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EXHIBIT 1
ITEM 5. OTHER EVENTS.
On June 17, 1997, pursuant to a Securities Purchase Agreement dated as
of May 5, 1997, as amended by Amendment No. 1 to the Securities Purchase
Agreement, dated as of June 5, 1997 (the "Securities Purchase Agreement"), among
Empire of Carolina, Inc., a Delaware corporation (the "Company"), HPA
Associates, LLC ("HPA") and EMP Associates, LLC ("EMP"), the Company issued to
HPA, EMP and other accredited investors (as defined in Rule 501 under the
Securities Act of 1933, as amended) ("Accredited Investors") 1,100,000 shares of
the Company's Series A preferred stock, $.01 par value per share, $10 face value
per share (the "Series A Preferred Stock") and 5,000,000 warrants to purchase
shares of the Company's common stock, $.10 par value per share (the "Common
Stock") (the "Principal Investment"). On June 18, 1997, the Company issued to
HPA and other Accredited Investors an additional 500,000 shares of the Series A
Preferred Stock and an additional 2,500,000 warrants (the "Additional
Investment"). The investors in the Principal Investment and Additional
Investment are collectively referred to herein as the "Purchasers". The total
shares of Series A Preferred Stock issued to Purchasers in connection with the
foregoing was 1,600,000 and the total number of warrants issued was 7,500,000.
The total gross proceeds from the sale of such securities was $16,000,000 (the
"Purchase Price"). $5,000,000 of the Purchase Price was non-cash consideration
represented by the conversion of $5 million of 12% bridge notes funded by HPA
and EMP in May 1997 in connection with the execution of the Securities Purchase
Agreement.
The Series A Preferred Stock is convertible into Common Stock at an
initial conversion price of $1.25 per share (subject to adjustment in certain
circumstances) and the exercise price per share of the warrants is $1.375 per
share (subject to adjustment in certain circumstances). The Series A Preferred
Stock has the right, as a class of stock of the Company, to designate two
directors and is entitled to vote on all matters presented to stockholders on an
as if converted basis. Purchasers also received certain registration rights. The
Certificate of Designation relating to the Series A Preferred Stock, the Warrant
Amendment to Warrant Certificate, the related Warrant Agreement, and the Letter
of the Company regarding the registration rights and provisions affecting the
Series A Preferred Stock are being filed herewith as Exhibits 3.5, 4.7, 4.8, and
10.43, respectively, and are incorporated herein by reference.
Pursuant to the Securities Purchase Agreement, all closing conditions
set forth in the Securities Purchase Agreement were met or waived prior to the
Principal Investment, including the following:
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o The Company's 9% convertible debentures issued to affiliates
of Xxxxx, Xxxx & Xxxxx in the original principal amount of $15
million were exchanged by the holders thereof for newly-issued
shares of Series C Preferred Stock of the Company with an
aggregate Stated Value (as defined) of $15 million. Such
holders also released, among other things, their claims to
accrued and unpaid interest, fees and expenses. Each share of
Series C Preferred Stock is convertible at any time, at the
option of the holder thereof, into fully paid and
nonassessable shares of Common Stock at a rate of one share of
Common Stock for each $2.00 of Stated Value of Series C
Preferred Stock (subject to adjustment in certain
circumstances). Except as otherwise expressly provided in the
Charter or the By-laws of the Company, the Certificate of
Designation relating to the Series C Preferred Stock, or as
may otherwise be required by law, the Series C Stockholders,
by virtue of their ownership thereof, have no voting rights.
The Certificate of Designation relating to the Series C
Preferred Stock, the WPG Release Agreement and the WPG
Registration Rights Agreement are being filed herewith as
Exhibits 3.6, 10.45 and 10.46, respectively, and are
incorporated herein by reference.
o The successor to the seller under the Company's agreement to
purchase the assets of Xxxxx X xxxxxx or released the claim to
certain earn out, price protection and registration rights in
exchange for: (i) $100,000 in cash; (ii) 250,000 shares of
Common Stock of the Company; (iii) a $2.5 million 9% note from
the Company's major subsidiary, and guaranteed by the Company,
providing for $625,000 principal payments on the first four
anniversaries of the closing date of the Preferred Stock
Investment (which note includes certain affirmative and
negative covenants which could in certain circumstances
accelerate payments with respect to such note); and (iv)
certain other benefits, including registration rights. The
Buddy L Settlement Agreement, the Buddy L Promissory Note and
the Buddy L Registration Rights Agreement are being filed
herewith as Exhibits 10.42, 4.10 and 10.44, respectively, and
are incorporated herein by reference.
