<PAGE>   1

                                                                   EXHIBIT 10(R)

                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of February 28,
1997, by and between John M. Nichols ("Employee") and Varsity Spirit
Corporation, a Tennessee corporation (the "Company").

                                R E C I T A L S:

     A. The Company is a publicly owned entity in the business of (i) designing,
marketing and selling products to the school spirit industry, including
cheerleader, dance team and booster club uniforms and accessories, (ii)
operating high school and college cheerleader and dance team camps and (iii)
organizing and facilitating special events, including travel programs, made
available to school spirit groups (collectively, the "Business").

     B. Employee has been employed by and a financial officer of the Company
since April 1992 and has been a Senior Vice President of the Company since July
1992 and the Chief Financial Officer of the Company since April 1994.

     C. The Company desires to continue to employ Employee as a Senior Vice
President and the Chief Financial Officer of the Company and Employee desires to
be so employed by the Company on the terms and conditions set forth herein.

     D. The Company desires to bind Employee to certain restrictive covenants
and Employee agrees to be so bound on the terms and conditions set forth herein.

                               A G R E E M E N T:

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1. Term of Employment. Subject to the terms and conditions set forth
herein, including Section 10, the Company will employ Employee and Employee will
serve as a Senior Vice President and the Chief Financial Officer of the Company
for a term commencing on February 28, 1997 (the "Effective Date") and ending on
February 28, 1998 (the "Employment Term").

     2. Employment Duties.

     During the Employment Term, Employee will serve as a Senior Vice President
and the Chief Financial Officer of the Company, subject to the terms of this
Agreement and the direction and control of the President and the Board of
Directors of the Company. Employee shall, during the Employment Term, serve the
Company faithfully, diligently and competently and to the best of his/her
ability.

                                       -1-
<PAGE>   2

     3. Compensation. The Company shall have the following compensation
obligations, which shall be cumulative:

          (a) During the Employment Term, the Company shall pay to Employee, as
     salary (the "Salary") for services rendered by Employee under this
     Agreement, $115,000 per annum ($9583.33 per month). Such Salary shall be
     payable in arrears not less frequently than monthly, but otherwise in
     accordance with the Company's ordinary payment practices; and

          (b) After the end of each fiscal year of the Company during the
     Employment Term, Employee shall be eligible for an annual performance
     bonus, the nature and amount of which shall be determined by the Board of
     Directors (or any committee thereof) or the President of the Company after
     reviewing Employee's performance and the Company's results of operations
     during and for such fiscal year and such other matters deemed appropriate
     by the Board of Directors (or any committee thereof) or the President;
     notwithstanding anything else in this Agreement, the declaration and
     payment of any performance bonus to Employee shall be in the discretion of
     the Company and Employee shall have no absolute right to a performance
     bonus in any year.

          (c) In the event of a Change in Control (as defined below) of the
     Company during the Employment Term, Employee shall be entitled to and the
     Company shall pay Employee upon the occurrence of the Change in Control a
     special one time bonus of $250,000 (payable at Employee's election in full
     immediately after the Change in Control or in equal monthly installments
     over the period commencing with the first full month after the date of the
     Change in Control and continuing through the twenty-fourth (24th) full
     month after the Change in Control), which bonus (the "Change in Control
     Bonus") shall be in consideration for (i) services rendered to the Company
     by Employee prior to and in connection with the Change in Control and (ii)
     Employee's commitment that, to the extent requested, he will continue his
     employment after the Change in Control and through February 28, 1998 (the
     date on which the audit period for fiscal 1997 is expected to be completed)
     on terms not less favorable to Employee as in existence immediately prior
     to the Change in Control. For purposes of this paragraph, a "Change in
     Control" shall be deemed to arise if any one or more of the following has
     occurred: (a)'the Company is merged, consolidated or reorganized into or
     with another corporation or other entity and, as a result thereof, less
     than 50% of the outstanding stock or other capital interests of the
     surviving, resulting or acquiring corporation, person or other entity is
     owned, in the aggregate, by the stockholder or stockholders of the Company
     immediately prior to such merger, consolidation or reorganization or (b)
     the Company sells all or substantially all of its business or assets (or
     both) to any other corporation, person or other entity, less than 50% of
     the outstanding voting stock or other capital interests of which are owned,
     in the aggregate, by the stockholders of the Company, directly or
     indirectly, immediately prior to or after such sale.

Payments made pursuant to (a), (b) and (c) above while Employee is an employee
of the Company shall be treated as wages for withholding and employment tax
purposes.

