Employment Agreement, dated September 29, 1989 between Varsity Spirit
Corporation and Jeffrey Webb.(24)
10.57 1989 Non-Qualified Stock Option Plan of Varsity Spirit
Corporation.(24)
10.58 1991 Stock Option Plan of Varsity Spirit Corporation.(25)
10.59 Sales Representative Agreement between Varsity Spirit Fashions &
Supplies, Inc. and Stuart Educational Products, Inc., along with
Security Agreement between Varsity Spirit Fashions & Supplies, Inc.
and Gary Stuart and Patti Stuart, both individually and collectively
doing business as Stuart Educational Products.(24)
10.60 Programming Agreement between Universal Cheerleaders Association and
ESPN, Inc.(24)
10.61 Varsity Spirit Corporation 401(k) Profit Sharing Plan.(26)
10.62 Employment Agreement, dated December 1, 1994, between Varsity Spirit
Corporation and Deana Roberts.(27)
10.63 Service Agreement dated as of May 15, 1996 between Varsity Spirit
Corporation and Michael Olmstead.(28)
10.64 Form of Loan Agreement dated as of July 1, 1996 between Varsity Spirit
Corporation and NationsBank of Tennessee, N.A.(29)
10.65 Employment Agreement, dated February 28, 1997, between Varsity Spirit
Corporation and John M. Nichols.(30)
10.66 Employment Agreement between Varsity Spirit Corporation and Richard R.
Bowers.(30)
10.67 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Jeffrey Webb.(30)
10.68 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Gregory Webb.(30)
10.69 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and J. Kristen Shepard.(30)
10.70 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and W. Kline Boyd.(30)
10.71 Amendment to the Employment Agreement, dated June 4, 1996, between
Varsity Spirit Corporation and Kraig Tallman.(30)
10.72 Amendment No. 1 to 1991 Stock Option Plan of Varsity Spirit
Corporation.(30)
10.73 Amendment No. 2 to 1991 Stock Option Plan of Varsity Spirit
Corporation.(30)
10.74 Settlement Agreement, dated June 20, 1997, by and among Riddell Sports
Inc., RHC Licensing Corporation, Riddell, Inc., Equilink Licensing
Corporation, Ridmark Corporation, Macmark Corporation, NBD Bank, f/k/a
NBD Bank, N.A., MLC Partners Limited Partnership, Robert E.
Nederlander, Leonard Toboroff, John McConnaughy, Jr., Lisa J. Marroni,
Frederic H. Brooks, Connecticut Economics Corporation, Robert Weisman,
Bruce H. Levitt, as Bankruptcy Trustee of M Holdings Corporation, Paul
Swanson, as Bankruptcy Trustee of MGS Acquisition, Inc. and MacGregor
Sports, Inc., Official Unsecured Creditors' Committee of MacGregor
Sporting Goods, Inc., M Holdings Corporation, f/k/a MacGregor Sporting
Goods Inc., Innovative Promotions, Inc., Ernest Wood, Jr., Harry Wood,
Pursuit Athletic Footwear, Inc., and Riddell Athletic Footwear,
Inc.(1)
11.1 Statement regarding per share earnings of Riddell Sports Inc. for the
twelve months ended December 31, 1996, 1995 and 1994.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ----
<S> <C> <C>
11.2 Statement regarding per share earnings of Riddell Sports Inc. for the
three months ended March 31, 1997 and 1996.(1)
12.1 Statement regarding the computation of earnings to fixed charges for
Riddell Sports Inc.(1)
21.1 List of subsidiaries.(1)
23.1 Consent of Grant Thornton LLP regarding Riddell Sports Inc.(1)
23.2 Consent of BDO Seidman, LLP regarding Varsity Spirit Corporation.(1)
23.3 Consent of Jeffrey G. Webb, nominee for director to Riddell Sports
Inc.(1)
*23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.2 hereto).
24.1 Powers of Attorney (included on signature pages hereof).
25.1 Statement of Eligibility and Qualification on Form T-1 of trustee
under the Indenture relating to the Senior Notes.(1)
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------------
* To be filed by amendment.
(1) Filed herewith.
(2) Incorporated by reference to Riddell Sports Inc.'s Registration Statement
on Form S-1 (Commission File No. 33-40488) effective June 27, 1991
(including all pre-effective amendments to the Registration Statement).
(3) Incorporated by reference to Riddell Sports Inc.'s Form 10-K report
(Commission File No. 0-19298) for the year ended December 31, 1991.
(4) Incorporated by reference to Riddell Sports Inc.'s Registration Statement
on Form S-1 (Commission File No. 33-40488) effective June 17, 1992
(including all pre-effective amendments to the Registration Statement).
(5) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q report
(Commission File No. 0-19298) for the quarter ended June 30, 1992.
(6) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q report
(Commission File No. 0-19298) for the quarter ended September 30, 1992.
(7) Incorporated by reference to Riddell Sports Inc.'s Form 10-K report
(Commission File No. 0-19298) filed on March 30, 1993.
(8) Incorporated by reference to Riddell Sports Inc.'s Post Effective Amendment
No. 2 to Form S-1 Registration Statement (Commission File No. 33-47884)
filed on January 28, 1994.
(9) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1993.
(10) Incorporated by reference to Riddell Sports Inc.'s Form 10-K/A constituting
Amendment No. 1 to Form 10-K for the year ended December 31, 1993, filed
June 21, 1994.
(11) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended March 31, 1994.
(12) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended June 30, 1994.
(13) Incorporated by reference to Riddell Sports Inc.'s Form 8-K filed July 3,
1994.
(Footnotes continued on next page)
<PAGE>
(Footnotes continued from previous page)
(14) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q for the
quarter ended September 30, 1994.
(15) Incorporated by reference to Riddell Sports Inc.'s Form 8-K filed January
11, 1995.
(16) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1994.
(17) Incorporated by reference to Riddell Sports Inc.'s Form 8-K dated June 23,
1995.
(18) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1995, dated November 11, 1996.
(19) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q dated May 14,
1996.
(20) Incorporated by reference to Riddell Sports Inc.'s Form 10-Q dated November
11, 1996.
(21) Incorporated by reference to Riddell Sports Inc.'s Form 10-K for the year
ended December 31, 1996.
(22) Incorporated by reference to Riddell Sports Inc.'s Proxy Statement filed
June 6, 1997.
(23) Incorporated by reference to Riddell Sports Inc.'s Form 8-K dated June 19,
1997.
(24) Incorporated by reference to the Varsity Spirit Corporation's Registration
Statement on Form S-1 (Registration Statement No. 33-44431) filed on
December 10, 1991.
(25) Incorporated by reference to the Varsity Spirit Corporation's Amendment No.
1 to Registration Statement on Form S-1 (Registration Statement No.
33-44431) filed on January 21, 1992.
(26) Incorporated by reference to the Varsity Spirit Corporation's Annual Report
on Form 10-K for the year ended March 31, 1993 (File No. 0-19790).
(27) Incorporated by reference to the Varsity Spirit Corporation's Transition
Report on Form 10-K for the transition period April 1, 1994 to December 31,
1994 (File No. 0-19790).
(28) Incorporated by reference to the Varsity Spirit Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 (File No. 0-19790).
(29) Incorporated by reference to the Varsity Spirit Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (File No.
0-19790).
(30) Incorporated by reference to the Varsity Spirit Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No. 0-19790).
(31) Incorporated by reference to Varsity Spirit Corporation Schedule 13D filed
June 25, 1997.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERACQ CORP.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Ameracq Corp.
2. The Certificate of Incorporation of the Corporation is hereby amended
by striking out Article FIRST thereof and by substituting in lieu of said
Article FIRST the following new Article FIRST:
"FIRST: the name of the corporation (hereinafter called the
"Corporation") is
ALL AMERICAN SPORTS CORPORATION."
3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
Signed and attested to on November 25, 1991.
/s/ Frederic H. Brooks
-----------------------------
Frederic H. Brooks, President
Attest:
/s/ Anne E. Pitter
-------------------------
Anne E. Pitter, Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AMERACQ CORP.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is
AMERACQ CORP.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is One Thousand Five Hundred (1,500), all of which
are without par value. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
N. S. Truax 32 Loockerman Square, Suite L-100
Dover, Delaware 19901
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there
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were no vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the
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<PAGE>
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on September 13, 1991.
/s/ N. S. Truax
------------------
N. S. Truax
Incorporator
<PAGE>
Exhibit B
BYLAWS
OF
AMERACQ CORP.
(a Delaware corporation)
----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged
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loss, theft, or destruction of any such certificate or the issuance of any such
new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly
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executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
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Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the
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directors, provided, that the first annual meeting shall be held on a date
within thirteen months after the organization of the corporation, and each
successive annual meeting shall be held on a date within thirteen months after
the date of the preceding annual meeting. A special meeting shall be held on the
date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned
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meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy
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in all matters in which a stockholder is entitled to participate, whether by
waiving notice of any meeting, voting or participating at a meeting, or
expressing consent or dissent without a meeting. Every proxy must be signed by
the stockholder or by his attorney-in-fact. No proxy shall be voted or acted
upon after three years from its date unless such proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
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<PAGE>
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of two persons. Thereafter the number
of directors constituting the whole board shall be at
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least one. Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be two. The number of directors may be increased or decreased by action of
the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the
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Board, if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at
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all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present
and acting, or the President, if present and acting, or any other director
chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed
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necessary, expedient, or desirable by the Board of Directors, a Chairman of the
Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more
other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers with such titles as the resolution of the
Board of Directors choosing them shall designate. Except as may otherwise be
provided in the resolution of the Board of Directors choosing him, no officer
other than the Chairman or Vice-Chairman of the Board, if any, need be a
director. Any number of offices may be held by the same person, as the directors
may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
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ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy
of the Bylaws of AMERACQ CORP., a Delaware corporation, as in effect on the date
hereof.
Dated:
------------------------
Secretary of
AMERACQ CORP.
(SEAL)
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<PAGE>
CHARTER OF
CHEER ACQUISITION CORP.
Under Section 48-12-102 of the Tennessee
Business Corporation Act
1. Name. The name of the corporation is Cheer Acquisition Corp..
2. Profit. The corporation is for profit.
3. Shares. The aggregate number of shares which the corporation shall have
authority to issue is 1,000 shares of stock, all of the same class.
4. Registered Office. The street address of the corporation's initial
registered office is 1000 Volunteer Building, 832 Georgia Avenue, Chattanooga,
Tennessee 37402, located in Hamilton County, Tennessee. The name of its initial
registered agent at such address is Hugh F. Sharber.
5. Principal Office. The corporation's principal office is 900 Third
Avenue, New York, New York 10022.
6. Incorporator. The incorporator is Hugh F. Sharber, 1000 Volunteer
Building, 832 Georgia Avenue, Chattanooga, Tennessee 37402.
7. Director's Liability. A director of the corporation shall not be
personally liable to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its shareholders;
{ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or (iii) for a violation of Section
48-18-304 of the Tennessee Code Annotated. If the Tennessee Business Corporation
Act is hereafter amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the corporation,
in addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended Tennessee Business
Corporation Act.
8. Indemnification. The corporation shall have the power to indemnify its
directors to the fullest extent permitted by law.
<PAGE>
Dated this 11th day of April, 1997.
/s/ Hugh F. Sharber
----------------------------------
Hugh F. Sharber, Incorporator
<PAGE>
EXHIBIT B
BY-LAWS
OF
CHEER ACQUISITION CORP.
ARTICLE I - OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located at 900 Third Avenue, New York, New York 10022, or at such other
place as its board of directors may determine.
Section 2. Other Offices. The corporation may also have offices and
places of business at such other places, within or without the State of
Tennessee, as its board of directors may from time to time determine or the
business of the corporation may require.
ARTICLE II - MEETINGS OF SHAREHOLDERS
Section 1. Time and Place. All meetings of shareholders shall be held
at such date, time and place, whether within or without the State of Tennessee,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. An annual meeting of shareholders shall be
held on such date, not less than 60 nor more than 120 days after the end of the
corporation's last preceding fiscal year, as the board of directors shall
prescribe; provided, that if in any such year, the annual meeting shall not have
been held within such period, then it shall be held on the first Tuesday of the
fifth month after the end of the corporation's last preceding fiscal year, or if
such day shall be a legal holiday, on the next business day following. At each
annual meeting, the shareholders shall elect a board of directors and transact
such other business as may properly come before the meeting.
Section 3. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
charter, may be called by the president, and shall be called by the president or
the secretary at the request of a majority of the board of directors, or at the
request in writing of any one or more holders of at least ten percent of all the
votes entitled to be cast on any issue proposed to be discussed at the special
meeting. Any such request or requests from the shareholders shall state the
purpose or purposes of the proposed meeting and shall be signed, dated and
delivered to the corporation's secretary.
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Section 4. Notice of Meetings. Written notice of each meeting of
shareholders, stating the date, time and place and hour of the meeting, and in
the case of a special meeting, specifying the purpose or purposes for which the
meeting is called, shall be given in the manner prescribed by Article VI of
these bylaws to each shareholder entitled to vote thereat, not less than ten nor
more than sixty days prior to the meeting.
Section 5. Quorum. Except as otherwise provided by statute or the
charter, the holders of a majority of the corporation's shares of one or more
classes or series that are entitled to vote and be counted together collectively
at a meeting of shareholders (a "voting group"), present in person or
represented by proxy, shall be necessary to and shall constitute a quorum for
the transaction of business at all meetings of that voting group. A quorum which
is present to organize a meeting shall not be broken by the subsequent
withdrawal of one or more shareholders. If, however, such quorum shall not be
present or represented at any meeting of the voting group, the shareholders
entitled to vote thereat present in person or represented by proxy shall have
power to adjourn the meeting from time to time, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed; provided, that if after any such adjournment,
a new record date is or must be set for the adjourned meeting, a notice of the
adjournment shall be given to each shareholder entitled to vote thereat.
Section 6. Vote Required. At any meeting of a voting group at which a
quorum is present, all elections of directors shall be determined by a plurality
vote and all other matters shall be approved when the votes cast within the
voting group approving the action exceed the votes cast opposing the action,
unless the matter is one which by express provision of statute, the charter or
these bylaws a different vote in required, in which case such express provision
shall govern and control the determination of such matter.
Section 7. Voting. At any meeting of shareholders every shareholder
having the right to vote shall be entitled to vote in person or by proxy. Except
as otherwise provided by law or the charter, each shareholder of record shall be
entitled to one vote for every share of stock standing in his name on the books
of the corporation as of the record date for determining the shareholders
entitled to notice of and to vote at such meeting.
Section 8. Proxies. Every proxy must be executed in writing by the
shareholder or his duly authorized attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from its effective date, as determined by
Tennessee law, unless a longer period is provided for in the proxy. Every proxy
shall be
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revocable at the pleasure of the person executing it, or his legal
representatives or assigns, unless the appointment form conspicuously states it
is irrevocable and the appointment is coupled with an interest.
Section 9. Action by Written Consent. Whenever by any provision of law
the vote of shareholders at a meeting thereof is required or permitted to be
taken in connection with any corporate action, the meeting and vote of
shareholders may be dispensed with if all the shareholders who would have been
entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken without a meeting, and the holders
of the number of shares that would be necessary to authorize or take such action
at a meeting indicate their vote in favor of such action. The action must be
evidenced by one or more written consents describing the action taken, signed by
each shareholder entitled to vote on the action in one or more counterparts, and
indicating each such shareholder's vote or abstention on the action.
Section 10. List of Shareholders. A list of shareholders as of the
record date, certified by the corporate officer responsible for its preparation
or by the transfer agent, shall be available for inspection by any shareholder
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. The list of shareholders shall be alphabetical
by voting group (and within each voting group by class or series of shares) and
show the address and number of shares held by each shareholder.
ARTICLE III - DIRECTORS
Section 1. Board of Directors. The business and affairs of the
corporation shall be managed by or under the direction of its board of
directors, which may exercise all such powers of the corporation and do all such
lawful acts and things on its behalf as are not, by statute or by the charter or
by these bylaws, directed or required to be exercised or done by the
shareholders.
Section 2. Number, Election and Tenure. The first board of directors
shall consist of two members and thereafter the number of directors constituting
the entire board of directors shall be not less than one nor more than nine as
may from time to time be determined as hereinafter provided. The shareholders,
at any meeting, regular or special, convened for the election of directors,
shall have power to determine or redetermine the number of directors to be
elected within the maximum and minimum limits above specified, and to elect the
number of directors as so determined or redetermined. The directors shall have
power from time to time, when the shareholders as such are not assembled in a
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meeting, to increase or decrease their own number, within the maximum and
minimum limits above specified from the number previously determined, provided
that no such decrease would terminate or shorten the term of office of any
director then in office. If the number of directors be at any time increased by
action of the board of directors, the additional directors may be elected by a
majority of the directors in office at the time of the increase or, if not so
elected prior to the next meeting of shareholders convened for the election of
directors, they shall be elected by the shareholders. Directors shall be elected
at the annual meeting of the shareholders by a plurality of the votes cast in
the election and, except as provided in Section 3 of this Article III, each
director shall be elected to serve until the expiration of the term for which he
was elected and thereafter until his successor has been elected and has
qualified. Unless otherwise provided in the charter, the directors need not be
shareholders and need not be residents of the State of Tennessee.
Section 3. Resignation and Removal. Any director may resign at any time
by written notice to the corporation. The resignation is effective upon delivery
of the notice, unless the notice specifies a later effective date. Unless
otherwise provided in the charter, any director may be removed for cause or
without cause by vote of the shareholders. A director may be removed only if the
number of votes cast to remove him exceeds the number of votes cast not to
remove him.
Section 4. Vacancies. If any vacancy occurs in the board of directors
by reason of the death, resignation, retirement, disqualification or removal
from office of any director with or without cause, or if any new directorships
are created, then either the shareholders or all of the directors then in
office, although less than a quorum, may, by majority vote choose a successor or
successors, or fill the newly created directorship, and the director so chosen
shall serve until the next shareholders' meeting at which directors are elected
and thereafter until their successors shall be duly elected and qualified,
unless sooner displaced from office by resignation, removal or otherwise. If the
vacant office was held by a director elected by a voting group of shareholders,
then only the holders of shares of that voting group are entitled to vote to
fill the vacancy if it is filled by the shareholders.
Section 5. Interested Directors. To the extent and under the
circumstances permitted by law of the State of Tennessee, no contract or other
transaction between the corporation and one or more of its directors, or between
the corporation and any other corporation, firm, association or other entity in
which one or more of its directors are directors or officers, or are financially
interested, shall be either void or voidable for this reason alone, or by reason
that such director or directors are present at the meeting of the board of
directors, or of a committee thereof, which
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authorizes such contract or transaction, or that his or their votes are counted
for such purpose. Except as otherwise provided by statute, common or interested
directors may be counted in determining the presence of a quorum or at a meeting
of the board of directors, or of a committee, which authorizes any such contract
or transaction.
Section 6. Compensation. The board of directors may from time to time
fix the compensation of directors for their services in that capacity. The
compensation of a director may consist of an annual fee or a fee for attendance
at each regular or special meeting of the board of which such director is a
member or a combination of fees of both types; provided, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. The board
may also provide for the reimbursement to any director of expenses incurred in
attending any meeting of the board or any committee of the board of which he is
a member.
ARTICLE IV - MEETINGS OF THE BOARD
Section 1. Time and Place. The board of directors of the corporation
may hold meetings, both regular and special, at such time and place, within or
without the State of Tennessee, as shall be determined in accordance with these
bylaws.
Section 2. Annual Meeting. The annual meeting of the board of directors
shall be held for the purposes of electing officers and transacting any other
business which may properly come before the meeting as soon as practicable after
the adjournment of the annual meeting of shareholders, and no notice of such
meeting to the directors elected at such meeting of shareholders shall be
necessary in order to constitute the meeting, provided a quorum shall be
present.
Section 3. Regular Meetings. Regular meetings of the board of directors
may be held without notice for any purpose and at such date, time and place as
shall from time to time be determined in advance by the board.
Section 4. Special Meetings. Special meetings of the board of
directors may be called by the president, and, at the written request of any two
directors, may be called by any officer of the corporation. Written notice of
each special meeting of directors stating the date, time and place, and, if
required by the charter or these bylaws, the purpose or purposes thereof, shall
be given to each director, in the manner provided in Article VI of these bylaws,
at least two days before such meeting. The date, time and place of any special
meeting of directors may also be fixed by a duly executed waiver of notice
thereof.
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Section 5. Quorum. At all meetings of the board of directors a majority
of the entire board then in office shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at the time of the vote if a quorum is present shall be
the act of the board of directors, except as may be otherwise specifically
provided by law, or by the charter or these bylaws. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, until a quorum shall be present.
Notice of any such adjournment shall be given to any directors who were not
present and, unless announced at the meeting, to the other directors.
Section 6. Participation in Meetings through Means of Communication.
Any one or more members of the board of directors or of any committee of the
board may participate in a meeting of the board or any committee by any means of
communication by which all persons participating in the meeting may
simultaneously hear each other during the meeting. Participation by such means
shall constitute presence in person at a meeting.
Section 7. Consents. Whenever by any provision of law or of the charter
the vote of the board of directors or any committee thereof at any meeting
thereof is required or permitted to be taken in connection with any corporate
action, the meeting and the vote of the board of directors or such committee may
be dispensed with, if (a) all of the members of the board of directors or such
committee who would have been entitled to vote upon the action if such meeting
were held, shall consent in writing to such corporate action being taken without
a meeting; and (b) the action shall have received the affirmative vote of the
number of directors that would be necessary to authorize or take such action at
a meeting. The written consent, which may be signed in counterparts, shall
indicate each signing director's vote or abstention on the matter, and shall be
included in the minutes or filed with the corporate records reflecting the
action taken.
ARTICLE V - COMMITTEES OF THE BOARD
Section 1. Designation. The board of directors, by resolution adopted
by a majority of the entire board, or the number of directors required by the
charter or these bylaws, may designate from among its members one or more
committees, including without limitation an executive committee, each consisting
of one or more directors and having such title as the board may consider to be
properly descriptive of its function, each of which, to the extent provided in
such resolution, shall have the authority of the board in the management of the
business and affairs of the corporation. However, no such committee shall:
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(a) authorize distributions, except according to a formula or
method prescribed by the board of directors;
(b) approve or propose to shareholders actions that the Tennessee
Business Corporation Act requires to be approved by
shareholders;
(c) fill vacancies on the board of directors or any of its
committees;
(d) amend the charter pursuant to Section 48-20-102 of the
Tennessee Business Corporation Act;
(e) accept, amend or repeal these bylaws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according
to a formula or method approved by the board of directors; or
(h) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares,
except that the board of directors may authorize a committee
(or senior executive officer of the corporation) to do so
within limits specifically prescribed by the board of
directors.
A majority of any such committee shall constitute a quorum and may determine its
action, and fix the time and place of its meetings unless the board of directors
shall otherwise provide. The board may designate one or more directors as
alternate members of any such committee who may replace any absent member or
members at any meeting of such committee.
Section 2. Tenure; Reports. Each such committee member shall serve at
the pleasure of the board of directors. Each committee shall keep minutes of its
meetings and report the same to the board, and it shall observe such other
procedures with respect to its meetings as are prescribed in these bylaws or, to
the extent not prescribed herein, as may be prescribed by the board in the
resolution appointing such committee.
ARTICLE VI - NOTICE
Section I. Form. Notice shall be in writing, except that oral notice is
effective if it is reasonable under the circumstances.
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Section 2. Effective Time. Written notice by the corporation to the
shareholders, if in a comprehensible form, is effective when mailed, if mailed
post-paid and correctly addressed to the shareholder's address shown in the
corporation's current record of shareholders. In all other cases, written
notice, if in a comprehensible form, is effective at the earliest of (a) when
received, (b) five days after deposit in the United States mail, if mailed
post-paid and correctly addressed, or (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee. Oral notice if effective
when communicated, if communicated in a comprehensible manner.
Section 3. Waiver of Notice. Whenever a notice is required to be given
by statute, the charter or these bylaws, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to such notice. In addition, (a) a
shareholder's attendance at a meeting waives: (i) objection to lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting; and (ii) objection to the consideration of
a particular matter that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented; and (b) a director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at the
beginning of the meeting (or promptly upon his arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
ARTICLE VII - OFFICERS
Section 1. Executive Officers. The executive officers of the
corporation shall be a president, one or more vice presidents (any one of whom
may be designated an executive vice president), a secretary and a treasurer, and
such other officers as the board of directors may from time to time designate.
Any two or more offices may be held by the same person, except the offices of
president and secretary.
Section 2. Authority and Duties. All officers, as between themselves
and the corporation, shall have such authority and perform such duties in the
management of the corporation as may be provided in these bylaws, or, to the
extent not so provided, as may be prescribed by the board of directors.
Section 3. Term of Office; Removal. The board of directors shall elect
or appoint the officers of the corporation; provided, however, that the
president shall be empowered to appoint one or more assistant officers. Each
officer or assistant officer
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shall hold office for such term as may be prescribed by the board or the officer
appointing him and until his successor is elected or appointed. Any officer may
be removed with or without cause at any time by the board or the officer
appointing him, and may resign by written notice to the corporation.
Section 4. Compensation. The compensation of all officers of the
corporation shall be fixed by the board of directors or by the president acting
under authority delegated to him by the board of directors.
Section 5. Vacancies. If an office becomes vacant for any reason, the
board of directors shall fill such vacancy. Any officer so appointed or elected
by the board shall serve only until such time as the unexpired term of his
predecessor shall have expired, unless re-elected or reappointed by the board.
Section 6. The President. The president shall be the chief executive
officer of the corporation. He shall preside at all meetings of the
shareholders, and shall have general and active management and control over the
daily operations of the corporation, including the right to hire and discharge
employees other than elective officers, subject however to the control of the
board. He shall perform such other duties as the board may from time to time
prescribe.
Section 7. The Vice Presidents. The vice presidents, in order of their
seniority or in any other order determined by the board of directors shall, in
the absence or disability of the president, perform the duties and exercise the
powers of the president and severally assist the president in the management of
the business of the corporation and the implementation of resolutions of the
board, and in the performance of such other duties as the president may from
time to time prescribe.
Section 8. The Secretary. The secretary shall attend all meetings of
the board and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for any committees of the board when required. He shall
give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the board of directors, and shall perform such other duties
as may be prescribed by the board of directors or president, under whose
supervision he shall act. He shall keep in safe custody the seal of the
corporation and, when authorized by the board, affix the same to any instrument
requiring it and, when so affixed, it shall be attested by his signature or by
the signature of the treasurer or an assistant secretary or assistant treasurer.
He shall keep in safe custody the certificate books and shareholder records and
such other books and records as the board may direct and shall perform all other
duties incident to the office of secretary.
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Section 9. The Assistant Secretaries. The assistant secretaries, if
any, in order of their seniority or in any other order determined by the board
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties as the
board of directors or the secretary may from time to time prescribe.
Section 10. The Treasurer. The treasurer shall have the care and
custody of the corporate funds, and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors. The treasurer
shall disburse the funds of the corporation as may be ordered by the board,
taking proper vouchers for such disbursements, and shall render to the president
and directors, at the regular meetings of the board, or whenever they may
require it, an account of all his transactions as treasurer and of the financial
condition of the corporation. If required by the board of directors, the
treasurer shall give the corporation a bond for such term, in such sum and with
such surety or sureties as shall be satisfactory to the board for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 11. The Assistant Treasurers. The assistant treasurers, if any,
in the order of their seniority or in any other order determined by the board,
shall in the absence or disability of the treasurer, perform the duties and
exercise the power of the treasurer and shall perform such other duties as the
board of directors or the treasurer shall prescribe.
ARTICLE VIII - SHARES OF THE CORPORATION; RECORD DATE
Section 1. Certificated Shares. Shares may, but need not be,
represented by certificates. The certificates for shares of the corporation
shall be in such form as shall be determined by the board of directors, and
shall be numbered consecutively and entered in the books of the corporation as
they are issued. Each certificate shall exhibit the name of the corporation and
that it is organized under the laws of the State of Tennessee, the name of the
person to whom issued, and the number and class of shares and the description of
the series, if any, the certificate represents. Each certificate shall be signed
either manually or in facsimile by the president or vice president and the
treasurer or an assistant treasurer or the secretary or an assistant secretary.
In case any one or more of the officers who have signed, or whose facsimile
signature or signatures were placed on any such certificate shall
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cease to be such officer or officers of the corporation, whether because of
death, resignation or otherwise, before such certificate is issued and
delivered, it may nevertheless be issued and delivered by the corporation with
the same effect as if such officer or officers had continued in office.
Section 2. Shares without Certificates. Within a reasonable time after
the issue or transfer of shares without certificates, the corporation shall send
the shareholder a written statement of the information which would have been
required to be exhibited on a certificate, and, if applicable, restrictions on
the transferability of such shares.
Section 3. Lost Certificates. The board of directors may direct that a
new share certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation which have been mutilated or
which are alleged to have been lost, stolen or destroyed, upon presentation of
each such mutilated certificate or upon the making of an affidavit of that fact
by the person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the corporation a bond or
other form of indemnity in such sum as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Registration of Transfer. Upon surrender to the corporation
or any transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the corporation shall issue or cause its transfer agent
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 5. Registered Shareholders. Except as otherwise provided by
law, the corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to vote, to receive
notification, and otherwise to exercise all the rights and powers of an owner,
and shall not be bound to recognize any equitable or legal claim to or interest
in such share or shares on the part of any other person.
Section 6. Record Date. For the purpose of determining the shareholders
entitled to notice of a meeting of shareholders, to demand a special meeting, to
vote or to take any other action, the board of directors may fix, in advance, a
date as the record date for one or more voting groups. Such date shall be not
more than 70 days before the date of any such meeting or action requiring a
determination of shareholders. A determination of
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shareholders entitled to notice of or vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the board of directors fixes
a new record date, which the board of directors must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. If no record date is fixed, the record date for determining the
shareholders entitled to notice of or to vote at a meeting shall be at the close
of business on the date before the first notice is delivered to shareholders,
or, in the case of a distribution to shareholders, the date on which the board
authorizes the distribution.
ARTICLE IX - INDEMNIFICATION
Section 1. Authority to Indemnify. The corporation may indemnify any
person who was or is a party or is threatened to be made a defendant or
respondent to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative and whether formal or
informal, by reason of the fact that he is or was a director of the corporation
or is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against judgments,
settlements, penalties, fines (including an excise tax assessed with respect to
an employee benefit plan), or reasonable expenses (including counsel fees),
incurred with respect to a proceeding if (a) he conducted himself in good faith
and (b) he reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests; and
(ii) in all other cases, that his conduct was at least not opposed to its best
interests; and (c) with respect to any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. A director's conduct with respect to
an employee benefit plan for a purpose he reasonably believed to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of (b)(ii). The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the standard of conduct described in this section.
