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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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VARSITY SPIRIT CORPORATION
(NAME OF SUBJECT COMPANY)
COMMON SHARES, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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922294 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JEFFREY G. WEBB
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VARSITY SPIRIT CORPORATION
2525 HORIZON LAKE DRIVE
MEMPHIS, TENNESSEE 38133
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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With a copy to:
GLENN W. REED, ESQ.
GARDNER, CARTON & DOUGLAS
321 NORTH CLARK STREET, SUITE 3300
CHICAGO, ILLINOIS 60610
(312) 644-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Varsity Spirit Corporation, a Tennessee
corporation (the 'Company'), and the address of the principal executive offices
of the Company is 2525 Horizon Lake Drive, Memphis, Tennessee 38133. The title
of the class of equity securities to which this statement relates is common
shares, par value $.01 per share, of the Company (the 'Common Shares').
ITEM 2. TENDER OFFER OF PURCHASER.
This statement relates to a cash tender offer by Cheer Acquisition Corp., a
Tennessee corporation ('Purchaser') and a wholly-owned subsidiary of Riddell
Sports Inc., a Delaware corporation ('Parent'), disclosed in a Tender Offer
Statement on Schedule 14D-1 (the 'Schedule 14D-1'), dated May 12, 1997, to
purchase all the outstanding Common Shares of the Company (the 'Shares') at a
price of $18.90, net to the seller in cash (the 'Offer Price'), upon the terms
and subject to the conditions set forth in the Offer to Purchase dated May 12,
1997 (the 'Offer to Purchase') and the related Letter of Transmittal (which
together constitute the 'Offer'). The Offer is conditioned upon, among other
things, there having been validly tendered and not withdrawn prior to the
expiration of the Offer a number of Shares representing at least a majority of
the outstanding Shares on a fully-diluted basis (the 'Minimum Condition').
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 5, 1997 (the 'Merger Agreement'), among Parent, Purchaser and the
Company. A copy of the Merger Agreement is filed as Exhibit (c)(1) hereto and is
incorporated herein by reference in its entirety. Pursuant to the Merger
Agreement, following the consummation of the Offer and the satisfaction or
waiver of certain conditions, the Purchaser will be merged with and into the
Company (the 'Merger') and the Company will continue as the surviving
corporation (the 'Surviving Corporation'). In the Merger, each outstanding Share
(other than Shares owned by the Purchaser or by shareholders, if any, who are
entitled to and who properly exercise dissenters' rights under Tennessee law)
will be converted into the right to receive an amount in cash equal to the price
per Share paid pursuant to the Offer, without interest thereon. The Merger
Agreement is summarized in Item 3 of this Statement. The Offer and the Merger
and the transactions contemplated thereby are sometimes collectively referred to
herein as the 'Transaction.'
Based on the information in the Offer to Purchase, the principal executive
offices of Parent and Purchaser are located at 900 Third Avenue, New York, New
York 10022.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as described or referred to below, there exists on the date
hereof no material contract, agreement, arrangement or understanding and no
actual or potential conflict of interest between the Company or its affiliates
and (i) the Company's executive officers, directors or affiliates or (ii) the
Parent, the Purchaser or the executive officers, directors or affiliates of the
Parent or the Purchaser.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
Certain contracts, agreements, arrangements or understandings between the
Company and certain of its executive officers and directors are described under
the captions 'Executive Compensation' and 'Certain Transactions Between
Management and the Company' on pages I-5 through I-8 of the Company's
Information Statement Pursuant to Section 14(f) of the Securities Exchange Act
of 1934 and Rule 14f-1 thereunder (the 'Information Statement'), which is
attached hereto as Schedule I.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Company's Amended and
Restated Charter limits the liability of its directors and officers to the
fullest extent permitted by the Tennessee Business Corporation Act ('TBCA'). The
TBCA provides in certain situations for mandatory and permissive indemnification
of directors and officers. The TBCA also provides that the statutory
indemnification is not deemed to be exclusive of any other right to which a
director seeking indemnification may be entitled. Specifically, directors and
officers of the Company are entitled to indemnification for monetary damages or
reasonable expenses incurred in a proceeding
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unless a final adjudication adverse to the director or officer establishes his
liability for (i) any breach of the duty of loyalty to the Company or its
shareholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law or (iii) unlawful
distributions. 'Proceeding' means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal. Under the TBCA, the Company may indemnify a
director, officer or employee against liability incurred in a proceeding if (i)
the individual's conduct was in good faith; and (ii) the individual reasonably
believed: (A) in the case of conduct in the individual's official capacity with
the Company, that the individual's conduct was in the Company's best interest;
and (B) in all other cases, that the individual's conduct was at least not
opposed to the Company's best interest; and (iii) in the case of a criminal
proceeding, the individual had no reasonable cause to believe the individual's
conduct was unlawful.
The Company's Amended and Restated Charter requires the Company to provide
indemnification for its directors and officers to the fullest extent permitted
by the TBCA. The Company's Amended and Restated Charter also provides that the
Company may indemnify employees and agents of the Company to the same extent as
it provides indemnification to its directors and officers.
The Merger Agreement provides that, for a period of six years after the
effective time of the Merger (the 'Effective Time'), the Surviving Corporation
shall indemnify, defend and hold harmless to the full extent permitted by
Tennessee law, each person who was an officer or director of the Company (the
'Indemnified Parties'), against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement (with the approval of the indemnifying party) of or
in connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director or officer of the Company,
whether pertaining to any matter existing or occurring at or prior to the
closing of the Merger and whether asserted or claimed prior to, or at or after,
the Effective Time, including indemnified liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby. The Surviving Corporation will pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the full extent permitted by law.
For a period of six years after the Effective Time, Parent shall cause to
be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company (provided that Parent may
substitute therefor policies of a least the same coverage and amounts containing
terms and conditions which are no less advantageous in any material respect to
the Indemnified Parties) with respect to matters arising before the Effective
Time, provided that Parent shall not be required to pay an annual premium for
such insurance in excess of 150% of the last annual premium paid by the Company
prior to the date of the Merger Agreement, but in such case shall purchase as
much coverage as possible for such amount.
SUMMARIES OF AGREEMENTS
Parent requested, as an inducement for Parent and Purchaser to enter into
the Merger Agreement, that certain affiliates of the Company enter into several
new agreements. The following are summaries of certain provisions of the Merger
Agreement, the Shareholders Agreement (as hereinafter defined), the Stock
Purchase Agreements (as hereinafter defined) and the Employment Agreements (as
hereinafer defined). The summaries are qualified in their entirety by reference
to the respective agreements, each of which are incorporated herein by reference
and a copy of each of which has been filed with the Commission as an exhibit to
this Schedule 14D-9.
THE MERGER AGREEMENT
THE OFFER. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The Merger Agreement provides that, without the
written consent of the Company, the Purchaser will not decrease the Offer Price,
decrease the number of Shares sought in the Offer, amend or waive the Minimum
Condition, or amend any condition of the Offer in a manner adverse to the
holders of Shares. Notwithstanding the satisfaction of the conditions of the
Offer on the Initial Expiration Date, which shall be 20 business days after the
date the Offer is commenced, the Purchaser shall have the right, in its sole
discretion, during the fifteen business days following the Initial Expiration
Date, to extend the expiration
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date from time to time until not later than fifteen business days after the
Initial Expiration Date. The Purchaser will, on the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer, accept for payment
and pay for Shares tendered as soon as it is legally permitted to do so under
applicable law; provided, however, that if, immediately prior to the Initial
Expiration Date of the Offer (as it may be extended pursuant to the preceding
sentence or otherwise), the Shares tendered and not withdrawn pursuant to the
Offer equal less than 90% of the outstanding Shares but more than 80% of the
outstanding Shares, the Purchaser may extend the Offer for a period not to
exceed seven business days, notwithstanding that all conditions to the Offer are
satisfied as of such expiration date of the Offer.
THE MERGER. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Tennessee law, as soon as practicable following the Effective Time, the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease and the Company
will continue as the Surviving Corporation.
The respective obligations of Parent and the Purchaser, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions, any and all of which may be
waived in whole or in part, to the extent permitted by applicable law: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law, in order to consummate the
Merger; (ii) no statute, rule or regulation shall have been enacted or
promulgated by any government or any governmental agency or authority of
competent jurisdiction which prohibits the consummation of the Merger, and there
shall be no order or injunction of a court of competent jurisdiction in effect
precluding consummation of the Merger; and (iii) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer, unless such
failure to purchase is as a result of a breach of Parent's or the Purchaser's
obligations under the Merger Agreement.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock, any Shares
owned by Parent, the Purchaser or any other wholly-owned subsidiary of Parent,
or any Shares which are held by shareholders exercising dissenters' rights under
Tennessee law) will be converted into the right to receive the price per share
paid pursuant to the Offer (the 'Merger Consideration'), and (ii) each issued
and outstanding share of the Purchaser will be converted into one share of
common stock of the Surviving Corporation.
THE BOARD OF DIRECTORS OF THE COMPANY. The Merger Agreement provides that,
upon the purchase and payment by Parent or the Purchaser of Shares representing
at least a majority of the outstanding Shares on a fully diluted basis, Parent
shall be entitled to designate such number of directors on the Board of
Directors of the Company which represents a percentage of the Board of Directors
of the Company equaling the percentage of Shares purchased. If requested by
Parent, the Company shall cause such persons designated by Parent to constitute
at least the same percentage of each committee of the Board of Directors of the
Company and each board of directors of each subsidiary of the Company.
The Merger Agreement further provides that, in the event that Parent's
designees are elected to the Board of Directors of the Company prior to the
Effective Time of the Merger, until the Effective Time of the Merger the Board
of Directors of the Company shall have at least two directors who are directors
as of the date of the Merger Agreement. In such event, the affirmative vote of a
majority of the directors not designated by Parent shall be required to (i)
amend or terminate the Merger Agreement, (ii) exercise or waive any of the
Company's rights, benefits or remedies under the Merger Agreement, or (iii) take
any other action by the Board of Directors of the Company under or in connection
with the Merger Agreement.
SHAREHOLDERS' MEETING. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its shareholders (the 'Special
Meeting') as promptly as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger and the adoption of the Merger
Agreement. The Merger Agreement further provides that the Company will, if
required by applicable law in order to consummate the Merger, prepare and file
with the Securities and Exchange Commission (the 'Commission') a preliminary
proxy or information statement (the 'Proxy Statement') relating to the Merger
and the Merger Agreement and use its best efforts (i) to obtain and furnish the
information required to be included by the Commission in the Proxy Statement
and, after consultation
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with Parent, to respond promptly to any comments made by the Commission with
respect to the preliminary Proxy Statement and cause a definitive Proxy
Statement to be mailed to its shareholders, provided that no amendment or
supplement to the Proxy Statement will be made by the Company without
consultation with Parent and its counsel and (ii) to obtain the necessary
approvals of the Merger and the Merger Agreement by its shareholders. If the
Purchaser acquires at least a majority of the outstanding Shares, the Purchaser
will have sufficient voting power to approve the Merger, even if no other
shareholders vote in favor of the Merger. Pursuant to the Merger Agreement, the
Company has agreed to include in the Proxy Statement the recommendation of the
Board of Directors of the Company that shareholders of the Company vote in favor
of the approval of the Merger and the adoption of the Merger Agreement. Parent
has agreed that it will vote, or cause to be voted, all of the Shares then owned
by it, the Purchaser or any of its other subsidiaries and affiliates in favor of
the approval of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that, in the event that Parent, the Purchaser
or any other subsidiary of Parent acquires at least 90% of the outstanding
Shares, pursuant to the Offer or otherwise, Parent, the Purchaser and the
Company will, at the request of Parent and subject to the terms of the Merger
Agreement, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of shareholders of the Company, in accordance with Tennessee law.
OPTIONS. Pursuant to the Merger Agreement, on the expiration date of the
Offer, and immediately prior to the Purchaser's acceptance of tenders to
purchase Shares pursuant to the Offer, each outstanding employee stock option to
purchase Shares (a 'Company Option') granted under the Company's 1991 Stock
Option Plan and the 1989 Non-qualified Stock Option Plan (collectively, 'Option
Plans'), shall be surrendered to the Company and shall be forthwith cancelled
and the Company shall pay to each holder of a Company Option, by check, an
amount equal to (i) the product of the number of the Shares which are issuable
upon exercise of such Company Option, multiplied by the Offer Price, less (ii)
the aggregate exercise price of such Company Option. Except as may be otherwise
agreed to by Parent or the Purchaser and the Company, the Company's Option Plans
shall terminate as of the Effective Time and the provisions in any other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any of its subsidiaries shall
be deleted as of the Effective Time and no holder of Company Options or any
participant in the Option Plans or any other plans, programs or arrangements
shall have any rights thereunder to acquire any equity securities of the
Company, the Surviving Corporation or any subsidiary thereof.
