EXHIBIT 10.42
AGREEMENT
Agreement, dated as of June 17, 1997, by and among EMPIRE OF CAROLINA,
INC., a Delaware corporation (the "Company"), EMPIRE INDUSTRIES, INC., a North
Carolina corporation ("Industries"), and XXXXXXX INDUSTRIES, INC. LIQUIDATING
TRUST (the "Trust").
WHEREAS, on March 2, 1995, Xxxxxxx Industries, Inc. (f/k/a Buddy L Inc.)
("Xxxxxxx") filed a voluntary petition for relief under the Bankruptcy Code;
WHEREAS, pursuant to the Amended and Restated Asset Purchase Agreement, as
amended (the "Asset Purchase Agreement"), dated as of May 19, 1995, by and among
the Company, Xxxxxxx and Buddy L (Hong Kong) Limited, Xxxxxxx sold the
toy-related assets of Buddy L Inc. to the Company, and in connection therewith,
the parties executed a Registration Rights Agreement, dated as of July 7, 1995
(the "Old Registration Rights Agreement"), which, among other things, provided
Xxxxxxx with observation rights set forth therein (the "Observation Rights") and
the right to additional shares of the Company's common stock upon the occurrence
of certain events (the "Price Protection Shares");
WHEREAS, pursuant to Xxxxxxx'x First Amended and Restated Chapter 11 Plan,
dated June 17, 1996 (the "Plan"), and the Order Confirming First Amended Joint
Chapter 11 Plan entered by the Bankruptcy Court for the District of Delaware,
the Trust succeeded to all of Xxxxxxx'x rights in, to and under the Asset
Purchase Agreement and the Old Registration Rights Agreement, including, without
limitation, the Price Protection Shares and the Observation Rights;
WHEREAS, the Trust has significant claims against and interests in the
Company, including among other things, the contingent payment obligations
included in the Asset Purchase Agreement, 416,667 shares of the Company's common
stock, certain inventory payment obligations and the Trust's contractual right
to the Price Protection Shares;
WHEREAS, the Company alleges that it has setoff rights against certain
inventory payment obligations and Xxxxxxx receivables and disagrees as to, among
other things, the number of Price Protection Shares that may be available to the
Trust;
WHEREAS, HPA Associates, LLC and EMP Associates LLC (collectively, the
"HPA Group") and the Company have entered into a Securities Purchase Agreement,
dated as of May 5, 1997 (the "HPA Agreement"), pursuant to which the HPA Group
is purchasing at least $11 million of the Company's Series A Preferred Stock
(the "New Equities");
WHEREAS, the holder of the Company's outstanding debentures (the
"Debentureholders") have entered into an Agreement, dated as of June 17, 1997
(the "Debentureholder Agreement"), pursuant to which the Debentureholders are
exchanging all $15 million of outstanding debentures
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(and all rights relating thereto) (the "Debentures") for $15 million of the
Company's Series C Preferred Stock;
WHEREAS, the Company, the HPA Group and the Debentureholders are unwilling
to consummate the transactions contemplated by the HPA Agreement and the
Debentureholder Agreement (collectively, the "Transactions") unless and until
Industries, the Company and the Trust execute and deliver this Agreement; and
WHEREAS, the Trust may receive significantly less than the consideration
to the Trust provided herein in respect of its claims against and interests in
the Company than if the Transactions are not completed.
NOW THEREFORE, in consideration of the premises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Transfer. Contemporaneously with the consummation of the Transactions
(the "Closing"), the Company shall wire transfer to the Trust the sum of
$100,000.00 (the "Settlement Amount") in immediately available funds pursuant to
the following wire transfer instructions:
The Chase Manhattan Bank N.A.
ABA #000-000-000
Acct. #0371289679
Ref: Xxxxxxx Ind. Inc. Liquidating Trust
Attn: Xxxxxx Xxxxxxx
(000) 000-0000
2. Registration Rights. Upon the Trust's receipt of the Settlement
Amount, the Additional Shares and the Note (collectively, the "Settlement
Distribution"), the Old Registration Rights Agreement shall be terminated and be
of no further force or effect. Without in any manner limiting the breadth of the
foregoing, it is understood and agreed that, from and after the Trust's receipt
of the Settlement Distribution, the Trust shall no longer have Observation
Rights or rights to the Price Protection Shares. Contemporaneously with the
Closing, the Company and the Trust shall enter into a registration rights
agreement in the form annexed hereto as Exhibit A (the "New Registration Rights
Agreement").