Section 2. Mandatory Indemnification. The corporation shall indemnify
any director if he was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 3. Other Determination of Rights. No indemnification under
Section 1 hereof (unless ordered by a court) shall be made by the corporation
unless authorized in the specific case
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<PAGE>
upon a determination that indemnification of the director is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 hereof. Such determination shall be made:
(a) by a majority vote of a quorum of directors who are not at that
time parties to the proceeding;
(b) if such a quorum is not obtainable by a majority vote of a
committee duly designated by the board of directors (in which designation
directors who are parties may participate), consisting solely of two or more
directors who are not at that time parties to the proceeding;
(c) by independent special legal counsel (compensated by the
corporation) in a written opinion, selected by the board of directors or
committee in the manner described in subsections (a) or (b); provided however
that if the requirements of neither (a) nor (b) can be met, then by a majority
vote of the full board of directors; or
(d) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted in the determination.
Section 4. Advances of Expenses. Expenses incurred by a director who is
a party or threatened to be made a defendant or respondent to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal, may be paid by
the corporation in advance of the final disposition of such action, suit, or
proceeding as determined and authorized in the manner specified in Section 3 of
this article, upon (a) the receipt of a written affirmation by the director of
his good faith belief that he has met the required standard of conduct; (b) the
receipt of an undertaking by or on behalf of the director, constituting such
director's unlimited general obligation, to repay such amount if it is
ultimately determined that he is not entitled to indemnification by the
corporation; and (c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this article.
Section 5. Nonexclusiveness; Heirs. The indemnification provided by
this article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled as a matter of law or under the charter,
these bylaws, any agreement, any insurance purchased by the corporation, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be director, trustee, officer, or employee and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
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<PAGE>
Section 6. Purchase of Insurance. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, or employee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this article or of the Tennessee Business Corporation Act.
ARTICLE X - GENERAL PROVISIONS
Section 1. Distributions. Subject to all applicable requirements of law
and to any applicable provisions of the charter, these bylaws and any indenture
or other agreement to which the corporation is a party or by which it is bound,
distributions to the shareholders of the corporation may be declared by the
board of directors at any regular or special meeting, pursuant to law.
Section 2. Reserves. Before payment of any distribution, there may be
set aside out of any funds of the corporation available for distributions such
sum or sums as the board of directors from time to time, in its absolute
discretion, may consider proper as a reserve or reserves to meet contingencies,
or for equalizing distributions, or for repairing or maintaining any property of
the corporation, or for such other purpose as the board may deem conducive to
the interest of the corporation, and the board may modify or abolish any such
reserve in the manner in which it was created.
Section 3. Checks, Notes. Etc. All checks or other orders for payment
of money and notes or other instruments evidencing indebtedness or obligations
of the corporation shall be signed by such officer or officers or such other
person or persons as the board of directors may from time to time designate.
Section 4. Contracts, Etc. Unless otherwise directed by the board of
directors, the president, any vice president, secretary or treasurer shall have
the power and authority to enter into, execute and deliver contracts,
agreements, deeds, bonds, mortgages, tax returns and other instruments on behalf
of the corporation. The president may authorize the execution of any such
documents by such other officers, agents or employees as may be designated by
him from time to time, subject to such limitations and restrictions as the
instrument designating such person may provide.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed and may from time to time be changed by resolution of the board of
directors.
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Section 6. Seal. The corporate seal, if any, shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal Tennessee". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
Section 7. Securities of Other Corporations. Unless otherwise ordered
by the board of directors, the president shall have full power and authority on
behalf of the corporation: (a) to endorse, transfer, convert, sell and deliver
any and all bonds, debentures, corporate shares or other securities standing in
the name of or owned by the corporation and to make, execute and deliver, under
the seal of the corporation or otherwise, any and all written instruments
necessary or proper to effectuate the authority hereby conferred; and (b) to
attend and to act and to vote, or in the name of the corporation to execute
proxies to vote, at any meetings of shareholders of any corporation in which the
corporation may hold stock, and at any such meeting shall possess and may
exercise, in person or by proxy, any and all rights, powers and privileges
incident to the ownership of such stock. The board of directors may, by
resolution, from time to time, confer like powers upon any other person or
persons.
Section 8. Amendments. The board of directors may amend or repeal the
corporation's bylaws unless (a) the charter or the Tennessee Business
Corporation Act reserves this power exclusively to the shareholders in whole or
in part; or (b) the shareholders in amending or repealing a particular bylaw
expressly provide that the board of directors may not amend or repeal that
bylaw. The shareholders of the corporation may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed by its board of
directors.
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CERTIFICATE OF INCORPORATION
OF
EQUILINK LICENSING CORPORATION
(a Delaware corporation)
================================================================================
Under Section 102 of the General Corporation Law
================================================================================
FIRST: The name of the corporation is Equilink Licensing Corporation (the
"Corporation").
SECOND: The registered office of the Corporation is located at 32
Loockerman Square, Suite L-100, in the City of Dover, in the County of Kent, in
the State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
is authorized to issue is three thousand (3,000), par value $1.00 per share.
All of such shares are of one class and are shares of common stock.
FIFTH: The board of directors of the Corporation is expressly
authorized to fix by resolution or resolutions the designations and the powers,
preferences, and rights, and the qualifications, limitations, or restrictions
permitted by Section 151 of the Delaware General Corporation Law in respect of
any class or classes of stock or any series of any class of stock of the
<PAGE>
Corporation which may be desired but which shall not be fixed by this
certificate of incorporation. Such grant of authority includes the power to
specify the number of shares in any series.
SIXTH: The name and address of the single incorporator is Ken Wagner,
Summit Solomon & Feldesman, 445 Park Avenue, New York, New York 10022-2641.
SEVENTH: The bylaws of the Corporation may be made, altered, amended,
changed, added to, or repealed by the board of directors of the Corporation
without the assent or vote of the stockholders. Elections of directors need not
be by ballot unless the bylaws so provide.
EIGHTH: The personal liability of a director to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director is
hereby eliminated, provided that this Article shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper persona1
benefit.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said
<PAGE>
section, and the idemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
TENTH: The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, and officers are subject to this reserved
power.
I, THE UNDERSIGNED, to form a corporation for the purposes hereinabove
stated, under and pursuant to the provisions of the General Corporation Law of
the State of Delaware, do hereby certify that the facts stated herein are true
and hereunto set my hand and seal this 9th day of December, 1991.
/s/ Ken Wagner
-------------------------
Ken Wagner, Incorporator
<PAGE>
Exhibit C
BY-LAWS
OF
EQUILINK LICENSING CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. -- The registered office shall be
established and maintained at 32 Loockerman Square, Suite L-100, in the City of
Dover, in the County of Kent, in the State of Delaware. The name of its
registered agent at that address is The Prentice-Hall Corporation System, Inc.
SECTION 2. OTHER OFFICES. -- The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. -- Annual Meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. -- Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting,
<PAGE>
shall be by ballot. All elections for directors shall be decided by plurality
vote; all other questions shall be elected by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of the State of
Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. -- Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as originally noticed shall
be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. -- Special meetings of the stockholders
for any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. -- Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or
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<PAGE>
any action which may be taken at any annual or special meeting, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. -- The number of directors constituting the
whole board of directors initially shall be four (4). The directors shall be
elected at the annual meeting of the stockholders and each director shall be
elected to serve until his or her successor shall be elected and shall qualify.
Directors need not be stockholders.
SECTION 2. RESIGNATIONS. -- Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. -- If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. -- Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would
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<PAGE>
be sufficient to elect him if then cumulatively voted at an election of the
entire Board of Directors, or, if there be classes of directors, at an election
of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER. -- The number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS. -- The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. -- The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws
4
<PAGE>
or the Certificate of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
SECTION 8. MEETINGS. -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent in
writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. -- A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
adjourned.
SECTION 10. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. -- Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the board, or of such committee, as
the
5
<PAGE>
case may be, and such written consent is filed with the minutes of proceedings
of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualify. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. -- The Chairman of the Board of Directors, if
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. -- The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENT. -- Each Vice President, if elected, shall
have such powers and shall perform such duties as shall be assigned to him by
the directors.
SECTION 6. TREASURER. -- The Treasurer shall have the custody of the
corporate funds and securities and shall keep full
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<PAGE>
and accurate account of receipts and disbursements in books belonging to the
corporation. He shall deposit all moneys and other valuables in the name and to
the credit of the corporation in such depositaries as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY.-- The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have custody of the seal of
the corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. -- Assistant
Treasurers, and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. -- Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all of
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. -- A new certificate of stock may be
issued in the place of any certificate theretofore
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<PAGE>
issued by the corporation, alleged to have been lost or destroyed, and the
directors may, in their discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the corporation a bond, in
such sum as they may direct, not exceeding double the value of the stock, to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate.
SECTION 3. TRANSFER OF SHARES. -- The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made or
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. -- In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS. -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. -- The corporate seal shall be circular in form and
shall contain the name of the corporation, the year
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of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
SECTION 7. FISCAL YEAR. -- The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. -- Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Laws to be
made, be contained in the notice of such special meeting.
9
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
PROACQ CORP.
------------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is
PROACQ CORP.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Thousand Five Hundred (1,500), all of which are
without par value. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
N. S. Truax 32 Loockerman Square, Suite L-100
Dover, Delaware 19901
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there
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<PAGE>
were no vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the
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<PAGE>
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on September 13, 1991.
/s/ N.S. Truax
--------------------------
N. S. Truax
Incorporator
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<PAGE>
Exhibit F
BYLAWS
OF
PROACQ CORP.
(a Delaware corporation)
----------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged
<PAGE>
loss, theft, or destruction of any such certificate or the issuance of any such
new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly
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<PAGE>
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
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<PAGE>
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the
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<PAGE>
directors, provided, that the first annual meeting shall be held on a date
within thirteen months after the organization of the corporation, and each
successive annual meeting shall be held on a date within thirteen months after
the date of the preceding annual meeting. A special meeting shall be held on the
date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned
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<PAGE>
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor
an Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy
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<PAGE>
in all matters in which a stockholder is entitled to participate, whether by
waiving notice of any meeting, voting or participating at a meeting, or
expressing consent or dissent without a meeting. Every proxy must be signed by
the stockholder or by his attorney-in-fact. No proxy shall be voted or acted
upon after three years from its date unless such proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
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<PAGE>
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of two persons. Thereafter the number
of directors constituting the whole board shall be at
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<PAGE>
least one. Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be two. The number of directors may be increased or decreased by action of
the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the
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<PAGE>
Board, if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at
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all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present
and acting, or the President, if present and acting, or any other director
chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed
-11-
<PAGE>
necessary, expedient, or desirable by the Board of Directors, a Chairman of the
Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more
other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers with such titles as the resolution of the
Board of Directors choosing them shall designate. Except as may otherwise be
provided in the resolution of the Board of Directors choosing him, no officer
other than the Chairman or Vice-Chairman of the Board, if any, need be a
director. Any number of offices may be held by the same person, as the directors
may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
-12-
<PAGE>
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct
copy of the Bylaws of PROACQ CORP., a Delaware corporation, as in effect on the
date hereof.
Dated:
--------------------------------
Secretary of
PROACQ CORP.
(SEAL)
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<PAGE>
City of Dover
County of Kent
September 13, 1991
ORGANIZATION ACTION IN WRITING OF INCORPORATOR
OF
PROACQ CORP.
------------------------
(Organized September 13, 1991)
The following action is taken this day through this instrument by the
incorporator of the above corporation:
1. The adoption of the initial By-Laws of the
corporation.
2. The election of the following persons to serve as the
directors of the corporation until the first annual meeting of
stockholders and until their successors are elected and
qualified or until their earlier resignation or removal:
Robert Nederlander
Frederic H. Brooks
/s/ N.S. Truax
--------------------
N.S. Truax
Incorporator
<PAGE>
CERTIFICATE OF INCORPORATION
0F
RHC LICENSING CORPORATION
(a Delaware corporation)
================================================================================
Under Section 102 of the General Corporation Law
================================================================================
FIRST: The name of the corporation is RHC Licensing Corporation (the
"Corporation").
SECOND: The registered office of the Corporation is located at 32
Loockerman Square, Suite L-100, in the City of Dover, in the County of Kent, in
the State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
is authorized to issue is three thousand (3,000), par value $1.00 per share. All
of such shares are of one class and are shares of common stock.
FIFTH: The board of directors of the Corporation is expressly authorized to
fix by resolution or resolutions the designations and the powers, preferences,
and rights, and the qualifications, limitations, or restrictions permitted by
Section 151 of the Delaware General Corporation Law in respect of any class or
classes of stock or any series of any class of stock of the
<PAGE>
Corporation which may be desired but which shall not be fixed by this
certificate of incorporation. Such grant of authority includes the power to
specify the number of shares in any series.
SIXTH: The name and address of the single incorporator is Ken Wagner,
Summit Solomon & Feldesman, 445 Park Avenue, New York, New York 10022-2641.
SEVENTH: The bylaws of the Corporation may be made, altered, amended,
changed, added to, or repealed by the board of directors of the Corporation
without the assent or vote of the stockholders. Elections of directors need not
be by ballot unless the bylaws so provide.
EIGHTH: The personal liability of a director to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director is
hereby eliminated, provided that this Article shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
<PAGE>
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
TENTH: The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, and officers are subject to this reserved
power.
I, THE UNDERSIGNED, to form a corporation for the purposes hereinabove
stated, under and pursuant to the provisions of the General Corporation Law of
the State of Delaware, do hereby certify that the facts stated herein are true
and hereunto set my hand and seal this 9th day of December, 1991.
/s/ Ken Wagner
------------------------
Ken Wagner, Incorporator
<PAGE>
Exhibit D
BY-LAWS
OF
RHC LICENSING CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. -- The registered office shall be
established and maintained at 32 Loockerman Square, Suite L-100, in the City of
Dover, in the County of Kent, in the State of Delaware. The name of its
registered agent at that address is The Prentice-Hall Corporation System, Inc.
SECTION 2. OTHER OFFICES. -- The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. -- Annual Meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. -- Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting,
<PAGE>
shall be by ballot. All elections for directors shall be decided by plurality
vote; all other questions shall be elected by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of the State of
Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. -- Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as originally noticed shall
be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. -- Special meetings of the stockholders
for any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. -- Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or
2
<PAGE>
any action which may be taken at any annual or special meeting, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. -- The number of directors constituting the
whole board of directors initially shall be four (4). The directors shall be
elected at the annual meeting of the stockholders and each director shall be
elected to serve until his or her successor shall be elected and shall qualify.
Directors need not be stockholders.
SECTION 2. RESIGNATIONS. -- Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. -- If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. -- Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would
3
<PAGE>
be sufficient to elect him if then cumulatively voted at an election of the
entire Board of Directors, or, if there be classes of directors, at an election
of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER. -- The number of directors may be increased
by amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify.
SECTION 6. POWERS. -- The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. -- The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws
4
<PAGE>
or the Certificate of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
SECTION 8. MEETINGS. -- The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resoluton of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. -- A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
adjourned.
SECTION 10. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. -- Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the board, or of such committee, as
the
5
<PAGE>
case may be, and such written consent is filed with the minutes of proceedings
of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the corporation shall be a President,
a Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualify. In addition, the Board of Directors may elect a Chairman, one or more
Vice Presidents and such Assistant Secretaries and Assistant Treasurers as they
may deem proper. None of the officers of the corporation need be directors. The
officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. -- The Chairman of the Board of Directors, if elected,
shall preside at all meetings of the Board of Directors and he shall have and
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
SECTION 4. PRESIDENT. -- The President shall be the chief executive officer of
the corporation and shall have the general powers and duties of supervision and
management usually vested in the office of President of a corporation. He shall
preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts in behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary of the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENT. -- Each Vice President, if elected, shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURER. -- The Treasurer shall have the custody of the corporate
funds and securities and shall keep full
6
<PAGE>
and accurate account of receipts and disbursements in books belonging to the
corporation. He shall deposit all moneys and other valuables in the name and to
the credit of the corporation in such depositaries as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. -- The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have custody of the seal of
the corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. -- Assistant
Treasurers, and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. -- Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all of
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. -- A new certificate of stock may be issued
in the place of any certificate theretofore
7
<PAGE>
issued by the corporation, alleged to have been lost or destroyed, and the
directors may, in their discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the corporation a bond, in
such sum as they may direct, not exceeding double the value of the stock, to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate.
SECTION 3. TRANSFER OF SHARES. -- The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery therof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made or
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. -- In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS. -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. -- The corporate seal shall be circular in form and
shall contain the name of the corporation, the year
8
<PAGE>
of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
SECTION 7. FISCAL YEAR. -- The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. -- All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. -- Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote
of a majority of the stock issued and outstanding and entitled to vote thereat,
or by the affirmative vote of a majority of the Board of Directors, at any
regular meeting of the Board of Directors, or at any special meeting of the
Board of Directors, if notice of the proposed alteration or repeal, or By-Laws
to be made, be contained in the notice of such special meeting.
9
<PAGE>
BCA-2.10 (Rev. Jul. 1984)
Submit in Duplicate Secretary of State
State of Illinois
ARTICLES OF INCORPORATION
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned incorporator(s) hereby adopt the following Articles of
Incorporation.
ARTICLE ONE The name of the corporation is EN&T ASSOCIATES INC.
(Shall contain the word "corporation", "company", "incorporated".
-----------------------------------------------------------------
"limited", or an abbreviation thereof)
ARTICLE TWO The name and address of the initial registered agent and its
registered office are:
Registered Agent THE PRENTICE-HALL CORPORATION SYSTEM, INC.
-----------------------------------------------
First Name Middle Name Last Name
Registered Office 33 North LaSalle Street
-----------------------------------------------
Number Street Suite #
(A P.O. Box alone is not acceptable)
Chicago 60602 Cook
-----------------------------------------------
City Zip Code County
ARTICLE THREE The purpose or purposes for which the corporation is organized
are:
If not sufficient space to cover this point,
add one or more sheets of this size.
SEE RIDER A ATTACHED
ARTICLE FOUR Paragraph 1: The authorized shares shall be:
Class *Par Value per share Number of shares authorized
-----------------------------------------------------------------
Common no par value 200
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Paragraph 2: The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect of the
shares of each class are:
If not sufficient space to cover this point,
add one or more sheets of this size.
SEE RIDER B ATTACHED
ARTICLE FIVE The number of shares to be issued initially, and the
consideration to be received by the corporation therefor, are:
*Par Value Number of shares Consideration to be
Class per share proposed to be issued received therefor
-----------------------------------------------------------------
Common no par value 100 $ 100
-----------------------------------------------------------------
$
-----------------------------------------------------------------
$
-----------------------------------------------------------------
$
-----------------------------------------------------------------
TOTAL $ 100
-------------
* A declaration as to a "par value" is optional. This space may be marked "n/a"
when no reference to a par value is desired.
<PAGE>
ARTICLE SIX OPTIONAL
The number of directors constituting the initial board of
directors of the corporation is __________________, and the names
and addresses of the persons who are to serve as directors until
the first annual meeting of shareholders or until their
successors be elected and qualify are:
Name Residential Address
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
ARTICLE SEVEN OPTIONAL
(a) It is estimated that the value of all
property to be owned by the corporation for
the following year wherever located will be: $15,000,000
(b) It is estimated that the value of the
property to be located within the State of
Illinois during the following year will be: $15,000,000
(c) It is estimated that the gross amount of
business which will be transacted by the
corporation during the following year will
be: $12,000,000
(d) It is estimated that the gross amount of
business which will be transacted from places
of business in the State of Illinois during
the following year will be: $12,000,000
ARTICLE EIGHT OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation, e.g., authorizing
pre-emptive rights; denying cumulative voting; regulating
internal affairs; voting majority requirements; fixing a duration
other than perpetual; etc.
NAMES & ADDRESSES OF INCORPORATORS
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated April 1, 1988
Signatures and Names Post Office Address
1. /s/ Michael D. McManus 1. 1 Gulf+Western Plaza
------------------------------------ --------------------------------
Signature Street
Michael D. McManus New York, New York 10023
------------------------------------ --------------------------------
Name (please print) City/Town State Zip
2. 2.
------------------------------------ --------------------------------
Signature Street
------------------------------------ --------------------------------
Name (please print) City/Town State Zip
3. 3.
------------------------------------ --------------------------------
Signature Street
------------------------------------ --------------------------------
Name (please print) City/Town State Zip
(Signatures must be in ink on original document. Carbon copy, xerox or rubber
stamp signatures may only be used on conformed copies)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown and the execution shall be by its
President or Vice-President and verified by him, and attested by its Secretary
or an Assistant Secretary.
<PAGE>
RIDER A
-------
To transact any or all lawful businesses for which corporations may be
incorporated under the Business Corporation Act of 1983.
To engage in the general business of manufacturing and sale of sporting
goods and related business purposes.
To construct, build, purchase, lease, equip, or otherwise acquire and to
hold, own, improve, develop, manage, maintain, control, operate, lease,
mortgage, create liens upon, sell, convey, or otherwise dispose of any and all
plants, machinery, works, implements and things and property, real and personal,
of every kind and description, incidental to, connected with or suitable,
necessary or convenient for any of the purposes herein enumerated.
To apply for, purchase, register, or in any manner to acquire, and to hold,
own, use, operate, and introduce, and to sell, lease, assign, pledge, or in any
manner dispose of, and in any manner deal with patents, patent rights, licenses,
copyrights, trademarks, trade names, and to acquire, own, use, or in any manner
dispose of any and all inventions, improvements, and processes, labels, designs,
brands, or other rights, and to work, operate, or develop the same, and to carry
on any business, manufacturing or otherwise, which may directly or indirectly
effectuate these objects or any of them.
To do any and all such further acts and things and to exercise any and all
such further powers as may be necessary, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the foregoing
purposes or objects.
<PAGE>
RIDER B
-------
No holder of any of the shares of the corporation shall be entitled as of
right to purchase or subscribe for any unissued shares of any class or any
additional shares of any class to be issued by reason of any increase of the
authorized shares of the corporation or bonds, certificates of indebtedness,
debentures, or other securities convertible into shares of the corporation or
carrying any right to purchase shares of any class, but any such unissued shares
or such additional authorized issue of any shares or of other securities
convertible into shares, or carrying any right to purchase shares, may be issued
and disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations, or associations and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its discretion.
Whenever any provision of the Business Corporation Act of 1983 shall
otherwise require the vote or the concurrence of the holders of at least
two-thirds of the outstanding shares of the corporation, of at least two-thirds
of the outstanding shares entitled to vote thereon of the corporation, or of at
least two-thirds of the outstanding shares of any class or series of the
corporation, as the case may be, in order to authorize any specified corporate
action, the vote or consent in writing of the holders of at least a majority of
any of said outstanding shares shall be sufficient to authorize any such
specified corporate action.
No shareholder entitled to vote in the election of directors of the
corporation shall be entitled to cumulative voting for the election of
directors.
<PAGE>
BCA-10.30 (Rev. Jul 1984)
Secretary of State
State of Illinois
ARTICLES OF AMENDMENT
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned corporation hereby adopts these Articles of Amendment to its
Articles of Incorporation.
ARTICLE ONE The name of the corporation is EN&T ASSOCIATES INC. (Note 1)
ARTICLE TWO The following amendment of the Articles of Incorporation was
adopted on April 18, 1988 in the manner indicated below. ("X"
one box only.)
/ / By a majority of the incorporators, provided no directors were
named in the articles of incorporation and no directors have been
elected; or by a majority of the board of directors, in
accordance with Section 10.10, the corporation having issued no
shares as of the time of adoption of this amendment; (Note 2)
/ / By a majority of the board of directors, in accordance with
Section 10.15, shares having been issued but shareholder action
not being required for the adoption of the amendment; (Note 3)
/ / By the shareholders, in accordance with Section 10.20, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. At a meeting of shareholders, not
less than the minimum number of votes required by statute and by
the articles of incorporation were voted in favor of the
amendment; (Note 4)
/ / By the shareholders, in accordance with Sections 10.20 and 7.10,
a resolution of the board of directors having been duly adopted
and submitted to the shareholders. A consent in writing has been
signed by shareholders having not less than the minimum number of
votes required by statute and by the articles of incorporation.
Shareholders who have not consented in writing have been given
notice in accordance with Section 7.10; (Note 4)
/X/ By the shareholders, in accordance with Sections 10.20 and 7.10,
a resolution of the board of directors have been duly adopted and
submitted to the shareholders. A consent in writing has been
signed by all the shareholders entitled to vote on this
amendment. (Note 4)
(INSERT AMENDMENT)
(Any article being amended is required to be set forth in its entirety.)
(Suggested language for an amendment to change the corporate name is: RESOLVED,
that the Articles of Incorporation be amended to read as follows:)
ARTICLE ONE: The name of the corporation is RIDDELL, INC.
- --------------------------------------------------------------------------------
(New Name)
All changes other than name, include on page 2
(over)
<PAGE>
Page 3
ARTICLE THREE The manner, if not set forth in the amendment, in which any
exchange, reclassification or cancellation of issued shares, or a
reduction of the number of authorized shares of any class below
the number of issued shares of that class, provided for or
effected by this amendment, is as follows: (If not applicable,
insert "No change")
NO CHANGE
ARTICLE FOUR (a) The manner, if not set forth in the amendment, in which said
amendment effects a change in the amount of paid-in capital* is
as follows: (If not applicable, insert "No change")
NO CHANGE
(b) The amount of paid-in capital* as changed by this amendment
is as follows: (If not applicable, insert "No change")
NO CHANGE
Before Amendment After Amendment
Paid-in Capital $___________ $____________
The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirm, under penalties of perjury, that
the facts stated herein are true.
Dated April 18, 1988 EN&T ASSOCIATES INC.
------------------------------ ---------------------------------------
(Exact Name of Corporation)
attested by /s/ Leonard Toboroff by /s/ Robert Nederlander
------------------------- -------------------------------------
(Signature of Secretary (Signature of President
or Assistant Secretary) or Vice President)
Leonard Toboroff Robert Nederlander
------------------------- -------------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
* "Paid-in Capital" replaces the terms Stated Capital and Paid-in Surplus and is
equal to the total of these accounts.
<PAGE>
Exhibit G
BY-LAWS
OF
EN&T ASSOCIATES INC.
(an Illinois corporation)
ARTICLE I
SHAREHOLDERS
1. SHARE CERTIFICATES. Certificates representing shares of the
corporation shall set forth thereon the statements prescribed by Section 6.35 of
the Business Corporation Act of 1983 and by any other applicable provision of
law, shall be signed by the appropriate corporate officers, and may be sealed
with the seal of the corporation or a facsimile thereof. In case the seal of the
corporation is changed after the certificate is sealed with the seal or a
facsimile of the seal of the corporation, but before it is issued, the
certificate may be issued by the corporation with the same effect as if the seal
had not been changed. If a certificate is countersigned by a transfer agent, or
a registrar, other than the corporation itself or its employee, any other
signatures or countersignature on the certificate may be facsimiles. In case any
officer of the corporation, or any officer or employee of the transfer agent or
registrar who has signed or whose facsimile signature has been placed upon such
certificate ceases to be an officer of the corporation, or an officer or
employee of the transfer agent or registrar before such certificate is issued,
the certificate may be issued by the corporation with the same effect as if the
officer of the corporation, or the officer or employee of the transfer agent or
registrar, had not ceased to be such at the date of its issue.
No certificate shall be issued for any share until such share is fully
paid.
2. FRACTIONAL SHARE INTERESTS OR SCRIP. The corporation may, but shall
not be obliged to, issue a certificate for a fractional share, and, by action of
the Board of Directors, may in lieu thereof, pay cash equal to the value of said
fractional share or issue scrip in
<PAGE>
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip aggregating a full
share. A certificate for a fractional share shall, but scrip shall not unless
otherwise provided therein, entitle the holder to exercise fractional voting
rights, to receive dividends thereon, and to participate in any of the assets of
the corporation in the event of liquidation. The Board of Directors may cause
scrip to be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares before a specified date, or
subject to the condition that the shares for which the scrip is exchangeable may
be sold by the corporation or by an agent on behalf of the holder thereof and
the proceeds thereof distributed to the holders of such scrip or subject to any
other conditions which the Board of Directors may deem advisable.
3. SHARE TRANSFERS. Upon compliance with any provisions restricting
the transferability of shares that may be set forth in the Articles of
Incorporation, these By-Laws, or any written agreement in respect thereof,
transfers of shares of the corporation shall be made only on the books of the
corporation by the registered holder thereof, or by his or her other attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation, or with a transfer agent or a registrar and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon if any. Except as may be otherwise provided
by law, the person in whose name shares stand on the books of the corporation
shall be deemed the owner thereof for all purposes as regards the corporation;
provided that whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact, if known to the Secretary of the
corporation, shall be so expressed in the entry of transfer.
4. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors of the corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty days and, for a meeting of shareholders, not less than ten days, or
in the case of a merger, consolidation, share exchange, dissolution, or sale,
lease, or exchange of
-2-
<PAGE>
assets, not less than 20 days, immediately preceding such meeting. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent or object in writing in lieu of a meeting,
as the case may be, the term "share" or "shares" or "shareholder" or
"shareholders" refers to an outstanding share or shares and to a holder or
holders of record of outstanding shares when the corporation is authorized to
issue only one class of shares, and said reference is also intended to include
any outstanding share or shares and any holder or holders of record of
outstanding shares of any class upon which or upon whom the Articles of
Incorporation confer such rights where there are two or more classes or series
of shares or upon which or upon whom the Business Corporation Act of 1983
confers such rights notwithstanding that the Articles of Incorporation may
provide for more than one class or series of shares, one or more of which are
limited or denied such rights thereunder.
6. SHAREHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the day of .
A special meeting shall be held on the date fixed by the directors except when
the Business Corporation Act of 1983 confers the right to call a special meeting
upon the shareholders.
- PLACE. Annual meetings and special meetings shall be held at such
place as the Board of Directors shall by resolution from time to time provide.
- CALL. Annual meetings may be called by the directors or the
President or the Secretary or by any officer instructed by the directors or the
President to call the meeting. Special meetings may be called in like manner or
by the holders of at least one-fifth of the shares.
-3-
<PAGE>
- NOTICE OR WAIVER OF NOTICE. Written notice stating the place, day,
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
days (or not less than any such other minimum period of days as may be
prescribed by the Business Corporation Act of 1983) nor more than sixty days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, the Secretary, or the officer or persons calling the
meeting, to each shareholder. The notice of any annual or special meeting shall
also include, or be accompanied by, any additional statements, information, or
documents prescribed by the Business Corporation Act of 1983. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his or her address as it appears on the records
of the corporation, with postage thereon prepaid. Whenever any notice is
required to be given to any shareholder, a waiver thereof in writing signed by
him or her, whether before or after the time stated therein, shall be the
equivalent to the giving of such notice.
- VOTING LIST. The officer or agent having charge of the transfer book
for shares of the corporation shall make, within twenty days after the record
date for a meeting of shareholders or ten days before such meeting, whichever is
earlier, a complete list of the shareholders entitled to vote at such meeting,
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for a period of ten days prior to such meeting, shall
be kept on file at the registered office of the corporation and shall be subject
to inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original share ledger or transfer book, or a duplicate
thereof kept in the State of Illinois shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
book or to vote at any meeting of shareholders.
- CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The
-4-
<PAGE>
Secretary of the corporation, or in his or her absence, an Assistant Secretary,
shall act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the Chairman of the meeting shall appoint a
secretary of the meeting.
- INSPECTORS - APPOINTMENT. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting, unless an inspector
or inspectors shall have been previously appointed for such meeting by the
directors. Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders. Each report of an inspector shall be in
writing and signed by him or her or by a majority of them if there be more than
one inspector acting at such meeting. If there is more than one inspector, the
report of a majority shall be the report of the inspectors. The report of the
inspector or inspectors on the number of shares represented at the meeting and
the results of the voting shall be prima facie evidence thereof.
- PROXY REPRESENTATION. A shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
- QUORUM. A majority of the outstanding shares entitled to vote on
the respective matter shall constitute a quorum.
- VOTING. Except as the Business Corporation Act of 1983 and the
Articles of Incorporation shall otherwise provide, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
respective matter, a quorum being present, shall be the act of the shareholders.
7. INFORMAL ACTION. Any action required to be taken or which may be
taken at a meeting of the shareholders may be taken without a meeting and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed (i) if 5 days prior notice of the proposed action is given in
writing to all of the shareholders entitled to
-5-
<PAGE>
vote with respect to the subject matter thereof, by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting or (ii) by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS GENERALLY - COMPENSATION. The business and the affairs of
the corporation shall be managed by or under the direction of a Board of
Directors. The Board, by the affirmative vote of a majority of the directors
then in office, and irrespective of any personal interest of any of its members,
shall have authority to establish reasonable compensation of all directors for
services to the corporation as directors, officers, or otherwise,
notwithstanding the provisions of Section 8.60 of the Business Corporation Act
of 1983.
2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder, a
citizen of the United States, or a resident of the State of Illinois. The
initial Board of Directors shall consist of one person, which is the number of
the initial Board of Directors fixed in the Articles of Incorporation, and which
shall be the fixed number of directors until changed. The number of directors of
the corporation shall be not less than one nor more than five, and the number of
directors may be fixed or changed from time to time, within such minimum and
maximum number of directors, by the directors or the shareholders without
further amendment to these By-Laws. Such maximum may not exceed such minimum by
more than one. A decrease in the number of directors does not shorten an
incumbent director's term. The full Board of Directors shall consist of the
number of directors fixed or changed as herein provided.
3. ELECTION AND TERM. The initial Board of Directors shall hold
office until the first annual meeting of shareholders and until their successors
have been elected and qualified. Thereafter, directors who are elected at an
annual meeting of shareholders, and directors who are elected in the interim to
fill vacancies and newly created directorships, shall hold office until the next
succeeding annual meeting of shareholders and until their successors have been
elected and qualified. Vacancies and newly
-6-
<PAGE>
created directorships may be filled at an annual meeting of shareholders or a
special meeting of shareholders called for that purpose, and vacancies arising
between meetings of shareholders by reason of an increase in the number of
directors or otherwise may be filled by the Board of Directors.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Illinois as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting. Whenever any notice is required
to be given to any director, a waiver thereof in writing signed by him or her,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting except where the director attends
the meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
- QUORUM AND ACTION. A majority of the full Board of Directors shall
constitute a quorum. Except as herein otherwise provided, and except as may be
otherwise provided by the Business Corporation Act of 1983, the act of the
majority of the directors present at a meeting at which a
-7-
<PAGE>
quorum is present shall be the act of the Board of Directors.
- CHAIRMAN OF THE MEETING. Meetings of the Board of Directors shall be
presided over by the following directors in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, or any other director chosen by the Board.
5. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed at any time, with or without cause, in
accordance with the provisions of Section 8.35 of the Business Corporation Act
of 1983.
6. COMMITTEES. The Board of Directors, may, by resolution adopted by a
majority of the full Board, designate from among its members one or more
committees. Each committee shall have two or more members, who serve at the
pleasure of the Board of Directors. A committee to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board of
Directors except such authority as may not be delegated under the Business
Corporation Act of 1983.
7. INFORMAL ACTION. Any action required to be taken or any action
which may be taken at a meeting of directors or of a committee thereof, if any,
may be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the directors entitled to vote with respect
to the subject matter thereof, or all of the members of such committee, as the
case may be.
Members of the Board of Directors or of any committee of said Board
may participate in and act at any meeting of the Board or of any such committee,
as the case may be, through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
attendance and presence in person at the meeting of the person or persons so
participating.
-8-
<PAGE>
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, one or
more Vice-Presidents if and as the directors shall determine, a Secretary, and a
Treasurer, each of whom shall be elected by the directors. The corporation may
have such other officers and assistant officers and agents as may be deemed
necessary, each or any of whom may be elected or appointed by the directors or
may be chosen in such manner as the directors shall determine. Any two or more
offices may be held by the same person.
Unless otherwise provided in the resolution of election or
appointment, each officer shall hold office until the meeting of the Board of
Directors following the next annual meeting of shareholders and until his or her
successor has been elected and qualified.
The officers and agents of the corporation shall have the authority
and perform the duties in the management of the corporation as determined by the
resolution electing or appointing them, as the case may be.
Any officer or agent of the corporation may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby.
ARTICLE IV
INDEMNIFICATION
The corporation shall, to the fullest extent permitted by the
provisions of the Business Corporation Act of 1983, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
By-Law, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee,
-9-
<PAGE>
or agent, and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
ARTICLE V
REGISTERED OFFICE AND AGENT - SHAREHOLDERS RECORD
The address of the initial registered office of the corporation in the
State of Illinois and the name of the initial registered agent of the
corporation are set forth in the original Articles of Incorporation.
The corporation shall keep at its registered office in the State of
Illinois or at its principal place of business in Illinois, or at the office of
its transfer agent or registrar, if any, in the State of Illinois a record of
its shareholders, giving the names and addresses of all shareholders and the
number and class of the shares held by each. The corporation shall also keep at
its registered office, for a period of at least ten days, the voting list
prescribed by Section 7.30 of the Business Corporation Act of 1983.
ARTICLE VI
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VIII
CONTROL OVER BY-LAWS
After the initial By-Laws of the corporation shall have been adopted
in the manner prescribed by the Business Corporation Act of 1983, the By-Laws of
the corporation may be made, altered, amended, or repealed by the shareholders
or the Board of Directors.
-10-
<PAGE>
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy
of the By-Laws of EN&T ASSOCIATES INC., a corporation of the State of Illinois,
as in effect on the date hereof.
WITNESS my hand and the seal of the corporation.
Dated:
(SEAL)
----------------------------
Secretary of
EN&T ASSOCIATES INC.
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
RIDMARK CORPORATION
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"', hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is
RIDMARK CORPORATION
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent; and the name of the registered agent of
the corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The sole purpose of the corporation is to adopt or otherwise
acquire, hold, own, apply for and register any and all trademarks and service
marks, including the trademark "Riddell" and the accompanying goodwill and all
logos, applications and other intangible assets or derivations associated
therewith, and to license, lease, or otherwise authorize the use thereof by its
stockholders, or by authorized licensees or sublicensees, in such territories
and subject to such conditions, regulations and restrictions as it may
prescribe in accordance with the provisions of its bylaws,
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, which
are divided into two (2) classes as follows: 500 shares of Class A common stock
(the "Class A Stock") and 500 shares of Class B common stock (the "Class B
Stock"). The par value of all of such shares of common stock is One Cent ($0.01)
per share.
<PAGE>
The statement of the relative rights, preferences, and limitations of the
shares of each class is as follows:
Except as any provision of law may otherwise provide, each share of common
stock of the corporation shall have the same rights, privileges, interests
and attributes, and shall be subject to the same limitations, as every
other share of common stock of the corporation, except as expressly
provided below.
1. The holders of record of the issued and outstanding shares of the
Class A Stock and the Class B Stock, respectively, exclusively and as a
class, shall each be entitled to elect a one-half proportion of the number
of directors constituting the entire Board of Directors of the corporation,
to exercise any right of removal of any said one-half proportion of said
number of directors, and to fill all vacancies and all newly created
directorships in said one-half proportion of said number of directors,
except those vacancies and newly created directorships which may be filled,
under a duly adopted by-law, by the existing directors or director elected
by those holders of said class of shares. In all matters other than in the
election and removal of directors, each issued and outstanding share of the
corporation without distinction as to class shall entitle the holder of
record thereof to full voting power, and voting shall not be by class
unless otherwise required by law.
2. The holders of Class A Common Stock shall elect the President of
the corporation and the holders of Class B Common Stock shall elect the
Secretary and Treasurer of the Corporation, each officer to serve until his
successor is duly qualified and elected by the class of stockholders
electing such officer.
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Amy Mangum 250 Park Avenue
New York, New York 10177
[0333M] 2
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
3
[0333M]
<PAGE>
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 190 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
4. Notwithstanding anything contained herein to the contrary, the
corporation shall not incur debt for borrowed money or otherwise impair or
encumber any of its assets, other than with the unanimous approval of the
holders of all of the issued and outstanding shares of Class A Stock and
Class B Stock given at a duly held meeting of such holders or by the
written consent of such holders.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent
[0333M]
4
<PAGE>
permitted by paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on 4-10-88
/s/ Amy Mangum
--------------------------
Amy Mangum, Incorporator
[0333M] 5
<PAGE>
Certificate of Amendment
to
Certificate of Incorporation
of
Ridmark Corporation
----------
Under Section 242
of the
Delaware General Corporation Law
----------
We, Frederic H. Brooks, President, and Robert Nederlander, Secretary, of
Ridmark Corporation (the "Corporation"), a corporation existing under the laws
of the State of Delaware, do hereby certify as follows:
1. The Certificate of Incorporation of the Corporation, filed with the
Secretary of State of the State of Delaware on April 12, 1988 and amended by a
Certificate of Amendment filed June 2, 1988, is hereby further amended as
follows:
FIRST: Article FOURTH is amended to read in its entirety as follows:
"FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is One Thousand (1,000)
shares of common stock. The par value of all of the shares of
common stock is one cent ($0.01) per share."
SECOND: Article EIGHTH, paragraph four is amended to read in its entirety
as follows:
"Notwithstanding anything contained herein to the contrary, the
corporation shall not incur debt for borrowed money or otherwise
impair or encumber any of its assets, other than with the
unanimous approval of the stockholders entitled to vote thereon
given at a duly held meeting of such stockholders or by the
written consent of such stockholders."
2. Said amendments have been duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law by the unanimous written
consent of the Corporation's stockholders.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this instrument this 2nd
day of February 1989.
/s/ Frederic H. Brooks
-----------------------------
Frederic H. Brooks, President
ATTEST:
/s/Robert Nederlander
- ------------------------------
Robert Nederlander, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
RIDMARK CORPORATION
----------
Under Section 242 of the
Delaware General Corporation Law
----------
We, Frederic H. Brooks, President, and Robert Nederlander, Secretary, of
RIDMARK CORPORATION (the "Company"), a corporation existing under the laws of
the State of Delaware, do hereby certify as follows:
1. The Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on April 13, 1988, is amended as
follows:
FIRST: Paragraph 2. of Article FOURTH is amended to read in its entirety as
follows:
"2. The holders of Class A Common Stock shall elect the President
of the Corporation and the holders of Class B Common Stock shall
elect the Chairman of the Board and Secretary of the Corporation,
each officer to serve until his successor is duly qualified and
elected by the class of stockholders electing such officer."
2. Said amendment has been duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware by vote
of the holders of a majority of the outstanding stock of the Company entitled to
vote thereon at an annual meeting of the stockholders of the Company duly called
and held upon notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have signed this instrument this 31st
day of May, 1988.
/s/ Frederic H. Brooks
---------------------------
Frederic H. Brooks
President
ATTEST:
/s/ Robert Nederlander
- -------------------------
Robert Nederlander
Secretary
<PAGE>
Exhibit E
BY - LAWS
OF
RIDMARK CORPORATION
(a Delaware corporation)
----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificates representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
<PAGE>
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfer or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
<PAGE>
5. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the directors may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a
<PAGE>
decrease in the authorized number of shares of stock of any class or series
which is otherwise denied voting rights under the provisions of the certificate
of incorporation, except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed
<PAGE>
to be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need not be given to any stockholder who
submits a written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
<PAGE>
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
<PAGE>
- VOTING. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, each class of common stock of the
corporation shall elect that number of directors as is prescribed by the
certificate of incorporation, by a majority of the votes cast of such class. Any
other action shall be authorized by a majority of the votes cast except where
the General Corporation Law prescribes a different percentage of votes and/or a
different exercise of voting power, and except as may be otherwise prescribed by
the provisions of the certificate of incorporation and these By-Laws. In the
election of directors, and for any other action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
9. Expenses. Each of the stockholders shall bear its pro rata share of
the costs and expenses of the corporation including the defense and maintenance
of the trademarks and/or licenses owned by the corporation, the acquisition,
maintenance and defense of additional trademarks, accompanying goodwill,
registrations, applications therefor and the organization and maintenance of the
corporation.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
<PAGE>
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of two persons. Thereafter the number
of directors constituting the whole board shall be at least two. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, provided such number is divisible by two, or, if the number is not
fixed, the number shall be two.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, any vacancies in the
Board of Directors, including unfilled vacancies resulting from the removal of
directors for cause or without cause, may be filled only by the vote of a
majority of the class of stockholders which elected the director for whom a
vacancy is being filled. Newly created directorships shall be filled one half by
each class of stockholders.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
<PAGE>
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Board, if any, of the President, or of a majority of the
directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and or
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
<PAGE>
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, or the certificate of incorporation, any director or
the entire Board of Directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors of the class of common stock which elected such director.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a Chairman of the
Board, President, a Secretary and Treasurer and, if deemed necessary, expedient,
or desirable by the Board of Directors, a Vice-Chairman of the Board, an
Executive Vice-President, one or more Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors, or by
<PAGE>
action of the holder of the class of stock choosing him, no officer other than
the President, Secretary and Treasurer need be a director. Any number of offices
may be held by the same person, as the stockholders may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the annual meeting of
stockholders and until his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the class of stockholders who chose such officer, and
any vacancy in such office may be filled by such class of stockholders.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors.
<PAGE>
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy
of the By-Laws of RIDMARK CORPORATION, a Delaware corporation, as in effect on
the date hereof.
WITNESS my hand and the seal of the corporation.
Dated:
--------------------------
Secretary of
RIDMARK CORPORATION
(SEAL)
<PAGE>
CHARTER
OF
INTERNATIONAL LOGOS, INC.
The undersigned person under the Tennessee Business Corporation Act adopts
the following charter for the above listed corporation:
1. The name of the corporation is International Logos, Inc.
2. The number of shares of stock the corporation is authorized to issue is
one thousand (1,000) shares of common stock.
3. (a) The complete address of the corporation's initial registered office
in Tennessee is: 5146 Raines Road, Memphis, Tennessee, 38118.
(b) The County in which the initial registered office is located is Shelby
County.
(c) The name of the initial registered agent at the corporation's initial
registered office is Robert Tisdale.
4. The name and complete address of the incorporator is: John D. Horne, 8
Third Street South, Fifth Floor, Memphis, Tennessee, 38103.
5. The complete address of the corporation's principal office is 5146
Raines Road, Memphis, Tennessee, 38118.
6. The corporation is for profit.
7. Other provisions: None.
Dated this 27th day of March, 1989.
/s/ John D. Horne
---------------------------
John D. Horne, Incorporator
<PAGE>
BYLAWS OF
INTERNATIONAL LOGOS, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1. Annual Meeting. The annual meeting of the shareholders shall be held at
such time and place, either within or without this state, as may be designated
from time to time by the Directors. Unless the time is otherwise specified by
the Directors, said meeting shall be held on the second Tuesday in April of each
year, or as close thereto as practicable.
2. Special Meetings. Special meetings of the shareholders may be called by
the President, a majority of the Board of Directors, or by the holders of not
less then 25% of all the shares entitled to vote at such meeting. The place of
said meetings shall be designated by the Directors.
3. Notice of Shareholder Meetings. Written or printed notice stating the
place, day and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called and the person or persons
calling the meeting, shall be delivered either personally or by mail by or at
the direction of the President, Secretary, officer or person calling the meeting
to each shareholder entitled to vote at the meeting. If mailed, such notice
shall be delivered not less than 10 nor more than 50 days before the date of the
meeting, and shall be deemed to be delivered with deposited in the United States
mail addressed
<PAGE>
to the shareholder at his address as it appears on the stock transfer books of
the corporation, with postage thereon pre-paid. The person giving such notice
shall certify that the notice required by this paragraph has been given.
4. Quorum Requirements. A majority of the shares entitled to vote shall
constitute a quorum for the transactions of business. When a quorum is present
at any meeting, a majority in interest of the stock there represented shall
decide any question brought before such meeting, unless the question is one upon
which, by express provision of this corporation's charter, these bylaws or by
the laws of the State of Georgia, a larger or different vote is required, in
which case such express provisions shall govern the decision of such question.
5. Voting and Proxies. Every shareholder entitled to vote at a meeting may
do so either in person or by written proxy, which proxy shall be filed with the
Secretary of the meeting before being voted. Such proxy shall entitle the
holders thereof to vote at any adjournment of such meeting, but shall not be
valid after the final adjournment thereof, unless otherwise provided in this
proxy. No proxy shall be valid after the expiration of 11 months from the date
of its execution unless otherwise provided in the proxy.
ARTICLE II
BOARD OF DIRECTORS
1. Qualification and Election. Directors need not be shareholders or
residents of this state, but must be of legal age.
2
<PAGE>
They shall be elected by a plurality of the votes cast at the annual meetings or
special meetings of the shareholders. Each Director shall hold office until the
expiration of the term for which he is elected and thereafter, until his
successor has been elected and qualified.
2. Number. The number of Directors shall be three, who shall comprise the
entire Board.
3. Meetings. The annua1 meeting of the Board of Directors shall be held
immediately after the annual meeting of the shareholders, at which time the
officers of the corporation shall be elected. The Board may also designate more
frequent intervals for regular meetings. Special meetings may be called at any
time by the Chairman of the Board, President or any two Directors.
4. Notice of Directors' Meetings. The annual and all regular Board meetings
may be held within or without the State of Georgia, without notice and at such
times as may be scheduled by the Board. Special meetings shall be held upon
notice sent by any usual means of communication not less than two days before
the meeting.
5. Quorum and Vote. The presence of a majority of the Directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the Directors present at a meeting at which a quorum is present shall be the act
of the Board, unless the vote of a greater number is required by the charter,
these bylaws or by the laws of the State of Tennessee.
3
<PAGE>
6. Indemnification of Directors. The corporation shall indemnify any and
all persons who may serve or who have served at any time as Directors or
officers, or who at the request of the Board of Directors of the corporation may
serve or at any time have served as Directors or officers of another corporation
in which the corporation at such time owned or may own shares of stock or of
which it was or may be a creditor, and their respective heirs, administrators,
successors and assigns, against any and all expenses, including amounts paid in
settlement (before or after suit is commenced), actually and necessarily
incurred by such persons in connection with the defense or settlement of any
claim, action, suit or proceeding in which they, or any of them, are made
parties, or a party, or which may be asserted against them or any of them, by
reason of being or having been Directors or officers or a Director or officer of
the corporation, or of such other corporation, except in relation to matters as
to which any such Director or officer or former Director or officer or person
shall be adjudged in any action, suit or proceeding to be guilty of willful
misfeasance of malfeasance in the performance of his duty. Such indemnification
shall be in addition to any rights to which those indemnified may be entitled
under any law, bylaw, agreement, vote of stockholders or otherwise.
7. Contracts with Interested Directors. No contract or other transaction
between this corporation and any other corporation shall be affected by the fact
that any Director of this corporation is interested in, or is a Director or
officer of, such
4
<PAGE>
other corporation, and any Director, individually or jointly, may be a party to,
or may be interested in, any contract or transaction of this corporation or in
which this corporation is interested; and no contract or other transaction of
this corporation with any person, firm or corporation, shall be affected by the
fact that any Director of this corporation is a party to, or is interested in,
such contract, act or transaction, or is in any way connected with such person,
firm or corporation and every person who may become a Director of this
corporation is hereby relieved from any liability that might otherwise exist
from contracting with the corporation for the benefit of himself or any firm,
association or corporation in which he may be in any way interested.
ARTICLE III
OFFICERS
1. Number. The corporation shall have a President and a Secretary and a
Treasurer and such other officers as the Board of Directors shall from time to
time deem necessary. Any two or more offices may be held by the same person,
except the offices of President and Secretary.
2. Election and Term. The officers shall be elected by the Board at its
annual or special meeting. Each officer shall serve until the expiration of the
term for which he is elected, and thereafter, until his successor has been
elected and qualified.
3. Duties. All officers shall have such authority and perform such duties
in the management of the corporation as are
5
<PAGE>
normally incident to their offices and as the Board of Directors may from time
to time provide.
4. Limitation of Power. The Board of Directors may from time to time set
limits to the power of any officer to commit the corporation, especially
concerning long term obligations, commercial policy, assortment of goods to be
sold, investments taking stake in other enterprises and real estate.
ARTICLE IV
RESIGNATIONS AND REMOVALS
1. Resignations. Any officer or Director may resign at any time by giving
written notice to the Chairman of the Board, the President or the Treasurer. Any
such resignation shall take effect at the time specified therein, or, if no time
is specified, then upon its acceptance by the Board of Directors.
2. Removal of Officers. Any officer or agent may be removed by the Board
whenever in its judgment the best interests of the corporation will be served
thereby.
3. Removal of Directors. Any or all of the Directors may be removed either
with or without cause by a proper vote of the holders of a majority of shares
entitled to vote at an election of Directors.
ARTICLE V
CAPITAL STOCK
1. Stock Certificates. Every shareholder shall be entitled to a certificate
or certificates of capital stock of the corporation in such form as may be
prescribed by the Board of
6
<PAGE>
Directors. Unless otherwise decided by the Board, such certificates shall be
signed by the President and the Secretary of the corporation.
2. Transfer of Shares. Shares of stock may be transferred on the books of
the corporation by delivery and surrender of the properly assigned certificate,
but subject to any restrictions on transfer imposed by either the applicable
securities laws or any shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation or destruction
of a certificate of stock, a duplicate certificate may be issued upon such terms
as the Board of Directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
Whenever the shareholders or Directors are required to permitted to take
any action by vote, such action may be taken without a meeting on written
consent, setting forth the action so taken, signed by all the persons or
entities entitled to vote thereon.
ARTICLE VII
AMENDMENT OF BYLAWS
These bylaws may be amended, added to or repealed only by a majority vote
of the shares represented at any duly constituted shareholders' meeting,
provided that a quorom is present.
7
<PAGE>
CERTIFICATION
I certify that these bylaws were adopted at the organizational meeting of
the corporation held on the 27th day of March, 1989.
/s/ John D. Horne
------------------------------
Incorporator
8
<PAGE>
CHARTER
OF
VARSITY/INTROPA TOURS, INC.
The undersigned person(s) under the Tennessee Business Corporation Act adopt(s)
the following charter for the above listed corporation:
1. The name of the corporation is Varsity/Intropa Tours, Inc.
- --------------------------------------------------------------------------------
[NOTE: Pursuant to Tennessee Code Annotated Section 48-14-101(a)(1), each
corporation name must contain the word "corporation", "incorporated", "company"
or "limited" or the abbreviation "corp", "inc.", "co." or "ltd.".]
2. The number of shares of stock the corporation is authorized to issue is
10,000
3. (a) The complete address of the corporation's initial registered office
in Tennessee is c/o C T CORPORATION SYSTEM;
530 Gay Street, Knoxville, Tennessee 37902
- --------------------------------------------------------------------------------
Street Address City State, Zip Code
County of Knox.
[NOTE: A street address and a zip code are both required by Tennessee Code
Annotated Section 48-12-102(a)(3).]
(b) The name of the initial registered agent, to be located at the address
listed in 3(a), is
C T CORPORATION SYSTEM
- --------------------------------------------------------------------------------
4. The name and complete address of each incorporator is:
Nina J. Zalenski 321 N. Clark St., Chicago, Illinois 60610
- --------------------------------------------------------------------------------
Name Address Zip Code
- --------------------------------------------------------------------------------
Name Address Zip Code
- --------------------------------------------------------------------------------
Name Address Zip Code
[NOTE: An address and zip code are both required by Tennessee Code Annotated
Section 48-12-102(a)(4).]
5. The complete address of the corporation's principal office is:
2525 Horizon Lake Drive, Memphis, Tennessee 38133
- --------------------------------------------------------------------------------
Street Address City State/Country Zip Code
[NOTE: A street address and a zip code are both required by Tennessee Code
Annotated Section 48-12-102(a)(5).]
6. The corporation is for profit.
7. Other provisions:
[NOTE: Insert here any provision(s) desired and permitted by law. Examples:
names and addresses of persons serving as the initial board of directors,
business purpose(s) of the corporation, management or regulation of affairs of
the corporation, provision limiting the personal liability of directors for
monetary damages for breach of fiduciary duty, etc. See Tennessee Code Annotated
Section 48-12-102(b).]
Nov. 11, 1999 /s/ Nina J. Zalenski
- ------------------------------- ---------------------------------------------
Signature Date Incorporator's Signature
Nina J. Zalenski
---------------------------------------------
Incorporator's Name (typed or printed)
<PAGE>
EXHIBIT B
BY-LAWS
OF
VARSITY/INTROPA TOURS, INC.
ARTICLE 1.
AMENDMENTS
Section 1.1. Amendment of By-Laws. These by-laws may be altered, amended or
repealed, and new by-laws may be adopted by the shareholders or by the board of
directors of the Corporation.
ARTICLE 2.
OFFICES
Section 2.1. Registered Office. The corporation shall continuously maintain
a registered office in the State of Tennessee which may, but need not be, the
same as its place of business, and a registered agent whose business office is
identical with such registered office.
Section 2.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Tennessee as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE 3.
SHARES
Section 3.1. Form of Shares. Shares either shall be represented by
certificates or shall be uncertificated shares.
3.1.1. Signing of Certificates. Certificates representing shares of
the corporation shall be signed by the appropriate officers and may be
sealed with the seal or a facsimile of the seal of the corporation if the
corporation uses a seal. If a certificate is countersigned by a transfer
agent or registrar, other than an employee of the corporation, any other
signatures may be facsimile. Each certificate representing shares shall be
consecutively numbered or otherwise identified, and shall also state the
name of the person to whom issued, the number and class of shares (with
designation of series, if any), the date of issue, that the corporation is
organized under Tennessee law, and any other information required by law.
<PAGE>
3.1.2. Uncertificated Shares. Unless prohibited by the articles of
incorporation, the board of directors may provide by resolution that some
or all of any class or series of shares shall be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate
until the certificate (or such documentation as may be allowed under
Section 3.2 below) has been surrendered to the corporation. Within a
reasonable time after the issuance or transfer of uncertificated shares,
the corporation shall send the registered owner thereof a written notice of
all information that would appear on a certificate. Except as otherwise
expressly provided by law, the rights and obligations of the holders of
uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
3.1.3. Identification of Shareholders. The name and address of each
shareholder, the number and class of shares held and the date on which the
shares were issued shall be entered on the books of the corporation. The
person in whose name shares stand on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation.
Section 3.2. Lost, Stolen or Destroyed Certificates. If a certificate
representing shares has allegedly been lost, stolen or destroyed, the board of
directors may in its discretion, except as may be required by law, direct that a
new certificate be issued upon such indemnification and other reasonable
requirements as it may impose.
Section 3.3. Transfers of Shares. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature or other appropriate assurances that
the endorsement is effective. Transfer of an uncertificated share shall be made
on receipt by the corporation of an instruction from the registered owner or
other appropriate person. The instruction shall be in writing or a communication
in such form as may be agreed upon in writing by the corporation.
ARTICLE 4.
SHAREHOLDERS
Section 4.1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and the transaction of any other proper business shall be
held in or out of Tennessee at such time, date and place to be designated by the
Board of Directors.
2
<PAGE>
Section 4.2. Special Meetings. Special meetings of the shareholders may be
called by the president, by the board of directors, by the holders of not less
than one-fifth of all the outstanding shares of the corporation entitled to vote
on the matter for which the meeting is called, or by such other officers or
persons as may be provided for in the articles of incorporation.
Section 4.3. Place of Meeting. The board of directors may designate the
place of meeting for any annual or special meeting of shareholders. In the
absence of any such designation, the place of meeting shall be the principal
place of business of the corporation.
Section 4.4. Notice of Meetings. For all meetings of shareholders, a
written or printed notice of the meeting shall be delivered, personally or by
mail, to each shareholder of record entitled to vote at such meeting, which
notice shall state the place, date and hour of the meeting. For all special
meetings and when and as otherwise required by law, the notice shall state the
purpose or purposes of the meeting. The notice of the meeting shall be given not
less than 10 nor more than 60 days before the date of the meeting, or in the
case of a meeting involving a merger, consolidation, share exchange, dissolution
or sale, lease or an exchange of all or substantially all, of the property or
assets of the corporation not less than 20 nor more than 60 days before the date
of such meeting. If mailed, such notice shall be deemed to have been delivered
when deposited in the United States mail, postage prepaid, directed to the
shareholder at his or her address as it appears on the records of the
corporation. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless otherwise
required by law.
Section 4.5. Quorum of Shareholders. The holders of a majority of the
outstanding shares of the corporation entitled to vote on a matter, present in
person or represented by proxy, shall constitute a quorum for consideration of
such matter at any meeting of shareholders unless a greater or lesser number is
required by the articles of incorporation. At any adjourned meeting at which a
quorum is present or represented, any business may be transacted which might
have been transacted at the original meeting, unless otherwise required by law.
Withdrawal of shareholders from any meeting shall not cause failure of a duly
constituted quorum at the meeting, unless otherwise required by law.
Section 4.6. Manner of Acting. The affirmative vote of holders of a
majority of the shares represented at a meeting and entitled to vote on a matter
at which a quorum is present shall be valid action by the shareholders, unless
voting by a greater number of shareholders or voting by class or classes of
shareholders is required by law or the articles of incorporation.
Section 4.7. Fixing of Record Date. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled
3
<PAGE>
to receive payment of a dividend, or in order to make a determination of
shareholders for any other proper purpose, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. If a record date is specifically set for
the purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than 60 days and, for a meeting of shareholders, not less than 10 days, or
in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, not less than 20 days, immediately preceding such
meeting. When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof.
Section 4.8. Voting Lists. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the number
of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any shareholders, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof kept
in the State of Tennessee, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
Section 4.9. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest in the shares or in the corporation generally.
Section 4.10. Voting of Shares by Certain Holders. Shares of a corporation
held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote
at any given time.
4.10.1 Shares Held by Corporation. Shares registered in the name of
another corporation, domestic or foreign, may be voted by any officer,
agent, proxy or other legal representative authorized to vote such shares
under the laws of the state of incorporation of
4
<PAGE>
such corporation. This corporation shall treat the president or other
person holding the chief executive office of such other corporation as
authorized to vote such shares. However, such other corporation may
designate any other person or any other holder of an office of the
corporate shareholder to this corporation as the person or officeholder
authorized to vote such shares. Such persons or offices indicated shall be
registered by this corporation on the transfer books for shares and
included in any voting list prepared in accordance with Section 4.8 of this
Article.