Pursuant to the Merger Agreement, effective as of the Effective Time and
subject to any required shareholder approval necessary to effectuate the
following grants, Parent shall grant options to acquire an aggregate of 500,000
shares of common stock of Parent ('Parent Options') to certain employees of the
Company. The Parent Options shall be subject to the terms and conditions set
forth in the applicable option plan of Parent (as the same may be amended) and
the applicable option agreement.
INTERIM OPERATIONS. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated by the Merger Agreement or agreed
to in writing by Parent, prior to the time the directors of the Purchaser
constitute a majority of the Board of Directors of the Company (the 'Board
Appointment Date'), the business of the Company and its subsidiaries will be
conducted only in the ordinary and usual course and to the extent consistent
therewith, each of the Company and its subsidiaries will use its best reasonable
efforts to preserve its business organization intact and maintain its existing
relations with customers, suppliers, employees, creditors and business partners,
and (a) the Company will not, directly or indirectly, (i) issue, sell, transfer
or pledge or agree to sell, transfer or pledge any treasury stock of the Company
or any capital stock of any of its subsidiaries beneficially owned by it, except
upon the exercise of employee stock options outstanding on the date of the
Merger Agreement, (ii) amend its charter or by-laws or similar organizational
documents; or (iii) split, combine or reclassify the outstanding Shares or its
preferred stock or any outstanding capital stock of any of the subsidiaries of
the Company; and (b) neither the Company nor any of its subsidiaries shall (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock other than dividends paid by
subsidiaries of the Company to the Company or any of its subsidiaries in the
ordinary course of business; (ii) issue, sell, pledge, dispose of or encumber
any additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its subsidiaries, other
than Shares reserved for issuance on the date of the Merger Agreement pursuant
to the exercise of Company Options outstanding on the
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date of the Merger Agreement; (iii) transfer, lease, license, sell, mortgage,
pledge, dispose of, or encumber any assets other than in the ordinary and usual
course of business and consistent with past practice, or incur or modify any
indebtedness or other liability, other than in the ordinary and usual course of
business and consistent with past practice; (iv) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock; (v) grant any increase
in the compensation payable or to become payable by the Company or any of its
subsidiaries to any of its executive officers or adopt any new or amend or
otherwise increase or accelerate the payment or vesting of the amounts payable
or to become payable under any existing bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement; (vi) enter into any employment or severance agreement with or,
except in accordance with the existing written policies of the Company, grant
any severance or termination pay to any officer, director or employee of the
Company or any of its subsidiaries, except as permitted under the Merger
Agreement with respect to seasonal employees; (vii) permit any insurance policy
naming it as a beneficiary or a loss payable payee to be cancelled or terminated
without notice to Parent, except in the ordinary course of business and
consistent with past practice; (viii) enter into any contract or transaction
relating to the purchase of assets other than in the ordinary course of business
consistent with prior practices; (ix) change any of the accounting methods used
by it unless required by generally accepted accounting principles ('GAAP'), make
any material tax election except in the ordinary course of business consistent
with past practice; change any material tax election already made, adopt any
material tax accounting method except in the ordinary course of business
consistent with past practice; change any material tax accounting method unless
required by GAAP; enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment; (x) other than
indebtedness incurred in connection with the cancellation and payment of Company
Options, incur or assume any long-term debt; incur or assume any short-term
indebtedness except in the ordinary course of business and consistent with past
practice and in an aggregate amount not to exceed $5,000,000; assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; make any
loans, advances or capital contributions to, or investment in, any other person
(other than to wholly-owned subsidiaries of the Company or customary loans or
advances to employees in accordance with past practice); enter into any material
commitment or transaction (including, but not limited to, any borrowing, capital
expenditure or purchase, sale or lease of assets); (xi) settle or compromise any
claim, lawsuit, liability or obligation; pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligation (a) to the extent reflected or
reserved against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of the Company and its consolidated subsidiaries, (b)
incurred in the ordinary course of business and consistent with past practice or
(c) which are legally required to be paid, discharge or satisfied; (xii) take,
or agree to commit to take, any action that would make any representation or
warranty of the Company contained in the Merger Agreement inaccurate in any
respect at, or as of any time prior to, the Effective Time; (xiii) take any
action with the intent of causing any of the conditions to the Offer set forth
in Annex A to the Merger Agreement to not be satisfied; or (xvi) enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
NO SOLICITATION. Pursuant to the Merger Agreement, the Company has agreed
that neither the Company nor any of its subsidiaries will (and the Company will
use its best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent, any of its affiliates or representatives) concerning any
proposal or offer to acquire all or a substantial part of the business and
properties of the Company or any of its subsidiaries or any capital stock of the
Company or any of its subsidiaries, whether by merger, tender offer, exchange
offer, sale of assets or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
'Acquisition Proposal'), except that the Company and the Board of Directors of
the Company are not prohibited from (i) taking and disclosing to the Company's
shareholders a position with respect to a tender or exchange offer by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or
(ii) making such disclosure to the Company's shareholders as, in the good faith
judgment of the Board, after receiving advice from outside counsel, is required
under applicable law, provided that the Company may not, except as described
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below, withdraw or modify, or propose to withdraw or modify, its position with
respect to the Offer or the Merger or approve or recommend, or propose to
approve or recommend, any Acquisition Proposal, or enter into any agreement with
respect to any Acquisition Proposal. The Company also agreed to immediately
cease any existing activities, discussions or negotiations with any parties
conducted prior to the date of the Merger Agreement with respect to any of the
foregoing. The Merger Agreement further provides that the Company, prior to the
acceptance of Shares pursuant to the Offer, may furnish information concerning
the Company and its subsidiaries to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group concerning an Acquisition Proposal if (i) such entity or group has on
an unsolicited basis submitted a bona fide written proposal to the Company
relating to any such transaction which the Board of Directors of the Company
determines in good faith, after consulting with a nationally recognized
investment banking firm, represents a superior transaction to the Offer and the
Merger and (ii) in the opinion of the Board of Directors of the Company, only
after receipt of advice from outside legal counsel, the failure to provide such
information or access or to engage in such discussions or negotiations would
reasonably be expected to cause the Board of Directors of the Company to violate
its fiduciary duties to the Company's shareholders under applicable law (an
Acquisition Proposal which satisfies the immediately foregoing clauses (i) and
(ii) is referred to in the Merger Agreement as a 'Superior Proposal'). The
Company has agreed that, following receipt of any proposal or inquiry received,
the Company will immediately notify Parent of the receipt of the same, the
identity of the party making such proposal or inquiry, and the terms (both
initial and modified) of any such proposal or inquiry (and will disclose any
written materials delivered in connection therewith), and the Company will keep
Parent reasonably informed of the status (including amendments or proposed
amendments) of any such proposal or inquiry. The Company will promptly provide
to Parent any material non-public information regarding the Company provided to
any other party which was not previously provided to Parent. At any time after
two business days following notification to Parent of its intent to do so (which
notification shall include the identity of the bidder and the material terms and
conditions of the proposal) and if permitted to do so pursuant to the terms of
the Merger Agreement, the Board of Directors of the Company may withdraw or
modify its approval or recommendation of the Offer and may enter into an
agreement with respect to a Superior Proposal, provided it shall concurrently
with entering into such agreement pay or cause to be paid to Parent the expense
reimbursement fee described below under '--Termination; Fees.' If the Company
has notified Parent of its intent to enter into an agreement with respect to a
Superior Proposal in compliance with the preceding sentence and has otherwise
complied with such sentence, the Company may enter into an agreement with
respect to such Superior Proposal (with the bidder and on terms no less
favorable than those specified in such notification) after the expiration of the
initial two business day period without any further notification.
INDEMNIFICATION AND INSURANCE. Pursuant to the Merger Agreement, for six
years after the Effective Time, the Surviving Corporation (or any successor to
the Surviving Corporation) shall indemnify, defend and hold harmless the present
and former officers and directors of the Company and its subsidiaries, and
persons who become any of the foregoing prior to the Effective Time, with
respect to matters occurring at or prior to the Effective Time to the full
extent required under Tennessee law, the terms of the Company's Charter or the
by-laws, as in effect as of the date of the Merger Agreement and, the terms of
any indemnification agreement entered into with the Company prior the date of
the Merger Agreement. The Merger Agreement also provides that Parent or the
Surviving Corporation will maintain the Company's existing officers' and
directors' liability insurance ('D&O Insurance') for a period of not less than
six years after the Effective Time; provided, that Parent may substitute
therefor policies of substantially equivalent coverage and amounts containing
terms no less favorable to such former directors or officers. Parent has also
agreed that if the existing D&O Insurance expires, is terminated or cancelled
during such period, Parent or the Surviving Corporation will use all reasonable
efforts to obtain substantially similar D&O Insurance, but in no event will it
be required to pay aggregate premiums for such insurance in excess of 150% of
the aggregate premiums paid in 1996 on an annualized basis for such purpose (the
'1996 Premium'). If Parent or the Surviving Corporation is unable to obtain the
amount of D&O Insurance required for such aggregate premium, Parent or the
Surviving Corporation has agreed to obtain as much insurance as can be obtained
for an annual premium not in excess of 150% of the 1996 Premium.
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REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Parent and the
Purchaser with respect to, among other things, its organization, capitalization,
authority, financial statements, need for consents or approvals, public filings,
conduct of business, employee benefit plans, intellectual property, employment
matters, compliance with laws, tax matters, litigation, environmental matters,
vote required to approve the Merger Agreement, undisclosed liabilities,
information in the Proxy Statement, the opinion of its financial advisor, and
the absence of any material adverse effect on the Company since December 31,
1996.
Pursuant to the Merger Agreement, Parent and the Purchaser have made
substantially similar representations and warranties as to their organization,
authority, need for consents or approvals, information contained in the Proxy
Statement, capitalization, financial statements, public filings, undisclosed
liabilities, litigation, as well as the Parent and Purchaser's ability to obtain
financing.
TERMINATION; FEES. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the shareholders of the Company, (a) by mutual consent of Parent and
the Company; (b) by either the Company or Parent (i) if the Offer shall have
expired without any Shares being purchased therein, provided that such right to
terminate will not be available to any party whose failure to fulfill any
obligation under the Merger Agreement was the cause of, or resulted in, the
failure of Parent or the Purchaser to purchase the Shares on or before such
date; (ii) if any governmental entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties will use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the acceptance for payment of,
or payment for, Shares pursuant to the Offer or the Merger and such order,
decree, ruling or other action shall have become final and non-appealable, or
(iii) if the Offer has not been consummated prior to September 5, 1997;
provided, that the right to terminate the Merger Agreement under this clause
(iii) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of Parent or the Purchaser, as the case may be, to purchase Shares
pursuant to the Offer on or prior to such date; (c) by the Company (i) if
Parent, the Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
public announcement of the Offer; provided, that the Company may not terminate
the Merger Agreement pursuant to this clause (i) if the Company is at such time
in breach of its obligations under the Merger Agreement such as to cause a
material adverse effect on the Company and its subsidiaries, taken as a whole;
(ii) in connection with entering into a definitive agreement with respect to an
Acquisition Proposal, provided it has complied with all of the provisions,
including the notice provisions, described above under 'No Solicitation,' and
that the Company (x) makes simultaneous payment of an amount equal to Parent's
good faith estimate of its expenses, and (y) acknowledges in writing its
obligation to promptly reimburse Parent for its actual expenses in excess of
such estimated expenses payment subject to the limitations described in the next
succeeding paragraph; or (iii) if Parent or the Purchaser shall have breached in
any material respect any of their respective representations, warranties,
covenants or other agreements contained in the Merger Agreement, which breach
cannot be or has not been cured, in all material respects, within 30 days after
the giving of written notice to Parent or the Purchaser, as applicable; (d) by
Parent (i) if, due to an occurrence, not involving a breach by Parent or the
Purchaser of their obligations under the Merger Agreement, which makes it
impossible to satisfy any of the conditions to the Offer, Parent, the Purchaser,
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer; (ii) if prior to the purchase of Shares pursuant to the Offer, the
Company has breached any representation, warranty, covenant or other agreement
contained in the Merger Agreement which (x) would give rise to the failure of
any of the conditions to the Offer, and (y) cannot be or has not been cured, in
all material respects, within 30 days after the giving of written notice to the
Company; or (iii) if either Parent or the Purchaser is entitled to terminate the
Offer as a result of (x) the withdrawal or adverse modification by the Company
of its approval or recommendation of the Offer, or (y) the Company entering into
an agreement with respect to a Superior Proposal.