3. Asset Purchase Agreement. Upon the Trust's receipt of the Settlement
Distribution, all obligations, duties and liabilities of the Trust, Xxxxxxx and
the Company under or pursuant to the Asset Purchase Agreement shall be deemed to
be fully satisfied and none of them shall have any ongoing or future
obligations, duties or liabilities thereunder.
4. Issuance of Note. Contemporaneously with the Closing, Industries
shall issue to the Trust a promissory note, guarantied by the Company, in the
original principal amount of $2,500,000 in the form annexed hereto as Exhibit B.
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5. Issuance of Stock. Contemporaneously with the Closing, the Company
shall issue to the Trust an additional 250,000 shares of its common stock (the
"Additional Shares").
6. Opinion. Contemporaneously with the Closing, Xxxxxxxxxxxx Xxxx &
Xxxxxxxxx, counsel to the Company and Industries, shall deliver to the Trust an
opinion in the form annexed hereto as Exhibit C.
7. Officer's Certificate. Contemporaneously with the Closing, the
Company shall deliver to the Trust an Officer's Certificate in the form annexed
hereto as Exhibit D.
8. Releases.
(a) The Trust hereby absolutely and unconditionally releases
the Company and Industries and each of their respective agents,
representatives, directors, officers and counsel (but, in each case,
solely in their capacity as such) from any and all claims, liabilities,
obligations, demands, actions, causes of action, suits, controversies,
promises and damages, in law or in equity, of whatsoever nature,
whether known or unknown, liquidated or unliquidated, fixed or
contingent, direct or indirect, whether suspected or unsuspected,
whether having arisen or hereafter to arise, which the Trust ever had,
now has or claims to have or hereafter can, shall or may for any reason
have, against the Company or Industries arising out of any matter or
event occurring prior to the Closing; provided, however, that nothing
contained herein shall in any way be construed to waive or release any
claims, actions, causes of action or other rights that (i) the Trust
has, or may have, in its capacity as a shareholder of the Company, (ii)
the Trust may have in respect of or in connection with the Note or the
New Registration Rights Agreement, or (iii) arise from any breach by
Industries or the Company of this Agreement.
(b) The Company and Industries hereby absolutely and
unconditionally release the Trust, Xxxxxxx, each of their respective
agents, trustees, representatives, directors, officers and counsel
(but, in each case, solely in their capacity as such), and Northwestern
Mutual Life Insurance Company, Phoenix Home Life Mutual Ins. Co. and
Equitable Life Assurance Society of the United States (but, in each
case, solely in its capacity as a party to its respective
confidentiality agreement with the Company) from any and all claims,
liabilities, obligations, demands, actions, causes of action, suits,
controversies, promises and damages, in law or in equity, of whatsoever
nature, whether known or unknown, liquidated or unliquidated, fixed or
contingent, direct or indirect, whether suspected or unsuspected,
whether having arisen or hereafter to arise, which the Company or
Industries ever had, now has or claims to have or hereafter can, shall
or may for any reason have, against any of them arising out of any
matter or event occurring prior to the Closing; provided, however, that
nothing contained herein shall in any way be construed to waive or
release any claims, actions, causes of action or other rights that (i)
the Company has or may have against any party that has breached a
confidentiality agreement with the Company, but solely to the extent of
the actual liability of the Company to a third party (including
governmental agencies) directly resulting from such breach, or (ii)
arise from any breach by the Trust of this Agreement.
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9. Representations of the Company and Industries. The Company and
Industries represent and warrant to, and covenant with, the Trust as of the date
of this Agreement and as of the Closing that:
(a) Each of the Company, Industries and each of their
respective subsidiaries that is an operating entity or that has any
material assets is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary corporate power and authority to
conduct its business as currently conducted and to own or lease the
properties and assets it now owns or holds under lease. Each of the
Company, Industries and each of their respective subsidiaries is duly
qualified or licensed to do business and is in good standing as a
foreign corporation in every jurisdiction in which the conduct of its
business or the ownership or leasing of its properties requires it to
be so qualified or licensed, except where the failure to be so
qualified or licensed or in good standing would not individually, or in
the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise), results of operations or prospects
of the Company, Industries and their respective subsidiaries, taken as
a whole.