4.10.2. Shares Held by Fiduciary. Shares registered in the name of a
deceased person, a minor ward or a person under legal disability may be
voted by his or her administrator, executor, or court appointed guardian,
either in person or by proxy, without a transfer of such shares into the
name of such administrator, executor, or court appointed guardian. Shares
registered in the name of a trustee may be voted by him or her, either in
person or by proxy.
4.10.3. Shares Held by Receiver. Shares registered in the name of a
receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer
thereof into his or her name if authority so to do is contained in an
appropriate order of the court by which such receiver was appointed.
4.10.4. Shares Pledged. A shareholder whose shares are pledged shall
be entitled to vote such shares until the shares have been transferred into
the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
Section 4.11. Inspectors. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Inspectors shall:
4.11.1. Vote Count and Report. Determine the validity and effect of
proxies; ascertain and report the number of shares represented at the
meeting; count all votes and report the results; and perform such other
acts as are required and appropriate to conduct all elections with
impartiality and fairness to the shareholders.
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<PAGE>
4.11.2. Written Reports. Each report shall be in writing and such
report shall be signed by the inspector or by a majority of them if there
be more than one inspector acting at such meeting. If there is more than
one inspector, the report of a majority shall be the report of the
inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be
prima facie evidence thereof.
Section 4.12. Informal Action by Shareholders. Any action required to be
taken at any annual or special meeting of the shareholders of the corporation,
or any other action which may be taken at a meeting of the shareholders, may
also be taken without such a meeting if a written consent, setting forth the
action so taken, shall be signed (i) by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voting or (ii) by all of the shareholders entitled to vote with
respect to the subject matter thereof. If such consent is signed by less than
all of the shareholders entitled to vote, then such consent shall become
effective only if at least 5 days prior to the execution of the consent a notice
in writing is delivered to all the shareholders entitled to vote with respect to
the subject matter thereof and, after the effective date of the consent, prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be delivered in writing to those shareholders
who have not consented in writing.
Section 4.13. Notice to Shareholders Not Signing. Prompt notice of the
taking of the corporation action by less than unanimous written consent shall be
given in writing to those shareholders who have not consented in writing. In the
event that the action which is consented to is such as would have required the
filing of a certificate under any Section of the Tennessee Business Corporation
Act if such action had been voted on by the shareholders at a meeting thereof,
the certificate filed under such Tennessee Business Corporation Act Section
shall state, in lieu of any statement required by such Section concerning any
vote of shareholders, that written consent has been given in accordance with the
provisions of said Section and that written notice to non-consenting
shareholders has been given as provided by law.
Section 4.14. Waiver of Notice. Whenever any notice whatever is required to
be given under the provisions of the law, the articles of incorporation or these
by-laws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
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ARTICLE 5.
DIRECTORS
Section 5.1. General Powers and Qualifications. The business and affairs of
the corporation shall be managed by or under the direction of its board of
directors. Directors need not be residents of the State of Tennessee or
shareholders of the corporation.
Section 5.2. Number, Tenure and Resignation. The number of directors of the
corporation shall be a minimum of one. The number of directors may be increased
or decreased from time to time by resolution of shareholders or directors,
within the minimum and maximum limitations prescribed by this Section without
further amendment to the by-laws; provided, however, that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Each director shall hold office until the last to occur of
the next annual meeting of shareholders or until his or her successor is elected
and has qualified. A director may resign at any time by written notice to the
board, its chairman, or the president or secretary of the corporation. The
resignation is effective on the date it bears, or its designated effective date.
Section 5.3. Quorum of Directors. A majority of the number of directors
fixed in Section 5.2 of this Article shall constitute a quorum for the
transaction of business at any meeting of the board of directors; provided
however, that if less than a majority of the number of directors fixed in
Section 5.2 of this Article is present at a meeting, a majority of the directors
present may adjourn the meeting at any time without further notice, unless
otherwise required by law.
Section 5.4. Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by law or these
by-laws.
Section 5.5. Vacancies. Any vacancy occurring in the board of directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting or at a special meeting
of shareholders called for that purpose. A director elected to fill a vacancy
shall hold office until the next annual meeting of shareholders at which his or
his predecessor's term would have expired.
Section 5.6. Removal of Directors. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders, by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors (or such greater percentage as may be provided
in the articles of incorporation), except as follows:
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5.6.1. Notice of Meeting. No director shall be removed at a meeting of
shareholders unless the notice of such meeting shall state that a purpose
of the meeting is to vote upon the removal of one or more directors named
in the notice. Only the named director or directors may be removed at such
meeting.
Section 5.7. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the place, date and hour for the holding of
additional regular meetings of the board of directors, without other notice than
such resolution.
Section 5.8. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president, any two directors or any
one director if the board of directors consists of two or less members. The
person or persons authorized to call special meetings of the board of directors
may fix the place for holding any special meeting of the board of directors
called by them.
Section 5.9. Notice. Notice of any special meeting of the board of
directors shall be given at least two days prior to the meeting by written
notice delivered personally, by mail, telegram, or telex to each director at his
or her business address. If mailed, such notice shall be deemed to have been
delivered when deposited in the United States mail in a sealed envelope so
addressed, with postage prepaid thereon. If notice is given by telegram, such
notice shall be deemed to have been delivered when the telegram is delivered to
the telegraph company. If notice is given by telex, such notice shall be deemed
to have been delivered when the telex message is delivered to the telex
operator. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 5.10. Presumption of Assent. A director of the corporation who has
been present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken, unless his or her dissent shall have been entered in the minutes
of the meeting or unless he or she shall have filed his or her written dissent
to such action with the person acting as the secretary of the meeting before the
adjournment thereof, or shall have forwarded such dissent by registered mail or
certified mail to the secretary of the corporation immediately after the
adjournment of the meeting. No director who voted in favor of any action may
dissent from such action after adjournment of the meeting.
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Section 5.11. Committees. A majority of the directors may, by resolution
passed by a majority of the number of directors fixed by the shareholders under
Section 5.2 of this Article, create one or more committees and appoint members
of the board to serve on the committee or committees. Each committee shall have
two or more members, who serve at the pleasure of the board.
5.11.1. Quorum. A majority of any committee shall constitute a
quorum and a majority of the quorum is necessary for committee action.
A committee may act by unanimous written consent without a meeting
and, subject to the provisions of the by-laws or action by the board
of directors, the committee, by majority vote of its members, shall
fix the time and place of meetings and the notice required therefor.
5.11.2. Authority and Restrictions. To the extent specified by
the board of directors, each committee may exercise the authority of
the board of directors, provided, however, a committee may not
exercise the following powers;
5.11.3. Authorize Distributions. Authorize distributions, except
for dividends to be paid with respect to shares of any preferred or
special classes or any series thereof;
5.11.4. Act for Shareholders. Approve or recommend to the
shareholders any act which the Tennessee Business Corporation Act
requires to be approved by shareholders;
5.11.5. Board Vacancies. Fill vacancies on the board or any of
its committees;
5.11.6. Officers and Compensation. Elect or remove officers or
fix the compensation of any member of the committee;
5.11.7. By-Laws. Adopt, amend or repeal the by-laws;
5.11.8. Merger. Approved a plan of merger not requiring
shareholder approval;
5.11.9. Share Reacquisition. Authorize or approve reacquisition
of shares, except according to the general formula or method
prescribed by the board;
5.11.10. Share Sale or Issuance. Authorize or approve the
issuance or sale, or contract for sale, of shares or determine the
designation and relative rights, preferences, and limitations of a
series of shares, except that the board may direct a committee to fix
the specific terms of the issuance or sale or contract for sale, or of
the number of shares to be allocated to particular employees under an
employee benefit plan; or
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5.11.11. Resolution of Board. Amend, alter, repeal, or take
action inconsistent with any resolution or action of the board of
directors when the resolution or action of the board of directors by
its terms states that it shall not be amended, altered or repealed by
action of a committee.
Section 5.12. Informal Action by Directors. Any action required by the
Tennessee Business Corporation Act to be taken at a meeting of the board of
directors of the corporation, or any other action which may be taken at a
meeting of the board of directors or a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof, or by all members of such committee, as the case may be.
5.12.1 Effective Date. The consent shall be evidenced by one or
more written approvals, each of which sets forth the action taken and
bears the signature of one or more directors. All the approvals
evidencing the consent shall be delivered to the secretary to be
filed in the corporate records. The action taken shall be effective
when all the directors have approved the consent unless the consent
specifies a different effective date.
5.12.2. Effect of Consent. Any consent signed by all the
directors or all the members of a committee shall have the same effect
as a unanimous vote, and may be stated as such in any document filed
with the Secretary of State under the Tennessee Business Corporation
Act.
Section 5.13. Meeting by Conference Telephone. Members of the board of
directors or of any committee of the board of directors may participate in and
act at any meeting of the board or committee by means of conference telephone or
other communications equipment through which all persons participating in the
meeting can hear each other. Participation in such a meeting shall be equivalent
to attendance and presence in person at the meeting of the person or persons so
participating.
Section 5.14 Compensation. The board of directors, by the affirmative vote
of a majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise.
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ARTICLE 6.
OFFICERS
Section 6.1. Number. The officers of the corporation shall consist of a
president and a secretary and may also consist of one or several vice
presidents, a treasurer, one or more assistant treasurers, one or more assistant
secretaries and such other officers as may be elected in accordance with the
provisions of this Article. Except for the offices of president and secretary,
any two or more offices may be held by the same person.
Section 6.2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as reasonably practicable. Subject to the provisions of
Section 6.3 hereof, each officer shall hold office until the last to occur of
the next annual meeting of the board of directors or until the election and
qualification of his or her successor. Election of an officer shall not of
itself create contract rights.
Section 6.3. Removal of Officers. Any officer elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 6.4. Vacancies; New Offices. A vacancy occurring in any office may
be filled and new offices may be created and filled, at any time, by the board
of directors.
Section 6.5. President. The president shall be the chief executive officer
of the corporation. He or she shall be in charge of the day to day business and
affairs of the corporation, subject to the direction and control of the board
of directors. He or she shall preside at all meetings of the board of directors.
He or she shall have the power to appoint such agents and employees as in his or
her judgment may be necessary or proper for the transaction of the business of
the corporation. He or she may sign: (i) with the secretary or other proper
officer of the corporation thereunto authorized by the board of directors, stock
certificates of the corporation the issuance of which shall have been authorized
by the board of directors; and (ii) any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument.
Section 6.6. Vice President(s). The vice president (or in the event there
is more than one vice president, each of them) shall assist the president in the
discharge of his or her duties as the president may direct, and shall perform
such other duties as from time to time may be assigned to
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him or her (or them) by the president or the board of directors. In the absence
of the president, the vice president (or vice presidents, in the order of their
election), shall perform the duties and exercise the authority of the president.
Section 6.7. Treasurer. The treasurer shall have charge and custody of and
be responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be in accordance with the
provisions of Article 8 of these by-laws, have charge of and be responsible for
the maintenance of adequate books of account for the corporation, and, in
general, perform all duties incident to the office of treasurer and such other
duties not inconsistent with these by-laws as from time to time may be assigned
to him or her by the president or the board of directors.
Section 6.8. Secretary. The secretary shall keep the minutes of the
shareholders' and the board of directors' meetings, see that all notices are
duly given in accordance with the provisions of these by-laws or as required by
law, have general charge of the corporate records and of the seal of the
corporation, have general charge of the stock transfer books of the corporation,
keep a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder, sign with the president, or any
other officer thereunto authorized by the board of directors, certificates for
shares of the corporation, the issuance of which shall have been authorized by
the board of directors, and any contracts, deeds, mortgages, bonds, or other
instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument, and, in general,
perform all duties incident to the office of secretary and other such duties not
inconsistent with these by-laws as from time to time may be assigned to him or
her by the president or the board of directors.
Section 6.9. Assistant Treasurers and Assistant Secretaries. The board of
directors may elect one or more than one assistant treasurer and assistant
secretary. In the absence of the treasurer, or in the event of his or her
inability or refusal to act, the assistant treasurers, in the order of their
election, shall perform the duties and exercise the authority of the treasurer.
In the absence of the secretary, or in the event of his or her inability or
refusal to act, the assistant secretaries, in the order of their election, shall
perform the duties and exercise the authority of the secretary. The assistant
treasurers and assistant secretaries, in general, shall perform such other
duties not inconsistent with these by-laws as shall be assigned to them by the
treasurer or the secretary, respectively, or by the president or the board of
directors.
Section 6.10. Compensation. The compensation of all directors and officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such compensation by reason of the fact that he or she
is also a director of the corporation. All
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compensation so established shall be reasonable and solely for services rendered
to the corporation.
6.10.1. Compensation and Expense Disallowance. Unless otherwise
provided by the board of directors, all payments made to a director or
officer of the corporation, including, but not limited to salary,
commission, bonus, interest, travel and entertainment expenses and
deferred compensation payments, which shall be disallowed, in whole or
in part, as a deductible expense by the Internal Revenue Service,
shall be reimbursed by such director or officer of the corporation to
the full extent of such disallowance. The proper corporate officers
are authorized and directed to effect collection on behalf of the
corporation for each amount disallowed. in lieu of a payment by the
director or officer, subject to the determination of the board of
directors, appropriate amounts may be withheld from future
compensation payments paid to such director or officer until the
amount owed the corporation is recovered. This by-law shall be
considered a term and condition of employment for each director and
officer of the corporation, unless specifically waived in writing by
the board of directors.
ARTICLE 7.
INDEMNIFICATION BY CORPORATION
Section 7.1. Indemnification of Directors and Officers. The corporation
shall, to the fullest extent to which it is empowered to do so and in accordance
with the procedures required by the Tennessee Business Corporation Act or any
other applicable laws, as may from time to time be in effect, indemnify any
person who was or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses, including attorneys'
fees, judgments, fines and amounts incurred by him or her in connection with
such action, suit or proceeding.
Section 7.2. Contract with the Corporation. The provisions of Section 7.1
of this Article shall be deemed to be a contract between the corporation and
each director or officer who serves in any such capacity at any time while said
Section 7.1 and the relevant provisions of the Tennessee Business Corporation
Act or other applicable laws, if any, are in effect, and any repeal or
modification of any such law or of said Section 7.1 shall not affect any state
of facts then or theretofore existing or any action, suit or proceeding
theretofore existing or thereafter brought or
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threatened based in whole or in part upon any such state of facts. In the event
a person entitled to indemnification under this Article claims indemnification,
the corporation shall take all required action to bring about a prompt and good
faith determination of such person's right to indemnification hereunder.
Section 7.3. Indemnification of Employees and Agents. Persons who are not
covered by the foregoing provisions of this Article and who are or were
employees or agents of the corporation, or are or were serving at the request of
the corporation as employees or agents of another corporation, joint venture,
partnership, trust or other enterprise, may be indemnified to the extent the
corporation is empowered to do so by the Tennessee Business Corporation Act or
any other applicable laws, when and as authorized at any time from time to time
by the board of directors in its sole discretion.
Section 7.4. Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of a
written agreement by or on behalf of a director and an officer to undertake to
repay such amount, unless it shall ultimately be determined that he or she is
entitled to be indemnified by the corporation as authorized in this article. The
provisions of this Section shall apply to employees or agents when the board of
directors has authorized such indemnification under the provision of Section 7.3
hereof.
Section 7.5. Other Rights of Indemnification. The indemnification provided
or permitted by this Article shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled by law, agreement or
otherwise, and shall continue as to a person who ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 7.6. Liability Insurance. The corporation shall have the power to
purchase and maintain, on behalf of any person who is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, insurance
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article.
Section 7.7. Report to Shareholders. If the corporation has paid indemnity
or has advanced expenses to a director, officer, employee, or agent, the
corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders' meeting.
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ARTICLE 8.
FISCAL MATTERS
Section 8.1. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 8.2. Contracts. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument, in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 8.3. Loans and Indebtedness. No substantial or material loans shall
be contracted on behalf of the corporation and no evidences of indebtedness
shall be issued in its name unless authorized by a resolution of the board of
directors. Such authority may be general or confined to specific instances.
Section 8.4. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation as the board of directors shall from time to time
designate.
Section 8.5. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE 9.
GENERAL PROVISIONS.
Section 9.1. Dividends and Distributions. The board of directors may from
time to time declare or otherwise authorize, and the corporation may pay
distributions in money, shares or other property on its outstanding shares in
the manner and upon the terms, conditions and limitations provided by law or
articles of incorporation.
Section 9.2. Corporate Seal. The board of directors may provide a corporate
seal which seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any manner reproduced. The seal of the corporation shall be in
the form of a circular disk bearing the name of the corporation and a reference
to Tennessee being the state of incorporation.
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Section 9.3. Waiver of Notice. Whenever any notice is required to be given
by law, articles of incorporation or under the provisions of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
Section 9.4. Headings. Section or paragraph headings are inserted herein
only for convenience of reference and shall not be considered in the
construction of any provision hereof.
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ARTICLES OF INCORPORATION
OF
VARSITY SPIRIT FASHIONS & SUPPLIES, INC.
The undersigned individual, being of full age, for the purpose of forming a
corporation under and pursuant to Chapter 302A of the Minnesota Statutes, as
amended, hereby adopts the following Articles of Incorporation:
ARTICLE 1 - NAME
1.1) The name of the corporation shall be Varsity Spirit Fashions &
Supplies, Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at 111 Market
Street, Winona, Minnesota 55987.
ARTICLE 3 - CAPITAL STOCK
3.1) Authorized Shares; Establishment of Classes and Series. The aggregate
number of shares the corporation has authority to issue shall be 50,000 shares,
which shall have a par value of $.01 per share solely for the purpose of a
statute or regulation imposing a tax or fee based upon the capitalization of the
corporation. The Board of Directors may establish such classes or series with
such designation, rights and preferences as the Board shall establish by
resolution adopted and filed in the manner provided by law.
3.2) Issuance of Shares. Upon the approval of holders of at least a
majority of the voting power of all shares entitled to vote, the Board of
Directors of the corporation shall accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation including shares issued
to effectuate share dividends or splits, to such persons, at such times and upon
such terms and conditions as are approved by such holders of at least a majority
of the voting power of all shares entitled to vote, (such holders, by
resolution, valuing all nonmonetary consideration and establishing a price in
money or other consideration, or a minimum price, or a general formula or method
by which the price will be determined).
3.3) Issuance of Rights to Purchase Shares. Upon the approval of holders of
at least a majority of the voting power of all shares entitled to vote, the
Board of Directors of the
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corporation shall from time to time grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, in accordance with the terms, provisions and
conditions approved for such rights (including the conversion basis or the price
at which such shares may be purchased or subscribed for) by such holders of a
majority of the voting power of the shares entitled to vote.
3.4) Issuance of Shares to Holders of Another Class or Series. The Board is
further authorized to issue shares of one class or series to holders of that
class or series or to holders of another class or series to effectuate share
dividends or splits.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) Preemptive Rights. No shares of any class or series of the corporation
shall entitle the holders to any preemptive rights to subscribe for or purchase
additional shares of that class or series or any other class or series of the
corporation now or hereafter authorized or issued.
4.2) No Cumulative Voting Rights. There shall be no cumulative voting by
the shareholders of the corporation.
ARTICLE 5 - DIRECTORS
5.1) The names of the persons constituting the first Board of Directors are
as follows:
J. Theodore Biesanz
John David
Richard J. Pope
Jeffrey G. Webb
Greg Webb
Robert Tisdale
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.
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ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) After the issuance of shares by the corporation, any provision
contained in these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority of the
voting power of the shares present and entitled to vote at a duly held meeting
or such greater percentage as may be otherwise prescribed by the laws of the
State of Minnesota.
ARTICLE 8 - AMENDMENT OF BYLAWS
8.1) After the initial Bylaws of the corporation are adopted by the
incorporators or first Board in the manner provided by law, no bylaw may be
adopted, amended or repealed unless approved by the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote.
ARTICLE 9 - INCORPORATOR
9.1) The name and mailing address of the incorporator are as follows:
Earl F. Colborn, Jr.
4744 IDS Center
Minneapolis, Minnesota 55402
IN WITNESS WHEREOF, the undersigned incorporator has hereunto set his hand
this 27th day of June, 1983.
/s/ Earl F. Colborn, Jr.
-------------------------------
Earl F. Colborn, Jr.
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoinq instrument was acknowledged before me this 27th day of June,
1983, by Earl F. Colborn, Jr.
(Notarial Seal) /s/ Dianne S. Maciosek
-------------------------------
Notary Public
Dianne S. Maciosek
NOTARY PUBLIC - MINNESOTA
HENNEPIN COUNTY
My Commission Expires Apr. 8, 1990
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BYLAWS
OF
VARSITY SPIRIT FASHIONS & SUPPLIES, INC.
ARTICLE 1.
OFFICES
1.1) Offices. The principal executive office of the corporation shall be
111 Market Street, Winona, Minnesota 55987, and the corporation may have offices
at such other places within or without the State of Minnesota as the Board of
Directors shall from time to time determine or the business of the corporation
requires.
ARTICLE 2.
MEETINGS OF SHAREHOLDERS
2.1) Regular Meetings. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief executive
officer; provided, that if a regular meeting has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding 3% or
more of the voting power of all shares entitled to vote may demand a regular
meeting of shareholders by written notice of demand given to an officer of the
corporation. At each regular meeting, the shareholders, voting as provided in
the Articles of Incorporation and these Bylaws, shall elect qualified successors
for directors who serve for an indefinite term or whose terms have expired or
are due to expire within six months after the date of the meeting, and shall
transact such other business as shall come before the meeting. No meeting shall
be considered a regular meeting unless specifically designated as such in the
notice of meeting or unless all the shareholders entitled to vote are present in
person or by proxy and none of them objects to such designation.
2.2) Special Meetings. Special meetings of the shareholders entitled to
vote may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder or
shareholders holding ten percent (10%) or more of the voting power of all shares
entitled to vote.
2.3) Place of Meetings. Meetings of the shareholders shall be held at the
principal executive office of the corporation or at such other place, within or
without the State of Minnesota, as is designated by the Board of Directors,
except
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that a regular meeting called by or at the demand of a shareholder shall be held
in the county where the principal executive office of the corporation is
located.
2.4) Notice of Meetings. There shall be mailed to each holder of shares
entitled to vote, at his address as shown by the books of the corporation, a
notice setting out the place, date and hour of any regular or special meeting,
which notice shall be mailed not less than two (2) days nor more than sixty (60)
days prior to the date of the meeting; provided, that notice of a meeting at
which there is to be considered a proposal (i) to dispose of all, or
substantially all, of the property and assets of the corporation or (ii) to
dissolve the corporation shall be mailed to all shareholders of record, whether
or not entitled to vote; and provided further, that notice of a meeting at which
there is to be considered a proposal to adopt a plan of merger or exchange shall
be mailed to all shareholders of record, whether or not entitled to vote, at
least fourteen (14) days prior thereto. Notice of any special meeting shall
state the purpose or purposes of the proposed meeting, and the business
transacted at all special meetings shall be confined to the purposes stated in
the notice, unless all of the shareholders are present in person or by proxy and
none of them objects to consideration of a particular item of business.
Attendance at a meeting by any shareholder, without objection by him, shall
constitute his waiver of notice of the meeting.
2.5) Quorum and Adjourned Meeting. The holders of a majority of the voting
power of the shares entitled to vote at a meeting, represented either in person
or by proxy, shall constitute a quorum for the transaction of business at any
regular or special meeting of shareholders. If a quorum is present when a duly
called or held meeting is convened, the shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any meeting,
those present shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the requisite
number of shares entitled to vote shall be represented. At such adjourned
meeting at which the required amount of shares entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the original meeting.
2.6) Voting. At each meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy duly appointed
by an instrument in writing subscribed by such shareholder. Each shareholder
shall have one (1) vote for each share having voting power standing in his name
on the books of the corporation except as may be
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otherwise provided in the terms of the share or as may be required to provide
for cumulative voting (if not denied by the Articles). Upon the demand of any
shareholder, the vote for directors or the vote upon any question before the
meeting shall be by ballot. All elections shall be determined and all questions
decided by a majority vote of the number of shares entitled to vote and
represented at any meeting at which there is a quorum except in such cases as
shall otherwise be required by statute, the Articles of Incorporation or these
Bylaws. Except as may otherwise be required to conform to cumulative voting
procedures, directors shall be elected by a plurality of the votes cast by
holders of shares entitled to vote thereon.
2.7) Record Date. The Board of Directors may fix a time, not exceeding
sixty (60) days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of and
entitled to vote at such meeting, notwithstanding any transfer of any shares on
the books of the corporation after any record date so fixed. The Board of
Directors may close the books of the corporation against transfer of shares
during the whole or any part or such period. In the absence of action by the
Board, only shareholders of record twenty (20) days prior to a meeting may vote
at such meeting.
2.8) Order of Business. The suggested order of business at any regular
meeting and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:
(a) Call of roll
(b) Proof of due notice of meeting or waiver of notice
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of directors
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 3.
DIRECTORS
3.1) General Powers. Except as authorized by the shareholders pursuant to a
shareholder control agreement or unanimous affirmative vote, the business and
affairs of the corporation shall be managed by or under the direction of a Board
of Directors.
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3.2) Number, Term and Qualifications. The Board of Directors shall consist
of one or more members. The number of members of the first Board (if not named
in the Articles of Incorporation) shall be determined by the incorporators or
shareholders. Thereafter, at each regular meeting, the shareholders shall
determine the number of directors; provided, that between regular meetings the
authorized number of directors may be increased or decreased by the shareholders
or increased by the Board of Directors. Each director shall serve for an
indefinite term that expires at the next regular meeting of shareholders, and
until his successor is elected and qualified, or until his earlier death,
resignation, disqualification, or removal as provided by statute.
3.3) Vacancies. Vacancies on the Board of Directors shall be filled by the
affirmative vote on a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from an
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the shareholders, who may make such election at the next regular or
special meeting of the shareholders.
3.4) Quorum and Voting. A majority of the directors currently holding
office shall constitute a quorum for the transaction of business. Except as
otherwise provided in the Articles of Incorporation or these Bylaws, the acts of
a majority of the directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors.
3.5) Board Meetings; Place and Notice. Meetings of the Board of Directors
may be held from time to time at any place within or without the State of
Minnesota that the Board of Directors may designate but such meetings shall be
conducted no less frequently than once per fiscal quarter. In the absence of
designation by majority of the Board of Directors, orally, or in writing, board
meetings shall be held at the principal executive office of the corporation.
Any director may call a board meeting by giving 24 hours notice to all directors
of the date and time of the meeting. The notice need not state the purpose of
the meeting, and may be given by mail, telephone, telegram, or in person. If a
meeting schedule is adopted by the Board, or if the date and time of a board
meeting has been announced at a previous meeting, no notice is required.
3.6) Absent Directors. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
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consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes of the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or objected.
3.7) Compensation. Directors who are not salaried officers of the
corporation shall receive such fixed sum per meeting attended or such fixed
annual sum or both as shall be determined from time to time by resolution of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving this corporation in any other capacity and receiving
proper compensation therefor.
3.8) Committees. The Board of Directors may, by resolution approved by the
affirmative vote of majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation only
to the extent provided in the resolution. Each such committee shall consist of
one or more natural persons (who need not be directors) appointed by affirmative
vote of a majority of the directors present, and shall be subject at all times
to the direction and control of the Board. A majority of the members of a
committee present at a meeting shall constitute a quorum for the transaction of
business.
3.9) Committee of Disinterested Persons. The Board may establish a
committee composed of two or more disinterested directors or other disinterested
persons to determine whether it is in the best interests of the corporation to
pursue a particular legal right or remedy of the corporation and whether to
cause the dismissal or discontinuance of a particular proceeding that seeks to
assert a right or remedy on behalf of the corporation. For purposes of this
section, a director or other person is "disinterested" if the director or other
person is not the owner of more than one percent of the outstanding shares of,
or a present or former officer, employee, or agent of, the corporation or of a
related corporation and has not been made or threatened to be made a party to
the proceeding in question. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority vote of the remaining members. The good
faith determinations of the committee are binding upon the corporation and its
directors, officers and shareholders. The committee terminates when it issues a
written report of its determinations to the Board.
3.10) Order of Business. The suggested order of business at any meeting of
the Board of Directors shall, to the extent appropriate and unless modified by
the presiding chairman, be:
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(a) Roll call
(b) Proof of due notice of meeting or waiver of notice, or unanimous
presence and declaration by presiding chairman
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of officers
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 4.
OFFICERS
4.1) Number and Designation. The corporation shall have one or more natural
persons exercising the functions of the offices of chief executive officer and
chief financial officer. The Board of Directors may elect or appoint such other
officers or agents as it deems necessary for the operation and management of the
corporation including, but not limited to, a Chairman of the Board, a President,
one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board. Any of the offices or functions of
those offices may be held by the same person.
4.2) Election, Term of Office and Qualification. At the first meeting of
the Board following each election of directors, the Board shall elect officers,
who shall hold office until the next election of officers or until their
successors are elected or appointed and qualify; provided, however, that any
officer may be removed with or without cause by the affirmative vote of a
majority of the Board of Directors present (without prejudice, however, to any
contract rights to such officer).
4.3) Resignation. Any officer may resign at any time by giving written
notice to the corporation. The resignation is effective when notice is given to
the corporation, unless a later date is specified in the notice, and acceptance
of the resignation shall not be necessary to make it effective.
4.4) Vacancies in Office. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
shall be filled for the unexpired term by the Board of Directors.
4.5) Chief Executive Officer. Unless provided otherwise by a resolution
adopted by the Board of Directors, the
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chief executive officer (a) shall have general active management of the business
of the corporation; (b) shall, when present and in the absence of the Chairman
of the Board, preside at all meetings of the shareholders and Board of
Directors; (c) shall see that all orders and resolutions of the Board are
carried into effect; (d) shall sign and deliver in the name of the corporation
any deeds, mortgages, bonds, contracts or other instruments, pertaining to the
business of the corporation and which have been approved by a majority of the
Board of Directors, except in cases in which the authority to sign and deliver
is required by law to be exercised by another person or is expressly delegated
by the articles, these bylaws or the board to some other officer or agent of the
corporation; (e) may maintain records of and certify proceedings of the board
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to him by the Board.
4.6) Chief Financial Officer. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time; (c) shall endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.
4.7) Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy affecting
the affairs of the corporation, including particularly its financial and fiscal
affairs.
4.8) President. Unless otherwise determined by the Board, the President
shall be the chief executive officer. If an officer other than the President is
designated chief executive officer, the President shall perform such duties as
may from time to time be assigned to him by the Board.
4.9) Vice President. Each Vice President shall have such powers and shall
perform such duties as may be specified in these Bylaws or prescribed by the
Board of Directors. In the event of absence or disability of the President, the
Board of Directors may designate a Vice President or Vice Presidents to succeed
to the power and duties of the President.