In accordance with the Merger Agreement, if (x) the Company terminates the
Merger Agreement pursuant to clause (c)(ii) of the immediately preceding
paragraph, (y) Parent terminates the Merger Agreement pursuant to clause
(d)(iii) of the immediately preceding paragraph, or (z) either the Company or
Parent terminates the Merger Agreement pursuant to paragraph (b)(i) above, and
prior thereto there shall have been publicly announced an Acquisition Proposal,
the Company has agreed to pay to Parent an amount, not to exceed $4,250,000 in
the
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aggregate, equal to Parent's actual and reasonably documented out-of-pocket fees
and expenses incurred by Parent and Purchaser in connection with the Offer, the
Merger, the Merger Agreement and the consummation of the Transaction (including
the financing thereof).
In accordance with the Merger Agreement, the Company has agreed to pay
$650,000 of the commitment fee payable to the Bridge Lenders (as defined below)
pursuant to the Bridge Commitment Letter entered into between Parent,
NationsBridge, L.L.C. and NBD Bank (collectively, the 'Bridge Lenders') and any
amounts paid to the Bridge Lenders that may be refunded by the Bridge Lenders
shall be divided equally between Parent and the Company; provided that the
Company shall not be entitled to any refund in excess of $650,000.
TIMING. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent has agreed to cause
the Merger to be consummated on the terms set forth above, there can be no
assurance as to the timing of the Merger.
TENNESSEE LAW AND CERTAIN CHARTER PROVISIONS. The Board of Directors of
the Company under the Tennessee Business Corporation Act (the 'TBCA') has
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger. Furthermore, neither the Company's charter
or bylaws contain an express declaration that the provisions of the Tennessee
Control Share Acquisition Act (the 'TCSA') shall apply in connection with the
Merger. Therefore, the restrictions of Sections 48-35-205 and 48-35-301 do not
apply to the transactions contemplated by the Offer or the Merger Agreement.
Section 48-35-205 of the TBCA prevents an 'interested shareholder'
(generally, a shareholder owning 10% or more of the corporation's outstanding
voting stock or an affiliate or associate of the corporation who at any time in
the preceding five years owned 10% or more of a corporation's outstanding voting
stock) from engaging in a 'business combination' (defined to include a merger
and certain other transactions) with an issuing public corporation for a period
of five years following the date on which such shareholder became an interested
shareholder unless the business combination or the acquisition of shares made by
the interested shareholder on the interested shareholder's share acquisition
date is approved before the interested shareholder's share acquisition date, or
on the share acquisition date but prior to the interested shareholder's becoming
an interested shareholder on the share acquisition date by a majority of
disinterested directors.
Section 48-35-301 of the TBCA provides that the shares of an issuing public
corporation acquired by an acquiring person in a 'control share acquisition'
that exceeds the threshold of voting power of any of various ranges specified in
Section 48-35-302(4) shall be subject to restricted voting rights and may be
redeemable by the issuing public corporation. Section 48-35-301 is applicable
only if the Company's Charter or bylaws contain an express declaration that
control share acquisitions respecting the shares of the Company are governed by
the TCSA. As described above, Sections 48-35-205 and 48-35-301 of the TBCA do
not apply to the Offer or the Merger (or the transactions contemplated thereby).
The Company's Amended and Restated Charter requires the approval by the
holders of 80% of the votes to be cast by the holders of Shares as a condition
for mergers and certain other business combinations (which include a wide
variety of transactions in addition to standard mergers and acquisitions)
involving the Company and any person or group holding 10% or more of the Shares,
unless the transaction is approved by a majority of the members of the Board who
are unaffiliated with such shareholders and who were directors before such
shareholders acquired more than 10% of the Common Stock or unless certain
minimum price and procedural requirements are met. The minimum price and
procedural requirements set forth in the Amended and Restated Charter do not
apply to the Merger since the Merger has been approved by a majority of the
Directors who qualify as unaffiliated directors as required by the provision. In
the absence of such approval, all such requirements would have to be satisfied
to avoid the 80% shareholder vote requirement.
THE SHAREHOLDERS AGREEMENT
Pursuant to a shareholders agreement (the 'Shareholders Agreement'), dated
as of May 5, 1997, by and among Parent, the Purchaser, Jeffrey G. Webb
(Chairman, President and Chief Executive Officer and a Director of the Company),
Gregory C. Webb (Senior Vice President and a Director of the Company), Alan D.
Gordon (a Director of the Company), and Randall S. Sturges (a Director of the
Company) (each a 'Shareholder' and
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<PAGE>
together, the 'Shareholders'), the Shareholders have agreed to tender all of the
Shares beneficially owned by them at the Offer Price and in accordance with the
terms and conditions of the Offer, representing in the aggregate 1,738,530
Shares, or approximately 38% of the outstanding Shares of the Company. The
effect of the Shareholders' agreeing to tender certain Shares pursuant to the
Shareholders Agreement is that the Purchaser would only need to receive tenders
for 848,335 additional Shares, or approximately 18.6% of the currently
outstanding Shares, to satisfy the Minimum Condition.
Pursuant to the Shareholders Agreement, the Shareholders have agreed, for a
period ending upon the earlier of the consummation of the Merger and four months
following the termination of the Merger Agreement in accordance with its terms
(the 'Term'), at any meeting of the holders of Shares, however called, or in
connection with any written consent of the holders of Shares, to vote (or cause
to be voted) the Shares (if any) then held of record or beneficially owned by
such Shareholder, (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement and the Shareholders
Agreement and any actions required in furtherance thereof; and (ii) against any
Acquisition Proposal and against any action or agreement that would impede,
frustrate, prevent or nullify the Merger Agreement, or result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or which would result in any
of the conditions set forth in Annex A to the Merger Agreement or set forth in
Article VI of the Merger Agreement not being fulfilled; provided however, that
nothing contained in the Shareholders Agreement shall be construed as requiring
any Shareholder who also is a director of the Company to propose, endorse,
approve or recommend the Merger Agreement or any transaction contemplated
thereby in such Shareholder's capacity as a director of the Company.
Pursuant to the Shareholders Agreement, the Shareholders have agreed, for
the Term of the Shareholders Agreement, that the Shareholders shall not (i)
tender, or consent to any tender of, any or all of such Shareholder's Shares,
pursuant to any Acquisition Proposal, (ii) transfer, or consent to any transfer
of, any or all of such Shareholder's Shares, Company Options or any interest
therein, (iii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of such Shares, Company
Options or any interest therein, (iv) grant any proxy, power-of-attorney or
other authorization in or with respect to such Shares or Company Options, (v)
deposit such Shares or Company Options into a voting trust or enter into a
voting agreement or arrangement with respect to such Shares or Company Options,
or (vi) take any other action that would in any way restrict, limit or interfere
with the performance of its obligations hereunder or the transactions
contemplated hereby or by the Merger Agreement. The Shareholders have further
agreed to be bound by the provisions of the Merger Agreement relating to
prohibitions on solicitations of Acquisition Proposals to the same extent as the
Company.
Each Shareholder has also granted Parent an irrevocable proxy to vote each
Shareholder's Shares in favor of the Merger Agreement and against any
Acquisition Proposal.
THE STOCK PURCHASE AGREEMENTS
Pursuant to the several Stock Purchase Agreements, each of which is dated
as of May 5, 1997, between Parent and each of Messrs. Jeffrey G. Webb, Gregory
C. Webb and W. Kline Boyd (Senior Vice President of the Company) and Ms. J.
Kristyn Shepherd (Senior Vice President of the Company) (the 'Executive Group')
(the 'Stock Purchase Agreements'), on or before the fifth business day after the
consummation of the Offer, each member of the Executive Group will purchase
shares of Parent's common stock, par value $.01 per share ('Parent Common
Stock'), at a price per share equal to the average closing price of Parent
Common Stock for the twenty trading days ending on the day immediately preceding
the consummation of the Offer, provided that the purchase price per share will
not exceed $4.50 nor be less than $2.80 (the 'Purchase Price'). The exact number
of shares of Parent which each member of the Executive Group will purchase will
equal (a) the net after-tax proceeds (assuming a 28% tax rate and a basis in
each share of $.1666) received by each member of the Executive Group in the
Offer or Merger as a result of the sale of 251,165 Shares, 32,500 Shares, 26,810
Shares and 14,525 Shares, in the case of each of Messrs. Jeffrey G. Webb,
Gregory C. Webb and W. Kline Boyd and Ms. J. Kristyn Shepherd, respectively,
divided by (b) the Purchase Price. If Parent proposes to file a registration
statement with respect to an offering by Parent for its own account or an
offering for the account of any of its
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<PAGE>
respective securityholders of any shares of Parent Common Stock (other than a
registration statement on Form S-4 or S-8), then each member of the Executive
Group shall be entitled to include in the offering, subject to certain
limitations, his or her shares of Parent Common Stock acquired pursuant to the
Stock Purchase Agreements.
THE EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENT WITH MR. WEBB. In connection with the Transaction,
Parent entered into an employment agreement with Jeffrey G. Webb on May 5, 1997.
Under the terms of such agreement, which has a three-year term, Jeffrey G. Webb
will serve as Vice Chairman of Parent, as well as President and Chief Operating
Officer of the Company. Jeffrey G. Webb will be entitled to a base salary of not
less than $375,000 per year and will be eligible to participate in those bonus
arrangements which are made available to other senior officers of Parent at a
target level of 40% of his base salary. Jeffrey G. Webb will also receive
options to purchase 50,000 shares of Parent Common Stock and 'special options'
to purchase an additional 347,760 shares of Parent Common Stock. See 'New Option
Grants.' Upon termination of Jeffrey G. Webb's employment (i) by the Company
without Cause (as defined in the employment agreement), (ii) by Jeffrey G. Webb
with Good Reason (as defined in the employment agreement, including a material
adverse alteration in his status or responsibilities and relocation more than 50
miles from Memphis, Tennessee), or (iii) following a Change in Control (as
defined in the employment agreement), Jeffrey G. Webb will receive continued
payments of base salary for the longer of the remainder of the term and one year
(two years in case of termination following a Change in Control) (any such
applicable period, the 'Continuation Period'), continued coverage under the
Parent's welfare benefit plans during the Continuation Period, and additional
supplemental pension plan benefits he would have become entitled to had he
remained employed for the Continuation Period. Jeffrey G. Webb is subject to a
noncompetition covenant for a period of two years following the termination of
his employment for any reason (or for the Continuation Period, if longer).
Pursuant to Jeffrey G. Webb's employment agreement, Jeffrey G. Webb agreed
to become a party to the Stockholders Agreement, dated as of August 14, 1995, by
and among Robert Nederlander, Leonard Toboroff, P.C., Defined Benefit Plan,
Lenny Corp., QEN R.E.R. Corp., JEMC Corp., David Mauer, Dan Cougill and Leonard
Toboroff, (the 'Voting Agreement'), and Parent agreed to amend such Voting
Agreement so that the parties thereto agree, for the three-year period
commencing at the Effective Time and terminating on the third anniversary of
such date or upon earlier termination of Jeffrey G. Webb's employment (provided,
however, that if the Merger Agreement is terminated, then, at the time of such
termination, Jeffrey G. Webb's employment agreement shall be deemed cancelled
and of no force and effect), to vote their shares of Parent Common Stock (i) in
favor of the election of Jeffrey G. Webb and a designee to the Parent Board of
Directors, and (ii) in favor of Parent's 1997 Stock Option Plan. Jeffrey G.
Webb's employment agreement further provides that, at any time that Jeffrey G.
Webb is serving as an officer of Parent, Parent shall provide him with officer
liability insurance and indemnification to the same extent provided to other
members of the Parent Board of Directors and other officers of the Parent for
all occurrences while he is or was a member of the Parent Board of Directors or
an officer of Parent.
EMPLOYMENT AGREEMENTS WITH OTHER EXECUTIVES. Parent has also entered into
employment agreements with Messrs. Gregory C. Webb and W. Kline Boyd and Ms. J.
