<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............ to ............
Commission file number 0-19790
Varsity Spirit Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1169661
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2525 Horizon Lake Drive, Suite 1, Memphis, TN 38133
(Address of principal executive offices)
(Zip Code)
(901)387-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares of Registrant's Common Stock, $.01 par value, outstanding
at July 31, 1996: 4,528,707.
1
<PAGE> 2
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information:
Item I: Consolidated Financial Statements
Balance Sheets 3
Statements of Income (Unaudited) 4
Statements of Cash Flows (Unaudited) 5
Statements of Stockholders' Equity (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION; ITEM I: FINANCIAL STATEMENTS
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
(IN THOUSANDS) June 30,1996 Dec.31, 1995 June 30,1995
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,323 $ 5,080 $ 1,280
Accounts receivable, less allowance of 10,495 6,370 10,542
$200, $170, and $175
Inventories (Note 4) 7,066 4,926 6,939
Prepaid expenses (Note 5) 7,247 2,272 5,696
Deferred sales (Note 6) 7,353 280 5,683
Refundable income taxes --- 383 ---
Deferred tax benefit 208 176 168
--- --- ---
TOTAL CURRENT ASSETS 33,692 19,487 30,308
PROPERTY AND EQUIPMENT, less accumulated 3,685 3,127 2,971
depreciation
GOODWILL/OTHER (Note 12) 8,887 6,629 6,464
----- ----- ----
TOTAL ASSETS $46,264 $29,243 $39,743
======= ======= =======
CURRENT LIABILITIES:
Accounts payable $ 7,610 $ 1,678 $ 8,041
Notes payable (Note 7) 250 --- ---
Accruals:
Compensation/payroll taxes 1,624 266 1,457
Income taxes 569 167 818
Other 194 99 180
Customer Deposits 9,276 2,065 7,504
Curr. mat. of long-term debt (Note 12) 120 --- ---
--- --- ---
TOTAL CURRENT LIABILITIES 19,643 4,275 18,000
DEFERRED INCOME TAXES 190 174 143
LONG-TERM DEBT (NOTE 12) 480 --- ---
--- --- ---
TOTAL LIABILITIES 20,313 4,449 18,143
SHAREHOLDERS' EQUITY (Note 10)
Preferred stock --- --- ---
Common stock 47 47 47
Additional paid-in-capital 13,718 13,523 13,193
Exc. of purch. price over pred. basis (2,517) (2,517) (2,517)
Retained earnings 14,736 13,777 10,915
------- ------- -------
25,984 24,830 21,638
Treasury stock (33) (36) (38)
---- ---- ----
TOTAL EQUITY 25,951 24,794 21,600
------- ------- -------
TOTAL LIABILITIES AND EQUITY $46,264 $29,243 $39,743
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements (unaudited).
3
<PAGE> 4
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ending June 30, Ending June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Uniforms and accessories $20,186 $18,907 $22,463 $21,032
Camps and events 9,467 8,894 13,606 10,847
------- ------- ------- -------
29,653 27,801 36,069 31,879
COSTS OF REVENUES:
Uniforms and accessories 10,748 9,933 12,366 11,382
Camps and events 6,357 6,660 9,451 7,939
------- ------- ------- -------
17,105 16,593 21,817 19,321
GROSS PROFIT 12,548 11,208 14,252 12,558
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 7,844 7,212 12,094 10,910
------- ------- ------- ------
Operating income 4,704 3,996 2,158 1,648
OTHER INCOME (EXPENSE) (15) (15) 32 61
Income before taxes on income 4,689 3,981 2,190 1,709
TAXES ON INCOME (Note 8) 1,862 1,563 870 677
NET INCOME $ 2,827 $ 2,418 $ 1,320 $ 1,032
======= ======= ======= =======
NET INCOME PER SHARE $ 0.60 $ 0.52 $ 0.28 $ 0.22
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
(Note 9) 4,726 4,662 4,715 4,650
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,320 $ 1,032
Deferred income taxes (16) (2)
Depreciation 493 360
Amortization 109 99
Change in operating assets and liabilities,
net of business acquired (Note 12):
Accounts receivable (11,168) (11,119)
Inventories (1,889) (3,052)
Prepaid expenses (4,840) (4,283)
Refundable income taxes 383 ---
Accounts payable 5,679 6,573
Accruals 1,897 1,086
Customer deposits 7,113 6,329
------- -------
NET CASH USED BY OPERATING ACTIVITIES (919) (2,977)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Varsity USA, Inc. (Note 12) (1,926) ---
Purchase of property and equipment (931) (1,395)
Increase in other assets (9) (54)
--- ----
NET CASH USED BY INVESTING ACTIVITIES (2,866) (1,449)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (361) (268)
Increase in notes payable 250 ---
Proceeds from issuance of common stock 139 95
--- ---
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 28 (173)
DECREASE IN CASH AND CASH EQUIVALENTS (Note 11) (3,757) (4,599)
CASH AND CASH EQUIVALENTS, beginning of period 5,080 5,879
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,323 $ 1,280
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common Additional Excess of Retained Treasury Total
stock stock paid-in purchase Earnings stock
shares amount capital price over
predecessor
basis
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 4,710 $47 $13,523 ($2,517) $13,777 ($36) $24,794
1995 (Note 10)
Net income for the period 1,320 1,320
Issuance of common 136 3 139
stock upon exercise of
stock options
Tax benefit related to 59 59
exercise of stock
options (Note 11)
Cash dividend ($.04 per (361) (361)
share)
BALANCES, June 30, 1996 4,710 $47 $13,718 ($2,517) $14,736 ($33) $25,951
===== === ======= ======== ======= ===== =======
BALANCES, December 31, 4,699 $47 $13,102 ($2,517) $10,151 ($42) $20,741
1994 (Note 10)
Net income for the 1,032 1,032
period
Issuance of common 91 4 95
stock upon exercise of
stock options
Cash dividend ($.03 per (268) (268)
share)
BALANCES, June 30, 1995 4,699 $47 $13,193 $2,517 $10,915 ($38) $21,600
===== === ======= ====== ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The interim statements are prepared pursuant to the requirements for
reporting on Form 10-Q. The December 31, 1995 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 six months ended June 30, 1996 and
1995 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:
<TABLE>
<CAPTION>
(In thousands) (Unaudited) (Unaudited)
June 30, December 31, June 30,
1996 1995 1995
------ ------ ------
<S> <C> <C> <C>
Finished Goods $5,035 $3,217 $5,281
Raw Materials 2,031 1,709 1,658
------ ------ ------
$7,066 $4,926 $6,939
====== ====== ======
</TABLE>
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
7
<PAGE> 8
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Deferred costs:
Catalog $ 668 $ 250 $ 495
Camps and clinics 2,070 120 2,275
Championships 98 455 31
Supplies and samples 694 342 300
Commissions 830 164 409
Prepaid tour costs 2,000 339 1,392
Insurance 505 413 512
Other 382 189 282
------ ------ ------
$7,247 $2,272 $5,696
====== ====== ======
</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.
NOTE 7: The Company had a $6,000,000 line of credit which expired in July,
1996 and was renewed as a $9,000,000 line of credit which expires
July, 1997. As of June 30, 1996, $250,000 was outstanding. No balances
were outstanding under the agreement as of December 31, 1995 or June
30, 1995. The agreement requires that the Company maintain certain
financial ratios and meet a minimum tangible net worth and bears
interest at the lower of prime or LIBOR plus 1%. Weighted average
borrowings for the six month periods ended June 30, 1996 and 1995 were
$1.3 million and $1.5 million respectively, and the weighted average
interest rate for the same periods was 6.47% and 7.09% respectively.
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 June 30, 1996 and 1995, net income per
share calculations are based upon weighted average common and
equivalent shares outstanding totaling 4,726,000 and 4,662,000,
respectively.
For the six months ended June 30, 1996 and 1995, net income per share
calculations are based upon weighted average common and equivalent
shares outstanding totaling 4,715,000 and 4,650,000, respectively.
8
<PAGE> 9
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: In February and March 1996, under the Company's 1991 Stock Option
Plan, the Company granted options to purchase 172,490 shares of
Common Stock to certain officers and employees. These options are
designated as incentive stock options. Under the same plan, the
Company also granted options to purchase 4,400 shares of Common
Stock to certain directors and non-employees. Under the terms of
the plan, these options are designated as non-qualified stock
options. All options under the plan are exercisable at a price
equal to the fair market value on the date of the grant, except
for options to purchase 14,000 shares granted to executives owning
more than 10% of the Company's voting stock, which are exercisable
at a price equal to 110% of the fair market value on the date of
grant. Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding at December 31, 1995 457,508 $ 5.00 - 13.50
Granted 176,890 14.50 - 15.95
Exercised (21,100) 5.00 - 11.83
Cancelled (3,051) 5.00 - 11.83
-------
Outstanding at June 30, 1996 610,347 $ 5.00 - 15.95
=======
</TABLE>
As of June 30, 1996, under the Company's 1989 Stock Option
Plan, 21,349 options were available for grant and 186,482 options
were outstanding. Under the 1991 Stock Option Plan, 157,908
options were available for grant and 423,765 options were
outstanding.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") issued
by the FASB is effective for fiscal years beginning after December
15, 1995, and encourages companies to adopt a fair value method of
accounting for employee stock-based compensation plans and
requires such accounting for transactions in which an entity
acquires goods or services from non- employees through the
issuance of equity instruments. As allowed under the provisions of
SFAS No. 123, the Company plans to make pro forma disclosures of
net income and earnings per share as if the fair value based
method of accounting had been applied in its Annual Report dated
December 31, 1996.
9
<PAGE> 10
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
Year to Date
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash paid for:
Income taxes $42 $291
Interest $23 $ 22
</TABLE>
Non-cash financing activities:
During the six month period ended June 30, 1996, additional
paid-in-capital was increased by a reduction in income taxes
payable of $59,000, arising from the exercise of stock options.
NOTE 12: Effective May 15, 1996, the Company's subsidiary, Varsity USA,
Inc., acquired certain of the assets of United Special Events,
Inc. ("USA"), an operator of spirit camps with a strong market
position in the western region of the United States. Total cash
consideration was approximately $2.5 million, of which
approximately $1.9 million was paid at closing and $600,000 was
issued in the form of a five-year, 8% note payable. The note
payable provides for a conversion feature whereby the holder could
choose to receive a number of shares of Company common stock as
determined using the average of the closing market prices of the
Company's stock in the twenty days prior to the acquisition. The
acquisition has been accounted for using the purchase method. The
purchase price was allocated to assets based on their currently
estimated fair values, as follows:
<TABLE>
<S> <C>
(In Thousands)
Purchase price, including out-of-pocket expenses $2,526
Current liabilities assumed 368
Current assets (416)
Fixed assets (120)
Covenant not to compete (120)
----
Cost in excess of assets acquired $2,238
======
</TABLE>
The cost in excess of assets acquired will be amortized over 40
years on a straight-line basis for financial statement purposes.
The Company continually evaluates the market coverage and earnings
capacity of its acquirees to determine if the unamortized goodwill
can be recovered through undiscounted cash flows over the
remaining amortization period. Should this evaluation indicate
that the goodwill will not be recoverable, the Company's carrying
value of the goodwill will be reduced by the estimated short fall
of undiscounted cash flows.
The USA operations since the date of acquisition have been
included in the Company's consolidated results of operations.
10
<PAGE> 11
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Varsity Spirit Corporation (the "Company") sells products and services
to the school spirit industry. The Company designs and markets cheerleader,
dance team, and booster club uniforms and accessories and operates secondary
school, high school, and college cheerleader and dance team camps. The Company
promotes its products and services, as well as the school spirit industry, by
organizing and producing various nationally televised cheerleading and dance
team championships and other special events. Since its December 1994
acquisition of Intropa USA, the Company has also operated a tour business that
organizes group travel tours within the United States and abroad, including
tours for school spirit groups. In May, 1996, through its subsidiary, Varsity
USA, Inc. ("USA"), the Company 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 to complement its existing camp operations. The
impact of the operations of USA since the date of acquisition on the Company's
financial statements is immaterial for the six months and the three months
ending June 30, 1996, as the USA camp operations historically take place later
in the summer.
The business and results of operations of the Company are highly
seasonal. The Company's cheerleader and dance team camps are held almost
exclusively in the summer months. Sales of the Company's cheerleader, dance
team, and booster club uniforms and accessories primarily occur prior to the
beginning of the school year. Most of the group travel tours are planned around
performance events; therefore, the revenues from the Company's travel tour
activities are also seasonal. Accordingly, a substantial portion of the
Company's annual revenues and all of the Company's net income have historically
been generated in the Company's quarters ending June 30 and September 30.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES
Total revenues increased 13.1% to $36.1 million in the six months
ended June 30, 1996 from $31.9 million in the six months ended June 30, 1995.
Revenues from the sale of uniforms and accessories increased by 6.8% to $22.5
million in the six months ended June 30, 1996 from $21.0 million in the six
months ended June 30, 1995. This increase was primarily attributable to a
strong increase in shoe and accessory sales. However, sales growth in other
product lines was not as significant. The receipt and processing of sales
orders has been delayed by training activities necessary to implement a new
order entry system and by inclement spring weather in the Midwest and
Northeast.
Camp and event revenues increased by $2.8 million to $13.6 million, or
25.4% in the six months ended June 30, 1996, as compared to the same period in
1995. The revenue increase was 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. In addition, the
Company sponsored two new championships, the All-Star Championship in March
1996 and the National Jumprope Championship in June 1996, which also
contributed to the revenue increase. These increases, combined with higher
incremental revenues derived from a 15.4% increase in camp participants and a
1.4% increase in average gross tuition per camp participant during the 1996
summer season, were offset by a decrease in revenues generated by
Varsity/Intropa Tours, attributable to the timing of current year tours as
compared to the prior
11
<PAGE> 12
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
year. The 15.4% increase in camp participants is partially due to the fact
that certain camp sessions were scheduled earlier in 1996 as compared to 1995.
GROSS PROFIT
Gross profit increased by 13.5% to $14.3 million in the six months
ended June 30, 1996 from $12.6 million in the six months ended June 30, 1995.
Gross profit from the sale of uniforms and accessories as a percentage
of such sales decreased to 45.0% in the six months ended June 30, 1996 from
45.9% in the six months ended June 30, 1995. As the largest portion of the
sales increase relates to purchased goods such as shoes and accessories, which
have lower margins than manufactured goods, a decrease in margin is expected,
and the Company expects this shift in mix to continue. In addition, a portion
of the decrease in margin results from the writeoff in the first quarter of
certain camp store inventory items deemed to be obsolete.
Gross profit margins associated with camps and special events
increased to 30.5% in the six months ended June 30, 1996 from 26.8% for the six
month period ended June 30, 1995. This was primarily due to more efficient
staffing at summer camps, resulting in savings in instructor payroll, travel,
and training costs. In addition, as the margin generated by the Intropa tour
business has historically been lower than that earned on other events, the
decrease in Intropa revenues has resulted in an overall increase in margin.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses in the six months ended
June 30, 1996 were $12.1 million as compared to $10.9 million in the six months
ended June 30, 1995. Selling, general, and administrative expenses as a
percentage of sales decreased to 33.5% for the six months ended June 30, 1996
from 34.2% in the six months ended June 30, 1995, primarily due to the
economies of scale realized by spreading all of the Company's fixed
administrative costs over a greater revenue base. The increase of $1.2 million
in selling, general, and administrative costs was primarily due to increases of
$721,000 in payroll and personnel costs, including $162,000 in additional
selling commissions and related expenses, $150,000 in additional consulting
fees, partially associated with the additional championships, and $93,000
attributable to USA personnel. There were also increases of $138,000 of costs
associated with the publication and distribution of the annual catalogs and
brochures, and $126,000 in additional telephone expenses. Additonal
depreciation expense of $133,000, primarily relating to recent acquisitions of
computer equipment and software, also contributed to the increase.
NET INCOME
The net income increased 27.9% to $1.3 million for the six months
ended June 30, 1996 as compared to $1.0 million in the same period last year.
The increase in income is primarily attributable to an increase of $1.7 million
in gross profit, partially offset by an increase of $1.2 million in selling,
general, and administrative expenses. The net income per share for the period
was $.28 as compared to $.22 for the same period last year.
12
<PAGE> 13
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
REVENUES
Total revenues increased by 6.7% to $29.7 million in the three months
ended June 30, 1996 from $27.8 million in the three months ended June 30, 1995.
Revenues from the sale of uniforms and accessories increased by 6.8%
in the three months ended June 30, 1996, as compared to the same period in
1995, primarily attributable to a strong increase in shoe and accessory sales,
However, sales growth in other product lines was not as significant. The
receipt and processing of sales orders has been delayed by training activities
necessary to implement a new order entry system and by inclement spring weather
in the Midwest and Northeast.
Camp and event revenues increased 6.4% in the three months ended June
30, 1996 as compared to the same period in 1995, primarily due to higher
incremental revenues from a 15.4% increase in camp participants and a 1.4%
increase in average gross tuition per camp participant during the 1996 summer
season, partially offset by a decrease in revenues generated by Varsity/Intropa
Tours, attributable to the timing of current year tours. The 15.4% increase in
camp participants was partially due to the fact that certain camps were
scheduled earlier in 1996 than in 1995. Revenues from the National High School
Cheerleading Championship and the National Jumprope Championship contributed to
the increase.
GROSS PROFIT
Gross profit increased by 12.0% to $12.5 million in the three months
ended June 30, 1996 from $11.2 million in the three months ended June 30, 1995.
Gross profit from the sale of uniforms and accessories as a percentage
of such sales decreased to 46.8% in the three months ended June 30, 1996 from
47.5% in the three months ended June 30, 1995. As the largest portion of the
sales increase relates to purchased goods, such as shoes and accessories, which
have lower margins than manufactured goods, a decrease in margin is expected,
and the Company expects this shift in mix to continue.