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4.10) Secretary. The Secretary shall, unless otherwise determined by the
Board, be secretary of and attend all meetings of the shareholders and Board of
Directors, and may record the proceedings of such meetings in the minute book of
the corporation and, whenever necessary, certify such proceedings. The Secretary
shall give proper notice of meetings of shareholders and shall perform such
other duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.
4.11) Treasurer. Unless otherwise determined by the Board, the Treasurer
shall be the chief financial officer of the corporation. If an officer other
than the Treasurer is designated chief financial officer, the Treasurer shall
perform such duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.
4.12) Delegation. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may delegate in writing some or all of the duties and
powers of his office to other persons.
ARTICLE 5.
INDEMNIFICATION
5.1) The corporation shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, and to such extent, as
permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter
amended.
ARTICLE 6.
SHARES AND THEIR TRANSFER
6.1) Certificate of Stock. Every owner of stock of the corporation shall be
entitled to a certificate, in such form as the Board of Directors may prescribe,
certifying the number of shares of stock of the corporation owned by him. The
certificates for such stock shall be numbered (separately for each class) in the
order in which they are issued and shall, unless otherwise determined by the
Board, be signed by the chief executive officer, the chief financial officer, or
any other officer of the corporation. A signature upon a certificate may be a
facsimile. Certificates on which a facsimile signature of a former officer,
transfer agent or registrar appears may be issued with the same effect as if he
were such officer, transfer agent or registrar on the date of issue.
6.2) Stock Record. As used in these Bylaws, the term "shareholder" shall
mean the person, firm or corporation in
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whose name outstanding shares of capital stock of the corporation are currently
registered on the stock record books of the corporation. The corporation shall
keep, at its principal executive office or at another place or places within the
United States determined by the Board, a share register not more than one year
old containing the names and addresses of the shareholders and the number and
classes of shares held by each shareholder. The corporation shall also keep at
its principal executive office or at another place or places within the United
States determined by the Board, a record of the date on which certificates
representing shares were issued. Every certificate surrendered to the
corporation for exchange or transfer shall be cancelled and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled (except as provided for
in Section 6.4 of this Article 6).
6.3) Transfer of Shares. Transfer of shares on the books of the corporation
may be authorized only by the shareholder named in the certificate (or his legal
representative or duly authorized attorney-in-fact) and upon surrender for
cancellation of the certificate or certificates for such shares. The shareholder
in whose name shares of stock stand on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation; provided,
that when any transfer of shares shall be made as collateral security and not
absolutely, such fact, if known to the corporation or to the transfer agent,
shall be so expressed in the entry of transfer; and provided, further, that the
Board of Directors may establish a procedure whereby a shareholder may certify
that all or a portion of the shares registered in the name of the shareholder
are held for the account of one or more beneficial owners.
6.4) Lost Certificate. Any shareholder claiming a certificate of stock to
be lost or destroyed shall make an affidavit or affirmation of that fact in such
form as the Board of Directors may require, and shall, if the directors so
require, give the corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board of at least double the value, as determined
by the Board, of the stock represented by such certificate in order to indemnify
the corporation against any claim that may be made against it on account of the
alleged loss or destruction of such certificate, whereupon a new certificate may
be issued in the same tenor and for the same number of shares as the one alleged
to have been destroyed or lost.
ARTICLE 7.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES
7.1) Disposition of Shares; Notice. No shareholder shall sell, assign,
give, bequeath or otherwise voluntarily
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transfer or dispose of shares of the corporation, nor shall any shareholder
pledge, mortgage or otherwise encumber such shares, unless notice shall first
have been given to the corporation, as hereinafter provided, for the purpose of
commencing the period within which the corporation may purchase such shares in
accordance with this Article 7. Such notice to the corporation shall be in
writing, shall specify the stock involved, shall identify the proposed
transferee, and shall be delivered personally or by being deposited in the
United States mail in a sealed envelope with first class mail postage prepaid
thereon, addressed to an officer of the corporation at the principal office of
the corporation. The corporation shall have the first option to purchase such
shares, in whole but not in part, at any time within ninety (90) days after the
date of receipt of such notice, at the price provided in Section 7.5 hereof.
7.2) Renewal of Notice. Any transfer to be made after the expiration of
said ninety (90) day period must be made within an additional period of six (6)
months; otherwise, requisite notice to the corporation must be given anew.
7.3) Death, Insolvency or Bankruptcy of Shareholder. In the event of the
death of a shareholder, or in the event that a shareholder is adjudicated a
bankrupt or that judgment is entered against him and execution is levied on any
shares of stock of the corporation, or in the event that shares of stock which
have been pledged, mortgaged or hypothecated by a shareholder (in compliance
with 7.1 hereof) are foreclosed upon or sold pursuant to the collateral
agreement, the corporation shall have the first option to purchase all but not
part of the shares of stock of the corporation owned by such shareholder
exercisable at any time for a period of ninety (90) days after the occurrence of
any such event, at the price provided in Section 7.5 hereof.
7.4) Exercise of Option. The options granted to the corporation by Sections
7.1 and 7.3 hereof shall be exercised by delivery of written notice of the
exercise, signed by an officer of the corporation, to the shareholder or his
personal representative or successor, as the case may be. The question of
whether or not the corporation shall exercise such options shall be determined
by a vote of a majority of the entire Board of Directors; provided that if the
offering shareholder is a director, he shall not vote on the question.
7.5) Purchase Price of Stock. The price per share to be paid a shareholder
for his shares of stock of the corporation upon exercise of the corporation's
rights to purchase such stock hereunder shall be an amount equal to the value
per share last established by the unanimous vote of the entire Board of
Directors applicable to all outstanding shares of the corporation. If the Board
has failed to establish any such value and price for more than fourteen (14)
months, then the value per
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share shall be determined as of the last day of the month immediately preceding
the date of the event giving rise to the purchase, by appraisal of three
qualified appraisers selected, one by the offering shareholder (or his legal
representative), one by the corporation, and one by the other two (or if they
are unable to agree within ten (10) days after their selection, by the Senior
Judge of the District Court for the County in which the corporation then has its
registered office); such appraisers shall determine such value as that price
which a willing buyer, being under no compulsion to buy, would pay for a share
of stock of the corporation and which a willing seller, being under no
compulsion to sell, would accept for a share of stock. Such appraisal shall be
accomplished under such rules as the appraisers may reasonably establish or
otherwise in accordance with the Uniform Arbitration Act (Sections 572.08-572.30
of the Minnesota Statutes). The decision of the appraisers shall be rendered in
writing by a majority vote, within sixty (60) days after the selection of the
third appraiser, which decision shall be final and binding on all parties. The
corporation shall pay the entire purchase price in cash within thirty (30) days
after the date of the exercise of its option to purchase or the date of the
decision of the appraisers, whichever is later, and upon surrender of the
certificates representing the shares so purchased, duly endorsed for transfer.
7.6) Endorsement on Stock Certificates. An endorsement in language
substantially as follows shall be placed on each certificate representing shares
of stock of the corporation:
"The shares of stock represented by this certificate are subject to
certain purchase options in the corporation as set forth in Article 7
of the Bylaws, which Bylaws are available for inspection at the
principal office of the corporation."
7.7) Private Agreement. The provisions of this Article 7 may be modified or
expanded as between any shareholder and the corporation pursuant to a written
agreement duly authorized by the shareholders holding at least majority of the
total voting power of the shareholders, in which case the provisions of such
agreement shall govern to the extent inconsistent with this Article 7.
ARTICLE 8.
GENERAL PROVISIONS
8.1) Distributions; Acquisitions of Shares. Subject to the provisions of
law, the Board of Directors may authorize the acquisition of the corporation's
shares and may authorize
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distributions whenever and in such amounts as, in its opinion, the condition of
the affairs of the corporation shall render it advisable.
8.2) Fiscal Year. The fiscal year of the corporation shall be established
by the Board of Directors.
8.3) Seal. The corporation shall have such corporate seal or no corporate
seal as the Board of Directors shall from time to time determine.
8.4) Securities of Other Corporations.
(a) Voting Securities Held by the Corporation. Unless otherwise
ordered by the Board of Directors, the chief executive officer shall have
full power and authority on behalf of the corporation (i) to attend and to
vote at any meeting of security holders of other companies in which the
corporation may hold securities; (ii) to execute any proxy for such meeting
on behalf of the corporation; and (iii) to execute a written action in lieu
of a meeting of such other company on behalf of this corporation. At such
meeting, by such proxy or by such writing in lieu of meeting, the chief
executive officer shall possess and may exercise any and all rights and
powers incident to the ownership of such securities that the corporation
might have possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
(b) Purchase and Sale of Securities. Unless otherwise ordered by the
Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or
encumber any and all securities of any other company owned by the
corporation and may execute and deliver such documents as may be necessary
to effectuate such purchase, sale, transfer or encumbrance. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
8.5) Shareholder Agreements. In the event of any conflict or inconsistency
between these Bylaws, or any amendment thereto, and any shareholder control
agreement, whenever adopted, such shareholder control agreement shall govern.
ARTICLE 9.
MEETINGS
9.1) Waiver of Notice. Whenever any notice whatsoever is required to be
given by these Bylaws, the Articles of Incorporation or any of the laws of the
State of Minnesota, a
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waiver thereof given by the person or persons entitled to such notice, whether
before, at or after the time stated therein and either in writing, orally or by
attendance, shall be deemed equivalent to the actual required notice.
9.2) Telephone Meetings and Participation. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference constitutes a Board meeting, if the same notice
is given of the conference as would be required for a meeting, and if the number
of directors participating in the conference would be sufficient to constitute a
quorum at a meeting. Participation in a meeting by that means constitutes
presence in person at the meeting. A director may participate in a Board meeting
not heretofore described in this paragraph, by any means of communication
through which the director, other directors so participating, and all directors
physically present at the meeting may simultaneously hear each other during the
meeting. Participation in a meeting by that means constitutes presence in person
at the meeting. The provisions of this section shall apply to committees and
members of committees to the same extent as they apply to the Board and
directors.
9.3) Authorization Without Meeting. Any action of the shareholders, the
Board of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of holders of shares who would be entitled to vote on such action,
by all of the directors (unless less than unanimous action is permitted by the
Articles of Incorporation), or by all of the members of such committee, as the
case may be.
ARTICLE 10.
AMENDMENTS OF BYLAWS
10.1) Amendments. Unless the Articles of Incorporation provide otherwise,
these Bylaws may be altered, amended, added to or repealed by the affirmative
vote of a majority of the members of the Board of Directors. Such authority in
the Board of Directors is subject to the power of the shareholders to change or
repeal such Bylaws, and the Board of Directors shall not make or alter any
Bylaws fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies on the Board, or fixing the number of
directors or their classifications, qualifications or terms of office, but the
Board may adopt or amend a Bylaw to increase the number of directors.
The undersigned, /s/ Robert Tisdale, Secretary of Varsity Spirit Fashions &
Supplies, Inc., hereby certifies
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that the foregoing Bylaws were duly adopted as the Bylaws of the corporation by
its first Board of Directors on June 29, 1983.
/s/ Robert Tisdale
----------------------------------
Secretary
Attest
/s/ Richard Horne
- ----------------------------
President
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RECEIVED
STATE OF TENNESSEE
95 MAR 9 AM 10:56
RILEY DARNELL
SECRETARY OF STATE
CHARTER
OF
VARSITY USA, INC.
The undersigned person(s) under the Tennessee Business Corporation Act
adopt(s) the following charter for the above listed corporation:
1. The name of the corporation is Varsity USA, Inc.
- --------------------------------------------------------------------------------
[NOTE: Pursuant to Tennessee Code Annotated Section 48-14-101(a)(1), each
corporation name must contain the word "corporation", "incorporated", "company"
or "limited" or the abbreviation "corp", "inc", "co." or "ltd.".]
2. The number of shares of stock the corporation is authorized to issue is
10,000
3. (a) The complete address of the corporation's initial registered office
in Tennessee is c/o C T CORPORATION SYSTEM;
530 Gay Street, Knoxville, Tennessee 37902
- --------------------------------------------------------------------------------
Street Address City State, Zip Code
County of Knox.
[NOTE: A street address and a zip code are both required by Tennessee Code
Annotated Section 48-12-102(a)(3).]
(b) The name of the initial registered agent, to be located at the address
listed in 3(a), is
C T CORPORATION SYSTEM
- --------------------------------------------------------------------------------
4. The name and complete address of each incorporator is:
Nina J. Zalenski 321 N. Clark St., Suite 3300, Chicago, Illinois 60610
- --------------------------------------------------------------------------------
Name Address Zip Code
- --------------------------------------------------------------------------------
Name Address Zip Code
- --------------------------------------------------------------------------------
Name Address Zip Code
[NOTE: An address and zip code are both required by Tennessee Code Annotated
Section 48-12-102(a)(4).]
5. The complete address of the corporation's principal office is:
2525 Horizon Lake Drive, Memphis, Tennessee 38133
- --------------------------------------------------------------------------------
Street Address City State/Country Zip Code
[NOTE: A street address and a zip code are both required by Tennessee Code
Annotated Section 48-12-102(a)(5).]
6. The corporation is for profit.
7. Other provisions:
[NOTE: Insert here any provision(s) desired and permitted by law. Examples:
names and addresses of persons serving as the initial board of directors,
business purpose(s) of the corporation, management or regulation of affairs of
the corporation, provision limiting the personal liability of directors for
monetary damages for breach of fiduciary duty, etc. See Tennessee Code Annotated
Section 48-12-102(b).]
March 8, 1995 /s/ Nina J. Zalenski
- ------------------------------- ---------------------------------------------
Signature Date Incorporator's Signature
Nina J. Zalenski
---------------------------------------------
Incorporator's Name (typed or printed)
<PAGE>
ARTICLES OF AMENDMENT
TO THE CHARTER OF
VARSITY ACQUISITION CORP.
The undersigned duly elected and acting Secretary hereby certifies pursuant
to Section 48-20-106 of the Tennessee Business Corporation Act as follows:
First: That the name of the Corporation is
Varsity Acquisition Corp.
Second: That the Corporation's Charter shall be amended such that Article
I shall be deleted and a new Article I shall read as follows:
"The name of the corporation is Varsity USA, Inc."
Third: Such amendment was duly adopted by resolution of the Board of
Directors and the Shareholder of the Corporation on April 9, 1996.
Dated this 9 day of April, 1996
Varsity Acquisition Corp.
By: /s/ Robert Dunseath
------------------------------
Robert Dunseath, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE CHARTER OF
VARSITY USA, INC.
The undersigned duly elected and acting Secretary hereby certifies
pursuant to Section 48-20-106 of the Tennessee Business Corporation Act as
follows:
First: That the name of the Corporation is
Varsity USA, Inc.
Second: That the Corporation's Charter shall be amended such that Article
I shall be deleted and a new Article I shall read as follows:
"The name of the corporation is Varsity Acquisition Corp."
Third: Such amendment was duly adopted by resolution of the Board of
Directors and the Shareholder of the Corporation on
September 18, 1995.
Dated this 18 day of September, 1995
Varsity USA, Inc.
By: /s/ Robert Dunseath
------------------------------
Robert Dunseath, Secretary
<PAGE>
BY-LAWS
OF
VARSITY USA, INC.
ARTICLE 1.
AMENDMENTS
Section 1.1. Amendment of By-Laws. These by-laws may be altered, amended or
repealed, and new by-laws may be adopted by the shareholders or by the board of
directors of the Corporation.
ARTICLE 2.
OFFICES
Section 2.1. Registered Office. The corporation shall continuously maintain
a registered office in the State of Tennessee which may, but need not be, the
same as its place of business, and a registered agent whose business office is
identical with such registered office.
Section 2.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Tennessee as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE 3.
SHARES
Section 3.1. Form of Shares. Shares either shall be represented by
certificates or shall be uncertificated shares.
3.1.1. Signing of Certificates. Certificates representing shares of
the corporation shall be signed by the appropriate officers and may be
sealed with the seal or a facsimile of the seal of the corporation if the
corporation uses a seal. If a certificate is countersigned by a transfer
agent or registrar, other than an employee of the corporation, any other
signatures may be facsimile. Each certificate representing shares shall be
consecutively numbered or otherwise identified, and shall also state the
name of the person to whom issued, the number and class of shares (with
designation of series, if any), the date of issue, that the corporation is
organized under Tennessee law, and any other information required by law.
<PAGE>
3.1.2. Uncertificated Shares. Unless prohibited by the articles of
incorporation, the board of directors may provide by resolution that some
or all of any class or series of shares shall be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate
until the certificate (or such documentation as may be allowed under
Section 3.2 below) has been surrendered to the corporation. Within a
reasonable time after the issuance or transfer of uncertificated shares,
the corporation shall send the registered owner thereof a written notice of
all information that would appear on a certificate. Except as otherwise
expressly provided by law, the rights and obligations of the holders of
uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
3.1.3. Identification of Shareholders. The name and address of each
shareholder, the number and class of shares held and the date on which the
shares were issued shall be entered on the books of the corporation. The
person in whose name shares stand on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation.
Section 3.2. Lost, Stolen or Destroyed Certificates. If a certificate
representing shares has allegedly been lost, stolen or destroyed, the board of
directors may in its discretion, except as may be required by law, direct that a
new certificate be issued upon such indemnification and other reasonable
requirements as it may impose.
Section 3.3. Transfers of Shares. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature or other appropriate assurances that
the endorsement is effective. Transfer of an uncertificated share shall be made
on receipt by the corporation of an instruction from the registered owner or
other appropriate person. The instruction shall be in writing or a communication
in such form as may be agreed upon in writing by the corporation.
ARTICLE 4.
SHAREHOLDERS
Section 4.1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and the transaction of any other proper business shall be
held in or out of Tennessee at such time, date and place to be designated by the
Board of Directors.
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Section 4.2. Special Meetings. Special meetings of the shareholders may be
called by the president, by the board of directors, by the holders of not less
than one-fifth of all the outstanding shares of the corporation entitled to vote
on the matter for which the meeting is called, or by such other officers or
persons as may be provided for in the articles of incorporation.
Section 4.3. Place of Meeting. The board of directors may designate the
place of meeting for any annual or special meeting of shareholders. In the
absence of any such designation, the place of meeting shall be the principal
place of business of the corporation.
Section 4.4. Notice of Meetings. For all meetings of shareholders, a
written or printed notice of the meeting shall be delivered, personally or by
mail, to each shareholder of record entitled to vote at such meeting, which
notice shall state the place, date and hour of the meeting. For all special
meetings and when and as otherwise required by law, the notice shall state the
purpose or purposes of the meeting. The notice of the meeting shall be given not
less than 10 nor more than 60 days before the date of the meeting, or in the
case of a meeting involving a merger, consolidation, share exchange, dissolution
or sale, lease or an exchange of all or substantially all, of the property or
assets of the corporation not less than 20 nor more than 60 days before the date
of such meeting. If mailed, such notice shall be deemed to have been delivered
when deposited in the United States mail, postage prepaid, directed to the
shareholder at his or her address as it appears on the records of the
corporation. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless otherwise
required by law.
Section 4.5. Quorum of Shareholders. The holders of a majority of the
outstanding shares of the corporation entitled to vote on a matter, present in
person or represented by proxy, shall constitute a quorum for consideration of
such matter at any meeting of shareholders unless a greater or lesser number is
required by the articles of incorporation. At any adjourned meeting at which a
quorum is present or represented, any business may be transacted which might
have been transacted at the original meeting, unless otherwise required by law.
Withdrawal of shareholders from any meeting shall not cause failure of a duly
constituted quorum at the meeting, unless otherwise required by law.
Section 4.6. Manner of Acting. The affirmative vote of holders of a
majority of the shares represented at a meeting and entitled to vote on a matter
at which a quorum is present shall be valid action by the shareholders, unless
voting by a greater number of shareholders or voting by class or classes of
shareholders is required by law or the articles of incorporation.
Section 4.7. Fixing of Record Date. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled
3
<PAGE>
to receive payment of a dividend, or in order to make a determination of
shareholders for any other proper purpose, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. If a record date is specifically set for
the purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than 60 days and, for a meeting of shareholders, not less than 10 days, or
in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, not less than 20 days, immediately preceding such
meeting. When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof.
Section 4.8. Voting Lists. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the number
of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any shareholders, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof kept
in the State of Tennessee, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
Section 4.9. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest in the shares or in the corporation generally.
Section 4.10. Voting of Shares by Certain Holders. Shares of a corporation
held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote
at any given time.
4.10.1 Shares Held by Corporation. Shares registered in the name of
another corporation, domestic or foreign, may be voted by any officer,
agent, proxy or other legal representative authorized to vote such shares
under the laws of the state of incorporation of
4
<PAGE>
such corporation. This corporation shall treat the president or other
person holding the chief executive office of such other corporation as
authorized to vote such shares. However, such other corporation may
designate any other person or any other holder of an office of the
corporate shareholder to this corporation as the person or officeholder
authorized to vote such shares. Such persons or offices indicated shall be
registered by this corporation on the transfer books for shares and
included in any voting list prepared in accordance with Section 4.8 of this
Article.
4.10.2. Shares Held by Fiduciary. Shares registered in the name of a
deceased person, a minor ward or a person under legal disability may be
voted by his or her administrator, executor, or court appointed guardian,
either in person or by proxy, without a transfer of such shares into the
name of such administrator, executor, or court appointed guardian. Shares
registered in the name of a trustee may be voted by him or her, either in
person or by proxy.
4.10.3. Shares Held by Receiver. Shares registered in the name of a
receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer
thereof into his or her name if authority so to do is contained in an
appropriate order of the court by which such receiver was appointed.
4.10.4. Shares Pledged. A shareholder whose shares are pledged shall
be entitled to vote such shares until the shares have been transferred into
the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
Section 4.11. Inspectors. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Inspectors shall:
4.11.1. Vote Count and Report. Determine the validity and effect of
proxies; ascertain and report the number of shares represented at the
meeting; count all votes and report the results; and perform such other
acts as are required and appropriate to conduct all elections with
impartiality and fairness to the shareholders.
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<PAGE>
4.11.2. Written Reports. Each report shall be in writing and such
report shall be signed by the inspector or by a majority of them if there
be more than one inspector acting at such meeting. If there is more than
one inspector, the report of a majority shall be the report of the
inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be
prima facie evidence thereof.
Section 4.12. Informal Action by Shareholders. Any action required to be
taken at any annual or special meeting of the shareholders of the corporation,
or any other action which may be taken at a meeting of the shareholders, may
also be taken without such a meeting if a written consent, setting forth the
action so taken, shall be signed (i) by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voting or (ii) by all of the shareholders entitled to vote with
respect to the subject matter thereof. If such consent is signed by less than
all of the shareholders entitled to vote, then such consent shall become
effective only if at least 5 days prior to the execution of the consent a notice
in writing is delivered to all the shareholders entitled to vote with respect to
the subject matter thereof and, after the effective date of the consent, prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be delivered in writing to those shareholders
who have not consented in writing.
Section 4.13. Notice to Shareholders Not Signing. Prompt notice of the
taking of the corporation action by less than unanimous written consent shall be
given in writing to those shareholders who have not consented in writing. In the
event that the action which is consented to is such as would have required the
filing of a certificate under any Section of the Tennessee Business Corporation
Act if such action had been voted on by the shareholders at a meeting thereof,
the certificate filed under such Tennessee Business Corporation Act Section
shall state, in lieu of any statement required by such Section concerning any
vote of shareholders, that written consent has been given in accordance with the
provisions of said Section and that written notice to non-consenting
shareholders has been given as provided by law.
Section 4.14. Waiver of Notice. Whenever any notice whatever is required to
be given under the provisions of the law, the articles of incorporation or these
by-laws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
6
<PAGE>
ARTICLE 5.
DIRECTORS
Section 5.1. General Powers and Qualifications. The business and affairs of
the corporation shall be managed by or under the direction of its board of
directors. Directors need not be residents of the State of Tennessee or
shareholders of the corporation.
Section 5.2. Number, Tenure and Resignation. The number of directors of the
corporation shall be a minimum of one. The number of directors may be increased
or decreased from time to time by resolution of shareholders or directors,
within the minimum and maximum limitations prescribed by this Section without
further amendment to the by-laws; provided, however, that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Each director shall hold office until the last to occur of
the next annual meeting of shareholders or until his or her successor is elected
and has qualified. A director may resign at any time by written notice to the
board, its chairman, or the president or secretary of the corporation. The
resignation is effective on the date it bears, or its designated effective date.
Section 5.3. Quorum of Directors. A majority of the number of directors
fixed in Section 5.2 of this Article shall constitute a quorum for the
transaction of business at any meeting of the board of directors; provided,
however, that if less than a majority of the number of directors fixed in
Section 5.2 of this Article is present at a meeting, a majority of the directors
present may adjourn the meeting at any time without further notice, unless
otherwise required by law.
Section 5.4. Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by law or these
by-laws.
Section 5.5. Vacancies. Any vacancy occurring in the board of directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting or at a special meeting
of shareholders called for that purpose. A director elected to fill a vacancy
shall hold office until the next annual meeting of shareholders at which his or
his predecessor's term would have expired.
Section 5.6. Removal of Directors. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders, by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors (or such greater percentage as may be provided
in the articles of incorporation), except as follows:
7
<PAGE>
5.6.1. Notice of Meeting. No director shall be removed at a meeting of
shareholders unless the notice of such meeting shall state that a purpose
of the meeting is to vote upon the removal of one or more directors named
in the notice. Only the named director or directors may be removed at such
meeting.
Section 5.7. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the place, date and hour for the holding of
additional regular meetings of the board of directors, without other notice than
such resolution.
Section 5.8. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president, any two directors or any
one director if the board of directors consists of two or less members. The
person or persons authorized to call special meetings of the board of directors
may fix the place for holding any special meeting of the board of directors
called by them.
Section 5.9. Notice. Notice of any special meeting of the board of
directors shall be given at least two days prior to the meeting by written
notice delivered personally, by mail, telegram, or telex to each director at his
or her business address. If mailed, such notice shall be deemed to have been
delivered when deposited in the United States mail in a sealed envelope so
addressed, with postage prepaid thereon. If notice is given by telegram, such
notice shall be deemed to have been delivered when the telegram is delivered to
the telegraph company. If notice is given by telex, such notice shall be deemed
to have been delivered when the telex message is delivered to the telex
operator. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 5.10. Presumption of Assent. A director of the corporation who has
been present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken, unless his or her dissent shall have been entered in the minutes
of the meeting or unless he or she shall have filed his or her written dissent
to such action with the person acting as the secretary of the meeting before the
adjournment thereof, or shall have forwarded such dissent by registered mail or
certified mail to the secretary of the corporation immediately after the
adjournment of the meeting. No director who voted in favor of any action may
dissent from such action after adjournment of the meeting.
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Section 5.11. Committees. A majority of the directors may, by resolution
passed by a majority of the number of directors fixed by the shareholders under
Section 5.2 of this Article, create one or more committees and appoint members
of the board to serve on the committee or committees. Each committee shall have
two or more members, who serve at the pleasure of the board.
5.11.1. Quorum. A majority of any committee shall constitute a
quorum and a majority of the quorum is necessary for committee
action. A committee may act by unanimous written consent without a
meeting and, subject to the provisions of the by-laws or action by the
board of directors, the committee, by majority vote of its members,
shall fix the time and place of meetings and the notice required
therefor.
5.11.2. Authority and Restrictions. To the extent specified by
the board of directors, each committee may exercise the authority of
the board of directors, provided, however, a committee may not
exercise the following powers;
5.11.3. Authorize Distributions. Authorize distributions, except
for dividends to be paid with respect to shares of any preferred or
special classes or any series thereof;
5.11.4. Act for Shareholders. Approve or recommend to the
shareholders any act which the Tennessee Business Corporation Act
requires to be approved by shareholders;
5.11.5. Board Vacancies. Fill vacancies on the board or any of
its committees;
5.11.6. Officers and Compensation. Elect or remove officers or
fix the compensation of any member of the committee;
5.11.7. By-Laws. Adopt, amend or repeal the by-laws;
5.11.8 Merger. Approved a plan of merger not requiring
shareholder approval;
5.11.9. Share Reacquisition. Authorize or approve reacquisition
of shares, except according to the general formula or method
prescribed by the board;
5.11.10. Share Sale or Issuance. Authorize or approve the
issuance or sale, or contract for sale, of shares or determine the
designation and relative rights, preferences, and limitations of a
series of shares, except that the board may direct a committee to fix
the specific terms of the issuance or sale or contract for sale, or of
the number of shares to be allocated to particular employees under an
employee benefit plan; or
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5.11.11. Resolution of Board. Amend, alter, repeal, or take
action inconsistent with any resolution or action of the board of
directors when the resolution or action of the board of directors by
its terms states that it shall not be amended, altered or repealed by
action of a committee.
Section 5.12. Informal Action by Directors. Any action required by the
Tennessee Business Corporation Act to be taken at a meeting of the board of
directors of the corporation, or any other action which may be taken at a
meeting of the board of directors or a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof, or by all members of such committee, as the case may be.
5.12.1 Effective Date. The consent shall be evidenced by one or
more written approvals, each of which sets forth the action taken and
bears the signature of one or more directors. All the approvals
evidencing the consent shall be delivered to the secretary to be
filed in the corporate records. The action taken shall be effective
when all the directors have approved the consent unless the consent
specifies a different effective date.
5.12.2. Effect of Consent. Any consent signed by all the
directors or all the members of a committee shall have the same effect
as a unanimous vote, and may be stated as such in any document filed
with the Secretary of State under the Tennessee Business Corporation
Act.
Section 5.13. Meeting by Conference Telephone. Members of the board of
directors or of any committee of the board of directors may participate in and
act at any meeting of the board or committee by means of conference telephone or
other communications equipment through which all persons participating in the
meeting can hear each other. Participation in such a meeting shall be equivalent
to attendance and presence in person at the meeting of the person or persons so
participating.
Section 5.14 Compensation. The board of directors, by the affirmative vote
of a majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise.
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ARTICLE 6.
OFFICERS
Section 6.1. Number. The officers of the corporation shall consist of a
president and a secretary and may also consist of one or several vice
presidents, a treasurer, one or more assistant treasurers, one or more assistant
secretaries and such other officers as may be elected in accordance with the
provisions of this Article. Except for the offices of president and secretary,
any two or more offices may be held by the same person.
Section 6.2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as reasonably practicable. Subject to the provisions of
Section 6.3 hereof, each officer shall hold office until the last to occur of
the next annual meeting of the board of directors or until the election and
qualification of his or her successor. Election of an officer shall not of
itself create contract rights.
Section 6.3. Removal of Officers. Any officer elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 6.4. Vacancies; New Offices. A vacancy occurring in any office may
be filled and new offices may be created and filled, at any time, by the board
of directors.
Section 6.5. President. The president shall be the chief executive officer
of the corporation. He or she shall be in charge of the day to day business and
affairs of the corporation, subject to the direction and control of the board
of directors. He or she shall preside at all meetings of the board of directors.
He or she shall have the power to appoint such agents and employees as in his or
her judgment may be necessary or proper for the transaction of the business of
the corporation. He or she may sign: (i) with the secretary or other proper
officer of the corporation thereunto authorized by the board of directors, stock
certificates of the corporation the issuance of which shall have been authorized
by the board of directors; and (ii) any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument.
