SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001


                         Commission file number: 0-19298


               VARSITY BRANDS, INC. (FORMERLY RIDDELL SPORTS INC.)
             (Exact name of registrant as specified in its charter)


         DELAWARE                                      22-2890400
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


              2525 HORIZON LAKE DRIVE, SUITE 1, MEMPHIS, TENNESSEE
            38133 (Address of principal executive offices) (Zip code)

                                 (901) 387-4300
              (Registrant's telephone number, including area code)

                  1450 BROADWAY, SUITE 2001, NEW YORK, NY 10018
         (Former name, former address and former fiscal year, if changed
                               since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1935 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

                 9,452,250 Common Shares as of November 7, 2001

<PAGE>

                              VARSITY BRANDS, INC.

                                      INDEX

<TABLE>
<CAPTION>

                                                                                      PAGE
                                                                                      ----
<S>                                                                                    <C>
Form 10-Q Cover Page                                                                    1
Form 10-Q Index                                                                         2
Part I.  Financial Information:
            Item 1.  Financial Statements:
                  Condensed Consolidated Balance Sheets                                 4
                  Condensed Consolidated Statements of Operations                       5
                  Condensed Consolidated Statements of Stockholders' Equity             6
                  Condensed Consolidated Statements of Cash Flows                       7
                  Notes to Condensed Consolidated Financial Statements                  8
            Item 2.  Management's Discussion and Analysis of
                     Financial Condition and Results of Operations                      14
Part II. Other Information:
            Item 1.  Legal Proceedings                                                  20
            Item 2.  Changes in Securities                                              21
            Item 3.  Defaults upon Senior Securities                                    21
            Item 4.  Submission of Matters to a Vote of Security Holders                21
            Item 5.  Other Information                                                  21
            Item 6.  Exhibits and Reports on Form 8-K                                   21
Signatures                                                                              22

</TABLE>


         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

       This report contains certain statements which are "forward-looking"
statements under the federal securities laws that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. Forward-looking statements appear throughout Item 2 of Part I,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning Varsity's seasonal patterns of working capital and
revenue and operating results in its business. Certain factors could cause
actual results to differ materially from those in the forward-looking statements
including without limitation, (i) continuation of historical seasonal patterns
of demand for Varsity's products and Varsity's ability to meet the demand; (ii)
actions by competitors, including without limitation new product introductions;
(iii) the loss of domestic or foreign suppliers; (iv) changes in business
strategy or new product lines and Varsity's ability to successfully implement
these; (v) moderation of uniform and accessories revenue growth; and (vi)
changes in interest rates and general economic conditions. Varsity does not
intend to update these forward-looking statements.

       Since the unprecedented September 11 terrorist attack on American soil,
U.S. business activities related to domestic and international travel, in
general, have been


                                       2

<PAGE>


materially and adversely affected. A number of the Company's business lines that
are travel related, including the Company's annual Thanksgiving trips, which
includes the Macy's Thanksgiving Day Parade, its annual Chistmas trips to London
and Paris for high school cheerleader and dance team participants, and its
cheerleading competitions which are held at Disney World in Orlando. These trips
occur during the fourth quarter of fiscal year 2001, and the first quarter of
fiscal year 2002. Although the Company presently believes that the general
travel concerns, which currently exist, will have some impact on those business
lines, the nature and extent of such impact cannot be quantified at the present
time. The Company will continue to monitor the performance of its travel
related, and other, business lines and will record and disclose the nature of
any costs at such time as they can be reasonably estimated to be related to
terrorist activities in accordance with Issue No. 01-10 of the Financial
Accounting Standards Board's Emerging Issues Task Force. "Accounting for the
Impact of Terrorist Activities of September 11, 2001.



                                       3


<PAGE>


Part I.  FINANCIAL INFORMATION; Item 1.  FINANCIAL STATEMENTS



Part I. FINANCIAL INFORMATION; Item 1    FINANCIAL STATEMENTS

                     VARSITY BRANDS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>

                                               September 30,          December 31,          September 30,
                                                   2001                   2000                   2000
                                                ---------             ----------              ---------
<S>                                             <C>                   <C>                    <C>
ASSETS
Current assets:
  Cash and investments                          $  26,299              $     109              $     198
  Accounts receivable, trade less
    allowance for doubtful
    accounts ($394, $400 and $636,
    respectively)                                  30,915                 14,473                 31,840
  Inventories                                       9,148                  7,202                  8,700
  Prepaid expenses                                  1,636                  3,250                  1,714
  Other receivables                                  --                    1,454                  1,454
  Deferred taxes                                    2,040                  2,270                  2,076
  Assets held for disposal                          5,830                 87,632                 97,530
                                                ---------              ---------              ---------
Total current assets                               75,868                116,390                143,512

Property, plant and equipment, less
  accumulated Depreciation
  ($8,616, $7,577 and $7,077,
  respectively)                                     4,129                  4,349                  3,996
Intangibles and deferred charges,
  less accumulated amortization
  ($12,940, $10,858 and $10,159,
  respectively)                                    70,842                 72,615                 73,306
Other assets                                          614                    463                    438
                                                ---------              ---------              ---------
                                                $ 151,453              $ 193,817              $ 221,252
                                                =========              =========              =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $  11,289              $   4,072              $  12,114
  Accrued liabililties                              8,907                  7,131                  6,316
  Customer deposits                                 3,275                  5,490                  3,299
  Liabilities of discontinued
    businesses                                       --                   10,063                 11,983
                                                ---------              ---------              ---------

Total current liabilities                          23,471                 26,756                 33,712

Long-term debt                                    112,500                138,919                150,339
Deferred taxes                                       --                    2,270                  2,076
Other liabilities                                    --                     --                     --
Contingent liabilities                               --                     --                     --

Stockholders' equity:
  Preferred stock                                    --                     --                     --
  Common stock                                         95                     95                     95
  Additional paid-in capital                       37,306                 37,306                 37,306
  Accumulated deficit                             (21,919)               (11,529)                (2,276)
                                                ---------              ---------              ---------

                                                   15,482                 25,872                 35,125
                                                ---------              ---------              ---------

                                                $ 151,453              $ 193,817              $ 221,252
                                                =========              =========              =========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                      VARSITY BRANDS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                     SEPTEMBER  30,                SEPTEMBER 30,
                                                                ----------------------       -----------------------
                                                                  2001          2000           2001            2000
                                                                -------        -------       --------        -------
<S>                                                             <C>            <C>           <C>             <C>
Net revenues:
  Uniforms and accessories                                     $ 32,049       $ 31,368       $ 76,030       $ 67,837
  Camps and events                                               28,077         26,282         54,766         51,477
                                                                -------        -------       --------        -------
                                                                 60,126         57,650        130,796        119,314
Cost of revenues:
  Uniforms and accessories                                       16,390         15,885         40,383         35,812
  Camps and events                                               19,248         17,965         36,698         35,122
                                                                -------        -------       --------        -------
Cost of revenues                                                 35,638         33,850         77,081         70,934
                                                                -------        -------       --------        -------
Gross profit                                                     24,488         23,800         53,715         48,380
Selling, general and
 administrative expenses                                         12,697         12,359         36,551         33,586
                                                                -------        -------       --------        -------
Income from operations                                           11,791         11,441         17,164         14,794
Other expense
  Interest expense, net                                           2,990          3,804          7,536          9,276
                                                                -------        -------       --------        -------
Total other expense                                               2,990          3,804          7,536          9,276
                                                                -------        -------       --------        -------
Income from continuing operations
  before income taxes, discontinued
  operations and extraordinary items                              8,801          7,637          9,628          5,518
Income taxes                                                      1,600           --            1,600           --
                                                                -------        -------       --------        -------
Income from continuing operations                                 7,201          7,637          8,028          5,518
Discontinued operations:
Income (loss) from operations of discontinued businesses           (113)         2,455         (1,490)         4,296
  Loss on disposal of businesses                                   --             --          (18,558)          --
                                                                -------        -------       --------        -------
Total income (expense) from discontinued operations
  before extraordinary items                                      7,088         10,092        (12,020)         9,814
Extraordinary items - Gain on
Retirement of Bonds                                               1,630           --            1,630           --
                                                                -------        -------       --------        -------
Net income (loss)                                               $ 8,718        $10,092       $(10,390)       $ 9,814
                                                                =======        =======       ========        =======
Income from continuing operations per share
  Basic                                                         $  0.76        $  0.81       $   0.85        $  0.59
  Diluted                                                       $  0.66        $  0.70       $   0.76        $  0.54

Net earnings (loss) per share:
  Basic                                                         $  0.92        $  1.07       $  (1.10)       $  1.05
  Diluted                                                       $  0.79        $  0.92       $  (1.10)       $  0.93

Weighted average number common and
common equivalent shares outstanding:
  Basic                                                           9,452          9,449          9,452          9,369
  Diluted                                                        11,149         11,111         11,048         10,852
</TABLE>


           See notes to condensed consolidated financial statements.

                                       5


<PAGE>

                      VARSITY BRANDS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
                                     EQUITY
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                                  Retained
                                                                 Common Stock       Additional     Earnings       Total
                                                            ---------------------    paid-in    (Accumulated  Stockholders'
                                                             Shares       Amount     Capital       deficit)       Equity
                                                            ---------   ---------   ----------    ----------     -------
<S>                                                         <C>         <C>        <C>           <C>            <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Balance, January 1, 2000                                     9,263            93       36,862      (12,090)       24,865
Stock issued to employees                                       54           --           169           --           169
Issuance of common stock upon
exercise of stock options                                      135             2          275           --           277
Net income for the period                                     --             --            --        9,814         9,814
                                                             -----         -----       ------      --------       -------
                                                             9,452            95       37,306       (2,276)       35,125
                                                             =====         =====       ======      ========       =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Balance, January 1, 2001                                     9,452            95       37,306      (11,529)       25,872
Net loss for the period                                       --              --           --      (10,390)      (10,390)
                                                             -----         -----       ------      --------       -------
                                                             9,452            95       37,306      (21,919)       15,482
                                                             =====         =====       ======      ========       =======
</TABLE>


            See notes to condensed consolidated financial statements


                                        6
<PAGE>

                     VARSITY BRANDS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                         Three Months Ended      Nine Months Ended
                                                            September 30,          September 30,
                                                       ----------------------  ---------------------
                                                          2001         2000      2001         2000
                                                       -----------  ---------  ----------   --------
<S>                                                   <C>          <C>         <C>          <C>
Cash flows from operating activities:
 Net income (loss)                                     $  8,718    $ 10,092    $(10,390)   $  9,814
 Adjustments to reconcile net
  income (loss) to net
  cash used in operating activities:
  Depreciation and amortization:
    Amortization of debt issue costs                        173         216         605         648
    Other depreciation and amortization                   1,041         941       2,976       2,731
  Loss on sale of businesses                               --          --        18,558        --
  Gain on redemption of bonds                            (2,680)       --        (2,680)       --
  Provision for losses on accounts receivable               150         225         275         294
  Deferred taxes                                           --          --        (2,040)       --
 (Increase) decrease in net assets held for disposal        704       8,513      (8,690)    (13,335)
 Changes in assets and liabilities:
  (Increase) decrease in:
    Accounts receivable, trade                            5,853         (79)    (16,717)    (20,146)
    Inventories                                           4,236       3,714      (1,946)        628
    Prepaid expenses                                      2,586       1,746       1,614       2,533
    Other receivables                                      --            39       1,454         (28)
    Other assets                                            (54)         68        (151)      1,409
  Increase (decrease) in:
    Accounts payable                                     (5,431)     (2,703)      7,217       7,431
    Accrued liabilities                                     313      (2,227)      1,776      (1,349)
    Customer deposits                                   (10,751)    (11,396)     (2,215)     (2,791)
                                                       --------    --------    --------    --------
Net cash provided by (used in) operating activities       4,858       9,149     (10,354)    (12,161)

Cash flows from investing activities:
  Capital expenditures                                     (344)       (697)     (1,275)     (1,459)
  Other assets                                             (360)        (43)       (360)       (327)
  Net proceeds received from sale of Riddell Sports
    Division                                               --          --        61,871        --
                                                       --------    --------    --------    --------
Net cash provided by (used in) investing activities        (704)       (740)     60,236      (1,786)
Cash flows from financing activities:
  Net repayments under line-of-credit agreement            --        (8,870)    (16,419)     14,242
  Redemption of senior bonds                             (7,050)       --        (7,050)       --
  Debt Issue Costs                                         (223)       --          (223)       --
  Proceeds from issuance of common stock                   --            21        --           277
                                                       --------    --------    --------    --------
Net cash provided by (used in) financing activities      (7,273)     (8,849)    (23,692)     14,519
                                                       --------    --------    --------    --------
Net increase (decrease) in cash                          (3,119)       (440)     26,190         572
Cash, beginning                                          29,418         638         109        (374)
                                                       --------    --------    --------    --------
Cash, ending                                           $ 26,299    $    198    $ 26,299    $    198
                                                       ========    ========    ========    ========
</TABLE>

           See notes to condensed consolidated financial statements.

                                        7
<PAGE>



                      VARSITY BRANDS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

       The condensed consolidated financial statements represent Varsity Brands,
Inc., formerly known as Riddell Sports Inc., ("Varsity" or the "Company") and
its wholly-owned subsidiaries. The Company changed its name in September 2001 in
conjunction with the sale of the Riddell Group Division in June 2001. See Item 5
below. All significant intercompany accounts and transactions have been
eliminated. These statements are unaudited, and in the opinion of management
include all adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation of Varsity's condensed consolidated financial
position and the condensed consolidated results of its operations and cash flows
at September 30, 2001 and 2000 and for the periods then ended. Certain
information and footnote disclosures made in Varsity's last Annual Report on
Form 10-K have been condensed or omitted for these interim statements.
Accordingly, these condensed consolidated financial statements should be read in
conjunction with Varsity's Annual Report on Form 10-K for the year ended
December 31, 2000. Operating results for the nine months ended September 30,
2001 are not necessarily indicative of the results to be expected during the
remainder of 2001.

2.       DISPOSITION OF ASSETS

       On June 22, 2001, the Company completed the sale of its Riddell Group
Division to an acquisition affiliate of Lincolnshire Management, Inc., a New
York based, private-equity fund. The purchase price, which was determined by an
arms-length negotiation, was for approximately $61 million in cash, plus an
adjustment to cover seasonal funded indebtedness incurred by the Riddell Group
Division during 2001. The current amount of the adjustment is estimated at $6.4
million for a total purchase price of approximately $67.4 million.

       The sale was made pursuant to a stock purchase agreement dated April 27,
2001 between the Company and Lincolnshire. The Riddell Group Division included:
(i) all of the Company's team sports business, excluding Umbro branded team
soccer products, (ii) the Company's licensing segment, which allows
third-parties to market certain products using the Riddell and MacGregor
trademarks, and (iii) the Company's retail segment, including the New York
Executive Office, which managed the retail and licensing segments, and marketed
a line of sports collectibles and athletic equipment, principally to retailers
in the United States, and to a limited extent internationally. In conjunction
with the sale of the Riddell Group Division, the Company recognized a decline in
value in its net minority investment in a company who makes game uniforms on
behalf of the Riddell Group Division. The Company had previously accounted for
its investment in the game uniform company using the equity method of
accounting. As a result of the sale of the Riddell Group Division and the
write-down in the value of its minority investment in the game uniform

                                       8

<PAGE>


company, the Company recorded a loss on the sale of the Riddell Group Division
of $20.6 million ($18.6 million after tax) in the second quarter of 2001.

       The net operating results of the Riddell Group Division are presented as
income from operations of discontinued businesses in the Condensed Consolidated
Statements of Operations. Revenues generated by the Riddell Group Division for
the nine-month and three-month periods ended September 30, 2001 and 2000 were
$42.4 million, $0, $75.1 million and $27.2 million, respectively.

       In September 2001, the Company settled the litigation that it had brought
earlier this year against Umbro Worldwide, Ltd. ("Umbro Worldwide") involving
the licensing agreement between the Company and Umbro Worldwide. The license
agreement allowed Varsity to sell Umbro branded soccer apparel, equipment and
footwear to soccer specialty stores and others in the team channel of
distribution, principally in the United States.

       In connection with the settlement and in exchange for a lump sum payment
of $5.5 million ($2.75 million was received on October 1, 2001 and the remaining
payment of $2.75 million is due on January 2, 2002) and Umbro Worldwide's
agreement to make certain payments to the Company in the future, including the
purchase, at net realizable value, of certain inventory from the Company, for
which the Company will receive payments in six consecutive installments
commencing in February 2002, the Company has voluntarily agreed to terminate its
license effective November 30, 2001. The Company will reflect the transaction as
of the effective date upon determination of reserves necessary in conjunction
with the purchase of inventory by Umbro Worldwide.

       The net operating results of the Umbro Division are presented in income
from discontinued operations of discontinued businesses in the Condensed
Consolidated Statements of Operations. Revenues generated by the Umbro division
for the nine-month and three-month periods ended September 30, 2001 and 2000
were $8.6 million, $3.9 million, $8.1 million and $3.4 million, respectively.

3.       EARNINGS PER SHARE

       Basic earnings (loss) per share amounts have been computed by dividing
earnings (loss) by the weighted average number of outstanding common shares.
Diluted earnings (loss) per share is computed by adjusting earnings for the
effect of the assumed conversion of dilutive securities and dividing the result
by the weighted average number of common share and common equivalent shares
relating to dilutive securities. A reconciliation between the numerators and
denominators for these calculations follows:

                                       9

<PAGE>



<TABLE>
<CAPTION>

                                                    Three months ended            Nine months ended
                                                       September 30,                September 30,
                                                       2001      2000       2001         2000
                                                               (In thousands)
<S>                                                 <C>        <C>        <C>         <C>
Earnings (loss) - numerator
Net income (loss)                                   $  8,718   $ 10,092   ($10,390)   $  9,814
Effect of assumed conversion of
convertible debt, when dilutive -
interest savings                                         105        105       --           314
                                                    --------   --------   --------    --------
Numerator for diluted per share
computation                                         $  8,823   $ 10,197   ($10,390)   $ 10,128
                                                    ========   ========   ========    ========
Shares - denominator                                   9,452      9,449      9,452       9,369
Weighted average number of
outstanding common shares
Weighted average common equivalent
shares:
Options,  assumed exercise of dilutive
options, net of treasury shares which
could have been purchased from the proceeds
of the assumed exercise based on
average
market prices                                             --        267         --          88
Convertible debt, assumed
conversion when dilutive                               1,697      1,395         --       1,395
                                                    --------   --------   --------    --------
Denominator for diluted per share
computation                                           11,149     11,111      9,452      10,852
                                                    ========   ========   ========    ========

</TABLE>

                                       10

<PAGE>

<TABLE>
<CAPTION>

                                                   Three months ended      Nine months ended
                                                      September 30,         September 30,
                                                    2001        2000       2001      2000
                                                               (In thousands)
<S>                                                <C>       <C>        <C>       <C>
Income from continuing operations -
numerator
Income from continuing operations                   $ 7,201   $ 7,637   $ 8,028   $ 5,518
Effect of assumed conversion of
convertible debt, when dilutive -
interest savings                                        105       105       314       314
                                                    -------   -------   -------   -------
Numerator for diluted per share
computation                                         $ 7,306   $ 7,742   $ 8,342   $ 5,832
                                                    =======   =======   =======   =======
Shares - denominator                                  9,452     9,449     9,452     9,369
Weighted average number of
outstanding common shares
Weighted average common equivalent
shares:
Options,  assumed exercise of dilutive
options, net of treasury shares which
could have been purchased from the
proceeds of the assumed exercise based on
average
market prices                                            --       267        --        88
Convertible debt, assumed
conversion when dilutive                              1,697     1,395     1,596     1,395
                                                    -------   -------   -------   -------
Denominator for diluted per share
computation                                          11,149    11,111    11,048    10,852
                                                    =======   =======   =======   =======
</TABLE>


       For the nine-month period ended September 30, 2001 potentially dilutive
securities, which include convertible debt and common stock options, were not
dilutive due to the net losses incurred and were excluded from the computation
of diluted earnings per share.

4.       RECEIVABLES

       Accounts receivable include unbilled shipments of approximately
$1,636,000, $350,000 and $3,240,000 at September 30, 2001, December 31, 2000 and
September 30, 2000, respectively. It is Varsity's policy to record revenues when
the related goods have been shipped. Unbilled shipments represent receivables
for shipments that have not yet been invoiced. These amounts relate principally
to partial shipments to customers who are not invoiced until their order is
shipped in its entirety or customers with orders containing other terms that
require a deferral in the issuance of the invoice. Management believes that
substantially all of these unbilled receivables will be invoiced within the
current sales season.

                                       11

<PAGE>

5.       INVENTORIES
<TABLE>
<CAPTION>


Inventories consist of the following:
(In thousands)                                 September 30,      December 31,   September 30,
                                                   2001              2000            2000
                                               -----------------------------------------------
<S>                                            <C>                <C>            <C>
Finished goods                                 $6,893               $5,355         $6,087
Raw materials                                   2,255                1,847          2,613
                                               -----------------------------------------------
                                               $9,148               $7,202        $8,700
                                               ===============================================

</TABLE>


6.       SUPPLEMENTAL CASH FLOW INFORMATION

       Cash paid for interest was $6,780,000 and $7,036,000 for the  three-month
periods ended  September 30, 2001 and 2000,  respectively,  and  $14,349,000 and
$14,730,000  for the  nine-month  periods  ended  September  30,  2001 and 2000,
respectively.  During the nine months ended September 30, 2001, Varsity received
an income tax refund of approximately  $1,500,000 related to a carry back of net
operating  losses of its  Varsity  Spirit  Corporation  subsidiary  for  periods
preceding the 1997  acquisition of Varsity Spirit  Corporation.  This tax refund
had been recorded as a receivable at the time of the  acquisition.  Other income
tax payments, or refunds, were not significant for the other three periods ended
September 30, 2001 and 2000.

       During the  nine-month  period ended  September 30, 2000,  Varsity issued
shares of its common stock,  valued at $169,000 based on quoted market values at
the time of grant,  to certain  employees  in  satisfaction  of an  accrual  for
compensation included in accrued liabilities at December 31, 1999.

7.       INCOME TAXES

       Operating  results for the three and nine-month  periods ended  September
30,  2001,  reflect an income tax  expense  based on the  anticipated  effective
annual rate for 2001.  The  anticipated  effective  annual tax rate is estimated
based on remaining net operating loss  carryforwards and anticipated  income and
non-dedectible  expenses  for the year.  The  actual tax rate for the year could
vary substantially from the anticipated rate due to the use of these estimates.

       Operating results from continuing operations for the three and nine-month
periods  ended  September  30,  2000  included  no income tax expense or benefit
because net operating loss  carryforwards  were available to offset income taxes
for the year ended December 31, 2000.

       The Company  recorded a $1 million income tax expense in conjunction with
the  extraordinary  gain  realized on the  retirement of Senior Notes during the
third quarter of 2001. This expense is shown as a reduction of the extraordinary
gain  on  retirement  of  bonds  in  the  Condensed  Consolidated  Statements of
Operations.

                                       12

<PAGE>


           A tax benefit of $2,040,000  was  recognized in the second quarter of
2001 in  conjunction  with the loss  realized on the sale of the Riddell  Sports
Group. This benefit is included in Discontinued operations - Loss on disposal of
businesses in the Condensed Consolidated Statement of Operations.




8.    SEGMENT INFORMATION

       Net revenues and income or loss from  operations  for the  Company's  two
reportable segments are as follows:


<TABLE>
<CAPTION>


                                                         THREE   MONTHS  ENDED            NINE  MONTHS ENDED
                                                              SEPTEMBER 30,                 SEPTEMBER  30,
                                                      ---------------------------------------------------------
                                                      2001            2000             2001            2000
                                                      ---------------------------------------------------------
                                                                            (In thousands)
<S>                                                   <C>            <C>               <C>           <C>
Net revenues:
    Uniforms and accesories......................      $32,049        $31,368           $76,030        $67,837
    Camps and  events............................       28,077         26,282            54,766         51,477
                                                        ------         ------            ------      ---------
    Consolidated total...........................      $60,126        $57,650          $130,796       $119,314
                                                       =======================================================
Income (loss) from operations:
    Uniforms and accessories.....................       $7,314         $7,173           $12,798        $10,658
    Camps and events.............................        4,920          4,635             5,872          5,678
    Corporate and unallocated expenses...........         (443)          (367)           (1,506)        (1,542)
                                                          -----          ----            ------         -------
        Consolidated total.......................      $11,791        $11,441           $17,164        $14,794
                                                       =======================================================
</TABLE>



9.    SUBSEQUENT EVENT

       Subsequent to September 30, 2001,  the Company  repurchased an additional
$1.8 million of its 10.5% Senior Notes for a total cost, including  commissions,
of $1.3 million. As a result of these repurchases, the Company will recognize an
extraordinary gain, before tax, of approximately $0.5 million.

       On November 14, 2001,  the Board of Directors  authorized the Company to
expend up to $23.1  million of the cash  proceeds from the sale of RGD to tender
for the  repurchase  of some of the  Company's  10.5%  senior  notes.  The Board
authorized  the  Company  to offer a minimum  of $700 and a maximum  of $800 per
$1,000 in principal amount to acquire such notes.


10.  RECLASSIFICATION OF PRIOR PERIODS

       Certain  prior  period  balances  have been  reclassified  to  conform to
current year presentation.

                                       13

<PAGE>


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

        Overview and seasonality

       On June 22, 2001,  the Company  completed  the sale of its Riddell  Group
Division ("RGD") to an acquisition affiliate of Lincolnshire Management, Inc., a
New York based private equity fund. In  conjunction  with this sale, the Company
wrote down its net minority  investment in an entity that provides game uniforms
to RGD. As a result of these two  transactions,  the Company  recorded a loss of
$20.6 million ($18.6 million after tax). In September  2001, the Company settled
the litigation that had been brought earlier this year against Umbro  Worldwide,
Ltd. ("Umbro  Worldwide")  involving its licensing agreement between the Company
and Umbro  Worldwide.  In connection  with the settlement and in exchange for an
upfront  payment and Umbro  Worldwide's  agreement  to make  certain  additional
payments  to the  Company,  until the third  quarter of 2002,  the  Company  has
voluntarily  agreed to terminate its license  effective  November 30, 2001.  The
Company will reflect the transaction as of the effective date upon determination
of reserves  necessary  in  conjunction  with the purchase of inventory by Umbro
Worldwide..  RGD's and  Umbro's  operating  results  are  shown as  income  from
operations of discontinued  businesses in the Condensed Consolidated  Statements
of Operations.

       RGD included:  (i) all of the Company's Team Sports  business,  excluding
Umbro branded team soccer products,  (ii) the Company's licensing segment, which
allowed third-parties to market certain products using the Riddell and MacGregor
trademarks,  and (iii) the Company's  retail  segment,  which marketed a line of
sports collectibles and athletic equipment to retailers.

       The  Umbro  operations  that are  being  discontinued  as a result of the
termination of the license with Umbro Worldwide  included sales of Umbro branded
soccer apparel,  equipment and footwear to soccer specialty stores and others in
the team channel of distribution, primarily in the United States.

       As a  result  of the  sale  of RGD and the  discontinuance  of the  Umbro
license, Varsity's continuing financial results consist of operations within the
school spirit  industry,  including:  (i) the design,  market and manufacture of
cheerleader  and dance team  uniforms  and  accessories,  (ii) the  operation of
cheerleading  and dance  team camps  throughout  the  United  States,  (iii) the
production of nationally televised cheerleading and dance team championships and
other  special  events and (iv) the operation of studio dance  competitions  and
conventions.

                                       14

<PAGE>


       During  the third  quarter  of 2001,  the  Company  used a portion of the
proceeds  received from the sale of RGD to  repurchase  $10 million of its 10.5%
Senior Notes for a total cost,  including  commissions,  of $7.1  million.  As a
result of the  repurchase,  the  Company  recognized  an  extraordinary  gain of
approximately  $1.6 million,  net of income taxes,  commissions and related debt
acquisition  costs.  Subsequent to September 30, 2001,  the Company  repurchased
$1.8 million of its 10.5% Senior Notes for a total cost, including  commissions,
of $1.3  million,  resulting  in an  extraordinary  gain,  before  tax,  of $0.5
million.

       The  Company  posted net  income of $8.7  million,  or $0.79 per  diluted
share,  for the third quarter of 2001,  compared with earnings of $10.1 million,
or $0.92 per diluted share, a year earlier.

       Operating  income before  interest,  taxes,  discontinued  operations and
extraordinary items for the third quarter of 2001 increased $0.4 million, or 3%,
to $11.8  million  from  $11.4  million in the third  quarter  of 2000.  For the
nine-month  period,  operating  income  before  interest,   taxes,  discontinued
operations and  extraordinary  items increased $2.4 million,  or 16%, in 2001 to
$17.2 million from $14.8 million in 2000.  Varsity  benefited  from increases in
revenues and  decreases  in selling,  general and  administrative  expenses as a
percentage of sales, as described in more detail in the discussion which follows
this overview.

       The  Company's  operations  are highly  seasonal.  In recent  years,  the
Company's operations have been profitable in the second and third quarters, with
the third quarter  typically the  strongest,  while losses have  typically  been
incurred in the first and fourth quarters.

       The  operating  results of RGD and the Umbro  Division  are  reported  as
income from operations of discontinued  businesses in the Condensed Consolidated
Statements of Operations.  The following management's discussion and analysis of
financial  condition  reflects  changes  occurring in the Company's  income from
continuing operations,  exclusive of the discontinued  operations of RGD and the
Umbro division.

       Revenues

       Revenues for the three-month period ended September 30, 2001 increased by
$2.4 million, or 4%, to $60.1 million from $57.7 million in the third quarter of
2000. For the nine-month period ended September 30, 2001,  revenues increased by
$11.5 million,  or 10%, to $130.8 million from $119.3 million for the first nine
months of 2000.


                                       15

<PAGE>


       Revenues  from the sale of uniforms  and  accessories  increased  by $0.7
million,  or 2%, to $32.0  million  in the  second  quarter  of 2001 from  $31.3
million for the second quarter of 2000. For the nine-month  period,  uniform and
accessories revenues increased by $8.2 million, or 12%, to $76.0 million in 2001
from $67.8 million in 2000. This increase was  attributable to an overall strong
increase in most product categories, primarily uniforms and lettering, offset by
a slight  decrease  in  campwear  and shoe sales.  The  significant  increase in
revenues is a direct  result of quicker  delivery of  uniforms  and  accessories
combined with higher merchandise sales generated at our instructional camps. The
improvement in delivery times is partially  attributable to improvements made to
the Company's order entry system combined with better  availability of inventory
items for  delivery.  The  improvement  in camp  merchandise  sales is partially
attributable to the  consolidation of merchandising  and warehousing  activities
within our camps and events divisions.