Gross profit associated with camps and special events increased to
32.9% from 25.1% in the prior year. This was primarily due to more efficient
staffing at summer camps, resulting in savings in instructor payroll, travel,
and training costs. The increased management fee received for the National High
School Cheerleading Championship in June, 1996, which has no associated costs,
contributed to the margin increase. Further, as the margin generated by the
Intropa tour business has historically been lower than that earned on the
Company's other events, the decrease in Intropa revenues has resulted in an
overall increase in margin.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses in the three months
ended June 30, 1996 were $7.8 million as compared to $7.2 million in the three
months ended June 30, 1995. Selling, general, and administrative expenses as a
percentage of total revenues increased to 26.5% from 25.9%. The $632,000
increase in expense was primarily due to increases of $374,000 in payroll and
personnel costs, including $135,000 in additonal selling commissions and
related expenses and $93,000 attributable to USA
13
<PAGE> 14
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
personnel. There were also increases of $127,000 in costs associated with the
publication and distribution of the annual catalogs, and $57,000 in additional
telephone expenses. Additional depreciation expense of $68,000, primarily
relating to recent acquisitions of computer equipment and software, also
contributed to the increase.
NET INCOME
The net income increased 16.9% to $2.8 million for the three months
ended June 30, 1996 as compared to $2.4 million in the same period last year.
The increase in the income is primarily attributable to an increase of $1.3
million in gross profit, partially offset by an increase of $632,000 in
operating expenses. The net income per share for the period was $.60 as
compared to $.52 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's current assets had increased by
72.9% to $33.7 million from $19.5 million as of December 31, 1995, and the
Company's current liabilities had increased 359.5% to $19.6 million as of June
30, 1996, as compared to $4.3 million as of December 31, 1995. The related
decrease of $1.2 million in working capital is principally attributable to the
purchase of $931,000 of equipment and software, the payment of approximately
$361,000 in cash dividends, and the investment of $1.9 million in cash to
acquire the business of USA. As of June 30, 1996, the Company's cash position
decreased compared to December 31, 1995 primarily due to the seasonal buildup
of deferred sales and prepaid expenses as well as the aforementioned capital
expenditures and cash dividends.
Cash used by operating activities for the six months ended June 30,
1996 decreased $2.1 million to $919,000 from the six month period ended June
30, 1995. This decrease was primarily due to an increase in customer deposits,
primarily related to Intropa and the acquisition of USA, and a more gradual
buildup in inventory levels in the first six months of 1996 as compared to the
same period last year.
Cash used by investing activities for the six months ended June 30,
1996 increased $1.4 million to $2.9 million from the six month period ended
June 30, 1995. This increase was primarily attributable to cash consideration
of $1.9 million related to the acquisition of USA, partially offset by a
decrease of $464,000 in capital expenditures.
As of June 30, 1996, the Company's current assets increased by 11.2%
to $33.7 million from $30.3 million as of June 30, 1995. The Company's current
liabilities increased by 9.1% to $19.6 million as compared to $18.0 million as
of June 30, 1995. The 14.1% improvement in the Company's working capital
position from June 30, 1995 to June 30, 1996 is attributable to an increase in
deferred sales of $1.7 million, attributable to increased sales volume, as well
as increases in prepaid expenses, related to prepaid tour costs and selling
commissions.
As discussed in the notes to the financial statements, the Company had
a $6,000,000 line of credit which expired in July, 1996, and was renewed as a
$9,000,000 line of credit which expires July, 1997, with similar terms.
Weighted average borrowings for the six month periods ended June 30, 1996 and
1995 were $1.3 million and $1.5 million respectively, and the weighted average
interest rate for the same periods was 6.47% and 7.09% respectively. As of June
30, 1996, $250,000 was outstanding under the agreement, but no balances were
outstanding as of December 31, 1995 or June 30, 1995.
14
<PAGE> 15
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit
Number Description
------- -----------
10(a) Asset Purchase Agreement dated as of May 15, 1996 by and
between United Special Events, Inc., Michael Olmstead, and
Varsity/USA, Inc.
10(b) Services Agreement dated as of May 15, 1996 between the
Company and Michael Olmstead.
10(c) Form of Loan Agreement dated as of July 1, 1996 between
the Company and Nationsbank of Tennessee, N.A.
27 Financial Data Schedule (SEC Use Only)
B. REPORTS ON FORM 8-K
There was no Form 8-K filed by the Company during the six months ended
June 30, 1996.
15
<PAGE> 16
PART II: SIGNATURES
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Varsity Spirit Corporation
(Registrant)
Date 8/13/96 By /S/ Jeffrey G. Webb
------- -----------------------------------------------
Jeffrey G. Webb
Chairman, President, and Chief Executive Officer
Date 8/13/96 By /S/ John M. Nichols
------- ------------------------------------------------
John M. Nichols
Senior Vice President and Chief Financial Officer
16
<PAGE> 1
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), entered into as of the
15th day of May 1996, by and between UNITED SPECIAL EVENTS, INC., a
California corporation ("Seller"), and MICHAEL J. OLMSTEAD, an individual
(the "Stockholder"), on the one hand, and VARSITY USA, INC., a Tennessee
corporation ("Buyer"), and VARSITY SPIRIT CORPORATION, a Tennessee corporation
("Parent"), on the other hand.
WITNESSETH:
WHEREAS, Seller is the owner and operator of a business engaged in (i)
the organization and operation of camps and clinics for cheerleaders, dance
teams, songleaders, drill teams, drum majors, color guards and mascots, and
their choreographers, coaches and faculty advisors (such groups being
referred to herein as "Spirit Groups" and such camps being referred to
herein as "Spirit Camps"), (ii) the organization and operation of
competitions and other special events for Spirit Groups, including travel
programs and tours for Spirit Groups ("Spirit Events"), and (iii) the
designing, marketing, distribution and sale of uniforms, accessories and
other goods selected for Spirit Groups (the "Uniform Business" and
collectively with Spirit Camps and Spirit Events, the "Business");
WHEREAS, the Stockholder is the owner of all of the issued and
outstanding capital stock of Seller;
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, substantially all of the assets utilized in the conduct
of the Business, upon the terms and conditions contained herein;
WHEREAS, Seller is also engaged in a business consisting of (i)
the organization, production and marketing of special events (the "Special
Event Business"), including, without limitation, pre-game or intermission
shows and similar other forms of entertainment in connection with sporting
events, corporate events, civic celebrations, multi-media productions,
festivals, fairs, parades and stage productions and the operation of such
Special Event Business may include music production, video production, show
design, field charting, show direction and event management and (ii) the
production and management of cheerleader and dance teams or professional
sports teams (the "Pro Cheerleader Business" and together with the
Special Event Business, the "Retained Business"), which Retained Business is
not being acquired by Buyer and will continue to be operated by Seller
subsequent to the consummation of the transactions contemplated hereby;
WHEREAS, in connection with the purchase of assets of the
Business, Buyer desires to obtain the covenant not-to-compete of Seller and
Stockholder and Seller and Stockholder desire to
<PAGE> 2
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
enter into a covenant not-to-compete upon the terms and conditions contained
herein; and
WHEREAS, in connection with the execution of this Agreement, Buyer
and Stockholder are entering into a Services Agreement and Buyer is
entering into Employment Agreements with certain other of Seller's
employees.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties hereby agree as follows:
1. Assets Sold and Purchased. At the Closing on the
Closing Date (as such terms are hereinafter defined), Seller shall, and
Stockholder shall cause Seller to, convey, sell, assign, transfer and deliver
to Buyer, free and clear of all liens, claims and encumbrances except as
specifically permitted herein, all of the Seller's right, title and interest
in and to all assets utilized in the conduct of the Business, including
without limitation, those assets related to the Business listed on the
balance sheet of Seller dated September 30, 1995 (the "1995 Balance Sheet")
attached hereto as Annex A and all assets acquired by Seller, or which
otherwise arose, in the ordinary course of the Business since September 30,
1995, but excluding those assets disposed of by Seller in the ordinary course
of the Business since September 30, 1995 and the Excluded Assets identified in
Section 2 hereof (the "Purchased Assets"). The Purchased Assets include,
without limitation, the following:
(a) The equipment, furniture, signs and trade fixtures
used in the Business and listed on Annex B hereto;
(b) The inventory of merchandise, office and other goods
and supplies that are held for use or consumption in the Business and
listed on Annex C hereto (the "Inventory");
(c) The following current assets of Seller: cash on
hand or on deposit in or with financial institutions relating to
the Business, accounts receivable relating to the Business,
employee advances relating to the Business, prepaid expenses
relating to the Business, all camp deposits, and security deposits
relating to the Business;
(d) Any contract with any camp participant, any supplier
of Seller or any university or other school at which Seller conducts
cheerleader or spirit camps, each to the extent such contract was
entered into in the ordinary course of the Business and is not
fulfilled by the camp participant, supplier or university or other
school on the Closing Date; and
(e) The Seller's rights to the name "United Spirit
Association" and the acronym "USA" (and all variations and
expansions thereof and logos used in connection therewith, except
for "USA Productions," which neither Seller nor Buyer shall use or
claim any right to use after the Closing) and all other copyrights,
trademarks, services marks and trade names identified on Schedule
7(w) hereto, whether used by Seller in the Business, as part of its
corporate name or otherwise, and all goodwill, trade names,
trademarks, customer lists, franchises, books and records, business
accounts, licenses, authorizations, permits, telephone
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<PAGE> 3
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
numbers and other proprietary information or intellectual property
relating to the Business, including but not limited to all rights and
interests of Seller in any and all spirit industry trade groups.
2. Excluded Assets. The Seller shall not sell to Buyer and the
Buyer shall not purchase from Seller (a) Seller's minute books, stock books
and federal, state, local and foreign tax returns which Seller is required to
retain (the "Records"), provided, however, that complete copies of such
Records shall be provided to Buyer at or prior to the Closing; and (b) any
and all assets used by Seller in the operation of its Retained Business and
agreed by Buyer and Seller at or prior to the Closing to be properly
attributable to the Retained Business (the "Excluded Assets").
3. Assumption of Liabilities. Buyer is not assuming any
liabilities or obligations of Seller or Stockholder (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due and
regardless of when asserted, and including without limitation any liability
arising out of or from the claims, actions, suits and proceedings identified on
Schedule 7(h) hereto or arising under any loan or advance to Seller from
Olmstead or any agreement between Seller and Olmstead identified on Schedule
7(q) hereto), except for the following current liabilities of Seller to the
extent they are of the same general nature as those reflected on the 1995
Balance Sheet: accounts payable relating to: (i) facilities, meals and
conference center charges incurred in connection with the operation of camps in
1995 and (ii) the Business insofar as such payables are of a type and amount
customarily incurred in preparation for the immediately upcoming summer camp
season; commissions and bonuses payable relating to the Business; sixty percent
(60%) of Seller's total general and administrative expenses payable; one
hundred percent (100%) of Seller's accrued but unpaid vacation time and other
employee benefits relating to the Business; one hundred percent (100%) of
Seller's refundable customer deposits relating to the Business; one hundred
percent (100%) of those amounts (i) outstanding under the $700,000 line of
credit maintained with Silicon Valley Bank and (ii) outstanding under the
$50,000 term note maintained with Silicon Valley Bank relating to the purchase
of computer equipment, but only to the extent those amounts were incurred
solely to discharge obligations or commitments of the Business (together, the
"Assumed Secured Liabilities") and sixty percent (60%) of any amount
outstanding under the $700,000 line of credit that relate to Seller's general
and administrative expenses (collectively, the "Assumed Liabilities"). The
Assumed Liabilities shall not include any liability or obligation of Seller or
Stockholder (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due and regardless of when asserted) (a) relating to
any Welfare Plan or Pension Plan of Seller (as such terms are defined herein),
(b) relating to any federal, state, local or foreign individual, corporate or
local income tax or any property, sales or other tax, or (c) arising under any
statute, law, rule, regulation or ruling relating to the conduct or operation
of the Business, the Retained Business or any other activities of Seller prior
to the Closing Date, including those relating to environmental, health and
safety matters.
4. Purchase Price. Subject to the adjustment described
in Section 5, the aggregate consideration payable to Seller and
Stockholder (the "Purchase Price") shall be One Million Nine Hundred Fifty
Thousand Dollars ($1,950,000.00) plus the assumption of the Assumed
Liabilities.
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<PAGE> 4
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
5. Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(a) One Million Three Hundred Fifty Thousand Dollars
($1,350,000.00) minus the aggregate dollar amount on the Closing Date
of all indebtedness or other liabilities not included as part of the
Assumed Liabilities that are secured by or otherwise encumber
the Purchased Assets (the "Unassumed Secured Liabilities") shall be
payable at Closing by delivery by Buyer of a bank wire transfer of
immediately available funds to such account or accounts designated by
Seller; and
(b) The full amount of the Unassumed Secured Liabilities
shall be payable at Closing by delivery by Buyer of a bank wire
transfer of immediately available funds to such account or accounts
designated by the person(s) to whom the Unassumed Secured Liabilities
are then owed;
(c) The full amount of the Assumed Secured Liabilities
shall be payable at Closing by delivery by Buyer of a bank wire
transfer of immediately available funds to Silicon Valley Bank for
allocation to the line of credit and the term note, respectively; and
(d) Delivery by Buyer at Closing of an unsecured
promissory note in the aggregate principal amount of Six Hundred
Thousand Dollars ($600,000.00) (the "Note") made payable to the order
of Seller, which Note shall be reduced in principal amount by the
product of $100 times any decrease from 1995 to 1996 in the number
of summer camp enrollees at camps operated in connection with the
Business; provided, however, that the principal amount of the Note
shall in no event be reduced by an amount greater than Three Hundred
Thousand Dollars ($300,000.00). For purposes of this calculation,
the number of enrollees in 1995 was 22,551 and the number of
enrollees for 1996 shall be determined as of September 30, 1996 by
Buyer in a manner consistent with the method used to determine the
1995 figure; provided, however, that Buyer shall (i) disclose the
number to Seller and Stockholder before any adjustment occurs and
adjust the figure in good faith based upon Seller's and Stockholder's
input and (ii) at all times comply with the terms of Section 10(a)
and Section 25 of this Agreement. The Note shall be in the form
attached hereto as Annex D.
6. Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00
a.m., on July 11, 1996 (the "Closing Date"), at the offices of Ferrari,
Olsen, Ottoboni & Bebb, San Jose, California, or at such earlier or later
time or date and such other place as the parties may agree. Notwithstanding
the Closing Date provided for above the parties hereto acknowledge their
mutual intent to effect the Closing as early as practicable after all the
conditions set forth in Section 11 and Section 12 hereof are satisfied. The
effective time of the transfer of legal title to the Purchased Assets and
the assumption of the Assumed Liabilities shall be as of the close of
business on the Closing Date. Except as otherwise provided herein, either
party may terminate this Agreement in its entirety if the Closing does not
occur on or before July 31, 1996.
7. Representations and Warranties of Seller and Stockholder.
Seller and Stockholder,
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<PAGE> 5
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
jointly and severally, represent and warrant to Buyer that the following are
true and correct:
(a) Seller is a corporation, duly organized, validly
existing and in good standing under the laws of the State of
California, and has all necessary corporate powers to own (or hold
under lease or license) its properties and assets and to carry on the
Business as now conducted. Seller is qualified to transact business
in each jurisdiction in which such qualification is necessary, which
jurisdictions are set forth in Schedule 7(a) attached hereto.
Stockholder is the sole record and beneficial owner of the issued
and outstanding capital stock of Seller and, except as set forth in
Schedule 7(a) attached hereto, no third party has any rights to buy
the stock or assets of Seller, including first refusal, option or
similar rights.
(b) Seller and Stockholder, as applicable, each have
full power and authority to execute, deliver and perform this
Agreement and all other documents and agreements contemplated
herein and have taken all action required by law, the charter or
bylaws of Seller or otherwise, to authorize the execution and
delivery of this Agreement and all other documents and
agreements contemplated herein and to consummate the transactions
contemplated hereby and thereby.
(c) Seller neither owns or holds the right to acquire
any stock, partnership interest, joint venture interest or other
equity ownership interest in any other corporation, organization or
entity of any nature whatsoever.
(d) This Agreement and all other documents and
agreements contemplated herein constitute the valid and binding
agreements of Seller and Stockholder, as applicable, enforceable
against them in accordance with their terms.
(e) Except as specifically identified on Schedule
7(e) hereto, the execution and delivery of this Agreement and
all other documents and agreements contemplated herein and the
consummation of the transactions contemplated hereby and thereby
will not violate any provision of, or result in the breach of, or
accelerate or permit the acceleration of any obligation relating to
the Business or the Purchased Assets, or result in the creation of
any lien, claim or encumbrance thereon under any applicable law,
rule or regulation (including but not limited to any Bulk Sales
laws) of any governmental body having jurisdiction, court order, the
charter or bylaws of Seller, any agreement to which either Seller or
Stockholder is a party or by which either of them may be bound, or
any order, judgment or decree applicable to either of them.
(f) Seller has and shall deliver to Buyer at Closing
good and marketable title to the Purchased Assets, free and clear of
all liens, claims, encumbrances and restrictions on transfer of any
nature except for those which are specifically identified on
Schedule 7(f) hereto as being assumed and which specifically relate
to the Assumed Liabilities.
(g) Seller is not and has not been in violation in
any material respect of any law, rule, regulation or order of any
court or any federal, state, municipal or other governmental
-5-
<PAGE> 6
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
department, commission, board, bureau, agency or instrumentality,
wherever located, relating to the Business or the Purchased Assets,
including but not limited to environmental, health and safety laws.
Seller has not received any notice that it is in violation of any
applicable law, rule, regulation, ordinance, restriction, covenant or
other governmental requirement in connection with the Business or the
Purchased Assets, unless such notice and violation has been duly
responded to and fully corrected and is specifically identified on
Schedule 7(g) hereto. Without limiting the generality of the
foregoing, each of Seller and Stockholder has obtained and is and
has been in compliance in all material respects with all terms and
conditions of all permits, licenses and other authorizations that
are required under, and has complied in all material respects
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
timetables that are contained in, all environmental, health and
safety laws applicable to the Business or the Purchased Assets.