Section 6.6. Vice President(s). The vice president (or in the event there
is more than one vice president, each of them) shall assist the president in the
discharge of his or her duties as the president may direct, and shall perform
such other duties as from time to time may be assigned to
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him or her (or them) by the president or the board of directors. In the absence
of the president, the vice president (or vice presidents, in the order of their
election), shall perform the duties and exercise the authority of the president.
Section 6.7. Treasurer. The treasurer shall have charge and custody of and
be responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article 8 of these by-laws, have charge of and be
responsible for the maintenance of adequate books of account for the
corporation, and, in general, perform all duties incident to the office of
treasurer and such other duties not inconsistent with these by-laws as from time
to time may be assigned to him or her by the president or the board of
directors.
Section 6.8. Secretary. The secretary shall keep the minutes of the
shareholders' and the board of directors' meetings, see that all notices are
duly given in accordance with the provisions of these by-laws or as required by
law, have general charge of the corporate records and of the seal of the
corporation, have general charge of the stock transfer books of the
corporation, keep a register of the post office address of each shareholder
which shall be furnished to the secretary by such shareholder, sign with the
president, or any other officer thereunto authorized by the board of directors,
certificates for shares of the corporation, the issuance of which shall have
been authorized by the board of directors, and any contracts, deeds, mortgages,
bonds, or other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument, and, in
general, perform all duties incident to the office of secretary and other such
duties not inconsistent with these by-laws as from time to time may be assigned
to him or her by the president or the board of directors.
Section 6.9. Assistant Treasurers and Assistant Secretaries. The board of
directors may elect one or more than one assistant treasurer and assistant
secretary. In the absence of the treasurer, or in the event of his or her
inability or refusal to act, the assistant treasurers, in the order of their
election, shall perform the duties and exercise the authority of the treasurer.
In the absence of the secretary, or in the event of his or her inability or
refusal to act, the assistant secretaries, in the order of their election, shall
perform the duties and exercise the authority of the secretary. The assistant
treasurers and assistant secretaries, in general, shall perform such other
duties not inconsistent with these by-laws as shall be assigned to them by the
treasurer or the secretary, respectively, or by the president or the board of
directors.
Section 6.10. Compensation. The compensation of all directors and officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such compensation by reason of the fact that he or she
is also a director of the corporation. All
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compensation so established shall be reasonable and solely for services rendered
to the corporation.
6.10.1. Compensation and Expense Disallowance. Unless otherwise
provided by the board of directors, all payments made to a director or
officer of the corporation, including, but not limited to salary,
commission, bonus, interest, travel and entertainment expenses and
deferred compensation payments, which shall be disallowed, in whole or
in part, as a deductible expense by the Internal Revenue Service,
shall be reimbursed by such director or officer of the corporation to
the full extent of such disallowance. The proper corporate officers
are authorized and directed to effect collection on behalf of the
corporation for each amount disallowed. In lieu of a payment by the
director or officer, subject to the determination of the board of
directors, appropriate amounts may be withheld from future
compensation payments paid to such director of officer until the
amount owed the corporation is recovered. This by-law shall be
considered a term and condition of employment for each director and
officer of the corporation, unless specifically waived in writing by
the board of directors.
ARTICLE 7.
INDEMNIFICATION BY CORPORATION
Section 7.1. Indemnification of Directors and Officers. The corporation
shall, to the fullest extent to which it is empowered to do so and in accordance
with the procedures required by the Tennessee Business Corporation Act or any
other applicable laws, as may from time to time be in effect, indemnify any
person who was or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses, including attorneys'
fees, judgments, fines and amounts incurred by him or her in connection with
such action, suit or proceeding.
Section 7.2. Contract with the Corporation. The provisions of Section 7.1
of this Article shall be deemed to be a contract between the corporation and
each director or officer who serves in any such capacity at any time while said
Section 7.1 and the relevant provisions of the Tennessee Business Corporation
Act or other applicable laws, if any, are in effect, and any repeal or
modification of any such law or of said Section 7.1 shall not affect any state
of facts then or theretofore existing or any action, suit or proceeding
theretofore existing or thereafter brought or
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threatened based in whole or in part upon any such state of facts. In the event
a person entitled to indemnification under this Article claims indemnification,
the corporation shall take all required action to bring about a prompt and good
faith determination of such person's right to indemnification hereunder.
Section 7.3. Indemnification of Employees and Agents. Persons who are not
covered by the foregoing provisions of this Article and who are or were
employees or agents of the corporation, or are or were serving at the request of
the corporation as employees or agents of another corporation, joint venture,
partnership, trust or other enterprise, may be indemnified to the extent the
corporation is empowered to do so by the Tennessee Business Corporation Act or
any other applicable laws, when and as authorized at any time from time to time
by the board of directors in its sole discretion.
Section 7.4. Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final dispositon of such action, suit or proceeding upon receipt of a
written agreement by or on behalf of a director and an officer to undertake to
repay such amount, unless it shall ultimately be determined that he or she is
entitled to be indemnified by the corporation as authorized in this article. The
provisions of this Section shall apply to employees or agents when the board of
directors has authorized such indemnification under the provision of Section 7.3
hereof.
Section 7.5. Other Rights of Indemnification. The indemnification provided
or permitted by this Article shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled by law, agreement or
otherwise, and shall continue as to a person who ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 7.6. Liability Insurance. The corporation shall have the power to
purchase and maintain, on behalf of any person who is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, insurance
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article.
Section 7.7. Report to Shareholders. If the corporation has paid indemnity
or has advanced expenses to a director, officer, employee, or agent, the
corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders' meeting.
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ARTICLE 8.
FISCAL MATTERS
Section 8.1. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 8.2. Contracts. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument, in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 8.3. Loans and Indebtedness. No substantial or material loans shall
be contracted on behalf of the corporation and no evidences of indebtedness
shall be issued in its name unless authorized by a resolution of the board of
directors. Such authority may be general or confined to specific instances.
Section 8.4. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation as the board of directors shall from time to time
designate.
Section 8.5. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE 9.
GENERAL PROVISIONS
Section 9.1. Dividends and Distributions. The board of directors may from
time to time declare or otherwise authorize, and the corporation may pay
distributions in money, shares or other property on its outstanding shares in
the manner and upon the terms, conditions and limitations provided by law or
articles of incorporation.
Section 9.2. Corporate Seal. The board of directors may provide a corporate
seal which seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any manner reproduced. The seal of the corporation shall be in
the form of a circular disk bearing the name of the corporation and a reference
to Tennessee being the state of incorporation.
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Section 9.3. Waiver of Notice. Whenever any notice is required to be given
by law, articles of incorporation or under the provisions of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
Section 9.4. Headings. Section or paragraph headings are inserted herein
only for convenience of reference and shall not be considered in the
construction of any provision hereof.
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SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT, dated June 20, 1997, by
and among RIDDELL SPORTS INC. ("Riddell"), RHC LICENSING CORPORATION ("RHC"),
RIDDELL, INC., EQUILINK LICENSING CORPORATION ("Equilink"), RIDMARK CORPORATION
("Ridmark"), MacMARK CORPORATION ("MacMark"), NBD BANK, a Michigan banking
corporation, f/k/a NBD BANK, N.A. ("NBD"), MLC PARTNERS LIMITED PARTNERSHIP
("MLC"), ROBERT E. NEDERLANDER ("Nederlander"), LEONARD TOBOROFF ("Toboroff"),
JOHN McCONNAUGHY, JR. ("McConnaughy"), LISA J. MARRONI ("Marroni"), FREDERIC H.
BROOKS ("Brooks"), CONNECTICUT ECONOMICS CORPORATION ("CEC"), ROBERT WEISMAN
("Weisman"), BRUCE H. LEVITT, as Bankruptcy Trustee of M Holdings Corporation
("Levitt"), PAUL SWANSON, as Bankruptcy Trustee of MGS Acquisition, Inc. and
MacGregor Sports, Inc. ("Swanson"), OFFICIAL UNSECURED CREDITORS' COMMITTEE OF
MacGREGOR SPORTING GOODS, INC. ("Committee"), M Holdings CORPORATION, f/k/a/
MacGREGOR SPORTING GOODS, INC. ("MacGregor"), INNOVATIVE PROMOTIONS, INC.
("Innovative"), ERNEST WOOD, JR., HARRY WOOD, PURSUIT ATHLETIC FOOTWEAR, INC.
("Pursuit"), and RIDDELL ATHLETIC FOOTWEAR, INC. ("RAF").
WHEREAS, there is an action entitled Bruce H.
Levitt, as Trustee et al. v. Riddell Sports Inc., et al.,
<PAGE>
Adv. Pro. No. 95-2261 (RG) (Case No. 89-01973) ("Levitt v. Riddell") pending in
the United States Bankruptcy Court for the District of New Jersey (the "New
Jersey Bankruptcy Court");
WHEREAS, there is an action entitled Innovative Promotions,
Inc., et al. v. Riddell Sports, Inc., et al., Adv. Pro. No. 94-02656 (RG) (Case
No. 89-01973) ("Innovative v. Riddell") pending in the New Jersey Bankruptcy
Court;
WHEREAS, there is an action entitled Bruce H. Levitt, Chapter
11 Trustee, and Official Unsecured Creditors' Committee v. Riddell Sports
Inc., Adv. Pro. No. 96-2630 (RG) (Case No. 89-01973) ("Committee v. Riddell")
pending in the New Jersey Bankruptcy Court;
WHEREAS, there is an appeal entitled Riddell, Inc. v.
Innovative Promotions, Inc. and Bruce H. Levitt, Trustee, Civ. No. 97-2665
("Riddell v. Innovative") pending in the United States District Court for the
District of New Jersey, which appeal is related to the bankruptcy case styled In
re MacGregor Sporting Goods, Inc., Case No. 89-01973 (the "MacGregor Bankruptcy
Case"), pending in the New Jersey Bankruptcy Court;
WHEREAS, there is an action entitled Riddell Sports Inc. v.
Frederic H. Brooks, 92 Civ. 7851 (S.D.N.Y.) (JGK) ("Riddell v. Brooks") pending
in the
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United States District Court for the Southern District of New York;
WHEREAS, there is an action entitled Riddell Sports Inc. v.
Robert Weisman, Index No. 96-13766 ("Riddell v. Weisman") pending in the Supreme
Court, State of New York, County of Westchester;
WHEREAS, there are jointly administered Chapter 11 cases
entitled In re Pursuit Athletic Footwear, Inc. and Riddell Athletic Footwear,
Inc., Case Nos. 95-1424 and 95-1425 (HSB) (the "Pursuit Cases") pending in the
United States Bankruptcy Court for the District of Delaware (the "Delaware
Bankruptcy Court") wherein Riddell, RHC and Ridmark have asserted objections
(hereinafter the "Riddell, Ridmark and RHC Objections") to the Debtors' Amended
Joint Plan of Reorganization;
WHEREAS, one or more of the Riddell Entities (as defined
below) filed claims in the MacGregor Bankruptcy Case (the "Riddell/MacGregor
Claim");
WHEREAS, one or more of the Riddell Entities (as defined
below) filed claims in the jointly administered Chapter 11 bankruptcy cases
styled In re Pursuit Athletic Footwear, Inc. and Riddell Athletic Footwear,
Inc., Case Nos. 95-1424 and 95-1425 (HSB) (the "Riddell/Pursuit Claim");
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WHEREAS, in light of the uncertainties of litigation and in
order to avoid the expense and delay that would necessarily attend litigation in
Riddell v. Brooks, Riddell v. Weisman, Levitt v. Riddell, Committee v. Riddell,
Innovative v. Riddell, and Riddell v. Innovative (collectively, the "Six
Actions") as well as the Riddell, Ridmark and RHC Objections, the
Riddell/MacGregor Claim and the Riddell/Pursuit Claim (the Six Actions along
with the Riddell, Ridmark and RHC Objections, the Riddell/MacGregor Claim and
the Riddell/Pursuit Claim are hereinafter referred to as the "Cases"), and any
appeals related thereto, and after evaluation of the claims, counter-claims,
cross-claims and third-party claims asserted in the Cases, and after
negotiations among all of the parties hereto (the "Parties"), and the Parties
(except for NBD, Swanson and Marroni) having entered into a memorandum of
understanding ("MOU"), dated June 3, 1997, the Parties have determined that
entering into this settlement agreement (the "Settlement Agreement") is in their
best interests and the best interests of the respective creditors and estates
of M Holdings Corp., MacGregor, MGS Acquisition, Inc., Pursuit, and RAF; and
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WHEREAS, the Riddell Entities (as defined below) have
represented that the injunctive relief set forth in Section 3(iv) of this
Settlement Agreement is essential to induce them to enter into this Settlement
Agreement;
NOW, THEREFORE, THE PARTIES TO THIS SETTLEMENT
AGREEMENT HAVE AGREED AS FOLLOWS:
1. Definitions.
Except as otherwise provided by a specific Section of this
Settlement Agreement, as used in this Settlement Agreement:
"Affiliate" or "affiliate" means, as to any person or entity,
any other person or entity that, directly or indirectly, controls, is controlled
by or is under common control with such person or entity or is a director or
officer of such person or entity. For purposes of this definition, the term
"control" (including the terms "controlling", "controlled by" and "under common
control with") of a person or entity means the possession, direct or indirect,
of either the power to vote ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of such person or entity or
the power to direct or cause the direction of the management and policies of
such person
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or entity, whether through the ownership of voting securities, by contract or
otherwise.
"Claim" or "claim" means a claim, whether or not asserted, as
defined in section 101 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq., as
amended.
"Final Order" means a court order or judgment the effect of
which has not been stayed, and as to which order (or any revision, modification
or amendment thereto) no appeal or request for any type of review, rehearing or
reconsideration is pending and for which the time to appeal or seek review,
rehearing, or certiorari has expired.
"Fraudulent Transfer Claims" means (i) any and all fraudulent
transfer, fraudulent conveyance or other avoidance or similar claims or causes
of action, whether known or unknown, based upon or in any manner arising from or
related to the Subject Transactions, and (ii) any and all rights or liens,
whether known or unknown, that any person (except NBD) heretofore, now or
hereafter possesses or may possess against any of the Riddell Entities, any of
the Riddell Related Entities, and/or the Released Property, based upon or in any
manner arising from or related to the Subject Transactions.
"Levitt" means Bruce H. Levitt, Chapter 11 Trustee of M
Holdings Corp., f/k/a MacGregor Sporting
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Goods, Inc., and any successor trustee or other estate representative approved
by the New Jersey Bankruptcy Court.
"License Agreement" means the license agreement by and among
RHC, Pursuit and others, dated February 15, 1994.
"Milco" means Milco Financial Services, Inc.
"Non-Riddell Entities" means Brooks, CEC,
Weisman, Levitt, Swanson, Committee, MacGregor, Innovative, Ernest Wood, Jr.,
Harry Wood, Pursuit, and RAF, collectively, and "Non-Riddell Entity" means any
of the foregoing entities, individually.
"Person" or "person" means an individual, corporation,
partnership, joint venture, association, joint stock company, trust, estate,
unincorporated organization, government (or agency or political subdivision
thereof) or other entity.
"Related Entities" means (i) with reference to an individual,
that individual's former or current employees, agents, partners, successors,
successors-in-interest, attorneys, heirs, executors and administrators, and (ii)
with reference to an entity other than an individual, that entity's former or
current officers, directors, chairman, co-chairman, employees, agents, parent
organizations, members, partners, affiliates, divisions,
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direct and indirect subsidiaries, branches, successors, successors-in-interest,
attorneys, executors and administrators.
"Released Property" means any and all interests in property,
whether tangible or intangible, transferred to any of the Riddell Entities
(including any of their predecessors in interest) in connection with the Subject
Transactions, and the proceeds, profits, products and offspring of any such
property in the possession, custody or control of any of the Riddell Entities
and/or the Riddell Related Entities.
"Riddell Entities" means Riddell, RHC, Riddell, Inc.,
Equilink, Ridmark, MacMark, All American Sports Corporation, Proacq Corporation,
Sharco Corporation, NBD, MLC, Nederlander, Toboroff, McConnaughy, and Marroni,
collectively, and "Riddell Entity" means any of the foregoing entities,
individually. For purposes of this Settlement Agreement, Brooks and/or CEC shall
not be considered a former officer, director, attorney, agent, representative,
employee or affiliate of any Riddell Entity or Riddell Related Entity or of any
such entity's predecessor in interest.
"Settlement Proceeds" means any monies received pursuant to
this Settlement Agreement by Levitt or any
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<PAGE>
successor trustee or other person approved by the New Jersey Bankruptcy Court.
"Subject Transactions" means (i) all agreements and
transactions in which any of the Riddell Entities (including any of their
predecessors in interest) and/or their affiliates, on the one hand, and
MacGregor and/or any of MacGregor's present or former direct or indirect
subsidiaries, or other present or former affiliates (for purposes of this
definition as used in this Settlement Agreement only, Milco shall be deemed a
present or former affiliate of MacGregor), on the other hand, were parties,
including but not limited to the Asset Purchase Agreement among Riddellink
Holding Corporation ("Riddellink"), EN&T Associates, Inc. ("EN&T"), Netlink,
Inc. ("Netlink"), Riddell, Inc., Equilink Licensing Corp., MacGregor, and
MacGregor Team Sports, Inc. ("MTS"), dated April 11, 1988; letter, dated April
12, 1988 from MLC, agreed to and accepted by MacGregor; Agreement regarding
goodwill between Riddellink, EN&T, Netlink, Riddell, Inc., Equilink Licensing
Corp., MacGregor and MTS, dated April 18, 1988; Memorandum of Agreement
regarding Asset Purchase Agreement between MacGregor, MTS, Riddell, Inc.,
Equilink Licensing Corp., Riddellink, EN&T, and Netlink, dated April 18, 1988;
undated Supplemental Letter between EN&T and Riddell, Inc.; letter from Riddell,
Inc., agreed
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to and accepted by EN&T, dated April 1988; undated further agreement regarding
note between MacGregor, MTS, Riddell, Inc., Equilink Licensing Corp.,
Riddellink, EN&T, Netlink, and RHC; Bill of Sale and Assumption of Certain
Liabilities between Riddell, Inc. and EN&T, dated April 18, 1988; Assignment and
Assumption of License Agreements between Riddell, Inc. and EN&T, dated April 18,
1988; Assignment and Assumption of Contracts between Riddell, Inc. and EN&T,
dated April 18, 1988; Patent Assignment from Riddell, Inc. to EN&T, dated April
18, 1988; Assignment of Trademark in Canada by Riddell, Inc. to EN&T, dated
April 18, 1988; Assignment between Riddell, Inc. and EN&T, dated April 18, 1988;
Assignment of Trademarks from Riddell, Inc. to Ridmark, dated April, 1988;
Assignment and Assumption of License Agreement from Riddell, Inc. to Ridmark,
dated April 18, 1988; Assignment of Trademarks from Riddell, Inc. to Ridmark,
Corp., dated April, 1988; letter from MacGregor confirmed and agreed to by
Riddellink and RHC Licensing Corp., dated April 18, 1988; Assignment and
Assumption of License Agreement between MacGregor and MacMark Corp., dated April
18, 1988; Assignment and Assumption of License Agreement between Equilink
Licensing Corp., MTS and Netlink, dated April 18, 1988; Assignment and
Assumption of License Agreements between MacGregor, Equilink Licens-
10
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ing Corp. and Netlink, dated April 18, 1988; Assignment of trademark in Taiwan
between MacGregor and MacMark Corp., dated April 18, 1988; Assignment of
Trademark in Canada between MacGregor and MacMark Corp., dated April 18, 1988;
Assignment of trademark applications in Venezuala by MacGregor to MacMark Corp.,
dated April 18, 1988; Assignment of trademark in Japan by MacGregor to MacMark
Corp., dated April 18, 1988; Agreement amending license rights agreement between
MacMark Corp., Netlink Corp., and MacGregor Sporting Goods, Inc., dated April
18, 1988; License Agreement between MacMark Corp. and MacGregor, dated April 18,
1988; letter from Riddellink to MacGregor regarding Brooks' employment, dated
April 18, 1988; Subordinated Promissory Note in the amount of $7,000,000 from
EN&T to MacGregor, dated April 18, 1988; Subordinated Promissory Note in the
amount of $1,500,000 from Netlink to MacGregor, dated April 18, 1988;
Subordinated Promissory Note in the amount of $439,000 from Riddellink to
MacGregor Sporting Goods, Inc., dated April 18, 1988; Unconditional Subordinated
Guarantee by Riddellink and Netlink to MacGregor, dated April 18, 1988;
Unconditional Subordinated Guarantee by Riddellink and EN&T to MacGregor, dated
April 18, 1988; Subordinated Security Agreement by EN&T to MacGregor, dated
April 18, 1988; Subordinate Security Agreement by Netlink to
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<PAGE>
MacGregor, dated April 18, 1988; Subordination Agreement between NBD and
MacGregor, dated April 18, 1988; Purchase Price Reduction Agreement dated
September 29, 1988 between MacGregor, Riddell, Inc. and others; Substitute
Subordinated $1,657,500 Note to MacGregor and Collateral; Letter from MacGregor
agreed to and accepted by Equilink Licensing Corp. and others, dated September
29, 1988; Subordinated Note of Riddell, Inc. dated September 29, 1988;
Subordinated Guaranty by Equilink Licensing Corp., dated September 29, 1988;
Subordinated Guaranty of Riddellink, dated September 29, 1988; Subordinate
General Security Agreement by Equilink Licensing Corp., dated September 29,
1988; Subordinate General Security Agreement by Riddell, Inc., dated September
29, 1988; Intercreditor Agreement dated September 29, 1988 between MacGregor,
Riddell, Inc. and MLC; Subordination Agreement dated September 29, 1988 by and
between MLC, Riddellink and MacGregor; Agreement dated September 29, 1988
between MacGregor, Riddellink, MLC and others; February 2, 1989 letter agreement
between Riddellink, MacGregor and Emar, Ltd.; Undated letter agreement between
Riddellink, Milco and MacGregor; Letter agreement dated February 2, 1989 between
MacGregor, Riddellink and RHC Licensing Corp.; the License and Stock Purchase
Agreement made on the 2nd day of February 1989 by and among MacGregor Sporting
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Goods, Inc., RHC Licensing Corp. and Riddellink; the Assignment and Assumption
Agreement dated February 2, 1989 between MacGregor Sporting Goods, Inc. and RHC
Licensing Corp.; the Termination Agreement dated February 2, 1989 between
MacGregor Sporting Goods, Inc., Riddellink, and RHC Licensing Corp.; the Letter
dated September 29, 1988 from MacGregor agreed to and accepted by R Holdings
Corp., E Holdings Corp., MacGregor Team Sports, Inc., Riddell, Inc., Equilink
Licensing Corp., and Riddellink Holding Corporation; the Agreement dated
September 29, 1988 between MacGregor and MLC Partners Limited Partnership and
Frederic H. Brooks; the letter dated April 18, 1988 from Riddellink, RHC
Licensing Corp. and EN&T agreed to and accepted by Milco, IFS Corporation,
Riddell, Inc., MacGregor Sporting Goods Inc., and Ridmark, Inc.; letter from NBD
agreed to and accepted by Milco, IFS Corp. and Ridmark Corp., dated April 18,
1988; Agreement between IFS Corp., Independence Investment Management Corp.,
Milco, Gridiron Marketing Group, Inc., MacGregor Sports Enterprises, Inc.,
MacGregor and EN&T, dated April 18, 1988; the Assignment by Milco of the
"Riddell" Trademark, dated July 8, 1991; and the letter from Milco to Riddell
Sports, Inc., dated July 1991; (ii) all agreements and transactions to which
both (a) any Riddell Entity (including any of such entity's predecessor in
interest)
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and/or any of their affiliates, and (b) MacGregor and/or any of MacGregor's
present or former direct or indirect subsidiaries, or other present or former
affiliates, were parties; (iii) any amendments and/or modifications to any of
the foregoing transactions or agreements; and (iv) any other transactions or
agreements contemplated by or to which reference is made in any of the foregoing
transactions or agreements
2. Releases
(i) The releases in this Section 2 shall become effective upon
fulfillment of all of the Settlement Conditions (as defined in Section 11
herein). The releases in this Section 2 shall be null and void and of no force
and effect if any of the Settlement Conditions are not met.
(ii) For purposes of this Section 2 only, NBD shall not be
considered a Riddell Entity or a Riddell Related Entity.
(iii) Except as otherwise provided in Section 2(x) herein,
each of the Non-Riddell Entities, for itself and its legal successors and
assigns (and Levitt and Swanson on their own behalf, and to the fullest extent
permitted by law, on behalf of M Holdings Corp., MacGregor, MGS Acquisition,
Inc., and each of their
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current and former direct and indirect subsidiaries and affiliates, and the
respective creditors and stockholders of each of them, and the predecessors,
successors, assigns and heirs of each of the foregoing), hereby forever releases
and discharges each of the Riddell Entities and each of the Riddell Entities'
respective Related Entities, from any and all obligations, contracts, claims,
demands, damages, liabilities, actions, causes of action, suits, debts, duties,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
controversies, agreements, variances, trespasses, judgments, extents, liens and
executions of every kind and nature whatsoever, whether now known or unknown,
liquidated or unliquidated, fixed or contingent (including any claims for
indemnification and contribution based on acts or occurrences prior to the date
of execution of this Settlement Agreement), which any of the Non-Riddell
Entities now has, owns, or holds, or at any time heretofore had, owned or held,
or could, shall or may hereafter have, own or hold against any of the Riddell
Entities and/or any of the Riddell Entities' Related Entities, based upon,
related to or arising by reason of any act, omission, transaction or occurrence
taken or occurring at any time up to and including the date hereof (the
"Non-Riddell Released Claims"), and each of the Non-Riddell Entities
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shall not attempt, directly or indirectly, to enforce any such Non-Riddell
Released Claims against any person, entity or property, including but not
limited to the Released Property. Each of the Non-Riddell Entities represents
and warrants that it has not assigned or otherwise transferred any Non-Riddell
Released Claim released hereby and covenants that it will not bring, prosecute,
or join in any action based on any such Non-Riddell Released Claim.
(iv) Except as otherwise provided in Section 2(x) herein, each
of the Riddell Entities, for itself and its legal successors and assigns, hereby
forever releases and discharges each of the Non-Riddell Entities and each of the
Non-Riddell Entities' respective Related Entities, from any and all obligations,
contracts, claims, demands, damages, liabilities, actions, causes of action,
suits, debts, duties, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, controversies, agreements, variances, trespasses,
judgments, extents, liens and executions of every kind and nature whatsoever,
whether now known or unknown, liquidated or unliquidated, fixed or contingent
(including any claims for indemnification and contribution based on acts or
occurrences prior to the date of execution of this Settlement Agreement), which
any of the Riddell Entities now has, owns,
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or holds, or at any time heretofore had, owned or held, or could, shall or may
hereafter have, own or hold against any of the Non-Riddell Entities and/or any
of the Non-Riddell Entities' Related Entities, based upon, related to or arising
by reason of any act, omission, transaction or occurrence taken or occurring at
any time up to and including the date hereof (the "Riddell Released Claims"),
and each of the Riddell Entities shall not attempt, directly or indirectly, to
enforce any such Riddell Released Claim against any person, entity or property.
Each of the Riddell Entities represents and warrants that it has not assigned or
otherwise transferred any Riddell Released Claim released hereby and covenants
that it will not bring, prosecute, or join in any action based on any such
Riddell Released Claim.
(v) Each of Committee, Levitt and Swanson on their own behalf,
and to the fullest extent permitted by law, on behalf of M Holdings Corp.,
MacGregor, MGS Acquisition, Inc., and each of their Related Entities, and the
respective creditors and stockholders of each of them, and the predecessors,
successors, assigns and heirs of each of the foregoing, hereby forever releases
and discharges Brooks and CEC and each of Brooks' and CEC's Related Entities
(except M Holdings Corp. and MacGregor), from any and all obligations,
contracts, claims, demands,
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damages, liabilities, actions, causes of action, suits, debts, duties, dues,
sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
controversies, agreements, variances, trespasses, judgments, extents, liens and
executions of every kind and nature whatsoever, whether now known or unknown,
liquidated or unliquidated, fixed or contingent (including any claims for
indemnification and contribution based on acts or occurrences prior to the date
of execution of this Settlement Agreement), which each of Committee, Levitt
and/or Swanson now has, owns, or holds, or at any time heretofore had, owned or
held, or could, shall or may hereafter have, own or hold against Brooks and/or
CEC, and/or any of their related Entities (except M Holdings Corp. and
MacGregor), based upon, related to or arising by reason of any act, omission,
transaction or occurrence taken or occurring at any time up to and including the
date hereof (the "Levitt/Swanson Released Claims"), and each of Committee,
Levitt and/or Swanson shall not attempt, directly or indirectly, to enforce any
such Levitt/Swanson Released Claim against any person, entity or property,
including but not limited to the Released Property. Each of Committee, Levitt
and/or Swanson represents and warrants that it has not assigned or otherwise
transferred any Levitt/Swanson Released Claim released hereby and cove-
18
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nants that it will not bring, prosecute, or join in any action based on any such
Levitt/Swanson Released Claim.
(vi) Brooks and CEC, for themselves and each of their legal
successors and assigns, hereby forever release and discharge Committee, Levitt,
Swanson, M Holdings Corp., MacGregor, and MGS Acquisition, Inc. (collectively,
the "Levitt/Swanson Entities"), and each of their Related Entities, from any and
all obligations, contracts, claims, demands, damages, liabilities, actions,
causes of action, suits, debts, duties, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, controversies, agreements,
variances, trespasses, judgments, extents, liens and executions of every kind
and nature whatsoever, whether now known or unknown, liquidated or unliquidated,
fixed or contingent (including any claims for indemnification and contribution
based on acts or occurrences prior to the date of execution of this Settlement
Agreement), which each of Brooks and/or CEC now has, owns, or holds, or at any
time heretofore had, owned or held, or could, shall or may hereafter have, own
or hold against any of the Levitt/Swanson Entities and/or any of their Related
Entities, based upon, related to or arising by reason of any act, omission,
transaction or occurrence taken or occurring at any time up to and including the
date hereof (the "Brooks Re-
19
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leased Claims"), and each of Brooks and CEC shall not attempt, directly or
indirectly, to enforce any such Brooks Released Claim against any person, entity
or property. Each of Brooks and CEC represents and warrants that he or it has
not assigned or otherwise transferred any Brooks Released Claim released hereby
and covenants that he or it will not bring, prosecute, or join in any action
based on any such Brooks Released Claim.