       Revenues from camps and events increased by $1.8 million, or 7%, to $28.1
million in the third  quarter of 2001 from $26.3 million in the third quarter of
2000. For the nine-month  period,  camps and events  revenues  increased by $3.3
million,  or 6%,  to $54.8  million  in 2001 from  $51.5  million  in 2000.  The
increase in revenues for the nine-month  period is directly  attributable to the
following:  (i) a 50%  revenue  growth,  or $0.6  million,  in our studio  dance
competitions  and  conventions,  such growth being directly  attributable to the
acquisition  of the assets of the Netherland  Corporation,  an operator of dance
competitions,  in June 2000, and (ii) a 7% increase in camp participants  during
the first  nine  months of 2001 as  compared  to the same  period in 2000.  Such
increases  were  offset  somewhat  by a decrease in the number of choir and band
tours handled by the Company's  group tour business during the first nine months
of 2001.  The three month increase in revenues is directly  attributable  to the
increase in camp participants, offset by the decrease in group tour business and
by $0.4  million  loss of revenues  related to a change in the timing of the Co.
Dance  National  Finals from the third quarter of 2000 to the second  quarter of
2001.

  Gross Profit

       Gross  profit  for the third  quarter  of 2001  increased  by 3% to $24.5
million from $23.8 million in the third  quarter of 2000 and for the  nine-month
period  increased  by 11% to $53.7  million in 2001 from $48.4  million in 2000.
Gross margin  rates  decreased  by 0.6  percentage  points to 40.7% in the third
quarter of 2001 from 41.3% in the third  quarter of 2000.  For the  year-to-date
period, gross margin rates increased to 41.1% in 2001 from 40.5% in 2000.

       Gross margin rates for the uniforms and accessories  segment decreased to
48.9% in the third quarter of 2001 from 49.4% in the third quarter of 2000.  For
the nine-month period the segment's margin rates decreased to 46.9% in 2001 from
47.3% in 2000.  These  decreases are a result of lower margins earned on the new
performance dance wear line as compared to our other uniform lines combined with
slightly  higher  manufacturing  costs  associated  with the new  warehouse  and
production  facility.



                                       16
<PAGE>



       Gross margin rates for the camps and events segment decreased to 31.4% in
the third  quarter  of 2001 from  31.6% in the third  quarter  of 2000.  For the
nine-month  period the  segment's  margin rates  increased to 33.0% in 2001 from
31.8% in 2000. The increase in the nine month gross margin rate is primarily due
to the overall decrease in the Company's 2001 group tour operations,  which have
historically generated lower gross margins than the other parts of the Company's
business;  therefore,  the  decrease  in group tour  operations  resulted  in an
overall  increase in the  segment's  gross  margin  rate.  The  increase is also
partially  due  to  increased   participation  in  the  Company's  studio  dance
competitions  and conventions  which have  historically  generated  higher gross
margins than the cheerleading and dance camps.

  Selling, general and administrative

       Selling, general and administrative expenses decreased as a percentage of
revenues to 21.1% in the third  quarter of 2001 from 21.4% in the third  quarter
of 2000. For the nine-month period, selling,  general and administrative expense
as a percentage  of revenues  decreased  slightly to 27.9% in 2001 from 28.1% in
2000.  The  improvement  is  principally  due to economies of scale  realized by
spreading  fixed and certain  variable  administrative  expenses  over a greater
revenue base.

       Selling,  general and administrative expenses as a percentage of revenues
with respect to the uniforms and accessories  segment  decreased to 26.0% in the
third  quarter  of 2001  from  26.5%  in the  third  quarter  of  2000.  For the
nine-month  period the segment's  selling,  general and  administrative  expense
ratio  decreased  to 30.0% in 2001 from 31.5% in 2000.  These  gains were due to
improved economies of scale as discussed in the preceding paragraph.

       Selling,  general  and  administrative  expense  ratios for the camps and
events segment increased to 14.4% in the third quarter of 2001 from 14.0% in the
second quarter of 2000. For the  nine-month  period the segment's  expense ratio
increased  to 22.3% in 2001 from  20.7% in 2000.  Both the  three-month  and the
nine-month  increases are due to additional overhead incurred as a result of the
acquisition  of  the  assets  of  the  Netherland   Corporation  in  June  2000.
Netherland's  management team is responsible  for managing the Company's  studio
dance competitions and conventions, as well as the Company's line of performance
and recital dance wear, introduced during fiscal 2000.

  Interest Expense

       Interest  expense for the nine-month  period ended September 30, 2001 has
been reduced by $3.1 million as a result of an allocation of interest expense to
the  discontinued   operations  of  RGD.  Interest   allocated  to  discontinued
operations for the nine-month period ended September 30, 2000 is $3.2 million.


                                       17

<PAGE>


       Interest  expense,  after the  allocation  of  interest  to  discontinued
operations,  decreased by $0.8  million to $3.0 million in the third  quarter of
2001 from $3.8 million in the third quarter of 2000. For the  nine-month  period
ended  September 30, 2001,  interest  expense  decreased by $1.8 million to $7.5
million from $9.3 million in the first nine months of 2000. Interest expense for
both periods  decreased due to lower  interest on the  revolving  line of credit
resulting  from lower  outstanding  indebtedness  and decreases in the prime and
LIBOR  interest  rates during 2001.  The net interest  expense for the year also
decreased  due to the receipt of interest  income of  approximately  $250,000 as
part of a federal  tax  refund  and  interest  earned  on the net cash  proceeds
received  from the sale of RGD.  The tax  refund  related to a carry back of net
operating losses of the Company's  Varsity Spirit  Corporation  subsidiaries for
periods  preceding the 1997 acquisition of Varsity Spirit  Corporation.  The tax
refund was for  approximately  $1.5 million and was recorded as a receivable  at
the time of acquisition.

       As a  result  of the  sale of RGD,  the  Company  used a  portion  of the
proceeds  received,   approximately   $32.7  million,  to  paydown  all  of  the
indebtedness  then outstanding on its line of credit  agreement.  See "Liquidity
and Capital Resources" below.

       During the third quarter,  the Company used a portion of the net proceeds
received  from the sale of RGD to  repurchase  $10  million of its 10.5%  Senior
Notes for a total cost, including  commissions,  of $7.1 million. As a result of
the repurchase,  the Company  recognized an extraordinary  gain of approximately
$1.6 million,  net of income  taxes,  commissions  and related debt  acquisition
costs. Subsequent ot September 30, 2001, the Company repurchased $1.8 million of
its 10.5% Senior Notes for a total cost, including commissions, of $1.3 million,
resulting in an extraordinary gain, before tax, of $0.5 million.

  Income Taxes

       Operating  results for the three and nine-month  periods ended  September
30, 2001,  reflect an income tax expense  based upon the  anticipated  effective
annual rate for 2001. The anticipated  effective  annual rate is estimated based
upon the remaining net operating loss  carryforwards and anticipated  income and
non-deductible  expenses  for the year.  The  actual tax rate for the year could
vary substantially from the anticipated rate due to the use of these estimates.

       Operating results from continuing operations for the three and nine-month
periods  ended  September  30,  2000  included  no income tax  expense or credit
because  management   anticipates  net  operating  loss  carryforwards  will  be
available to offset income taxes for the year ended December 31, 2000.

       The Company  recorded a $1 million income tax expense in conjunction with
the  extraordinary  gain  realized on the  retirement of Senior Notes during the
third quarter of 2001. This expense is shown as a reduction of the extraordinary
gain  on  retirement  of  bonds  in the  Condensed  Consolidated  Statements  of
Operations.

                                       18

<PAGE>


       The  Company  has  recorded  an income  tax  benefit  of $2.1  million in
conjunction  with the loss on sale of RGD.  This benefit is shown as a reduction
of the loss on disposal of businesses in the Condensed  Consolidated  Statements
of Operations.


  Liquidity and Capital Resources

       The  seasonality  of the Company's  working  capital needs is impacted by
three key  factors.  First,  a  significant  portion of the products the Company
sells in the  uniforms and  accessories  segment are sold in the late spring and
summer,  with the related  receivables  collected  in the fall and early  winter
after the new school year begins.  Second,  the Company  incurs costs related to
the Company's  summer camp business from the fourth  quarter and into the second
quarter  as the  Company  prepares  for the  upcoming  camp  season,  while camp
revenues  are mostly  collected  in the mid-May to August  period.  Lastly,  the
Company's  debt  structure   impacts  working  capital   requirements,   as  the
semi-annual  interest payments on the Company's 10.5% Senior Notes come due each
January and July.

       To finance these seasonal working capital demands,  the Company maintains
a credit facility in the form of a revolving line of credit. Histrorically,  the
outstanding  balance on the credit facility  usually follows the seasonal cycles
described above,  increasing during the early part of the operating cycle in the
first and second  quarters of each year and then  decreasing  from the middle of
the third quarter and into the fourth quarter as collections  are used to reduce
the outstanding balance. Such seasonality should continue in the future.

       A portion of the proceeds  received from the sale of the RGD were used to
repay all of the then outstanding indebtedness,  approximately $32.7 million, on
the revolving line of credit.  Outstanding  balances under the revolving  credit
line were $16.4  million at December 31, 2000 and $27.8 million at September 30,
2000.

       In conjunction  with the sale of RGD and the subsequent  repayment of the
then outstanding  indebtedness under its revolving line of credit facility,  the
Company  amended and reduced its  revolving  line of credit  agreement  from $48
million to $15 million.

       According to the terms of the 10.5% Senior  Notes  Agreement,  the use of
the proceeds received from the sale of the RGD, net of applicable  expenses,  is
limited to the reduction of existing  senior  indebtedness,  reinvestment in the
business and/or the acquisitions of outside business interests; provided, in the
event that the Company has not executed a  reinvestment  in the business  and/or
acquisition(s)  of outside  business  interests  within two  hundred and seventy
(270) days after the  receipt of proceeds  from the sale of RGD,  the Company is
required,  under the  terms of the 10.5%  Senior  Notes  Agreement,  to offer to
repurchase the Senior Notes at par. Net cash proceeds remaining from the sale of
RGD, are approximately $23.1 million as of November 14, 2001.



                                       19


<PAGE>



       The  Company's  current debt service  obligations  are  significant  and,
accordingly,   the  Company's  ability  to  meet  its  debt  service  and  other
obligations  will depend on the Company's  future  performance and is subject to
financial,  economic and other  factors,  some of which are beyond the Company's
control.  Furthermore,  due to the seasonality of the Company's  working capital
demands  described above,  year-over-year  growth in the Company's  business and
working capital requirements could lead to higher debt levels in future periods.
Management  believes  operating cash flow together with funds available from the
Company's credit facility will be sufficient to fund the Company's  current debt
service,  seasonal capital expenditures and other working capital  requirements.
However, many factors, including growth and expansion of the Company's business,
could necessitate the need for increased lines of credit or other changes in the
Company's credit facilities in the future.

  Accounting Pronouncements

       In June 2001,  Statement of Financial Accounting Standards No. 141 ("SFAS
141"),  "Business  Combinations"  was issued and is  applicable  to all business
combinations  initiated  after June 30,  2001 and to all  business  combinations
acounted for using the purchase method for which the date of acquisition is July
1, 2001 or later.  SFAS 141 requires all business  combinations  to be accounted
for by the purchase method of accounting.  It also requires separate recognition
of  intangible  assets  that can be  identified  and  named  and  also  requires
disclosure  of  the  primary  reasons  for  the  business  combination  and  the
allocation of the purchase price by balance sheet caption.  The Company does not
presently  expect  the  adoption  of SFAS 141 to have a  material  effect on the
Company's financial statements taken as a whole.

       In June 2001,  Statement of Financial Accounting Standards No. 142 ("SFAS
142"),  "Goodwill and Other  Intangible  Assets" was issued and is effective for
all fiscal years beginning after December 15, 2001. SFAS 142 changes the methods
of amortizing  goodwill and intangible  assets.  Goodwill and intangible  assets
that have  indefinite  useful  lives  will not be  amortized  but will be tested
annually  for  impairment.  Intangible  assets  with  finite  useful  lives will
continue  to be  amortized  over their  useful  lives.  The  statement  provides
specific  guidance for testing goodwill for impairment.  Goodwill will be tested
at least annually with a two-step  process that begins with an estimation of the
fair value of the  reporting  unit.  SFAS 142 is  required  to be applied at the
beginning of an entity's fiscal year with impairment  losses that arise from the
initial  application of this Statement to be reported as resulting from a change
in accounting principle. The Company will implement SFAS 142 as of the beginning
of fiscal 2002.  The Company has not  determined the impact of this statement on
the carrying value of its goodwill and other long-lived intangible assets.

  Part II OTHER INFORMATION

  Item 1.    Legal Proceedings


                                       20

<PAGE>



       The Company  from time to time  becomes  involved  in various  claims and
lawsuits incidental to its business.  None of these matters are expected to have
a material adverse effect on the Company's consolidated financial statements.

  Item 2.    Changes in Securities

             None

  Item 3.    Defaults upon Senior Securities

             None

  Item 4.    Submission of Matters to a Vote of Security Holders

       On  September  19,  2001,   the  Company  held  its  Annual   Meeting  of
Stockholders'  of the  Company.  At the  meeting,  stockholders  of the  Company
re-elected  all  management's  nominees  to the  Board  of  Directors;  approved
changing  the name of the Company from  Riddell  Sports Inc. to Varsity  Brands,
Inc.;  and  ratified  the  appointment  of Grant  Thorton  LLP as the  Company's
independent auditors for the year ended December 31, 2001.

  Item 5.    Other Information

       In conjunction with the sale of the Riddell Sports Division,  the Company
changed its name to Varsity  Brands,  Inc.  from  Riddell  Sports Inc.  The name
change was approved by the  stockholders at the Annual Meeting of  Stockholders'
on September 19, 2001.

  Item 6.    Exhibits and Reports on Form 8-K

            (a)   Exhibit index:

       Note  Purchase  Agreement  between   Riddell  Sports Inc.  and Silver Oak
Capital, L.L.C. dated August 16, 2001

       4.10% Senior Note due November 1, 2007

       Registration  Rights Agreement between Riddell Sports Inc. and Silver Oak
Capital, L.L.C., dated August 16, 2001

       Subordinated   Guaranty,   dated  August  16,  2001  by  Varsity   Spirit
Corporation and subsidiaries in favor of Silver Oak Capital, L.L.C.

            (b)   Reports on Form 8-K:

                  None

                                       21


<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                   RIDDELL SPORTS INC.


Date:    November 14, 2001.        By:      /s/ Jeffrey G. Webb
                                            President and
                                            Chief Executive Officer

Date:    November 11               By:      /s/  John M. Nichols
                  .                         Chief Financial Officer and
                  .                         Principal Accounting Officer



                                       22
<PAGE>


                               RIDDELL SPORTS INC.



                                   $7,500,000



            4.10% Convertible Subordinated Note due November 1, 2007





                             NOTE PURCHASE AGREEMENT





                                 August 16, 2001

<PAGE>


                                TABLE OF CONTENTS

                                                                            Page

1.        AUTHORIZATION OF NOTE................................................1
2.        DISCHARGE OF EXISTING NOTE AND PURCHASE OF NEW NOTE..................1
3.        CLOSING..............................................................1
4.        CONDITIONS TO CLOSING................................................2
   4.1.   Representations and Warranties.......................................2
   4.2.   Performance; No Default..............................................2
   4.3.   Compliance Certificates..............................................2
   4.4.   Opinion of Counsel...................................................2
   4.5.   Changes in Corporate Structure.......................................3
   4.6.   Proceedings and Documents............................................3
   4.7.   Purchase Permitted By Applicable Law, etc............................3
   4.8.   Registration Rights Agreement........................................3
   4.9.   Subordinated Guaranty................................................3
5.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................3
   5.1.   Organization; Power and Authority....................................3
   5.2.   Authorization, etc...................................................4
   5.3.   Disclosure...........................................................4
   5.4.   Organization and Ownership of Shares of Subsidiaries; Affiliates.....5
   5.5.   Compliance with Laws, Other Instruments, etc.........................6
   5.6.   Governmental Authorizations, etc.....................................6
   5.7.   Litigation; Observance of Agreements, Statutes and Orders............6
   5.8.   Taxes................................................................7
   5.9.   Title to Property; Leases............................................7
   5.10.  Licenses, Permits, etc...............................................8
   5.11.  Compliance with ERISA................................................8
   5.12.  Private Offering by the Company......................................8
   5.13.  Foreign Assets Control Regulations, etc..............................8
   5.14.  Status under Certain Statutes........................................8
   5.15.  Capitalization.......................................................8
   5.16.  Brokers and other Commissions........................................9
   5.17.  Absence of Dividends.................................................9
6.        REPRESENTATIONS OF THE INVESTOR......................................9
   6.1.   Acquisition for Investment...........................................9
7.        INFORMATION AS TO THE COMPANY........................................9
   7.1.   Financial and Business Information...................................9
   7.2.   Officer's Certificate...............................................11
   7.3.   Inspection..........................................................12
8.        PREPAYMENT OF THE NOTES.............................................12
   8.1.   Sinking Funds.......................................................12
   8.2.   Optional Prepayments................................................13
   8.3.   Allocation of Partial Prepayments...................................13
   8.4.   Maturity; Surrender, etc............................................13
   8.5.   Repurchase of Note at Option of the Holder Upon Change of Control...13

<PAGE>


   8.6.   Notices; Method of Exercising Repurchase Right, etc.................14
9.        AFFIRMATIVE COVENANTS...............................................15
   9.1.   Compliance with Law.................................................15
   9.2.   Insurance...........................................................15
   9.3.   Maintenance of Properties...........................................16
   9.4.   Payment of Taxes and Claims.........................................16
   9.5.   Corporate Existence, etc............................................16
   9.6.   Guaranty by New Subsidiaries........................................16
10.       NEGATIVE COVENANTS..................................................17
   10.1.  Transactions with Affiliates........................................17
   10.2.  Merger; Purchase of Assets; Acquisitions; etc.......................18
   10.3.  Anti-Layering.......................................................19
   10.4.  Limitations on Grants of Options....................................19
11.       EVENTS OF DEFAULT...................................................20
12.       REMEDIES ON DEFAULT, ETC............................................22
   12.1.  Acceleration........................................................22
   12.2.  Other Remedies......................................................22
   12.3.  No Waivers or Election of Remedies, Expenses, etc...................23
13.       SUBORDINATION.......................................................23
   13.1.  Note Subordinated to Senior Indebtedness............................23
   13.2.  No Payment on the Note in Certain Circumstances.....................23
   13.3.  Note Subordinated to Prior Payment of All Senior Indebtedness
          on Acceleration of Principal of the Note or on Dissolution,
          Liquidation or Reorganization.......................................25
   13.4.  Noteholders to Be Subrogated to Rights of Holders of
          Senior Indebtedness.......................26
   13.5.  Obligations of the Company Unconditional............................26
   13.6.  Subordination Rights Not Impaired by Acts or Omissions
          of the Company or Holders of Senior Indebtedness.  27
   13.7.  Section 13 Not to Prevent Events of Default.........................27
14.       CONVERSION OF NOTES.................................................27
   14.1.  Right of Conversion; Conversion Price...............................27
   14.2.  Issuance of Shares on Conversion....................................28
   14.3.  No Adjustment for Interest or Dividends.............................28
   14.4.  Adjustment of Conversion Price......................................29
   14.5.  Notice of Adjustment of Conversion Price............................32
   14.6.  Notice of Certain Corporation Action................................32
   14.7.  Taxes on Conversions................................................33
   14.8.  Fractional Shares...................................................33
   14.9.  Provisions in Case of Consolidation, Merger or Sale of Assets.......33
   14.10. Covenant to Reserve Shares..........................................34
15.       SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........34
16.       AMENDMENT AND WAIVER................................................35
   16.1.  Requirements........................................................35
   16.2.  Binding Effect, etc.................................................35
17.       NOTICES.............................................................35

                                       ii
<PAGE>


18.       REPRODUCTION OF DOCUMENTS...........................................35
19.       CONFIDENTIAL INFORMATION............................................36
20.       MISCELLANEOUS.......................................................37
   20.1.  Successors and Assigns..............................................37
   20.2.  Payments Due on Non-Business Days...................................37
   20.3.  Severability........................................................37
   20.4.  Construction........................................................37
   20.5.  Counterparts........................................................37
   20.6.  Governing Law.......................................................37
   20.7.  Assignments and Restrictions on Transfers...........................38
   20.8.  Lost Note...........................................................41
   20.9.  Registration, Transfer and Exchange of the Note.....................42
   20.10. Equitable Relief....................................................42
   20.11. Expenses............................................................42

SCHEDULE A      --     Defined Terms

SCHEDULE 5.3    --     Disclosure

SCHEDULE 5.4    --     Organization and Ownership of Shares of Subsidiaries

SCHEDULE 5.5    --     Compliance with Laws, Other Instruments, etc.

SCHEDULE 5.7    --     Litigation; Observance of Agreements, Statutes and Orders

EXHIBIT 1       --     Form of 4.10% Senior Note due November 1, 2007

EXHIBIT 4.4     --     Form of Opinion of Swidler Berlin Shereff Friedman, LLP

EXHIBIT 4.8     --     Form of Registration Rights Agreement

EXHIBIT 4.9     --     Form of Guaranty

                                      iii
<PAGE>


                               RIDDELL SPORTS INC.



            4.10% Convertible Subordinated Note due November 1, 2007



                                                                 August 16, 2001

Silver Oak Capital, L.L.C.
c/o Angelo, Gordon & Co.
245 Park Avenue, 26th Floor
New York, New York  10167

Ladies and Gentlemen:

              Riddell  Sports  Inc.,  a Delaware  corporation  (the  "Company"),
agrees with you as follows:

1.     AUTHORIZATION OF NOTE.

              The Company will  authorize the issuance of its 4.10%  Convertible
Subordinated  Note due  November 1, 2007 in the  aggregate  principal  amount of
$7,500,000.  The  Note  shall  be in the  form  set out in  Exhibit  1.  Certain
capitalized  terms used in this Agreement are defined in Schedule A;  references
to a "Schedule" or an "Exhibit" are, unless otherwise  specified,  to a Schedule
or an Exhibit attached to this Agreement.

2.     DISCHARGE OF EXISTING NOTE AND PURCHASE OF NEW NOTE.

              The Company has  previously  issued and sold to you,  and you have
previously purchased from the Company, a 4.10% Convertible Subordinated Note due
November  1,  2004  in the  aggregate  principle  amount  of $7.5  million  (the
"Existing Note"). In accordance with that certain Note Exchange Agreement, dated
as of June 21, 2001,  by and between you and the Company,  the Company shall pay
$7,500,000 to you in complete  discharge and  satisfaction of the Existing Note,
and such entire amount shall be immediately  applied by you to purchase from the
Company the Note, subject to the terms and conditions of this Agreement.

3.     CLOSING.

              The execution  and delivery of this  Agreement and the delivery of
the  documents  required to be delivered  pursuant to Sections 4.3 and 4.4 shall
occur at the offices of Swidler  Berlin  Shereff  Friedman,  LLP, 405  Lexington
Avenue,  New York,  New York 10174,  at 10:00 a.m.,  New York time, at a closing
(the  "Closing")  on the date  hereof (the  "Closing  Date").  The Company  will
deliver  to  you  at  the  Closing  the  Registration   Rights  Agreement,   the
Subordinated  Guaranty and the Note, to be dated the

<PAGE>


Closing  Date and  registered  in your  name  (or in the name of your  nominee),
against delivery by you to the Company of the Existing Note for cancellation. If
on the  Closing  Date the  Company  shall  fail to  tender  such  Note to you as
provided above in this Section 3, or any of the conditions specified in Sections
4.8 and 4.9 shall not have been fulfilled to your  satisfaction,  you shall,  at
your  election,  be relieved of all further  obligations  under this  Agreement,
without  thereby  waiving  any rights you may have by reason of such  failure or
such nonfulfillment.

4.     CONDITIONS TO CLOSING.

              Your  obligation  to  acquire  the Note to be issued to you on the
Closing Date is subject to the fulfillment to your satisfaction,  prior to or at
the Closing, of the conditions set forth in this Section 4.

4.1.   REPRESENTATIONS AND WARRANTIES.

              The   representations  and  warranties  of  the  Company  in  this
Agreement shall be correct as of the Closing Date.

4.2.   PERFORMANCE; NO DEFAULT.

              The Company shall have  performed and complied with all agreements
and conditions  contained in this Agreement required to be performed or complied
with by it prior to or at the Closing;  and prior to and after giving  effect to
the issuance of the Note no Default or Event of Default  shall have occurred and
be continuing.

4.3.   COMPLIANCE CERTIFICATES.

              (a)    OFFICER'S CERTIFICATE.  The Company shall have delivered to
       you an Officer's Certificate, dated the Closing Date, certifying that the
       conditions specified in Sections 4.1, 4.2 and 4.6 have been fulfilled.

              (b)    SECRETARY'S  CERTIFICATE.  The  Company  and  each  of  the
       Guarantors shall have delivered to you a certificate certifying as to the
       resolutions attached thereto and other corporate  proceedings relating to
       the authorization, execution and delivery of the Note, this Agreement and
       the  Registration  Rights Agreement (with respect to the Company) and the
       Subordinated Guaranty (with respect to the Guarantors).

4.4.   OPINION OF COUNSEL.

              You  shall  have   received  an  opinion  in  form  and  substance
satisfactory  to you,  dated the  Closing  Date,  from  Swidler  Berlin  Shereff
Friedman,  LLP,  special  counsel  for the  Company in the form of  Exhibit  4.4
hereto.

                                       2
<PAGE>


4.5.   CHANGES IN CORPORATE STRUCTURE.

              Neither  the  Company  nor any  Guarantor  shall have  changed its
jurisdiction of  incorporation or been a party to any merger or consolidation or
have succeeded to all or any  substantial  part of the  liabilities of any other
entity,  at any time following the date of the most recent financial  statements
filed with the Securities and Exchange Commission pursuant to the Exchange Act.

4.6.   PROCEEDINGS AND DOCUMENTS.

              All  corporate  and  other  proceedings  in  connection  with  the
transactions  contemplated  by this Agreement and all documents and  instruments
incident to such  transactions  shall be  satisfactory  to you and your  special
counsel,  and  you and  your  special  counsel  shall  have  received  all  such
counterpart  originals or certified or other copies of such  documents as you or
they may reasonably request.

4.7.   PURCHASE PERMITTED BY APPLICABLE LAW, ETC.

              On the  Closing  Date  your  purchase  of the  Note  shall  (i) be
permitted  by the laws and  regulations  of each  jurisdiction  to which you are
subject, (ii) not violate any applicable law or regulation  (including,  without
limitation,  Regulation  G, T or X of the  Board  of  Governors  of the  Federal
Reserve System) and (iii) not subject you to any tax, penalty or liability under
or pursuant to any applicable law or regulation, which law or regulation was not
in effect on the date hereof.

4.8.   REGISTRATION RIGHTS AGREEMENT.

              On or before  the  Closing  Date you and the  Company  shall  have
entered into a Registration  Rights Agreement in the form of Exhibit 4.8 hereto,
duly executed and delivered by the Company.

4.9.   SUBORDINATED GUARANTY.

              The Guarantors shall have delivered you a Subordinated Guaranty in
the form of Exhibit 4.9 hereto.

5.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

              The Company represents and warrants to you that:

5.1.   ORGANIZATION; POWER AND AUTHORITY.

              The  Company  and each of the  Guarantors  is a  corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of  incorporation,  and is duly qualified as a foreign  corporation
and is in good  standing in each  jurisdiction  in which such  qualification  is
required by law, other than those jurisdictions as to which the failure to be so
qualified  or in good  standing  could not,  individually  or in the  aggregate,
reasonably be expected to have a Material  Adverse Effect.  The Company and

                                       3
<PAGE>


each of the  Guarantors  has the  corporate  power and  authority to own or hold
under lease the  properties it purports to own or hold under lease,  to transact
the business it transacts and proposes to transact,  to execute and deliver this
Agreement,  the Note,  the  Registration  Rights  Agreement  (in the case of the
Company) and the Subordinated  Guaranty (in the case of the Guarantors),  and to
perform the provisions hereof and thereof.

5.2.   AUTHORIZATION, ETC.

              (a)    This Agreement,  the Registration  Rights Agreement and the
       Note have been duly authorized by all necessary  corporate  action on the
       part of the Company, and this Agreement  constitutes,  and upon execution
       and delivery  thereof each of the  Registration  Rights Agreement and the
       Note will  constitute,  a legal,  valid  and  binding  obligation  of the
       Company  enforceable  against the Company in  accordance  with its terms,
       except  as  such   enforceability   may  be  limited  by  (i)  applicable
       bankruptcy, insolvency, reorganization,  moratorium or other similar laws
       affecting the enforcement of creditors' rights generally and (ii) general
       principles  of equity  (regardless  of  whether  such  enforceability  is
       considered in a proceeding in equity or at law).

              (b)    The  Subordinated  Guaranty has been duly authorized by all
       necessary  corporate  action  on the  part of each  Guarantor,  and  upon
       execution  and  delivery  thereof  will  constitute,  a legal,  valid and
       binding obligation of each Guarantor  enforceable  against such Guarantor
       in  accordance  with its  terms,  except  as such  enforceability  may be
       limited  by  (i)  applicable  bankruptcy,   insolvency,   reorganization,
       moratorium or other similar laws affecting the  enforcement of creditors'
       rights  generally and (ii) general  principles of equity  (regardless  of
       whether such enforceability is considered in a proceeding in equity or at
       law).

              (c)    The shares of Common Stock  issuable on  conversion  of the
       Note have been duly authorized and reserved for issuance on conversion of
       the Note and,  when issued on such  conversion,  will be validly  issued,
       fully paid and  non-assessable,  and the  issuance  of such shares is not
       subject to any preemptive or similar rights.

5.3.   DISCLOSURE.

              No report or other  information  furnished to you in writing by or
on behalf of the Company  contains any untrue  statement  of a material  fact or
omits to state any material fact  necessary to make the  statements  therein not
misleading  in light of the  circumstances  when and under which they were made.
Each  contract,  agreement  and  understanding  (including  all  agreements  and
understandings  with  Affiliates of the Company or any of its  Subsidiaries)  to
which the Company or any of its Subsidiaries is a party or by which any of their
respective  property is bound  which is material to the  business of the Company
and its  subsidiaries  taken  as a whole  has  been  previously  filed  with the
Securities and Exchange Commission in the Company's Forms 10-K, 10-K/A,


                                       4
<PAGE>


Schedule 14A, 10-Q and 8-K. The Company's  current  reports on Forms 10-K,  10-Q
and 8-K,  taken  together,  do not, as of the date of filing with the Securities
and Exchange  Commission,  contain any untrue statement of material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the  circumstances  under which they were made, not  misleading.  Since
March 31, 2001, there has not been any occurrence  that,  individually or in the
aggregate, would have a Material Adverse Effect, other than occurrences that are
set forth in Schedule 5.3 or have been  disclosed in the Company's  filings with
the Securities and Exchange Commission. No representation is made by the Company
as  to  projections   delivered  to  you  in  writing  in  connection  with  the
transactions  contemplated  hereby other than that the projections,  at the time
they were  prepared,  were based on  information  and  calculations  the Company
believed to be reasonable.