(h) No claims, actions, suits or proceedings are
pending or, to Seller's or Stockholder's knowledge, threatened
at law or in equity before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, wherever located, against the Seller or relating to
the Business or the Purchased Assets. Schedule 7(h) specifically
identifies all claims or charges made against Seller, Stockholder
or any employee, independent contractor or representative of Seller
since January 1, 1992, including but not limited to claims for
injuries or harassment.
(i) Seller has delivered to Buyer, the 1995
Balance Sheet, the Seller's balance sheet as of February 29,
1996 and Seller's financial statements as of and for the twelve months
ended September 30, 1994 as internally compiled by Seller and as of
and for the twelve months ended September 30, 1995 as reviewed by
Seller's independent certified public accountants, which are attached
hereto as Schedule 7(i)-1 (the 1994 Balance Sheet, the February 29,
1996 balance sheet and such other financial statements are
collectively referred to herein as the "Financial Statements").
Except as otherwise disclosed in Schedule 7(i)-2, the Financial
Statements have been prepared from and in accordance with the books
and records of Seller in accordance with generally accepted accounting
principles consistently applied (except as indicated in the notes
thereto), are accurate and complete in all material respects and
fairly present the financial position and results of operations of the
Seller as it relates to the Business at and for the respective dates
and periods indicated. On September 30, 1995, Seller had no
liabilities of any nature whatsoever, whether accrued, absolute,
contingent or otherwise, not reserved for or reflected on the 1995
Balance Sheet, and Seller has subsequently not incurred any such
liabilities other than those incurred in the ordinary course of the
Business and of the same nature and general amount as those reflected
on the 1995 Balance Sheet.
(j) Except as otherwise disclosed in Schedule 7(j),
since September 30, 1995, up to and including Closing, there has not
been any:
(i) transaction or other action by Seller
relating to the Business except in the ordinary course of
business;
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<PAGE> 7
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(ii) material and adverse change in the financial
condition, liabilities, assets, business or prospects of the
Business;
(iii) sale, assignment, transfer or abandonment
of any trademark, tradename, copyright, license or other
intangible asset; nor any sale, assignment, transfer or
abandonment of any other asset other than in the ordinary
course of business for fair value;
(iv) destruction, damage or loss (whether or
not insured) of any assets that materially and adversely
affect the financial condition, liabilities, assets,
business or prospects of the Business;
(v) increase in the salary, fees, benefits, or
other compensation payable to or to become payable by Seller
to any officers, employees or independent contractors of
the Business, or the declaration, payment or commitment for
the payment by Seller, of a bonus or other additional salary
or compensation to any such person other than in the ordinary
course of business consistent with past practice;
(vi) execution or entering into or amendment
or termination of any new or existing, as the case may
be, contract, agreement or license that is material to
the financial condition, liabilities, assets, business or
prospects of the Business;
(vii) payment or declaration of any dividend or
distribution on or with respect to the capital stock of Seller
or any redemption or agreement to redeem any such capital
stock, or any loan, distribution or other transfer, or
commitment therefor, to Stockholder or any affiliate
thereof; or
(viii) other event or condition of any character
that has, or reasonably could be expected to have, a
material and adverse effect on the financial condition,
liabilities, assets or prospects of the Business.
(k) The Purchased Assets constitute all of the property
and assets, real, personal and mixed, tangible and intangible, and
all leases, licenses, authorizations, permits, business accounts and
agreements necessary to permit Buyer to carry on the Business as
presently conducted and such property, assets, leases, licenses,
authorizations, permits, business accounts and agreements, are
transferable without restriction to Buyer except as specifically
identified on Schedule 7(k) hereto. The office space to be leased
to Buyer pursuant to the Sublease referred to in Section 9(h) will
be sufficient to conduct the Business in the manner presently
conducted.
(l) All of the equipment, furniture, signs, trade
fixtures and other tangible property that are a part of the Purchased
Assets, and the real property and improvements used in the Business,
are in good operating condition and repair, ordinary wear and tear
only
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<PAGE> 8
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
excepted.
(m) Except as otherwise disclosed in Schedule 7(m), the
accounts receivable relating to the Business reflected on the 1995
Balance Sheet and those which have arisen after September 30, 1995
were acquired in the ordinary and regular course of business, arose
from valid sales, are free of rights of set-off and are current
and collectible, net of reserves, in the ordinary course of
business.
(n) All of the Inventory is in good and merchantable
condition, fit for the purpose for which it was procured, and is not
damaged or defective. The parties hereto agree that no adjustment to
the Purchase Price shall be made in connection with the
representation made under this paragraph (n).
(o) No insolvency proceedings of any character
including, without limitation, bankruptcy, receivership,
reorganization, composition or arrangement with creditors, are
pending or, to the best of Seller's and Stockholder's knowledge,
threatened by or with respect to the Seller, the Stockholder, the
Business or the Purchased Assets.
(p) Schedule 7(p) hereto identifies and describes the
responsibilities of each employee, consultant and agent involved or
associated with the Business. Seller is in compliance in all
material respects with all federal, state, local and foreign
laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in
any unfair labor practice. Seller is not a party to any collective
bargaining or other employee or labor agreement, and, except as
otherwise specifically identified on Schedule 7(p), Seller has no
written understanding or agreement with any employee, consultant
or agent and all employees, consultants and agents of Seller are
employed or retained on an at-will basis. None of Seller's
employees is represented by any labor union and there is no labor
strike or other employee or labor controversy or dispute pending
(including, without limitation, any organizational drive), or to
Seller's knowledge threatened, which may affect the operations or
employees of the Business.
(q) Schedule 7(q) hereto identifies and describes all
contracts, agreements, leases, commitments, instruments, plans,
permits or licenses (written or oral) to which Seller is party or is
bound, of the type described below:
(i) All contracts, agreements or commitments for
the sale by Seller of products or services, or the purchase by
Seller of materials, products or services, other than
contracts, agreements or commitments involving future payments
or receipts of less than $2,500 in the aggregate in any
single case or which may be terminated without penalty by
Seller without prior notice;
(ii) All loan agreements, indentures, guarantees,
mortgages, capitalized leases, pledges or conditional sale
agreements;
-8-
<PAGE> 9
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(iii) All contracts, agreements or arrangements
pursuant to which Seller has obtained use of university
or other school facilities for the conduct of Spirit
Camps conducted by Seller, including a complete list of all
schools and other facilities where Spirit Camps are being
conducted, which list shall designate the length of all
arrangements with such facilities and the facilities with
which Seller has an exclusive relationship.
(iv) All contracts or agreements relating to
the lease of real or personal property (whether Seller
is lessee, sublessee, lessor or sublessor), including
without limitation, leases of office or other facilities
and leases of equipment, data processing equipment and
vehicles;
(v) All contracts, arrangements or commitments
under which products or services are provided to Seller
by, or by Seller to, the Stockholder, his family members or
other affiliated parties; and
(vi) All contracts and agreements other than those
covered by clauses (i) through (v) above, involving payment
or receipt by Seller of more than $2,500 in the aggregate
and not terminable without penalty by Seller without prior
notice, or which otherwise could materially affect the
Business.
Seller is not in, nor has Seller given or received notice of, any
default or facts that, with notice or lapse of time, would constitute a
default on the part of any party under any of the contracts, leases,
agreements, commitments, instruments, plans or licenses described above.
(r) All federal, state, local and foreign tax returns
and reports of the Seller required by law to be filed have been duly
filed, and all federal, state, local, foreign and any other taxes,
assessments, fees and other governmental charges with respect to the
employees, properties, assets, income, sales or franchises shown on
such returns and reports to be due and payable, or which are
otherwise due and payable, have been paid.
(s) The Assumed Liabilities reflected in the 1995
Balance Sheet, and those made thereafter which are assumed by
Buyer, were incurred or assumed by Seller in the ordinary course of
the Business.
(t) Schedule 7(t) identifies and describes all of
Seller's insurance policies and the claims pending or, to Seller's
knowledge, threatened under any of Seller's insurance policies, or any
disputes with underwriters.
(u) Schedule 7(u) sets forth a list of all bank
accounts, borrowing resolutions and deposit boxes maintained by
Seller and the persons authorized to effect transactions in
such accounts. Neither Seller nor Stockholder has received any
notice or has any knowledge to the effect that any bank account
maintained by Seller will be unavailable for use by Buyer on or
after the Closing.
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<PAGE> 10
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(v) Except as disclosed in Schedule 7(v) hereto, since
its formation the Seller (either directly or indirectly through
any other person) has not sponsored, established, maintained,
contributed to or become obligated under in any respect any pension,
retirement, savings, disability, medical, dental, health or life plan
or arrangement (including any individual life, death benefit, group
insurance, profit sharing, deferred compensation, stock option,
bonus, incentive, vacation, severance, or other employee benefit
plan, trust, arrangement, contract, agreement, policy or commitment
(including without limitation, any pension plan ("Pension Plan") as
defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether funded, insured or
self-funded or whether written or oral.
(w) Schedule 7(w) hereto contains a list of all
copyrights, trademarks, tradenames, trade secrets and other similar
proprietary rights of Seller used in the Business and identifies all
United States, state and foreign trademark and tradename
applications made by and registrations of Seller including those
relating to the "United Spirit Association" mark and any related
design or logo. Except as otherwise disclosed in
Schedule 7(w), Seller has good and
marketable title, free and clear of all liens, claims, restrictions
and encumbrances with respect to all proprietary rights of the
Business. None of the copyrights, trademarks or tradenames or other
proprietary rights of Seller are invalid or not in compliance with
governing legal requirements. Seller has taken all necessary action
to protect the proprietary rights necessary or reasonably desirable
to conduct the Business. Neither Seller nor Stockholder has
received any notice or has any knowledge of any infringement,
misappropriation or conflict with respect to the proprietary
rights material to the Business (by Seller or Stockholder or by
third parties), and Seller has not infringed the rights of any
third parties in any material respect.
(x) Neither Seller nor Stockholder has engaged or
utilized the services of any broker, finder, or similar agent in
connection with this Agreement or the transactions contemplated
hereby.
(y) No representation or warranty made by Seller or
Stockholder in this Agreement and no statement in this Agreement or
any other document or certificate furnished or to be furnished to
Buyer pursuant hereto contains any untrue statement of a material fact
or omits or will omit to state any material fact necessary to make
the statements made herein and therein, when taken as a whole, not
misleading.
(z) The number of summer camp enrollees in Seller's
camps during 1995, which number is set forth in Section 5(b)
hereof, is true and accurate, and Schedule 7(z) hereto sets forth
the procedures used to calculate such number.
8. Representations and Warranties of Buyer and Parent. Buyer
and Parent represent and warrant to Seller and Stockholder that the following
are true and correct:
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(a) Buyer is a corporation, duly organized and existing
under the laws of the State of Tennessee, and has all necessary
power to own (or hold under lease or license) its properties and
assets and to carry on its business as now conducted.
(b) Buyer has full power and authority to execute,
deliver and perform this Agreement and all other documents and
agreements contemplated herein, has taken all action required by law,
the organizational documents of Buyer or otherwise, to authorize
the execution and delivery of this Agreement, and all other
documents and agreements contemplated herein and the consummation
of the transactions contemplated hereby and thereby.
(c) Buyer is not in violation of any law, rule,
regulation or order of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality, wherever located, that would prevent Buyer
from consummating the transactions contemplated herein and
performing its obligations hereunder. Buyer has not received any
notice that it is in violation of any applicable law, rule,
regulation, ordinance, restrictions, covenant or other governmental
requirement that would prevent Buyer from consummating the
transactions contemplated herein and performing its obligations
hereunder.
(d) No claims, actions, suits or proceedings are
pending or, to Buyer's knowledge, threatened at law or in equity
before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
wherever located, against the Buyer that would prevent Buyer from
consummating the transactions contemplated herein and performing its
obligations hereunder.
(e) This Agreement and all other documents and
agreements contemplated herein constitute the valid and binding
agreements of Buyer, enforceable in accordance with their terms.
(f) The execution and delivery of this Agreement and all
other documents and agreements contemplated herein and the
consummation of the transactions contemplated hereby and thereby will
not violate any provision of, or result in the breach of, or
accelerate or permit the acceleration of any obligation relating to
Buyer's business, or result in the creation of any lien, claim or
encumbrance thereon under any applicable law, rule or regulation of
any governmental body having jurisdiction, court order, the charter
or bylaws of Buyer, any agreement to which Buyer is a party or may be
bound (except for the conflict regarding incidental registration
rights referred to in the Note and the Conversion and Registration
Agreement referenced in and attached to the Note), or any order,
judgment or decree applicable to Buyer.
(g) Buyer has not engaged or utilized the services of
any broker, finder, or similar agent in connection with this
Agreement or the transactions contemplated hereby.
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
9. Covenants of Seller and Stockholder. Seller and
Stockholder hereby covenant to Buyer as follows:
(a) Between the date hereof and the Closing Date,
Seller shall give Buyer, and its agents and representatives,
reasonable access, during normal business hours, to the Business,
the Purchased Assets and all of Seller's employees, books, accounts,
records and documents relating to the Business or the Purchased
Assets.
(b) Between the date hereof and the Closing Date,
Seller and Stockholder shall give prompt notice to Buyer, but in
no event later than two (2) days after discovery, of any material
change to the disclosure contained in the Schedules attached hereto.
(c) Between the date hereof and the Closing Date,
Seller shall conduct the Business in the ordinary course consistent
with past practices and in a manner that the representations and
warranties contained in Section 7 hereof shall be true and correct on
the Closing Date.
(d) Between the date hereof and the Closing Date,
Seller shall extinguish its liabilities in a manner such that
payment will be made first on expenses fundamental to the
continuing operations of the Business and the Retained Business
(including but not limited to, salaries, rent, phone and utility
bills) and second on outstanding accounts payable relating to
facilities, meals, conference center, promotional and other charges
incurred in connection with the Business. Only after the first two
categories of liabilities referred to above are extinguished may
Seller pay off other categories of liabilities, provided that any
such pay-off shall be approved by Buyer.
(e) Between the date hereof and the Closing Date,
Seller and Stockholder shall not solicit or request from third
Persons any offers to purchase or acquire through any means all or
substantially all of the Business, nor participate in any discussions
or negotiations related to any offers received from third Persons or
any plan of reorganization relating to the Business.
(f) Seller and Stockholder shall take all actions
necessary to obtain all consents, approvals, amendments and
agreements required of them in order to duly and validly carry out
the transactions contemplated by this Agreement and to satisfy the
conditions precedent herein, including but not limited to obtaining
written consents, approvals, amendments and agreements necessary or
appropriate under or relating to those agreements, licenses and
arrangements identified on Schedule 7(e), Schedule 7(k) and
Schedule 7(q) hereto.
(g) As a material inducement for Buyer to enter into
and consummate the transactions contemplated by this Agreement,
Seller and Stockholder shall not, for the period set forth below (the
"Non-Compete Period"):
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(i) Directly or indirectly, on their own
behalf, or on behalf of any other person, firm,
corporation, trust, or other entity, and whether acting
as an officer, director, employee, partner, agent,
consultant or otherwise, engage in, or assist in any way,
financially or otherwise, any person, firm, corporation,
trust or other entity that is engaged, or which proposes to
engage, in the Business within the United States or any other
place where the Business has been conducted prior to or
is conducted or proposed to be conducted on the Closing
Date (the "Territory"), provided that the foregoing shall
not prohibit activities of USE undertaken in accordance
with the terms of the Marketing Agreement attached hereto
as Annex E (the "Marketing Agreement") in connection with
the Retained Business;
(ii) Directly or indirectly solicit, attempt to
solicit, or otherwise divert, or attempt to divert, any
participant, supplier or customer of the Business for a
purpose or with a result that is competitive with the
Business, except as permitted by the Marketing Agreement in
connection with the Retained Business;
(iii) Without the prior written consent of Buyer,
employ, engage or contract for the services of any person
who is employed by Buyer on the Closing Date, unless the
employment of such person is thereafter terminated without
cause by Buyer or unless such employment, engagement or
contracting, as the case may be, is undertaken in accordance
with the terms of the Marketing Agreement in connection with
the Retained Business;
(iv) Knowingly or intentionally damage or
destroy the goodwill of the Business with its suppliers,
employees, patrons, customers and others who may at any
time have or have had relations with the Business;
(v) Encourage, recommend, or approve the use at
any time of the services of any competitor of the Business
within the Territory provided that the foregoing shall
not prohibit activities of USE undertaken in accordance
with the terms of the Marketing Agreement in connection
with the Retained Business; or
(vi) Except as may be necessary to enforce rights
under this Agreement, reveal to any third person any
difference of opinion between Stockholder and the
management of the Business.
The Non-Compete Period shall be five (5)
years from the Closing Date in the case of the Seller and
Stockholder.
If any court of competent jurisdiction
shall finally hold that the time, territory or any other
provision set forth in this Section 9(g) constitutes an
unreasonable restriction, such provision of this Section 9(g) shall
not be rendered void, but shall apply as to such time, territory or
to such other extent as such court may determine constitutes a
reasonable restriction under the circumstances involved. Seller
and Stockholder
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
acknowledge that the restrictions contained in this Section 9(g) are
reasonable and necessary to protect the legitimate interests of Buyer
and that any breach by Seller or Stockholder of any provision hereof
will result in irreparable injury to Buyer. Seller and Stockholder
acknowledge that Buyer shall be entitled to preliminary and permanent
injunctive relief in any action seeking to enforce the provisions of
this Section 9(g). Seller and Stockholder acknowledge that Buyer
shall be entitled to an equitable accounting of all earnings, profits
or other benefits arising from such breach and shall be entitled to
receive such other damages, direct or consequential, as may be
appropriate.
The provisions of this Section 9(g)
shall automatically terminate if: (i) Buyer and its affiliates
discontinue operation of the Business, or (ii) Buyer is in
material default of any of its obligations hereunder or under the Term
Note.
(h) The real properties necessary for and used by the
Seller in the operation of the Business are identified and
described in Schedule 9(h) hereto (the "Properties"). At the Closing,
Seller shall enter into a sublease with Buyer on the principal terms
set forth in and in substantially the form attached hereto as Annex
F (the "Sublease"), which Sublease shall contain appropriate
environmental representations by Seller.