                                       -2-
<PAGE>   3

     4. Insurance. During the Employment Term, the Company shall be entitled to
obtain as the beneficiary "key man" or similar other life insurance on Employee
in an amount that the Company shall in its discretion deem necessary. Employee
shall cooperate with all requirements necessary for obtaining such insurance,
including, without limitation, submitting to any tests or physicals reasonably
required by the insurers in order to obtain such insurance.

     5. Benefits.

     (a) Employee shall be entitled during the Employment Term to participate in
     such employee benefit plans and programs, including, without limitation,
     profit sharing, cafeteria and health insurance plans, as are maintained
     from time to time for employees of the Company to the extent that his/her
     position, tenure, compensation, age, health and other qualifications make
     him eligible to participate. The Company does not promise the adoption or
     continuance of any particular plan or program during the Employment Term,
     and Employee's (and his/her dependents') participation in any such plan or
     program shall be subject to the provisions, rules, regulations and laws
     applicable thereto.

     (b) During each twelve month period during the Employment Term, Employee
     shall be entitled to that number of weeks of paid vacation as authorized
     under the Company's normal vacation policy to be taken at times mutually
     acceptable to Employee and the Company, and such holidays as are observed
     by the Company from time to time.

     6. Reimbursement of Expenses. To the extent consistent with the general
expense reimbursement policies maintained by the Company from time to time,
Employee shall be entitled to prompt reimbursement for ordinary, necessary and
reasonable out-of-pocket trade or business expenses which Employee incurs in
connection with performing his/her duties under this Agreement, including
reasonable travel and meal expenses. The reimbursement of all such expenses
shall be made upon presentation of evidence reasonably satisfactory to the
Company of the amounts and nature of such expenses and shall be subject to the
reasonable approval of the Company's President or Board of Directors, or both.

     7. Restrictive Covenants. Employee acknowledges and agrees that (i) through
his/her position as a Senior Vice President of the Company, he/she will learn
valuable trade secrets and other proprietary information relating to the
Business, (ii) Employee's services to the Company are unique in nature, (iii)
the Company's Business is international in scope and (iv) the Company would be
irreparably damaged if Employee were to provide services to any person or entity
in violation of the restrictions contained in this Agreement. Accordingly, as an
inducement to the Company to enter into this Agreement, Employee agrees that
during the Employment Term and, except as otherwise provided in Sections 10(b)
and 10(c) hereof or the last paragraph of this Section 7, for an additional
twenty-four (24) months thereafter (such period being referred to herein as the
"Restricted Period"), neither Employee nor any Affiliate (as defined below in
Section 8) of Employee shall, directly or indirectly, either for himself/herself
or for any other person or entity:

                                       -3-
<PAGE>   4

          (a) anywhere in the United States of America or Canada or any other
     location in which the Company is then doing business, engage or participate
     in, or assist, advise or be connected with (including as an employee,
     owner, partner, shareholder, officer, director, advisor, consultant, agent
     or otherwise), or permit his/her name to be used by or render services for,
     any person or entity engaged in a Competing Business (as hereinafter
     defined); provided, however, that nothing in this Agreement shall prevent
     Employee from acquiring or owning, as a passive investment, up to two
     percent (2%) of the outstanding voting securities of an entity engaged in a
     Competing Business which are publicly traded on any recognized national
     securities market;

          (b) take any action, in connection with a Competing Business, which
     might divert from the Company or an Affiliate of the Company any
     opportunity which would be within the scope of the Company's or such
     Affiliate's then business;

          (c) solicit or attempt to solicit any person or entity who is or has
     been (i) a customer of the Company at any time (A) up to the date hereof or
     (B) during the Restricted Period to purchase Competing Products or Services
     (as herein defined) from any person or entity (other than the Company) or
     (ii) a customer, supplier, licensor, licensee or other business relation of
     the Company at any time (A) up to the date hereof or (B) during the
     Restricted Period to cease doing business with the Company; or

          (d) solicit or hire any person or entity who is a director, officer,
     employee or agent of the Company or any Affiliate of the Company to perform
     services for any entity other than the Company and its Affiliates.

     As used herein, a "Competing Business" shall mean a business which engages
or is making plans to engage, in whole or in part, in the manufacturing,
marketing or distributing of products, or the performance, marketing and sale of
services, which are competitive with, are similar to, may be used as substitutes
for, or may detract from any products or services of the Company or any
Affiliate thereof during the Restricted Period, whether, in the case of
products, such products are or were manufactured by or for the Company for sale
by the Company or purchased as finished goods for resale by the Company, or, in
the case of services, such services were performed by the Company or by another
company or person on behalf of the Company; the products and services subject to
these restrictive covenants being herein referred to as "Competing Products and
Services."