o The bank lenders under the Company's Credit Agreement were to
have agreed to certain amendments to the Credit Agreement as a
closing condition. This condition was waived by HPA. The
Company's senior lenders agreed, however, to extend the May
31, 1997 deadline for receipt of $6 million of additional
equity financing to June 30, 1997 (which deadline was
satisfied upon the closing of the Principal Investment), and
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have orally advised the Company that they will agree to the
adoption of a proposed amendment to the Credit Agreement to
convert the current portion of the term loan to a one year and
a day obligation and have agreed to engage in further
discussions with the Company following the completion of the
Principal Investment.
On June 12, 1997, the Company and American Stock Transfer & Trust
Company, a New York corporation, as Rights Agent (the "Rights Agent"), adopted
the Second Amendment (the "Second Amendment") to the Rights Agreement dated as
of September 11, 1996 (the "Rights Agreement") between the Company and the
Rights Agent, as amended by the First Amendment thereto dated as of May 5, 1997.
The Second Amendment, among other things, amends the definition of "Acquiring
Person" in Section 1(a) of the Rights Agreement to base the 15% threshold
specified therein on the aggregate number of "Fully- Diluted Common Shares" (as
defined in the Second Amendment) of the Company. The Second Amendment is
attached as Exhibit 4.9 hereto, and is incorporated herein by reference.
On June 19, 1997, the Company issued the press release attached hereto
as Exhibit 99.1, which press release is hereby incorporated by reference herein,
announcing the closing of the Principal Investment and the Additional
Investment.
As of May 23, 1997, the Company had 7,403,564 shares of Common Stock
outstanding. Immediately following the closing of the Additional Investment, the
Company had 7,653,564 shares of Common Stock outstanding and the Purchasers in
the aggregate represent approximately 63% of the total voting power on matters
presented to the Company's stockholders, in each case without giving effect to
the exercise of any warrants, stock options or other derivative securities
issued by the Company. If all of the Series A Preferred Stock and Series C
Preferred Stock issued pursuant to the Securities Purchase Agreement were
converted, all outstanding warrants and stock options were exercised and all
authorized shares of Common Stock under the Company's employee benefit plans
were issued, the Purchasers in the aggregate would represent approximately 53%
of the total voting power on matters presented to the Company's stockholders.
However, to the knowledge of the Company, immediately following the consummation
of the Additional Investment, no Purchaser beneficially owns securities
representing 10% or more of the voting power on matters to be presented to the
Company's stockholders or would have such voting power on a fully-diluted basis.
On June 24, 1997, the Company issued the press release attached hereto
as Exhibit 99.2, which press release is hereby incorporated by reference herein,
announcing the election of Xxxxxxx X. Xxxxxx to replace Xxxxx Xxxxxx as Chairman
of the Board of Directors of the Company.
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In addition to the securities offered in connection with the Principal
Investment and Additional Investment, the Company intends to offer for sale
500,000 additional shares of Series A Preferred Stock and 500,000 warrants to
purchase shares of Common Stock) at an initial exercise price of $1.375 per
share. In connection with the sale of such additional securities, an additional
2,000,000 warrants to purchase shares of Common Stock will be allocated as
follows: 750,000 warrants to the placement agents who place the additional
securities in addition to a 6% cash commission payable upon closing of the sale
of such additional securities and 1,250,000 warrants to HPA. The additional
securities will be offered pending and conditioned upon receiving stockholder
approval. The offering of such additional securities will have a significant
dilutive effect upon stockholders of the Company, including the Purchasers.
There can be no assurance that the sale of such additional securities will be
approved by the stockholders or consummated. Reference is made to Amendment No.
1 to the Securities Purchase Agreement filed as Exhibit 10.41 hereto for
additional information regarding the sale of such additional securities, which
exhibit is incorporated herein by reference
The foregoing descriptions of documents are summaries that do not purport
to be complete and are qualified in their entirety by reference to the actual
terms and provisions of such documents filed as exhibits hereto.