(i) Stockholder shall enter into a Services Agreement
with Buyer or an Affiliate of Buyer in the form attached hereto as
Annex G-1, and Seller and Stockholder shall use their reasonable
efforts to cause Bobbi Brodt, Mary Sparacino, Douglas Olmstead,
Paul Marks, James Sanford, Kari Cuatero and Marci Papadopoulos,
all of whom are employees of Seller, to enter into Employment
Agreements with Buyer or an Affiliate of Buyer in the forms attached
hereto as Annex G-2 through G-3, respectively (collectively, the
"Employment Agreements").
(j) Between the date hereof and the third anniversary
of the Closing Date, upon any request of Buyer during such period
Seller and Stockholder shall promptly and fully cooperate with
Buyer, and shall cause Seller's independent public accountants to so
cooperate with Buyer at Buyer's expense, in connection with the
preparation of financial statements and related schedules and reports
required in the judgment of Buyer to be prepared by Buyer,
including but not limited to Buyer's audited annual financial
statements, unaudited quarterly financial statements and other
financial and statistical information required to be filed by Buyer
with the Securities and Exchange Commission.
(k) Between the date hereof and the first anniversary
of the Closing Date, upon any request of Buyer during such period
Seller and Stockholder shall promptly take such actions as may be
requested by Buyer that Buyer reasonably determines are necessary
or appropriate to transfer and perfect in Buyer on or after the
Closing Date undisputed rights to the name "United Spirit
Association" (and all variations and expansions thereof) and all
other proprietary information or intellectual property relating to
the Business, which actions may include but are not limited to
those necessary to assign Seller's rights to the name "United Spirit
Association", to enable Buyer, at its expense, to register the mark
"United
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
Spirit Association" and any related designs or logos under
United States, state and foreign trademark laws and to change the
corporate name of Seller so as to not include or otherwise make use
of the name "United Special Events"; Seller and Stockholder further
agree to cooperate with Buyer during the above referenced period in
discharging any dispute or conflict that may arise with regard to
the name "United Spirit Association" and other intellectual property
relating to the Business.
(l) Between the date hereof and the third anniversary
of the Closing Date, upon any request of Buyer during such period
Seller and Stockholder shall cooperate with and take such actions
necessary for Buyer to obtain all consents to the assignment of, and
all rights and benefits under, any contract or agreement
constituting part of the Purchased Assets and during that period
Seller and Stockholder shall not take and shall refrain from taking
any action (including any action that would result in the
discontinuance of Seller's corporate existence) that could
reasonably be expected to adversely affect any rights or benefits
under any such contract.
(m) Seller and Stockholder shall maintain adequate and
appropriate insurance coverage for any and all claims that have
been made to date, or may be made in the future, relating to the
operation of the Business prior to the Closing Date.
(n) Between the date hereof and the Closing Date, Seller
and Stockholder shall take all action necessary to extinguish any
rights or options to purchase or otherwise obtain Seller's stock
held by the individuals listed on Schedule 7(a) provided that any cost
or payments associated with any such extinguishment shall be borne
entirely by Stockholder.
10. Covenants of Buyer and Parent. Buyer and Parent hereby
covenant to Seller and Stockholder as follows:
(a) Buyer and Parent shall operate the cheerleader and
spirit group camps that are part of the Business and that are
conducted by Buyer during the summer of 1996 in a manner consistent
with the manner in which such camps were operated by Seller during
the summer of 1995, provided that the foregoing shall not prohibit
or restrict Buyer from making operational changes that could not
reasonably be expected to adversely affect camp enrollment.
(b) If for any reason this Agreement shall be
terminated before Closing, between the date of such termination
and 180 days after such date, neither Buyer nor Parent shall
solicit or otherwise attempt to retain the services of any employee of
Seller.
11. Conditions Precedent to the Obligations of Seller and
Stockholder. All obligations of Seller and Stockholder under this Agreement
are subject to the performance, at or prior to Closing, of the following
conditions, unless expressly waived in writing by Seller or Stockholder at or
prior to Closing:
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(a) All of the representations and warranties made by
Buyer shall be true and correct as of the date of this Agreement and
shall be true and correct at the Closing Date as if made again at
and as of the Closing.
(b) All of the covenants undertaken herein by Buyer
shall be satisfied to the extent required hereunder to be satisfied
on the Closing Date.
(c) No action or proceeding shall have been instituted
against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be in existence against
Seller, Stockholder or Buyer which seeks to, or would, render it
unlawful as of the Closing Date to effect the transactions
contemplated hereby.
(d) All consents, approvals, amendments and agreements
required to duly and validly carry out the transactions contemplated
by this Agreement shall have been obtained, including but not limited
to those arising under or relating to the agreements, licenses and
arrangements identified on Schedule 7(e), Schedule 7(k) and Schedule
7(q) hereto.
(e) Buyer and Parent shall have duly executed and
delivered to Seller an assumption of the Assumed Liabilities and such
other closing documents, instruments and certificates as shall have
been reasonably and customarily requested by Seller and
Stockholder, and shall have otherwise paid the Purchase Price as
herein provided.
(f) The Sublease shall have been duly executed and
delivered by Buyer.
(g) Parent shall have executed and delivered to
Seller and Stockholder a Marketing Agreement in the form attached
hereto as Annex E.
(h) Seller shall have received an opinion of Buyer's
counsel, in form and substance satisfactory to Seller.
(i) There shall have been no material adverse change
in the financial condition or results of operations of Parent.
(j) Parent shall have in place an effective Resale
Certificate for the State of California and shall provide a copy
of such Certificate to Seller.
(k) Buyer and Seller shall have agreed on the assets
to be treated as Excluded Assets under Section 2 of this Agreement
and on the liabilities to be treated as Assumed Liabilities under
Section 3 of this Agreement.
12. Conditions Precedent to the Obligations of Buyer and
Parent. All obligations of Buyer and Parent under this Agreement are
subject to the performance, at or prior to Closing, of the following
conditions, unless expressly waived in writing by Buyer at or prior to Closing:
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(a) All of the representations and warranties made by
Seller and Stockholder shall be true and correct as of the date of
this Agreement and shall be true and correct at the Closing Date as
if made again at and as of the Closing.
(b) All of the covenants undertaken herein by Seller
and Stockholder shall be satisfied to the extent required hereunder to
be satisfied on the Closing Date.
(c) No action or proceeding shall have been instituted
against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be in existence against
Seller, Stockholder or Buyer which seeks to, or would, render it
unlawful as of the Closing Date to effect the transactions
contemplated hereby.
(d) All consents, approvals, amendments and agreements
required to duly and validly carry out the transactions contemplated
by this Agreement shall have been obtained.
(e) The Seller and Stockholder shall have duly
executed and delivered to Buyer all documents and instruments
necessary or desirable to transfer the Purchased Assets to Buyer and
such other closing documents, instruments and certificates as shall
have been reasonably and customarily requested by Buyer.
(f) Buyer shall have received an opinion of Seller's
counsel, in form and substance satisfactory to Buyer.
(g) Buyer shall have received satisfactory evidence of
the preparation for filing by Seller immediately after the Closing
Date of documents changing Seller's corporate name to a name not
including the phrase "United Special Events" or "United Spirit
Association" or any other phrase not consented to by Buyer.
(h) Buyer shall have received UCC termination
statements and other applicable documentation necessary to
release any interest of any third party in the Purchased Assets, to
the extent not relating to or arising from the Assumed Liabilities.
(i) The Sublease shall have been duly executed by Seller
and delivered to Buyer.
(j) The Services Agreement shall have been duly executed
by Olmstead and the Employment Agreements shall have been duly
executed by Bobbi Brodt, Mary Sparacino, Douglas Olmstead, Paul
Marks, James Sanford, Kari Cuatero and Marci Papadopoulos, and all
such agreements shall have been delivered to Buyer or an Affiliate
of Buyer.
(k) Seller shall have executed contracts entitling the
Business to continued use of college, university and other
facilities suitable to conduct the cheerleader, spirit group and
special event activities of the Business, which contracts are
satisfactory to Buyer and assignable to Buyer.
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
(l) Seller and Stockholder shall have executed and
delivered to Buyer a Marketing Agreement in the form attached
hereto as Annex E.
(m) Buyer and its independent certified public
accountants shall have completed to Buyer's satisfaction (i) a
review of Seller's books and records as of and for the twelve months
ended September 30, 1995, provided that if Buyer or its
representative has not delivered written notice to Seller of the
unsatisfactory review of Seller's books and records on or before May
9, 1996 then the condition to Closing of this Section 12(m)(i) shall
be deemed to be irrevocably waived by Buyer, and (ii) such review of
Seller's operations subsequent to that date as Buyer or its
independent certified public accountant may deem necessary to verify
that the Business has been conducted in the ordinary course.
(n) Buyer shall have received satisfactory evidence
that Seller has substantially complied with the terms of Section
9(d).
(o) Buyer shall have received satisfactory evidence that
Seller and Stockholder have in place adequate and appropriate
insurance coverage for any and all claims that have been made to
date, or may be made in the future, relating to the operation of the
Business prior to the Closing Date.
(p) No individual or entity shall retain any rights or
options to purchase or otherwise obtain Seller's stock.
(q) Buyer and Seller shall have agreed on the assets
to be treated as Excluded Assets under Section 2 of this Agreement
and on the liabilities to be treated as Assumed Liabilities under
Section 3 of this Agreement.
(r) Seller shall have entered into a binding agreement,
freely assignable or assigned to Buyer, satisfactory to Buyer in its
discretion that will entitle Buyer to the use of the Fransisco
Torres facilities used and to be used in the Business for the
operation of Spirit Camps, which agreement shall also permit
Buyer to operate other Spirit Camps in the general vicinity of
the Francisco Torres facilities.
13. Indemnification; Set-Off Rights.
(a) Seller and Stockholder, jointly and severally,
shall indemnify, defend and hold Buyer harmless from and against
any and all losses, liabilities and expenses, including reasonable
attorneys' fees and other costs ("Claim(s)"), arising out of:
(i) the assertion against Buyer or Parent by any
third party of any liability of Seller or Stockholder
(including any liabilities arising due to failure to comply
with any applicable Bulk Sales laws) other than the Assumed
Liabilities;
(ii) the breach of or any inaccuracy in any
representation, warranty or
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
covenant of Seller or Stockholder; or
(iii) any violation of, or obligation imposed by,
any federal, state, local or foreign law or regulation
which results from or is caused by, or which is alleged to
have resulted from or been caused by, any activity, event,
condition or occurrence prior to the Closing Date (a)
conducted by Seller or Stockholder, (b) related to the
operation of Business, or (c) related to the ownership of the
Purchased Assets prior to the Closing Date, including without
limitation any liability or obligation arising under any
environmental, health or safety law applicable to the Business
or the Purchased Assets.
Notwithstanding the foregoing provisions of this paragraph
(a), Buyer or Parent shall not be entitled to make any Claim for
indemnification under this Agreement until the aggregate amount of
indemnification Claims of Buyer and Parent under this Agreement
total $10,000, at which time Buyer and Parent shall have the right to
claim indemnification for all Claims for which one or both of them
are otherwise entitled to indemnification under this Agreement.
(b) Buyer and Parent shall indemnify, defend and hold
Seller and Stockholder harmless from and against any and all losses,
liabilities and expenses, including reasonable attorneys' fees and
other costs ("Claim(s)"), arising out of:
(i) the assertion against Seller or Stockholder
of any liability relating to the Assumed Liabilities;
(ii) the breach of or any inaccuracy in any
representation, warranty or covenant of Buyer; or
(iii) any liability or obligation of Buyer or
Parent relating to Buyer's operation of the Business from and
after the Closing Date.
Notwithstanding the foregoing provisions of this paragraph
(b), Seller and Stockholder shall not be entitled to make any Claim
for indemnification under this Agreement until the aggregate amount of
indemnification Claims of Seller and Stockholder under this Agreement
total $10,000, at which time Seller and Stockholder shall have the
right to claim indemnification for all Claims for which it is
otherwise entitled to indemnification under this Agreement.
(c) The representations and warranties of the parties
herein shall survive the Closing for three (3) years, except for
Section 7(r) which shall survive for the applicable statute of
limitations.
(d) The fact that any party has been given the
opportunity to investigate the accuracy of any representation or
warranty hereunder shall not affect such party's right to
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
indemnification for a breach of such representation or warranty.
(e) In the event that Seller or Stockholder, or both of
them, become liable or obligated to Buyer or Parent under the
indemnification provisions contained in this Section 13, Buyer and
Parent shall have the right, subject to the procedures set forth in
paragraph (f) of this Section 13, in addition to any other rights or
remedies available to them, to set-off the amount of any Claim
arising hereunder against the outstanding principal amount of the Note
described in Section 5(b).
(f) No party shall be liable for any Claim for
indemnification under this Section unless written notice of a Claim
for indemnification is delivered by the person seeking
indemnification to the person from whom indemnification is sought
within thirty (30) days following the third anniversary of the
Closing Date. All notices given pursuant to this Section shall
set forth with reasonable specificity the basis for the Claim for
indemnification.
Promptly after the assertion by any third party of any claim
(a "Third Party Claim") against any person entitled to
indemnification under this Section 13 ("Indemnitee") that results
or may result in any Claim for which such Indemnitee would be
entitled to indemnification pursuant to this Agreement, such
Indemnitee shall give reasonable notice to the parties from
whom such indemnification could be sought (the "Indemnitors") of
such Third Party Claim. Any Indemnitee shall have the right
to employ separate counsel in any such Third Party Claim
and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be included as part of any
Claim by the Indemnitee unless (i) the Indemnitor shall have
failed, within a reasonable time after having been notified by the
Indemnitee of the existence of such Third Party Claim as provided
in the preceding sentence, to assume in writing the defense of
such Third Party Claim, (ii) the Indemnitor has retained legal
counsel satisfactory to Indemnitee and (iii) the defense of such
Claim by Indemnitor and its counsel is reasonably satisfactory to
Indemnitee.
Promptly after the date upon which Buyer or Parent has
actual knowledge of any fact or circumstance that results or may
result in the incurrence by Buyer or Parent of any Claim for which
Buyer or Parent would be entitled to indemnification pursuant to
this Agreement, Buyer shall give reasonable written notice to
Seller and Stockholder thereof. Thereafter, Buyer shall be
entitled, pursuant to paragraph (e) of this Section 13, to set-off
the amount of any Claim arising hereunder against the outstanding
principal amount of the Note described in Section 5(b). Such
reduction shall be executed in a manner consistent with the terms of
the Note. In the event that it shall ultimately be determined that
neither Buyer nor Parent is entitled to indemnification for the
Claim or Claims pursuant to which they have exercised their right to
set-off, the outstanding principal amount of the Note shall be
increased by the amount of such reduction and paid according to the
terms of the Note. The parties hereto agree that disputes
concerning any set-off made by Buyer or Parent shall be subject
to the arbitration provisions of Section 25 hereof.
14. Further Assurances; Survival. At and after the Closing, the
parties hereto will,
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VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
without further consideration, execute and deliver such further documents and
take such other actions as may be necessary or desirable to consummate and
perfect the transactions contemplated hereby. The Buyer, Seller and Stockholder
each agree to furnish each other and the Internal Revenue Service with such
applicable information as may be required under Section 1060 of the Internal
Revenue Code of 1986, as amended, and to cooperate in the completion and timely
filing of IRS Form 8594 (Asset Acquisition Statement), which shall be
substantially in the form of Annex H hereto, together with such changes or
additions to, or deletions from, such form as the parties may agree. After the
Closing, Seller and Stockholder agree to make the Records (or copies thereof)
reasonably available to Buyer as Buyer may reasonably require for tax,
accounting or other business purposes and Buyer, Seller and Stockholder agree
to cooperate in the completion and timely filing of any additional or
supplemental filings on IRS Form 8594.
15. Risk of Loss. At Closing, the Purchased Assets shall be
delivered to Buyer in the same condition as at the commencement of the
Business on the date of this Agreement, except for ordinary use and wear
thereof, changes occurring in the ordinary course of the Business between the
date of this Agreement and the Closing Date (none of which shall be
materially adverse), and damage or loss from causes beyond the reasonable
power and control of Seller and the Stockholder; provided, however, that if
on the Closing Date the tangible property to be sold hereunder shall have
suffered loss or damage on account of fire, flood, accident, act of war,
civil commotion or any other cause or event to an extent that substantially
affects the value of the Purchased Assets, Buyer shall have the right at its
election to complete the purchase, in which event it shall be entitled to all
insurance proceeds collectible by reason of such loss or damage, or if it
does not so elect, it shall have the right, which shall be in lieu of any
other right or remedy whatsoever, to terminate this Agreement. In the
latter event, all parties shall be released from any obligations or
liabilities hereunder.
16. Notices. Any notice, consent, waiver, or other communication
that is required or permitted hereunder shall be sufficient if it is in
writing, signed by or on behalf of the party giving such notice, consent,
waiver or other communication, and delivered by both facsimile and either
personally or by Federal Express or similar overnight courier, postage
prepaid, to the addresses set forth below, or to such other addressee or
address as shall be set forth in a notice given in the same manner:
If to Seller or Stockholder:
Mr. Michael J. Olmstead
521 E. Weddell Drive
Suite 110
Sunnyvale, California 94089
Facsimile: 408-734-4415
With a copy to:
Ferrari, Olsen, Ottoboni & Bebb
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<PAGE> 22
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
333 West Santa Clara Street, Suite 700
San Jose, California 95113
Facsimile: 408-280-0151
Attention: Richard S. Bebb
If to Buyer or Parent:
Varsity USA, Inc.
c/o Varsity Spirit Corporation
2525 Horizon Lake
Memphis, Tennessee 38133
Facsimile: 901-387-4356
Attention: Jeffrey G. Webb and
John M. Nichols
With a copy to:
Gardner, Carton & Douglas
321 North Clark Street
Suite 3300
Chicago, Illinois 60610
Facsimile: 312-644-3381
Attention: Glenn W. Reed and
Edgar F. Heizer, III
Any such notice shall be deemed to have been given upon delivery if delivered
personally, or three (3) days after it has been provided to Federal Express or
a similar overnight courier for delivery thereby.