     Notwithstanding the provisions of the first paragraph of this Section 7, in
the event of a termination of employment as a result of the expiration of the
full term of employment contemplated by Section 1 hereof, the Restricted Period
shall not extend beyond but rather shall terminate on the last date of the
Employment Term except in the case where the Company delivers to Employee not
less than ten (10) days prior to the last day of the Employment Term a written
offer of continued employment on substantially similar terms (or on terms more
favorable to Employee) as then exist, in which case the Restricted Period shall
extend to the earlier of (i) twenty-four (24) months after the last day of the
Employment Term and (ii) the last day of the term of employment as proposed in
such written offer of continued employment.

                                       -4-
<PAGE>   5

     8. Disclosure of Confidential Information. Employee recognizes that he/she
possesses or as a result of his/her employment by the Company will become in
possession of Confidential Information (as defined below). Accordingly, as an
inducement for the Company to enter into this Agreement, Employee agrees that:

                  (a) for the longest period permitted by law from the date of
        this Agreement, Employee and each Affiliate of Employee shall hold in
        strictest confidence and shall not, other than as required by law,
        without the prior written consent of the Company, use for his/her own
        benefit or that of any third party or intentionally or negligently
        disclose in a manner which could be harmful to the Company to any
        person, firm or corporation except the Company, an Affiliate of the
        Company or employees of the Company or an Affiliate of the Company any
        Confidential Information (as defined below). For purposes of this
        Agreement, intending that the term shall be broadly construed to include
        anything protectible as a trade secret under applicable law,
        "Confidential Information" shall mean all information, and all documents
        and other tangible items which record information, relating to the
        manufacturing and marketing by the Company of products and services,
        from time to time, which at the time or times concerned is protectible
        as a trade secret under applicable law, and which has been or is from
        time to time disclosed to or known by Employee. As used herein, an
        "Affiliate" shall mean and include any person or entity which controls a
        party, which such party controls or which is under common control with
        such party. "Control" means the power, direct or indirect, to influence
        or cause the direction of the management and policies of a person or
        entity through voting securities, contract or otherwise;

                  (b) Employee and each Affiliate of Employee (and if deceased,
        his/her legal representative, who shall be the person set forth as such
        in Section 12(a) until written notice of a successor is delivered to the
        Company (the "Representative")) shall promptly following a request
        therefor from the Company return to the Company, without retaining
        copies, all tangible items which are or which contain Confidential
        Information, it being agreed by Employee on behalf of his/her heirs,
        successors and assigns that the Company shall be entitled to rely on any
        action taken by the Representative in connection with this paragraph
        (b); and

                  (c) at the request of the Company made at any time or from
        time to time hereafter, Employee and each Affiliate of Employee (and if
        deceased, the Representative) shall make, execute and deliver all
        applications, papers, assignments, conveyances, instruments or other
        documents and shall perform or cause to be performed such other lawful
        acts as the Company may reasonably deem necessary or desirable to
        implement any of the provisions of this Agreement, and shall give
        testimony and cooperate with the Company, its Affiliates or its
        representatives in any controversy or legal proceedings involving the
        Company, its Affiliates or its representatives with respect to any
        Confidential Information.

                                       -5-
<PAGE>   6

     9. Specific Performance. Employee agrees that any violation by him/her of
Sections 7 or 8 of this Agreement, as applicable, would be highly injurious to
the Company and would cause irreparable harm to the Company. By reason of the
foregoing, Employee consents and agrees that if he/she violates any provision of
Sections 7 or 8 of this Agreement the Company shall be entitled, in addition to
any other rights and remedies that it may have, to apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any continuing violation of, the
provisions of such Section. In the event Employee breaches a covenant contained
in this Agreement, the Restricted Period applicable to Employee with respect to
such breached covenant shall be extended for the period of such breach. Employee
also recognizes that the territorial, time and scope limitations set for in
Section 7 and 8, as applicable, are reasonable and are properly required for the
protection of the Company and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, the Company and Employee agrees, and Employee submits, to the
reduction of any or all of said territorial, time or scope limitations to such
an area, period or scope as said court shall deem reasonable under the
circumstances.