(b) The Company and Industries have all necessary corporate
power and authority to execute and deliver this Agreement, the New
Registration Rights Agreement and the Note, to consummate the
transactions contemplated hereby and thereby, including the issuance of
the Settlement Distribution, and to perform their obligations hereunder
and thereunder. The execution and delivery by the Company and
Industries of this Agreement, the New Registration Rights Agreement and
the Note and the performance of its obligations hereunder and
thereunder, including the issuance of the Settlement Distribution, have
been duly authorized by all necessary corporate and other action, and
no further authorization on the part of the Company or Industries is
necessary to authorize such execution, delivery and performance. This
Agreement, the New Registration Rights Agreement and the Note have been
duly executed and delivered by the Company and Industries. This
Agreement, the New Registration Rights Agreement and the Note
constitute legal, valid and binding agreements of the Company and
Industries, enforceable against them in accordance with their
respective terms, except as enforceability may be subject to the
application of general equitable principles and to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors'
rights generally. The execution and delivery by the Company and
Industries of this Agreement, the New Registration Rights Agreement and
the Note, the consummation of the transactions contemplated hereby and
thereby, including the issuance of the Settlement Distribution, and the
performance by the Company and Industries of its obligations hereunder
and thereunder do not and will not conflict with, violate, result in a
breach of, constitute a default under or require any consent or notice
not previously obtained or provided under any agreement, instrument,
organizational document, law, regulation, judicial, administrative or
arbitral decree or governmental order to which it is a party or by
which it or its property is bound.
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(c) The Additional Shares have been duly authorized and, upon
issuance at the Closing, will be validly issued, fully paid and
non-assessable, and free and clear of any and all liens, security
interest, encumbrances and claims of any kind, and the issuance of such
Additional Shares is not and will not be subject to any preemptive or
similar right of any other stockholder of the Company.
(d) The Company has not made any assignment, sale, grant,
conveyance or other transfer of any portion of its right, title or
interest in, to or under the Asset Purchase Agreement or the Old
Registration Rights Agreement, it is the sole legal and beneficial
owner and holder thereof, free and clear of all claims, liens, security
interests and encumbrances, and it has the sole right to execute this
Agreement in connection therewith, either without obtaining or
requesting the consent of any other person or entity or having already
obtained such consent.
(e) Immediately after giving effect to the Transactions and
the transactions contemplated by this Agreement, the authorized capital
stock of each of the Company and Industries will be as set forth in the
Company's most recent Annual Report on Form 10- K and Quarterly Report
on Form 10-Q. All of the outstanding shares of capital stock of each of
the Company and Industries have been duly authorized and validly issued
and are fully paid and non-assessable. Immediately after giving effect
to the Transactions and the transactions contemplated by this
Agreement, except as provided in the Offering Memorandum of the Company
dated May 23, 1997 and the Offering Memorandum Supplement of the
Company dated June 9, 1997, there will be no outstanding securities
convertible into or exchangeable for capital stock of the Company or
Industries or options, warrants or other rights to purchase or
subscribe to capital stock of the Company or Industries of any of their
respective subsidiaries or contracts, commitments, agreements,
understandings or arrangements of any kind to which the Company or
Industries is a party relating to the issuance of any capital stock of
the Company, Industries or any such subsidiary, any such convertible or
exchangeable securities or any such options, warrants or rights.
(f) Set forth on Schedule I hereto is a complete and accurate
list of each subsidiary of the Company or the Guarantor that is an
operating entity or that has any material assets, showing as of the
date hereof (as to each such subsidiary) the jurisdiction of its
incorporation and the percentage ownership (direct and indirect) of the
Company and the Guarantor in each class of capital stock or other
equity interests of each of its respective subsidiaries and also
identifies the direct owner thereof. Except for the subsidiaries set
forth on Schedule I, neither the Company nor the Guarantor has any
subsidiary that is engaged in business or that owns material assets.