17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
18. Binding Effect; Assignment. This Agreement shall be binding
upon, and inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives. No party,
without the consent of all other parties, may assign its rights or
obligations under or related to this Agreement whether voluntarily,
involuntarily, by operation of law, transfer of the capital stock or
assets of Seller or otherwise, except that Buyer may, without any consent,
either prior to, at or after the Closing assign its rights and obligations
under or related to this Agreement to any affiliated entity of Buyer, but
no such assignment by Buyer shall relieve Buyer of its obligations
hereunder. Nothing herein, expressed or implied, is intended or shall be
construed to confer upon or give any person, other than the Buyer, the
Seller, the Stockholder and their respective heirs, legal representatives
or successors and assigns any rights or remedies under or by reason of this
Agreement.
-22-
<PAGE> 23
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
19. Scope of Agreement. This Agreement and the other documents
and instrument's referred to herein embodies the entire agreement and
understanding of the parties hereto.
20. Amendment. No alteration, modification or change in this
Agreement shall be valid unless executed in writing by all of the parties
hereto.
21. Counterparts. This Agreement may be executed in two (2) or
more counterparts, but all of which together shall constitute one and the same
instrument.
22. Section Headings. The Section headings herein have
been inserted for convenience of reference only and shall in no way modify
or restrict any of the terms and provisions hereof.
23. Expenses. Stockholder shall pay its and Seller's expenses,
including, without limitation, the expenses of its and Seller's legal counsel
and its and Seller's accountants, incurred in connection with the
consummation of the transactions contemplated by this Agreement. Buyer
shall pay its own expenses, including, without limitation, the expenses of
its own legal counsel and its own accountants, incurred in connection with
the consummation of the transactions contemplated by this Agreement. In the
event Seller has paid any such expenses prior to the date hereof or the
Closing Date from sources included in the Purchased Assets, the full amount
of all such payments shall reduce the Purchase Price determined under
Section 4 hereof in a corresponding amount.
24. Public Announcements. No party shall publicly disclose
this Agreement or any dealings between and among the parties in connection
with the subject matter hereof without the prior approval of the other party,
except as may be required by law.
25. Arbitration. With the exception of injunctive and other
equitable relief that might be obtained for any violation of the
non-competition or other provisions of this Agreement, any controversy or
claim arising out of or relating to this Agreement, or the making,
performance or interpretation thereof, shall be settled by binding arbitration
in Santa Clara County, California by a panel of three arbitrators in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any arbitration award may be entered in any
court having jurisdiction thereof and the parties consent to the
jurisdiction of the courts of the State of California for this purpose.
26. Preparation of Documents. This Agreement is the joint work
product of the parties hereto and, in the event of any ambiguity herein, no
inference shall be drawn against a party by reason of document preparation.
-23-
<PAGE> 24
VARSITY SPIRIT CORPORATION
EXHIBIT 10(A)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
BUYER: SELLER:
VARSITY USA, INC. UNITED SPECIAL EVENTS, INC.
By: /s/ JEFFREY G. WEBB By: /s/ MICHAEL J. OLMSTEAD
------------------- -----------------------
Jeffrey G. Webb Michael J. Olmstead
Its: President Its: President
PARENT: STOCKHOLDER:
VARSITY SPIRIT CORPORATION MICHAEL J. OLMSTEAD
By: /s/ JEFFREY G. WEBB /s/ MICHAEL J. OLMSTEAD
------------------- -----------------------
Jeffrey G. Webb
Its: President
-24-
<PAGE> 1
VARSITY SPIRIT CORPORATION
EXHIBIT 10(B)
SERVICES AGREEMENT
THIS SERVICES AGREEMENT ("Agreement") is entered into as of May __,
1996, by and between Michael J. Olmstead ("Olmstead") and VARSITY USA, INC., a
Tennessee corporation (the "Company").
R E C I T A L S:
A. The Company either directly or indirectly through its parent,
Varsity Spirit Corporation, a Tennessee corporation ("Varsity"), is in the
business of (i) designing, marketing and selling products to the school spirit
industry, including cheerleader, dance team and booster club uniforms and
accessories, (ii) operating youth, junior high, high school and college
cheerleader and dance team camps, clinics and competitions and (iii) organizing
and facilitating special events, including travel programs and tour packages
offered to school spirit groups.
B. United Special Events, Inc. has been an owner and operator of
a business engaged in (i) organizing and operating camps and clinics for
cheerleaders, dance teams, song leaders, drill teams, drum majors, color guards
and mascots, and their choreographers, coaches and faculty advisors (such
groups being referred to herein as "Spirit Groups" and such camps being
referred to herein as "Spirit Camps"), (ii) organizing and operating
competitions and other special events for Spirit Groups, including travel
programs and tours for Spirit Groups ("Spirit Events"), and (iii) designing,
marketing, distributing and selling uniforms, accessories and other goods
selected for Spirit Groups (the "Uniform Business" and collectively with Spirit
Camps and Spirit Events, the "Business").
C. The Company purchased immediately prior to execution of this
Agreement various assets and rights used in the Business of United Special
Events, Inc., a company that employed Olmstead prior to such acquisition and in
which Olmstead had a significant ownership interest at the time of such
acquisition, and intends to utilize such assets and rights in connection with
the school spirit and cheerleader and dance team camp operations of the
Company.
D. As a result of his prior employment and ownership, Olmstead
has acquired confidential proprietary business information and trade secrets of
the Business and which information and trade secrets form a substantial and
valuable asset to the Company.
E. The Company desires to retain Olmstead as its President for a
term of one (1) year and as a consultant for four (4) years thereafter, and
Olmstead desires to be so employed by the Company and to provide such
consulting services to the Company, and to work with the Company's affiliates,
on the terms and conditions set forth herein.
F. As a condition of the Company's purchase of assets and rights
relating to the Business, the Company desires to bind Olmstead to certain
restrictive covenants and Olmstead agrees to be so bound, on the terms and
conditions set forth herein.
<PAGE> 2
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Terms of Services. Subject to the terms and conditions set
forth herein, including Section 10:
(a) the Company will employ Olmstead and Olmstead will
serve as President of the Company for a term commencing as of May 15,
1996 (the "Effective Date") and ending on May 15, 1997 (the
"Employment Term"); and
(b) the Company will engage Olmstead as a consultant and
Olmstead will provide consulting services to Company for a term
commencing as of May 15, 1997 and ending on May 15, 2001 (the
"Consulting Term").
2. Duties.
During the Employment Term, Olmstead will serve as President of the
Company, subject to the terms of this Agreement and the direction and control
of the Chief Executive Officer and the Board of Directors of the Company and
their duly appointed designees. While the Company recognizes that Olmstead
will continue to manage United Special Events, Inc. under another name and such
entity will require certain commitments on the part of Olmstead which
commitments the Company understands and consents to, Olmstead shall
nevertheless, during the Employment Term, serve the Company on a full time
basis faithfully, diligently and competently and to the best of his ability.
During the Consulting Term, Olmstead will provide consulting services to the
Company on such matters pertaining to the Business that may be reasonably
identified from time to time by reasonable advance notice from the Company's
Chief Executive Officer or Board of Directors or their duly appointed
designees. Olmstead shall, during the Consulting Term, advise the Company on a
part time basis faithfully, diligently and competently and to the best of his
ability. It is understood and agreed by the parties hereto that the above
referenced part time consulting commitment of Olmstead to the Company on an
annualized basis shall (a) during the entire Consulting Term not involve more
than approximately twenty (20) business days per annum of out-of-town travel by
Olmstead and (b) during the first and second years of the Consulting Term be
approximately twenty-five percent (25%) of a full time business commitment and
during the third and fourth years of the Consulting Term approximately twenty
percent (20%) of a full time business commitment. For tax and all other
purposes, Olmstead shall be an employee of the Company during the Employment
Term and an independent contractor of the Company during the Consulting Term.
3. Compensation. The Company shall have the following
compensation obligations, which shall be cumulative:
(a) During the Employment Term, the Company shall pay to
Olmstead for services rendered by Olmstead under this Agreement, a
salary at a rate of $70,000.00 per annum ($5,833.33 per month). Such
amount shall be payable in arrears not less frequently
2
<PAGE> 3
than monthly, but otherwise in accordance with the Company's ordinary
payroll practices. Payments made pursuant to this paragraph (a) while
Olmstead is an employee of the Company (which are sometimes referred
to herein as the "Salary") shall be treated as wages for withholding
and employment tax purposes; and
(b) During the Consulting Term, the Company shall pay to
Olmstead for consulting services rendered by Olmstead under this
Agreement consulting fees of $20,000.00 per annum ($1,666.67 per
month). Such amount shall be payable in arrears on the last day of
each month during the Consulting Term. Payments made pursuant to this
paragraph (b) while Olmstead is a consultant to the Company (which are
sometimes referred to herein as the "Consulting Fees") shall not,
unless otherwise required by law, be treated as wages for withholding
and employment tax purposes.
4. Insurance. During the Employment Term and Consulting Term,
the Company shall be entitled to obtain as the beneficiary "key man" or similar
other life insurance on Olmstead in an amount that the Company shall in its
discretion deem necessary or appropriate. Olmstead shall cooperate with all
requirements necessary for obtaining such insurance, including, without
limitation, submitting to any tests or physicals reasonably required by the
insurers in order to obtain and maintain such insurance.
5. Benefits.
(a) Olmstead shall be entitled during the Employment Term
to participate in such employee benefit plans and programs, including,
without limitation, profit sharing, cafeteria and health insurance
plans, as are maintained from time to time for employees of the
Company to the extent that his position, tenure, compensation, age,
health and other qualifications make him eligible to participate. The
Company does not promise the adoption or continuance of any particular
plan or program during the Employment Term, and Olmstead's (and his
dependents') participation in any such plan or program shall be
subject to the provisions, rules, regulations and laws applicable from
time to time thereto.
(b) During the Employment Term, Olmstead shall be
entitled to that number of weeks of paid vacation as authorized under
the Company's normal vacation policy in effect from time to time, such
vacation to be taken at times mutually acceptable to Olmstead and the
Company, and such holidays as are observed by the Company from time to
time. Accrued, unused vacation may not be carried over from one year
to the next, and Olmstead shall not be entitled to pay in lieu of
vacation.
(c) During the Consulting Term, Olmstead shall not be
entitled to participate or otherwise rely upon any benefit plans or
programs of the Company and shall have no entitlement to any paid
vacation or holidays.
6. Reimbursement of Expenses. To the extent consistent with the
general expense reimbursement policies maintained by the Company from time to
time, during the Employment
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<PAGE> 4
Term and the Consulting Term, Olmstead shall be entitled to reimbursement for
ordinary, necessary and reasonable out-of-pocket trade or business expenses
which Olmstead incurs in connection with performing his duties under this
Agreement, including reasonable travel and meal expenses. The reimbursement of
all such expenses shall be made upon presentation of evidence reasonably
satisfactory to the Company of the amounts and nature of such expenses and
shall be subject to approval prior to their incurrence of the Company's Board
of Directors or Chief Executive Officer or their duly appointed designees.
7. Restrictive Covenants. Olmstead acknowledges and agrees that
(i) by virtue of his past ownership and employment by the Business he has
learned, and by virtue of his employment and consulting relationship with the
Company he will learn, valuable trade secrets and other proprietary
information, including but not limited to the Company's customer lists,
relating to the Business, (ii) Olmstead's skills, knowledge and services to the
Company are unique in nature, (iii) the Business is international in scope and
(iv) the Company would be irreparably damaged if Olmstead were to provide
services to any person or entity in violation of the restrictions contained in
this Agreement. Accordingly, as a condition of and inducement to the Company's
purchase of the Business and as an inducement to the Company to enter into this
Agreement, and in addition to any other restrictions to which Olmstead shall
have agreed to be subject pursuant to the asset acquisition referred to in
Recital C hereto, Olmstead agrees that during the Employment Term and the
Consulting Term (collectively, the "Restricted Period"), neither Olmstead nor
any Affiliate of Olmstead (as defined below) shall:
(a) directly or indirectly, on his own behalf, or on
behalf of any other person, firm, corporation, trust, or other entity,
and whether acting as an officer, director, employee, partner, agent,
consultant or otherwise, engage in, or assist in any way, financially
or otherwise, any person, firm, corporation, trust or other entity
that is engaged, or which proposes to engage, in the Business within
the United States or any other place where the Business has been
conducted prior to or is conducted or proposed to be conducted on the
Closing Date (the "Territory"), provided that the foregoing shall not
prohibit activities of USE undertaken in accordance with the terms of
the Marketing Agreement in connection with the Retained Business;
(b) directly or indirectly solicit, attempt to solicit,
or otherwise divert, or attempt to divert, any participant, supplier
or customer of the Business for a purpose or with a result that is
competitive with the Business except as permitted by the Marketing
Agreement in connection with the Retained Business;
(c) employ, engage or contract for the services of any
person who is employed in the Business as of the date hereof, unless
the employment of such person is thereafter terminated without cause
by Buyer or unless such employment, engagement or contracting, as the
case may be, is undertaken in accordance with the terms of the
Marketing Agreement in connection with the Retained Business;
(d) knowingly or intentionally damage or destroy the
goodwill of the Business
4
<PAGE> 5
with its suppliers, employees, patrons, customers and others who may
at any time have or have had relations with the Business;
(e) encourage, recommend, or approve the use at any time
of the services of any competitor of the Business within the
Territory, provided that the foregoing shall not prohibit activities
of USE undertaken in accordance with the terms of the Marketing
Agreement in connection with the Retained Business; or
(f) except as may be necessary to enforce rights under
this Agreement, reveal to any third person any difference of opinion
between Olmstead and the management of the Business.
If any court of competent jurisdiction shall finally hold that
the time, territory or any other provision set forth in this Section 7
constitutes an unreasonable restriction, such provision of this
Section 7 shall not be rendered void, but shall apply as to such time,
territory or to such other extent as such court may determine
constitutes a reasonable restriction under the circumstances involved.
Olmstead acknowledges that the restrictions contained in this Section
7 are reasonable and necessary to protect the legitimate interests of
the Company and Varsity and that any breach by Olmstead of any
provision hereof will result in irreparable injury to the Company and
Varsity. Olmstead acknowledges that the Company and Varsity shall be
entitled to preliminary and permanent injunctive relief in any action
seeking to enforce the provisions of this Section 7. Olmstead
acknowledges that the Company and Varsity shall be entitled to an
equitable accounting of all earnings, profits or other benefits
arising from such breach and shall be entitled to receive such other
damages, direct or consequential, as may be appropriate.
8. Disclosure of Confidential Information. Olmstead recognizes
that as a result of his prior employment by and ownership of the Business he
possesses or as a result of his employment by and consulting relationship with
the Company he will become in possession of Confidential Information (as
defined below). Accordingly, as an inducement for the Company to purchase such
assets and to enter into this Agreement, Olmstead agrees that:
(a) for the longest period permitted by law from the date
of this Agreement, Olmstead and each Affiliate of Olmstead shall hold
in strictest confidence and shall not, other than as required by law,
without the prior written consent of the Company, use for his own
benefit or that of any third party or entity or intentionally or
negligently disclose in a manner which could be harmful to the Company
to any person, firm or corporation except the Company, an Affiliate of
the Company or employees of the Company or an Affiliate of the Company
any Confidential Information (as defined below). For purposes of this
Agreement, intending that the term shall be broadly construed to
include anything protectible as a trade secret under applicable law,
"Confidential Information" shall mean all information, and all
documents and other tangible items which record information, including
but not limited to customer lists, relating to the manufacturing and
marketing by the Company or any Affiliate thereof of products and
services, from time to time, which at the time or times
5
<PAGE> 6
concerned is protectible as a trade secret under applicable law, and
which has been or is from time to time disclosed to or known by
Olmstead. As used herein, an "Affiliate" shall mean and include any
person or entity which controls a party, which such party controls or
which is under common control with such party. "Control" means the
power, direct or indirect, to influence or cause the direction of the
management and policies of a person or entity through voting
securities, contract or otherwise;
(b) Olmstead and each Affiliate of Olmstead (and if
deceased, his legal representative, who shall be the person set forth
as such in Section 12(a) until written notice of a successor is
delivered to the Company (the "Representative")) shall promptly
following a request therefor from the Company return to the Company,
without retaining copies, all property of the Company, including but
not limited to all letters, lists, notes, reports, memorandums,
documents, data and computer programs which are or which contain
Confidential Information, it being agreed by Olmstead on behalf of his
heirs, successors and assigns that the Company shall be entitled to
rely on any action taken by the Representative in connection with this
paragraph (b); and
(c) at the request of the Company made at any time or
from time to time hereafter, Olmstead and each Affiliate of Olmstead
(and if deceased, the Representative) shall make, execute and deliver
all applications, papers, assignments, conveyances, instruments or
other documents and shall perform or cause to be performed such other
lawful acts as the Company may reasonably deem necessary or desirable
to implement any of the provisions of this Agreement, and shall give
testimony and cooperate with the Company, its Affiliates or its
representatives in any controversy or legal proceedings involving the
Company, its Affiliates or its representatives with respect to any
Confidential Information.
9. Specific Performance. Olmstead agrees that any violation by
him of Sections 7 or 8 of this Agreement, as applicable, would be highly
injurious to the Company and its Affiliates and would cause irreparable harm
thereto. By reason of the foregoing, Olmstead consents and agrees that if he
violates any provision of Sections 7 or 8 of this Agreement the Company shall
be entitled, in addition to any other rights and remedies that it may have, to
apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce, or prevent any threatened or
actual continuing violation of, the provisions of such Section. In the event
Olmstead breaches a covenant contained in this Agreement, the Restricted Period
applicable to Olmstead with respect to such breached covenant shall be extended
for the period of such breach. Olmstead also recognizes that the territorial,
time and scope limitations set for in Section 7 and 8, as applicable, are
reasonable and are properly required for the protection of the Company. In the
event any territorial, time or scope limitation contained in this Agreement is
deemed to be unreasonable by a court of competent jurisdiction, the Company and
Olmstead agree, and Olmstead submits, to the reduction of any or all of said
territorial, time or scope limitations to such an area, period or scope as said
court shall deem reasonable under the circumstances.