     10. Termination; Severance.

          (a) Notwithstanding the provisions of Section 1 and the other
     provisions of this Agreement, Employee's employment with the Company may be
     terminated at any time by the Company's President or Board of Directors
     "for cause," which shall include (i) Employee's conviction for, or plea of
     nolo contendere to, a felony, (ii) Employee's commission of an act
     involving self-dealing, fraud or personal profit materially injurious to
     the Company, (iii) Employee's commission of an act of willful misconduct or
     gross negligence in the conduct of his/her duties hereunder, (iv) habitual
     absenteeism or any form of drug addiction or abuse on the part of Employee,
     (v) Employee's failure to perform his/her duties hereunder in a manner
     reasonably satisfactory to the Company, (vi) Employee's breach or violation
     of any internal policies or rules of the Company, including those rules
     adopted by the Company concerning the purchase and sale of the Company's
     common stock or other securities by employees of the Company, or (vii)
     Employee's breach of any material provision of this Agreement. Any
     termination by the Company under this Section 10(a) shall be in writing and
     shall set forth the reason for such termination. In the event of
     termination under this Section 10(a), the Company's obligations under this
     Agreement shall cease and Employee shall forfeit all right to receive any
     future compensation or benefits under this Agreement, including, without
     limitation, any unpaid performance bonus, except that Employee shall be
     entitled to his/her Salary and benefits (under Section 5) for services
     already performed as of the date of termination of this Agreement. Without
     limitation, termination of Employee pursuant to this Section 10(a) shall
     not relieve Employee of his/her obligations under Sections 7 or 8 hereof.

          (b) Notwithstanding the provisions of Section 1 and the other
     provisions of this Agreement, Employee's employment with the Company may be
     terminated at any time by the Company's President or Board of Directors
     without cause, provided that in the event of such a termination, Employee
     shall be entitled to continuation of his/her

                                       -6-
<PAGE>   7

     Salary and benefits (under Section 5) through the period ending three (3)
     months after the date of such termination (the "Severance Period"). Except
     as otherwise specifically provided above, the Company's obligations under
     this Agreement shall cease upon termination and Employee shall forfeit all
     rights to receive any compensation or benefits under this Agreement.
     Without limitation, a termination of Employee pursuant to this Section
     10(b) shall not relieve Employee of his/her obligations under Sections 7 or
     8 hereof, except that the restrictions of Section 7 shall be terminated at
     the earlier of the termination of the Restricted Period established under
     Section 7 and any Severance Period established hereby. Any termination by
     the Company or election by Employee under this Section 10(b) shall be in
     writing.

          (c) Notwithstanding the provisions of Section 1 and the other
     provisions of this Agreement, Employee's employment with the Company may be
     terminated by the Employee at any time, including after the occurrence of a
     Change in Control of the Company, provided that Employee agrees to the
     extent practicable that he/she will provide notice of termination to the
     Company not less than three (3) weeks prior to the effective date of the
     termination. Upon any termination of employment by Employee pursuant to
     this Section 10(c), Employee shall be entitled to his/her Salary and
     benefits (under Section 5) for services already performed as of the
     effective date of the termination of this Agreement. A termination of
     employment by Employee pursuant to this Section 10(c) shall not relieve
     Employee of his/her obligations under Sections 7 or 8 hereof and, if the
     effective date of the Employee's termination of employment pursuant to this
     Section 10(c) is prior to February 28, 1998, Employee shall be obligated to
     return to the Company any Change in Control Bonus paid to Employee pursuant
     to Section 3 of this Agreement. Any termination by Employee under this
     Section 10(c) shall be in writing.

          (d) The severance payment provisions of this Section 10 (including any
     Change in Control Bonus payable under Section 3(c)) are intended to comply
     with Sections 280G and 4999 of the Code and all regulations thereto so that
     the deductibility by the Company of the severance payments will not be
     subject to limitation by Section 280G and so that Employee will not be
     subject to an excise tax upon the receipt of the severance payments under
     Section 4999. The Company and Employee agree that, prior to the payment by
     the Company of any severance payments pursuant to this Section 10, the
     Company's independent public accountants shall review the amounts proposed
     to be paid, the conformity of the proposed payments with the provisions of
     this Section 10 and the treatment of the proposed payments under Sections
     280G and 4999 of the Code.

     11. Death or Disability.

          (a) If Employee becomes permanently disabled (determined as provided
     below) during the Employment Term, his/her employment shall terminate as of
     the date such permanent disability is determined. Employee shall be
     considered to be permanently disabled for purposes of this Agreement if
     he/she is unable by reason of accident or illness (including mental
     illness) to perform the material duties of his/her

                                       -7-
<PAGE>   8

     regular position with the Company and not expected to recover from his/her
     disability within a period of three (3) months from the commencement of the
     disability. If at any time Employee claims or is claimed to be permanently
     disabled, a physician acceptable to both Employee, or the Representative,
     and the Company (which acceptances shall not be unreasonably withheld)
     shall be retained by the Company and shall examine Employee. Employee shall
     cooperate fully with the physician. If the physician determines that
     Employee is permanently disabled, the physician shall deliver to the
     Company a certificate certifying both that Employee is permanently disabled
     and the date upon which the condition of permanent disability commenced.
     The determination of the physician shall be conclusive.