5.4.   ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.

              (a)    Schedule 5.4 contains  (except as noted  therein)  complete
       and correct lists (i) of the Company's Subsidiaries,  showing, as to each
       Subsidiary,   the  correct  name  thereof,   the   jurisdiction   of  its
       organization,  and the  percentage of shares of each class of its capital
       stock or similar equity  interests  outstanding  owned by the Company and
       each  other  Subsidiary  and (ii) such  information  as to the  Company's
       Affiliates, other than Subsidiaries.

              (b)    All of the  outstanding  shares of capital stock or similar
       equity  interests of each Subsidiary shown in Schedule 5.4 as being owned
       by the Company and its Subsidiaries  have been validly issued,  are fully
       paid and nonassessable and are owned by the Company or another Subsidiary
       free and clear of any Lien  (except as  otherwise  disclosed  in Schedule
       5.4). Neither the Company nor any Subsidiary is party to any agreement or
       other  obligation  that would  obligate  such Person to issue or sell any
       shares of capital  stock of any  Subsidiary  to any Person other than the
       Company or any wholly-owned Subsidiary.

              (c)    Each Subsidiary identified in Schedule 5.4 is a corporation
       or other  legal  entity  duly  organized,  validly  existing  and in good
       standing under the laws of its jurisdiction of organization,  and is duly
       qualified as a foreign  corporation  or other legal entity and is in good
       standing in each jurisdiction in which such  qualification is required by
       law,  other than  those  jurisdictions  as to which the  failure to be so
       qualified  or  in  good  standing  could  not,  individually  or  in  the
       aggregate, reasonably be expected to have a Material Adverse Effect. Each
       such  Subsidiary has the corporate or other power and authority to own or
       hold under  lease the  properties  it purports to own or hold under lease
       and to transact the business it transacts and proposes to transact.

              (d)    No  subsidiary  is a party to, or otherwise  subject to any
       legal  restriction  or any  agreement  (other  than this  Agreement,  the
       Company's bank loan  documents with Bank of America,  N.A., and customary
       limitations imposed by corporate law statutes) restricting the ability of
       such Subsidiary to pay dividends

                                       5
<PAGE>


       out of profits or make any other similar  distributions of profits to the
       Company  or any of its  Subsidiaries  that  owns  outstanding  shares  of
       capital stock or similar equity interests of such Subsidiary

5.5.   COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

              (a)    Except  as  set  forth  on  Schedule  5.5,  the  execution,
       delivery  and  performance  by  the  Company  of  this   Agreement,   the
       Registration  Rights  Agreement  and the Note  will  not (i)  contravene,
       result in any breach of, or constitute a default under,  or result in the
       creation of any Lien in respect of any  property of the Company or any of
       its Subsidiaries  under, any indenture,  mortgage,  deed of trust,  loan,
       purchase or credit agreement, lease, corporate charter or by-laws, or any
       other agreement or instrument to which the Company or any such Subsidiary
       is bound or by which the Company or any such  Subsidiary  or any of their
       respective  properties  may be bound or affected,  (ii)  conflict with or
       result in a breach of any of the terms,  conditions  or provisions of any
       order,  judgment,   decree,  or  ruling  of  any  court,   arbitrator  or
       Governmental  Authority  applicable to the Company or any such Subsidiary
       or (iii) violate any provision of any statute or other rule or regulation
       of any  Governmental  Authority  applicable  to the  Company  or any such
       Subsidiary.

              (b)    Except  as  set  forth  on  Schedule  5.5,  the  execution,
       delivery and performance by each Guarantor of the  Subordinated  Guaranty
       will not (i) contravene, result in any breach of, or constitute a default
       under,  or result in the  creation of any Lien in respect of any property
       of  such  Guarantor  or any of its  Subsidiaries  under,  any  indenture,
       mortgage,  deed of trust,  loan,  purchase  or credit  agreement,  lease,
       corporate  charter or by-laws,  or any other  agreement or  instrument to
       which such  Guarantor  or any such  Subsidiary  is bound or by which such
       Guarantor or any such  Subsidiary or any of their  respective  properties
       may be bound or affected, (ii) conflict with or result in a breach of any
       of the terms, conditions or provisions of any order, judgment, decree, or
       ruling of any court,  arbitrator or Governmental  Authority applicable to
       such  Guarantor or any such  Subsidiary or (iii) violate any provision of
       any statute or other rule or  regulation  of any  Governmental  Authority
       applicable to such Guarantor or any such Subsidiary.

5.6.   GOVERNMENTAL AUTHORIZATIONS, ETC.

              No consent, approval or authorization of, or registration,  filing
or declaration  with, any  Governmental  Authority is required by the Company in
connection  with the  execution,  delivery or performance by the Company of this
Agreement, the Registration Rights Agreement or the Note.

5.7.   LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

              (a)    Except as set forth on Schedule 5.7 and as disclosed in the
       Company's  reports  filed with the  Securities  and  Exchange  Commission
       pursuant

                                       6
<PAGE>


       to the Exchange Act, there are no actions,  suits or proceedings  pending
       or, to the knowledge of the Company,  threatened against or affecting the
       Company  or  any  Subsidiary  or  any  property  of  the  Company  or any
       Subsidiary in any court or before any arbitrator of any kind or before or
       by any  Governmental  Authority  that,  individually or in the aggregate,
       could reasonably be expected to have a Material Adverse Effect.

              (b)    Except as set forth on  Schedule  5.7,  neither the Company
       nor any of its Subsidiaries is in default under any term of any agreement
       or  instrument  to which it is a party  or by which it is  bound,  or any
       order,   judgment,   decree  or  ruling  of  any  court,   arbitrator  or
       Governmental  Authority  or  is  in  violation  of  any  applicable  law,
       ordinance, rule or regulation (including without limitation Environmental
       Laws)  of  any  Governmental  Authority,   which  default  or  violation,
       individually or in the aggregate,  could reasonably be expected to have a
       Material Adverse Effect.

5.8.   TAXES.

              The Company and its  Subsidiaries  have filed all tax returns that
are  required  to have been filed in any  jurisdiction,  and have paid all taxes
shown to be due and payable on such returns and all other taxes and  assessments
levied  upon them or their  properties,  assets,  income or  franchises,  to the
extent  such taxes and  assessments  have become due and payable and before they
have become  delinquent,  except for any taxes and assessments (i) the amount of
which is not  individually  or in the  aggregate  material  or (ii) the  amount,
applicability or validity of which is currently being contested in good faith by
appropriate  proceedings  and with respect to which the Company or a Subsidiary,
as the case may be, has established  adequate  reserves in accordance with GAAP.
The  Company  knows of no basis  for any  other  tax or  assessment  that  could
reasonably be expected to have a Material Adverse Effect. The charges,  accruals
and  reserves  on the books of the company  and its  Subsidiaries  in respect of
Federal, state or other taxes for all fiscal periods are adequate.

5.9.     TITLE TO PROPERTY; LEASES.

              The Company and its Subsidiaries have good and sufficient title to
their respective  properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
filed with the Securities and Exchange  Commission  pursuant to the Exchange Act
(except  for  those  properties  disposed  of  pursuant  to the  Stock  Purchase
Agreement)  or  purported  to have  been  acquired  by the  Company  or any such
Subsidiary  after said date  (except  as sold or  otherwise  disposed  of in the
ordinary  course of  business),  in each case free and clear of Liens other than
Liens that do not interfere with the intended use of the Property by the Company
and that would not,  individually or in the aggregate,  have a Material  Adverse
Effect.  All leases that individually or in the aggregate are material are valid
and subsisting and are in full force and effect in all material respects and the
Company  has not  received  any notice of default  or  infringement  of any such
lease.

                                       7
<PAGE>


5.10.  LICENSES, PERMITS, ETC.

              The Company  and its  Subsidiaries  own or possess  all  licenses,
permits,  franchises,   authorizations,   patents,  copyrights,  service  marks,
trademarks  and trade names,  or rights  thereto,  that  individually  or in the
aggregate are Material, without known conflict with the rights of others.

5.11.  COMPLIANCE WITH ERISA.

              The Company,  its ERISA  Affiliates and their respective Plans are
in compliance in all material respects with those provisions of ERISA and of the
Code which are  applicable  with respect to any Plan. No Prohibited  Transaction
and no Reportable  Event has occurred with respect to any such Plan. None of the
Company or any of its ERISA  Affiliates is a contributing  employer with respect
to any Multiemployer Plan. The Company and each of its ERISA Affiliates have met
the minimum funding  requirements  under ERISA and the Code with respect to each
of their  respective  Plans,  if any, and have not incurred any liability to the
PBGC or any Plan. There is no Material  unrecorded  unfunded benefit  liability,
determined in accordance with Section  4001(a)(18) of ERISA, with respect to any
Plan of the Company or its ERISA Affiliates.

5.12.  PRIVATE OFFERING BY THE COMPANY.

              Neither the Company nor anyone acting on its behalf has taken,  or
will  take,  any action  that  would  subject  the  issuance  of the Note to the
registration requirements of Section 5 of the Securities Act.

5.13.  FOREIGN ASSETS CONTROL REGULATIONS, ETC.

              Neither the issuance of the Note by the Company  hereunder nor its
use of the  proceeds  thereof  will  violate the Trading  with the Enemy Act, as
amended,  or any of the foreign assets control  regulations of the United States
Treasury  Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

5.14.  STATUS UNDER CERTAIN STATUTES.

              Neither  the  Company  nor any of its  Subsidiaries  is subject to
regulation  under the  Investment  Company Act of 1940,  as amended,  the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.

5.15.  CAPITALIZATION.

              The  authorized  and  outstanding  capital  stock  of the  Company
consists  of  40,000,000  shares of Common  Stock,  $0.01  par  value,  of which
9,452,250  shares are  outstanding  on the date hereof and  5,000,000  shares of
preferred  stock,  none of which is  outstanding  on the date hereof.  Except as
disclosed  in the  Company's  reports  filed with the  Securities  and  Exchange
Commission pursuant to the Exchange Act and except for


                                       8
<PAGE>


the  Company's  obligation to make an annual grant of an option to acquire 7,500
shares of the  Company's  Common  Stock to each member of its Board of Directors
who is not the Chief  Executive  Officer  and an  initial  grant of an option to
acquire  15,000 shares of the Company's  Common Stock to each person (other than
current  members of the Board of Directors)  upon becoming a member of the Board
of Directors, there are no outstanding subscriptions,  options, warrants, calls,
contracts,   demands,   commitments,   convertible  securities,   agreements  or
arrangements of any character or nature whatsoever under which the Company is or
may become  obligated  to issue,  assign or  transfer  any shares of the capital
stock of the Company.

5.16.  BROKERS AND OTHER COMMISSIONS.

              The Company has no  agreement  or  understanding  with any finder,
broker  or other  person  requiring  the  payment  of any fee as a result of the
issuance of the Note.

5.17.  ABSENCE OF DIVIDENDS.

              Since  March 31,  2001,  the  Company  has not made any  dividend,
redemption, repurchase or other distribution in respect of its Common Stock.

6.     REPRESENTATIONS OF THE INVESTOR.

6.1.   ACQUISITION FOR INVESTMENT.

              You represent that you are acquiring the Note for your own account
and not with a view to the distribution  thereof,  provided that the disposition
of your or their  property  shall at all times be within your or their  control.
You understand  that the Note has not been  registered  under the Securities Act
and  may  be  resold  only  if  registered  pursuant  to the  provisions  of the
Securities Act or if an exemption from  registration is available,  except under
circumstances  where neither such registration nor such an exemption is required
by law, and that the Company is not required to register the Note.

7.     INFORMATION AS TO THE COMPANY.

7.1.   FINANCIAL AND BUSINESS INFORMATION.

              The Company shall deliver to you:

              (a)    QUARTERLY  STATEMENTS  -- within  45 days  after the end of
       each  quarterly  fiscal period in each fiscal year of the Company  (other
       than  the  last  quarterly  fiscal  period  of each  such  fiscal  year),
       duplicate copies of,

                     (i)    a consolidated  balance sheet of the Company and its
              Subsidiaries as at the end of such quarter, and

                     (ii)   consolidated   statements  of  income,   changes  in
              shareholders,  equity  and  cash  flows  of the  Company  and  its
              Subsidiaries,

                                       9
<PAGE>


              for  such  quarter  and  (in  the  case of the  second  and  third
              quarters)  for the  portion of the fiscal  year  ending  with such
              quarter,

       setting  forth  in each  case in  comparative  form the  figures  for the
       corresponding  periods in the  previous  fiscal year,  all in  reasonable
       detail,   prepared  in  accordance  with  GAAP  applicable  to  quarterly
       financial  statements  generally,  and  certified  by a Senior  Financial
       Officer as fairly  presenting,  in all material  respects,  the financial
       position  of the  companies  being  reported  on  and  their  results  of
       operations  and cash flows,  subject to changes  resulting  from year-end
       adjustments,  PROVIDED  that  delivery  within the time period  specified
       above of copies of the Company's  Quarterly  Report on Form 10-Q prepared
       in  compliance  with  the  requirements   therefor  and  filed  with  the
       Securities  and  Exchange  Commission  shall be  deemed  to  satisfy  the
       requirements of this Section 7.1 (a);

              (b)    ANNUAL  STATEMENTS  -- within 90 days after the end of each
       fiscal year of the Company, duplicate copies of,

                     (i)    a consolidated  balance sheet of the Company and its
              Subsidiaries, as at the end of such year, and

                     (ii)   consolidated   statements  of  income,   changes  in
              shareholders,  equity  and  cash  flows  of the  Company  and  its
              Subsidiaries, for such year,

       setting  forth  in each  case in  comparative  form the  figures  for the
       previous  fiscal year, all in reasonable  detail,  prepared in accordance
       with GAAP, and accompanied by an opinion thereon of independent certified
       public accountants of recognized  national standing,  which opinion shall
       state that such  financial  statements  present  fairly,  in all material
       respects, the financial position of the companies being reported upon and
       their  results of  operations  and cash flows and have been  prepared  in
       conformity  with GAAP, and that the  examination  of such  accountants in
       connection  with such  financial  statements  has been made in accordance
       with generally accepted auditing standards,  and that such audit provides
       a reasonable basis for such opinion in the circumstances, and

       PROVIDED that the delivery within the time period  specified above of the
       Company's  Annual  Report on Form 10-K for such fiscal  year  prepared in
       accordance with the  requirements  therefor and filed with the Securities
       and Exchange  Commission,  shall be deemed to satisfy the requirements of
       this Section 7.1(b);

              (c)    SEC AND OTHER  REPORTS  --  promptly  upon  their  becoming
       available,  one copy of (i) each financial statement,  report,  notice or
       proxy  statement  sent  by the  Company  or any  Subsidiary  sent or made
       available to public securities holders  generally,  and (ii) each regular
       or periodic report, each registration  statement (without exhibits except
       as  expressly  requested by such  holder),  and each  prospectus  and all
       amendments  thereto filed by the Company or any of its


                                       10
<PAGE>


       Subsidiaries with the Securities and Exchange Commission and of all press
       releases and other statements made available  generally by the Company or
       any  such  Subsidiary  to the  public  concerning  developments  that are
       Material;

              (d)    ERISA  MATTERS --  promptly,  and in any event  within five
       days after a Responsible  Officer becoming aware of any of the following,
       a written notice setting forth the nature thereof and the action, if any,
       that the  Company or an ERISA  Affiliate  proposes  to take with  respect
       thereto:

                     (i)    with respect to any Plan, any reportable  event,  as
              defined   in  section   4043(b)  of  ERISA  and  the   regulations
              thereunder,  for which notice thereof has not been waived pursuant
              to such regulations as in effect on the date hereof; or

                     (ii)   the taking by the PBGC of steps to institute, or the
              threatening by the PBGC of the institution of,  proceedings  under
              section 4042 of ERISA for the  termination  of, or the appointment
              of a trustee  to  administer,  any  Plan,  or the  receipt  by the
              Company or any ERISA  Affiliate  of a notice from a  Multiemployer
              Plan that such  action has been taken by the PBGC with  respect to
              such Multiemployer Plan; or

                     (iii)  any  event,  transaction  or  condition  that  could
              result in the  incurrence  of any  liability by the Company or any
              ERISA Affiliate  pursuant to Title I or IV of ERISA or the penalty
              or excise tax provisions of the Code relating to employee  benefit
              plans,  or in the  imposition  of any  Lien on any of the  rights,
              properties  or  assets  of  the  Company  or any  ERISA  Affiliate
              pursuant  to Title I or IV of ERISA or such  penalty or excise tax
              provisions,  if such  liability or Lien,  taken  together with any
              other such liabilities or Liens then existing, could reasonably be
              expected to have a Material Adverse Effect;

              (e)    NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any
       event  within 30 days of  receipt  thereof,  copies of any  notice to the
       Company  or  any  Subsidiary  from  any  Federal  or  state  Governmental
       Authority  relating  to  any  order,  ruling,  statute  or  other  law or
       regulation that could  reasonably be expected to have a Material  Adverse
       Effect; and

              (f)    REQUESTED INFORMATION -- with reasonable  promptness,  such
       other data and information relating to the business, operations, affairs,
       financial  condition,  assets or  properties of the Company or any of its
       Subsidiaries  or  relating  to the  ability of the Company to perform its
       obligations  hereunder  and  under  the Note as from  time to time may be
       reasonably requested by you.

7.2.   OFFICER'S CERTIFICATE.

              Each set of  financial  statements  delivered  to you  pursuant to
Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of
a Senior  Financial  Officer  setting  forth a statement  that such  officer has
reviewed the relevant terms hereof

                                       11
<PAGE>


and has made, or caused to be made,  under his or her  supervision,  a review of
the  transactions  and conditions of the Company and its  Subsidiaries  from the
beginning of the quarterly or annual period covered by the statements then being
furnished  to the date of the  certificate  and that such review  shall not have
disclosed  the  existence  during  such  period of any  condition  or event that
constitutes a Default or an Event of Default or, if any such  condition or event
existed or exists specifying the nature and period of existence thereof.

7.3.   INSPECTION.

              The Company shall permit your representatives:

              (a)    NO  DEFAULT  -- if no  Default  or  Event of  Default  then
       exists,  upon  reasonable  prior  notice  to the  Company,  to visit  the
       principal  executive  office of the  Company,  to  discuss  the  affairs,
       finances  and  accounts  of the  Company  and its  Subsidiaries  with the
       Company's officers,  and (with the consent of the Company,  which consent
       will  not be  unreasonably  withheld)  to visit  the  other  offices  and
       properties  of the  Company  and  each of its  Subsidiaries,  all at such
       reasonable times and as often as may be reasonably  requested in writing;
       and

              (b)    DEFAULT -- if a Default or Event of Default then exists, to
       visit and inspect any of the offices or  properties of the Company or any
       such  Subsidiary,  to  examine  all their  respective  books of  account,
       records, reports and other papers, to make copies and extracts therefrom,
       and to discuss their respective affairs, finances and accounts with their
       respective  officers  and  independent  public  accountants  (and by this
       provision the Company authorizes said accountants to discuss the affairs,
       finances and accounts of the Company and its  Subsidiaries),  all at such
       times and as often as may be reasonably requested.

8.     PREPAYMENT OF THE NOTES.

8.1.   SINKING FUNDS.

              The Company shall make required  principal  payments in accordance
with the following schedule:

                 DATE                     PRINCIPAL PAYMENT

                 November 1, 2002         $1,375,000
                 November 1, 2003         $2,375,000
                 November 1, 2004         $3,450,000
                 November 1, 2005         $  100,000
                 November 1, 2006         $  100,000
                 November 1, 2007         $  100,000

                                       12
<PAGE>


8.2.   OPTIONAL PREPAYMENTS.

              The Company  may, at its  option,  upon notice as provided  below,
prepay on any  Interest  Payment  Date  all,  or any part of,  the Note,  at the
following  percentage of the principal amount of the Note so prepaid if redeemed
during the 12 month period ending November 1, of the years indicated below:

              2001                      102.25%
              2002                      101.50%
              2003                      100.75%
              2004 and thereafter       100.00%

The Company  will give the holder of the Note  written  notice of each  optional
prepayment  under this  Section  8.2 not less than 30 days and not more than 180
days prior to the date fixed for such prepayment. Each such notice shall specify
such  date,  the  aggregate  principal  amount of the Note to be prepaid on such
date,  and the interest to be paid on the  prepayment  date with respect to such
principal amount being prepaid.

8.3.   ALLOCATION OF PARTIAL PREPAYMENTS.

              If a portion  of the Note has been  assigned  pursuant  to Section
20.7,  then in the case of each partial  prepayment of the Notes,  the principal
amount of the Notes to be prepaid  shall be allocated  among all of the Notes at
the time outstanding in proportion, as nearly as practicable,  to the respective
unpaid principal amounts thereof not theretofore called for prepayment.

8.4.   MATURITY; SURRENDER, ETC.

              In the  case of  each  prepayment  of the  Note  pursuant  to this
Section  8, the  principal  amount of the Note to be  prepaid  shall  mature and
become  due and  payable on the date fixed for such  prepayment,  together  with
interest  on such  principal  amount  accrued to such date.  From and after such
date, unless the Company shall fail to pay such principal amount when so due and
payable, interest on such principal amount shall cease to accrue. If the Note is
paid or prepaid in full,  it shall be  surrendered  to the Company and cancelled
and shall not be  reissued,  and no Note shall be issued in lieu of any  prepaid
principal amount of the Note.

8.5.   REPURCHASE OF NOTE AT OPTION OF THE HOLDER UPON CHANGE OF CONTROL.

              In the  event  that a  Repurchase  Event  occurs,  the  registered
holders of the Note shall have the right,  at such holder's  option,  subject to
the terms and conditions  set-forth herein, to require the Company to repurchase
all or any  part of such  holder's  interest  in the  Note  (provided  that  the
principal amount of such Note at maturity must be $1,000 or an integral multiple
thereof) on the date that is no later than 90  calendar  days after the date the
Company gives notice of such Repurchase Event (the "Repurchase Date"), at a cash
purchase price (the  "Repurchase  Price") equal to 101% of the principal  amount
thereof,  plus  accrued  and  unpaid  interest,  if any,  to and  including  the
Repurchase Date.

                                       13
<PAGE>


8.6.   NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.

              (a)    Within  30  calendar   days  after  the   occurrence  of  a
       Repurchase  Event,  the Company shall make an  irrevocable  unconditional
       offer (a  "Repurchase  Offer") to the  registered  holders of the Note to
       purchase all of the Note pursuant to the offer described in clause (b) of
       this  Section  8.6  at the  Repurchase  Price  plus  accrued  and  unpaid
       interest, if any, to the Repurchase Date. Within five Business Days after
       each date upon which the Company knows of the  occurrence of a Repurchase
       Event  requiring  the  Company to make a  Repurchase  Offer  pursuant  to
       Section 8.5 hereof, the Company shall so notify you.

              (b)    Notice of a Repurchase  Offer shall be sent,  not more than
       30 calendar days after the occurrence of the Repurchase  Event,  by first
       class mail, by the Company to you and each other registered holder at its
       registered  address.  The Company will have no liability to send any such
       notice to any holder who has not  provided  the Company with its address.
       No failure of the  Company to give such  notice or defect  therein  shall
       limit any holder's right to exercise his  repurchase  right or affect the
       validity of the  proceedings  for the repurchase of the Note. The notice,
       which shall govern the terms of the Repurchase offer, shall state that:

                     (i)    the Repurchase  Offer is being made pursuant to such
              notice and  Section  8.5 and that the Note,  or  portion  thereof,
              properly  tendered  pursuant to the Repurchase  Offer prior to the
              thirtieth  calendar day prior to the  Repurchase  Date (the "Final
              Repurchase Put Date") will be accepted for payment;

                     (ii)   the Repurchase  Price,  the Repurchase  Date and the
              Final Repurchase Put Date;

                     (iii)  that the Note, or portion  thereof,  not tendered or
              accepted for payment will continue to accrue interest, if interest
              is then accruing;

                     (iv)   that,  unless  the  Company  defaults  in paying the
              Repurchase Price, or payment is otherwise prevented,  the Note, or
              portion  thereof,  accepted for payment pursuant to the Repurchase
              Offer shall cease to accrue interest after the Repurchase Date;

                     (v)    that holders  electing to have the Note,  or portion
              thereof, purchased pursuant to a Repurchase Offer will be required
              to surrender the Note, with the form entitled "Option of Holder to
              Elect  Purchase"  on the  reverse  of the Note  completed,  to the
              Company;

                     (vi)   that  holders  will be entitled  to  withdraw  their
              election if the Company  receives,  prior to the close of business
              on the Final  Repurchase  Put Date, a telegram,  telex,  facsimile
              transmission  or letter setting forth the name of the holder,  the
              principal  amount  of the Note the  holder  is  withdrawing  and a
              statement  containing  a facsimile  signature  that such

                                       14
<PAGE>


              holder is withdrawing  his election to have such principal  amount
              of the Note purchased; and

                     (vii)  that  holders   whose   interest  in  the  Note  was
              purchased  only in  part  will  be  issued  a new  Note  equal  in
              principal   amount  to  the   unpurchased   portion  of  the  Note
              surrendered.

              (c)    Any such Repurchase  Offer shall comply with all applicable
       provisions of federal and state laws,  including those regulating  tender
       offers,  if  applicable,  and  any  provisions  of this  Agreement  which
       conflict  with  such  laws  shall  be  deemed  to be  superseded  by  the
       provisions of such laws. On or before the  Repurchase  Date,  the Company
       shall (a)  accept  for  payment  the Note or  portions  thereof  properly
       tendered  pursuant to the Repurchase Offer prior to the close of business
       on the  Final  Repurchase  Put  Date,  (b)  remit  by  wire  transfer  of
       immediately  available  funds to the  holders so  accepted  payment in an
       amount equal to the Repurchase Price plus accrued and unpaid interest, if
       any, to the Repurchase  Date, and (c) promptly  authenticate  and mail or
       deliver  to such  holders  a new Note  equal in  principal  amount to any
       unpurchased portion of the Note surrendered.  Any portion of the Note not
       so accepted  shall be promptly  mailed or delivered by the Company to the
       holder thereof and the principal shall,  until paid, bear interest to the
       extent  permitted by applicable law from the Repurchase  Date at the rate
       borne by the Note and the Note shall remain convertible into Common Stock
       until the  principal  of the Note shall  have been paid or duly  provided
       for.

9.     AFFIRMATIVE COVENANTS.

              The Company covenants that so long as the Note is outstanding:

9.1.   COMPLIANCE WITH LAW.

              The Company will and will cause each of its Subsidiaries to comply
with all laws,  ordinances or governmental rules or regulations to which each of
them is subject,  including,  without  limitation,  Environmental Laws, and will
obtain and maintain in effect all licenses,  certificates,  permits,  franchises
and  other  governmental  authorizations  necessary  to the  ownership  of their
respective properties or to the conduct of their respective businesses,  in each
case to the  extent  necessary  to ensure  that  non-compliance  with such laws,
ordinances  or  governmental  rules or  regulations  or  failures  to  obtain or
maintain in effect such licenses,  certificates,  permits,  franchises and other
governmental  authorizations  could  not,  individually  or  in  the  aggregate,
reasonably be expected to have a Material Adverse Effect.

9.2.   INSURANCE.

              The  Company  will  and will  cause  each of its  Subsidiaries  to
maintain, with financially sound and reputable insurers,  insurance with respect
to their  respective  properties  and  businesses  against such  casualties  and
contingencies,  of such  types,  on such  terms and in such  amounts  (including
deductibles,   co-insurance  and   self-insurance,

                                       15
<PAGE>


if adequate reserves are maintained with respect thereto) as is customary in the
case of entities  of  established  reputations  engaged in the same or a similar
business and similarly situated.

9.3.   MAINTENANCE OF PROPERTIES.

              The  Company  will  and will  cause  each of its  Subsidiaries  to
maintain  and  keep,  or cause  to be  maintained  and  kept,  their  respective
properties in good repair, working order and condition (other than ordinary wear
and tear),  so that the  business  carried  on in  connection  therewith  may be
properly  conducted at all times,  provided  that this section shall not prevent
the Company or any such  Subsidiary  from  discontinuing  the  operation and the
maintenance of any of its properties if such  discontinuance is desirable in the
conduct of its business and the Company has concluded  that such  discontinuance
could not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

9.4.   PAYMENT OF TAXES AND CLAIMS.

              The Company will and will cause each of its  Subsidiaries  to file
all  tax  returns  required  to be  filed  in any  jurisdiction  and to pay  and
discharge  all taxes shown to be due and  payable on such  returns and all other
taxes,  assessments,  governmental  charges, or levies imposed on them or any of
their  properties,  assets,  income or franchises,  to the extent such taxes and
assessments  have become due and payable and before they have become  delinquent
and all  claims for which sums have  become due and  payable  that have or might
become a Lien on  properties  or assets of the  Company or any such  Subsidiary,
provide that neither the Company nor any such  Subsidiary  need pay any such tax
or assessment or claims if (i) the amount,  applicability or validity thereof is
contested by the Company or such  Subsidiary on a timely basis in good faith and
in appropriate  proceedings,  and the Company or such Subsidiary has established
adequate  reserves  therefor in accordance with GAAP on the books of the Company
or such  Subsidiary or (ii) the nonpayment of all such taxes and  assessments in
the  aggregate  could not  reasonably  be  expected  to have a Material  Adverse
Effect.

9.5.   CORPORATE EXISTENCE, ETC.

              The Company will at all times  preserve and keep in full force and
effect its corporate existence.  The Company will at all times preserve and keep
in full force and effect the  corporate  existence  of each of its  Subsidiaries
(unless merged into the Company or one of its  Subsidiaries)  and all rights and
franchises  of the  Company  and its  Subsidiaries  unless,  in the  good  faith
judgment of the Company,  the  termination of or failure to preserve and keep in
full force and effect such corporate  existence,  right or franchise  could not,
individually or in the aggregate, have a Material Adverse Effect.

9.6.   GUARANTY BY NEW SUBSIDIARIES.

              Immediately upon the incorporation (or merger or other acquisition
by which any entity  becomes a Subsidiary)  on or after the Closing Date of each
new  Subsidiary  of the Company or any of its  Subsidiaries,  the Company  shall
cause each such


                                       16
<PAGE>


new  Subsidiary to deliver its  subordinated  guaranty of the Company's  payment
obligations  under the Note by duly  executing  and  delivering to the Holders a
counterpart of the Subordinated Guaranty.