10. Termination; Severance.
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<PAGE> 7
(a) Notwithstanding the provisions of Section 1 and the
other provisions of this Agreement, Olmstead's employment and
consulting relationship with the Company may be terminated at any time
by the Company's Chief Executive Officer or Board of Directors "for
cause," which shall include (i) Olmstead's conviction for, or plea of
nolo contendere to, a felony, (ii) Olmstead's commission of an act
involving self-dealing, fraud or personal profit materially injurious
to the Company or any of its Affiliates, (iii) Olmstead's commission
of an act of willful misconduct or gross negligence in the conduct of
his duties hereunder, (iv) habitual absenteeism or any illegal use,
sale manufacture or dispensing of controlled substances on the part of
Olmstead, (v) Olmstead's failure to perform his duties hereunder in a
manner reasonably satisfactory to the Company, (vi) Olmstead's breach
or violation of any internal policies or rules of the Company,
including but not limited to those rules adopted by the Company
concerning the purchase and sale of the Company's or any of its
Affiliate's common stock or other securities by employees of the
Company, or (vii) Olmstead's breach of any material provision of this
Agreement. Any termination by the Company under this Section 10(a)
shall be in writing and shall set forth the reason for such
termination. In the event of termination under this Section 10(a),
the Company's obligations under this Agreement shall cease and
Olmstead shall forfeit all right to receive any compensation or
benefits under this Agreement, except that Olmstead shall be entitled
to his Salary and benefits (under Section 5) and Consulting Fees for
services already performed as of the date of termination of this
Agreement. Without limitation, termination of Olmstead pursuant to
this Section 10(a) shall not relieve Olmstead of his obligations under
Sections 7 or 8 hereof. The parties hereto agree that in the event
Olmstead notifies the Company within thirty (30) days of any
termination pursuant to this paragraph (a) that he disagrees with the
Company's "for cause" determination that such controversy shall be
settled by binding arbitration in Santa Clara County, California by a
single arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. If after review it is
determined that the termination was not made "for cause" then the
termination shall be deemed to have been made pursuant to paragraph
(b) of this Section 10 and Olmstead shall be entitled to the
compensation and other benefits provided for thereby.
(b) Notwithstanding the provisions of Section 1 and the
other provisions of this Agreement, Olmstead's employment with the
Company may be terminated at any time by the Company's Chief Executive
Officer or Board of Directors without cause, provided that in the
event of such a termination, Olmstead shall be entitled to his Salary
and benefits (under Section 5) through the end of the Employment Term
and continuation of his Consulting Fees through the end of the
Consulting Term (the "Severance Period"). Olmstead shall use
reasonable efforts during the Severance Period to find alternate
employment in the event his employment hereunder is terminated without
cause and the obligations of the Company as to Salary continuation
hereunder during the Employment Term (but not the Consulting Term)
shall be less any income received by Olmstead from such alternate
employment (other than income received from the Retained Business) and
the obligation of the Company to continue benefits hereunder shall be
reduced to the extent comparable benefits are available to Olmstead in
connection with such alternate employment. Except as otherwise
specifically provided above, the Company's obligations under this
Agreement
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<PAGE> 8
shall cease upon termination and Olmstead shall forfeit all other
rights and benefits under this Agreement. Without limitation, a
termination of Olmstead pursuant to this Section 10(b) shall not
relieve Olmstead of his obligations under Sections 7 or 8 hereof.
Any termination by the Company under this Section 10(b) shall be in
writing.
11. Death or Disability.
(a) If Olmstead becomes permanently disabled (determined
as provided below) during the Employment Term or the Consulting Term,
his employment or consulting relationship, as the case may be, shall
terminate as of the date such permanent disability is determined.
Olmstead shall be considered to be permanently disabled for purposes
of this Agreement if he is unable by reason of accident or illness
(including mental illness) to perform the material duties of his
regular position with the Company and not expected to recover from his
disability within a period of three (3) months from the commencement
of the disability. If at any time Olmstead claims or is claimed to be
permanently disabled, a physician acceptable to both Olmstead, or the
Representative, and the Company (which acceptances shall not be
unreasonably withheld) shall be retained by the Company and shall
examine Olmstead. Olmstead shall cooperate fully with the physician.
If the physician determines that Olmstead is permanently disabled, the
physician shall deliver to the Company a certificate certifying both
that Olmstead is permanently disabled and the date upon which the
condition of permanent disability commenced. The determination of the
physician shall be conclusive.
(b) Olmstead's right to his compensation and benefits
under this Agreement shall cease upon his death or disability, except
that (i) Olmstead (or his estate or heirs) shall be entitled to his
Salary and benefits (under Section 5) and Consulting Fees for services
performed as of the date of his death or permanent disability, (ii)
with respect to termination due solely to Olmstead's permanent
disability as determined pursuant to this Section 11, he shall also be
entitled to his Salary and benefits (under Section 5) and Consulting
Fees through the period ending nine (9) months after the date such
permanent disability began; provided, however, that any such amounts
for Salary continuation shall be reduced by any amount received by
Olmstead under any governmental program and/or any disability
insurance policy or program and (iii) with respect to termination due
solely to Olmstead's death, his estate or heirs shall be entitled to
Olmstead's Salary and Consulting Fee through the period ending six (6)
months after the date of Olmstead's death.
12. Miscellaneous.
(a) All notices hereunder shall be in writing and shall
be deemed given when delivered in person or when telecopied with hard
copy to follow, or three (3) business days after being deposited in
the United States mail, postage prepaid, registered or certified mail,
or two (2) business days after delivery to a nationally recognized
express courier, expenses prepaid, addressed as follows:
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<PAGE> 9
If to Olmstead:
Michael J. Olmstead
3825 Middlefield Road
Palo Alto, California 94303
If to the Representative:
Michelle Olmstead
3825 Middlefield Road
Palo Alto, California 94303
If to the Company:
Varsity USA, Inc.
c/o Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Attention: Jeffrey G. Webb
John M. Nichols
and/or at such other addresses and/or to such other addressees as may be
designated by notice given in accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors
and permitted assigns. No party shall assign this Agreement or its
rights hereunder without the prior written consent of the other party
hereto; provided, however, that the Company may assign this Agreement
to any person or entity acquiring all or substantially all of the
Business of the Company (whether by sale of stock, sale of assets,
merger, consolidation or otherwise).
(c) This Agreement contains all of the agreements between
the parties with respect to the subject matter hereof and this
Agreement supersedes all other agreements, oral or written, between
the parties hereto with respect to the subject matter hereof.
(d) No change or modification of this Agreement shall be
valid unless the same shall be in writing and signed by all of the
parties hereto. No waiver of any provisions of this Agreement shall
be valid unless in writing and signed by the waiving party. No waiver
of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver, unless so
provided in the waiver.
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<PAGE> 10
(e) If any provisions of this Agreement (or portions
thereof) shall, for any reason, be deemed invalid or unenforceable by
any court of competent jurisdiction, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect. The Company's rights under this Agreement shall not
be exclusive and shall be in addition to all other rights and remedies
available at law or in equity.
(f) The section or paragraph headings or titles herein
are for convenience of reference only and shall not be deemed a part
of this Agreement.
(g) This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all
of which when taken together shall constitute a single instrument.
(h) This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all
other respects by the laws of the State of California applicable to
contracts made in that State (other than any conflict of laws rule
which might result in the application of the laws of any other
jurisdiction).
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
VARSITY USA, INC.
By: /s/ JOHN M. NICHOLS
----------------------------------
Name: John M. Nichols
Title: Senior Vice President - Chief
Financial Officer
MICHAEL J. OLMSTEAD
/s/ MICHAEL J. OLMSTEAD
- - -------------------------------------------------------------------------------
10
<PAGE> 1
EXHIBIT 10(c)
CREDIT AGREEMENT
______________________________________________________________________________
______________________________________________________________________________
CREDIT AGREEMENT
Dated as of July 1, 1996
Between
Varsity Spirit Corporation
and
Varsity Spirit Fashions and Supplies, Inc.
and
Varsity/Intropa Tours, Inc.
as
Borrowers
and
NATIONSBANK, N.A.
as Lender
U.S.$9,000,000
______________________________________________________________________________
______________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is for convenience of reference.
ARTICLE I
DEFINITIONS
SECTION 1.01. Basic Definitions 1
SECTION 1.02. Additional Definitions 2
ARTICLE II
LOANS
SECTION 2.01. Committed Loans 7
SECTION 2.02. Intentionally Left Blank 7
SECTION 2.03. Note 8
SECTION 2.04. Repayment of Loans 8
SECTION 2.05. Interest 8
SECTION 2.06. Borrowing Procedure 8
SECTION 2.07. Prepayments, Conversions, and Continuations of Loans 8
SECTION 2.08. Minimum Amounts 9
SECTION 2.09. Certain Notices 9
SECTION 2.10. Use of Proceeds 10
SECTION 2.11. Fees 10
SECTION 2.12. Computations 10
SECTION 2.13. Reduction or Termination of Commitment 10
SECTION 2.14. Payments 10
SECTION 2.15. Mandatory Prepayment 10
ARTICLE III
CHANGE IN CIRCUMSTANCES
SECTION 3.01. Increased Cost and Reduced Return 11
SECTION 3.02. Limitation on Types of Loans 12
SECTION 3.03. Illegality 12
SECTION 3.04. Compensation 12
SECTION 3.05 Taxes 13
ARTICLE IV
CONDITIONS
SECTION 4.01. Initial Loan 13
SECTION 4.02. Each Loan 14
<PAGE> 3
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Existence 14
SECTION 5.02. Financial Statements 14
SECTION 5.03. Authorization; No Breach 14
SECTION 5.04. Litigation 15
SECTION 5.05. Enforceability 15
SECTION 5.06. Approvals 15
SECTION 5.07. Disclosure 15
ARTICLE VI
COVENANTS
SECTION 6.01. Information 15
SECTION 6.02. Current Ratio 16
SECTION 6.03. Minimum Tangible Net Worth 16
SECTION 6.04. Maximum Funded Liabilities to Tangible Net Worth 17
SECTION 6.05. Maximum Funded Liabilities to Consolidated EBITDA Ratio 17
SECTION 6.06. Obligations 17
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default 17
SECTION 7.02. Remedies 19
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Expenses 19
SECTION 8.02. Indemnification 19
SECTION 8.03. Right of Set-off. 20
SECTION 8.04. No Waiver; Cumulative Remedies 20
SECTION 8.05. Successors and Assigns 20
SECTION 8.06. Amendments 20
SECTION 8.07. Notices 21
<PAGE> 4
SECTION 8.08. Counterparts 21
SECTION 8.09. Severability 21
SECTION 8.10. Controlling Agreement 21
SECTION 8.11. Survival 21
SECTION 8.12. Governing Law 21
SECTION 8.13. WAIVER OF JURY TRIAL 22
SECTION 8.14. ENTIRE AGREEMENT 22
Exhibit A - Note
Exhibit B - Opinion of Counsel for the Loan Parties
<PAGE> 5
CREDIT AGREEMENT
CREDIT AGREEMENT (the "Agreement") dated as of July 1, 1996, between
VARSITY SPIRIT CORPORATION, a Tennessee Corporation and VARSITY SPIRIT FASHIONS
AND SUPPLIES, INC., a Tennessee Corporation and VARSITY/INTROPA TOURS, INC., a
________ company(the "Borrowers"), and NATIONSBANK, N.A., a national banking
association (the "Bank").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Basic Definitions. As used in this Agreement, the following
terms have the following meanings:
"Applicable Margin" means:
(i) with respect to Base Rate Loans, Zero percent (0%);
(ii) with respect to Eurodollar Loans, One percent (1%); and
"Commitment" means the obligation of the Bank to make Committed
Loans in an aggregate principal amount at any time outstanding up to but
not exceeding $9,000,000, as the same may be reduced or terminated
pursuant to this Agreement.
"Fees" means:
(ii) a commitment fee on the daily average unused amount of the
Commitment from and including the date of this Agreement to but excluding
the Termination Date, at the rate of One Eighth percent (.125%) per
annum, payable on each Quarterly Date
"Principal Office" means the office of the Bank located at One
NationsBank Plaza, Fifth Floor Nashville, TN 37239.
"Termination Date" means June 30, 1997.
1
<PAGE> 6
SECTION 1.02. Additional Definitions. As used in this Agreement, the
following terms have the following meanings.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Bank to be equal
to the quotient obtained by dividing (a) the Eurodollar Rate for such
Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve
Requirement for such Eurodollar Loan for such Interest Period.
"Assessment Rate" means, for any day, the annual assessment rate
(rounded upwards, if necessary, to the nearest 1/100 of 1%) which is
payable by the Bank to the Federal Deposit Insurance Corporation (or any
successor) for deposit insurance for Dollar time deposits with the Bank
at its Principal Office as determined by the Bank
"Base Rate" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one
percent (.5%) and (b) the Prime Rate for such day. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or Federal Funds Rate.
"Base Rate Loans" means Loans that bear interest at rates based upon
the Base Rate.
"Business Day" means any day except a Saturday, Sunday, or other day
on which banks in the State where the Principal Office is located are
authorized by law to close and, if the applicable Business Day relates to
Eurodollar Loans, on which commercial banks in London are open for
international business (including dealings in Dollar deposits in the
London interbank market).
"Commitment" means the commitment by NationsBank, N.A. to make Loans
to the Borrowers hereunder in the maximum principal amount of $9,000,000.
"Committed Loans" has the meaning specified in Section 2.01.
2
<PAGE> 7
"Consolidated Depreciation and Amortization" means, for any period,
the depreciation and amortization of the Borrowers and its Subsidiaries
on a consolidated basis determined in conformity with GAAP.
"Consolidated EBITDA" means, with respect to any Person, the
Consolidated Net Income of such Person for such period adjusted to
exclude (to the extent included therein) (i) Consolidated Total Income
Tax Expense, (ii) Consolidated Depreciation and Amortization, (iii)
Consolidated Total Net Interest Expense and (iv) other non-cash charges
or credits which increased or decreased Consolidated Net Income, in each
case determined for such period on a consolidated basis for such person
and its Subsidiaries in accordance with GAAP, except as otherwise
specifically provided herein, and to subtract therefrom the amount of all
cash payments, and to add thereto the amount of all cash receipts
relating to non-cash charges or credits, as the case may be, made in any
period after the Closing Date that do not relate to events that occurred
prior to the Closing Date and were either (A) excluded as losses or gains
in the calculation of Consolidated Net Income in any period after the
Closing Date or (B) which were or would have been adjustments to
Consolidated EBITDA as a result of clause (iv) above in any period after
the Closing Date.
""Consolidated Total Income Tax Expense" means, for any period, the
total income tax expense of the Borrowers and its Subsidiaries for such
period, on a consolidated basis determined in accordance with GAAP.
"Consolidated Interest Income means, for any period, aggregate
interest income for the Borrowers and its Subsidiaries for the period.
"Consolidated Net Income" means, for any period, the net earnings
(or loss) of the Borrowers and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period, but excluding
extraordinary items of gain or loss, all as determined in conformity with
GAAP.
"Consolidated Total Interest Expense" means, for any period, the
total interest expense of the Borrowers and its Subsidiaries, for such
period, on a consolidated basis determined in accordance with GAAP.
"Consolidated Net Interest Expense" means, for any period,
Consolidated Total Interest Expense less Consolidated Interest Income.
3
<PAGE> 8
"Continue", "Continuation", and "Continued" shall refer to a continuation
pursuant to Section 2.07 of a Fixed Rate Loan as a Loan of the same Type
from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to the
conversion pursuant to Section 2.07 or Article III of one Type of Loan
into another Type of Loan.
"Current Assets", shall mean all items which, in accordance with
Generally Accepted Accounting Principles, would be classified as current
assets on a consolidated balance sheet of the Borrowers and their
subsidiaries.
"Current Liabilities", shall mean all items which, in accordance
with Generally Accepted Accounting Principles, would be classified as
current liabilities on a consolidated balance sheet of the Borrowers and
their subsidiaries.
"Debtor Relief Laws" means the Bankruptcy Code of the United States
of America and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization, suspension of payments, or similar debtor relief laws
from time to time in effect affecting the rights of creditors generally.
"Default" means an Event of Default or the occurrence of an event or
condition that with notice or lapse of time or both would become an Event
of Default.
"Default Rate" means, with respect to any principal of any Loan or
any other amount payable by the Borrowers under this Agreement or any
other Loan Document that is not paid when due (whether at stated
maturity, by acceleration, or otherwise), a rate per annum during the
period from and including the due date to but excluding the date on which
such amount is paid in full equal to two percent (2%) plus the Base Rate
as in effect from time to time plus the Applicable Margin for Base Rate
Loans (provided that, if the amount in default is principal of a Fixed
Rate Loan and the due date thereof is a day other than the last day of
the Interest Period therefor, the "Default Rate" for such principal shall
be, for the period from and including the due date and to but excluding
the last day of the Interest Period therefor, two percent (2%) plus the
interest rate for such Loan as provided in Section 2.05(b), as the case
may be, and, thereafter, the rate provided for above in this definition).
"Dollars" and "$" mean lawful money of the United States of America.
"Eurodollar Loans" means Loans that bear interest at rates based
upon the Adjusted Eurodollar Rate.
4
<PAGE> 9
"Event of Default" has the meaning specified in Section 7.01.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum appearing on Telerate Page 3750 (or
any successor page) as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior
to the first day of such Interest Period for a term comparable to such
Interest Period. If for any reason such rate is not available, the term
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum appearing on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters
Screen LIBO Page, the applicable rate shall be the arithmetic mean of all
such rates.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on
the next succeeding Business Day, and (b) if no such rate is so published
on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate charged to the Bank on such day on such
transactions as determined by the Bank.
"Financial Statements" means the financial statements of the
Borrowers and the Subsidiaries most recently furnished to the Bank prior
to the date of this Agreement.
"Fixed Rate Loans" means Eurodollar Loans.
"Funded Liabilities" means, at any date of determination, all
Indebtedness of any Person that has an original maturity date in excess
of one year.