Kristyn Shepherd (each, an 'Executive'). These agreements, each of which has a
two year term, provide that Messrs. Webb and Boyd and Ms. Shepherd will serve
Varsity Spirit as Senior Vice President and General Manager--UCA, Senior Vice
President and General Manager--Varsity Spirit Fashions and Senior Vice
President--UCA, respectively, with a base salary of $125,000, $125,000 and
$115,000, respectively. The Executives shall be eligible to receive bonuses at
the Board's discretion. If an Executive's employment is terminated by the
Company other than due to death, disability or for Cause (as defined in the
employment agreement), he or she will receive continued payments of base salary
for six months following termination. The Executives are each subject to a
noncompetition covenant for a period of two years following the termination of
their employment for any reason. Messrs. Webb and Boyd and Ms. Sheppard will
also receive certain options to purchase shares of Parent Common Stock and
'special options' to purchase additional shares of Parent Common Stock. See 'New
Option Grants.'
NEW OPTION GRANTS. Pursuant to their respective employment agreements with
Parent, on the later of the Effective Time and the date of Parent's 1997 Annual
Shareholders' Meeting (the applicable date, the 'Grant
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Date'), Messrs. Jeffrey G. Webb, Gregory C. Webb and W. Kline Boyd and Ms.
Shepherd will receive options to purchase 50,000, 20,000, 30,000, and 20,000
shares of Parent Common Stock, respectively. Such grant may, at the Parent's
election, be pursuant to the Parent's 1997 Stock Option Plan (the 'Plan'), in
which case it shall be subject to shareholder approval of the Plan. The exercise
price of the options shall be equal to the average closing price of a share of
Parent Common Stock over the ten (10) consecutive trading days ending on the
date immediately prior to the Grant Date. The option shall become exercisable as
to 1/3 of the shares originally covered by such option upon the first
anniversary of the Grant Date and as to an additional 1/3 of the shares
originally covered by such option on each of the second and third anniversaries
of the Grant Date. The options shall expire on the earlier of the tenth
anniversary of the Grant Date or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason; provided, however, that if
the Company terminates the Executive's employment at any time without Cause (as
defined in the applicable employment agreement but without regard to whether
such employment agreement had expired) or, in case of Jeffrey G. Webb, Mr.
Jeffrey Webb terminates his employment for Good Reason (as defined in his
employment agreement but without regard to whether such employment agreement had
expired), then the option shall become fully vested and shall remain exercisable
for a period of one year following such termination of employment; and, provided
further that if the Executive's employment is terminated on account of death or
disability, then upon such termination the option shall become fully vested and
shall remain exercisable for a period of one year following such termination of
employment. The option shall also become fully vested upon the occurrence of a
Change in Control (as defined in the applicable employment agreement).
In addition, Messrs. Jeffrey G. Webb, Gregory C. Webb and Boyd and Ms.
Shepherd will receive, within thirty days immediately following the Effective
Time, 'special options' to purchase an additional 347,760 shares, 45,000 shares,
36,990 shares and 20,250 shares of Parent Common Stock, respectively. Such grant
may, at the Parent's election, be pursuant to the Plan, in which case it shall
be subject to shareholder approval of the Plan. The exercise price of the
special option shall be equal to the lower of (i) the average closing price of a
share of Parent Common Stock over the ten consecutive trading days ending on the
date immediately prior to the Effective Time and (ii) $3.80. The special option
shall be fully vested as of the date of grant and shall become exercisable as of
the date of shareholder approval of the Plan. The special option shall expire on
the tenth anniversary of the date of grant. If shareholders of Parent fail to
approve the Plan (which Parent intends to submit to shareholders for approval at
its 1997 Annual Meeting of Shareholders), the executives and the Company have
agreed to discuss alternative mechanisms to provide the executives with the
economic equivalent of such special options.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
The Board of Directors of the Company was aware that certain officers and
directors of the Company have certain interests in the Transaction, including
those referred to below, that present actual or potential conflicts of interest
in connection with the Offer and considered such factors along with other
matters described in Item 4 under 'Reasons for Recommendation.'
As of May 5, 1997, the executive officers and directors of the Company
owned an aggregate of 1,892,152 Shares and held Company Options to purchase an
aggregate of 314,125 Shares (whether or not exercisable). On such date, the
Shares owned by executive officers and directors of the Company and the Options
held by such persons (whether or not exercisable) together constituted
approximately 48.4% of the outstanding Shares on a fully diluted basis (assuming
the exercise of all outstanding Company Options). If the Transaction is
consummated, subject to the consent of the Company Option holder, each
outstanding Company Option will be surrendered and cancelled in exchange for a
cash payment equal to the number of Shares subject to such option, multiplied by
the Offer Price, less the aggregate exercise price of such Company Option.
The following table sets forth, as of May 5, 1997, the number of Shares and
Company Options owned by, and the aggregate amounts to be received by, each
executive officer and director of the Company who owns any Shares or Company
Options, and all executive officers and directors of the Company as a group,
pursuant to the
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Transaction. Other than the individuals named below, no executive officer or
director of the Company owns any Shares.
<TABLE>
<CAPTION>
TOTAL CASH AMOUNT
NAME OF DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY SHARES OPTIONS TO BE RECEIVED
- ---------------------------------------------------- --------- ------- -----------------
<S> <C> <C> <C>
Alan D. Gordon...................................... 648,500 0 $12,256,650
Randall S. Sturges.................................. 460,000 0 8,694,000
William C. Willis, Jr. ............................. 3,000 7,000 117,740
Jeffrey G. Webb..................................... 553,455 91,325 11,359,705
Gregory C. Webb..................................... 72,095 46,875 1,822,537
W. Kline Boyd....................................... 60,000 46,875 1,593,941
J. Kristyn Shepherd................................. 32,502 53,050 1,190,683
Roy F. Kramer....................................... 0 2,000 10,800
Richard F. Strup.................................... 2,000 2,000 48,600
John M. Nichols..................................... 0 22,000 128,840
Deana C. Roberts.................................... 300 7,500 38,670
Richard R. Bowers................................... 0 9,000 65,100
Robert Dunseath..................................... 60,300 26,500 1,430,750
All Directors and Executive Officers as a Group
(13 Persons)...................................... 1,892,152 314,125 $38,758,016
</TABLE>
OTHER MATTERS
APPRAISAL RIGHTS. No appraisal rights are available to holders of Shares
in connection with the Offer. However, if the Merger is consummated, holders of
Shares will have certain rights under Section 48-23-102 of the TBCA to dissent
and demand appraisal of, and payment in cash for the fair value of, their
Shares. Such rights, if the statutory procedures are complied with, could lead
to a judicial determination of the fair value (excluding any element of value
arising from accomplishment or expectation of the Merger) required to be paid in
cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the Offer Price and the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors (with two interested directors abstaining) has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and determined that each of the Offer and the Merger is fair to, and in
the best interests of, the stockholders of the Company. The Board of Directors
recommends that all holders of Shares accept the Offer and tender their Shares
pursuant to the Offer.
(B) BACKGROUND OF THE TRANSACTION.
The Company was incorporated in 1983 as the successor to a limited
partnership formed in 1974 by Jeffrey G. Webb, President of the Company. In
1989, the Company effected a leveraged recapitalization by merging with a newly
formed corporation, the shareholders of which included Alan D. Gordon and
Randall S. Sturges, individual investors and directors of the Company. In
January 1992, the Company completed its initial public offering of Shares,
through which it raised approximately $12.6 million.
Commencing late in the first quarter of 1996, management and the Board of
Directors of the Company held a series of discussions concerning the strategic
direction of the Company and its business, including the possibility of
acquisitions of complementary businesses, a secondary offering of the Company's
Shares or a sale of the Company. In March 1996, the Company retained Goldman,
Sachs & Co. ('Goldman Sachs') to serve as
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its financial advisor in connection with various strategic alternatives,
including a possible sale of the Company. The Board of Directors of the Company
directed Goldman Sachs to approach certain selected potential strategic and
financial buyers to solicit interest in a possible sale transaction. During the
months of March, April and May 1996, Goldman Sachs contacted on behalf of the
Company certain of such strategic and financial buyers. In June 1996, the Board
of Directors of the Company determined to defer a decision on the sale process.
On October 8, 1996, Berenson Minella & Company ('Berenson Minella'),
Parent's financial advisor, presented to Parent's management an analysis of the
Company based on publicly available information. On October 31, 1996, Raymond J.
Minella of Berenson Minella contacted, on behalf of Parent, Alan D. Gordon (a
member of the Company's Board) on a preliminary basis to discuss a possible
strategic combination of the two companies. Mr. Minella again contacted Mr.
Gordon on November 5, and subsequent thereto Parent and the Company executed a
confidentiality agreement dated November 21, 1996.
In early December 1996, David Mauer, Chief Executive Officer of Parent, and
Jeffrey G. Webb met at the Company's executive offices in Memphis, Tennessee to
discuss the feasibility of a possible business combination transaction.
Following the meeting, Mr. Webb expressed a willingness to continue to explore
the possibility of such a combination. Thereafter, Mr. Mauer telephoned Mr. Webb
and suggested that each company's financial advisors meet to discuss a possible
business combination.
On January 7, 1997, members of Parent's management (including Mr. Mauer,
Dan Cougill, President and Chief Operating Officer of Parent, and David
Groelinger, Chief Financial Officer of Parent) and Mr. Minella met in Memphis
with Mr. Webb and John M. Nichols, the Company's Chief Financial Officer, and a
representative of Goldman Sachs concerning the Company's business and the
business of Parent. Parent was advised by the Company, through Goldman Sachs,
that any transaction could not be subject to any significant financing
conditions. Parent indicated its willingness to consider and explore various
transaction structures.
On January 28, 1997, the Executive Committee of Parent's Board of Directors
met to discuss a possible transaction with the Company. The following day,
representatives of NationsBank met with management representatives of Parent in
order to become more familiar with Parent's operations and financial structure.
On February 9, 1997, at the invitation of Mr. Webb, Mr. Mauer met Mr. Webb
in Orlando, Florida during the national cheerleading championship sponsored by
the Company. During the visit, Messrs. Webb and Mauer discussed various
management and integration issues with regard to a possible business
combination.
On February 10, 1997, representatives of the parties' financial advisors
met in New York, at which meeting Berenson Minella discussed the possibility of
a transaction at $18.00 per Share. On February 27, 1997, Messrs. Webb and
Nichols met with Messrs. Robert E. Nederlander, Chairman of Parent, Leonard
Toboroff, Vice President and a director of Parent, and Messrs. Mauer and
Groelinger to introduce Mr. Webb to Messrs. Nederlander and Toboroff. The next
day, Messrs. Webb and Nichols met with representatives of Parent at Parent's
headquarters in New York to discuss various aspects of a possible business
combination.
Following further discussions as to alternative structures for the
transaction and Parent's review of additional information, on March 14, 1997,
Parent indicated it would be prepared to proceed with an acquisition of the
Company at $19.00 per Share, conditioned upon the 'rollover' by certain senior
members of the Company's management (consisting of Jeffrey G. Webb, Gregory C.
Webb, W. Kline Boyd and J. Kristyn Shepherd) of up to 325,000 shares of Company
Common Stock into a security convertible into shares of Parent Common Stock and
the principal stockholders of the Company (consisting of Jeffrey G. Webb,
Gregory C. Webb, Alan D. Gordon and Randall S. Sturges) contractually committing
to support the transaction. Representatives of the Company, after consultations
with members of the Company's Board, indicated that the Company would be
prepared to proceed with a transaction at a price of $19.00 per Share if a
number of outstanding substantive open issues could be resolved (including the
tax free nature of the 'rollover') and if financing commitments acceptable to
the Company were obtained by Parent. Based on the foregoing, Parent agreed to
proceed to procure financing commitments and continue its due diligence
inquiries.
On March 18, 1997, initial drafts of acquisition agreements were circulated
and negotiations concerning the terms of such agreements commenced. On March 19,
1997, representatives of Parent, the Bridge Lenders and their respective
counsel, representatives of Grant Thornton LLP (Parent's independent auditors)
and counsel to the Company met in New York to discuss the process, proposed
timing and structure of the transaction and the
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timing of the prospective financing sources' due diligence review leading to a
definitive commitment to finance the proposed transaction.