10.    NEGATIVE COVENANTS.

              The Company covenants that so long as the Note is outstanding:

10.1.  TRANSACTIONS WITH AFFILIATES.

              (a)    The  Company  will  not  and  will  not  permit  any of its
       Subsidiaries   to  enter  into  directly  or  indirectly   any  Affiliate
       Transaction  except upon fair and  reasonable  terms no less favorable to
       the Company or such  Subsidiary  than would be obtainable in a comparable
       arm's-length transaction with a Person not an Affiliate;

              (b)    Furthermore,   only  at  such   times  that  (x)  at  least
       $3,750,000  aggregate principal amount of the Note is outstanding and (y)
       Angelo,  Gordon & Co. owns or controls  directly or through its ownership
       of the  voting  stock of  Silver  Oak or  otherwise  at least  50% of the
       outstanding principal amount of the Note, then:

                     (i)    the Company  will not and will not permit any of its
              Subsidiaries  to enter into directly or  indirectly  any Affiliate
              Transaction  with an aggregate  value of more than $100,000 in any
              twelve month period (subject to the adjustment provided in Section
              10.1(c)) unless (A) such Affiliate  Transaction is approved by the
              majority of the  independent  directors  (as defined in Regulation
              Section  1.162-27(e)(3)  promulgated  under Section  162(m) of the
              Code  (as  in  effect  on the  Original  Effective  Date))  of the
              Company's  Board of Directors;  and (B) at least three days before
              entering into any such Affiliate Transaction the Company describes
              such transaction to Angelo,  Gordon & Co. and indicates whether or
              not approval of the independent directors was obtained; and

                     (ii)   if the Company or any of its  Subsidiaries  proposes
              to enter into  directly or indirectly  any  Affiliate  Transaction
              with an aggregate  value of more than $250,000 in any twelve month
              period  (subject to the adjustment  provided in Section  10.1(c)),
              then it shall  notify  Angelo,  Gordon & Co.  of the terms of such
              proposed transaction, and the Company or such Subsidiary shall not
              enter  into such  proposed  transaction  if  Angelo,  Gordon & Co.
              objects  directly  to  the  Company's  Chief  Executive   Officer,
              President  or Senior  Financial  Officer  within 10 Business  Days
              after such notice is delivered; provided, however, that if Angelo,
              Gordon and Co.  objects  within  such 10 Business  Days,  then the
              Company  or  such   Subsidiary   may  enter  into  such  Affiliate
              Transaction if it supplies  Angelo,  Gordon & Co. with a copy of a
              written  opinion from an  independent  investment  bank or firm of
              independent certified public

                                       17
<PAGE>


              accountants (other than the Company's auditors) that the Affiliate
              Transaction  is on terms that are fair and  reasonable and no less
              favorable to the Company or such Subsidiary than would be obtained
              in a  comparable  arm's-length  transaction  with a Person  not an
              Affiliate of the Company.

              (c)    For purposes of determining the threshold amounts set forth
                     in Sections  10.1(b)(i)  and (ii),  such  amounts  shall be
       adjusted on each  anniversary  of the Original  Effective Date to reflect
       the aggregate  percentage increase (measured on a compounded basis) since
       the  Original  Effective  Date (or to reflect  the  aggregate  percentage
       increase  (measured  on a compounded  basis) from the Original  Effective
       Date to October  30, 2000 if the date of  adjustment  is prior to October
       30, 2001) in the Consumer Price Index-Urban  Consumer as reprinted by the
       Bureau of Labor Statistics of the U.S. Department of Labor or superseding
       index  or  report  whether  published  by  the  Department  of  Labor  or
       otherwise.

              (d)    Notwithstanding  the foregoing,  any loan from an Affiliate
       to the  Company  or any of its  Subsidiaries  will be deemed to have been
       made on fair and  reasonable  terms no less  favorable  to the Company or
       such  Subsidiary  than would be obtainable  in a comparable  arm's-length
       transaction with a Person not an Affiliate pursuant to Section 10.1(a) if
       such loan (i) requires  payments of interest (or interest accrues) at the
       annual  rate of not  more  than  Prime  plus  3%,  (ii) is PARI  PASSU or
       subordinated in right payment to the Note, and (iii) does not involve the
       issuance  of any  warrant  or  other  additional  consideration  from the
       Company or any Subsidiary.

              (e)    Notwithstanding   anything  to  the  contrary  in  Sections
       10.1(a) and 10(b),  the Company may enter into any Affiliate  Transaction
       with a Subsidiary  that is not a wholly-owned  Subsidiary so long as such
       transaction is in the ordinary course of the Company's  business (such as
       an  intercompany  loan or payroll  funding) and upon usual and  customary
       terms for such transactions.

10.2.  MERGER; PURCHASE OF ASSETS; ACQUISITIONS; ETC.

              The Company will not (i) merge or consolidate  or amalgamate  with
any  other  Person  or  convey,  transfer  or  lease  substantially  all  of its
properties  or  assets  as an  entirety  in a single  transaction  or  series of
transactions  to any  Person  unless (X)  either  (1) the  Company  shall be the
continuing  Person, or (2) the Person formed by such consolidation or into which
the Company is merged or to which all or substantially all of the properties and
assets of the Company are  transferred as an entirety (the Company or such other
Person  being  hereinafter  referred to as the  "Surviving  Person")  shall be a
corporation or partnership  organized and validly existing under the laws of the
United  States,  any state  thereof or the  District  of  Columbia,  and, if the
Company is a party to such  consolidation,  merger or  transfer,  the  Surviving
Person shall assume all of the  obligations  of the Company under this Agreement
and the Note;  (Y)  immediately  after  giving  effect to such  transaction,  no
Default or Event of Default and no event which, after notice or lapse of time or
both,  would become an Event of Default,  shall have happened

                                       18
<PAGE>


and be  continuing;  and (Z)  the  Company  has  delivered  to you an  Officer's
Certificate stating that such  consolidation,  merger,  transfer,  conveyance or
other  disposition  complies  with  this  Section  10.2 and that all  conditions
precedent  herein  provided  relating to such  transaction  have been satisfied;
PROVIDED, HOWEVER, that the Company or its Subsidiaries may merge with and among
each other so long as one of the Company or such Subsidiaries is the survivor of
the merger and no other third party is a party to such merger or consolidation.

10.3.  ANTI-LAYERING.

              Company will not, directly or indirectly, incur or suffer to exist
any Indebtedness  that is subordinate in right of payment to any Indebtedness of
the Company,  unless such  Indebtedness  is PARI PASSU with or is subordinate in
right of payment to the Note.

10.4.  LIMITATIONS ON GRANTS OF OPTIONS.

              The  Company  will not  grant to any  Persons  (including  without
limitation  any  officer or  director  of the  Company)  on any date  during any
Contract Year, Incentive Stock Options to acquire more than the number of shares
of Common  Stock equal to the  difference  between the (x)  applicable  Adjusted
Cumulative Quota for the Contract Year in which the grant is proposed to be made
reduced  by (y) the  aggregate  number  of shares  of  Common  Stock  underlying
Incentive Stock Options  previously  granted to any Persons  (including  without
limitation any officer or director of the Company) during the period  commencing
on the  Original  Effective  Date  and  through  such  proposed  date of  grant.
Notwithstanding  the  foregoing,  in  connection  with  the  hiring  of  Varsity
Employees  by the Company or any of its  Subsidiaries,  the Company may grant to
the Varsity Employees Incentive Stock Options to acquire up to 950,000 shares of
Common Stock in the aggregate  without  regard to the  limitations  on grants of
options set forth in the immediately preceding sentence.  Further, no adjustment
to the Conversion  Price need be made pursuant to Section  14.4(e) as the result
of granting  any such  options to Varsity  Employees  with a per share  exercise
price  less  than the  current  market  price on the  date of grant  unless  the
cumulative  effect of any such  adjustments and any other actual or hypothetical
adjustments  that  would  be made  under  Section  14.4(e)  resulting  from  the
Company's  issuance of any shares of its Common  Stock to any  Varsity  Employee
pursuant  to the Merger  Agreement  at a per share  price less than the  current
market  price on the  date of  actual  issuance  (notwithstanding  the  terms of
Section  14.4(e))  would  require a  decrease  of at least $.05 per share to the
Conversion Price.

              "CONTRACT  YEAR" shall mean the period  commencing on the Original
Effective Date and ending on the first  anniversary  thereof and each succeeding
twelve month period thereafter.

              "INCENTIVE  STOCK OPTIONS" shall mean options (whether or not such
options  constitute  incentive  stock options (as defined under Sections 421 and
422 of the Code)) to acquire  Common Stock  granted by the Company or any of its
Subsidiaries  pursuant  to the terms of the  Company's  Incentive  Stock  Option
Plans.

                                       19
<PAGE>


              "CUMULATIVE  QUOTA" shall mean with respect to each Contract Year,
the number of shares of Common Stock set forth below:

              First Contract Year                  250,000
              Second Contract Year                 750,000
              Third Contract Year                1,250,000
              Fourth Contract Year               1,750,000
              Fifth Contract Year                2,250,000
              Sixth Contract Year                2,750,000
              Seventh Contract Year              3,500,000
              Eighth Contract Year               4,250,000
              Ninth Contract Year                5,000,000
              Tenth Contract Year                5,750,000
              Eleventh Contract Year             6,500,000

              "ADJUSTED  CUMULATIVE  QUOTA" for any  Contract  Year shall be the
number of shares of Common Stock  constituting  the applicable  Cumulative Quota
for such year increased (or, in the case of a reverse stock split, reduced) upon
the  occurrence  of  each  event  described  in  Section  14.4(a)  or (c) by the
percentage  that the total number of outstanding  shares of Common Stock will be
proportionately increased (or, in the case of reverse stock split, reduced) as a
result  of such  event;  it  being  understood  that  such  adjustment  shall be
effective and determined on the same date(s) that the Conversion  Price would be
adjusted pursuant to such Sections.

11.    EVENTS OF DEFAULT.

              An  "EVENT  OF  DEFAULT"  shall  exist  if any  of  the  following
conditions or events shall occur and be continuing:

              (a)    the Company fails to pay any principal of the Note when the
       same becomes due and payable,  whether at maturity or at a date fixed for
       prepayment or by declaration or otherwise; or

              (b)    the Company  defaults in the payment of any interest on any
       Note for more than five (5)  Business  Days  after  written  notification
       thereof from you to the Company when the same becomes due and payable; or

              (c)    the Company  defaults in the  performance  of or compliance
       with any term  contained  in  Section  10.2 or fails to  comply  with its
       obligations to issue shares of Common Stock on conversion of the Note; or

              (d)    the Company  defaults in the  performance  of or compliance
       with  any  term  contained  herein  (other  than  those  referred  to  in
       paragraphs  (a),  (b) and (c) of this Section 11) and such default is not
       remedied  within 30 days after the earlier of (i) a  Responsible  officer
       obtaining actual knowledge of such default and (ii) the company receiving
       written  notice of such default  from you (any such


                                       20
<PAGE>


       written  notice to be  identified  as a "notice of default"  and to refer
       specifically to this paragraph (d) of Section 11); or

              (e)    any  representation  or  warranty  made in writing by or on
       behalf of the Company or by any officer of the Company in this  Agreement
       or  in  any  writing   furnished  in  connection  with  the  transactions
       contemplated  hereby  proves  to have  been  false  or  incorrect  in any
       Material respect on the date as of which made; or

              (f)    (i) the  Company or any of its  Subsidiaries  is in default
       (as  principal  or as  guarantor  or other  surety) in the payment of any
       principal  of  or  premium  or  make-whole  amount  or  interest  on  any
       Indebtedness  that is outstanding in an aggregate  principal amount of at
       least $3,000,000 beyond any period of grace provided with respect thereto
       and notice from the lender,  or (ii) the Company or any  Subsidiary is in
       default in the performance of or compliance with any term of any evidence
       of any  Indebtedness in an aggregate  outstanding  principal amount of at
       least  $3,000,000  or of  any  mortgage,  indenture  or  other  agreement
       relating thereto or any other condition  exists,  and as a consequence of
       such default or condition  such  Indebtedness  has been  declared due and
       payable  before its stated  maturity  or before its  regularly  scheduled
       dates of payment; or

              (g)    the  Company  or any  of its  Subsidiaries  (i)  admits  in
       writing its  inability to pay, its debts as they become due,  (ii) files,
       or  consents  by answer  or  otherwise  to the  filing  against  it of, a
       petition  for  relief  or  reorganization  or  arrangement  or any  other
       petition in  bankruptcy,  for  liquidation  or to take  advantage  of any
       bankruptcy, insolvency,  reorganization,  moratorium or other similar law
       of any  jurisdiction,  (iii) makes an  assignment  for the benefit of its
       creditors,  (iv) consents to the  appointment  of a custodian,  receiver,
       trustee or other  officer with similar  powers with respect to it or with
       respect to any  substantial  part of its property,  (y) is adjudicated as
       insolvent or to be  liquidated,  or (vi) takes  corporate  action for the
       purpose of any of the foregoing; or

              (h)    a court or governmental authority of competent jurisdiction
       enters an order appointing,  without consent by the Company or any of its
       Subsidiaries,  a  custodian,  receiver,  trustee  or other  officer  with
       similar powers with respect to it or with respect to any substantial part
       of its  property,  or  constituting  an order for relief or  approving  a
       petition for relief or reorganization or any other petition in bankruptcy
       or for  liquidation  or to take advantage of any bankruptcy or insolvency
       law of any  jurisdiction,  or ordering  the  dissolution,  winding-up  or
       liquidation  of the  Company  or any of  its  Subsidiaries,  or any  such
       petition  shall be filed  against the Company or any of its  Subsidiaries
       and such petition shall not be dismissed within 60 days; or

              (i)    a final  judgment  or  judgments  for the  payment of money
       aggregating  $3,000,000  in excess of any insurance and reserves for such
       judgment  are  rendered  against  one or  more  of the  Company  and  its
       Subsidiaries  and which  judgments  are not,  within 60 days after  entry
       thereof,  bonded,  discharged  or

                                       21
<PAGE>


       stayed pending  appeal,  or are not  discharged  within 60 days after the
       expiration of such stay; or

              (j)    if (i) any Plan shall fail to satisfy the  minimum  funding
       standards  of ERISA or the Code for any plan  year or part  thereof  or a
       waiver of such  standards  or  extension  of any  amortization  period is
       sought or granted under section 412 of the Code,  (ii) a notice of intent
       to  terminate  any Plan shall have been or is  reasonably  expected to be
       filed with the PBGC or the PBGC shall have instituted  proceedings  under
       ERISA  section 4042 to terminate or appoint a trustee to  administer  any
       Plan or the PBGC shall have  notified the Company or any ERISA  Affiliate
       that a Plan may  become a  subject  of any such  proceedings,  (iii)  the
       aggregate "amount of unfunded benefit liabilities" (within the meaning of
       section  4001(a)(18) of ERISA) under all Plans,  determined in accordance
       with Title IV of ERISA,  shall exceed  $500,000,  (iv) the Company or any
       ERISA  Affiliate  shall have incurred or is reasonably  expected to incur
       any Material  liability pursuant to Title I or IV of ERISA or the penalty
       or excise tax provisions of the Code relating to employee  benefit plans,
       (v) the Company or any ERISA Affiliate  withdraws from any  Multiemployer
       Plan,  or (vi) the Company or any  Subsidiary  establishes  or amends any
       employee  welfare  benefit  plan that  provides  post-employment  welfare
       benefits in a manner that would  increase the liability of the Company or
       any  Subsidiary  thereunder;  and any such event or events  described  in
       clauses (i) through (vi) above,  either individually or together with any
       other  such event or  events,  could  reasonably  be  expected  to have a
       Material Adverse Effect.

As used in Section  11 (j),  the terms  "EMPLOYEE  BENEFIT  PLAN" and  "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective  meanings assigned to such terms
in Section 3 of ERISA.

12.    REMEDIES ON DEFAULT, ETC.

12.1.  ACCELERATION.

              If an  Event  of  Default  has  occurred  and is  continuing,  the
Majority  Lenders may, by written notice to the Company,  declare the Note to be
immediately due and payable.

              Upon becoming due and payable  under this Section  12.1,  the Note
will forthwith  mature and the entire unpaid principal amount of such Note, plus
all  accrued  and  unpaid  interest  thereon  shall all be  immediately  due and
payable,  in each and every case without demand,  protest or further notice, all
of which are hereby waived.

12.2.  OTHER REMEDIES.

              If any Default or Event of Default has occurred and is continuing,
and irrespective of whether the Note has become or has been declared immediately
due and payable under Section 12.1,  you may proceed to protect and enforce your
rights  by an action at law,  suit in  equity or other  appropriate  proceeding,
whether for the specific

                                       22
<PAGE>


performance  of  any  agreement  contained  herein  or in  the  Note,  or for an
injunction against a violation of any of the terms hereof or thereof,  or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3.  NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

              No course of dealing and no delay on your part in  exercising  any
right, power or remedy shall operate as a waiver thereof or otherwise  prejudice
your rights,  powers or remedies.  No right,  power or remedy  conferred by this
Agreement or by the Note upon you shall be  exclusive of any other right,  power
or remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise. Without limiting the obligations of the Company
under  Section 15, the Company will pay to you on demand such further  amount as
shall be sufficient to cover the  reasonable  costs and expenses of you incurred
in any  enforcement  or  collection  under this Section 12,  including,  without
limitation,   reasonable  fees,   expenses  and  disbursements  of  one  counsel
representing you (and all other holders of the Note).

13.    SUBORDINATION.

13.1.  NOTE SUBORDINATED TO SENIOR INDEBTEDNESS.

              The Company, for itself and its successors, and you agree that (a)
the payment of the principal of,  premium,  if any, and interest on the Note and
(b) any payment on account of the  acquisition  or redemption of the Note by the
Company or any of its Subsidiaries,  including,  without limitation, any payment
pursuant to Section 8 hereof,  is subordinated,  to the extent and in the manner
provided  in this  Section  13,  to the  prior  payment  in  full of all  Senior
Indebtedness of the Company and its  Subsidiaries  and that these  subordination
provisions are for the benefit of the holders of Senior Indebtedness.

              This Section 13 shall constitute a continuing offer to all Persons
who, in reliance upon such  provisions,  become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.

13.2.  NO PAYMENT ON THE NOTE IN CERTAIN CIRCUMSTANCES.

              (a)    No payment  shall be made by the Company or any  Subsidiary
       on account of principal of,  premium,  if any, or interest on the Note or
       on  account  of  the  redemption,   repurchase,   acceleration  or  other
       acquisition  of the Note (other than in the form of Common Stock or other
       capital stock of the Company), or on account of the Subordinated Guaranty
       if there shall have  occurred and be  continuing a default in the payment
       of all or any portion of the  obligations on any Senior  Indebtedness  (a
       "Senior  Payment  Default")  until such Senior Payment Default shall have
       been cured or waived or shall have ceased to exist.

                                       23
<PAGE>


              (b)    During the continuance of any non-payment  default or event
       of default  with  respect to Senior  Indebtedness  pursuant  to which the
       maturity  thereof may be  accelerated,  and upon receipt by you of notice
       thereof  from  the  holders  of more  than a  majority  of the  aggregate
       principal  amount of Senior  Indebtedness  then  outstanding  (a  "Senior
       Non-Payment  Default"),  then, unless and until (i) such default or event
       of default  shall have been cured or waived or have  ceased to exist,  or
       (ii) a  Default  under  either  Section  11(g) or  Section  11(h)  hereof
       involving  the  Company  or any  Subsidiary  of the  Company  shall  have
       occurred and be continuing,  or (iii) such Senior Indebtedness shall have
       been paid in full (each of clause  (i),  (ii) and (iii) being a "Blockage
       Termination  Event"),  no payment or distribution (other than in the form
       of Common Stock or other capital stock of the Company) will be made by or
       on behalf of the Company or any  Subsidiary  of the Company on account of
       or with  respect  to the  Note  during  a period  (a  "Blockage  Period")
       commencing  on the date of  receipt  of such  notice  and ending 179 days
       thereafter.

              (c)    Notwithstanding  anything herein to the contrary, (i) in no
       event will a Blockage Period extend beyond the 179 days from the date the
       payment  on the Note was due and (ii)  there  must be 180 days in any 365
       day period  during which no Blockage  Period is in effect.  Not more than
       one Blockage  Period may be commenced with respect to the Note during any
       period of 365  consecutive  days.  No default  or event of  default  that
       existed or was  continuing  on the date of  commencement  of any Blockage
       Period with respect to the Senior  Indebtedness  initiating such Blockage
       Period may be, or be made,  the basis for the  commencement  of any other
       Blockage  Period by the holders of such Senior  Indebtedness,  whether or
       not within a period of 365 consecutive days, unless such default or event
       of  default  has been  cured or  waived  for a period of not less than 90
       consecutive days.

              (d)    In furtherance of the provisions of Section 13.1 hereof, in
       the event that,  notwithstanding the foregoing provisions of this Section
       13.2, any payment or  distribution  of assets on account of principal of,
       premium,  if any, or interest on the Note shall be made by the Company or
       any  Subsidiary  of the Company  and  received by you at a time when such
       payment or distribution  was prohibited by the provisions of this Section
       13.2, then,  unless such payment or distribution is no longer  prohibited
       by this  Section  13.2,  such  payment or  distribution  (subject  to the
       provisions  of Sections  13.6 and 13.7 hereof) shall be received and held
       in trust by you for the  benefit of the  holders of Senior  Indebtedness,
       and  shall  be paid  or  delivered  by  you,  to the  holders  of  Senior
       Indebtedness  remaining unpaid and unprovided for or their representative
       or  representatives,  or to the trustee or trustees  under any  indenture
       pursuant  to  which  any  instruments   evidencing  any  of  such  Senior
       Indebtedness  may have been issued,  ratably  according to the  aggregate
       amounts  on account of the Senior  Indebtedness  held or  represented  by
       each, to the extent  necessary to enable  payment in full (except as such
       payment   otherwise   shall  have  been  provided  for),  of  all  Senior
       Indebtedness  remaining  unpaid,  after giving  effect to all  concurrent
       payments and  distributions  and all provisions  therefor,  to or for the
       holders of such Senior Indebtedness.  Your

                                       24
<PAGE>


       obligations  under this Section  13.2(d) shall only be to the extent that
       any  holder  of  such  Senior  Indebtedness,  as  promptly  as  practical
       following notice from you to the holders of such Senior Indebtedness that
       such  prohibited  payment has been received by you, and  requesting  from
       such  holder of Senior  Indebtedness  a statement  of amounts  owing such
       holder,  such holder (or a  representative  thereof)  notifies you of the
       amounts then due and owing on such Senior  Indebtedness,  if any, held by
       such holder and only the amounts  specified  in such notices to you shall
       be paid hereunder to the holders of such Senior Indebtedness.

              (e)    The Company shall give prompt  written notice to you of any
       default  or event of  default,  and any cure or  waiver  thereof,  or any
       acceleration  under  any  Senior  Indebtedness  or  under  any  agreement
       pursuant to which Senior Indebtedness may have been issued.

13.3.  NOTE  SUBORDINATED  TO  PRIOR  PAYMENT  OF  ALL  SENIOR  INDEBTEDNESS  ON
       ACCELERATION OF PRINCIPAL OF THE NOTE OR ON  DISSOLUTION,  LIQUIDATION OR
       REORGANIZATION.

              Upon any  acceleration  of the principal of the Note or any Senior
Indebtedness or any distribution of assets of the Company or any Subsidiary upon
any dissolution,  winding up, total or partial  liquidation or reorganization of
the Company or any Subsidiary,  whether voluntary or involuntary, in bankruptcy,
insolvency,  receivership  or  similar  proceeding  or upon  assignment  for the
benefit of creditors:

              (a)    the  holders  of all  Senior  Indebtedness  shall  first be
       entitled to receive  payments in full of the  principal of,  premium,  if
       any, and interest on and all other  amounts  payable in respect  thereof,
       before  you are  entitled  to  receive  any  payment  on  account  of the
       principal of, premium, if any, and interest on the Note;

              (b)    any payment or distribution of assets of the Company or any
       Subsidiary  of any  kind or  character,  whether  in  cash,  property  or
       securities,  to which you would be entitled  except for the provisions of
       this  Section 13,  shall be paid by the  liquidating  trustee or agent or
       other  Person  making  such a payment or  distribution,  directly  to the
       holders of Senior Indebtedness or their representative, ratably according
       to the respective  amounts of Senior  Indebtedness held or represented by
       each, to the extent  necessary to make payment in full of all such Senior
       Indebtedness  remaining  unpaid  after  giving  effect to all  concurrent
       payments  and  distributions  to  or  for  the  holders  of  such  Senior
       Indebtedness; and

              (c)    in the  event  that,  notwithstanding  the  foregoing,  any
       payment or distribution of assets of the Company or any Subsidiary of any
       kind or  character,  whether in cash,  property or  securities,  shall be
       received by you on account of principal of, premium,  if any, or interest
       on the Note, as the case may be, before all Senior  Indebtedness  is paid
       in full,  such  payment or  distribution  (subject to the  provisions  of
       Sections 13.6 and 13.7 hereof) shall be received and held in trust by you
       for the  benefit of the  holders of such  Senior  Indebtedness,  or their
       respective representative, ratably according to the respective amounts of
       Senior  Indebtedness


                                       25
<PAGE>


       held or represented  by each, to the extent  necessary to make payment in
       full of all such Senior Indebtedness remaining unpaid after giving effect
       to all  concurrent  payments and  distributions  to or for the holders of
       such Senior Indebtedness, but only to the extent that as to any holder of
       such Senior Indebtedness,  as promptly as practical following notice from
       you to the  holders  of such  Senior  Indebtedness  that such  prohibited
       payment  has been  received  by you and  requesting  from such  holder of
       Senior Indebtedness a statement of amounts owing such holder, such holder
       notifies   you  of  the  amounts  then  due  and  owing  on  such  Senior
       Indebtedness,  if any, held by such holder and only the amounts specified
       in such  notices to you shall be paid  hereunder  to the  holders of such
       Senior Indebtedness.

              The  Company  shall  give  prompt  written  notice  to  you of any
dissolution,  winding  up,  liquidation  or  reorganization  of the  Company  or
assignment for the benefit of creditors by the Company.

13.4.  NOTEHOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.

              Subject to the  payment in full of all  Senior  Indebtedness,  you
shall be subrogated to the rights of the holders of such Senior  Indebtedness to
receive  payments or  distributions  of assets of the Company  applicable to the
Senior  Indebtedness  until all amounts owing on the Note shall be paid in full,
and for the purpose of such subrogation no such payments or distributions to you
of such Senior  Indebtedness by or on behalf of the Company,  or by or on behalf
of you by virtue of this Section 13, which otherwise would have been made to you
shall,  as between the Company and you, be deemed to be payment by the  Company,
to or on account  of such  Senior  Indebtedness,  it being  understood  that the
provisions  of this  Section 13 are and are  intended  solely for the purpose of
defining  the relative  rights of you, on the one hand,  and the holders of such
Senior Indebtedness, on the other hand.

                  If any payment or  distribution  to which you would  otherwise
have been  entitled  but for the  provisions  of this Section 13 shall have been
applied, pursuant to the provisions of this Section 13 to the payment of amounts
payable  under Senior  Indebtedness,  then you shall be entitled to receive from
the holders of such Senior  Indebtedness any payments or distributions  received
by such holders of Senior Indebtedness in excess of the amount sufficient to pay
all amounts payable under or in respect of such Senior Indebtedness in full.

13.5.  OBLIGATIONS OF THE COMPANY UNCONDITIONAL.

              Nothing  contained  in  this  Section  13  or  elsewhere  in  this
Agreement or in the Note is intended to or shall impair,  as between the Company
and you, the obligation of the Company, which is absolute and unconditional,  to
pay to you the  principal of,  premium,  if any, and interest on the Note as and
when the same shall become due and payable in accordance  with its terms,  or is
intended to or shall  affect the  relative  rights of you and  creditors  of the
Company other than the holders of the Senior  Indebtedness,  nor shall  anything
herein  or in the  Note  prevent  you from  exercising  all  remedies  otherwise
permitted by applicable  law upon default under this  Agreement,  subject to the
rights, if


                                       26
<PAGE>


any, under this Section 13, of the holders of Senior  Indebtedness in respect of
cash,  property or securities  of the Company  received upon the exercise of any
such remedy. Notwithstanding anything to the contrary in this Section 13 in this
Agreement or in the Note upon any distribution of assets of the Company referred
to in this  Section  13, you shall be  entitled to rely upon any order or decree
made by any court of competent  jurisdiction in which such dissolution,  winding
up, liquidation or reorganization  proceedings are pending,  or a certificate of
the liquidating  trustee or agent or other Person making any distribution to you
for the purpose of  ascertaining  the Persons  entitled to  participate  in such
distribution,  the holders of the Senior  Indebtedness and other Indebtedness of
the Company,  the amount thereof or payable thereon,  the amount or amounts paid
or distributed  thereon and all other facts pertinent thereto or to this Section
13.

13.6.  SUBORDINATION  RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR
       HOLDERS OF SENIOR INDEBTEDNESS.

              No  right  of  any  present  or  future   holders  of  any  Senior
Indebtedness to enforce  subordination  provisions  contained in this Section 13
shall at any time in any way be  prejudiced or impaired by any act or failure to
act on the part of the  Company  or any  Subsidiary  or by any act or failure to
act, in good faith, by any such holder,  or by any  noncompliance by the Company
with the terms of this Agreement, or by any noncompliance by any Subsidiary with
the terms of the Subordinated  Guaranty regardless of any knowledge thereof with
which any such holder may have or be  otherwise  charged.  The holders of Senior
Indebtedness  may  extend,  renew,  modify  or amend  the  terms  of the  Senior
Indebtedness  or any  security  therefor  and  release,  sell or  exchange  such
security and  otherwise  deal freely with the Company and the  Subsidiaries  all
without  affecting  the  liabilities  and  obligations  of the  parties  to this
Agreement,  the  subordination  provisions  of this  Section 13 or the rights of
holders of Senior Indebtedness to enforce such provisions.

13.7.    SECTION 13 NOT TO PREVENT EVENTS OF DEFAULT.

              The failure to make a payment on account of principal of, premium,
if any, or interest on the Note by reason of any  provision  of this  Section 13
shall not be construed as preventing  the occurrence of a Default or an Event of
Default  under Section 12 hereof or in any way prevent you from  exercising  any
right hereunder other than the right to receive payment on the Note.

14.    CONVERSION OF NOTES.

14.1.  RIGHT OF CONVERSION; CONVERSION PRICE.

              You shall  have the right,  at your  option,  at any time  (except
that, in the event all or a portion of the Note shall be called for  redemption,
such right shall  terminate  at the close of business on the last  Business  Day
prior to the date fixed for such redemption  unless the Company shall default in
payment  due upon  redemption  thereof),  to  convert,  subject to the terms and
provisions of this Section 14, the principal of the Note


                                       27
<PAGE>


or any  portion  thereof  which  is at least  $60,000  principal  amount  and an
integral  multiple  of 12,000  into shares of Common  Stock,  at the  Conversion
Price.