"Governmental Authority" means any nation or government, any state
or political subdivision thereof, any central bank (or similar monetary
or regulatory authority), and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
5
<PAGE> 10
"Indebtedness" as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to
Capital Leases. which is capitalized on a balance sheet in conformity
with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether of not representing obligations for borrowed
money, including, without limitation, any indebtedness evidenced by notes
issued pursuant to note agreements or indentures, (iv) any obligation
owed for all or any part of the deferred purchase price of property of
services which purchase price is (x) due more than six months from the
date of incurrence of the obligation in respect thereof, or (y) evidenced
by a note or similar written instrument, and (v) all indebtedness secured
by any mortgage, pledge, Lien, security interest or vendor's interest
under any conditional sale or other title retention agreement existing on
any property of asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person and, without duplication,
all drafts drawn thereunder of (to the extent not theretofore
reimbursed); provided, however, that Indebtedness shall not include (i)
trade payables and accrued expenses, in each case arising in the
ordinary course of business.
"Intangible Assets" means:, as of the date of any determination
thereof, the total amount of all assets of the Borrowers and their
Subsidiaries consisting of goodwill, patents, trade names, trade marks,
copyrights, franchises, experimental expense, organization expense,
deferred assets other than prepaid insurance and prepaid taxes, the
excess of cost of shares acquired over book value of related assets and
such other assets as are properly classified as "intangible assets" in
accordance with Generally Accepted Accounting Principles.
"Interest Period" means:
(i) with respect to any Eurodollar Loan, each period commencing on
the date such Loan is made or Converted from a Loan of another Type or the
last day of the next preceding Interest Period with respect to such Loan,
and ending on the numerically corresponding day in the first, second,
third, or sixth calendar month thereafter, as the Borrowers may select as
provided in Section 2.09, except that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month;
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for
Eurodollar Loans, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any
Interest Period which would otherwise extend beyond the Termination Date
shall end on the Termination
6
<PAGE> 11
Date; (c) no more than 5 Interest Periods for each Type of Fixed Rate
Loan shall be in effect at the same time; and (d) no Interest Period
for any Fixed Rate Loan shall have a duration of less than 1 month
(in the case of Eurodollar Loans) and if the Interest
Period for any Fixed Rate Loan would otherwise be a shorter period,
such Loan shall not be available hereunder.
"Lien" means any lien, mortgage, pledge, security interest, charge
or encumbrance, of any kind to secure the payment, performance or
discharge of any liability (as determined in accordance with GAAP)
including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security
interest.
"Loan Documents" means this Agreement, the Note, and all other
documents, instruments, and agreements executed or delivered pursuant to
or in connection with this Agreement, as the same may be amended,
modified, renewed, extended, or supplemented.
"Loan Party" means the Borrowers or any Person that guaranties or
secures any or all of the Borrower's obligations under the Loan
Documents.
"Loans" means Committed Loans and Money Market Loans.
"Material Adverse Effect" means a material adverse effect on (a) the
properties, prospects, business, operations, financial condition,
liabilities, or capitalization of the Borrowers and the Subsidiaries
taken as a whole, (b) the ability of any Loan Party to pay and perform
its obligations under any Loan Document, or (c) the validity or
enforceability of any Loan Document or the rights and remedies of the
Bank thereunder.
"Note" has the meaning specified in Section 2.03.
"Person" means any individual, corporation, company, joint venture,
association, partnership, trust, unincorporated organization,
Governmental Authority, or other entity.
"Prime Rate" means the per annum rate of interest established from
time to time by the Bank as its prime rate, which rate may not be the
lowest rate of interest charged by the Bank to its customers.
"Quarterly Date" means the last day of each March, June, September,
and December of each year, the first of which shall be the first such day
after the date of this Agreement.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
7
<PAGE> 12
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including any marginal, special, supplemental, or emergency
reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or
any successor) by member banks of the Federal Reserve System in New York
City with deposits exceeding one billion Dollars against (a) in the case
of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by
such member banks with respect to (i) any category of liabilities which
includes deposits by reference to which the Adjusted Eurodollar or (ii)
any category of extensions of credit or other assets which include
Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Reserve Requirement.
"Subsidiary" means, any corporation or other entity of which
securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing
similar functions are at the time directly or indirectly owned by the
Borrowers.
"Tangible Net Worth" means, at any time, consolidated net
shareholder's equity of the Borrowers determined in accordance with
Generally Accepted Accounting Principles applied on a consistent basis
with no upward adjustments due to a revaluation of assets, minus all
Intangible Assets of the Borrowers and their Subsidiaries and minus all
amounts due from employees, officers, directors, shareholders and
affiliates of the Borrowers and their Subsidiaries.
"Type" means any type of Loan (i.e., Base Rate Loan, Eurodollar
Loan, CD Loan, or Money Market Loan).
"Unused Amount" means the Committed Amount minus the then
outstanding principal amount of the Committed Loans.
ARTICLE II
LOANS
SECTION 2.01. Committed Loans. Subject to the terms and conditions of
this Agreement, the Bank agrees to make one or more loans ("Committed Loans")
to the Borrower from time to time from and including the date hereof to but
excluding the Termination Date, provided that
8
<PAGE> 13
the aggregate principal amount of the Loans at any time outstanding
shall not exceed the amount of the Commitment. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, the Borrower
may borrow, repay, and reborrow hereunder the amount of the Commitment by means
of Base Rate Loans and Eurodollar Loans.
SECTION 2.02. [Intentionally Left Blank].
SECTION 2.03. Note. The Loans made by the Bank shall be evidenced by a
single promissory note of the Borrower in substantially the form of Exhibit A,
dated the date hereof, payable to the order of the Bank in a principal amount
equal to the Commitment as originally in effect and otherwise duly completed
(as from time to time amended, modified, renewed, or extended, the "Note").
SECTION 2.04. Repayment of Loans. The Borrower shall pay to the Bank the
outstanding principal amount of the Loans on or before the Termination Date.
SECTION 2.05. Interest. The Borrower shall pay to the Bank interest on
the unpaid principal amount of each Loan for the period commencing on the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during the periods such Loan is a Base Rate Loan, the Base Rate
plus the Applicable Margin;
(b) during the periods such Loan is a Eurodollar Loan, the Adjusted
Eurodollar Rate plus the Applicable Margin;
Notwithstanding the foregoing, the Borrower shall pay to the Bank interest at
the Default Rate on any principal of any Loan and (to the fullest extent
permitted by law) on any other amount payable by the Borrower under this
Agreement or any other Loan Document which is not paid in full when due
(whether at stated maturity, by acceleration, or otherwise), for the period
from and including the due date thereof to but excluding the date the same is
paid in full. Accrued interest on the Loans shall be due and payable as
follows: (i) in the case of Base Rate Loans, on each Quarterly Date; (ii) in
the case of each Eurodollar Loan, on the last day of the Interest Period with
respect thereto and, in the case of an Interest Period greater than three
months, at three-month intervals after the first day of such Interest Period;
(iii) upon the payment or prepayment of any Loan or the Conversion of any Loan
to a Loan of another Type (but only on the principal amount so paid, prepaid,
or Converted); and (iv) on the Termination Date; provided that interest
payable at the Default Rate shall be payable from time to time on demand.
SECTION 2.06. Borrowing Procedure. The Borrower shall give the Bank
notice of each borrowing hereunder in accordance with Section 2.09. Not later
than 2:00 p.m. (local time at
9
<PAGE> 14
the Principal Office) on the date specified for each borrowing
hereunder, the Bank will make available the amount of the Loan to be made by it
on such date to the Borrower by depositing the same, in immediately available
funds, in an account of the Borrower (designated by the Borrower) maintained
with the Bank at the Principal Office or as otherwise directed by the Borrower.
SECTION 2.07. Prepayments, Conversions, and Continuations of Loans.
Subject to Section 2.08, the Borrower shall have the right from time to time to
prepay the Loans, or to Convert all or part of a Loan of one Type into a Loan
of another Type or to Continue Fixed Rate Loans of one Type as Fixed Rate Loans
of the same Type, provided that: (a) the Borrower shall give the Bank notice
of each such prepayment, Conversion, or Continuation as provided in Section
2.09, (b) Fixed Rate Loans may only be Converted on the last day of the
Interest Period, and (c) except for Conversions into Base Rate Loans, no
Conversions or Continuations shall be made while a Default has occurred and is
continuing.
SECTION 2.08. Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.15 and Article III, each borrowing, each Conversion, and
each prepayment of principal of the Loans shall be in an amount at least equal
to $100,000. Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of Fixed Rate Loans of the same Type having the same
Interest Period shall be at least equal to $100,000.
SECTION 2.09. Certain Notices. Notices by the Borrower to the Bank of a
termination or reduction of the Commitment, of borrowings, Conversions,
Continuations and optional prepayments of Loans and of the duration of Interest
Periods shall be irrevocable and shall be effective only if received by the
Bank not later than 12:00 noon (Charlotte, North Carolina time ) on the number
of Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation, or prepayment or the first day of such
Interest Period specified below:
<TABLE>
<CAPTION>
Number of Business
Notice Days Prior
- - ------------------------------ ------------------
<S> <C>
Termination or reduction of
Commitment 3
Borrowing or prepayment of,
or Conversions into, Base
Rate Loans same day
</TABLE>
10
<PAGE> 15
Borrowing or prepayment of,
Conversions into,
Continuations as, or
duration of Interest Periods
for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitment to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation, or optional prepayment shall specify (a) the amount
and Type of the Loan to be borrowed, Converted, Continued, or prepaid (and, in
the case of a Conversion, the Type of Loan to result from such Conversion), (b)
the date of borrowing, Conversion, Continuation, or prepayment (which shall be
a Business Day), and (c) in the case of a borrowing of a Fixed Rate Loan,
Conversion, or Continuation, the duration of the Interest Period. In the event
the Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Fixed Rate Loan, within the time period and otherwise as
provided in this Section 2.09, such Loan (if outstanding as a Fixed Rate Loan)
will be automatically Converted into a Base Rate Loan on the last day of the
preceding Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
SECTION 2.10. Use of Proceeds. The proceeds of the Loans shall be used by
the Borrower for working capital in the ordinary course of business. The
Borrower will not, directly or indirectly, use any part of such proceeds for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulations G, U, T, or X of the Board of Governors of the Federal Reserve
System.
SECTION 2.11. Fees. The Borrower agrees to pay to the Bank the Fees as
specified herein.
(a) Commitment Fee The Borrower shall pay to the Bank on the daily
average Unused Amount at a rate equal to .125% per annum of such Unused Amount.
SECTION 2.12. Computations. Interest and Fees payable by the Borrower
hereunder and under the other Loan Documents shall be computed on the basis of
a year of 360 days and the actual number of days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.
SECTION 2.13. Reduction or Termination of Commitment. The Borrower shall
have the right to irrevocably terminate or reduce in part the unused portion of
the Commitment at any time
11
<PAGE> 16
and from time to time, provided that: (a) the Borrower shall give notice
of each such termination or reduction as provided in Section 2.09; and (b) each
partial reduction shall be in an aggregate amount at least equal to $1,000,000
SECTION 2.14. Payments. All payments of principal, interest, and other
amounts to be made by the Borrower under this Agreement and other Loan
Documents shall be made to the Bank at the Principal Office in
Dollars and in immediately available funds, without setoff, deduction, or
counterclaim. Whenever any payment under this Agreement or any other Loan
Document shall be stated to be due on a day that is not a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time in such case shall be included in the computation of interest and Fees, as
applicable and as the case may be.
SECTION 2.15. Mandatory Prepayment. If at any time the outstanding
principal amount of the Loans exceeds the Commitment, the Borrower shall
immediately make a prepayment of the Loans in an amount equal to the excess.
ARTICLE III
CHANGE IN CIRCUMSTANCES
SECTION 3.01. Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable law, rule,
or regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any such Governmental Authority:
(i) shall subject the Bank to any tax, duty, or other charge with
respect to any Fixed Rate Loans, the Note, or its obligation to make
Fixed Rate Loans, or change the basis of taxation of any amounts payable
to the Bank under this Agreement or the Note in respect of any Fixed Rate
Loans (other than taxes imposed on the overall net income of the Bank by
the jurisdiction in which the Bank has its Principal Office);
(ii) shall impose or modify any reserve, special deposit, or similar
requirement (other than the Reserve Requirement utilized in the
determination of the Adjusted Eurodollar Rate ) relating to any
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extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, the Bank (including the Commitment); or
(iii) shall impose on the Bank or on the United States market for
certificates of deposit or the London interbank market any other
condition affecting this Agreement or the Note or any of such extensions
of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to the Bank of
making, Converting into, Continuing, or maintaining any Fixed Rate Loans
or to reduce any sum received or receivable by the Bank under this Agreement or
the Note with respect to any Fixed Rate Loans, then the Borrower shall pay to
the Bank on demand such amount or amounts as will compensate the Bank for such
increased cost or reduction.
(b) If the Bank shall have determined that the adoption of any applicable
law, rule, or regulation regarding capital adequacy or any change therein or in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, has or would have the effect of reducing
the rate of return on the capital of the Bank or any corporation controlling
the Bank as a consequence of the Bank's obligations hereunder to a level below
that which the Bank or such corporation could have achieved but for such
adoption, change, request, or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by the Bank to be
material, then from time to time upon demand the Borrower shall pay to the Bank
such additional amount or amounts as will compensate the Bank for such
reduction.
(c) A certificate of the Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of clearly demonstrable error. In determining
such amount, the Bank may use any reasonable averaging and attribution methods.
SECTION 3.02. Limitation on Types of Loans. If on or prior to the first
day of any Interest Period for any Eurodollar Loan :
(a) the Bank determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate
and reasonable means do not exist for ascertaining the Eurodollar Rate ,
as the case may be, for such Interest Period; or
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(b) the Bank determines (which determination shall be conclusive)
that the Adjusted Eurodollar Rate will not adequately and fairly reflect
the cost to the Bank of funding Eurodollar Loans or, as the case may be,
for such Interest Period;
then the Bank shall give the Borrower prompt notice thereof specifying the
relevant Type of Loans and the relevant amounts or periods, and so long as such
condition remains in effect, the Bank shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected Type, either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.
SECTION 3.03. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Bank to make, maintain,
or fund Eurodollar Loans hereunder, then the Bank shall promptly notify the
Borrower thereof and the Bank's obligation to make or Continue Eurodollar Loans
and to Convert other Types of Loans into Eurodollar Loans shall be suspended
until such time as the Bank may again make, maintain, and fund Eurodollar Loans
and the Borrower shall, on the last day of the Interest Period for each
outstanding Eurodollar Loan (or earlier, if required by law), either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
SECTION 3.04. Compensation. Upon the request of the Bank, the Borrower
shall pay to the Bank such amount or amounts as shall be sufficient (in the
reasonable opinion of the Bank) to compensate it for any loss, cost, or expense
incurred by it as a result of:
(a) any payment, prepayment or Conversion of a Fixed Rate Loan for
any reason (including, without limitation, the acceleration of the Loans
pursuant to Section 7.02) on a date other than the last day of an
Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article
IV to be satisfied) to borrow, Convert, Continue, or prepay a Fixed Rate
Loan on the date for such borrowing, Conversion, Continuation, or
prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include any loss, cost, or expense incurred in obtaining, liquidating, or
employing deposits from third parties (including loss of margin).
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SECTION 3.05 Taxes. (a) Any and all payments by the Borrower to or for
the account of the Bank hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any and all present or future
taxes, duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Bank, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which the Bank is organized or any political subdivision
thereof (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Loan Document to the Bank,
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 3.05) the Bank receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions, (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law, and (iv) the Borrower shall furnish to the Bank, at its address referred
to in Section 8.06, the original or a certified copy of a receipt evidencing
payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made hereunder or under
any other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").
(c) The Borrower agrees to indemnify the Bank for the full amount of Taxes
and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this Section
3.05) paid by the Bank and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto.
ARTICLE IV
CONDITIONS
SECTION 4.01. Initial Loan. The obligation of the Bank to make the
initial Loan hereunder is subject to the satisfaction of the following
conditions:
(a) receipt by the Bank of the duly executed Note, complying with
the provisions of Section 2.03, and such other Loan Documents as the Bank
may reasonably request;
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(b) receipt by the Bank of an opinion of counsel for the Loan
Parties, substantially in the form of Exhibit B and covering such
additional matters as the Bank may reasonably request; and
(c) receipt by the Bank of all documents that the Bank may request
relating to the existence of the Loan Parties, the authorization for and
the validity of the Loan Documents, and any other matters relevant
thereto, all in form and substance satisfactory to the Bank.
SECTION 4.02. Each Loan. The obligation of the Bank to make any Loan
(including the initial Loan) is subject to the satisfaction of the following
conditions precedent:
(a) receipt by the Bank of a notice of borrowing in accordance with
Section 2.06;
(b) the fact that immediately after the making of such Loan, the
aggregate outstanding principal amount of the Loans will not exceed the
amount of the Commitment;
(c) the fact that, immediately before and after such Loan, no
Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true
and correct on and as of the date of such Loan.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such borrowing that the conditions precedent
specified in clauses (b), (c), and (d) of this Section have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower represents
and warrants to the Bank that:
SECTION 5.01. Existence. The Borrower and each Subsidiary (a) is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization; and (b) has the requisite power and authority
and legal right to own its assets and carry on its business as now being or as
proposed to be conducted. The Borrower has the power, authority, and legal
right to execute, deliver, and perform its obligations under the Loan
Documents.
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SECTION 5.02. Financial Statements. The Financial Statements are
complete and correct, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and fairly and accurately
present the financial condition of the Borrower and the Subsidiaries as of the
respective dates indicated therein and the results of operations for the
respective periods indicated therein. Since the effective date of the
Financial Statements, no event or condition has occurred that could have a
Material Adverse Effect.