On March 25, 1997, the Board of Directors of the Company held a special
meeting to consider the possibility of a transaction whereby the Company would
be acquired by Parent. The Company's Board reviewed the status of discussions
with Parent and received oral reports from the Company's management and Goldman
Sachs and a review by legal counsel of the legal standards applicable to
business combination transactions.
Following a series of discussions concerning the proposed 'rollover' by
certain members of Company management of an aggregate of 325,000 Shares into a
security convertible or exchangeable into shares of Parent Common Stock, counsel
to the Company and counsel to Parent concluded that there could be no assurance
that such rollover could be accomplished on a tax-free basis. Accordingly, on
April 2, 1997, Parent submitted an alternative proposal, pursuant to which such
members of management would agree to reinvest the after-tax cash proceeds to be
received by them in the Offer from the sale of 325,000 Shares towards the
purchase of Parent shares at a to-be-agreed upon price. In addition, such
members of management would receive options to purchase a number of Parent
shares such that the number of reinvestment shares plus the number of option
shares would equal the number of shares of Parent which would have been
otherwise received in the 'rollover.' After consideration of the alternative
proposal, it was determined to continue to proceed with negotiations relating to
a possible transaction.
A draft of the Bridge Commitment Letter with respect to Parent's proposed
bridge financing was circulated to the Company and its counsel and Goldman Sachs
on April 2, 1997. After review of the draft commitment letter, the Company and
its counsel determined that the letter contained unacceptable conditions to the
prospective lenders' obligations to finance the proposed offer and merger.
Following several discussions among NationsBank, the Company, Parent and their
respective financial advisors and counsel, NationsBank agreed to revise its
commitment in a manner satisfactory to the Company, conditioned upon an
accelerated schedule for payment of the fees associated with the financing.
On April 8, 1997, Mr. Webb met with Mr. Mauer to discuss cross-marketing
opportunities and prospective operations of the combined company. Messrs. Webb,
Mauer and Groelinger also discussed the pricing mechanism for the purchase of
Parent Common Stock by the executives of the Company. Mr. Webb also met that day
with Mr. Nederlander to discuss the future opportunities of the combined
company.
On April 21, 1997, Mr. Mauer met with Mr. Webb to discuss certain
management and organizational issues relating to the potential transaction. On
April 22, 1997, the Board of Directors of Parent held a regularly scheduled
meeting at which management updated the directors on the status of the
negotiations relating to the transaction.
On April 30, 1997, in view of the accelerated payment schedule associated
with the financing, the Company and Parent tentatively agreed that the price to
be paid for the Shares would be reduced to $18.90 per Share, that the Company
would agree to contribute $650,000 toward the accelerated payment of the bridge
commitment fee, and the parties would continue to proceed with negotiations
toward a definitive agreement and attempt to finalize the terms of the Bridge
Commitment Letter and the committment letter relating to the new revolving
credit facility to be entered into by Parent and certain banks.
During the period from March 19, 1997 through May 5, 1997, representatives
of Parent and the Company and their respective legal advisors negotiated
definitive terms of a merger agreement. Among other things, during the course of
such negotiations (i) the conditions to Parent's and the Purchaser's obligation
to consummate the Offer were narrowed; (ii) the scope of the representations and
warranties made by the Company was narrowed; (iii) the fiduciary duty exception
to the provision in the Merger Agreement which prohibits the Board of the
Company from engaging in negotiations with, or providing information to, any
person (other than Parent or its affiliates) relating to any Acquisition
Proposal (as defined in the Merger Agreement) was expanded and a proposed
break-up fee payable in the event that the Board of Directors of the Company
accepts a Superior Proposal (as defined in the Merger Agreement) from a third
party was eliminated; and (iv) the circumstances under which certain expenses of
Parent, the Purchaser and their affiliates were reimbursable by the Company were
narrowed and the amount of such expenses was limited to $4,250,000.
14
<PAGE>
On May 1, 1997, Messrs. Mauer and Groelinger spoke with Mr. Nichols to
review the Company's first quarter financial results and to receive a due
diligence update.
On May 4, 1997, the Board of Directors of the Company held a special
telephonic meeting (Richard F. Strup and Roy F. Kramer were not in attendance)
to discuss the status of the transaction. Counsel to the Company again reviewed
the fiduciary duties of directors and reviewed in detail the terms and
conditions of the draft Merger Agreement, Shareholders Agreement and Stock
Purchase Agreements. Representatives of Goldman Sachs presented preliminary
materials regarding the proposed transaction to the Board of Directors of the
Company. The Board meeting was adjourned until May 5, 1997, pending resolution
of certain issues relating to Parent's continuing negotiation of its bank
financing.
On May 5, 1997, the Board of Directors of Parent held a special meeting to
review, with the advice and assistance of Parent's financial and legal advisors,
the final proposed terms and conditions of the proposed Merger Agreement and
Offer and related transactions. At such meeting, Berenson Minella delivered its
presentation to the Board of Directors of Parent. Counsel to Parent reviewed the
fiduciary duties of directors and reviewed in detail the terms and conditions of
the Transaction agreements. Following the Board's review of the final terms of
the Merger Agreement and the Offer and related transactions, Parent's Board of
Directors unanimously determined to approve the Merger Agreement and related
transaction agreements.
On May 5, 1997, the Board of Directors of the Company reconvened its
special telephonic meeting, with all directors present. Goldman Sachs summarized
and reviewed materials regarding the proposed transaction in final form and
delivered its opinion that, as of May 5, 1997, the $18.90 per Share in cash to
be received by the holders of Shares in the Offer and the Merger was fair to
such holders. (See Annex I attached hereto.) Counsel to the Company again
summarized the terms of the Offer and the Merger. The Board of Directors of the
Company (with Jeffrey G. Webb and Gregory C. Webb absent due to their status as
prospective employees of, and investors in, Parent) then discussed the merits of
the proposed Offer and Merger. Following such discussion, the Board of Directors
of the Company (with two interested directors, Jeffrey G. Webb and Gregory C.
Webb, abstaining) unanimously approved the Merger Agreement, authorized
execution and delivery thereof, determined that the Offer and the Merger are
fair to and in the best interests of the holders of Shares and recommended that
shareholders of the Company accept the Offer and tender their Shares pursuant to
the Offer. After the vote of the Board of Directors of the Company, Jeffrey G.
Webb and Gregory C. Webb returned to the meeting and expressed their support for
the Transaction and the Board's action.
The Merger Agreement, the Shareholders Agreement and the Stock Purchase
Agreements were executed the evening of May 5, 1997.
Prior to the commencement of trading on May 6, 1997, the Company and Parent
issued a joint press release regarding the execution of the Merger Agreement.
On May 12, 1997, the Purchaser commenced the Offer.
(C) REASONS FOR RECOMMENDATION.
In making this recommendation, the Board of Directors considered a number
of factors, including, but not limited to, the following:
(i) the terms and provisions of the Offer, the Merger and the Merger
Agreement;
(ii) discussions with management of the Company (at board meetings on
March 25, May 4 and May 5, 1997 and at previous board meetings) relating to
the financial position, results of operations, business and prospects of
the Company, including the prospects of the Company if the Company were to
remain independent;
(iii) the results of the process undertaken to identify and solicit
proposals from third parties to enter into a transaction with the Company;
(iv) the trading price of the Shares over the last three years, and
the fact that the $18.90 price in connection with the Offer and the Merger
represents a premium of approximately 30% over the last sale
15
<PAGE>
price of $14.50 for the Shares on the NASDAQ on May 5, 1997, the day prior
to the public announcement of the execution of the Merger Agreement;
(v) the views expressed by management and Goldman Sachs that, based on
the process undertaken to identify and solicit proposals from third
parties, it was unlikely that other parties would propose a transaction
that was more favorable to the Company's shareholders;
(vi) the presentations by Goldman Sachs, at the May 4 and May 5, 1997
board meetings and the written opinion of Goldman Sachs, dated May 5, 1997,
to the effect that, as of such date, and based on the assumptions made,
matters considered and limits of review as set forth in such opinion, the
$18.90 per share in cash to be received by the holders of Shares in the
Offer and the Merger was fair to such holders. A copy of the written
opinion of Goldman Sachs, which sets forth the assumptions made, matters
considered and certain limitations on the scope of review undertaken by
Goldman Sachs, is attached as Annex I, is filed as Exhibit (a)(6) hereto
and is incorporated herein by reference. SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE OPINION OF GOLDMAN SACHS CAREFULLY IN ITS ENTIRETY;
(vii) the fact that certain disinterested holders (Messrs. Alan D.
Gordon and Randall S. Sturges) of approximately 24% of the Shares were
prepared to endorse the Merger Agreement;
(viii) the fact that the Offer and the Merger are not conditioned on
the availability of financing; and
(ix) the fact that the Merger Agreement permits the Board, in the
exercise of its fiduciary duties, to terminate the Merger Agreement in
favor of a superior alternative acquisition proposal, although such
termination would trigger the reimbursement by the Company of expenses
incurred by Parent and the Purchaser up to a maximum of $4.25 million.
The Board of Directors recognized that consummation of the Offer and the
Merger will deprive current shareholders of the Company of the opportunity to
participate in the future growth prospects of the Company and, therefore, in
reaching its conclusion to approve the Offer and the Merger, determined that the
historical results of the operations and future prospects of the Company are
adequately reflected in the $18.90 price per Share. The Board of Directors also
noted that although the Company has for some period of time been identified as a
potential acquisition candidate, and Goldman Sachs has assisted the Company in
identifying and contacting potential investors in or purchasers of the Company,
no buyer other than Parent had indicated an intention to make a proposal to
purchase all of the Shares for cash on terms as favorable to the Company and its
shareholders as those in the Offer and the Merger.
Considering these factors, the Board of Directors determined that
acceptance of the Offer and the tender of Shares pursuant to the Offer, and the
approval and adoption of the Merger and the Merger Agreement would be in the
best interest of the Company's shareholders.
In view of the variety of factors considered in connection with its
evaluation of the Transaction, the Board of Directors did not assign relative
weights to the specific factors considered in reaching its decision.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated March 25, 1996, the Company engaged
Goldman Sachs to act as its financial advisor in connection with various
financial and strategic alternatives, including but not limited to the possible
sale of all or a portion of the Company. Pursuant to the terms of the letter
agreement, the Company has agreed to pay Goldman Sachs upon consummation of the
Offer and the Merger a transaction fee equal to the sum of (i) 1.5% of the total
consideration to be paid by Purchaser for all outstanding Shares in the Offer
and the Merger and (ii) the product of 5% of the excess of the transaction value
per share over $18.50 and the number of Shares outstanding, on a fully diluted
basis, immediately prior to the time that Shares are accepted for exchange in
the Offer. The Company has agreed to reimburse Goldman Sachs for reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
Except as described herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
16
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own shares presently intend to tender
such shares to Purchaser pursuant to the Offer. See Item 3 for information
concerning an agreement (the Shareholders Agreement) pursuant to which certain
officers and directors have made certain commitments to tender their Shares to
Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL REQUIRED TO BE FILED AS EXHIBITS.
EXHIBIT
NO.
- -------
(a)(1) -- Offer to Purchase, dated May 12, 1997 (filed as Exhibit (a)(1) to the
Schedule 14D-1 of Cheer Acquisition Corp. and Riddell Sports Inc.
filed with the Securities and Exchange Commission (the 'Commission')
on May 12, 1997 (the 'Schedule 14D-1') and incorporated herein by
reference).*
(a)(2) -- Letter of Transmittal, dated May 12, 1997 (filed as Exhibit (a)(2) to
the Schedule 14D-1 and incorporated herein by reference).*
(a)(3) -- Letter to Stockholders, dated May 12, 1997.*+
(a)(4) -- Form of Summary Advertisement, dated as of May 12, 1997 (filed as
Exhibit (a)(8) to the Schedule 14D-1 and incorporated herein by
reference).
(a)(5) -- Text of press release issued by Riddell Sports Inc. and Varsity
Spirit Corporation, dated May 6, 1997 (filed as Exhibit (a)(7) to the
Schedule 14D-1 and incorporated herein by reference.