14.2.  ISSUANCE OF SHARES ON CONVERSION.

              As  promptly  as  practicable  after  the  surrender,   as  herein
provided,  of the Note or portion of the Note for conversion,  the Company shall
deliver  or  cause  to be  delivered  at its  said  office  or  agency,  to you,
certificates  representing the number of fully paid and nonassessable  shares of
Common  Stock into which  such Note or portion of the Note may be  converted  in
accordance  with the  provisions  of this Section 14. Such  conversion  shall be
deemed to have been made as of the close of  business on the date that such Note
or portion of the Note shall have been surrendered for conversion with a written
notice of  conversion  duly  executed,  so that your rights under the Note shall
cease at such time and,  subject to the following  provisions of this paragraph,
you shall be treated for all purposes as having become the record holder of such
shares  of  Common  Stock  at such  time  and  such  conversion  shall be at the
Conversion  Price  in  effect  at such  time;  PROVIDED,  HOWEVER,  that no such
surrender  on any date when the stock  transfer  books of the  Company  shall be
closed  shall be  effective  to cause your rights  under the Note to cease or to
constitute you as the record holder of such shares of Common Stock on such date,
but such  surrender  shall be  effective  to cause your rights under the Note to
cease and to constitute you as the record holder thereof for all purposes at the
close of business on the next  succeeding day on which such stock transfer books
are open; such conversion shall be at the Conversion Price in effect on the date
that the Note or portion of the Note being converted shall have been surrendered
for  conversion,  as if the stock  transfer  books of the  Company  had not been
closed.

              Upon  conversion  of the  Note in part  only,  the  Company  shall
execute at the expense of the Company,  a new Note in principal  amount equal to
the unconverted portion of such Note.

14.3.  NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.

              No payment or  adjustment  in respect of  interest  on the Note or
dividends on the shares of Common Stock shall be made upon the conversion of the
Note;  PROVIDED,  HOWEVER,  that if all or any portion of the Note (other than a
portion  thereof  called for  redemption)  shall be converted  subsequent to any
Record Date and on or prior to the next  succeeding  Interest  Payment Date, the
interest  falling  due on such  Interest  Payment  Date shall be payable on such
Interest  Payment  Date  notwithstanding  such  conversion,  and  such  interest
(whether or not punctually paid or duly provided for) shall be paid at the close
of business on such Record Date and the Note or portion thereof  surrendered for
conversion  during the period  from the close of  business on any Record Date to
the opening of  business  on the  corresponding  Interest  Payment  Date must be
accompanied  by  payment  of an amount  equal to the  interest  payable  on such
Interest Payment Date.

                                       28
<PAGE>


14.4.  ADJUSTMENT OF CONVERSION PRICE.

              (a)    In case the  Company  shall pay or make a dividend or other
       distribution  on any class of capital  stock of the  Company in shares of
       Common Stock,  the Conversion  Price in effect at the opening of business
       on the day following the date fixed for the determination of stockholders
       entitled to receive such dividend or other  distribution shall be reduced
       by multiplying such Conversion Price by a fraction of which the numerator
       shall be the number of shares of Common Stock outstanding at the close of
       business  on the date fixed for such  determination  and the  denominator
       shall be the sum of such number of shares and the total  number of shares
       constituting  such  dividend or other  distribution,  such  reduction  to
       become  effective  immediately  after the  opening of business on the day
       following the date fixed for such determination. For the purposes of this
       paragraph  (a),  the  number  of  shares  of  Common  Stock  at any  time
       outstanding shall not include shares held in the treasury of the Company.

              (b)    In case the Company shall issue stock,  rights,  options or
       warrants to all holders of its shares of Common Stock  entitling  them to
       subscribe  for or  purchase  shares of Common  Stock at a price per share
       less than the current  market price per share  (determined as provided in
       paragraph (g) of this Section 14.4) of Common Stock on the date fixed for
       the determination of stockholders entitled to receive such stock, rights,
       options or  warrants,  the  Conversion  Price in effect at the opening of
       business on the day following the date fixed for such determination shall
       be reduced by multiplying  such  Conversion  Price by a fraction of which
       the numerator  shall be the number of shares of Common Stock  outstanding
       at the close of  business on the date fixed for such  determination  plus
       the  number  of  shares  of  Common  Stock  which  the  aggregate  of the
       subscription  price of the total  number  of  shares  of Common  Stock so
       offered for  subscription  or  purchase  would  purchase at such  current
       market price and the denominator  shall be the number of shares of Common
       Stock  outstanding  at the close of  business  on the date fixed for such
       determination  plus the number of shares of Common  Stock so offered  for
       subscription or purchase,  such reduction to become effective immediately
       after the  opening of business  on the day  following  the date fixed for
       such  determination.  In the event that all of the shares of Common Stock
       subject to such  rights,  options or  warrants  have not been issued when
       such rights,  options or warrants expire, then the Conversion Price shall
       promptly be  readjusted  to the  Conversion  Price which would then be in
       effect had the  adjustment  upon the issuance of such rights,  options or
       warrants  been made on the basis of the actual number of shares of Common
       Stock  issued  upon the  exercise  of such  rights or  warrants.  For the
       purposes of this  paragraph  (b), the number of shares of Common Stock at
       any time outstanding shall not include shares held in the treasury of the
       Company  but  shall   include   shares   issuable  in  respect  of  scrip
       certificates  issued in lieu of fractions of shares of Common Stock.  The
       antidilution  provisions  of this Section 14 shall not apply to grants of
       options under the Company's Incentive Stock Plans.

                                       29
<PAGE>


              (c)    In case the  outstanding  shares of Common  Stock  shall be
       subdivided  into a greater  number of  shares,  the  Conversion  Price in
       effect at the opening of business on the day following the day upon which
       such subdivision becomes effective shall be proportionately reduced, and,
       conversely,  in case outstanding shares of Common Stock shall be combined
       into a smaller number of shares,  the  Conversion  Price in effect at the
       opening  of  business  on the day  following  the  day  upon  which  such
       combination  becomes effective shall be proportionately  increased,  such
       reduction  or  increase,   as  the  case  may  be,  to  become  effective
       immediately  after the opening of business on the day  following  the day
       upon which such subdivision or combination becomes effective. (d) In case
       the  Company  shall,  by  dividend  or  otherwise,  distribute  to all or
       substantially  all  holders  of  shares  of  Common  Stock  evidences  of
       indebtedness  or assets of the Company  (including  cash or securities or
       other  property,  but  excluding  any (i)  rights,  options  or  warrants
       referred to in  paragraph  (b) of this Section 14.4 and (ii) any dividend
       or distribution  referred to in paragraph (a) of this Section 14.4),  the
       Conversion Price shall be adjusted so that the same shall equal the price
       determined by  multiplying  the  Conversion  Price in effect  immediately
       prior to the close of business on the day fixed for the  determination of
       stockholders entitled to receive such distribution by a fraction of which
       the numerator shall be the current market price per share  (determined as
       provided in paragraph  (g) of this  Section  14.4) of Common Stock on the
       date fixed for such  determination  less the  amount or then fair  market
       value as determined by the Board of Directors (whose  determination shall
       be conclusive and described in a Board Resolution filed with the Trustee)
       of the cash or portion  of the assets or  evidences  of  indebtedness  so
       distributed  allocable to one share of Common  Stock and the  denominator
       shall be such  current  market  price  per share of  Common  Stock,  such
       adjustment  to  become  effective  immediately  prior to the  opening  of
       business on the day  following  the date fixed for the  determination  of
       stockholders entitled to receive such distribution.

              (e)    In case the  Company  shall  issue or sell  any  shares  of
       Common Stock or securities  convertible  into or  exercisable  for Common
       Stock,  in any case for a  consideration  per share of Common  Stock less
       than the current  market price at the time of such issuance or sale,  the
       Conversion  Price shall be reduced by multiplying the Conversion Price in
       effect immediately prior to such issuance or sale by a fraction,  (A) the
       numerator  of which  shall be (i) the  number of  shares of Common  Stock
       outstanding on a fully diluted basis immediately prior to the transaction
       plus (ii) the  number  of  additional  shares of Common  Stock on a fully
       diluted basis that would have been issued or sold in the  transaction had
       the  issuance or sale  occurred at the current  market  price and (B) the
       denominator  of which  shall be the  number of  shares  of  Common  Stock
       outstanding on a fully diluted basis  immediately after such transaction.
       For purposes of this  subparagraph (e) of this Section 14.4, the issuance
       or sale shall be deemed to occur on the  earlier of (x) the date on which
       the Company shall enter into a binding  contract for the issuance or sale
       of such shares of Common Stock or convertible securities and (y) the date
       of the actual issuance or sale of such

                                       30
<PAGE>


       securities.  The  issuance of Common Stock on  conversion  or exercise of
       convertible  securities  outstanding  prior to the date hereof  shall not
       give  rise  to  any  adjustment  of  the  Conversion   Price  under  this
       subparagraph (e) of this Section 14.4.

              (f)    In case the shares of Common  Stock  shall be changed  into
       the same or a  different  number of shares  of any  class or  classes  of
       stock, whether by capital reorganization,  reclassification, or otherwise
       (other than a subdivision  or  combination  of shares or a stock dividend
       described in paragraph  (a) or paragraph  (c) of this Section  14.4, or a
       consolidation,  merger  or sale of  assets  described  in  Section  14.10
       hereof),  then and in each such event you shall have the right thereafter
       to convert the Note into the kind and amount of shares of stock and other
       securities   and   property   receivable   upon   such    reorganization,
       reclassification  or other change,  by holders of the number of shares of
       Common  Stock into which the Note might have been  converted  immediately
       prior to such reorganization, reclassification or change.

              (g)    For the purpose of any  computation  under  paragraphs (b),
       (d) and (e) of this Section 14.4,  the current  market price per share of
       Common Stock on any date shall be deemed to be the average of the Closing
       Prices  for the 15  consecutive  Trading  Days  selected  by the  Company
       commencing  not more than 30 and not less than 20 Trading Days before the
       date in question.

              (h)    No  adjustment  in the  Conversion  Price shall be required
       unless such  adjustment  (plus any  adjustments  not  previously  made by
       reason of this paragraph (h)) would require an increase or decrease of at
       least 1% in such price; PROVIDED,  HOWEVER, that any adjustments which by
       reason of this paragraph (h) are not required to be made shall be carried
       forward  and  taken  into  account  in  any  subsequent  adjustment.  All
       calculations under this paragraph (h) shall be made to the nearest cent.

              (i)    The Company  may,  but shall not be required  to, make such
       reductions  in the  Conversion  Price,  in addition to those  required by
       paragraphs  (a),  (b),  (c),  (d) and (e) of this  Section  14.4,  as the
       Company's Board of Directors  considers to be advisable in order to avoid
       or  diminish  any  income tax to any  holders  of shares of Common  Stock
       resulting  from any  dividend  or  distribution  of stock or  issuance of
       rights or warrants to purchase or  subscribe  for stock or from any event
       treated as such from income tax  purposes or for any other  reasons.  The
       Company's  Board of  Directors  shall  have  the  power  to  resolve  any
       ambiguity or correct any error in the  adjustments  made pursuant to this
       Section 14.4 and its actions in so doing shall be final and conclusive.

              (j)    No  adjustment  in the  Conversion  Price  need be made for
       rights to purchase or the sale of the Common Stock  pursuant to a Company
       plan  providing  for  reinvestment  of dividends  or interest;  PROVIDED,
       HOWEVER,  that any  discount  under  such  plan may not  exceed 5% of the
       current  market  price of the  Common  Stock and such plan is  registered
       under the Securities Act.

                                       31
<PAGE>


14.5.  NOTICE OF ADJUSTMENT OF CONVERSION PRICE.

              Whenever the Conversion  Price is adjusted as herein  provided the
Company shall compute the adjusted  Conversion  Price in accordance with Section
14.4 and shall  prepare an  Officer's  Certificate  setting  forth the  adjusted
Conversion  Price and  showing  in  reasonable  detail the facts upon which such
adjustment is based and the computation thereof.

14.6.  NOTICE OF CERTAIN CORPORATION ACTION.

              (a)    In case:

                     (i)    the  Company  shall  authorize  the  granting to all
              holders  of its  shares  of Common  Stock of  rights  or  warrants
              entitling  them to subscribe for or purchase any shares of capital
              stock of any class or of any other rights; or

                     (ii)   of any  reclassification  of the  shares  of  Common
              Stock, or of any consolidation or merger to which the Company is a
              party and for which approval of any stockholders of the Company is
              required,  or of the sale or transfer of all or substantially  all
              of the assets of the Company; or

                     (iii)  of  the   voluntary  or   involuntary   dissolution,
              liquidation or winding up of the Company; or

                     (iv)   the  Company   declares  or  pays  any  dividend  or
              distribution to holders of shares of Common Stock; or

                     (v)    the Company  shall take any other  corporate  action
              that could give rise to an adjustment in the  Conversion  Price in
              accordance  with Section 14.4 (so long as the  disclosure  of such
              action  does  not  require   disclosure   of  material   nonpublic
              information);

       then the Company shall deliver to you at least 10 days (or 20 days in any
       case specified in clause (iii) above) prior to the applicable record date
       hereinafter specified, a notice stating (1) the date on which a record is
       to be taken for the  purpose of such  dividend,  distribution,  rights or
       warrants,  or, if a record  is not to be taken,  the date as of which the
       holders  of  shares of Common  Stock of  record  to be  entitled  to such
       dividend,  distribution,  rights or warrants is to be determined,  or (2)
       the date on which such  reclassification,  consolidation,  merger,  sale,
       transfer,  dissolution,  liquidation  or winding up is expected to become
       effective, and the date as of which it is expected that holders of shares
       of Common Stock of record  shall be entitled to exchange  their shares of
       Common Stock for securities, cash or other property deliverable upon such
       reclassification,  consolidation,  merger  sale,  transfer,  dissolution,
       liquidation or winding up.

       In addition to the  foregoing  notices,  the Company  will give notice as
       soon as  practicable  that any of the rights of the holders under Section
       14.4  has  been

                                       32
<PAGE>


       invoked for any reason not specified in Sections 14.6(a)(i),  (ii), (iii)
       or (iv), which notice will describe the event that triggered such rights.
       Such notice shall also state whether such  transaction will result in any
       adjustment  in the  Conversion  Price and,  if so,  shall  state what the
       adjusted  Conversion  Price  will be and when it will  become  effective.
       Neither the failure to give the notice required by this Section 14.6, nor
       any defect  therein  shall  affect the  sufficiency  of the notice or the
       legality or validity of any such dividend, distribution,  right, warrant,
       reclassification,  consolidation,  merger, sale,  transfer,  liquidation,
       dissolution or winding-up. Notwithstanding the foregoing, the Company has
       no  obligation  to  disclose  to  any  holders  any  material   nonpublic
       information concerning the Company or any of its Subsidiaries.

              (b)    In case the Company or any  Affiliate of the Company  shall
       propose to engage in a "Rule 13e-3 Transaction" (as defined in Rule 13e-3
       under the Securities Exchange Act of 1934, as amended) the Company shall,
       no later than the date on which any information with respect to such Rule
       13e-3  Transaction  is first required to be given to you pursuant to such
       Rule 13e-3, cause to be mailed to you a copy of all information  required
       to be given to you pursuant to such Rule 13e-3. The information  required
       to be given under this paragraph  shall be in addition to and not in lieu
       of any other information  required to be given by the Company pursuant to
       this Section 14.6 or any other provision of this Agreement.

14.7.  TAXES ON CONVERSIONS.

              The Company  will pay any and all stamp or similar  taxes that may
be payable in respect of the  issuance or delivery of shares of Common  Stock on
conversion of all or any portion of the Note pursuant hereto.  The Company shall
not, however,  be required to pay any tax which may be payable in respect of any
transfer  involved in the  issuance  and delivery of shares of Common Stock in a
name other than you to be converted.

14.8.  FRACTIONAL SHARES.

              No fractional shares or scrip representing fractional shares shall
be  issued  upon  the  conversion  of the  Note.  If any such  conversion  would
otherwise  require the  issuance of a  fractional  share an amount equal to such
fraction  multiplied  by the  current  market  price per  share of Common  Stock
(determined  as provided in paragraph  (g) of Section 14.4 hereof) on the day of
conversion shall be paid in cash by the Company.

14.9.  PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE OF ASSETS.

              In case of any consolidation of the Company with, or merger of the
Company  into,  any  other  corporation  or trust,  or in case of any  merger of
another  corporation  or trust into the Company  (other than a merger which does
not result in any  reclassification,  conversion,  exchange or  cancellation  of
outstanding  shares of  Common  Stock of the  Company),  or in case of any sale,
transfer or other  disposition of all or

                                       33
<PAGE>


substantially all of the assets of the Company,  the corporation or trust formed
by such  consolidation  or  resulting  from such merger or which  acquires  such
assets,  as the  case  may be,  shall  agree  that  you  shall  have  the  right
thereafter,  during the period the Note shall be  convertible  as  specified  in
Section  14.1  hereof to  convert  such  Note  only into the kind and  amount of
securities, cash and other property receivable upon such consolidation,  merger,
sale or  transfer  by a holder of the  number  of shares of Common  Stock of the
Company into which the Note might have been converted  immediately prior to such
consolidation,  merger,  sale or transfer,  assuming such holder of Common Stock
(i) is not a Person  with  which  the  Company  consolidated  or into  which the
Company  merged  or which  merged  into the  Company  or to which  such  sale or
transfer was made, as the case may be (a "Constituent  Person"), or an Affiliate
of a Constituent  Person and (ii) failed to exercise his rights of election,  if
any, as to the kind or amount of securities,  cash and other property receivable
upon such consolidation,  merger, sale or transfer (provided that if the kind or
amount  of   securities,   cash  and  other   property   receivable   upon  such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock held immediately prior to such consolidation,  merger, sale or transfer by
other than a Constituent  Person or an Affiliate thereof and in respect of which
such rights of election  shall not have been exercised  ("non-electing  share"),
then for the  purpose of this  Section  14.9 the kind and amount of  securities,
cash and other property  receivable  upon such  consolidation,  merger,  sale or
transfer by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of non-electing shares).

14.10. COVENANT TO RESERVE SHARES.

              The Company  covenants  that it will at all times reserve and keep
available,  free from preemptive  rights, out of its authorized shares of Common
Stock,  solely for the purpose of issuance upon conversion of the Note as herein
provided,  such number of shares of Common Stock as shall then be issuable  upon
the  conversion  of the Note.  The Company  covenants  that all shares of Common
Stock which shall be so issuable  shall be, when issued in  accordance  with the
Note  and  this   Agreement,   duly  and  validly  issued  and  fully  paid  and
nonassessable.

15.    SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

              All representations and warranties  contained herein shall survive
the execution and delivery of this  Agreement and the Note,  the purchase by you
of the Note or  interest  therein  and the  payment of the Note.  Subject to the
preceding  sentence,  this Agreement and the Note embodies the entire  agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.

                                       34
<PAGE>


16.    AMENDMENT AND WAIVER.

16.1.  REQUIREMENTS.

              Subject to Section  20.7(d),  this  Agreement  and the Note may be
amended,  and the  observance  of any term  hereof  or of the Note may be waived
(either  retroactively  or  prospectively),  with  (and only  with) the  written
consent of the Company and the Majority Lenders.

16.2.  BINDING EFFECT, ETC.

              No course of dealing  between the Company and you nor any delay in
exercising  any rights  hereunder or under the Note shall operate as a waiver of
any of your rights.  As used herein,  the term "THIS  AGREEMENT"  and references
thereto  shall  mean this  Agreement  as it may from time to time be  amended or
supplemented.

17.    NOTICES.

              All notices and communications  provided for hereunder shall be in
writing  and  sent  (a) by  telecopy  if the  sender  on the  same  day  sends a
confirming  copy of such  notice  by a  recognized  overnight  delivery  service
(charges  prepaid),  or (b) by registered or certified  mail with return receipt
requested (postage prepaid),  or (c) by a recognized  overnight delivery service
(with charges prepaid). Any such notice must be sent:

                     (i)    if to  you  or  your  nominee,  to  you or it at c/o
              Angelo, Gordon & Co. to the attention of David Roberts, or at such
              other address as you or it shall have  specified to the Company in
              writing,

                     (ii)   if to the company, to the Company at its address set
              forth  at the  beginning  hereof  to the  attention  of the  Chief
              Financial  Officer,  or at such other address as the Company shall
              have specified to you in writing.

Notices under this Section 17 will be deemed given only when actually received.

18.    REPRODUCTION OF DOCUMENTS.

              This  Agreement and all  documents  relating  thereto,  including,
without limitation,  (a) consents,  waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Note), and
(c)  financial  statements,  certificates  and other  information  previously or
hereafter  furnished  to  you,  may be  reproduced  by you by any  photographic,
photostatic,  microfilm,  microcard,  miniature  photographic  or other  similar
process and you may destroy any  original  document so  reproduced.  The Company
agrees and stipulates  that, to the extent permitted by applicable law, any such
reproduction  shall be  admissible  in  evidence as the  original  itself in any
judicial  or  administrative  proceeding  (whether  or not  the  original  is in
existence  and whether or not such  reproduction  was made by you in the regular
course of business) and any  enlargement,  facsimile or further  reproduction of
such  reproduction  shall  likewise be admissible  in evidence.  This Section 18
shall not prohibit the Company


                                       35
<PAGE>


or you from  contesting any such  reproduction  to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.

19.    CONFIDENTIAL INFORMATION.

              For the  purposes of this Section 19,  "Confidential  Information"
means material,  nonpublic  information  delivered to you by or on behalf of the
Company or any Subsidiary in connection with the transactions contemplated by or
otherwise  pursuant to this Agreement,  PROVIDED that such term does not include
information  that (a) was publicly known or otherwise  known to you prior to the
time of such disclosure,  (b) subsequently becomes publicly known through no act
or omission by you or any person acting on your behalf,  (c)  otherwise  becomes
known to you other than through  disclosure by the Company or any  Subsidiary or
(d) constitutes financial statements delivered to you under Section 7.1 that are
otherwise  publicly  available.  You will maintain the  confidentiality  of such
Confidential  Information in accordance with  procedures  adopted by you in good
faith to protect  confidential  information  of third parties  delivered to you,
provided that you may deliver or disclose  Confidential  Information to (i) your
directors,  officers,  managers,  employees, agents, attorneys and affiliates of
each  of  them  (to  the  extent  such  disclosure  reasonably  relates  to  the
administration of the investment  represented by your Note), (ii) your officers,
directors,  employees,  managers,  financial  advisors  and  other  professional
advisors  who  agree  to  hold   confidential   the   Confidential   Information
substantially in accordance with the terms of this Section 19, (iii) any federal
or state regulatory  authority having  jurisdiction  over you, or (iv) any other
Person to which such  delivery or disclosure is determined by your counsel to be
necessary  (w) to effect  compliance  with any law,  rule,  regulation  or order
applicable to you, (x) in response to any subpoena or other legal  process,  (y)
in connection with any litigation to which you are a party or (z) if an Event of
Default has  occurred and is  continuing,  but solely to the extent your counsel
reasonably  determines to be necessary or appropriate in the  enforcement or for
the protection of the rights and remedies under your Note and this Agreement. If
you or any of your  representatives  or affiliates are requested or required (by
oral  questions,   interrogatories,   requests  for  information  or  documents,
subpoena,  civil investigative  demand, any informal or formal  investigation by
any government or governmental agency or authority or other process) to disclose
any Confidential  Information,  you will provide the Company with prompt written
notice  of any  such  request  or  requirement  (including  the  terms  of,  and
circumstances  surrounding,  such  request)  so that the  Company  or any of its
Subsidiaries  may seek an  appropriate  protective  order  or other  appropriate
remedy and/or waive compliance with the provisions of this Agreement,  the party
subject to such request  will  disclose  only that  portion of the  Confidential
Information which it is advised by counsel is legally required and will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded  the  Confidential  Information.  The  obligations  provided in this
Section  19  shall  survive  termination  of this  Agreement  and  repayment  or
conversion of the Note.

                                       36
<PAGE>


20.    MISCELLANEOUS.

20.1.  SUCCESSORS AND ASSIGNS.

              All covenants and other agreements  contained in this Agreement by
or on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and permitted assigns whether so expressed or not.

20.2.  PAYMENTS DUE ON NON-BUSINESS DAYS.

              Anything  in  this   Agreement   or  the  Note  to  the   contrary
notwithstanding, any payment of principal of or interest on the Note that is due
on a date  other  than a  Business  Day  shall  be made on the  next  Succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.

20.3.  SEVERABILITY.

              Any   provision  of  this   Agreement   that  is   prohibited   or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction  shall (to the full  extent  permitted  by law) not  invalidate  or
render unenforceable such provision in any other jurisdiction.

20.4.  CONSTRUCTION.

              Each covenant  contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein,  so that  compliance  with any one  covenant  shall not (absent  such an
express  contrary  provision)  be  deemed to  excuse  compliance  with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which  such  Person  is  prohibited  from  taking,  such  provision  shall be
applicable whether such action is taken directly or indirectly by such Person.

20.5.  COUNTERPARTS.

              This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which  together  shall  constitute  one
instrument.  Each  counterpart  may consist of a number of copies  hereof,  each
signed by less than all, but together signed by all, of the parties hereto.

20.6.  GOVERNING LAW.

              This Agreement shall be construed and enforced in accordance with,
and the rights of the parties  shall be governed by, the law of the State of New
York  excluding  choice-of-law  principles  of the law of such  State that would
require the application of the laws of a jurisdiction other than such State.

                                       37
<PAGE>


20.7.  ASSIGNMENTS AND RESTRICTIONS ON TRANSFERS.

              (a)    The Company may not assign any of its rights or obligations
       hereunder  or under  the  Note  without  your  prior  consent;  PROVIDED,
       HOWEVER,  that the  Company  may assign any of its rights or  obligations
       hereunder  pursuant  to a merger  or other  transaction  permitted  under
       Section 10.2 hereof.

              (b)    Except as otherwise  permitted by this Section  20.7(b) the
       Note issued  under this  Agreement,  including  each Note issued upon the
       transfer or exchange of any Note, shall be stamped or otherwise imprinted
       with a legend in the following form:

              "This Note has not been  registered  under the  Securities  Act of
              1933,  as amended (the "Act") or any other  applicable  securities
              law and may not be transferred in the absence of such registration
              or an exemption  therefrom  under the Act and compliance  with any
              other  applicable  securities  laws.  This Note may be transferred
              only in  compliance  with  the  conditions  specified  in the Note
              Purchase  Agreement  referred  to in this  Note,  a  complete  and
              correct copy of the form of which is available  for  inspection at
              the principal  office of Riddell  Sports Inc.,  c/o Varsity Spirit
              Corporation, 2525 Horizon Lake, Memphis, Tennessee 38133.

              (c)    So long as the following provisions of this Section 20.7(c)
       are complied  with, you may assign to any transferee any of your interest
       in the Notes,  PROVIDED,  that any such partial assignment shall be in an
       amount at least equal to $60,000 and an integral multiple of 12,000.

                     (i)    In connection with any transfer of any Note which is
              not registered under an effective registration statement under the
              Securities  Act, the holder thereof shall provide the Company with
              confirmation  in a manner  reasonably  satisfactory to the Company
              that  such  transfer  does  not  require  registration  under  the
              Securities  Act or the  qualification  of an  indenture  under the
              Trust Indenture Act of 1939, as amended. Such holder shall provide
              the  Company if  reasonably  requested  with an opinion of counsel
              reasonably   satisfactory   to  the  Company  and  experienced  in
              rendering  opinions on matters of United States Federal securities
              law  to the  effect  of  the  foregoing  and  such  other  written
              information  and  representation  as the  Company  may  reasonably
              request,  and each  transferee  shall have agreed in writing to be
              bound by all the  restrictions  on transfer of the Notes contained
              in this Section 20.7(c).

                     (ii)   No Note shall be transferred  unless,  prior to such
              transfer,  the proposed transferee shall confirm in writing to the
              Company the accuracy as to such  proposed  transferee  of at least
              one  or  more  of  the   representations   set  out  in   Sections
              20.7(c)(iii) or 20.7(c)(iv) and, if such  representation  requires
              such  proposed  transferee  to identify to the

                                       38
<PAGE>


              Company the name of one or more "employee  benefit plans" (as such
              term is  defined  in  subsection  20.7(f),  the  Company  shall be
              reasonably  satisfied  that  such  transfer  does  not  involve  a
              transaction which is subject to the prohibitions of Section 406 of
              ERISA or in connection with which a tax would be imposed  pursuant
              to Section 4975 of the Code,  and the Company  shall  confirm such
              satisfaction in writing to such proposed transferee.

                     (iii)  one or more of the  following  representations  will
              satisfy Section 20.7(c)(ii):

                            (A)    "You  represent  that (1) you are  purchasing
                     the Note for your own  account or for one or more  separate
                     accounts  maintained  by you or for the  account  of one or
                     more affiliated institutional investors on whose behalf you
                     have authority to make this  representation  for investment
                     and not with a view to the distribution thereof or with any
                     present intention of distributing or selling any portion or
                     the Note, PROVIDED that the disposition of your -------- or
                     their  property  shall at all times be within your or their
                     control  and (2) you (and each  Person on whose  behalf you
                     are  acting  hereunder)  are an  institutional  "accredited
                     investor"  within  the  meaning  of Rule  501(a)  under the
                     Securities  Act. You understand  that the Note has not been
                     registered  under the Securities Act and may be resold only
                     if  registered   pursuant  to  the  provisions  thereof  or
                     pursuant to an exemption from  registration  thereunder and
                     in accordance with any other applicable securities laws and
                     the provisions of Section 20.7(c) hereof;

                            (B)    "You  represent  that  one  or  more  of  the
                     following  statements is individually or  collectively,  as
                     the  case  may be,  an  accurate  representation  as to the
                     source  of all  the  funds  to be  used  by you to pay  the
                     purchase  price or  portion  of the Note  purchased  by you
                     hereunder:

                                   (1)  if you are an insurance company,  all or
                            a part of such funds constitute  assets allocated to
                            a general asset  account  (within the meaning of the
                            Department of Labor ("DOL")  regulations under ERISA
                            and the DOL  Interpretive  Bulletin  75-2, 29 C.F.R.
                            2509 75-2 (Nov. 13, 1986)), maintained by you, which
                            is not a separate  account  (within  the  meaning of
                            ERISA and the regulations thereunder); or

                                   (2)  if you are an insurance company,  to the
                            extent  that  any  part  of such  funds  constitutes
                            assets allocated to any separate account  maintained
                            by you,  (x)  such  separate  account  is a  "pooled
                            separate  account"  within

                                       39
<PAGE>


                            the   meaning  of   Prohibited   Transaction   Class
                            Exemption  ("PTE")  90-1,  in  which  case  you have
                            disclosed to the Issuer in writing the names of each
                            employee  benefit plan whose assets in such separate
                            account  exceed  10% of the  total  assets  of  such
                            account as of the date of such purchase (and for the
                            purposes  of  this  subsection  (b) ,  all  employee
                            benefit   by   the   same   employer   or   employee
                            organization  are deemed to be a single  plan),  and
                            every relevant  requirement of PTE 90-1 specifically
                            applicable  to you which is required to be satisfied
                            as of the date of such purchase will be satisfied in
                            all material respects as of such date of purchase or
                            (y) such separate  account  contains only the assets
                            of a specific  employee  benefit plan,  complete and
                            accurate information as to the identity of which you
                            have delivered to the Issuer in writing; or

                                   (3)  if  you  are a  "qualified  professional
                            asset manager" or "QPAM" (within the meaning of Part
                            V of Prohibited  Transaction  Class  Exemption 84-14
                            (the  "QPAM   Exemption"))   of  such  funds   which
                            constitute  assets of an  "investment  fund" (within
                            the meaning of Part V of the QPAM exemption) managed
                            by  you,  every  relevant  requirement  of the  QPAM
                            Exemption  specifically  applicable  to you which is
                            required  to be  satisfied  as of the  date  of such
                            purchase will be satisfied in all material  respects
                            as of the date of such purchase; or

                                   (4)  if  you  are  other  than  an  insurance
                            company  or a QPAM,  all or a portion  of such funds
                            consists  of  funds  which do not  constitute  "plan
                            assets"  of  any  employee   benefit  plan  and  the
                            remaining portion, if any, of such funds consists of
                            funds  which  may  be  deemed  to  constitute  "plan
                            assets"  of one or more  specific  employee  benefit
                            plans,  complete and accurate  information as to the
                            identity of each of which you have  delivered to the
                            Issuer in writing.