(vii) Except as otherwise provided in Section 2(x) herein,
each of the Non-Riddell Entities, for itself and its legal successors and
assigns (and Levitt and Swanson on their own behalf, and to the fullest extent
permitted by law, on behalf of M Holdings Corp., MacGregor, MGS Acquisition,
Inc., and each of their current and former direct and indirect subsidiaries and
affiliates, and the respective creditors and stockholders of each of them, and
the predecessors, successors, assigns and heirs of each of the foregoing),
hereby forever releases and discharges NBD and each of NBD's Related Entities,
from any and all obligations, contracts, claims, demands, damages, liabilities,
actions, causes of action, suits, debts, duties, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, controversies, agreements,
variances, trespasses, judgments, extents, liens and executions of every kind
and
20
<PAGE>
nature whatsoever, whether now known or unknown, liquidated or unliquidated,
fixed or contingent (including any claims for indemnification and contribution
based on acts or occurrences prior to the date of execution of this Settlement
Agreement), which any of the Non-Riddell Entities now has, owns, or holds, or at
any time heretofore had, owned or held, or could, shall or may hereafter have,
own or hold against NBD and/or any of its Related Entities, based upon, related
to or arising by reason of any act, omission, transaction or occurrence taken or
occurring at any time up to and including the date hereof that was raised or
that could have been raised in Levitt v. Riddell, Innovative v. Riddell, or In
re MacGregor Sporting Goods, Inc., Case No. 89-01973 (RG) (Bankr. D.N.J.), or
which relates to the Subject Transactions (the "Non-Riddell Specifically
Released Claims"), and each of the Non-Riddell Entities shall not attempt,
directly or indirectly, to enforce any such Non-Riddell Specifically Released
Claim against any person, entity or property, including but not limited to the
Released Property. Each of the Non-Riddell Entities represents and warrants that
it has not assigned or otherwise transferred any Non-Riddell Specifically
Released Claim released hereby and covenants that it will not bring,
21
<PAGE>
prosecute, or join in any action based on any such Non-Riddell Specifically
Released Claim.
(viii) NBD, for itself and its legal successors and assigns,
hereby forever releases and discharges each of the Non-Riddell Entities and each
of the Non-Riddell Entities' Related Entities, from any and all obligations,
contracts, claims, demands, damages, liabilities, actions, causes of action,
suits, debts, duties, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, controversies, agreements, variances, trespasses,
judgments, extents, liens and executions of every kind and nature whatsoever,
whether now known or unknown, liquidated or unliquidated, fixed or contingent
(including any claims for indemnification and contribution based on acts or
occurrences prior to the date of execution of this Settlement Agreement), which
NBD now has, owns, or holds, or at any time heretofore had, owned or held, or
could, shall or may hereafter have, own or hold against any of the Non-Riddell
Entities and/or any of their Related Entities, based upon, related to or arising
by reason of any act, omission, transaction or occurrence taken or occurring at
any time up to and including the date hereof that was raised or that could have
been raised in Levitt v. Riddell, Innovative v. Riddell or In re MacGregor
Sporting Goods, Inc., Case No.
22
<PAGE>
89-01973 (RG) (Bankr. D.N.J.), or which relates to the Subject Transactions (the
"NBD Specifically Released Claims"), and NBD shall not attempt, directly or
indirectly, to enforce any such NBD Specifically Released Claim against any
person, entity or property. NBD represents and warrants that it has not assigned
or otherwise transferred any NBD Specifically Released Claim released hereby and
covenants that it will not bring, prosecute, or join in any action based on any
such NBD Specifically Released Claim.
(ix) In addition to and without limiting the foregoing, (a)
Brooks and CEC hereby release any and all claim, right, title and interest (1)
in the monthly consulting fees deposited in account number 1206469-94 at NBD
Bank and (2) for consulting fees under the April 15, 1992 Consulting Agreement;
(b) Brooks and CEC hereby release the Riddell Entities and the Riddell Related
Entities from any claim relating to (1) Pursuit consulting fees, (2) consulting
fees and/or salary under any agreement, contract or any prospective advantage
that Brooks has or had with Pursuit, RAF, Silver Top Limited, Silver Eagle
Holdings Limited, and/or Circle System Group, and (3) Brooks' administrative
expense claim in the MacGregor Bankruptcy Case; (c) each of Ernest Wood, Jr. and
Harry Wood hereby represents that (1) he has no equity or debt
23
<PAGE>
interest in Riddell Athletic Equipment, Inc. ("RAE"), (2) he is not an officer
or director of RAE, and (3) he will not cause RAE to bring, or assist RAE in
bringing, any claim, whether known or unknown, against any of the Riddell
Entities and/or any of the Riddell Related Entities; (d) each of the Riddell
Entities represents that it will not object to any claim filed by Brooks in the
MacGregor Bankruptcy Case as intervenor or otherwise; and (e) each of the
Non-Riddell Entities represents that it is not aware of the existence of any
creditors of Milco or of any claims by Milco against any of the Riddell Entities
or against any of the Riddell Related Entities.
(x) Nothing herein shall (a) release any claim by Brooks or
CEC against J.C. Wingo or any claim by J.C. Wingo against Brooks or CEC, unless
J.C. Wingo agrees to give Brooks and CEC general releases in the form annexed
hereto as Exhibit "A", in which event Brooks and CEC shall give J.C. Wingo a
general release in the form annexed hereto as Exhibit "B"; (b) discharge any
right or obligation (1) that will result from the entry by RHC and Pursuit (or
other entity controlled by Ernest Wood, Jr., hereinafter "Wood Entity") into a
new license agreement or (2) existing under the current License Agreement; (c)
be deemed to waive any defense that Levitt may have to any claim filed by any
NBD Related Entity (not including
24
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NBD) in the MacGregor Bankruptcy Case, provided that Levitt shall not be
entitled to recover any money or property from any such NBD Related Entity; or
(d) release any rights and obligations of the Parties under this Settlement
Agreement.
(xi) Except as otherwise specifically limited by Sections
2(vii), 2(viii) and 2(x) herein, it is the intention of each of the Parties
hereto that these releases shall be effective as a full and final accord and
satisfaction and general release of and from any obligations, contracts, claims,
demands, damages, liabilities, actions, causes of action, suits, debts, duties,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
controversies, agreements, variances, trespasses, judgments, extents, liens and
executions of every kind and nature whatsoever, whether now known or unknown. In
furtherance of this intention, each of the Riddell Entities, each of the
Non-Riddell Entities, and NBD acknowledges that it may hereafter discover claims
or facts in addition to or different from those which he or it now believes may
exist with respect to the subject matter of the releases herein, but that,
except as specifically limited by Sections 2(vii), 2(viii) and 2(x) herein, it
is its intention hereby to release fully and finally all claims, whether known
or unknown, suspected
25
<PAGE>
or unsuspected, which now exist, may exist or heretofore have existed.
Accordingly, except as specifically limited by Sections 2(vii), 2(viii) and 2(x)
herein, these releases shall be and remain in effect as complete general
releases notwithstanding any such discovery.
(xii) Each of the Parties represents that no other Party nor
any agent or attorney of any other Party has made any promise, representation or
warranty whatsoever, express or implied, written or oral, not contained herein
concerning the subject matter herein to induce it to execute these releases, and
each of the Parties confirms that it has not executed these releases in reliance
on any such promise, representation or warranty.
(xiii) Each of the Parties confirms that it has executed these
releases with the consent and on the advice of independent legal counsel. Each
of the Parties further acknowledges that it and its counsel have had adequate
opportunity to make whatever investigation or inquiry it may deem necessary or
desirable in connection with the subject matter of these releases prior to the
execution hereof.
3. Court Approvals.
Following the execution of the Settlement Agreement, the
Committee, Levitt, Swanson, Weisman, Innovative, Brooks, Riddell, Riddell, Inc.,
and Equilink
26
<PAGE>
shall jointly cooperate, and will use their best efforts, to obtain all
necessary approvals from the Bankruptcy Court for the Eastern District of
Wisconsin (the "Wisconsin Bankruptcy Court") (and any appellate courts
including the district courts) for the Settlement Agreement insofar as it
relates to the bankruptcy estates of MGS Acquisition, Inc. and MacGregor Sports,
Inc., and from the New Jersey Bankruptcy Court (and any appellate courts
including the district courts) for:
(i) the entry of a Final Order dismissing with prejudice the
complaints, all claims of all plaintiffs, and all counterclaims,
cross-claims and third-party claims in Levitt v. Riddell, Innovative v.
Riddell and Committee v. Riddell; (ii) the entry of a Final Order
approving the withdrawal of the Riddell/MacGregor Claim; (iii) the
entry of a Final Order allocating the Royalties (as defined below) paid
to Levitt for the sole and exclusive benefit of the general unsecured
creditors of MacGregor; and (iv) the entry of a Final Order (the "Final
Release Order"):
a. finding that notice of the hearings on
this Settlement Agreement was good and suffi-
cient;
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<PAGE>
b. finding that this Settlement Agreement
has been entered into in good faith and as a
result of arm's-length negotiations;
c. finding that the settlement and com-
promise is fair and equitable and in the best
interests of M Holdings Corp., its estate and
its creditors;
d. concluding that the New Jersey Bank-
ruptcy Court has subject matter jurisdiction
over (i) the settlement between the parties to
the MacGregor Bankruptcy Case and related ad-
versary proceedings, and (ii) Levitt v.
Riddell, Innovative v. Riddell, and the Fraudu-
lent Transfer Claims;
e. approving the Settlement Agreement
and the releases contained herein insofar as
they relate to the MacGregor Bankruptcy Case
and its related adversary proceedings;
f. finding and concluding that Levitt and
Swanson are the exclusive owners of all of the
Fraudulent Transfer Claims;
g. directing that pursuant to 11 U.S.C.
ss.ss. 105 and 363, Fed. R. Bankr. P. 7016(c)(9),
7065, and 9019, and 28 U.S.C. ss. 1651, the Re-
leased Property shall be released to and held
28
<PAGE>
by the Riddell Entities and any Riddell Related
Entities free and clear of all Fraudulent Transfer Claims;
h. without limiting the foregoing, providing that as
of the fulfillment of all of the Settlement Conditions, the
Committee, Levitt, Swanson, M Holdings Corp., MacGregor, MGS
Acquisition, Inc., MacGregor Sports, Inc. and their
predecessors and successors in interest, the current and/or
former direct or indirect subsidiaries and/or affiliates of
each of the foregoing, and each of the creditors,
stockholders, officers, directors, employees, attorneys and
agents of each of them (collectively, the "MacGregor Enjoined
Entities"), in consideration for the promises and obligations
of the Riddell Entities under this Settlement Agreement, are
(i) deemed to have released and/or are barred from asserting
or enforcing all existing Fraudulent Transfer Claims, whether
known or unknown, against any of the Riddell Entities, the
Riddell Related Entities, the Released Property, Brooks and/or
any other person, entity or property, and (ii) barred from
asserting all future Fraudulent Transfer
29
<PAGE>
Claims and enforcement of all existing Fraudulent Transfer
claims, whether known or unknown, against any of the Riddell
Entities, the Riddell Related Entities, the Released Property,
Brooks, and/or any other person, entity or property;
i. providing that the MacGregor Enjoined Entities are
permanently enjoined on and after the fulfillment of the
Settlement Conditions (i) from commencing or continuing in any
manner any action or other proceeding of any kind against any
of the Riddell Entities, the Riddell Related Entities, the
Released Property, Brooks, and/or any other person, entity or
property, with respect to any existing or future Fraudulent
Transfer Claim; (ii) from enforcing, attaching, collecting or
recovering by any manner or means, whether direct or indirect,
on any judgment, award, decree or order against any of the
Riddell Entities, the Riddell Related Entities, the Released
Property, Brooks, and/or any other person, entity or property,
with respect to any existing or future Fraudulent Transfer
Claim; (iii) from creating, perfecting or enforcing any lien
or
30
<PAGE>
encumbrance of any kind against any of the Riddell Entities,
the Riddell Related Entities, the Released Property, Brooks,
and/or any other person, entity or property, with respect to
any existing or future Fraudulent Transfer Claim; (iv) from
asserting any setoff, right of subrogation or recoupment of
any kind against any of the Riddell Entities, the Riddell
Related Entities, the Released Property, Brooks, and/or any
other person, entity or property, with respect to any existing
or future Fraudulent Transfer Claim; and (v) from taking any
action, in any manner, in any place whatsoever, that does not
conform to or comply with the Final Release Order (the relief
provided in these subparagraphs g, h, and i is hereinafter
referred to as the "Injunction");
j. concluding that exceptional or unusual
circumstances exist such that the issuance of
the Injunction pursuant to section 105 of the
Bankruptcy Code, Fed. R. Bankr. 7016(c)(9),
7065 and 28 U.S.C. ss. 1651 is necessary and ap-
propriate in aid of the New Jersey Bankruptcy
Court's jurisdiction and to protect its orders;
31
<PAGE>
l. concluding that the issuance of the
Injunction pursuant to section 105(a) of the
Bankruptcy Code, Fed. R. Bankr. P. 7016(c)(9),
7065, and 28 U.S.C. ss. 1651 is not inconsistent
with or violative of any other provision of the
Bankruptcy Code, including, without limitation,
section 524(e) of the Bankruptcy Code; and
m. providing that the New Jersey Bank-
ruptcy Court shall retain and have exclusive
jurisdiction over (i) all disputes and other
issues presented by or arising under the Final
Release Order; and (ii) all disputes and other
issues arising under the Settlement Agreement
to which either Levitt and/or the Committee is
a party.
4. Dismissal of Actions.
Provided that all of the Settlement Conditions set forth in
Section 11 are met, and contemporaneously with the distribution of the
payments contemplated by Section 11 herein, the parties to Riddell v.
Brooks, Riddell v. Weisman and Riddell v. Innovative shall file stipulations of
dismissal dismissing with prejudice each of the complaints and all
counterclaims, cross-claims and third-party claims in Riddell v. Brooks, Riddell
v. Weisman and Riddell v. Innovative.
32
<PAGE>
5. Withdrawal of Riddell, Ridmark and RHC
Objections.
Following the execution of this Settlement Agreement, Riddell,
Ridmark, RHC, Pursuit and RAF shall jointly cooperate, and will use their best
efforts, to obtain Delaware Bankruptcy Court approval for (i) the Settlement
Agreement insofar as it relates to the Pursuit Cases; and (ii) the withdrawal
(without prejudice to any Party for any and all purposes, including for purposes
of a later confirmation hearing or arbitration, and with Riddell, Ridmark and
RHC reserving all of their claims with regard to the current License Agreement,
including but not limited to their claims that the current License Agreement has
been breached, is terminable and is nonrenewable) of (a) the Riddell, Ridmark
and RHC Objections, (b) the Riddell/Pursuit Claim, and (c) the claims of Pursuit
and RAF against any Riddell Entity.
6. New License Agreement.
RHC and Pursuit shall negotiate a new license
agreement, substantially in the form annexed hereto as Exhibit "C" on mutually
satisfactory terms (the "New License"), subject to the review of Levitt and the
Committee. Subject to the conditions set forth in Section 7 below, the New
License will become effective on the date
33
<PAGE>
following the earlier of the termination of the current License Agreement (which
termination would not occur until after the period, if any, that Silver Eagle
Holdings Limited or a majority-owned subsidiary of Silver Eagle assumes the
rights and obligations of Pursuit under the current License Agreement) or the
expiration of the current License Agreement on December 31, 1998 (the date on
which Pursuit concedes, solely for the purpose of this Settlement Agreement,
that the current License Agreement expires as a result of Pursuit's failure to
establish sufficient net sales to meet the condition for renewal of the current
License Agreement beyond December 31, 1998).
7. Tender of New License Agreement To Pursuit.
Following execution of this Settlement Agreement, RHC will
tender the New License to Pursuit, which tender may be accepted by Pursuit only
if (i) the Settlement Conditions set forth in Section 11 herein are satisfied;
(ii) the Wood Fund (as defined in Section 10 herein) makes the payment to Brooks
required by Section 11.C. herein; and (iii) Pursuit's proposed plan of
reorganization becomes effective on or before August 4, 1997. It shall be a
condition to Pursuit's plan of reorganization becoming effective that Pursuit
accept the New License on
34
<PAGE>
or before August 4, 1997, which condition may be waived only by Riddell.
8. Inability of Pursuit to Accept Tender Of
The New License Agreement.
In the event that Pursuit cannot accept the tender of the New
License by RHC, then RHC shall tender the New License to another Wood Entity
which tender can be accepted only if (i) the Settlement Conditions set forth in
Section 11 herein are satisfied and (ii) the Wood Fund (as defined in Section 10
herein) makes the payment to Brooks required by Section 11.C. herein.
9. Settlement Not Conditioned Upon Confirmation Of
Pursuit's Plan.
The Parties' rights and obligations under the Settlement
Agreement are not conditioned upon Pursuit confirming a plan of reorganization
or any such confirmed plan becoming effective.
10. The Wood Fund.
Within two business days after the execution of the Settlement
Agreement, Pursuit, or other Wood Entity, shall deposit $500,000 into an
interest bearing account (the "Wood Fund") maintained by Pursuit, or other Wood
Entity, at First Union Bank in Old Greenwich, Connecticut or such other bank as
Brooks and Ernest and Harry Wood may agree upon.
35
<PAGE>
11. Settlement Monies.
Within five business days after the later of (i) the entry by
the Wisconsin Bankruptcy Court of a Final Order approving the Settlement
Agreement insofar as it relates to the bankruptcy estates of MGS Acquisition,
Inc. and MacGregor Sports, Inc., and the entry by the New Jersey Bankruptcy
Court of (a) a Final Order approving the Settlement Agreement insofar as it
relates to the MacGregor Bankruptcy Case and related adversary proceedings, (b)
a Final Order subordinating the claim of the DBL Liquidating Trust in the
MacGregor Bankruptcy Case to all allowed general unsecured claims in the
MacGregor Bankruptcy Case (the "Final DBL Subordination Order"), (c) a Final
Order allocating the Royalties (as defined in Section 12 herein) paid to Levitt
for the sole and exclusive benefit of the general unsecured creditors of
MacGregor (d) Final Orders dismissing with prejudice the complaints, all claims
by all plaintiffs, and all counterclaims, third-party claims and cross-claims in
Levitt v. Riddell, Innovative v. Riddell and Committee v. Riddell, (e) a Final
Order approving the withdrawal of the Riddell/MacGregor Claim, and (f) the Final
Release Order, (ii) the entry of a Final Order by the Delaware Bankruptcy Court
approving (w) the withdrawal and settle-
36
<PAGE>
ment of the Riddell, Ridmark and RHC Objections, (x) the withdrawal of the
Riddell/Pursuit Claim and the claims of Pursuit and RAF against any Riddell
Entity, (y) the payment of $500,000 by Pursuit (or other Wood Entity) to the
Wood Fund and the payment by the Wood Fund to Brooks and (z) the Settlement
Agreement insofar as it relates to the Pursuit Cases, or (iii) the passing of
3:00 p.m. Eastern Standard Time on August 4, 1997 without any of the following
having occurred: (a) the filing of a Fraudulent Transfer Claim by any person
against any of the Riddell Entities or the Riddell Related Entities, and/or (b)
the filing of a voluntary or involuntary bankruptcy petition by or against (1)
any current or former direct or indirect subsidiaries or affiliates of M
Holdings, Inc., MacGregor, MGS Acquisition, Inc., or MacGregor Sports, Inc., or
(2) Milco or any of Milco's successors in interest (the "August 4 Condition")
(the foregoing Final Release Order and Final Orders and approvals by the
Wisconsin Bankruptcy Court, the New Jersey Bankruptcy Court and the Delaware
Bankruptcy Court, and the August 4 Condition shall hereinafter be referred to
collectively as the "Settlement Conditions", except that the Riddell Entities
alone, in their sole discretion, may waive the
37
<PAGE>
August 4 Condition, in which event the August 4 Condition shall not be a
Settlement Condition):
A. Riddell or a Riddell Related Entity shall remit to Brooks
50.272% of the Fund (as defined below);
B. Riddell or a Riddell Related Entity shall remit to Bruce
H. Levitt, as Bankruptcy Trustee for M Holdings Corporation, or any successor
trustee approved by the New Jersey Bankruptcy Court, 49.728% of the Fund (as
defined below), to be used to pay, subject to allowance by the New Jersey
Bankruptcy Court, valid administrative and priority claims in the bankruptcy
case styled In re MacGregor Sporting Goods, Inc. (n/k/a as M Holdings
Corporation), Case No. 89-01973 (Bankr. D.N.J.) and the claims of general
creditors to the extent funds are available to pay such claims; and
C. Brooks shall receive the monies in the Wood Fund, including
all accrued interest thereon. To the extent that Pursuit or other Wood Entity
does not pay or cause to be paid all or any portion of the $500,000, such
failure shall not increase the amount that any of the Riddell Entities or
Riddell Related Entities shall be required to pay to the Fund, to any of the
Non-Riddell Entities or to any other person or entity.
38
<PAGE>
The payments in this 11.A. and 11.B. shall be conditioned on
the payment in this 11.C. and the payment in this 11.C. shall be conditioned on
the payments in this 11.A. and 11.B.
The "Fund" shall be calculated as follows:
(i) the sum of $2.1 million, plus interest calculated at the
bank rate Riddell pays on its revolving credit agreement, which interest shall
begin to accrue on the third business day after execution of this Settlement
Agreement; plus
(ii) subject to the fulfillment of the conditions set forth in
this subjection (ii) below, the sum of $100,000, plus interest calculated at the
bank rate Riddell pays on its revolving credit agreement, which interest shall
begin to accrue on the third business day after Pursuit has paid the second
quarter 1997 royalty payment and the monies (including checks) remitted by
Pursuit (or other Wood Entity) are available good funds in an RHC account. The
$100,000 plus interest provided for in this subsection (ii) will become part of
the Fund only if (x) the contemplated Settlement Agreement is signed by all of
the Non-Riddell Entities hereto no later than 30 days from the date the
contemplated Settlement Agreement is submitted to Brooks for execution and (y)
39
<PAGE>
all necessary Court papers have been submitted to the Wisconsin Bankruptcy
Court, the New Jersey Bankruptcy Court and the Delaware Bankruptcy Court for
approval within 30 days of the execution of this Settlement Agreement.
12. Assignment of Royalties.
Subject to the prior occurrence of the Settlement Conditions,
beginning no earlier than the date when the first quarterly royalty payment is
due under any license to use the "Riddell" trademark on footwear (the terms
"footwear" and "athletic footwear", as used anywhere in this Settlement
Agreement, specifically excludes socks) following the occurrence of the
Settlement Conditions, RHC shall absolutely assign free and clear of any and all
liens pursuant to an assignment agreement substantially in the form annexed
hereto as Exhibit "D" (the "Assignment Agreement") (i) to Levitt, two-thirds of
all payments from Pursuit or any substitute, successor or additional footwear
licensee of the "Riddell" trademark (Pursuit, and any substitute, successor or
additional footwear licensee of the "Riddell" trademark shall hereinafter be
referred to as the "Riddell Footwear Licensee") other than payments for goods
provided by a Riddell Entity or affiliate thereof (such future payments shall
40
<PAGE>
hereinafter be referred to as "Royalties") for a period of up to ten years, if
required, which period will be reduced or enlarged in accordance with the terms
of this Section 12 below (the ten-year period as reduced or enlarged in
accordance with this Section 12 is hereinafter defined as "10-Year Period"), to
be used to pay, subject to allowance by the New Jersey Bankruptcy Court, valid
general creditor claims in the bankruptcy case styled In re MacGregor Sporting
Goods, Inc. (n/k/a M Holdings Corporation), Case No. 89-01973 (Bankr. D.N.J.);
and (ii) to Brooks, one-third of all Royalties for the Ten-Year Period, such
that the combined Royalties to Levitt and to Brooks (Levitt and Brooks
collectively for Sections 12 and 13 herein shall be referred to as the
"Assignees") shall not exceed $3 million in the aggregate, on a present value
basis, based upon a 10 percent discount rate, and further provided that (a) if
such $3 million in the aggregate, on a present value basis, based upon a 10
percent discount rate, is prepaid to the Assignees before ten years or (b) the
combined Royalties to Levitt and Brooks, in the aggregate, on a present value
basis, based upon a 10 percent discount rate, reach $3 million before ten years,
then the Assignees shall have no further rights under the assignment, the
assignment
41
<PAGE>
shall be terminated, and the Ten-Year Period shall expire. None of the Parties
hereto shall have any recourse against any of the Riddell Entities or Riddell
Related Entities for any of the Royalties or the Earned Royalties (as defined
below), except for Royalties actually paid to Riddell or a Riddell Related
Entity. Following the 10-Year Period, the Assignees shall have no further
rights under this assignment and the assignment shall be terminated, except that
(i) if Royalties are earned by RHC during the 10-Year Period, and not paid to
the Assignees referred to above before the expiration of the 10-Year Period, but
are paid after the expiration of the 10-Year Period ("Earned Royalties"), then
such Earned Royalties shall be paid to the Assignees in accordance with the
provisions set forth above; (ii) if the Riddell Footwear Licensee is terminated
within 10 years from the date of execution of the Assignment Agreement, then the
10-Year Period shall be extended by the period of time for which there is no
Riddell footwear license for all athletic footwear bearing the Mark (as defined
in the License Agreement) in effect for the entire United States territory and
the period of time, if any, for which the terminated Riddell Footwear Licensee
failed to remit Royalties, regardless of the date on which such Royalties
42
<PAGE>
became due; and (iii) if there is more than a continuous one-year period
following the termination of the Riddell Footwear Licensee in which there is no
Riddell footwear license for all athletic footwear bearing the Mark (as defined
in the License Agreement) in effect for the entire United States territory, then
Brooks and/or Weisman or other representative of the Committee will jointly
obtain the right to recommend a substitute Riddell Footwear Licensee, subject to
the approval of RHC of the management, experience, financial condition,
reputation, business prospects and other qualifications of such proposed
licensee, provided that RHC shall not unreasonably withhold its consent to a
substitute Riddell Footwear Licensee recommended by Brooks and/or Weisman or
other representative of the Committee. RHC reserves the right to prepay the
amounts required to be paid pursuant to this Section 12 (on a present value
basis), and upon such prepayment the Assignees shall have no further rights
under Sections 12, 13 or any other Section of this Settlement Agreement. For
purposes of monitoring amounts paid to the Assignees, one-third of all Royalties
shall be remitted by the Riddell Footwear Licensee to an account owned by Brooks
at First Union Bank in Old Greenwich, Connecticut, and two-thirds of all
Royalties shall
43
<PAGE>
be remitted by the Riddell Footwear Licensee to an account owned by Levitt at
Chase Bank, 450 West 33rd Street, New York, New York 10001, and each bank shall,
on a quarterly basis, provide account statements and reports to RHC and to each
of the Assignees in a form reasonably acceptable by both RHC and the Assignees.
13. Construction of Agreement to Assign Royalties.
In connection with Section 12 above:
(i) During the Ten-Year Period only, Riddell Footwear
Licensee Royalties shall be allocated to the oldest amounts owed by such Riddell
Footwear Licensee under the applicable license agreement and, if paid to RHC
instead of the Assignees, shall be remitted by RHC to Assignees, and shall not
be subject to offset by RHC.
(ii) During the 10-Year Period only, the Assignees shall be
entitled to (a) pursue collection efforts to collect any unpaid Royalties due
from a Riddell Footwear Licensee and (b) in the event of nonpayment of Royalties
only, to pursue termination of the license agreement then in effect pursuant to
its terms. The Assignees shall have no right to pursue termination of the
license agreement then in effect for any reason other than for nonpayment of
Royalties. RHC and the Assignees
44
<PAGE>
shall cooperate in each other's efforts to collect any unpaid Royalties due from
a Riddell Footwear Licensee or to seek termination of the license agreement then
in effect for nonpayment of Royalties. The Party pursuing the collection and/or
termination efforts, whether it be RHC or the Assignees, shall be responsible
for all legal fees and collection costs associated with the collection and/or
termination efforts ("Collection Costs"). To the extent there is a recovery from
the collection and/or termination efforts, such recovery shall first be used to
reimburse Collection Costs. To the extent that the recovery exceeds the
Collection Costs, the net recovery shall be treated as Royalties. The incurrence
by the Assignees of Collection Costs shall not increase the amounts otherwise
due to the Assignees. Nothing herein shall be construed to (a) impose on RHC
and/or any Riddell or Riddell Related Entity any obligation to institute any
legal action to collect unpaid Royalties from any Riddell Footwear Licensee or
to seek termination of the license agreement then in effect or (b) abrogate any
rights of RHC and/or any Riddell or Riddell Related Entity to pursue collection
and/or termination efforts.
(iii) Ridmark owns all right, title and interest to the
Riddell trademark and, during the 10-Year
45
<PAGE>
Period only, Ridmark shall take all reasonable steps necessary to maintain the
existing Riddell footwear trademark registrations.
(iv) During the 10-Year Period only, Riddell may not sell
athletic footwear bearing the Mark (as defined in the License Agreement), except
footwear purchased from a Riddell Footwear Licensee.
(v) During the 10-Year Period only, RHC shall not enter into a
new athletic footwear license agreement for athletic footwear bearing the Mark
(as defined in the License Agreement) that provides for a royalty rate of less
than 3%.
14. Property Released Free and Clear of All Liens.
Upon fulfillment of the Settlement Conditions, the Released
Property shall be released to and held by the Riddell Entities and the Riddell
Related Entities free and clear of any and all Fraudulent Transfer Claims and
all Fraudulent Transfer Claims shall thereafter be directed against, attach to
and obtain any recovery solely and exclusively from the Settlement Proceeds.
15. Brooks' Administrative Expense Claim.
Provided that the Settlement Conditions are satisfied, Levitt
agrees to fix Brooks' administrative
46
<PAGE>
claims in the MacGregor Bankruptcy Case at $275,000, which amount shall be
accepted by Brooks in full and final satisfaction of all of Brooks' claims
against the Bankruptcy estate of MacGregor, administrative and otherwise, and
Brooks' counterclaims in Levitt v. Riddell. Levitt shall pay the sum of $275,000
to Brooks within five (5) business days after Levitt receives the monies to be
paid to Levitt from the Fund pursuant to Section 11.B. of this Settlement
Agreement.
16. Termination Date.
If all of the Settlement Conditions set forth in Section 11
herein are not satisfied on or before August 4, 1997, at 3:00 p.m., then, unless
otherwise agreed to by each of the Parties to this Settlement Agreement, the
Settlement Agreement shall terminate, and shall be null and void and of no force
and effect.
17. Authorization.
Each Party to this Settlement Agreement represents and
warrants to each other Party that the person executing this Settlement Agreement
and the other documents contemplated herein on behalf of such Party is duly
authorized to execute this Settlement Agreement and all other documents
contemplated herein on its behalf.
47
<PAGE>
18. Affirmative Covenants.
Levitt and Swanson, on behalf of themselves, M Holdings Corp.,
MacGregor and MGS Acquisition, Inc., covenant and agree to:
(i) pay from the Settlement Proceeds any and all valid and
enforceable Fraudulent Transfer Claims that might have been asserted
against any of the Riddell Entities, the Riddell Related Entities,
Brooks or the Released Property;
(ii) defend against any and all challenges to and disputes
arising out of or related to approval by the Wisconsin Bankruptcy Court
and the New Jersey Bankruptcy Court of this Settlement Agreement, the
releases contained herein, and the Final Release Order, including, but
not limited to, disputes regarding the terms, conditions and scope of
the releases, the Final Release Order and the Injunction contained
therein, both prior to and after the Settlement Conditions are met; and
(iii) take all actions necessary to assist the Riddell
Entities to assure that no person or entity succeeds in any attempt to
cause the Riddell Entities or Riddell Related Entities to incur any
addi-
48
<PAGE>
tional liability to any person or entity related to the Subject
Transactions.