All of the outstanding shares of capital stock of such subsidiaries
that are corporations are validly issued, fully paid and
non-assessable. As of the date hereof, all of the outstanding shares of
capital stock of, or other ownership interests in, each such subsidiary
are owned by the Company or Industries, as provided therein, in each
case free and clear of any liens, claims, charges or encumbrances of
any kind, except to the extent set forth in the Loan Agreement. No
subsidiary of the Company or Industries has outstanding options,
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warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating such subsidiary to issue, transfer
or sell any of its securities.
(g) The Company has received net proceeds in cash from the HPA
Group in consideration for the issuance of the New Equities of at least
$10,000,000 (after taking into account the placement agent's fees and
the expenses of such offering). The HPA Group has converted $5,000,000
of the Company's Promissory Notes Due February 6, 1998 into an
additional $5,000,000 of the Company's Series A Preferred Stock. The
Debentures have been surrendered to the Company by the Debentureholders
and have been cancelled by the Company. Annexed hereto are true and
complete executed copies of the HPA Agreement and the Debentureholder
Agreement, each as amended through the date hereof, executed by the
respective parties thereto.
(h) Except as expressly set forth in this Agreement, the New
Registration Rights Agreement or the Note, no party has made any
representation or warranty to any other party in connection with, or as
an inducement to enter into, this Agreement.
10. Representations of the Trust. The Trust represents and warrants
to, and covenants with, the Company and Industries as of the date of this
Agreement and as of the Closing that:
(a) It is a trust, duly formed, validly existing and in good
standing under the laws of the jurisdiction of its formation. It has
all necessary power and authority to execute and deliver this Agreement
and the New Registration Rights Agreement, to consummate the
transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery by it
of this Agreement and the New Registration Rights Agreement, and the
performance of its obligations hereunder and thereunder, have been duly
authorized by all necessary action, and no further authorization on the
part of the Trust (including approval of any Bankruptcy Court) is
necessary to authorize such execution, delivery and performance. This
Agreement and the New Registration Rights Agreement have been duly
executed and delivered by the Trust. This Agreement and the New
Registration Rights Agreement constitute legal, valid and binding
agreements of the Trust, enforceable against the Trust in accordance
with their respective terms, except as enforceability may be subject to
the application of general equitable principles and to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors'
rights generally. The execution and delivery by the Trust of this
Agreement and the New Registration Rights Agreement, the consummation
of the transactions contemplated hereby and thereby and the performance
by the Trust of its obligations hereunder and thereunder do not and
will not conflict with, violate, result in a breach of, constitute a
default under or require any consent or notice not previously obtained
or provided under any agreement, instrument, organizational document,
law, regulation, judicial, administrative or arbitral decree or
governmental order to which it is a party or by which it or its
property is bound.
(b) The Trust hereby represents and warrants to the Company
and Industries that, except in respect of shares of the Company's stock
sold in connection with the
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Company's public offering in July 1996, (i) it has made no assignment,
sale, grant, conveyance or other transfer of any portion of its right,
title or interest in, to or under the Asset Purchase Agreement or the
Old Registration Rights Agreement, (ii) it is the sole legal and
beneficial owner and holder thereof, free and clear of all claims,
liens, security interests and encumbrances, and (iii) it has the sole
right to execute this Agreement in connection therewith, either without
obtaining or requesting the consent of any other person or entity or
having already obtained such consent.
(c) Except as expressly set forth in this Agreement, the New
Registration Rights Agreement or the Note, no party has made any
representation or warranty to any other party in connection with, or as
an inducement to enter into, this Agreement.
(d) The Additional Shares delivered to the Trust on the date
hereof have not been registered for sale under the Securities Act of
1933 (the "Securities Act"), and may be sold only as permitted
thereunder or pursuant to registration or an exemption therefrom, and
the certificate evidencing the Trust's ownership of the Additional
Shares will contain a legend to that effect.
11. Indemnification
(a) The Company and Industries agree and covenant to hold
harmless and indemnify the Trust and each of its affiliates and their
respective employees, directors, officers, trustees, principals, equity
holders, controlling persons, advisors and agents (each of the
foregoing Persons being an "Indemnified Person"), from and against any
losses, claims, damages, liabilities and expenses (including attorneys'
fees and expenses of investigation) incurred by such Indemnified Person
in connection with (i) any breach by the Company or the Guarantor of
any its representations, warranties, covenants or agreements contained
herein, in the New Registration Rights Agreement or in the Note, or in
any agreement, instrument or document delivered by the Company or the
Guarantor hereunder or thereunder or (ii) enforcing the rights of an
Indemnified Person under this Agreement, the New Registration Rights
Agreement or the Note.