              As used in this section  20.7(c)(iii),  the term "employee benefit
              plan" shall mean any employee  benefit plan subject to Section 406
              of ERISA and any employee  benefit plan or  individual  retirement
              account  subject to Section 4975 of the Code,  the term  "separate
              account"  shall have the  meaning  assigned  to it in section 3 of
              ERISA and the term "plan assets"  shall have the meaning  assigned
              to it in section 2510.3-101 of the Department of Labor regulations
              under ERISA.

                     (iv)   In the event of an  assignment of any portion of the
              Note in accordance with the above, you shall identify the assignee
              and the amount

                                       40
<PAGE>


              of Note assigned and the assignee  shall execute an  appropriately
              completed  counterpart of this Agreement (as then in effect),  and
              the  assignee  shall be bound to this  Agreement as if an original
              party  hereto and shall  have,  to the  extent of such  assignment
              (unless otherwise  provided in such assignment),  the obligations,
              rights and  benefits  of a lender  hereunder  holding the Note (or
              portions thereof)  assigned to it (in addition to the portion,  if
              any,  theretofore  held by such assignee).  In connection with the
              assignment  by you of all or any  portion of your  interest in the
              Note to another  Person,  upon request of you or such Person,  the
              Company will execute and deliver a Note or Notes in  substantially
              the form of Exhibit A hereto, as appropriate (as such form of Note
              may have been amended, endorsed, modified, extended, exchanged, or
              renewed),  dated the day after the last day through which interest
              shall  have been paid on the  Note,  payable  to the order of such
              Person in an  aggregate  principal  amount equal to the portion of
              the  Note  so  assigned  and  otherwise  duly  completed,  and the
              assigning  lender shall make a notation on related Note held by it
              as to the principal  amount of the Note so assigned.  In the event
              of any  assignment  pursuant to this  Section 20.7 (c), as used in
              this  Agreement,  the term "Note" shall include any Note delivered
              to such  assignee and the term "you" shall  include such  assignee
              (except that  provisions  specifying  the principal  amount of the
              Note owned or acquired by such  assignee or any other holder shall
              be deemed to refer to the principal amount of the Note so acquired
              by such holder).

              (d)    Notices, written instruments,  waivers or consents pursuant
       to  Section  11  (notice  of Event of  Default)  ;  Section 12 (notice of
       acceleration);  Section 16.1  (amendments/waivers)  and 20.7 (assignment)
       are of no force and effect or validity unless  evidenced by an instrument
       in writing signed by the Majority Lenders;  PROVIDED,  HOWEVER,  that any
       modification  or waiver  changing the date fixed for payment of principal
       or interest on the Note,  or reducing  the amount of payment of principal
       of, interest on, redemption  price,  Repurchase Price or Conversion Price
       of the Note,  or amending the other  provisions of Section 14 in a manner
       adverse to the holders or amending this Section 20.7(d) or the definition
       of "Majority  Lenders" or  releasing  the  Subordinated  Guaranty in full
       shall  not be  effective  against  any  holder  affected  thereby  unless
       contained in an instrument in writing signed by such holders.

20.8.  LOST NOTE.

              Upon receipt by the Company of evidence  satisfactory to it of the
loss, theft,  destruction or mutilation of the Note, and (in case of loss, theft
or destruction) of indemnity  satisfactory to it (any holder's undertaking to be
satisfactory  indemnity in case of loss,  theft or destruction of any Note owned
by such  holder),  and  upon  reimbursement  to the  Company  of all  reasonable
expenses incidental  thereto,  and upon surrender and cancellation of such Note,
if  mutilated,  the Company will pay any unpaid  principal  and interest then or
theretofore due and payable on the Note so lost, stolen, destroyed or

                                       41
<PAGE>


mutilated,  and will deliver in lieu thereof a new Note in the remaining  unpaid
principal amount thereof and carrying the same rights to interest (unpaid and to
accrue).

20.9.  REGISTRATION, TRANSFER AND EXCHANGE OF THE NOTE.

              The Company will keep at its principal  office a register in which
it will provide for the  registration  and registration of transfer of the Note,
at its own expense  (excluding  transfer  taxes).  If the Note is surrendered at
said  office or at the place of payment  named in the Note for  registration  of
transfer or exchange  (accompanied  in the case of registration of transfer of a
registered  Note by written  instrument of transfer in form  satisfactory to the
Company  duly  executed  by or on  behalf of the  holder)  the  Company,  at its
expense,  will  deliver in exchange  one or more new Notes in any  denominations
(multiples  of $1,000) as  requested  by the holder,  for the  aggregate  unpaid
principal  amount.  Each such new Note shall be  payable to such  person as such
holder may  request.  Any Note issued in a transfer or exchange  shall carry the
same rights to interest  (unpaid and to accrue)  carried by the Note or Notes so
transferred  or exchanged so that there will not be any loss or gain of interest
on the Note or Notes surrendered.

20.10. EQUITABLE RELIEF.

              It is understood and agreed that the Company and its  Subsidiaries
will be  irreparably  injured by a breach of Section 19 of this Agreement by you
or your respective  representatives or affiliates,  that money damages would not
be a  sufficient  remedy  for any  such  breach  and that  the  Company  and its
Subsidiaries shall be entitled to equitable relief,  including injunctive relief
and specific  performance,  as a remedy for any such breach  (which shall not be
the exclusive remedy for breach of this  agreement).  You agree to waive, and to
instruct your  representatives  to waive,  any  requirement  for the securing or
posting of any bond in connection with such remedy.

20.11. EXPENSES.

              The  Company  shall pay  Angelo,  Gordon & Co. on demand  and upon
delivery of invoices or other evidence of such expenses,  as  reimbursement  for
reasonable legal fees and expenses of it and its counsel,  Akin, Gump,  Strauss,
Hauer & Feld LLP,  incurred in  negotiating  this  Agreement  and the Note.  The
Company  shall  also  pay the  reasonable  costs  and  expenses  of one  counsel
representing  you and all  other  holders  of the  Note in  connection  with any
amendment  of or  waiver  to the  terms of this  Agreement;  PROVIDED,  that the
Company is delivered invoices and other evidences of such expenses.

                                       42
<PAGE>


              If you are in  agreement  with  the  foregoing,  please  sign  the
accompanying  counterpart  of  this  Agreement  and  return  it to the  Company,
whereupon the  foregoing  shall become a binding  agreement  between you and the
Company

                                         Very truly yours,

                                         Riddell Sports Inc.


                                         By:      /s/ John Nichols
                                                  ------------------------------
                                                  Name:  John Nichols
                                                  Title: Chief Financial Officer


The foregoing is hereby agreed to as of the date thereof.

Silver Oak Capital, L.L.C.



By: /s/ Michael L. Gordon
    --------------------------------------------
    Name:    Michael L. Gordon
    Title:   Authorized Signatory

                                       43
<PAGE>


                                   SCHEDULE A

                                  DEFINED TERMS

              As used herein,  the following terms have the respective  meanings
set forth below or set forth in the Section hereof following such term:

              "AFFILIATE"  means,  at any time,  and with respect to any Person,
(a) any other  Person that at such time  directly or  indirectly  through one or
more  intermediaries  Controls,  or is Controlled by, or is under common Control
with,  such first  Person,  and (b) any Person  beneficially  owning or holding,
directly or indirectly,  10% or more of any class of voting or equity  interests
of the Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or  more  of any  class  of  voting  or  equity  interests.  As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the  direction  of the  management  and policies of a Person,
whether  through the ownership of voting  securities,  by contract or otherwise.
Unless the context otherwise  clearly requires,  any reference to an "Affiliate"
is a reference to an Affiliate of the Company.

              "AFFILIATE  TRANSACTION" means any transaction or group of related
transactions (including without limitation the purchase, lease, sale or exchange
of  properties  of any kind or the  rendering of any service) with any Affiliate
(other than the Company or another  wholly-owned  Subsidiary) and other than any
payments  which are salaries,  director's  fees,  bonuses,  stock options issued
under the Company's Incentive Stock Option Plans, expense reimbursement or other
payments of a similar nature.  A transaction  which would be a Change of Control
but for the fact that it is with a Permitted Holder shall not be deemed to be an
Affiliate Transaction.

              "BANK OF AMERICA LOAN  AGREEMENT"  means that certain  Amended and
Restated Loan, Guaranty and Security  Agreement,  dated as of April 20, 1999, by
and among Bank of America,  N.A., the lenders named therein, the borrowers named
therein and the guarantors named therein, as same has been and may in the future
be amended from time to time.

              "BUSINESS DAY" means any day other than a Saturday,  a Sunday or a
day on which  commercial banks in New York City are required or authorized to be
closed.

              "CAPITAL  LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.

              "CHANGE  OF  CONTROL"  means an event or series of events by which
(i) any  "person"  (as such  term is used in  Sections  13(d)  and  14(d) of the
Exchange Act) other than a Permitted Holder is or becomes the "beneficial owner"
(as  defined in Rules  13d-3 and 13d-5  under the  Exchange  Act,  except that a
person  shall be deemed to have  "beneficial  ownership"  of all shares that any
such  person  has the  right to  acquire,  whether  such  right  is  exercisable
immediately or only after the passage of time), directly or


<PAGE>


indirectly, of more than 30% of the total voting power of all classes of capital
stock then outstanding of the Company normally  entitled to vote in elections of
directors ("Voting Shares"),  provided that the Permitted Holders  "beneficially
own" (as so defined) a lesser  percentage  of the Voting  Shares than such other
person  and do not have the  right or  ability  by  voting  power,  contract  or
otherwise  to elect  or  designate  for  election  a  majority  of the  Board of
Directors  of the  Company;  (ii) the Company  consolidates  with or merges into
another  corporation  or  conveys,  transfers,  or  transfers  or leases  all or
substantially all of its assets to any person,  or any corporation  consolidates
with or merges into the Company,  in either event  pursuant to a transaction  in
which the outstanding Voting Shares of the Company are changed into or exchanged
for cash, securities or other property,  other than any such transaction between
the Company and a wholly-owned Subsidiary; or (iii) on the date, the individuals
who at the  beginning of the two-year  period  immediately  preceding  such date
constituted  the Company's  Board of Directors  (together with any new directors
whose  election by the Company's  Board of Directors,  or whose  nomination  for
election by the  Company's  shareholders,  was approved by a vote of at least 66
2/3% of the  directors  then still in office who were  either  directors  at the
beginning  of such  period or whose  election or  nomination  for  election  was
previously  so  approved)  cease for any reason to  constitute a majority of the
directors then in office.

              "CLOSING" is defined in Section 3.

              "CLOSING DATE" is defined in Section 3.

              "CLOSING  PRICE" means with respect to the shares of the Company's
Common Stock on any day, (i) the closing price of the Company's  Common Stock as
reported by the National Market System of the National Association of Securities
Dealers  automated  quotation  system  ("NASDAQ") on such day, or, (ii) if there
were no sales on such day, the average of the bid and asked prices at the end of
such day or,  (iii) if there was no bidding on such day,  then the last  closing
price reported on NASDAQ, or (iv) if the Company's Common Stock is not traded on
the NASDAQ  market,  the closing  price on the national  securities  exchange on
which the  shares of such stock are listed or  admitted  to trading  or, if such
shares  are not  listed  or  admitted  to  trading  on any  national  securities
exchange,  the  average of the last  reported  closing  bid and asked  prices as
furnished by any New York Stock Exchange  member firm selected from time to time
by the Company for that purpose.

              "CODE"  means the Internal  Revenue Code of 1986,  as amended from
time to time, and the rules and regulations  promulgated thereunder from time to
time.

              "COMMON STOCK" means the Company's  Common Stock,  par value $0.01
per share.

              "COMPANY" means Riddell Sports Inc., a Delaware corporation.

              "CONFIDENTIAL INFORMATION" is defined in Section 19.

                                      A-2
<PAGE>


              "CONVERSION  PRICE" initially means $4.42 per share or, in case an
adjustment of such price has taken place  pursuant to the  provisions of Section
14.4 hereof, then at the price as last adjusted.

              "DEFAULT"  means an event or condition the occurrence or existence
of which would,  with the lapse of time or the giving of notice or both,  become
an Event of Default.

              "ENVIRONMENTAL LAWS" means any and all Federal,  state, local, and
foreign statutes,  laws,  regulations,  ordinances,  rules,  judgments,  orders,
decrees,  permits,  concessions,  grants,  franchises,  licenses,  agreements or
governmental  restrictions  relating  to  pollution  and the  protection  of the
environment or the release of any materials into the environment,  including but
not limited to those related to hazardous  substances  or wastes,  air emissions
and discharges to waste or public systems.

              "ERISA" means the Employee Retirement Income Security Act of 1974,
as  amended  from  time to  time,  and the  rules  and  regulations  promulgated
thereunder from time to time in effect.

              "ERISA  AFFILIATE"  means any trade or  business  (whether  or not
incorporated)  that is treated as a single  employer  together  with the Company
under section 414 of the Code.

              "EVENT OF DEFAULT" is defined in Section 11.

              "EXCHANGE  ACT"  means the  Securities  Exchange  Act of 1934,  as
amended.

              "EXISTING NOTE" is defined in Section 2.

              "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.

              "GOVERNMENTAL AUTHORITY" means

              (a)    the government of

                     (i)    the  United  States of America or any State or other
                            political subdivision thereof, or

                     (ii)   any   jurisdiction  in  which  the  Company  or  any
                            Subsidiary conducts all or any part of its business,
                            or which asserts jurisdiction over any properties of
                            the Company or any subsidiary, or

              (b)    any entity  exercising  executive,  legislative,  judicial,
       regulatory or  administrative  functions  of, or pertaining  to, any such
       government.

                                      A-3
<PAGE>


              "GUARANTORS" means Varsity Spirit Corporation International Logos,
Inc., Varsity/Intropa Tours, Inc., and Varsity USA Inc., Tennessee corporations;
Varsity   Spirit   Fashions  and  Supplies,   Inc.,  a  Minnesota   corporation;
Varsity.com,  Inc., a Delaware  corporation;  and all future Subsidiaries of the
Company and its Subsidiaries pursuant to Section 9.7 hereof.

              "GUARANTY"  means,  with  respect to any  Person,  any  obligation
(except  the  endorsement  in the  ordinary  course of  business  of  negotiable
instruments for deposit or collection) of such Person  guaranteeing or in effect
guaranteeing any indebtedness,  dividend or other obligation of any other Person
in any manner,  whether directly or indirectly,  including (without  limitation)
obligations  incurred  through an agreement,  contingent  or otherwise,  by such
Person:

              (a)    to purchase such indebtedness or obligation or any property
       constituting security therefor;

              (b)    to advance or supply  funds (i) for the purchase or payment
       of such  indebtedness  or  obligation,  or (ii) to  maintain  any working
       capital  or  other  balance  sheet  condition  or  any  income  statement
       condition of any other  Person or otherwise to advance or make  available
       funds for the purchase or payment of such indebtedness or obligation;

              (c)    to lease  properties or to purchase  properties or services
       primarily for the purpose of assuring the owner of such  indebtedness  or
       obligation  of the  ability  of any other  Person to make  payment of the
       indebtedness or obligation; or

              (d)    otherwise  to  assure  the  owner of such  indebtedness  or
       obligation against loss in respect thereof.

       In any  computation  of the  indebtedness  or  other  liabilities  of the
       obligor under any Guaranty,  the  indebtedness or other  obligations that
       are  the  subject  of  such  Guaranty  shall  be  assumed  to  be  direct
       obligations of such obligor.

              "HOLDER" or "HOLDER"  means,  with respect to any Note, the Person
in whose name such Note is registered in the register  maintained by the Company
pursuant to Section 20.9.

              "INCENTIVE STOCK OPTION PLANS" shall mean the Company's 1991 Stock
Option Plan, as amended from time to time,  and each  successor or  supplemental
plan to such plan  pursuant  to which the  Company  may from time to time  grant
stock options (including Incentive Stock Options (as defined in Sections 421 and
422A of the Code)) to its  directors,  key  employees and  consultants  or other
employees as compensation or incentive for providing  services to the Company or
its Subsidiaries.

              "INDEBTEDNESS"  with  respect  to any Person  means,  at any time,
without duplication,

                                      A-4
<PAGE>


              (a)    its  liabilities  for  borrowed  money  and its  redemption
       obligations in respect of mandatorily redeemable Preferred Stock;

              (b)    its liabilities for the deferred purchase price of property
       acquired  by such  Person  (excluding  accounts  payable  arising  in the
       ordinary  course of business but  including  all  liabilities  created or
       arising under any  conditional  sale or other title  retention  agreement
       with respect to any such property);

              (c)    all   liabilities   appearing  on  its  balance   sheet  in
       accordance with GAAP in respect of Capital Leases;

              (d)    all liabilities for borrowed money secured by any Lien with
       respect  to any  property  owned by such  Person  (whether  or not it has
       assumed or otherwise become liable for such liabilities);

              (e)    all its  liabilities  in  respect  of  letters of credit or
       instruments serving a similar function issued or accepted for its account
       by banks and other financial  institutions  (whether or not  representing
       obligations for borrowed money);

              (f)    Swaps of such Person; and

              (g)    any Guaranty of such Person with respect to  liabilities of
       a type described in any of clauses (a) through (f) hereof.

Indebtedness  of any Person shall include all  obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect  thereof  notwithstanding  that any such obligation is
deemed to be extinguished under GAAP.

              "INTEREST  PAYMENT  DATE" means May 1 and  November 1,  commencing
November 1, 2001.

              "LIEN"  means,  with respect to any Person,  any  mortgage,  lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor,  lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention  agreement or Capital Lease,  upon
or with respect to any property or asset of such Person  (including  in the case
of stock,  stockholder  agreements,  voting  trust  agreements  and all  similar
arrangements).

              "LITIGATION  DEBT" means any and all notes  (other than the Note),
guarantees,  debentures,  bonds and other debt securities and other indebtedness
created,  incurred,  assumed or suffered to exist,  evidenced by a note or other
written  obligation,  to satisfy in full or part any and all awards,  judgments,
settlements or other  dispositions,  fines or similar amounts (including without
limitation,  legal fees)  arising out of any  litigation,  arbitration  or other
judicial or  administrative  proceeding  or  threatened  proceeding in which the
Company  or any of its  Subsidiaries,  is or is  threatened  to be  made a party
(collectively  "Actions") or to obtain any appeal bond or injunctive relief bond
in connection with any Action.

                                      A-5
<PAGE>


              "MAJORITY LENDERS" means at any time Persons holding more than 50%
of the aggregate  outstanding principal amount of the Note (excluding Notes held
by the Company or any Affiliate)

              "MATERIAL" means material in relation to the business, operations,
affairs,  financial condition,  assets,  properties, or prospects of the Company
and its Subsidiaries taken as a whole.

              "MATERIAL  ADVERSE EFFECT" means a material  adverse effect on (a)
the business,  operations,  affairs,  financial condition,  assets, prospects or
properties  of the Company  and its  Subsidiaries  taken as a whole,  or (b) the
ability of the Company to perform its  obligations  under this Agreement and the
Note or (c) the validity or enforceability  of this Agreement,  the Registration
Rights Agreement or the Note. .

              "MERGER  AGREEMENT" shall mean that certain  Agreement and Plan of
Merger,  dated as of May 5,  1997,  by and among  the  Company,  Varsity  Spirit
Corporation and certain other parties named therein.

              "MLC"  means  M.L.C.  Partners  Limited  Partnership,  a  Delaware
limited partnership, and any successor to such entity.

              "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).

              "NOTE"  means  $7,500,000   aggregate   principal  amount  of  the
Company's  4.10%  Convertible  Subordinated  Note  due  November  1,  2007,  and
including  any such  notes  issued  pursuant  to Section  14.2 or an  assignment
permitted under Section 20 hereof.

              "OFFICER'S  CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities  extend to
the subject matter of such certificate.

              "ORIGINAL EFFECTIVE DATE" means October 30, 1996.

              "PBGC" means the Pension Benefit Guaranty  Corporation referred to
and defined in ERISA or any successor thereto.

              "PERMITTED  HOLDERS"  means  any  Person  who  was  a  partner  or
affiliate of MLC, or any Person who is or was a member of a "group" with MLC for
purposes of Rule 13-d(3) under the Securities Exchange Act of 1934, as amended.

              "PERMITTED  LIENS" means (i) Liens for taxes not delinquent or for
taxes being  contested in good faith by  appropriate  proceedings or as to which
adequate  financial  reserves have been  established on the books and records of
the  Company or the  appropriate  Subsidiary;  (ii) Liens  (other  than any Lien
imposed by ERISA) created and  maintained in the ordinary  course of business of
the Company or any of its Subsidiaries  which are not material in the aggregate,
and which could not  reasonably be expected to

                                      A-6
<PAGE>


have a  Material  Adverse  Effect;  (iii)  Liens  of the  Company  or any of its
Subsidiaries affecting real property which constitute minor survey exceptions or
defects  or  irregularities   in  title,   minor   encumbrances,   easements  or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone  lines and other  similar  purposes,  or zoning or other
restrictions  as to the use of such real  property;  and (iv) Liens set forth on
Schedule 5.15 hereto.

              "PERSON" means an individual,  partnership,  corporation,  limited
liability  company,  association,   trust,  unincorporated  organization,  or  a
government or agency or political subdivision thereof.

              "PLAN"  means an  "employee  benefit  plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or  maintained,  or to which  contributions  are or, within the  preceding  five
years,  have been  made or  required  to be made,  by the  Company  or any ERISA
Affiliate or with respect to which the Company or any ERISA  Affiliate  may have
any liability.

              "PREFERRED   STOCK"  means  any  class  of  capital   stock  of  a
corporation  that is  preferred  over any other  class of capital  stock of such
corporation  as to the  payment of  dividends  or the payment of any amount upon
liquidation or dissolution of such corporation.

              "PRIME RATE" means the rate  designated  by Bank of America,  N.A.
(or the  Company's  other  principal  lender)  from time to time as its prime or
reference rate in the United States of America,  such rate to change as and when
such designated  rate changes,  which rate may not be the lowest rate charged by
to any of its customers.

              "PROHIBITED  TRANSACTION" shall mean any transaction involving any
Plan which is proscribed by Section 406 of ERISA or Section 4975 of the Code.

              "PROPERTY" or "PROPERTIEs"  means,  unless otherwise  specifically
limited,  real or personal property of any kind, tangible or intangible,  choate
or inchoate.

              "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 8414
issued by the United States Department of Labor.

              "RECORD DATE" means 15 days before each Interest Payment Date.

              "REGISTRATION  RIGHTS  AGREEMENT" means that agreement between the
Company and the Holders in the form of Exhibit 4.8 hereto.

              "REPURCHASE  DATE" shall have the meaning specified in Section 8.5
hereof.

              "REPURCHASE  EVENT"  means a Change of  Control  unless all of the
consideration  in the  transaction  giving rise to such Change of Control to the
holders of Common Stock consists of cash and securities that are, or immediately
upon issuance will be, listed on a national securities exchange or quoted on the
Nasdaq National Market,  or a

                                      A-7
<PAGE>


combination of cash and such securities,  and the aggregate fair market value of
such consideration (which, in the case of such securities, shall be equal to the
average of the daily Closing Price of such securities during the ten consecutive
Trading Days  commencing  with the sixth Trading Day following  consummation  of
such transaction) is at least 105% of the conversion price of the Note in effect
on the date immediately preceding the closing date of such transaction.

              "REPURCHASE OFFER" shall have the meaning specified in Section 8.6
hereof.

              "REPURCHASE PRICE" shall have the meaning specified in Section 8.5
hereof.

              "RESPONSIBLE  OFFICER" means any Senior Financial  Officer and any
other officer of the Company with  responsibility  for the administration of the
relevant portion of this agreement

              "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.

              "SENIOR  FINANCIAL  OFFICER"  means the chief  financial  officer,
principal accounting officer, treasurer or comptroller of the Company.

              "SENIOR  INDEBTEDNESS" means the principal of and premium, if any,
interest,  charges and fees on the  following,  whether  outstanding at the date
hereof or hereafter created, incurred, assumed or suffered to exist:

              (a)    Indebtedness,  whether  secured or unsecured,  or partially
       secured and partially unsecured,  evidenced by obligations under the Bank
       of America Loan  Agreement,  and any  extension,  refunding,  supplement,
       restructuring,  replacement  (including  without  limitation  any full or
       partial  replacement  or  supplement  involving  another  lender  and  an
       increase  to  the  aggregate  principal  amount),  refinancing,  renewal,
       amendment  (including  without  limitation  an amendment  increasing  the
       aggregate  principal  amount) or other  modification  of any kind thereto
       (collectively, "Renewals");

              (b)    Indebtedness that would appear on the consolidated  balance
       sheet of the company  (prepared in accordance with GAAP) as short or long
       term Indebtedness or that would appear in the notes to such balance sheet
       as a Guaranty of short or long term  Indebtedness  of any Subsidiary that
       has been incurred in consideration of cash advanced after the date hereof
       to the Company or any wholly-owned Subsidiary;

              (c)    any and all  other  Indebtedness,  notes  (other  than  the
       Note), guarantees,  debentures, bonds and other debt securities and other
       indebtedness,  and  any and all  obligations  to  advance  funds  to,  or
       purchase  assets,  property  or  services  from,  any other  Person  (but
       excluding trade debt and accounts  payable arising in the ordinary course
       of business)  evidenced by a note or other  written

                                      A-8
<PAGE>


       obligation,  in each case  whether  secured or  unsecured,  or  partially
       secured and partially unsecured,  created, incurred, assumed, or suffered
       to  exist,  in  connection  with the  purchase  or  lease  of any  assets
       (including  without  limitation  securities)  of any other  Person by the
       Company or any of its Subsidiaries; and

              (d)    any and all Litigation  Debt,  provided,  however,  that so
       long as (i) at least $3,750,000 aggregate principal amount of the Note is
       outstanding, and (ii) Angelo, Gordon Co. owns or controls at least 50% of
       the outstanding  principal  amount of the Note either directly or through
       its ownership of the  membership  interests or similar  capital or equity
       interests in Silver Oak or otherwise, then the aggregate principal amount
       of any Litigation  Debt at any one time  outstanding  which may be Senior
       Indebtedness shall not exceed $2,000,000.

              The term  "Senior  Indebtedness"  shall  also  mean  and  include,
insofar as it relates to indebtedness for borrowed money from institutions which
in the ordinary course of their business loan money, the costs and expenses,  if
any,  reasonably  incurred by holders of Senior  Indebtedness in negotiating and
consummating   such   indebtedness,   amendments,   modification,   replacement,
supplement, renewals, extensions, restructurings,  refinancings or refundings of
Senior  Indebtedness  or the  enforcement or collection of Senior  Indebtedness,
including legal fees (including  without  limitation the reasonable  estimate of
the allocable cost of in-house legal counsel),  to the extent the Company or any
of its  Subsidiaries  is  obligated  therefor.  Notwithstanding  anything to the
contrary in the foregoing,  Senior  Indebtedness  shall not mean indebtedness of
the  Company  to any  Subsidiary  for  money  borrowed  or  advances  from  such
Subsidiary  other than a guarantee  or  assumption  of the  indebtedness  of any
Subsidiary  which  would  otherwise  constitute  Senior  Indebtedness.  The term
"Senior  Indebtedness" shall not include (i) any Indebtedness  outstanding as of
the date hereof other than that under the Bank of America Loan  Agreement;  (ii)
Indebtedness that is expressly junior or subordinate to any other  Indebtedness;
(iii) any liability  for federal,  state or local taxes  payable;  or (iv) trade
payables.

              "SILVER OAK" means Silver Oak Capital, L.L.C.

              "STOCK  PURCHASE  AGREEMENT"  means that  certain  Stock  Purchase
Agreement,  dated as of April 27,  2001,  by and between the Company and Riddell
Acquisition  Sub, Inc. (now known as Riddell Sports Group,  Inc.) (the "Buyer"),
pursuant  to  which  the  Company  sold  to the  Buyer  all of  the  issued  and
outstanding  capital stock of Riddell,  Inc., All American  Sports  Corporation,
Ridmark Corporation,  RHC Licensing  Corporation,  MacMark  Corporation,  Proacq
Corp. and Equilink Licensing  Corporation,  as well as certain additional assets
of the Company and its affiliates.

              "SUBORDINATED  GUARANTY" means that Subordinated Guaranty from the
Guarantors in favor of the Holders in the form of Exhibit 4.9 hereto.

              "SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
owns  sufficient  equity or voting  interests  to enable it or them (as a group)
ordinarily,  in the

                                      A-9
<PAGE>


absence of  contingencies,  to elect a majority  of the  directors  (or  Persons
performing  similar  functions)  of such entity,  and any  partnership  or joint
venture if more than a 50%  interest in the profits or capital  thereof is owned
by such Person or one or more of its  Subsidiaries  (unless such partnership can
and does  ordinarily  take major business  actions without the prior approval of
such Person or one or more of its  Subsidiaries).  Unless the context  otherwise
clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary
of the Company.

              "SWAPS"  means,  with respect to any Person,  payment  obligations
with  respect to interest  rate swaps,  currency  swaps and similar  obligations
obligating  such  Person  to make  payments,  whether  periodically  or upon the
happening of a contingency.  For the purposes of this  Agreement,  the amount of
the obligation under any Swap shall be the amount  determined in respect thereof
as of the end of the then most  recently  ended  fiscal  quarter of such Person,
based on the assumption  that such Swap had terminated at the end of such fiscal
quarter,  and in making such  determination,  if any agreement  relating to such
Swap  provides  for  the  netting  of  amounts  payable  by and to  such  Person
thereunder or if any such  agreement  provides for the  simultaneous  payment of
amounts  by and to such  Person,  then in each  such  case,  the  amount of such
obligation shall be the net amount so determined.