SECTION 5.03. Authorization; No Breach. The execution, delivery, and
performance by the Borrower of the Loan Documents to which it is a party and
compliance with the terms and provisions thereof have been duly authorized by
all requisite action on the part of the Borrower and do not and will not (a)
violate or conflict with, or result in a breach of, or require any consent
under (i) the articles of incorporation, bylaws, or other organizational
documents of the Borrower or any of the Subsidiaries, (ii) any applicable law,
rule, or regulation or any order, writ, injunction, or decree of any
Governmental Authority or arbitrator, or (iii) any agreement or instrument to
which the Borrower or any of the Subsidiaries is a party or by which any of
them or any of their property is bound or subject, or (b) constitute a default
under any such agreement or instrument.
SECTION 5.04. Litigation. There is no action, suit, investigation, or
proceeding before or by any Governmental Authority or arbitrator pending, or to
the knowledge of the Borrower, threatened against or affecting the Borrower or
any Subsidiary, that could, if adversely determined, have a Material Adverse
Effect.
SECTION 5.05. Enforceability. This Agreement constitutes, and the other
Loan Documents when executed and delivered by the Borrower shall constitute,
the legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms, except as limited by
applicable Debtor Relief Laws and general principles of equity.
SECTION 5.06. Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower
of any of the Loan Documents to which it is a party or for the validity or
enforceability thereof.
SECTION 5.07. Disclosure. No statement, information, report,
representation, or warranty made by the Borrower in any Loan Document or
furnished to the Bank in connection with any Loan Document contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading.
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ARTICLE VI
COVENANTS
The Borrower agrees that, so long as the Bank has any Commitment hereunder
or any amount payable under the Note remains unpaid:
SECTION 6.01. Information. The Borrower shall deliver to the Bank:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower a consolidated balance sheet of
the Borrower and the Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income and cash flows for such
fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all prepared in accordance with generally
accepted accounting principles applied on a consistent basis and
certified by independent public accountants of nationally recognized
standing;
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the
Borrower a consolidated balance sheet of the Borrower and the
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for such quarter and for the portion
of the Borrower's fiscal year ended at the end of such quarter, setting
forth in each case in comparative form the figures for the corresponding
quarter and the corresponding portion of the Borrower's previous fiscal
year, all in reasonable detail and duly certified (subject to normal
year-end adjustments) by the chief financial officer of the Borrower as
having been prepared in accordance with generally accepted accounting
principles applied on a consistent basis;
(c) at the time of delivery of the financial statements provided for
in Sections 6.01(a) and(b) hereof, a certificate of an authorized
financial officer of each of the Borrowers to the effect that such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and that
such Borrower is in compliance with the terms of the Credit Agreement
and the other Loan Documents and no Default or Event of Default exists,
or if any Default or Event of Default does exist specifying the nature
and extent thereof and what action such Borrower proposes to take with
respect thereto. In addition, such officer's certificate shall
demonstrate compliance of the financial covenants contained in Sections
6.02, 6.03, 6.04, and 6.05 by calculation thereof as of the end of each
such fiscal period.
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(d) within the period for delivery of the annual financial
statements provided in Section 6.01 (a), a certificate of the accountants
conducting the annual audit stating that they have reviewed this Credit
Agreement and stating further whether, in the course of their audit, they
have become aware of any Default or Event of Default (insofar as any such
terms or provisions pertain to accounting matters) and, if any such
Default or Event of Default exists, specifying the nature and extent
thereof.
(e) within three (3) days after any officer of the Borrower obtains
knowledge of any Default, a certificate of the chief financial officer of
the Borrower setting forth the details thereof and any action that the
Borrower is taking or proposes to take with respect thereto; and
(f) from time to time such additional information regarding the
financial condition or business of the Borrower and the Subsidiaries as
the Bank may reasonably request.
SECTION 6.02. Current Ratio.
The Borrower shall maintain a ratio of Current Assets to Current Liabilities of
not less than 1.0 to 1.0.
SECTION 6.03. Minimum Tangible Net Worth.
The Borrower shall maintain at all times Tangible Net Worth of at least
$14,000,000, provided, however, on December 31, 1996 and the last day of each
fiscal year thereafter such required amount shall be increased by an amount
that is the greater of $2,000,000 or 50% of the net income of the Borrowers
for the fiscal year then ending, with such increases to be cumulative.
SECTION 6.04. Maximum Funded Liabilities to Tangible Net Worth.
The Borrower shall maintain a ratio of total Funded Liabilities to Tangible Net
Worth of not more than .75 to 1.0.
SECTION 6.05. Maximum Funded Liabilities to Consolidated EBITDA Ratio
The Borrower shall maintain a ratio of Funded Liabilities to Consolidated
EBITDA of not more than 2.0 to 1.0 for the fiscal year ending December 31,
1996.
SECTION 6.06. Obligations. The Borrower shall, and shall cause each of
the Subsidiaries to:
(a) preserve and maintain all of its rights, privileges, and
franchises necessary or desirable in the normal conduct of its business;
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(b) comply with the requirements of all applicable laws, rules,
regulations, and orders of Governmental Authorities;
(c) pay and discharge when due all taxes, assessments, and
governmental charges or levies imposed on it or on its income or profits
or any of its property, except for any such tax, assessment, charge, or
levy the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained;
(d) maintain all of its properties owned or used in its business in
good working order and condition ordinary wear and tear excepted;
(e) permit representatives of the Bank, during normal business
hours, to examine, copy, and make extracts from its books and records, to
inspect its properties, and to discuss its business and affairs with its
officers, directors, and accountants; and
(f) maintain insurance in such amounts, with such deductibles, and
against such risks as is customary for similarly situated businesses.
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default. Each of the following shall constitute
an "Event of Default":
(a) the Borrower shall fail to pay when due any principal of or
interest on any Loan, or any Loan Party shall fail to pay when due any
other amount payable under any Loan Document.
(b) any representation, warranty, certification, or statement made
or deemed made by any Loan Party (or any of its officers) in any Loan
Document or in any certificate, financial statement, or other document
delivered pursuant thereto shall be false, misleading, or incorrect in
any material respect when made or deemed made.
(c) the Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in Section 6.01 of this Agreement.
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(d) any Loan Party shall fail to perform, observe, or comply with
any other covenant, agreement, or term contained in any Loan Document
(other than a failure covered elsewhere in this Section 7.01) and such
failure shall continue for a period of thirty (30) days after notice
thereof to such Loan Party by the Bank.
(e) any Loan Party or any Subsidiary shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due.
(f) any voluntary or involuntary proceeding under any Debtor Relief
Law shall be commenced by or against any Loan Party or any Subsidiary or
any of their respective assets, and if an involuntary proceeding is
commenced, such proceeding shall not be dismissed within thirty (30) days
after the commencement thereof.
(g) any Loan Party or any Subsidiary shall fail to pay when due any
principal of or interest on any indebtedness for borrowed money (other
than the Note) having an outstanding principal amount greater than
$250,000, whether as principal obligor, guarantor, or otherwise, or the
maturity of any such indebtedness shall have been accelerated, or any
event shall have occurred that permits (or, with the giving of notice or
lapse of time or both, would permit) any holder or holders of such
indebtedness or any Person acting on behalf of such holder or holders to
accelerate the maturity thereof.
(h) any judgment or order for the payment of money in excess of
$250,000 shall be rendered against any Loan Party or any Subsidiary and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect.
(i) any Loan Party shall dissolve, liquidate, or terminate its legal
existence or shall convey, transfer, lease, or dispose of (whether in one
transaction or a series of transactions) all or substantially all of its
assets to any Person.
(j) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) of
20% or more of the outstanding shares of common stock of the Borrower; or
during any period of 12 consecutive calendar months, individuals who were
directors of the Borrower on the first day of such period shall cease to
constitute a majority of the board of directors of the Borrower.
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(k) any event or condition shall occur that could reasonably be
expected to have a Material Adverse Effect.
SECTION 7.02. Remedies. If any Event of Default shall occur and be
continuing, the Bank may do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued
and unpaid interest on the Note and all other amounts payable by the
Borrower under the Loan Documents immediately due and payable, and the
same shall thereupon become immediately due and payable, without
presentment, demand, protest, notice of acceleration, notice of intent to
accelerate, or other notices or formalities of any kind, all of which are
hereby expressly waived by the Borrower.
(b) Termination of Commitment. Terminate the Commitment without
notice to the Borrower.
(c) Rights. Exercise any and all rights and remedies afforded by
applicable law or otherwise.
Notwithstanding the foregoing, upon the occurrence of an Event of Default under
Section 7.01(f), the Commitment shall automatically terminate, and the
outstanding principal of and accrued and unpaid interest on the Note and all
other amounts payable by the Borrower under the Loan Documents shall thereupon
become immediately due and payable without presentment, demand, protest, notice
of acceleration, notice of intent to accelerate, or other notices or
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Expenses. The Borrower shall on demand pay or reimburse
the Bank for paying (a) all reasonable costs and expenses of the Bank,
including the fees and disbursements of counsel for the Bank (including the
allocated cost of internal counsel), in connection with the administration of
the Loan Documents, the preparation of any waiver or consent thereunder or any
amendment thereof or any Default or alleged Default and (b) if an Event of
Default occurs, all costs and expenses incurred by the Bank, including the
fees and disbursements of counsel (including the allocated cost of internal
counsel), in connection with such Event of Default and any collection,
bankruptcy, insolvency, and other enforcement proceedings resulting therefrom.
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SECTION 8.02. INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY THE BANK
AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS (EACH AN "INDEMNIFIED PERSON") FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES, INCLUDING ALL FEES
AND DISBURSEMENTS OF COUNSEL (INCLUDING THE ALLOCATED COST OF INTERNAL
COUNSEL) (COLLECTIVELY THE "INDEMNIFIED LIABILITIES"), WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO ANY LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY, BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT CAUSED
BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PERSON.
WITHOUT LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH INDEMNIFIED PERSON SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL INDEMNIFIED LIABILITIES
ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE
INDEMNIFIED PERSON.
SECTION 8.03. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank
(or any of its affiliates) to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing under the Loan Documents, irrespective of whether the Bank shall have
made any demand under the Loan Documents and although such obligations may be
unmatured. The Bank agrees promptly to notify the Borrower after any such
set-off and application made by the Bank; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) that the Bank may have.
SECTION 8.04. No Waiver; Cumulative Remedies. No failure on the part of
the Bank to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power, or privilege under any Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in the Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
SECTION 8.05. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations hereunder without the prior written consent of the
Bank. The Bank may at any time and from time to time (a) grant participating
interests in the
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Commitment and the Loans to any Person(s), and (b) assign all or any portion
of its rights and/or obligations under the Loan Documents to any Person(s);
provided, that the Bank may not assign its Commitment to any Person (other
than an affiliate of the Bank) without the prior written consent of the
Borrower. All information provided by the Borrower to the Bank may be
furnished by the Bank to its affiliates and to any actual or proposed assignee
or participant.
SECTION 8.06. Amendments. No amendment or waiver of any provision of any
Loan Document to which the Borrower is a party, nor any consent to any
departure by the Borrower therefrom, shall be effective unless the
same shall be agreed or consented to in writing by the Bank and the Borrower,
and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8.07. Notices. All notices, requests, and other communications
to either party hereunder shall be in writing (including facsimile
transmission) and shall be given to such party at its address or facsimile
number set forth on the signature pages hereof. Each such notice, request, or
other communication shall be effective (i) if given by facsimile transmission,
when transmitted to the facsimile number referred to in this Section and
confirmation of receipt is received, (ii) if given by mail, three (3) Business
Days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered at the address referred to in this Section; provided that
notices to the Bank shall not be effective until received.
SECTION 8.08. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.09. Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
SECTION 8.10. Controlling Agreement. Notwithstanding anything to the
contrary contained in any Loan Document, the interest paid or agreed to be paid
under the Loan Documents shall not exceed the maximum rate of non-usurious
interest permitted by applicable law (the "Maximum Rate"). If the Bank shall
receive interest in an amount that exceeds the Maximum Rate, the excessive
interest shall be applied to the principal of the Loans or, if it exceeds the
unpaid principal, refunded to the Borrower. In determining whether the
interest contracted for, charged, or received by the Bank exceeds the Maximum
Rate, the Bank may, to the extent permitted by applicable law, (a) characterize
any payment that is not principal as an expense, fee, or premium rather than
interest, (b)
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exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the contemplated term of the Loans.
SECTION 8.11. Survival. All representations and warranties made or
deemed made by the Borrower in the Loan Documents shall survive the execution
and delivery thereof and the making of the Loans, and no investigation by the
Bank or any closing shall affect the representations and warranties by the
Borrower or the right of the Bank to rely upon them. Without prejudice to the
survival of any other obligation of the Borrower hereunder, the obligations of
the Borrower under Article III and Sections 8.01 and 8.02 shall survive
repayment of the Note and termination of the Commitment.
SECTION 8.12. Governing Law. This Agreement and the Note shall be
governed by and construed in accordance with, the law of the State where the
Principal Office is located and the applicable laws of the United States of
America. The Borrower hereby submits to the nonexclusive jurisdiction of the
United States District Court and each state court in the city where the
Principal Office is located for the purposes of all legal proceedings arising
out of or relating to any of the Loan Documents or the transactions
contemplated thereby. The Borrower irrevocably consents to the service of any
and all process in any such action or proceeding by the mailing of copies of
such process to the Borrower at its address set forth underneath its signature
hereto. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 8.13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
SECTION 8.14. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
25
<PAGE> 30
26
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWERS:
VARSITY SPIRIT CORPORATION
By:
Title:
VARSITY SPIRIT FASHIONS AND SUPPLIES, INC.
By:
Title:
VARSITY/INTROPA TOURS, INC.
By:
Title:
Address for Notices:
2525 Horizon Lake Drive, #1
Memphis, TN 38133
Facsimile No.: 901-387-4356
Attention: John Nichols
BANK:
NATIONSBANK, N.A.
By:
Title:
27
<PAGE> 32
Address for Notices:
One NationsBank Plaza, 5th Floor
Nashville, TN 37239
Facsimile No.: 615-749-4640
Attention: John E. Ball
28
<PAGE> 33
EXHIBIT A
PROMISSORY NOTE
$9,000,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, VARSITY SPIRIT CORPORATION and
VARSITY SPIRIT FASHIONS AND SUPPLIES, INC., both Tennessee Corporations and
VARSITY/INTROPA TOURS, INC. a _________________ corporation (the "Borrowers"),
hereby promises to pay to the order of NATIONSBANK, N.A. (the "Bank"), at the
Principal Office, in lawful money of the United States of America and in
immediately available funds, the principal amount of NINE MILLION AND
NO/100---------------- Dollars ($9,000,000) or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Bank to
the Borrower under the Credit Agreement referred to below, on the dates and in
the principal amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Loan, at such office, in like money
and funds, for the period commencing on the date of such Loan until such Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Credit Agreement.
The books and records of the Bank shall be prima facie evidence of all
amounts outstanding hereunder.
This Note is the Note referred to in the Credit Agreement of even date
herewith, between the Borrower and the Bank (such Credit Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Credit Agreement"), and evidences Loans made by the Bank
thereunder. The Credit Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and for prepayments of Loans prior to the maturity of this Note upon the
terms and conditions specified in the Credit Agreement. Capitalized terms used
in this Note have the respective meanings assigned to them in the Credit
Agreement.
1
<PAGE> 34
This Note shall be governed by and construed in accordance with the laws
of the State where the Principal Office is located and the applicable laws of
the United States of America.
VARSITY SPIRIT CORPORATION
By:
Title:
VARSITY SPIRIT FASHIONS AND SUPPLIES, INC.
By:
Title:
VARSITY/INTROPA TOURS, INC.
By:
Title:
2
<PAGE> 35
EXHIBIT B
OPINION OF
COUNSEL FOR THE LOAN PARTIES
JULY 1, 1996
To NationsBank, N.A.
One NationsBank Plaza, 5th Floor
Nashville, TN 37239
Gentlemen:
We have acted as counsel for VARSITY SPIRIT CORPORATION and VARSITY SPIRIT
FASHIONS AND SUPPLIES, INC., both Tennessee Corporations and VARSITY/INTROPA
TOURS, INC. a ________________ corporation (the "Borrowers"), in connection
with the Credit Agreement (the "Credit Agreement") dated as of July 1, 1996,
between the Borrower and NationsBank, N.A. (the "Bank"). Terms defined in the
Credit Agreement are used herein as therein defined. This opinion is being
rendered to you at the request of the Borrower pursuant to Section 4.01(b) of
the Credit Agreement.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials, and other instruments and have conducted such other investigations
of fact and law as we have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. Each Loan Party is duly organized, validly existing and in good
standing under the laws of the State of its organization and has all corporate
powers and all governmental licenses, authorizations, consents, and approvals
required to carry on its business as now conducted.
<PAGE> 36
2. The execution, delivery, and performance by each Loan Party of the Loan
Documents to which it is a party and compliance with the terms and provisions
thereof do not and will not (a) violate any provision of the charter, by-laws,
or other organizational documents of such Loan Party, (b) violate any
applicable law, rule, or regulation, (c) violate any order, writ, injunction,
or decree of any Governmental Authority or arbitral award applicable to such
Loan Party, or (d) result in a breach of, constitute a default under, require
any consent under, or result in the acceleration or require prepayment of any
indebtedness pursuant to the terms of any agreement or instrument to which such
Loan Party is a party or by which it is bound, or result in the creation or
imposition of any lien or other encumbrance upon any property of such Loan
Party pursuant to the terms of any such agreement or instrument.
3. The Loan Documents have been duly executed and delivered by the Loan
Parties, constitute the valid and binding obligations of the Loan Parties, and
are enforceable against the Loan Parties in accordance with their respective
terms, except as the enforceability thereof may be limited by applicable
Debtor Relief Laws and general principles of equity.
4. There is no action, suit, or proceeding pending against, or to the best
of our knowledge threatened against or affecting, any Loan Party or Subsidiary
before any arbitrator or Governmental Authority in which an adverse decision
could have a Material Adverse Effect or which in any manner draws into question
the validity or enforceability of any Loan Document.
5. No authorization, consent, or approval of, or filing or registration
with, any Governmental Authority is required for the execution, delivery, or
performance by any Loan Party of the Loan Documents to which it is a party or
for the validity or enforceability thereof.
Very truly yours,
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