(a)(6) -- Opinion of Goldman, Sachs & Co., dated May 5, 1997 (attached to this
Schedule 14D-9 as Annex I).*+
(c)(1) -- Agreement and Plan of Merger, dated as of May 5, 1997, among Cheer
Acquisition Corp., Riddell Sports Inc. and Varsity Spirit Corporation
(filed as Exhibit (c)(1) to the Schedule 14D-1 and incorporated
herein by reference).*
(c)(2) -- Shareholders Agreement, dated as of May 5, 1997, among Riddell Sports
Inc., Cheer Acquisition Corp., Jeffrey G. Webb, Gregory C. Webb, Alan
D. Gordon and Randall S. Sturges (filed as Exhibit (c)(2) to the
Schedule 14D-1 and incorporated herein by reference).*
(c)(3) -- Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Jeffrey G. Webb (filed as Exhibit (c)(3) to the
Schedule 14D-1 and incorporated herein by reference).*
17
<PAGE>
EXHIBIT
NO.
- -------
(c)(4) -- Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Gregory C. Webb (filed as Exhibit (c)(4) to the
Schedule 14D-1 and incorporated herein by reference).*
(c)(5) -- Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and W. Kline Boyd (filed as Exhibit (c)(5) to the
Schedule 14D-1 and incorporated herein by reference).*
(c)(6) -- Stock Purchase Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and J. Kristyn Shepherd (filed as Exhibit (c)(6) to the
Schedule 14D-1 and incorporated herein by reference).*
(c)(7) -- Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Jeffrey G. Webb (filed as Exhibit (c)(7) to the Schedule
14D-1 and incorporated herein by reference).
(c)(8) -- Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and Gregory C. Webb (filed as Exhibit (c)(8) to the Schedule
14D-1 and incorporated herein by reference).
(c)(9) -- Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and W. Kline Boyd (filed as Exhibit (c)(9) to the Schedule 14D-1
and incorporated herein by reference).
(c)(10) -- Employment Agreement, dated as of May 5, 1997, between Riddell Sports
Inc. and J. Kristyn Shepherd (filed as Exhibit (c)(10) to the
Schedule 14D-1 and incorporated herein by reference).
(c)(11) -- Employment Agreement between Company and Jeffrey Webb, filed as
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
(c)(12) -- Employment Agreement between Company and Gregory Webb, filed as
Exhibit 10.7 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
(c)(13) -- Employment Agreement between Company and W. Kline Boyd, filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
(c)(14) -- Employment Agreement between Company and Kristyn Shepherd, filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
(c)(15) -- Employment Agreement between Company and John M. Nichols, filed as
Exhibit 10(r) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-19790), is
incorporated herein by reference.
(c)(16) -- Employment Agreement between the Company and Robert Dunseath, filed
as Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
(c)(17) -- Employment Agreement between the Company and Deana Roberts, filed as
Exhibit 10(n) to the Company's Transition Report on Form 10-K for the
transition period from April 1, 1994 to December 31, 1994 (File No.
0-19790), is incorporated herein by reference.
(c)(18) -- Amendment to Employment Agreement between the Company and Jeffrey
Webb, filed as Exhibit 10(s) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No. 0-19790),
is incorporated herein by reference.
18
<PAGE>
EXHIBIT
NO.
- -------
(c)(19) -- Amendment to Employment Agreement between the Company and Gregory
Webb, filed as Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No. 0-19790),
is incorporated herein by reference.
(c)(20) -- Amendment to Employment Agreement between the Company and W. Kline
Boyd, filed as Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No. 0-19790),
is incorporated herein by reference.
(c)(21) -- Amendment to Employment Agreement between the Company and J. Kristyn
Shepherd, filed as Exhibit 10(u) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (File No.
0-19790), is incorporated herein by reference.
- ------------------
* Included in copies mailed to shareholders.
+ Filed herewith.
19
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
VARSITY SPIRIT CORPORATION
By: /s/ JEFFREY G. WEBB
Jeffrey G. Webb
President and
Chief Executive Officer
20
<PAGE>
SCHEDULE I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about May 12, 1997 as part
of the Solicitation/Recommendation Statement on Schedule 14D-9 (the 'Schedule
14D-9') of Varsity Spirit Corporation, a Tennessee corporation (the 'Company'),
to the holders of record of shares of common stock, par value $.01 per share, of
the Company (the 'Common Stock' or the 'Shares'). You are receiving this
Information Statement in connection with the possible election of persons
designated by Riddell (as defined below) to a majority of the seats on the Board
of Directors of the Company (the 'Company Board').
On May 5, 1997, the Company, Riddell Sports Inc., a Delaware corporation
('Riddell'), and Cheer Acquisition Corp., a Tennessee corporation and a
wholly-owned subsidiary of Riddell ('Purchaser'), entered into an Agreement and
Plan of Merger (the 'Merger Agreement') pursuant to which (i) Riddell will cause
the Purchaser to commence a tender offer (the 'Offer') for all outstanding
Shares at a price of $18.90 per Share, net to the seller in cash and (ii) the
Purchaser will be merged with and into the Company (the 'Merger'). As a result
of the Offer and Merger, the Company will become a wholly-owned subsidiary of
Riddell.
The Merger Agreement provides that, promptly after the purchase of a
majority of the outstanding Shares pursuant to the Offer, Riddell shall be
entitled to designate such number of directors (the 'Riddell Designees') on the
Company Board as will give Riddell representation proportionate to its ownership
interest. The Merger Agreement requires the Company to take such action as
Riddell may request to cause the Riddell Designees to be elected to the Company
Board under the circumstances described therein. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning Riddell
and the Purchaser has been furnished to the Company by Riddell. The Company
assumes no responsibility for the accuracy or completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; THE RIDDELL DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the purchase of and payment by the Purchaser for Shares
pursuant to the Offer which represent at least a majority of the outstanding
Shares (on a fully diluted basis), Riddell will be entitled to designate such
number of Riddell Designees, rounded up to the next whole number, on the Company
Board as is equal to the product of the total number of directors on the Company
Board (determined after giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser, Riddell and any of their affiliates bears to
the total number of Shares then outstanding. The Company will promptly, upon the
request of Purchaser, use its best efforts to cause the Riddell Designees to be
so elected, including, if necessary, increasing the size of the Company Board or
seeking the resignations of one or more existing directors. Notwithstanding the
foregoing, until the Effective Time of the Merger, the Company Board will have
at least two directors who are directors on the date of execution of the Merger
Agreement.
Set forth below is certain information with respect to the initial Riddell
Designees:
Robert E. Nederlander. Mr. Nederlander has been Chairman of the Board of
Riddell since May 1988 and was the Parent's Chief Executive Officer from May
1998 through May 1, 1993. From February until June 1992, Mr. Nederlander was
also Riddell's interim President and Chief Operating Officer. Mr. Nederlander
has been President and a Director since November 1981 of the Nederlander
Organization, Inc., owner and operator of one
I-1
<PAGE>
of the world's largest chains of legitimate theaters. He served as the Managing
General Partner of the New York Yankees from August 1990 until December 1991,
and has been a limited partner since 1973. Mr. Nederlander has been President
since October 1985 of the Nederlander Television and Film Productions, Inc.;
Chairman of the Board since January 1988 of Mego Corporation and Vice Chairman
of the Board since February 1988 to early 1993 of Vacation Spa Resorts, Inc., an
affiliate of Mego Corporation and Chairman of the Board of Allis-Chalmers Corp.
from May 1989 to 1993, when he became Vice Chairman. In 1995, Mr. Nederlander
became a director of HFS Incorporated. Mr. Nederlander was a senior partner in
the law firm of Nederlander, Dodge and Rollins in Detroit, Michigan, between
1960 and 1989.
David M. Mauer. Mr. Mauer became Riddell's Chief Executive Officer on May
1, 1993, succeeding Mr. Nederlander. Mr. Mauer was President of Mattel U.S.A.
from late 1990 through the beginning of 1993 and was President of Tonka U.S.A.
Toy Group from 1988 until 1990. In 1995, Mr. Mauer was elected a member of the
Board of Directors of The Topps Company, Inc.
Leonard Toboroff. Mr. Toboroff has been Vice President of Riddell since
May 1988. Since May 1989, Mr. Toboroff has been a Vice President and Vice
Chairman of the Board of Allis-Chalmers Corp. Mr. Toboroff has been a practicing
attorney since 1961 and from January 1, 1988 to December 31, 1990, was counsel
to Summit Solomon & Feldesman in New York City, which was counsel to the Parent
from May 1988 through February 1993. He has been a Director since August 1987
and was Chairman and Chief Executive Officer from December 1987 to May 1988 of
Ameriscribe Corp. Mr. Toboroff was Chairman and Chief Executive Officer from
May-July 1982, and then was Vice Chairman from July 1982 through September 1988
of American Bakeries Company. Mr. Toboroff has been a director of Banner
Aerospace, Inc., a supplier of aircraft parts, since September 1992. He has been
a director of Engex, Inc. and director of Saratoga Springs Beverage Co. since
1993.
David Groelinger. In March 1996, Mr. David Groelinger was appointed
Riddell's Chief Financial Officer. Before joining Riddell and from 1994 he was a
member of the Board of Directors, Executive Vice President and Chief Financial
Officer of Regency Holdings (Cayman) Inc., which owned and operated a major
international cruise line. Prior to 1994 Mr. Groelinger served in various senior
financial capacities during twelve years at Chiquita Brands International. Inc.
In 1990, he was promoted to Vice President reporting to the Chiquita's President
and Chief Operating Officer. Regency Holdings (Cayman) Inc. filed a petition to
reorganize under Chapter 11 of the United States Bankruptcy Code in November
1995.
Lisa Marroni. Lisa Marroni has been Vice President, Secretary and General
Counsel of Riddell since 1993. Prior to 1993, Ms. Marroni was an associate at
Curtis, Mallet-Prevost, Colt & Mosle, a New York law firm. Ms. Marroni has also
been an associate at Paul, Weiss, Wharton, Rifkind, Sterling & Garrison in New
York and Skadden, Arps, Slate, Meagher & Flom in Los Angeles.
DIRECTORS OF THE COMPANY
The following table sets forth certain information with respect to the
current directors of the Company as of May 5, 1997.
NAME POSITION
- --------------------------- ----------------------------------------------------
Jeffrey G. Webb ........... Chairman, President, Chief Executive Officer and
Director since 1983 Director of Company (since 1983). Gregory C. Webb
Age 47 and Jeffrey G. Webb are brothers.
Gregory C. Webb ........... Senior Vice President and Director of Company (since
Director since 1989 1989); General Manager of Universal Cheerleaders
Age 45 Association (since 1986).
Alan D. Gordon ............ Director of Company (since 1989); President of
Director since 1989 Richland, Gordon & Company, an investment banking
Age 41 concern based in Chicago, Illinois (since 1983).
Randall S. Sturges ........ Director of Company (since 1989); investor in
Director since 1989 operating companies (from 1988 to date); General
Age 42 Partner (from 1984 to 1988) with First Chicago
Venture Capital.
I-2
<PAGE>
NAME POSITION
- --------------------------- ----------------------------------------------------
Roy F. Kramer ............. Director of Company (since 1995); Commissioner of
Director since 1995 the Southeastern Athletic Conference (since 1990);
Age 67 Athletic Director of Vanderbilt University (from
1978 to 1990); Head Football Coach of Central
Michigan University (from 1967 to 1977).
Richard F. Strup .......... Director of Company (since 1995); Senior Vice
Director since 1995 President--International and Global Properties of
Age 45 Miller Brewing Company (since 1994); various senior
executive positions in Marketing, Miller Brewing
Company (1990-1994); Vice President, Marketing of
PepsiCo Foods International, Inc. (1988-1989);
Director, Miller Brewing Company and Associated
Bank, Inc.
William C. Willis, Jr. .... Director of Company (since 1992); Chairman and Chief
Director since 1992 Executive Officer, Willis & Associates, Inc., a
Age 45 management consulting firm (since December 1995);
Executive Vice President and Chief Operating
Officer, North America of Tiger Eye Investments
Holdings, Ltd. (from May 1995 to June 1996);
President, Chief Operating Officer and Director of
MBF USA, Inc. (from April 1994 to April 1995);
President and Chief Executive Officer (from 1990 to
December 1993) of Insituform Technologies, Inc.;
President of Paper Art Company, a division of The
Mennen Company (from 1986 to 1990).
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
current executive officers of the Company as of May 5, 1997.
Jeffrey G. Webb ........... Mr. Jeffrey Webb has been Chairman, President and
Chairman, President, Chief Chief Executive Officer and a director of the
Executive Officer and Company since its formation in 1983 and was the
Director founder and sole general partner of the Company's
Age 47 predecessor, Universal Sports Camps, Ltd., a Texas
limited partnership formed in 1974. Prior to
founding the Company, Mr. Webb was Vice
President/General Manager of the National
Cheerleaders Association from January 1972 to
September 1974.