              "TRADING DAY" means any day other than any day on which securities
are not  traded  on the  applicable  securities  exchange  or in the  applicable
securities market.

              "VARSITY  EMPLOYEES"  shall mean  individuals  employed by Varsity
Spirit Corporation as of May 5, 1997.

                                      A-10
<PAGE>


                                  SCHEDULE 5.3
                                   DISCLOSURE

       Riddell  Sports  Group,   Inc.   ("RSG"),   a  company   affiliated  with
Lincolnshire Management, Inc. ("Lincolnshire"), acquired the Riddell team sports
division  of the  Company on June 22,  2001,  pursuant to the terms of the Stock
Purchase  Agreement.  On July 24, 2001,  the Company  received a letter from RSG
accompanying  a  funded  debt  calculation,  which  asserted  that  RSG was owed
$300,000 as an  adjustment of purchase  price as a result of a $300,000  payment
made by RSG to Silver Oak in connection  with the release of certain  guaranties
from  the  entities  acquired  by  RSG.  At  the  closing  of  the  transactions
contemplated by the Stock Purchase Agreement, RSG had acknowledged in writing to
the  Company and to Silver Oak that the  $300,000  payment was not being paid or
reimbursed  by the  Company.  The Company  believes  that,  notwithstanding  its
acknowledgement,  RSG, under orders from Lincolnshire, is asserting the $300,000
adjustment in an effort to be reimbursed by the Company for the payment RSG made
to Silver Oak.

       The Company  intends to formally  challenge  the $300,000  adjustment  in
accordance with the terms of the Stock Purchase Agreement.  The Company believes
that the adjustment claimed by RSG is completely unwarranted. Under the terms of
the Stock  Purchase  Agreement,  unless RSG withdraws its claim for the $300,000
adjustment,  the matter will be submitted to an arbitrator for resolution. It is
currently   anticipated  that  the  dispute  will  be  resolved  no  later  than
mid-September 2001.

<PAGE>


                                  SCHEDULE 5.4
              ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES

<TABLE>
<CAPTION>
-------- ------------------------- ------------------ ------------------------------------ ------------------------
                                                                                            PERCENTAGE OF ISSUED
                                    JURISDICTION OF                                        AND OUTSTANDING SHARES
            NAME OF SUBSIDIARY       ORGANIZATION          AUTHORIZED CAPITAL STOCK                 OWNED
-------- ------------------------- ------------------ ------------------------------------ ------------------------
<S>      <C>                       <C>                <C>                                  <C>
1.       Varsity Spirit            Tennessee          1,000 shares of common stock, par    100% Owned by Riddell
         Corporation                                  value $0.01 per share                Sports Inc.
-------- ------------------------- ------------------ ------------------------------------ ------------------------
         Varsity Spirit Fashions                      50,000 shares of common stock, par   100% Owned by Varsity
2.       & Supplies, Inc.          Minnesota          value $0.01 per share                Spirit Corporation
-------- ------------------------- ------------------ ------------------------------------ ------------------------
         International Logos,                                                              100% Owned by Varsity
3.       Inc.                      Tennessee          1,000 shares of common stock         Spirit Corporation
-------- ------------------------- ------------------ ------------------------------------ ------------------------
         Varsity/Intropa Tours,                                                            100% Owned by Varsity
4.       Inc.                      Tennessee          10,000 shares of common stock        Spirit Corporation
-------- ------------------------- ------------------ ------------------------------------ ------------------------
                                                                                           100% Owned by Varsity
5.       Varsity USA, Inc.         Tennessee          10,000 shares of common stock        Spirit Corporation
-------- ------------------------- ------------------ ------------------------------------ ------------------------
6.       Varsity.com, Inc.         Delaware           1,000 shares of common stock, par    100% Owned by Riddell
                                                      value $1.00 per share                Sports Inc.
-------- ------------------------- ------------------ ------------------------------------ ------------------------
</TABLE>

                                       A-2
<PAGE>


                                  SCHEDULE 5.5
                  COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

Please refer to Schedule 5.3.


                                      A-3
<PAGE>


                                  SCHEDULE 5.7
            LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS

Please refer to Schedule 5.3.


                                      A-4
<PAGE>


NEITHER THIS NOTE NOR THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED  HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER SECURITIES
LAWS, AND NEITHER MAY BE SOLD,  TRANSFERRED  OR OTHERWISE  DISPOSED OF UNLESS SO
REGISTERED OR UNLESS SOLD PURSUANT TO AN EXEMPTION  THEREFROM.  THIS NOTE MAY BE
TRANSFERRED  ONLY IN  COMPLIANCE  WITH  THE  CONDITIONS  SPECIFIED  IN THE  NOTE
PURCHASE  AGREEMENT REFERRED TO IN THIS NOTE, A COMPLETE AND CORRECT COPY OF THE
FORM OF WHICH IS AVAILABLE FOR  INSPECTION  AT THE  PRINCIPAL  OFFICE OF RIDDELL
SPORTS  INC.,  C/O VARSITY  SPIRIT  CORPORATION,  2525  HORIZON  LAKE,  MEMPHIS,
TENNESSEE 38133.

4.10% CONVERTIBLE SENIOR SUBORDINATED NOTE DUE NOVEMBER 1, 2007


$7,500,000                                                       August 16, 2001


              FOR VALUE RECEIVED,  the undersigned,  Riddell Sports Inc. (herein
called the  "Company"),  a corporation  organized and existing under the laws of
the State of Delaware,  hereby promises to pay to Silver Oak Capital, L.L.C., or
permitted,  registered assigns,  the principal sum of SEVEN MILLION FIVE HUNDRED
THOUSAND DOLLARS on November 1, 2007, with interest  (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid  balance  thereof at the
rate of 4.10% per annum from May 1, 2001, payable  semiannually,  on the 1st day
of May and 1st day of  November  in each year  (each  such  date,  an  "Interest
Payment  Date"),  commencing with November 1, 2001,  until the principal  hereof
shall have become due and payable, and (b) to the extent permitted by law on any
overdue  payment  (including any overdue  prepayment) of principal,  any overdue
payment of interest, payable semiannually as aforesaid (or, at the option of the
registered  holder  hereof,  on  demand),  at a rate per annum from time to time
equal to 2% over the rate of  interest  publicly  announced  by Bank of America,
N.A. from time to time in Memphis, Tennessee as its `base" or "prime" rate.

              Payments of  principal of and interest on this Note are to be made
in lawful money of the United States of America by wire transfer of  immediately
available funds to the New York City Bank account specified by you or such other
place as you or your  permitted,  registered  assign  shall have  designated  by
written notice.

              The Company  will make  required  prepayments  of principal on the
dates and in the amounts  specified in the Note Purchase  Agreement  referred to
below. This Note is also subject to optional  prepayment,  in whole or from time
to time in part,  at the times and on the terms  specified in the Note  Purchase
Agreement.

              If an Event of Default, as defined in the Note Purchase Agreement,
occurs  and is  continuing,  the  principal  of this  Note  may be  declared  or
otherwise become due and


<PAGE>


payable in the  manner,  at the price and with the effect  provided  in the Note
Purchase Agreement.

              The  Company  shall pay  interest  on the Note  (except  defaulted
interest) to the Persons who are the registered holders of the Note at the close
of business on the Record Date immediately  preceding the Interest Payment Date.
The Company shall deliver any such interest  payment to the Person in whose name
this Note is  registered  at the close of  business  on the Record Date for such
interest,  which  shall be the April 15 or October 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.

              You may  convert  all or any  portion  of the Note into  shares of
Common Stock of the Company at any time.  If the Note is called for  redemption,
you may convert it at any time before the close of business on the last Business
Day prior to the date fixed for such redemption. The initial Conversion Price is
$4.42 per share,  subject to  adjustment  in certain  events.  To determine  the
number of shares  issuable  upon  conversion  of the Note,  divide the principal
amount to be converted by the Conversion Price in effect on the conversion date.
The Company will deliver a check for any fractional share.

              To convert the Note, you must (i) complete and sign the Conversion
Notice  attached to the Note,  (ii)  surrender  the Note to the  Company,  (iii)
furnish  appropriate  endorsements  and  transfer  documents  if required by the
Company and (iv) pay any transfer or similar tax if required.  No  adjustment is
to be made on conversion for interest  accrued hereon or for dividends on shares
of Common Stock issued on conversion; PROVIDED, HOWEVER, that if the Note (other
than any portion called for redemption) is surrendered for conversion  after the
Record  Date for a payment of  interest  and on or before the  Interest  Payment
Date, then,  notwithstanding  such conversion,  the interest falling due to such
Interest  Payment  Date  will be paid to the  Person  in whose  name the Note is
registered at the close of business on such Record Date and any Note surrendered
for  conversion  during the period from the close of business on any Record Date
to the opening of business on the  corresponding  Interest  Payment Date must be
accompanied  by  payment  of an amount  equal to the  interest  payable  on such
Interest  Payment Date. You may convert a portion of a Note if the portion is at
least $60,000 principal amount and an integral multiple of 12,000.

              If the  Company  is a party  to a  consolidation  or  merger  or a
transfer,  lease or other disposition of all or substantially all of its assets,
the right to convert the Note into shares of Common  Stock may be changed into a
right to  convert it into  securities,  cash or other  assets of the  Company or
another Person.

              The  Indebtedness  evidenced  by this Note is  subordinate  to all
Senior  Indebtedness of the Company. To the extent and in the manner provided in
the Note Purchase Agreement, Senior Indebtedness must be paid before any payment
may be  made  to  you.  In  addition,  under  certain  circumstances,  upon  the
occurrence of an Event of Default,  you may be prohibited from  accelerating the
obligations of the Company under

                                       2
<PAGE>


the  Note.  You,  by  accepting  the same  agree  to and  shall be bound by such
provisions.

              In addition to all other rights of Senior  Indebtedness  described
in the Note Purchase  Agreement,  the Senior  Indebtedness  shall continue to be
Senior Indebtedness and entitled to the benefit of the subordination provisions,
irrespective  of any  amendment,  modification  or  waiver  of any  term  of any
instrument  relating to the Senior  Indebtedness  or extension or renewal of the
Senior Indebtedness.

              This  Note is  subject  to the terms  and  conditions  of the Note
Purchase  Agreement  dated  August 16,  2001  between the Company and Silver Oak
Capital,  L.L.C.,  as  amended  from  time  to  time,  and in the  event  of any
inconsistency  between this Note and the Note Purchase  Agreement,  the terms of
the Note Purchase  Agreement  shall  control.  Terms not defined herein have the
meaning set forth in the Note Purchase Agreement.

              This  Note  is   guaranteed  to  the  extent  set  forth  in  that
Subordinated   Guaranty   dated  as  of  the  date  hereof  from  the  Company's
Subsidiaries in favor of the holder.

              This Note shall be construed and enforced in accordance  with, and
the rights of the parties shall be governed by, the law of the State of New York
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                            RIDDELL SPORTS INC.


                                            By:   /s/ John Nichols
                                               --------------------------------
                                                 Name:  John Nichols
                                                 Title: Chief Financial Officer

                                       3
<PAGE>


                               FORM OF ASSIGNMENT


I or we assign this Note to

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type name, address and zip code of assignee)

              Please  insert  Social  Security  or other  identifying  number of
assignee _______________________________________________________________________

and  irrevocably  appoint  ________________  agent to transfer  this Note on the
books of the Company. The agent may substitute another to act for him.


Dated: ________________  Signed: x______________________________________________

                                 x______________________________________________

                                 x______________________________________________

                                 x______________________________________________
          Signatures guaranteed:   THE  SIGNATURE(S)  SHOULD BE GUARANTEED BY AN
                                   ELIGIBLE   GUARANTOR    INSTITUTION   (BANKS,
                                   STOCKBROKERS,  SAVINGS AND LOAN  ASSOCIATIONS
                                   AND  CREDIT  UNIONS  WITH  MEMBERSHIP  IN  AN
                                   APPROVED   SIGNATURE    GUARANTEE   MEDALLION
                                   PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.





                     KEEP THIS CERTIFICATE IN A SAFE PLACE.
   IF IT IS LOST, STOLEN OR DESTROYED, THE CORPORATION MAY REQUIRE A BOND OF
     INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

<PAGE>


                                CONVERSION NOTICE


              To convert this Note into shares of common  stock,  par value $.01
per share, of the Company, check the box: [  ]

              To convert only part of this Note,  state the principal amount you
want to be converted  (which must be a minimum of  $[          ] or any multiple
thereof): $______________

              If you want the  certificate  made out in another  person's  name,
fill in the form below:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type other person's name, address and zip code)

              Please insert Social Security or other identifying number of other
person: _____________________


Dated: ________________  Signed: x______________________________________________

                                 x______________________________________________

                                 x______________________________________________

                                 x______________________________________________
          Signatures guaranteed:   THE  SIGNATURE(S)  SHOULD BE GUARANTEED BY AN
                                   ELIGIBLE   GUARANTOR    INSTITUTION   (BANKS,
                                   STOCKBROKERS,  SAVINGS AND LOAN  ASSOCIATIONS
                                   AND  CREDIT  UNIONS  WITH  MEMBERSHIP  IN  AN
                                   APPROVED   SIGNATURE    GUARANTEE   MEDALLION
                                   PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

                                   Riddell Sports Inc.


                                   By:__________________________________________
                                      [Title]

<PAGE>


                       OPTION OF HOLDER TO ELECT PURCHASE


              If you want to elect to have this Note  purchased  by the  Company
pursuant to Section 8.5 of the Note Purchase Agreement, check the box: [  ]

              If you want to elect to have only part of this Note  purchased  by
the Company  pursuant to Section 8.5 of the Note Purchase  Agreement,  state the
amount  you want to be  purchased  (which  must be a  minimum  of  $1,000 or any
multiple thereof): $______________


Dated: ________________  Signed: x______________________________________________

                                 x______________________________________________

                                 x______________________________________________

                                 x______________________________________________
          Signatures guaranteed:   THE  SIGNATURE(S)  SHOULD BE GUARANTEED BY AN
                                   ELIGIBLE   GUARANTOR    INSTITUTION   (BANKS,
                                   STOCKBROKERS,  SAVINGS AND LOAN  ASSOCIATIONS
                                   AND  CREDIT  UNIONS  WITH  MEMBERSHIP  IN  AN
                                   APPROVED   SIGNATURE    GUARANTEE   MEDALLION
                                   PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>


                          REGISTRATION RIGHTS AGREEMENT


              This REGISTRATION  RIGHTS AGREEMENT (this  "Agreement") is made as
of August 16, 2001, by and between  Riddell Sports Inc., a Delaware  corporation
(the "Company"),  and Silver Oak Capital,  L.L.C., a Delaware limited  liability
corporation (the "Purchaser").

              WHEREAS,  pursuant to a Note Purchase  Agreement,  dated as of the
date  hereof  (the  "Purchase  Agreement"),  by and  among the  Company  and the
Purchaser,  the  Company  is  issuing  to the  Purchaser  its 4.10%  Convertible
Subordinated Note due November 1, 2007 in the principal amount of $7,500,000;

              WHEREAS,  the Note is  convertible at any time in whole or in part
into  shares of the  Company's  Common  Stock,  par value  $0.01 per share  (the
"Common Stock");

              WHEREAS,  in order  to  induce  the  Purchaser  to enter  into the
Purchase  Agreement,  the Company has agreed to provide the registration  rights
set forth in this Agreement.

              NOW,  THEREFORE,  the parties to this  Agreement  hereby  agree as
follows:

              1.     CERTAIN DEFINITIONS.

              (a)    Capitalized  terms used but not defined  herein  shall have
the meanings given such terms in the Purchase Agreement.

              (b)    The term "Shares" shall refer to the shares of Common Stock
of the Company issued or issuable on conversion of the Note.

              (c)    The term  "Holder" or "Holders"  shall refer to each of (i)
the Purchaser,  (ii) each successor or assignee of Purchaser's  rights hereunder
who has received such rights in accordance with the Purchase Agreement and (iii)
each  transferee  or  assignee of all or a portion of the Note or the Shares who
has received  such  interest in  accordance  with the Purchase  Agreement to the
extent the Purchaser  shall specify such person pursuant to this clause (iii) as
a Holder.

              (d)    The term  "Majority  Holders" shall mean, as of any date of
determination,  Holders of not less than a majority of the Restricted  Shares at
such date.

              (e)    The term "Restricted Share" shall refer to each Share until
the date on which such Share (i) has been registered under the Securities Act of
1933,  as amended  (the  "Act")  and  disposed  of  pursuant  to a  registration
statement,  (ii) is distributed to the public pursuant to Rule 144 under the Act
or is saleable  pursuant to Rule  144(k)  under the Act or (iii) is  transferred
otherwise in accordance  with the Act such that the holder

<PAGE>


thereof  has  shares of Common  Stock  that may be freely  and  publicly  resold
without registration or limitation.

              2.     DEMAND REGISTRATIONS.

              (a)    The Holders  may at any time after the date hereof  request
(a "Demand")  registration under the Securities Act (a "Demand Registration") of
the offer and sale of the  Restricted  Shares,  which Demand  shall  specify the
number of Restricted  Shares  requested to be registered and the intended method
of  distribution;  and the Company shall,  as promptly as practicable  following
such Demand file with the Securities and Exchange  Commission (the "Commission")
and  thereafter  shall use its best efforts to cause to be declared  effective a
registration statement (a "Registration Statement") on an appropriate form under
the Act,  relating to the offer and sale of the Restricted Shares by the Holders
in accordance with the method of distribution so specified; PROVIDED, that:

              (i)    Any Demand must be made by a Holder in writing on behalf of
       the Majority Holders;

              (ii)   The Company will not be obligated to effect more than three
       (3) Demand  Registrations.  A registration  will not count as one of such
       three  Demand  Registrations  until  it has  become  effective  and  been
       maintained  effective for the offer and sale of the Restricted  Shares as
       hereinafter  provided for a period of 270 days (or such shorter period as
       shall  terminate  at such time as all Shares  included  therein have been
       sold thereunder or such Shares cease to be Restricted Shares); and

              (iii)  If the intended  method of  distribution is an underwritten
       offering,  (A) the Company  will not be  obligated  to conduct or pay the
       expenses  of more  than two (2)  roadshows  relating  to the offer of the
       Restricted  Shares;  (B) the Company  will not be obligated to conduct or
       pay the  expenses of any such  roadshow  unless there is included in such
       Registration  Statement  on behalf of the Holders  and any other  holders
       participating  in such  registration  in accordance with Section 2(b), at
       least  500,000  shares of Common  Stock (as adjusted to reflect any stock
       splits,    combinations,    recapitalizations,    reclassifications    or
       reorganizations  affecting the Shares after the date hereof); and (C) the
       Company will have no  obligation to conduct or pay expenses in connection
       with a roadshow  relating to a Demand  Registration  for the offer of the
       Restricted  Shares that occurs within 12 months after an earlier roadshow
       that the  Company  has  conducted  and for  which  the  Company  has paid
       expenses and that relates to a Demand  Registration  for the offer of the
       Restricted Shares.

              (b)    The  Company  will give  prompt  notice  to each  Holder of
Restricted Shares of a Demand under Section 2(a) and will include in such Demand
Registration on a pro rata basis all Restricted  Shares requested to be included
on the  part  of the  Holders.  The  Company  will  not  include  in any  Demand
Registration  any securities  which are not Restricted  Shares without the prior
written consent of the Holders of a majority of the

                                       2
<PAGE>


Restricted  Shares requested to be included in such  registration  (such consent
not to be unreasonably  withheld) unless the Demand  Registration takes the form
of a firm commitment underwritten offering. If the Demand Registration takes the
form of a firm commitment  underwritten offering and the lead underwriter of the
offering advises the Company that the total number of securities requested to be
included in such offering  exceeds the total number of  securities  which can be
sold, there shall be included in such offering the amount of securities which in
the opinion of the lead  underwriter can be sold, and such  securities  shall be
allocated (x) first to the holders of  Restricted  Shares and (y) next among the
Company and such other holders of securities  that have  requested  inclusion in
such  registration  pro rata based upon the  number of  securities  sought to be
registered, or on such other basis as may be agreed upon among the Company, such
lead underwriter and such other securityholders.

              (c)    The  Company  will give  prompt  notice  to each  Holder of
Restricted Shares of any proposed  registration (other than in connection with a
registration on Form S-8 or S-4 or any successor or similar form) by the Company
of its  securities  for its own account,  and permit the Holders to request that
such registration include the Restricted Shares of the Holders,  except that, if
the Registration takes the form of a firm commitment  underwritten  offering and
the lead  underwriter of the offering  advises the Company that the total number
of securities requested to be included in such offering exceeds the total number
of  securities  which can be sold,  there shall be included in such offering the
amount of securities  which in the opinion of the lead  underwriter can be sold,
and such  securities  shall be  allocated  (x) first to the Company and (y) next
among the holders of  Restricted  Shares that have  requested  inclusion in such
registration  and  such  other  securityholders  who  have  exercised  piggyback
registration  rights pro rata based upon the number of  securities  sought to be
registered, or on such other basis as may be agreed upon among the Company, such
underwriter, the Holders of Restricted Shares and such other securityholders.

              (d)    The  Company  will give  prompt  notice  to each  Holder of
Restricted Shares of any proposed  registration (other than in connection with a
registration on Form S-8 or S-4 or any successor or similar form) by the Company
of  securities  for the  account  of  other  securityholders  exercising  demand
registration  rights,  and permit the Holders to request that such  registration
include the Restricted  Shares of the Holders,  except that, if the Registration
takes  the  form  of a  firm  commitment  underwritten  offering  and  the  lead
underwriter  of the  offering  advises  the  Company  that the  total  number of
securities requested to be included in such offering exceeds the total number of
securities  which can be sold,  there  shall be included  in such  offering  the
amount of securities  which in the opinion of the lead  underwriter can be sold,
and such securities  shall be allocated (x) first to such other  securityholders
who have exercised demand registration rights and (y) next among the Company and
the  holders  of  Restricted  Shares  that  have  requested  inclusion  in  such
registration  pro  rata  based  upon  the  number  of  securities  sought  to be
registered, or on such other basis as may be agreed upon among the Company, such
lead underwriter and the Holders of Restricted Shares.

              (e)    It is  understood  that,  except to the extent  provided in
Section 2(i) or Section 7, nothing in this Agreement  shall preclude the Company
from  filing  any

                                       3
<PAGE>


registration  statement  for the sale of shares  for its own  account or for the
account of any other  securityholders,  but that the filing of such registration
statement  shall not affect the  obligations  of the  Company to effect a Demand
Registration  pursuant to a Demand under  Section  2(a) and to otherwise  comply
with its obligations hereunder in respect of such Demand by the Holders.

              (f)    The Company will ensure that (i) the Registration Statement
and any  amendment  thereto  and any  prospectus  forming  part  thereof and any
supplement  thereto complies in all material respects with the Act and the rules
and regulations  thereunder,  (ii) the Registration  Statement and any amendment
thereto does not, when it becomes  effective,  contain an untrue  statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements therein not misleading and (iii) the prospectus
forming  part  of  the  Registration  Statement,  and  any  supplement  to  such
prospectus,  does  not,  at any time the same is used in  connection  therewith,
include an untrue  statement of a material fact or omit to state a material fact
necessary  in  order  to  make  the  statements  therein,  in the  light  of the
circumstances  under  which  they were made,  not  misleading,  except  that the
Company  shall have no  responsibilities  with  respect to the  adequacy  of the
information required to be provided to it pursuant to Section 3(l).

              (g)    If (i) the  Registration  Statement  is not filed  with the
Commission on or prior to 30 days after a Demand made in accordance with Section
2(a),  (ii) the Company has not responded to all of the questions  ("Questions")
posed by the Commission  regarding the Registration  Statement within 10 days of
receipt of the Questions from the Commission,  (iii) the Registration  Statement
is not  declared  effective  within  120  days of the  Demand,  or (iv)  after a
Registration  Statement  is  declared  effective,  such  Registration  Statement
thereafter ceases to be effective or such Registration  Statement or the related
prospectus ceases to be usable (during a Blackout Period (as hereinafter defined
in Section  3(i)) or  otherwise)  for its intended  purpose for a period of more
than 45  consecutive  days (each such event  referred  to in clauses (i) through
(iv), a "Registration  Default"),  then commencing on the day following the date
on which such  Registration  Default  occurs,  the Company agrees to pay to each
Holder  of  Restricted  Shares,  during  the  first  90-day  period  immediately
following the occurrence of such Registration Default, liquidated damages by way
of additional  interest on the Note (the "Special  Interest") in an amount equal
to 0.50% per annum of the  principal  amount of the Note.  The amount of Special
Interest  payable to each Holder shall increase by an additional 0.25% per annum
during each 90-day period thereafter  during which such Registration  Default or
any other  Registration  Default  shall  continue,  but shall in no event exceed
1.00% per annum. A Registration  Default shall cease, and Special Interest shall
cease to be payable  with  respect  to such  Registration  Default  (1) upon the
filing of the Registration  Statement, in the case of clause (i) above, (2) upon
receipt by the  Commission  of the  responses to the  Questions,  in the case of
clause (ii) above,  (3) when the  Registration  Statement  becomes  effective or
usable  in the  case of  clauses  (iii)  and  (iv)  above.  Notwithstanding  the
foregoing to the contrary,  (I) the amount of Special Interest payable shall not
increase  because  more than one  Registration  Default  have  occurred  and are
pending  and (II) a Holder  of  Restricted  Shares  who is not  entitled  to the
benefits of a Demand  Registration (e.g., such Holder has not elected to include
Restricted  Shares in


                                       4
<PAGE>


such  Registration  Statement)  shall not be entitled to Special  Interest  with
respect to a Registration Default that pertains to a Registration Statement. All
Special  Interest  shall be paid to Holders  in the same  manner and at the same
time as payments of interest made pursuant to the Note.

              (h)    The  Company  shall  not  be  required  to  include  in the
Registration  Statement  Restricted  Shares of a Holder if such Holder  fails to
provide the  information  required  to be  provided  by it, if any,  pursuant to
Section 3(l).

              (i)    The Company will not grant to any person the right to cause
the Company to register any equity securities of the Company held by such person
or enter into any other  agreement,  in either case if compliance by the Company
on a timely basis with its obligations  under this Agreement would  constitute a
breach of or default under any such other agreement.

              3.     REGISTRATION  PROCEDURES.  In  connection  with any  Demand
Registration, the Company will comply with the following provisions:

              (a)    The  Company  shall  use  its  best  efforts  to  keep  the
Registration  Statement continuously effective in order to permit the prospectus
forming part thereof to be usable by the Holders for a period of nine (9) months
from the date such  Registration  Statement  becomes  effective  or such shorter
period that will terminate  when all of the Shares  covered by the  Registration
Statement  have been sold pursuant to the  Registration  Statement or all Shares
cease to be  Restricted  Shares;  provided,  that if the Company  shall give any
Suspension  Notice (as such is defined  herein in Section  3(c))  under  Section
3(c)(ii) - (v),  such nine month  period shall be extended by the number of days
during such period from and including the date of the giving of such  Suspension
Notice to and including the date when each seller of Common Stock covered by the
applicable  Registration  Statement  shall have  received  (x) the copies of the
supplemental or amended  prospectus  contemplated by Section 3(i) (if an amended
or  supplemental  prospectus  is  required)  or (y) the Advice (if no amended or
supplemental prospectus is required).

              For purposes of this Section 3(a), the Company shall be deemed not
to have  used its best  efforts  to keep the  Registration  Statement  effective
during the requisite period if it voluntarily takes any action that would result
in  Holders  of Shares  covered  thereby  not being  able to offer and sell such
Shares pursuant to the Registration  Statement  during that period,  unless such
action is an event  described  in Section  3(c)(v) or Section 3(d) below or such
action is required by  applicable  law or, to the extent  required by applicable
law, if it shall fail promptly to take such action as is reasonably necessary to
permit such prospectus to once again be so usable.

              (b)    The Company  shall  furnish to each Holder  included in the
registration,  prior to the filing  thereof with the  Commission,  a copy of the
Registration  Statement and each amendment thereof and each supplement,  if any,
to the prospectus  included therein and shall use its best efforts to reflect in
each such  document,  when so filed with the  Commission,  such comments as such
Holder reasonably may propose.

                                       5
<PAGE>


              (c)    The  Company  shall  advise  each  Holder  included  in the
registration  and,  if  requested  by a Holder,  confirm  such advice in writing
(which  advice  pursuant to clauses (ii) (v) hereof shall be  accompanied  by an
instruction (a "Suspension  Notice") to suspend the use of any prospectus  until
the requisite changes have been made):

              (i)    when the Registration  Statement and any amendment  thereto
       has been filed with the Commission and when the Registration Statement or
       any post effective amendment thereto has become effective;

              (ii)   of  any  request  by  the   Commission  for  amendments  or
       supplements  to the  Registration  Statement or the  prospectus  included
       therein or for additional information;

              (iii)  of  the  issuance  by the  Commission  of  any  stop  order
       suspending  the  effectiveness  of  the  Registration  Statement  or  the
       initiation of any proceedings for that purpose;

              (iv)   of the  receipt  by the  Company of any  notification  with
       respect to the  suspension of the  qualification  of the shares of Common
       Stock for sale in any  jurisdiction  or the  initiation or threatening of
       any  proceeding  for such purpose;  and

              (v)    of the happening of any event that represents a fundamental
       change in the  information  set forth or incorporated by reference in the
       Registration  Statement  or that  otherwise  requires  the  making of any
       changes in the Registration  Statement or the prospectus or the filing of
       any reports  under the  Securities  Exchange Act of 1934, as amended (the
       "Exchange Act") so that, as of such date, the statements  therein are not
       misleading and do not omit to state a material fact required to be stated
       therein or necessary to make the statements therein not misleading.

              Each Holder agrees that, upon receipt of any Suspension  Notice of
the Company pursuant to paragraphs (ii) through (v) of Section 3(c) hereof, such
Holder will discontinue  disposition of such shares pursuant to the Registration
Statement until such Holder's  receipt of copies of the  supplemental or amended
prospectus contemplated by Section 3(i) hereof, or until advised in writing (the
"Advice")  by the  Company  that  the use of the  applicable  prospectus  may be
resumed.

              (d)    The Company will use its  reasonable  efforts to obtain the
withdrawal  of any  order  suspending  the  effectiveness  of  the  Registration
Statement at the earliest possible time.

              (e)    The Company will furnish to each Holder of Shares  included
within the coverage of the Registration Statement, without charge, copies of the
Registration  Statement  and any  post-effective  amendment  thereto,  including
financial statements and schedules, and, if a Holder so requests in writing, all
exhibits  (including  those  incorporated  by  reference) in such number as such
Holder may reasonably request from time to time.

                                       6
<PAGE>


              (f)    The Company will deliver to each Holder of Shares  included
within the  coverage of the  Registration  Statement,  without  charge,  as many
copies of the prospectus (including each preliminary prospectus) included in the
Registration  Statement and any  amendment or supplement  thereto as such Holder
may reasonably request; and the Company consents to the use of the prospectus or
any  amendment or  supplement  thereto by each of the selling  Holders of Common
Stock in  connection  with the offering and sale of the Common Stock  covered by
the prospectus or any amendment or supplement thereto.