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(b) The Trust agrees and covenants to hold harmless and
indemnify the Company, Industries and their affiliates and their
respective employees, directors, officers, principals, equity holders,
controlling persons, advisors and agents (each of the foregoing Persons
being an "Indemnified Person"), from and against any losses, claims,
damages, liabilities and expenses (including attorneys' fees and
expenses of investigation) incurred by such Indemnified Person in
connection with (i) any breach by the Trust of any its representations,
warranties, covenants or agreements contained herein, in the New
Registration Rights Agreement or in the Note, or in any agreement,
instrument or document delivered by the Trust hereunder or thereunder
or (ii) enforcing the rights of an Indemnified Person under this
Agreement, the New Registration Rights Agreement or the Note.
12. Miscellaneous.
(a) Specific Performance. Each of the Company, Industries and
the Trust acknowledges that the other parties hereto will be
irreparably damaged, and cannot be fully compensated by monetary
relief, in the event that such party commits a breach of its
obligations under this Agreement. Accordingly, in the event of a breach
of this Agreement by any party, any aggrieved party shall be entitled
to specific performance and other appropriate equitable relief, without
the requirement of posting a bond, and without forgoing any claim for
monetary damages. The provisions of this Section 11.a. shall not be
deemed incorporated into any other agreements between the parties
hereto.
(b) Entire Agreement; Modifications. This document constitutes
the entire agreement of the Company, Industries and the Trust with
respect to the subject matter hereof and supersedes all prior
agreements. This Agreement may not be amended or terminated, and no
provision hereof may be waived, except with the written consent of the
party to be bound thereby.
(c) Exclusive Jurisdiction. The Company, Industries and the
Trust agree that the courts located in the City and State of New York
shall have exclusive jurisdiction to hear any dispute concerning, and
to enforce, this Agreement and any document entered into in connection
herewith. Each of the parties hereby submits to the personal
jurisdiction of the courts in the City and State of New York in
connection with any such matter, and agrees that service of process
shall be deemed effective if delivered by certified mail, return
receipt requested, addressed in accordance with the foregoing notice
provisions.
(d) Governing Law. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
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(e) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company, Industries and the Trust
and their respective successors and assigns.
(f) Notices. All notices, demands and other communications
provided for hereunder shall be in writing, given by registered or
certified mail, return receipt requested, telecopy, courier service or
personal delivery, addressed to the Company or Industries as follows:
Empire of Carolina, Inc.
Empire Industries, Inc.
0000 Xxxxxx Xxxxxxxxx
Xxxxxx Xxxxx, XX 00000
Attention: Xx. Xxxxx Xxxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxxxxxxxxxx Xxxx & Xxxxxxxxx
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xx. Xxxxxxx Xxxxxx
Telecopy: (000) 000-0000
and to the Trust as follows:
Xxxxxxx Industries, Inc. Liquidating Trust
Xxxx Consulting, Inc., Trustee
000 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxx
Telecopy: (000) 000-0000
with a copy to:
Kramer, Levin, Naftalis & Xxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be
an original, but all of which shall together constitute one and the
same instrument.
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(h) Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
(i) Termination. This Agreement is terminable at will by the
Trust in the event that (i) the Transactions have not been fully
consummated on or prior to the date hereof, (ii) the Trust has not
received the Settlement Distribution on or before the date hereof, or
(iii) the New Registration Rights Agreement has not become effective on
or before the date hereof.
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement.
EMPIRE OF CAROLINA, INC.
By: /s/ Xxxxxxxx Xxxxxx
-------------------
Name: Xxxxxxxx Xxxxxx
Title: Vice President-General Counsel
EMPIRE OF INDUSTRIES, INC.
By: /s/ Xxxxxxxx Xxxxxx
-------------------
Name: Xxxxxxxx Xxxxxx
Title: Vice President-General Counsel
XXXXXXX INDUSTRIES, INC.
LIQUIDATING TRUST
By: /s/ Xxxxxxxxxxx X. Xxxxxx
-------------------------
Name: Xxxxxxxxxxx X. Xxxxxx
Title: Director
Xxxx Construction, Inc.-
Trustee
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