Gregory C. Webb ........... Mr. Gregory Webb has been with the Company for over
Senior Vice President, UCA seventeen years, has been a director and a Senior
General Manager and Vice President of the Company since 1989, and
Director General Manager of Universal Cheerleaders
Age 45 Association since 1986. Prior to being named to his
present position, Mr. Webb served in various similar
capacities for the Company. Jeffrey G. Webb and
Gregory C. Webb are brothers.
W. Kline Boyd ............. Mr. Boyd has been with the Company in his present
Senior Vice President and position since March 1989 and has been an investor
Varsity Spirit Fashions in the Company and its predecessor since 1974. Prior
General Manager to joining the Company, Mr. Boyd was, and he
Age 43 continues to be, a partner of Boyd & McWilliams Oil
& Gas Properties of Midland, Texas.
I-3
<PAGE>
John M. Nichols ........... Mr. Nichols joined the Company on April 1, 1992 as
Senior Vice President, Vice President, Accounting and Income Taxes and has
Finance and Chief been Senior Vice President, Finance since July 1992
Financial Officer and Chief Financial Officer since April 1994. From
Age 45 October 1988 through March 1992, Mr. Nichols owned
and operated an independent certified public
accounting practice, during the course of which he
provided accounting and financial consulting
services to the Company. Prior to October 1988, Mr.
Nichols was Chief Financial Officer of French
Quarter Inn, Inc. and a partner with the independent
certified public accounting firm of BDO Seidman,
LLP. In the late 1980's, Mr. Nichols acquired
minority general partnership interests in certain
land development and hotel operating partnerships
and, in connection with his interest in the land
development partnership, guaranteed the repayment of
certain bank loans that were made to the
partnership. The land development and hotel
operating partnerships were not as successful as
planned and the partnerships filed petitions under
Chapter 11 of the federal bankruptcy laws and, as a
consequence of his involvement in the land
development partnership, on July 1, 1992, Mr.
Nichols filed a petition under Chapter 7 of the
federal bankruptcy laws, which petition was
certified on February 13, 1997.
J. Kristyn Shepherd ....... Ms. Shepherd has been Senior Vice President, UCA
Senior Vice President, UCA since 1989 and has served in various other
Age 41 capacities since joining the Company in 1979. Ms.
Shepherd oversees UCA's special events, television
productions and video marketing materials.
Robert Dunseath ........... Mr. Dunseath has been with the Company for over ten
Age 43 years and has been Secretary since September 1989.
From September 1989 to April 1994, Mr. Dunseath also
served as Chief Financial Officer of the Company,
and from September 1989 to September 1996, Mr.
Dunseath also served as Senior Vice President of the
Company, a position which Mr. Dunseath relinquished
for medical reasons. Prior to September 1989, Mr.
Dunseath served in various other executive
capacities with the Company. Prior to affiliating
with the Company in 1983, Mr. Dunseath served in
various capacities with Taco Hut, Inc. and was a
financial analyst with Dobbs Houses, Inc.
Deana Roberts ............. Ms. Roberts joined the Company in December, 1994 as
Senior Vice President, a Senior Vice President concurrent with the
Varsity/Intropa Tours acquisition by the Company of the Varsity/Intropa
Age 55 Tours business. Ms. Roberts' responsibilities
include the oversight of Varsity/Intropa's
operations in San Jose, California and Houston,
Texas. Prior to her current position, Ms. Roberts
served as President of Intropa from October 1992 to
December 1994. From August 1986 to September 1992,
she was Director of Sales and Marketing for Intropa
International USA, Inc. Prior thereto, she was Vice
President of Ace Group Travel for three years and,
earlier still, was employed by various airline
companies.
Richard R. Bowers ......... Mr. Bowers joined the Company in June 1993 as Senior
Senior Vice President, Vice President--Marketing and Strategic Planning.
Marketing and Strategic Prior to joining the Company, Mr. Bowers served as
Planning Senior Vice President with World Cup USA from
Age 47 February 1993 to July 1993. From August 1992 to
February 1993, he was Director of Marketing for
World Cup USA. Prior thereto, Mr. Bowers spent seven
years in international marketing with Mattel Toys,
with his most recent position being Director of
International Marketing. Mr. Bowers also spent ten
years in marketing and operations with
Kimberly-Clark's Consumer Products Group.
I-4
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The table below presents certain specific
information regarding the compensation of the Chief Executive Officer and the
other four most highly compensated executive officers of the Company for the
Company's last three fiscal years (including the nine month transition period
ended December 31, 1994).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES
NAME AND --------------------- UNDERLYING ALL OTHER
PRINCIPAL FISCAL BONUS OPTIONS/ COMPENSATION
POSITIONS PERIOD(1) SALARY ($) ($)(2) SARs(#) ($)(3)
- ---------------------- --------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey G. Webb....... 1996 143,534 30,000 14,000 500
President & Chief 1995 135,940 -- 18,000 250
Executive Officer SY 1994 101,250 38,000 -- 700
Gregory C. Webb....... 1996 107,700 25,000 9,000 500
Senior Vice 1995 105,940 -- 10,500 250
President SY 1994 78,000 21,000 -- 700
W. Kline Boyd......... 1996 107,700 25,000 9,000 500
Senior Vice 1995 105,940 -- 10,500 250
President SY 1994 77,500 21,000 -- 700
John M. Nichols....... 1996 97,128 22,000 10,000 500
Senior Vice 1995 96,940 -- 12,000 250
President SY 1994 71,500 20,500 -- 700
J. Kristyn Shepherd... 1996 97,128 22,000 7,000 500
Senior Vice 1995 96,940 -- 9,000 250
President SY 1994 71,500 22,750 -- 700
</TABLE>
- ------------------
(1) The fiscal years ended December 31, 1996 and December 31, 1995, are denoted
'1996' and '1995', respectively; the nine month period ended December 31,
1994, is denoted 'SY 1994'. In March 1994, the Board of Directors elected to
change the end of the Company's fiscal year from March 31 to December 31.
Thus, the period between April 1, 1994 and December 31, 1994 was treated as
a shortened fiscal year.
(2) Represents discretionary cash bonuses granted by the Company for services
rendered in the corresponding fiscal year. The amount and timing of bonuses
granted to executive officers are determined by the Compensation Committee
and approved by the Board of Directors.
(3) Represents amount contributed or accrued by the Company during the
corresponding fiscal year on behalf of the named executive officers with
respect to the Varsity Spirit Corporation 401(K) Profit Sharing Plan.
I-5
<PAGE>
The following table sets forth information as to individual option grants
to such executive officers during the year ended December 31, 1996, and the
potential realized value of the option grants.
OPTION GRANTS FOR FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE OR TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------------
NAME GRANTED YEAR(1) ($/SH.) (2) DATE (3) 5% ($) (4) 10% ($) (4)
- ---------------------- ---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey G. Webb....... 14,000 7.8% 15.95 3/14/01 100,309 $254,202
Gregory C. Webb....... 9,000 5.0% 14.50 3/14/06 82,071 207,983
W. Kline Boyd......... 9,000 5.0% 14.50 3/14/06 82,071 207,983
John M. Nichols....... 10,000 5.6% 14.50 3/14/06 91,190 231,093
J. Kristyn Shepherd... 7,000 3.9% 14.50 3/14/06 63,833 161,765
</TABLE>
- ------------------
(1) The total number of options granted to employees during calendar year 1996
was 179,890.
(2) The exercise price is equal to the closing price of the Company's stock on
the date of the grant, except for those granted to Mr. Jeffrey G. Webb,
which are priced at 110% of the closing price.
(3) Options granted under the Company's 1991 Stock Option Plan typically have a
ten-year term from the date of the grant and become exercisable over a
three-year period from the date of the grant. Options granted to Mr. J. Webb
have a five-year term.
(4) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rate, compounded annually, from the
date of grant until the end of the applicable option term. These values are
calculated based on requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
appreciation.
The following table sets forth information as to option exercises by such
executive officers during the fiscal year ended December 31, 1996, and the
number and total value of unexercised options as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT YEAR
SHARES OPTIONS AT YEAR END(#) END($)(1)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey G. Webb....... -- -- 65,325 26,000 597,989 36,580
Gregory C. Webb....... -- -- 30,875 16,000 281,314 42,690
W. Kline Boyd......... -- -- 30,875 16,000 281,314 42,690
John M. Nichols....... 3,250 23,213 4,000 18,000 16,680 48,360
J. Kristyn Shepherd... -- -- 40,050 13,000 387,030 35,520
</TABLE>
- ------------------
(1) Based on the December 31, 1996 closing price of the Company's Common Stock
as reported on the National Association of Securities Dealers Automated
Quotation National Market System ($16.00).
I-6
<PAGE>
COMPENSATION OF DIRECTORS
Compensation for non-officer directors consists of the following: Messrs.
Gordon and Sturges each receive a $15,000 annual fee; Messrs. Willis, Kramer and
Strup each receive $2,000 for each Board of Directors meeting attended. Officers
who are also directors receive no additional compensation for serving on the
Board of Directors.
CERTAIN TRANSACTIONS BETWEEN MANAGEMENT AND THE COMPANY
The Company has executed a Consulting Agreement with Willis & Associates,
Inc. ('Willis'), a company owned by Mr. William Willis, a director of the
Company, pursuant to which Willis provides strategic planning as well as
business and product development consulting services. As of May 5, 1997, the
Company has paid $66,000 in fees to Willis pursuant to the agreement. For each
month that the agreement is extended beyond May 5, 1997, Mr. Willis will receive
$10,000 per month. Varsity has the right to terminate the agreement at any time
upon 30 days' written notice.
The Company has written employment agreements with certain of its key
officers, including each of the executive officers identified in the above
table. Each of these agreements provides for an annual base salary, which is
reviewed and adjusted on an annual basis, and an annual bonus to be determined
by the Compensation Committee and approved by the Board of Directors. Except for
the agreement with Mr. Nichols, each of the agreements with the named executive
officers was executed by the Company and the officer upon the consummation of
the recapitalization of the Company in 1989 and continues in effect through
September 28, 1997. The agreement with Mr. Nichols was executed as of February
28, 1997 and continues in effect until February 28, 1998 and contains, in
addition to provisions similar to the agreements with the named executive
officers, a one-time bonus of $250,000 payable upon a change in control of the
Company, as defined in the agreement. The Company has also executed certain
agreements with employees in connection with certain acquisitions by Varsity,
which agreements range in term from three to seven years. All the agreements
generally contain confidentiality and non-competition provisions and entitle
officers whose employment is terminated by the Company without cause to continue
to receive their base salary for six months following the termination.
For a description of the new Employment Agreements entered into by Messrs.
Webb, Webb and Boyd and Ms. Shepherd, see Item 3 under 'Summaries of the
Agreements--The Employment Agreements' in the Schedule 14D-9.
MEETINGS AND COMMITTEES OF THE COMPANY BOARD
The members of the Audit Committee consist of Alan D. Gordon and Randall S.
Sturges. The Audit Committee makes recommendations to the full Board of
Directors with respect to the engagement of independent auditors and reviews
with the independent auditors the plan and results of the audit engagement and
matters having a material effect on the Company's financial operations.
The members of the Compensation Committee consist of Alan D. Gordon,
Randall S. Sturges, Jeffrey G. Webb and William C. Willis, Jr. The Compensation
Committee reviews and approves all salary arrangements and other remuneration
for executive officers of the Company.
During the fiscal year ended December 31, 1996, the Board of Directors met
in person or telephonically four (4) times, the Audit Committee met one (1) time
and the Compensation Committee met three (3) times. During such fiscal year, all
of the directors attended 75% or more of the aggregate number of meetings of the
Board of Directors and the Board committees of which such directors were members
and were eligible to attend.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's executive officers, directors and 10% stockholders are
required under the Securities Exchange Act of 1934 to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Copies of
these reports must also be furnished to the Company. Based solely on a review of
copies of such reports furnished to the Company through the date hereof, or
written representations that no reports were required, the Company believes that
during the year ended December 31, 1996, all filing requirements applicable to
its executive officers, directors and 10% holders were met.