              (g)    Prior to any public  offering of Common  Stock  pursuant to
the Registration Statement, the Company will use its best efforts to register or
qualify or cooperate with the Holders and their respective counsel in connection
with the  registration  or  qualification  of such securities for offer and sale
under the  securities  or blue sky laws of such  jurisdictions  as such  counsel
reasonably  requests  in  writing on behalf of such  Holders  and do any and all
other acts or things necessary or advisable to enable the offer and sale in such
jurisdictions  of the  shares  of  Common  Stock  covered  by  the  Registration
Statement;  PROVIDED,  HOWEVER, that the Company will not be required to qualify
generally to do business in any  jurisdiction  where it is not then so qualified
or to take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.

              (h)    The Company will  cooperate  with each Holder to facilitate
the timely  preparation  and  delivery of  certificates  representing  shares of
Common  Stock to be sold  pursuant  to the  Registration  Statement  free of any
restrictive  legends and  registered  in such names as the Holder may request in
writing prior to sales of Common Stock pursuant to the Registration Statement.

              (i)    Upon the occurrence of any event contemplated by paragraphs
(ii) through (v) of Section 3(c) hereof  during the period for which the Company
is required to maintain an effective  Registration  Statement,  the Company will
prepare a post-effective amendment to the Registration Statement or a supplement
to the  related  prospectus  or file  any  other  required  document  as soon as
practicable so that, as thereafter  delivered to purchasers of the Common Stock,
the prospectus  will not include an untrue  statement of a material fact or omit
to state any material  fact  necessary to make the  statements  therein,  in the
light of the circumstances under which they were made, not misleading,  and will
comply with the Act and the rules promulgated thereunder; PROVIDED HOWEVER THAT,
if the Company  determines in its reasonable good faith judgment that the filing
of any such  post-effective  amendment or  supplement  or other  document  would
interfere  with any  announced  or  imminent  material  financing,  acquisition,
disposition, corporate reorganization or other material transaction of a similar
type involving the Company or would require the  disclosure of information  that
is not then in the best  interests of the Company to disclose,  then the Company
may,  subject to the  provisions  of Section  2(g),  delay such  filing for such
period as would  terminate at the earliest time at which the Company  determines
that such disclosure could be made without unduly interfering with the interests
of the  Company.  The  period  of any such  delay is  referred  to  herein  as a
"Blackout  Period".  In no event may any Blackout Period exceed 90 days from the
date of the Suspension  Notice, and the Company shall not be permitted to impose
more than one

                                       7
<PAGE>


Blackout  Period in any calendar  year.  The Company shall give prompt notice to
the Holder of the termination of any Suspension Notice or Blackout Period.

              (j)    The Company  will  prepare and deliver in a timely  manner,
but in no event later than two business days prior to the consummation of a sale
of shares of Common Stock certificates representing Restricted Shares to be sold
and not bearing any restrictive legends.

              (k)    The  Company  will  comply  with all  applicable  rules and
regulations of the Commission and will make generally  available to its security
holders as soon as  practicable  but in any event not later than  eighteen  (18)
months after the  effective  date of the  applicable  Registration  Statement an
earnings statement satisfying the provisions of Section 11(a) of the Act or Rule
158 promulgated thereunder.

              (l)    The Company  may  require  each Holder of Shares to be sold
pursuant  to  the  Registration   Statement  to  furnish  to  the  Company  such
information regarding such Holder, the shares of Common Stock beneficially owned
by the Holder and the intended  method of  distribution of Shares as the Company
may from time to time  reasonably  require  for  inclusion  in the  Registration
Statement,  and the  Company may exclude  from such  registration  the shares of
Common  Stock of any  Holder  that fails to furnish  such  information  within a
reasonable time after receiving such request.

              (m)    The  Company  shall  enter into such  customary  agreements
(including,  if requested, an underwriting agreement in customary form) and take
all such other action, if any, as Holders of a majority of the Shares being sold
or the  managing  underwriters  (if any)  shall  reasonably  request in order to
facilitate the disposition of the Shares pursuant to the Registration Statement;
PROVIDED,  HOWEVER,  that  the  Company  shall  have  no  obligation  to pay any
discounts or underwriting  commission attributable to Restricted Shares sold for
the account of Holders,  or any  expenses of the  underwriters  other than those
customarily reimbursed by sellers of securities, including (A) fees and expenses
of filings and counsel in connection  with the  qualification  of the Shares for
offering and sale under state  securities laws, (B) fees and expenses of filings
and counsel incident to securing any required review by the National Association
of  Securities  Dealers,  Inc.  of the terms of the  underwriting  and (C) other
expenses in the event that the  underwriting  agreement is terminated  after its
execution but prior to closing of the sale thereunder.  The Company agrees that,
in  connection  with  an  underwritten  registration,  it  will  enter  into  an
underwriting   agreement  in  customary   form  that  will  contain   applicable
indemnification  provisions  similar  to those  contained  in  Section 5 hereof,
providing for general indemnification by the Company of the underwriters and for
indemnification  by the  Holders of the  underwriters  that is limited to losses
derived from  misstatements or omissions made in reliance upon and in conformity
with written  information  furnished to the Company by such Holder expressly for
use therein.

              (n)    The  Company,  if requested by Holders of a majority of the
Shares being sold, or the managing  underwriters (if any) in connection with the
Registration  Statement,  shall use its best efforts to cause (i) its counsel to
deliver an opinion relating to the Registration  Statement and the Common Stock,
in customary  form addressed to such

                                       8
<PAGE>


Holders and the managing underwriters (if any), thereof as of the effective date
of such  Registration  Statement and the closing of any  underwriting;  (ii) its
officers  to execute  and  deliver  all  customary  documents  and  certificates
requested  by  Holders of a majority  of the Shares  being sold or the  managing
underwriters (if any), including an underwriting  agreement containing customary
representations,  agreements and indemnification on the part of the Company; and
(iii)  its  independent  public  accountants  to  provide  a  comfort  letter in
customary form, subject to receipt of appropriate documentation as contemplated,
and only if permitted, by Statement of Auditing Standards No. 72.

              (o)    The Company  will use its best  efforts to cause the shares
of Common  Stock  covered  by the  Registration  Statement  to be listed on each
securities exchange, if any, or NASDAQ on which similar securities issued by the
Company are then  listed,  if so requested by Holders of a majority of shares of
Common  Stock  covered  by  the  Registration  Statement,  or  by  the  managing
underwriters (if any).

              4.     REGISTRATION  EXPENSE.  The Company  will bear all expenses
incurred  in  connection  with the  performance  of its  obligations  under this
Agreement,  including  without  limitation  filing  fees,  printing  costs,  and
(subject to the  provisions  of Section  2(a)(iii))  the costs and expenses of a
roadshow or other management presentations to investors relating to the Company,
but not the  underwriting  commissions or discounts  associated with the sale of
Restricted Shares, and the Company will reimburse the Holders for the reasonable
fees (not  exceeding  $10,000),  disbursements  and expenses of counsel (and any
local counsel as reasonably required) chosen by the Holders of a majority of the
shares of Common Stock to be sold pursuant to a  Registration  Statement  acting
for the Holders in connection therewith.

              5.     INDEMNIFICATION.

              (a)    The Company  shall  indemnify and hold harmless each of the
Holders of Common Stock to be included in such registration  against any losses,
claims,  damages or  liabilities,  joint or  several,  to which such  Holder may
become  subject  under the Act, the Exchange Act or  otherwise,  insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based  upon an untrue  statement  or  alleged  untrue  statement  of a
material fact contained in the Registration Statement under which such shares of
Common Stock were registered under the Act, or any preliminary, final or summary
prospectus  contained therein or furnished by the Company to any such Holder, or
any  amendment  or  supplement  thereto,  or arise out of or are based  upon the
omission or alleged  omission to state  therein a material  fact  required to be
stated therein or necessary to make the statements  therein not misleading,  and
the  Company  shall  reimburse  such  Holder  for any  legal or  other  expenses
reasonably  incurred by them in connection with  investigating  or defending any
such action or claim as such expenses are incurred;  PROVIDED, HOWEVER, that the
Company  shall not be liable to any such  person in any such case to the  extent
that any such loss, claim,  damage or liability (or actions in respect there of)
arises out of or is based upon an untrue  statement or alleged untrue  statement
or  omission  or  alleged  omission  made  in  the  Registration  Statement,  or
preliminary, final or summary prospectus, or amendment or supplement thereto, in

                                       9
<PAGE>


reliance  upon and in  conformity  with  written  information  furnished  to the
Company  by,  or on behalf  of,  such  person  expressly  for use in  connection
therewith.

              (b)    Each Holder agrees,  as a condition to including any shares
of Common Stock in the Registration Statement filed pursuant to Section 2 hereof
and to entering into any underwriting agreement with respect thereto,  severally
and not jointly,  to (i)  indemnify  and hold harmless the Company and all other
Holders against any losses,  claims, damages or liabilities to which the Company
or such other  Holders may become  subject  under the Act, the Exchange  Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect  thereof) arise out of or are based upon an untrue  statement or alleged
untrue statement of a material fact contained in the Registration  Statement, or
any preliminary,  final or summary prospectus  contained therein or furnished by
the Company to any such Holder, or any amendment or supplement thereto, or arise
out of or are based upon the  omission or alleged  omission  to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such  untrue  statement  or alleged  untrue  statement  or  omission  or alleged
omission was made in reliance  upon and in conformity  with written  information
furnished  to the  Company  by  such  Holder  expressly  for  use in  connection
therewith  and (ii)  reimburse  the  Company  for any  legal  or other  expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred;  PROVIDED, HOWEVER, that
no such Holder shall be required to undertake liability to any person under this
Section  5(b) for any amounts in excess of the dollar  amount of the proceeds to
be received by such Holder from the sale of such Holder's  Common Stock pursuant
to such registration.

              (c)    Promptly  after  receipt  by  an  indemnified  party  under
Sections 5(a) or 5(b) hereof written notice of the  commencement  of any action,
such  indemnified  party  shall,  if a claim in  respect  thereof  is to be made
against an indemnifying party pursuant to the  indemnification  provisions of or
contemplated by this Section 5, notify such indemnifying party in writing of the
commencement  of such  action;  but the  omission so to notify the  indemnifying
party  shall  not  relieve  it  from  any  liability  which  it may  have to any
indemnified  party  other  than  under  the  indemnification  provisions  of  or
contemplated  by Sections 5(a) or 5(b) hereof.  In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying  party
of the  commencement  thereof,  such  indemnifying  party  shall be  entitled to
participate  therein  and, to the extent that it shall  wish,  jointly  with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel  reasonably  satisfactory to such indemnified  party,  and, after notice
from the  indemnifying  party to such  indemnified  party of its  election so to
assume the defense thereof,  such indemnifying party shall not be liable to such
indemnified party for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection with
the  defense  thereof  other  than  reasonable  costs  of  investigation.   Such
indemnifying  party  shall not enter into any  settlement  with a party  without
obtaining an unconditional release of each indemnified party with respect to any
and all claims against each  indemnified  party. An indemnified  party shall not
enter into any settlement  without the consent of the  indemnifying  party which
shall not be unreasonably withheld.

                                       10
<PAGE>


              (d)    Each  party  hereto  agrees  that,  if for any  reason  the
indemnification provisions contemplated by Sections 5(a) or 5(b) are unavailable
to or  insufficient  to hold  harmless  an  indemnified  party in respect of any
losses,  claims, damages or liabilities (or actions in respect thereof) referred
to therein,  then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the  relative  fault of the  indemnifying  party and the  indemnified
party in  connection  with the  statements or omissions  which  resulted in such
losses,  claims, damages or liabilities (or actions in respect thereof), as well
as any other  relevant  equitable  considerations.  The  relative  fault of such
indemnifying  party and  indemnified  party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or  omission  or  alleged  omission  to state a  material  fact  relates to
information  supplied by such indemnifying  party or by such indemnified  party,
and  the  parties'  relative  intent,  knowledge,   access  to  information  and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions  pursuant to this
Section 5(d) were determined by pro rata allocation  (even if the Holders or any
agents  or  underwriters  or all of them were  treated  as one  entity  for such
purpose) or by any other method of allocation which does not take account of the
equitable  considerations  referred to in this Section 5(d).  The amount paid or
payable by an indemnified party as a result of the losses,  claims,  damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include  any  legal  or  other  fees or  expenses  reasonably  incurred  by such
indemnified party in connection with  investigating or defending any such action
or claim.  Notwithstanding  the provisions of this Section 5(d), no Holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the  proceeds  received  by such Holder from the sale of any shares of
Common Stock (after  deducting any fees,  discounts and  commissions  applicable
thereto)  exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged  omission,  and no  underwriter  shall be required to contribute  any
amount  in excess of the  amount  by which the total  price at which the  Common
Stock  underwritten  by it and  distributed  to the public  were  offered to the
public  exceeds the amount of any damages which such  underwriter  has otherwise
been  required to pay by reason of such untrue or alleged  untrue  statement  or
omission or alleged omission.  No person guilty of fraudulent  misrepresentation
(within  the  meaning  of  Section  11(f)  of the  Act)  shall  be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  The  Holders'  and  any  underwriters'  obligations  in this
Section  5(d) to  contribute  shall be several in  proportion  to the  principal
amount of Common Stock registered or under-written,  as the case may be, by them
and not joint.

              (e)    The  obligations  of the Company under this Section 5 shall
be in addition to any liability  which the Company may otherwise  have and shall
extend,  upon the same  terms and  conditions,  to each  officer,  director  and
partner of each  Holder,  agent and  underwriter  and each  person,  if any, who
controls any Holder, agent or underwriter within the meaning of the Act; and the
obligations of the Holders and any  underwriters  contemplated by this Section 5
shall be in addition to any liability which the respective Holder or underwriter
may otherwise have and shall extend, upon the same term and

                                       11
<PAGE>


conditions,  to each officer and director of the Company and to each person,  if
any, who controls the Company within the meaning of the Act.

              6.     UNDERWRITTEN REGISTRATIONS. If any of the Restricted Shares
covered  by  the  Registration  Statement  are  to be  sold  in an  underwritten
offering,  the Company shall have the right to select the lead investment banker
or lead manager that will administer the offering, subject to the consent of the
Holders of a majority of such Restricted Shares included in such offering, which
consent will not be unreasonably withheld, and the Holders of a majority of such
Restricted Shares included in such offering will have the right to select one or
more  coinvestment  bankers or co-lead  managers  to  administer  the  offering,
subject  to consent  of the  Company,  which  consent  will not be  unreasonably
withheld.

              No  person  may  participate  in  any  underwritten   registration
hereunder unless such person (i) agrees to sell such person's  Restricted Shares
on the basis reasonably  provided in any underwriting  arrangements  approved by
the persons entitled  hereunder to approve such  arrangements and (ii) completes
and executes all questionnaires,  powers of attorney, indemnities,  underwriting
agreements  and  other  documents  reasonably  required  under the terms of such
underwriting arrangements.

              7.     HOLDBACK AGREEMENT.  The Company agrees, if so requested by
the managing  underwriters of any underwritten  offering,  (i) not to effect any
sale or distribution  of its equity  securities,  or any securities  convertible
into or exchangeable or exercisable for such  securities,  during the seven days
prior to and during the 90-day  period  beginning on the  effective  date of any
underwritten   Demand   Registration   (except  as  part  of  such  underwritten
registration  or pursuant to  registrations  on Form S-4 or S-8 or any successor
form) and (ii) to use its best efforts to cause each executive officer, director
and any affiliate of the Company to agree not to effect any sale or distribution
(including sales pursuant to Rule 144) of any such securities during such period
(except as part of such  underwritten  registration,  if  otherwise  permitted),
unless the underwriters managing the registered public offering otherwise agree.

              8.     MISCELLANEOUS.

              (a)    AMENDMENTS  AND WAIVERS.  The  provisions of this Agreement
may not be  amended,  modified  or  supplemented,  and  waivers or  consents  to
departures from the provisions  hereof may not be given,  unless the Company has
obtained  the  written   consent  of  Holders  of  a  majority  of  the  Shares.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with  respect to a matter that relates  exclusively  to the rights of the
Holders whose Shares are being sold pursuant to the  Registration  Statement and
that does not directly or  indirectly  affect the rights of other Holders may be
given by Holders of a majority of the Shares being sold by such Holders pursuant
to the Registration Statement.

              (b)    NOTICES. All notices and other communications  provided for
or permitted  hereunder shall be made in writing by  hand-delivery,  first-class
mail, telex, telecopier,  or air courier guaranteeing overnight delivery: (i) if
to a Holder, at the most

                                       12
<PAGE>


current  address  given by such  Holder to the  Company in  accordance  with the
provisions of this Section  8(b),  which,  with respect to the  Purchaser  shall
initially be: Silver Oak Capital,  L.L.C.,  c/o Angelo,  Gordon & Co., L.P., 245
Park Avenue,  26th Floor,  New York,  New York 10167,  ATTENTION:  David Roberts
(Telecopy: (212) 867-5436); and (ii) if to the Company: Riddell Sports Inc., c/o
Varsity  Spirit  Corporation,  2525  Horizon  Lake,  Memphis,  Tennessee  38133,
ATTENTION:  John  Nichols  (Telecopy:  (901)  387-4356).  All such  notices  and
communications  shall be deemed to have been duly given: when delivered by hand,
if personally delivered; three business days after being delivered to a next-day
air courier;  when answered back, if faxed;  and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.

              (c)    SUCCESSORS  AND ASSIGNS.  This  Agreement  shall be binding
upon and inure to the benefit of and be  enforceable  by the parties  hereto and
their respective successors and assigns.

              (d)    COUNTERPARTS.   This   Agreement   may   be   executed   in
counterparts,  each of which  shall be  deemed  an  original,  but both of which
together shall constitute one and the same instrument.

              (e)    GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York  (regardless  of the laws that might  otherwise  govern
under  applicable  principles of conflicts of law) as to all matters,  including
but not limited to matters of validity,  construction,  effect,  performance and
remedies.

              (f)    HEADINGS.   The   headings  in  this   Agreement   are  for
convenience  of  reference  only and  shall not limit or  otherwise  affect  the
meaning hereof.

              (g)    SEVERABILITY.  The remedies  provided herein are cumulative
and not  exclusive  of any  remedies  provided by law.  If any term,  provision,
covenant  or  restriction  of this  Agreement  is held by a court  of  competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms,  provisions,  covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected,  impaired or invalidated,
and the parties hereto shall use their reasonable  efforts to find and employ an
alternative  means to achieve the same or substantially  the same result as that
contemplated  by such term,  provision,  covenant or  restriction.  It is hereby
stipulated  and declared to be the intention of the parties that they would have
executed the remaining terms,  provisions,  covenants and  restrictions  without
including  any of such term,  provision,  covenant  or  restriction  that may be
hereafter declared invalid, illegal, void or unenforceable.

                                       13
<PAGE>


              IN WITNESS  WHEREOF,  the parties have executed this  Registration
Rights Agreement as of the date first above written.

                                             RIDDELL SPORTS INC.


                                             By:  /s/ John Nichols
                                                 ------------------------------
                                                 Name: John Nichols
                                                 Title: Chief Financial Officer

                                             SILVER OAK CAPITAL, L.L.C.


                                             By:  /s/ Michael L. Gordon
                                                 ------------------------------
                                                 Name:  Michael L. Gordon
                                                 Title:  Authorized Signatory


                                       14
<PAGE>


                              SUBORDINATED GUARANTY


This  Subordinated  Guaranty,  dated as of August 16, 2001 (the  "Guaranty")  by
Varsity Spirit Corporation,  International Logos, Inc.,  Varsity/Intropa  Tours,
Inc.  and Varsity  USA,  Inc.,  Tennessee  corporations;  Varsity.com,  Inc.,  a
Delaware corporation;  and Varsity Spirit Fashions & Supplies, Inc., a Minnesota
corporation  (collectively,  the  "Present  Guarantors")  and  all  wholly-owned
subsidiaries of the Company and its  subsidiaries  hereafter  formed who execute
this Subordinated  Guaranty or counterpart  thereto  (collectively,  the "Future
Guarantors")  (the Present  Guarantors and the Future Guarantors are referred to
herein  collectively  as, the  "Guarantors"),  in favor of Silver  Oak  Capital,
L.L.C. (the "Purchaser").

Whereas,  the  Present  Guarantors  are  the  wholly-owned  direct  or  indirect
subsidiaries of Riddell Sports Inc., a Delaware corporation (the "Borrower").

Whereas, the Borrower has previously issued to the Purchaser a 4.10% Convertible
Subordinated Note due November 1, 2004 in the aggregate principal amount of $7.5
million (the "Existing Note").

Whereas,  the Borrower has entered into a Note Purchase  Agreement  dated August
16,  2001  (the  "Purchase  Agreement")  with the  Purchaser  providing  for the
Existing  Note to be exchanged  and  discharged in full by the issuance of a new
4.10%  Convertible  Subordinated  Note due  November 1, 2007 (the "Note") in the
aggregate principal amount of $7.5 million to the Purchaser.

Whereas,  in as an inducement to the Purchaser to purchase the Note, the Present
Guarantors have agreed to issue this Subordinated Guaranty.

Whereas, Section 9.6 of the Purchase Agreement requires the Future Guarantors to
be bound by this Subordinated Guaranty.

1.     CERTAIN DEFINITIONS.

       Section 1.01 Capitalized terms used but not defined herein shall have the
meanings given such terms in the Purchase Agreement.

       Section 1.02 The term  "Holder" or  "Holders"  shall refer to each of (i)
the Purchaser,  (ii) each permitted  successor or assignee of Purchaser's rights
and (iii) each permitted  transferee or assignee of all or a portion of the Note
to the extent the Purchaser  shall  specify such person  pursuant to this clause
(iii) as a Holder.

2.     THE GUARANTEE.

       Each Guarantor hereby jointly and severally guarantees to each Holder and
their  respective  successors  and permitted  assigns the prompt payment in full
when due (whether at stated maturity,  by acceleration,  required  repurchase or
otherwise)  of the principal of and interest on the Note held by each Holder and
all other  amounts from time to time owing to the Holders by the Borrower  under
the Purchase  Agreement  and under the Note, in each case strictly in accordance
with the terms thereof (such  obligations being herein  collectively  called the

<PAGE>


"Guaranteed  Obligations").  Each Guarantor hereby further jointly and severally
agrees  that if the  Borrower  shall  fail to pay in full when due  (whether  at
stated maturity,  by acceleration,  required repurchase or otherwise) any of the
Guaranteed  Obligations,  such Guarantor will promptly pay the same, without any
demand or notice  whatsoever,  and that in the case of any  extension of time of
payment  or  renewal  of any of the  Guaranteed  Obligations,  the same  will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.

3.     OBLIGATIONS UNCONDITIONAL.

       The obligations of each Guarantor under Section 2 hereof are absolute and
unconditional,  irrespective of (i) the value, genuineness, validity, regularity
or  enforceability  of the obligations of the Borrower under this Guaranty,  the
Purchase  Agreement,  the Note or any other agreement or instrument  referred to
herein or  therein,  (ii) any  substitution,  release or  exchange  of any other
guarantee of or security for any of the Guaranteed Obligations (iii) the absence
of any action to enforce the Purchase  Agreement or the Note, (iv) any waiver or
consent by the Holder with respect to any  provisions of the Purchase  Agreement
or the Note,  (v) any  modification  or  amendment  of, or  supplement  of,  the
Guaranty,  Purchase  Agreement,  Note or any  other  agreements  or  instruments
referred to herein or therein or (vi) the recovery of any  judgment  against the
Borrower or any action to enforce  such  judgment,  and,  to the fullest  extent
permitted by applicable law,  irrespective of any other circumstance  whatsoever
that might otherwise  constitute a legal or equitable  discharge or defense of a
surety or guarantor,  it being the intent of this Section 3 that the obligations
of the Guarantors  hereunder shall be absolute and  unconditional  under any and
all  circumstances.  Without  limiting the  generality of the  foregoing,  it is
agreed that the occurrence of any one or more of the following  shall not impair
the  liability  of any  Guarantor  hereunder,  which shall  remain  absolute and
unconditional as described above:

              (A)    at any time or from  time to time,  without  notice  to any
              Guarantor,  the time for any performance of or compliance with any
              of  the  Guaranteed   Obligations  shall  be  extended,   or  such
              performance or compliance shall be waived;

              (B)    any of the acts  mentioned in any of the provisions of this
              Guaranty,  the  Purchase  Agreement  or  the  Note  or  any  other
              agreement  or  instrument  referred to herein or therein  shall be
              done or omitted; or

              (C)    the maturity of any of the Guaranteed  Obligations shall be
              accelerated,  or  any  of  the  Guaranteed  Obligations  shall  be
              modified,  supplemented  or amended in any  respect,  or any right
              under this  Guaranty,  the  Purchase  Agreement or the Note or any
              other agreement or instrument  referred to herein or therein shall
              be  waived  or any  other  guarantee  of  any  of  the  Guaranteed
              Obligations  or  any  security   therefor  shall  be  released  or
              exchanged in whole or in part or otherwise dealt with.

       Each Guarantor hereby expressly waives diligence,  presentment, demand of
payment,  filing of claims with a court in the event of insolvency or bankruptcy
of the Borrower,  protest,  notices and all demands whatsoever,  any requirement
that any Holder  exhaust  any  right,  power or remedy or  proceed  against  the
Borrower  under the  Purchase  Agreement  or the Note or any other  agreement or
instrument  referred to herein or therein, or against any other Person under any

                                       2
<PAGE>


other  guarantee  of, or security  for, any of the  Guaranteed  Obligations  and
covenants  that its  Guaranteed  Obligations  will not be  discharged  except by
complete  performance  by the Borrower or another  Guarantor of such  Guaranteed
Obligations.

4.     REINSTATEMENT.

              The  obligations  of each  Guarantor  under this Guaranty shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf  of the  Borrower  in  respect  of the  Guaranteed  Obligations  is
rescinded or must be otherwise  restored by any holder of any of the  Guaranteed
Obligations,   whether  as  a  result  of  any   proceedings  in  bankruptcy  or
reorganization or otherwise.

5.     SUBROGATION.

              Each   Guarantor   hereby   waives  all  rights  of   subrogation,
contribution,  reimbursement  and  indemnity  and all  other  rights  that  such
Guarantor would have against the Borrower at any time as a result of any payment
in  respect  of its  Guaranteed  Obligations  (whether  contractual,  under  the
Bankruptcy Code, or otherwise).

6.     REMEDIES.

              Each  Guarantor  agrees that,  as between such  Guarantor  and the
Holders,  the  obligations of the Borrower under the Purchase  Agreement and the
Note may be declared to be forthwith due and payable as provided in the Purchase
Agreement (and shall be deemed to have become  automatically  due and payable in
the  circumstances  provided  in the  Purchase  Agreement)  for  purposes of the
Guaranty  notwithstanding any stay,  injunction or other prohibition  preventing
such  declaration  (or such  obligations  from  becoming  automatically  due and
payable) as against the Borrower and that, in the event of such  declaration (or
such  obligations  being deemed to have become  automatically  due and payable),
such obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by such  Guarantor  for purposes of said Section 2 of the
Guaranty.

7.     INSTRUMENT FOR THE PAYMENT OF MONEY.

              Each  Guarantor  hereby  acknowledges  that the  guarantee in this
Guaranty  constitutes  an  instrument  for the payment of money and consents and
agrees that any Holder,  at its sole  option,  in the event of a dispute by such
Guarantor  in the payment of any moneys due  hereunder,  shall have the right to
bring motion-action under New York CPLR Section 3213.

8.     CONTINUING GUARANTEE.

              The  guarantee  in this  Guaranty is a continuing  guarantee,  and
shall apply to all Guaranteed Obligations whenever arising.

9.     GENERAL LIMITATION ON GUARANTEE OBLIGATIONS.

              In any action or proceeding  involving any state corporate law, or
any  state  or  Federal  bankruptcy,  insolvency,   reorganization,   fraudulent
conveyance,  fraudulent  transfer or other law

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affecting the rights of creditors generally, if the obligations of any Guarantor
under Section 2 hereof would otherwise be held or determined to be void, invalid
or  unenforceable,  or  subordinated  to the claims of any other  creditors,  on
account  of  the  amount  of  its   liability   under  said   Section  2,  then,
notwithstanding  any other provision hereof to the contrary,  the amount of such
liability shall, without any further action by such Guarantor, any Holder or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable  and not  subordinated to the claims of other creditors as
determined in such action or proceeding.

10.    SUBORDINATION.

              The  obligations  of each  Guarantor  under this Guaranty shall be
junior and  subordinated in right of payment to any Senior  Indebtedness of such
Guarantor in the same manner and to the same extent as the Note is  subordinated
to Senior  Indebtedness of the Borrower,  pursuant to Section 13 of the Purchase
Agreement.

11.    ANTI-LAYERING.

              No  Guarantor  will,  directly or  indirectly,  incur or suffer to
exist  any  Indebtedness  that  is  subordinate  in  right  of  payment  to  any
Indebtedness of such Guarantor,  unless such  Indebtedness is PARI PASSU with or
is subordinate in right of payment to such Guarantor's payment obligations under
the Guaranty.

12.    REQUIREMENTS.

              Subject to the terms of the Purchase Agreement,  this Guaranty may
be  amended,  and the  observance  of any  term  hereof  may he  waived  (either
retroactively or prospectively), with (and only with) the written consent of the
Majority Lenders.

13.    SUCCESSORS AND ASSIGNS.

              The guaranty  provided in Section 2 hereof binds and inures to the
benefit of the Holders and each of their  respective  successors  and  permitted
assigns.

14.    GOVERNING LAW.

              This Guaranty shall be construed and enforced in accordance  with,
and the rights of the parties  shall be governed by, the law of the State of New
York  excluding  choice-of-law  principles  of the law of such  State that would
require the application of the laws of a jurisdiction other than such State.

15.    ASSIGNMENTS AND RESTRICTIONS ON TRANSFERS.

              No Guarantor may assign any of its rights or obligations hereunder
or under the Note  without  the  prior  consent  of the  Majority  Lenders.  The
Purchaser  and each  Holder  shall  not  transfer  any of its  rights  under the
Guaranty  except to the same extent as permitted by Section 20.7 of the Purchase
Agreement.

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       IN WITNESS  WHEREOF,  the  undersigned  have executed  this  Subordinated
Guaranty as of the date first above written.

                                        Varsity Spirit Corporation
                                        Varsity Spirit Fashions & Supplies, Inc.
                                        International Logos, Inc.
                                        Varsity/Intropa Tours, Inc.
                                        Varsity USA, Inc.
                                        Varsity.com, Inc.


                                        By: /s/ John Nichols
                                           -------------------------------------
                                              Name: John Nichols
                                              Title: Senior Vice President


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