Nothing in this Section shall be understood or construed to
preclude or otherwise interfere with the right of any Party hereto to object to
or defend against the assertion that a valid and enforceable Fraudulent Transfer
Claim exists, which right each Party hereto expressly reserves; nor shall this
Section be construed or understood to require Levitt or Swanson to indemnify the
Riddell Entities for attorneys' fees and legal expenses incurred with respect to
any such challenges to, or disputes arising out of or related to, this
Settlement Agreement, the Release Order and their respective provisions.
19. Approval of Notice to Creditors and Others.
All forms of notice to creditors and others in connection with
any and all applications for court approvals relating to this Settlement
Agreement and the proposed distribution of such notice must be acceptable to
Riddell.
20. Court Costs and Costs of Notice.
Levitt shall pay up to $5,000 of the cost of mailing notices
to creditors and other interested parties
49
<PAGE>
and publication costs in the MacGregor Bankruptcy Case. Riddell shall pay for
any amounts above $5,000 for such notices and publication costs. Swanson shall
pay the cost of mailing notices to creditors and other interested parties in the
case styled In re MacGregor Sports, Inc., f/k/a MGS Acquisition, Inc., Case No.
91-00988 (E.D. Wisc.).
21. Dispute Resolution.
(i) In the event of any dispute, controversy, or claim arising
out of this Settlement Agreement, or the breach, termination, or validity of
this Settlement Agreement (a "Dispute"), other than a Dispute involving Levitt
and/or the Committee (a "Levitt/Committee Dispute"), the Party or Parties
asserting the Dispute will give notice to all other Parties to this Settlement
Agreement setting forth the matters involved in the Dispute. The senior officers
of all corporate Parties (except Levitt and/or Committee), and where the Party
is an individual, the individual himself, shall negotiate in good faith for
twenty (20) days following the receipt of such notice to attempt to resolve such
Dispute. If the Parties have not resolved such Dispute within such twenty-day
period, then any Party may submit the Dispute to arbitration, as the exclusive
means of resolving it, in
50
<PAGE>
accordance with the procedures set forth below, for a final and binding
resolution thereof.
(ii) Any Dispute which has not been resolved pursuant to
Section 21(i) above shall be finally settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then in effect, as modified by the terms of this Section 21. The Parties hereby
agree that any Party to this Settlement Agreement may join in any arbitration
proceeding commenced pursuant to this Section regardless of whether or not it or
he was named as a Party in that proceeding. The arbitration proceedings shall be
held in New York, New York.
(iii) The dispute resolution provisions set forth in this
Section 21 shall provide the sole and exclusive remedy for a Dispute between or
among the Parties concerning this Settlement Agreement, except for any
Levitt/Committee Dispute or any dispute relating to the Release Order, over
which the New Jersey Bankruptcy Court shall retain exclusive jurisdiction.
(iv) There shall be three (3) arbitrators who shall be
appointed by the AAA within 30 days of its receipt of the claimant's Demand For
Arbitration. The claimant may name any other Party or Parties to this
51
<PAGE>
Settlement Agreement as a respondent or respondents. The respondent shall
deliver its Answering Statement, including any counterclaims, no later than ten
(10) business days from receipt of the Demand for Arbitration. The Demand for
Arbitration and the Answering Statement shall also be delivered to each of the
Parties to this Settlement Agreement, whether or not they are named as Parties
in the arbitration proceeding, at the same time as they are delivered to the
Parties to the arbitration proceeding. The claimant shall deliver a reply to any
counterclaims no later than ten (10) business days from receipt of the Answering
Statement containing such counterclaims.
(v) The arbitration tribunal shall permit and facilitate such
prehearing discovery and exchange of documents and information to which the
Parties to the arbitration proceeding in writing agree or which the tribunal
determines is relevant to the Dispute and is appropriate, taking into account
the needs of the Parties and the desirability of making discovery expeditious
and cost-effective. All discovery shall be completed within sixty (60) days from
the date of appointment of the arbitration tribunal. All information or
documents produced in discovery shall be held confidential by the Parties to the
proceeding, their counsel, their counsel's
52
<PAGE>
experts and advisors and the tribunal, unless the Parties to the proceeding
agree in writing otherwise.
(vi) The hearing shall be held no later than ninety (90) days
following the appointment of the arbitration tribunal. The tribunal shall issue
its final and complete award no later than forty-five (45) days from the
completion of the hearing. The tribunal will have no authority to award punitive
damages. The award shall be deemed to have been made in the State of New York.
Judgment on any award shall be entered in any court having jurisdiction thereof.
(vii) The Dispute shall be decided in accordance with the laws
of the State of New York, without regard to its law on the conflict of laws.
Notwithstanding the Parties' choice of law governing the Dispute, the
interpretation and enforcement of this Section 21 shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.ss. 1, et seq.
(viii) This agreement to arbitrate and any award made
hereunder shall be binding upon the heirs, successors, and assigns and any
trustee, receiver, or executor of each Party.
(ix) The Parties hereby agree that, upon the
request of any Party to an arbitration proceeding under
53
<PAGE>
this Settlement Agreement, the Dispute that is the subject of that proceeding
shall be consolidated (provided that it is reasonably economical to do so) with
any other arbitration proceeding in progress under this Settlement Agreement or
the New License if the subject of the Disputes arises out of or relates
essentially to the same facts or transactions. An arbitration proceeding which
determines such consolidated Disputes shall be conducted in accordance with the
Commercial Arbitration Rules of the AAA then in effect, except as modified by
the terms of this Section 21.
(x) This Settlement Agreement has been negotiated in the City
of New York by representatives of the Parties physically present therein. For
purposes of enforcement of the mandatory arbitration provisions of this Section
21 and of the arbitrators' award hereunder, the Parties submit themselves to the
exclusive jurisdiction of the state and federal courts located in the City of
New York in the State of New York and hereby agree not to bring, and hereby
waive any rights they may have to bring, any action or proceeding for such
purpose(s) in any other court. Each of the Parties hereby consents to the
service of process by registered mail at its address set forth in this
Settlement Agreement and to the perso-
54
<PAGE>
nal jurisdiction of the state and federal courts located in the City of New York
in the State of New York in connection with any such action or proceeding. Each
Party hereto which is not a resident of New York State shall appoint CT
Corporation System, at its offices located at 1633 Broadway, New York, New York,
USA, as its authorized agent (the "Authorized Agent") upon whom process may be
served in any such action or proceeding. Such appointment shall be irrevocable.
Each Party represents and warrants that the Authorized Agent has agreed to act
as said agent for service of process, and agrees to take any and all action,
including the filing of any and all documents and instruments and payment of all
fees, as may be necessary to continue such appointment in full force and effect
as aforesaid. Service of process upon the Authorized Agent and written notice of
such service to each of the Parties, as applicable, shall be deemed, in every
respect, effective service of process in such action or proceeding. Any Party
effecting service on the Authorized Agent shall also transmit a copy of such
service of process to the Party being served in accordance with the notice
provisions set forth in this Settlement Agreement.
55
<PAGE>
(xi) Each Party to the arbitration proceeding shall bear his
or its own expenses, including attorneys' fees and related disbursements, but
shall share equally the fees and expenses of the arbitration tribunal.
(xii) Neither the Parties nor the arbitrators may disclose to
any third Party the existence, content, or results of any negotiations or
arbitration hereunder without the prior written consent of all Parties to the
proceeding, except as required or advised by independent counsel to comply with
applicable laws or any listing agreement with a national securities exchange, or
as a direct response to any third Party to whom any such disclosure or statement
was made by any other Party to this Settlement Agreement.
22. Further Assurances.
The Parties hereto agree to perform such additional acts and
execute and deliver such further documents as may be required to fully effect
the transactions contemplated by this Settlement Agreement.
23. Press Release.
Subject to any applicable legal requirements, Riddell will
provide Brooks with a copy of any press release it issues regarding this
Settlement Agreement at least 24 hours prior to issuing such press release.
56
<PAGE>
Riddell shall retain sole discretion over the content of any such press release.
24. Notices.
All notices to be given under this Settlement Agreement, shall
be given or made by first class, registered, or certified mail at the respective
addresses of the Parties as set forth below, unless notification of a change of
address is given in writing, and the date of mailing, as post-marked, shall be
deemed the date the notice is given. The mailing of a notice by registered or
certified mail shall constitute notice hereunder, even in the event of
non-receipt or refusal to accept by addressee.
All general notices shall be sent to:
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
MacMark Corporation
1105 North Market Street
Suite 1300
Wilmington, Delaware 19899
MLC Partners Limited Partnership
c/o Nederlander Organization
810 Seventh Avenue
New York, New York 10019
Robert E. Nederlander
Nederlander Organization
810 Seventh Avenue
New York, New York 10019
57
<PAGE>
Leonard Toboroff
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
Lisa J. Marroni
Riddell Sports Inc.
900 Third Avenue
New York, New York 10022
John McConnaughy, Jr.
c/o JEMC Corp.
1011 High Ridge Road
Stamford, Connecticut 16905
Frederic H. Brooks
189 Shore Road
Old Greenwich, Connecticut 06870
Unsecured Creditors' Committee
of MacGregor Sporting Goods, Inc.
c/o Robert D. Weisman
71 Mamaroneck Road
Scarsdale, New York 10583
with a copy to:
Michael D. Sirota, Esq.
Cole, Shotz, Meisel, Forman & Leonard
25 Main Street
Hackensack, New Jersey 07602-0800
Innovative Promotions, Inc.
c/o Amen, Weisman & Butler
71 Mamaroneck Road
Scarsdale, New York 10583
with a copy to:
Martin Major, Esq.
Feltman, Karesh, Major & Farbman
152 West 57th Street
New York, New York 10019
Pursuit Athletic Footwear, Inc.
2275 Eagle Parkway
Fort Worth, Texas 17677-2312
58
<PAGE>
Riddell Athletic Footwear, Inc.
2275 Eagle Parkway
Fort Worth, Texas 17677-2312
Bruce H. Levitt, Esq.
443 Northfield Avenue
West Orange, New Jersey 07052
NBD Bank, a Michigan Banking Corporation,
f/k/a NBD Bank, N.A.
1116 West Long Lake Road
Bloomfield Hills, Michigan 48303
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Attn: I. W. Winsten, Esq.
Paul G. Swanson, Esq.
Steinhilber, Swanson & Mares
219 Washington Avenue
P.O. Box 617
Oshkosh, Wisconsin 54902
Woodco Sports, Inc.
2275 Eagle Parkway
Fort Worth, Texas 17677-2312
Ernest Wood, Jr.
5422 Harbor Town
Dallas, Texas 75320
Harry Wood
2275 Eagle Parkway
Fort Worth, Texas 17677-2312
(i) Copies of all notices to Riddell Sports Inc., Riddell,
Inc., RHC Licensing Corp., Ridmark Corp., MacMark Corp., Equilink Licensing
Corp., Robert Nederlander, Leonard Toboroff, John McConnaughy, Jr., Lisa
Marroni, and MLC Partners Limited Partnership shall
59
<PAGE>
also be sent to Thomas J. Schwarz, Esq., Skadden, Arps, Slate, Meagher & Flom
LLP, 919 Third Avenue, New York, New York 10022-3897.
(ii) Copies of all notices to Frederic H. Brooks and
Connecticut Economics Corporation shall also be sent to David J. Molton, Esq.,
Molton & Meekins, 805 Third Avenue, 9th Floor, New York, New York 10022.
(iii) Copies of all notices to Riddell Athletic Footwear,
Inc. and Pursuit Athletic Footwear, Inc. shall also be sent to John D. Demmy,
Esq., Morris, James, Hitchens & Williams, 222 Delaware Avenue, P.O. Box 2306,
Wilmington, Delaware 19899 and Frederic H. Brooks, 189 Shore Road, Old
Greenwich, Connecticut 06870.
25. Standstill.
The Parties agree that, pending consummation or termination of
this Settlement Agreement, with the exception of taking the steps necessary to
obtain the court approvals required under this Settlement Agreement, they will
not pursue any discovery or other proceedings in the Cases and will cooperate
with each other in good faith to take all reasonable steps necessary to preserve
the status quo in the Cases.
26. Amendments. None of the provisions herein
shall be deemed to be waived or modified, nor shall they
60
<PAGE>
be renewed, extended, altered, changed, or modified in any respect except by an
express agreement in writing, duly executed by the Party against whom
enforcement of such waiver, modification, extension, alteration, or change in
sought. The failure of any Party hereto to object to the failure on the part of
any other Party to perform any of the terms, provisions or conditions herein, or
to require performance on the part of any other Party of any term, provision or
condition herein, or any delay in doing so, shall not constitute a waiver or
modification herein or of any subsequent breach or default of the same or of a
different nature, nor affect the validity of any part hereof, nor the right of
any Party thereafter to enforce the same, nor constitute a novation or laches.
27. Agreement Not Admission.
Neither this Settlement Agreement, nor any of the terms
herein, shall be construed or deemed to be evidence of any admission on the part
of any of the Parties hereto of any wrongful activity, breach of duty or
liability whatsoever. Neither this Settlement Agreement, nor any of the terms
herein, nor any of the negotiations connected herewith, shall be offered or
received in evidence in any action or proceeding as an admission of
61
<PAGE>
any wrongful activity, breach of duty or liability whatsoever. Nothing contained
herein, however, shall prevent this Settlement Agreement from being used,
offered or received in evidence in any action or proceeding (as contemplated by
the Settlement Agreement) to enforce any or all of the terms of this Settlement
Agreement. The Parties hereto respectively deny any and all allegations of
wrongful activity, breach of duty or liability relating to them which are
contained in any of the pleadings or other papers filed or served in any of the
Cases referred to in this Settlement Agreement.
28. Headings.
The headings contained in this Settlement Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Settlement Agreement.
29. Defined Terms.
All capitalized terms not otherwise defined in the body of
this Settlement Agreement shall have the meaning ascribed to such terms in the
recitals to this Settlement Agreement.
30. Construction.
This Settlement Agreement and the Release were drafted
mutually by the Parties hereto and shall not give
62
<PAGE>
rise to a presumption or construction against any Party that signed it.
31. Governing Law.
This Settlement Agreement and the Releases herein shall be
governed by and construed in accordance with the laws of the State of New York
without regard to the conflict of laws principles of such State, except that the
Assignment Agreement, as defined in Section 12 herein, shall be governed by the
laws of the State of New Jersey without regard to the conflict of laws
principles of such State.
63
<PAGE>
32. Counterparts. This Settlement Agreement may be
executed in counterparts, each of which shall be deemed an original, and all of
which together shall constitute the same instrument.
IN WITNESS WHEREOF, and intending to be legally bound thereby,
the Parties hereto have caused this instrument 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
RHC LICENSING CORPORATION
By: /s/ David Mauer
----------------------------
Name: David Mauer
Title: Chairman
RIDDELL, INC.
By: /s/ David Mauer
----------------------------
Name: David Mauer
Title: Chairman
64
<PAGE>
EQUILINK LICENSING CORPORATION
By: /s/ David Mauer
----------------------------
Name: David Mauer
Title: Chairman
RIDMARK CORPORATION
By: /s/ David Mauer
----------------------------
Name: David Mauer
Title: Chairman
MACMARK CORPORATION
By: /s/ David Mauer
----------------------------
Name: David Mauer
Title: Chairman
NBD BANK, a MICHIGAN BANKING
CORPORATION, f/k/a NBD BANK,
N.A.
By: /s/ Jon P. Dady
----------------------------
Name: Jon P. Dady
Title: First Vice President
MLC PARTNERS LIMITED PARTNERSHIP
By: Robert Holdings Corp.
By: /s/ Robert Nederlander
----------------------------
Name: Robert Nederlander
Title: President
/s/ Lisa J. Marroni
--------------------------------
LISA J. MARRONI
65
<PAGE>
/s/ Leonard Toboroff
--------------------------------
LEONARD TOBOROFF
/s/ John McConnaughy, Jr.
--------------------------------
JOHN McCONNAUGHY, JR.
/s/ Robert Nederlander
--------------------------------
ROBERT NEDERLANDER
/s/ Frederick H. Brooks
--------------------------------
FREDERIC H. BROOKS
CONNECTICUT ECONOMICS CORPORATION
By: /s/ Frederick H. Brooks
--------------------------------
Name: Frederick H. Brooks
Title: President
/s/ Robert D. Weisman
--------------------------------
ROBERT D. WEISMAN
BRUCE H. LEVITT
By: /s/ Bruce H. Levitt
--------------------------------
Name: Bruce H. Levitt
Title: Bankruptcy Trustee of M
Holdings Corporation
f/k/a/ MacGregor Sporting
Goods, Inc.
66
<PAGE>
M HOLDINGS CORPORATION f/k/a
MACGREGOR SPORTING GOODS, INC.
By: /s/ Bruce H. Levitt
--------------------------------
Name: Bruce H. Levitt
as Bankruptcy Trustee for
M Holdings Corporation
PAUL SWANSON
By: /s/ Paul Swanson
--------------------------------
Name: Paul Swanson
Title: Bankruptcy Trustee of
MGS Acquisition, Inc. and
MacGregor Sports, Inc.
MGS ACQUISITION, INC.
By: /s/ Paul Swanson
--------------------------------
Name: Paul Swanson
Title: Bankruptcy Trustee for
MGS Acquisition, Inc.
MACGREGOR SPORTS, INC.
By: /s/ Paul Swanson
--------------------------------
Name: Paul Swanson
Title: Bankruptcy Trustee for
MacGregor Sports, Inc.
OFFICIAL UNSECURED CREDITORS
COMMITTEE OF MACGREGOR
SPORTING GOODS, INC.
By: /s/ Robert D. Weisman
--------------------------------
Name: Robert D. Weisman
Title: Chairman
67
<PAGE>
INNOVATIVE PROMOTIONS, INC.
By: /s/ Robert D. Weisman
--------------------------------
Name: Robert D. Weisman
Title: President
PURSUIT ATHLETIC FOOTWEAR, INC.
By: /s/ Ernest Wood, Jr.
--------------------------------
Name: Ernest Wood, Jr.
Title: Chief Executive Officer
RIDDELL ATHLETIC FOOTWEAR, INC.
By: /s/ Ernest Wood, Jr.
--------------------------------
Name: Ernest Wood, Jr.
Title: Chief Executive Officer
/s/ Ernest Wood, Jr.
--------------------------------
ERNEST WOOD, JR.
/s/ Harry Wood
--------------------------------
HARRY WOOD
68
<PAGE>
The following Exhibits have been intentionally omitted:
Exhibit A - General release given by J.C. Wingo to
Frederic H. Brooks and Connecticut Econom-
ics Corporation
Exhibit B - General release given by Frederic H.
Brooks and Connecticut Economics Corpora-
tion to J.C. Wingo
Exhibit C - Form of License Agreement between RHC
Licensing Corporation and Pursuit Athletic
Footwear, Inc.
Exhibit D - Form of Assignment Agreement between RHC
Licensing Corporation, Bruce H. Levitt, as
Bankruptcy Trustee of M Holdings Corpora-
tion and Frederic H. Brooks
69
<PAGE>
RIDDELL SPORTS INC. EXHIBIT 11.1
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Twelve Months Ended Dec. 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary earnings per share:
- ---------------------------------------------
Weighted average common shares out-
standing during period 8,067,985 8,067,985 7,973,952
Common shares equivalents of dilutive
stock options based on treasury
stock method using average market
price for quarter 359,648 0 0
----------- ----------- -----------
Average common shares and equivalents 8,427,633 8,067,985 7,973,952
----------- ----------- -----------
----------- ----------- -----------
Income (loss) before extraordinary item $ 2,843,176 $ 2,370,534 ($4,932,947)
Extraordinary item (1,900,000)
----------- ----------- -----------
Net income for the period $ 2,843,176 $ 470,534 ($4,932,947)
----------- ----------- -----------
----------- ----------- -----------
Per Share Amounts:
Income (loss) before extraordinary
item $ 0.34 $ 0.29 ($ 0.62)
Extraordinary item -- (0.23) --
----------- ----------- -----------
Net income for the period $ 0.34 $ 0.06 ($ 0.62)
----------- ----------- -----------
----------- ----------- -----------
Fully diluted earnings per share:
- ---------------------------------------------
Weighted average common shares out-
standing during period 8,067,985 8,067,985 7,973,952
Common shares equivalents of dilutive
stock options based on treasury stock
method using higher of quarter ending
market price or average quarterly
market price 411,306 0 0
----------- ----------- -----------
Average common shares and equivalents 8,479,291 8,067,985 7,973,952
----------- ----------- -----------
----------- ----------- -----------
Income (loss) before extraordinary item $ 2,843,176 $ 2,370,534 ($4,932,947)
Extraordinary item (1,900,000)
----------- ----------- -----------
Net income for the period $ 2,843,176 $ 470,534 ($4,932,947)
----------- ----------- -----------
----------- ----------- -----------
Per Share Amounts:
Income (loss) before extraordinary $ 0.34 $ 0.29 ($ 0.62)
item
Extraordinary item -- (0.23) --
----------- ----------- -----------
Net income for period $ 0.34 $ 0.06 ($ 0.62)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
RIDDELL SPORTS INC. EXHIBIT 11.2
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Primary earnings per share:
- --------------------------------------------------
Weighted average common shares outstanding
during period 8,067,985 8,067,985
Common shares equivalents of dilutive stock
options based on treasury stock method
using average market price for quarter -0- 388,977
----------- ----------
Average common shares and equivalents 8,067,985 8,456,962
----------- ----------
----------- ----------
Net income (loss) for the period ($ 17,119) $1,290,398
----------- ----------
----------- ----------
Per share amount $ 0.00 $ 0.15
----------- ----------
----------- ----------
Fully diluted earnings per share:
- --------------------------------------------------
Weighted average common shares outstanding
during period 8,067,985 8,067,985
Common shares equivalents of dilutive stock
options based on treasury stock method
using quarter ending market price which is -0- 529,924
higher than average market price ----------- ----------
Average common shares and equivalents 8,067,985 8,597,909
----------- ----------
----------- ----------
Net income for the period ($ 17,119) $1,290,398
----------- ----------
----------- ----------
Per share amount ($ 0.00) $ 0.15
----------- ----------
----------- ----------
</TABLE>
2
<PAGE>
RIDDELL SPORTS INC. EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands except ratio information)
<TABLE>
<CAPTION>
PRO FORMA
-----------------
Three
Three months Year months
Year ended December 31, ended March 31, ended ended
---------------------------------------- --------------- Dec. 31, Mar. 31,
1992 1993 1994 1995 1996 1996 1997 1997 1997
------- ------- ------- ------ ------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before taxes, extraordinary
item and cumulative effect of changes
in accounting principles $ 1,238 ($7,726) ($6,183) $2,471 $2,953 $1,350 ($ 17) ($ 955) ($6,002)
Add fixed charges, from below 2,208 2,346 2,334 3,239 3,247 744 790 14,657 3,613
------- ------- ------- ------ ------ ------ -------- -------- -------
$ 3,446 ($5,380) ($3,849) $5,710 $6,200 $2,094 $ 773 $ 13,702 ($2,389)
======= ======= ======= ====== ====== ====== ======== ======== =======
Fixed Charges:
Interest expense $ 1,902 $ 2,029 $ 2,001 $2,795 $2,763 $ 628 $ 666 $ 13,927 $ 3,431
One-third of rent expense 306 317 333 444 484 116 124 730 182
------- ------- ------- ------ ------ ------ -------- -------- -------
$ 2,208 $ 2,346 $ 2,334 $3,239 $3,247 $ 744 $ 790 $ 14,657 $ 3,613
======= ======= ======= ====== ====== ====== ======== ======== =======
Ratio of earnings to fixed charges 1.6 * * 1.8 1.9 2.8 1.0 0.9 *
======= ======= ======= ====== ====== ====== ======== ======== =======
Amount by which earnings are inadequate to
cover fixed charges -- $ 7,726 $ 6,183 -- -- -- $ 17 $ 955 $ 6,002
======= ======= ======= ====== ====== ====== ======== ======== =======
</TABLE>
- ----------
* -- Amount results in a deficiency
(1) One-third of rent expense is deemed representative of that portion of
rental expense estimated to be attributable to interest.
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF RIDDELL SPORTS INC.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION DBA
- ------------------------------------------- ------------- --------------------
<S> <C> <C>
All American Sports Corporation Delaware Riddell/All-American
Cheer Acquisition Corp. Tennessee N/A
Equilink Licensing Corporation Delaware N/A
International Logos, Inc. Tennessee N/A
MacMark Corporation (50%) Delaware N/A
Proacq Corp. Delaware N/A
RHC Licensing Corporation Delaware N/A
Riddell, Inc. Illinois N/A
Ridmark Corporation Delaware N/A
Varsity/Intropa Tours, Inc. Tennessee N/A
Varsity Spirit Corporation Tennessee N/A
Varsity Spirit Fashions & Supplies, Inc. Minnesota N/A
Varsity USA, Inc. Tennessee N/A
</TABLE>
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Riddell Sports, Inc.
We have issued our reports dated March 14, 1997, accompanying the financial
statements and schedule of Riddell Sports, Inc., contained in the Registration
Statement and Prospectus on Form S-4. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Chicago, Illinois
July 17, 1997
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Riddell Sports Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 12, 1997, relating to the
consolidated financial statements of Varsity Spirit Corporation which is
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Memphis, Tennessee
July 14, 1997
<PAGE>
CONSENT TO BEING NAMED A DIRECTOR
I, Jeffrey G. Webb, hereby consent to my being named as a
person chosen to become a director of Riddell Sports Inc., a Delaware
corporation (the "Corporation"), in the Registration Statement on Form S-4 of
the Corporation (the "Registration Statement"), as filed with the Securities and
Exchange Commission on the date hereof, and in all subsequent amendments to the
Registration Statement.
/s/ Jeffrey G. Webb
-------------------------------
Jeffrey G. Webb
Dated: July 17, 1997
<PAGE>
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
Riddell Sports Inc.
(Exact name of obligor as specified in its charter)
Delaware 22-2890400
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
900 Third Avenue-27th Floor
New York, New York 10022
(212) 826-4300 (Zip Code)
(Address of principal executive offices)
<PAGE>
<TABLE>
<CAPTION>
Primary Standard
Industrial I.R.S Employer
Name of Additional Registrants Jurisdiction of Classification Identification
Incorporation Number Number
<S> <C> <C> <C>
All American Sports Corporation Delaware 3949 34-1688715
Cheer Acquisition Corp. Tennessee 3949 -
Equilink Licensing Corporation Delaware 3949 51-0342202
Proacq Corp. Delaware 3949 34-1688714
RHC Licensing Corporation Delaware 3949 51-0342201
Riddell, Inc. Illinois 3949 36-3581631
Ridmark Corporation Delaware 3949 22-2908352
International Logos, Inc. Tennessee 2389 62-1392810
Varsity/Intropa Tours, Inc. Tennessee 4724 62-1584148
Varsity Spirit Corporation Tennessee 7032 62-1169661
Varsity Spirit Fashions & Supplies Inc. Minnesota 2389 41-1459853
Varsity USA, Inc. Tennessee 7032 62-1601179
</TABLE>
10 1/2% Senior Notes due 2007 Riddell Sports Inc.
Guarantees of the 10 1/2% Senior Notes due 2007
by Registrants Other than Riddell Sports Inc.
(Title of Indenture Securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
Exhibit
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (March 31, 1997), published
pursuant to law or the requirement of its
supervisory or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 17th day of July, 1997.
MARINE MIDLAND BANK
By:/s/Frank J.Godino
----------------------
Frank J. Godino
Assistant Vice President
<PAGE>
Exhibit T1A (vii)
Board of Governors of the
Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance
Corporation
OMB Number: 3064-0052
Office of the Comptroller
of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 1999
- -------------------------------------------------------------------------------
1
This financial information has not been reviewed, or confirmed
for accuracy or relevance, by the Federal Reserve System.
Please refer to page i, Table of Contents, for the required disclosure of
estimated burden.
- -------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031
Report at the close of business March 31, 1997
(950630)
(RCRI 9999)
This report is required by law; 12 U.S.C. ss.324 (State member banks); 12 U.S.C.
ss. 1817 (State nonmember banks); and 12 U.S.C. ss.161 (National banks).
<PAGE>
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consoli-dated foreign subsidiaries, or
International Banking Facilities.
- -------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an
authorized officer and the Report of Condition must be attested to by not
less than two directors (trustees) for State nonmember banks and three
directors for State member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
--------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
- ----------------------------------------------
Signature of Officer Authorized to Sign Report
4/28/97
- -----------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ James H. Cleave
- ------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- ------------------------------
Director (Trustee)
/s/ Malcom Burnett
- ------------------------------
Director (Trustee)
- -------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to the appropriate
Federal Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
--------------------------
(RCRI 9030)
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
March 31, 1997
ASSETS
Thousands
of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin.................................... $1,026,267
Interest-bearing balances ........................... 2,219,196
<PAGE>
Held-to-maturity securities.......................... 0
Available-for-sale securities........................ 3,728,393
Federal funds sold and securities purchased
under agreements to resell............................ 1,830,419
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 21,110,911
LESS: Allowance for loan and lease
losses............................... 441,315
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve....................... 20,669,596
Trading assets....................................... 1,005,199
Premises and fixed assets (including
capitalized leases).................................. 217,027
Other real estate owned................................. 18,586
Investments in unconsolidated
subsidiaries and associated companies................... 0
Customers' liability to this bank on
acceptances outstanding................................. 21,351
Intangible assets....................................... 495,502
Other assets............................................ 709,342
Total assets............................................ 31,940,878
LIABILITIES
Deposits:
In domestic offices.................................. 20,236,232
Noninterest-bearing.................. 4,166,679
Interest-bearing..................... 16,069,553
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.................................. 2,639,327
Noninterest-bearing.................. 0
Interest-bearing..................... 2,639,327
Federal funds sold and securities purchased
under agreements to resell............................ 3,281,586
Demand notes issued to the U.S. Treasury 197,415
Trading Liabilities...................................... 267,837
Other borrowed money:
With a remaining maturity of one year
or less.............................................. 1,800,280
With a remaining maturity of more than
one year............................................. 371,195
Bank's liability on acceptances
executed and outstanding................................ 21,351
Subordinated notes and debentures....................... 497,585
Other liabilities....................................... 525,585
Total liabilities....................................... 29,838,393
Limited-life preferred stock and
related surplus......................................... 0
EQUITY CAPITAL
<PAGE>
Perpetual preferred stock and related
surplus................................................. 0
Common Stock............................................ 205,000
Surplus................................................. 1,983,378
Undivided profits and capital reserves.................. (76,867)
Net unrealized holding gains (losses)
on available-for-sale securities........................ (9,026)
Cumulative foreign currency translation
adjustments............................................. 0
Total equity capital.................................... 2,102,485
Total liabilities, limited-life
preferred stock, and equity capital..................... 31,940,878