I-7
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth certain information as of March 10, 1997,
regarding the beneficial ownership of Common Stock by the shareholders who own
more than 5% of the outstanding shares, by each director of the Company, by the
Chief Executive Officer and the other executive officers of the Company
identified under 'Executive Compensation,' and by all directors and executive
officers of the Company as a group. Except as otherwise noted, the persons named
in the table below have sole voting and investment power with respect to all
shares shown as beneficially owned by them. On May 5, 1997, there were 4,563,183
Shares issued and outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
NAME(1) COMMON STOCK BENEFICIALLY OWNED COMMON STOCK
- ----------------------------- ------------------------------- ------------
<S> <C> <C>
Alan D. Gordon............... 648,500 14.2%
Randall S. Sturges........... 460,000 10.1%
William C. Willis, Jr.(2).... 8,833 *
Roy F. Kramer................ 666 *
Richard F. Strup............. 666 *
Jeffrey G. Webb(3)........... 635,624 13.9%
Gregory C. Webb(4)........... 113,950 2.5%
W. Kline Boyd(5)............. 98,857 2.1%
John M. Nichols(6)........... 11,333 *
J. Kristyn Shepherd(7)....... 77,885 1.7%
All Directors and Executive
Officers as a Group (11
persons)(8)................ 2,151,515 47.2%
Wasatch Investors............ 748,455 16.5%
Fidelity Management and
Research Company........... 439,750 9.67%
Sun Trust Banks, Inc. ....... 263,078 5.78%
Robert Fleming, Inc. ........ 229,500 5.04%
</TABLE>
- ------------------
* Does not exceed 1%.
(1) With respect to matters concerning the Company, the address of the Company's
Directors and Executive Officers is 2525 Horizon Lake Drive, Memphis,
Tennessee 38133; the address of Wasatch Investors is 68 South Main Street,
Suite 400, Salt Lake City, Utah 84101; the address of Fidelity Management
and Research Company is 82 Devonshire Street, Boston, Massachusetts
02109-3614; the address of Sun Trust Banks, Inc. is 25 Park Place, N.E.,
Atlanta, Georgia 30303; and the address of Robert Fleming, Inc. is 320 Park
Avenue, 11th Floor, New York, New York 10022.
(2) Includes 5,833 shares which as of March 10, 1997, could be acquired by Mr.
Willis within 60 days upon the exercise of stock options.
(3) Includes 6,178 shares held in trust for the benefit of Mr. Webb's minor
children and for which Mr. Webb is the trustee; Mr. Webb disclaims
beneficial ownership of such shares. Also includes 75,991 shares which as of
March 10, 1997, could be acquired by Mr. Webb within 60 days upon the
exercise of stock options.
(4) Includes 37,375 shares which as of March 10, 1997, could be acquired by Mr.
Webb within 60 days upon the exercise of stock options.
(5) Includes 1,500 shares owned by Boyd Enterprises, Inc., the majority
shareholder and President of which is Mr. Boyd. Also includes 37,375 shares
which as of March 10, 1997, could be acquired by Mr. Boyd within 60 days
upon the exercise of stock options.
(6) Includes 11,333 shares which as of March 10, 1997, could be acquired by Mr.
Nichols within 60 days upon the exercise of stock options.
(7) Includes 45,383 shares which as of March 10, 1997, could be acquired by Ms.
Shepherd within 60 days upon the exercise of stock options.
(8) Includes 246,955 shares, which as of March 10, 1997, could be acquired by
such directors and executive officers within 60 days upon the exercise of
stock options.
I-8
<PAGE>
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
ANNEX I
PERSONAL AND CONFIDENTIAL
May 5, 1997
Board of Directors
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the 'Shares'), of
Varsity Spirit Corporation (the 'Company') of the $18.90 per Share in cash
proposed to be paid by Cheer Acquisition Corp. ('Purchaser') in the Tender Offer
and the Merger (as defined below) pursuant to the Agreement and Plan of Merger
dated as of May 5, 1997 by and among Riddell Sports, Inc. ('Parent'), Purchaser
and the Company (the 'Agreement'). The Agreement provides for a tender offer for
all of the Shares (the 'Tender Offer') pursuant to which Purchaser, a
wholly-owned subsidiary of Parent, will pay $18.90 per Share in cash for each
Share accepted. The Agreement further provides that following completion of the
Tender Offer, Purchaser will be merged with and into the Company (the 'Merger')
and each outstanding Share will be converted into the right to receive $18.90 in
cash.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1996; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its stockholders; and certain internal financial analyses
and forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company regarding its
past and current business operations, financial condition and future prospects.
In addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the apparel industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement and such opinion does not constitute a recommendation as to
whether any holder of Shares should tender such Shares in the Tender Offer.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $18.90 per
Share in cash to be received by the holders of Shares in the Tender Offer and
the Merger is fair to such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
(GOLDMAN, SACHS & CO.)
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ---------------------------------------------------------------- ----
(a)(1) -- Offer to Purchase, dated May 12, 1997 (filed as Exhibit (a)(1)
to the Schedule 14D-1 of Cheer Acquisition Corp. and Riddell
Sports Inc. filed with the Securities and Exchange Commission
(the 'Commission') on May 12, 1997 (the 'Schedule 14D-1') and
incorporated herein by reference).*
(a)(2) -- Letter of Transmittal, dated May 12, 1997 (filed as Exhibit
(a)(2) to the Schedule 14D-1 and incorporated herein by
reference).*
(a)(3) -- Letter to Stockholders, dated May 12, 1997.*+
(a)(4) -- Form of Summary Advertisement, dated as of May 12, 1997 (filed
as Exhibit (a)(8) to the Schedule 14D-1 and incorporated herein
by reference).
(a)(5) -- Text of press release issued by Riddell Sports Inc. and Varsity
Spirit Corporation, dated May 6, 1997 (filed as Exhibit (a)(7)
to the Schedule 14D-1 and incorporated herein by reference.
(a)(6) -- Opinion of Goldman, Sachs & Co., dated May 5, 1997 (attached to
this Schedule 14D-9 as Annex I).*+
(c)(1) -- Agreement and Plan of Merger, dated as of May 5, 1997, among
Cheer Acquisition Corp., Riddell Sports Inc. and Varsity Spirit
Corporation (filed as Exhibit (c)(1) to the Schedule 14D-1 and
incorporated herein by reference).*
(c)(2) -- Shareholders Agreement, dated as of May 5, 1997, among Riddell
Sports Inc., Cheer Acquisition Corp., Jeffrey G. Webb, Gregory
C. Webb, Alan D. Gordon and Randall S. Sturges (filed as Exhibit
(c)(2) to the Schedule 14D-1 and incorporated herein by
reference).*
(c)(3) -- Stock Purchase Agreement, dated as of May 5, 1997, between
Riddell Sports Inc. and Jeffrey G. Webb (filed as Exhibit (c)(3)
to the Schedule 14D-1 and incorporated herein by reference).*
(c)(4) -- Stock Purchase Agreement, dated as of May 5, 1997, between
Riddell Sports Inc. and Gregory C. Webb (filed as Exhibit (c)(4)
to the Schedule 14D-1 and incorporated herein by reference).*
(c)(5) -- Stock Purchase Agreement, dated as of May 5, 1997, between
Riddell Sports Inc. and W. Kline Boyd (filed as Exhibit (c)(5)
to the Schedule 14D-1 and incorporated herein by reference).*
(c)(6) -- Stock Purchase Agreement, dated as of May 5, 1997, between
Riddell Sports Inc. and J. Kristyn Shepherd (filed as Exhibit
(c)(6) to the Schedule 14D-1 and incorporated herein by
reference).*
(c)(7) -- Employment Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Jeffrey G. Webb (filed as Exhibit (c)(7) to the
Schedule 14D-1 and incorporated herein by reference).
(c)(8) -- Employment Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and Gregory C. Webb (filed as Exhibit (c)(8) to the
Schedule 14D-1 and incorporated herein by reference).
(c)(9) -- Employment Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and W. Kline Boyd (filed as Exhibit (c)(9) to the
Schedule 14D-1 and incorporated herein by reference).
(c)(10) -- Employment Agreement, dated as of May 5, 1997, between Riddell
Sports Inc. and J. Kristyn Shepherd (filed as Exhibit (c)(10) to
the Schedule 14D-1 and incorporated herein by reference).
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ---------------------------------------------------------------- ----
(c)(11) -- Employment Agreement between Company and Jeffrey Webb, filed as
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities
and Exchange Commission on December 10, 1991, is incorporated
herein by reference.
(c)(12) -- Employment Agreement between Company and Gregory Webb, filed as
Exhibit 10.7 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities
and Exchange Commission on December 10, 1991, is incorporated
herein by reference.
(c)(13) -- Employment Agreement between Company and W. Kline Boyd, filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities
and Exchange Commission on December 10, 1991, is incorporated
herein by reference.
(c)(14) -- Employment Agreement between Company and Kristyn Shepherd, filed
as Exhibit 10.4 to the Company's Registration Statement on Form
S-1 (Registration Statement No. 33-44431) filed with the
Securities and Exchange Commission on December 10, 1991, is
incorporated herein by reference.
(c)(15) -- Employment Agreement between Company and John M. Nichols, filed
as Exhibit 10(r) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File No. 0-19790), is
incorporated herein by reference.
(c)(16) -- Employment Agreement between the Company and Robert Dunseath,
filed as Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (Registration Statement No. 33-44431) filed with the
Securities and Exchange Commission on December 10, 1991, is
incorporated herein by reference.
(c)(17) -- Employment Agreement between the Company and Deana Roberts,
filed as Exhibit 10(n) to the Company's Transition Report on
Form 10-K for the transition period from April 1, 1994 to
December 31, 1994 (File No. 0-19790), is incorporated herein by
reference.
(c)(18) -- Amendment to Employment Agreement between the Company and
Jeffrey Webb, filed as Exhibit 10(s) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-19790), is incorporated herein by reference.
(c)(19) -- Amendment to Employment Agreement between the Company and
Gregory Webb, filed as Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-19790), is incorporated herein by reference.
(c)(20) -- Amendment to Employment Agreement between the Company and W.
Kline Boyd, filed as Exhibit 10(v) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-19790), is incorporated herein by reference.
(c)(21) -- Amendment to Employment Agreement between the Company and J.
Kristyn Shepherd, filed as Exhibit 10(u) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-19790), is incorporated herein by reference.
- ------------------
* Included in copies mailed to shareholders.
+ Filed herewith.
<PAGE>
[LETTERHEAD OF VARSITY SPIRIT CORPORATION]
May 12, 1997
To the Shareholders of
Varsity Spirit Corporation:
We are pleased to inform you that on May 5, 1997, Varsity Spirit
Corporation ('Varsity' or the 'Company') entered into an Agreement
and Plan of Merger (the 'Merger Agreement') with Riddell Sports Inc.
('Riddell') and Cheer Acquisition Corp. ('Purchaser'), a
wholly-owned subsidiary of Riddell, pursuant to which Purchaser has
today commenced a tender offer (the 'Offer') to purchase all of the
outstanding shares of common stock, $.01 par value per share (the
'Shares'), of the Company for $18.90 per Share in cash. Under the
Merger Agreement, following the Offer, Purchaser will be merged (the
'Merger' and, together with the Offer, the 'Transaction') with and
into the Company and all Shares not purchased in the Offer (other
than Shares held by Riddell, Purchaser or the Company, or Shares
held by dissenting shareholders, if any) will be converted into the
right to receive $18.90 per Share in cash.
Your Board of Directors (with two interested directors abstaining)
has unanimously approved the Merger Agreement, the Offer and the
Merger and has determined that the Offer and the Merger are fair to
and in the best interests of Varsity's shareholders. The Board
unanimously recommends that the Company's shareholders accept the
Offer and tender their Shares in the Offer.
In arriving at its recommendation, the Board of Directors gave
careful consideration to a number of factors described in the
attached Schedule 14D-9 that is being filed today with the
Securities and Exchange Commission, including, among other things,
the opinion of Goldman, Sachs & Co., the Company's financial
advisor, dated May 5, 1997, that, as of such date, the $18.90 per
Share in cash to be received by the holders of Shares in the Offer
and the Merger was fair to such holders.
In addition to the attached Schedule 14D-9 relating to the Offer,
also enclosed is the Offer to Purchase, dated May 12, 1997, of
Purchaser, together with related materials, including a Letter of
Transmittal to be used for tendering your Shares. These documents
set forth the terms and conditions of the Offer and the Merger and
provide instructions as to how to tender your Shares. We urge you to
read the enclosed materials carefully.
Sincerely,
/s/ Jeffrey G. Webb
JEFFREY G. WEBB
Chairman, President and Chief
Executive Officer