          (b) Employee's right to his/her compensation and benefits under this
     Agreement shall cease upon his/her death or disability, except that (i)
     Employee (or his/her estate or heirs) shall be entitled to his/her Salary
     and benefits (under Section 5) for services performed as of the date of
     his/her death or permanent disability and (ii) in addition, with respect to
     termination due solely to Employee's permanent disability as determined
     pursuant to this Section 11, he/she shall also be entitled to his/her
     Salary and benefits (under Section 5) through the period ending six (6)
     months after the date such permanent disability began; provided, however,
     that any such amounts for Salary continuation shall be reduced by any
     amount received by Employee under any disability insurance policy.

     12. Miscellaneous.

          (a) All notices hereunder shall be in writing and shall be deemed
     given when delivered in person or when telecopied with hard copy to follow,
     or three (3) business days after being deposited in the United States mail,
     postage prepaid, registered or certified mail, or two (2) business days
     after delivery to a nationally recognized express courier, expenses
     prepaid, addressed as follows:

                       If to Employee:

                       John M. Nichols
                       7871 Meadow Trail Drive
                       Cordova, Tennessee 38018

                       If to the Company:

                       Varsity Spirit Corporation
                       2525 Horizon Lake Drive
                       Memphis, Tennessee 38133
                       Attention: Jeffrey G. Webb

                                       -8-
<PAGE>   9

and/or at such other addresses and/or to such other addressees as may be
designated by notice given in accordance with the provisions hereof.

          (b) This Agreement shall be binding upon and inure to the benefit of
     the parties hereto and their respective heirs, successors and permitted
     assigns. No party shall assign this Agreement or its rights hereunder
     without the prior written consent of the other party hereto; provided,
     however, that the Company may assign this Agreement to any person or entity
     acquiring all or substantially all of the Business of the Company (whether
     by sale of stock, sale of assets, merger, consolidation or otherwise).

          (c) This Agreement contains all of the agreements between the parties
     with respect to the subject matter hereof and this Agreement supersedes all
     other agreements, oral or written, between the parties hereto with respect
     to the subject matter hereof.

          (d) No change or modification of this Agreement shall be valid unless
     the same shall be in writing and signed by all of the parties hereto. No
     waiver of any provisions of this Agreement shall be valid unless in writing
     and signed by the waiving party. No waiver of any of the provisions of this
     Agreement shall be deemed, or shall constitute, a waiver of any other
     provision, whether or not similar, nor shall any waiver constitute a
     continuing waiver, unless so provided in the waiver.

          (e) If any provisions of this Agreement (or portions thereof) shall,
     for any reason, be invalid or unenforceable, such provisions (or portions
     thereof) shall be ineffective only to the extent of such invalidity or
     unenforceability, and the remaining provisions of this Agreement (or
     portions thereof) shall nevertheless be valid, enforceable and of full
     force and effect. The Company's rights under this Agreement shall not be
     exclusive and shall be in addition to all other rights and remedies
     available at law or in equity.

          (f) The section or paragraph headings or titles herein are for
     convenience of reference only and shall not be deemed a part of this
     Agreement.

          (g) This Agreement may be executed in multiple counterparts, each of
     which shall be deemed to be an original and all of which when taken
     together shall constitute a single instrument.

          (h) This Agreement shall be governed and controlled as to validity,
     enforcement, interpretation, construction, effect and in all other respects
     by the laws of the State of Tennessee applicable to contracts made in that
     State (other than any conflict of laws rule which might result in the
     application of the laws of any other jurisdiction). Employee hereby
     expressly submits and consents in advance to the jurisdiction of the
     federal and state courts of the State of Tennessee for all purposes in
     connection with any action or proceeding arising out of or relating to this
     Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.

                                       -9-
<PAGE>   10

                                          VARSITY SPIRIT CORPORATION

                                          By: /s/ Jeffrey J. Webb
                                            ------------------------------------
                                            Name: Jeffrey J. Webb
                                            Title: President

                                          JOHN M. NICHOLS

                                          /s/ John M. Nichols
                                          --------------------------------------

                                      -10-