EXHIBIT 1
Item 2. Acquisition or Disposition of Assets
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On April 10, 1998, the Company executed a Share Purchase Agreement,
whereby the Company agreed to purchase from the Shareholders of Apple Sports,
Inc. and Apple Golf Shoes, Inc. (the "Apple Companies") all of their capital
stock representing all of the outstanding capital stock of the Apple Companies
(the "Acquisition"), in exchange for the issuance of 5 million shares of the
Company, reimbursement of certain transfer and other fees of approximately
$325,000 and, under certain circumstances, the issuance of additional shares of
Common Stock.
On May 28, 1998, the Company held its annual meeting and its stockholders
voted to approve the Acquisition. Approval of the Acquisition by the
stockholders of the Company was not required by the General Corporation Law of
the State of Delaware or by the Company's Certificate of Incorporation or
By-Laws, as amended. However, the rules of the American Stock Exchange, Inc.
(the "AMEX"), on which the Company's Common Stock is listed for trading, require
stockholder approval, where additional shares are to be issued as sole or
partial consideration for an acquisition of the stock of another company under
certain circumstances.
On May 28, 1998, the Company consummated the transactions contemplated by
the Share Purchase Agreement. On May 28, 1998, in connection with the
consumation of the Acquisition, the Apple Companies' existing $15 million credit
facility with Citibank, N.A. was replaced with a $12 million facility from
LaSalle National Bank on substantially similar terms.
Terms of the Acquisition
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Under the terms of the Share Purchase Agreement, Empire acquired all of
the issued and outstanding shares of capital stock of each of the Apple
Companies, for consideration equal to an aggregate of 5,000,000 shares of the
Company's Common Stock (the "Initial Payment Shares"), subject to increase as
described below. In the event that during the Adjustment Period (defined below)
the closing daily market price of the Company's Common Stock trading on the AMEX
or on any nationally recognized stock exchange (including The Nasdaq Stock
Market or the New York Stock Exchange) (an "Exchange") shall not be at a price
of $2.00 per share or higher for each of 45 consecutive stock trading days, then
Empire shall be obligated to pay additional consideration in the amount of
1,153,846 shares of Empire Common Stock (the "Additional Payment Shares" and,
together with the Initial Payment Shares, the "Payment Shares"), thereby
bringing the number of shares of Empire Common Stock paid for the Acquisition to
the aggregate of 6,153,846. For reference, the closing price per share of the
Common Stock on the AMEX on April 15, 1998 was $1.25 per share.
On or before August 26, 1998, Empire shall cause to be filed, and use its
best efforts to have declared effective, a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended, for an
offering to be made on a delayed or continuous basis permitting sales of the
Payment Shares in dealer transactions or in any other transfer for consideration
not involving an underwritten public offering, and Empire shall pay all expenses
of registration in connection with the Registration Statement.
The Adjustment Period is the period of time commencing on the first
trading date after the date on which the Registration Statement is declared
effective by the Securities and Exchange Commission and the Payment Shares in
question are deemed fully transferable on an Exchange (the "Effective Date") and
ending on the first calendar anniversary of the Effective Date; provided,
however, that if the Effective Date shall not have occurred within 90 days of
the closing date of the Acquisition (the "Closing Date"), the Adjustment Period
shall mean a period of 365 days commencing on the 91st day after the Closing
Date.
If the Effective Date shall not have occurred on or prior to 90 days after
the Closing Date, the Apple Company Shareholders shall have the right (the "Put
Right") to require Empire to repurchase up to an aggregate of 500,000 of the
Payment Shares at a price of $2.00 per share for a total of up to $1,000,000.
Any exercise of the Put Right will reduce the number of Additional Payment
Shares issuable as consideration in the Acquisition by the percentage determined
by multiplying (x) 100 by (y) the quotient of the number of Payment Shares as to
which the Put Right is exercised divided by 500,000. The complete Share Purchase
Agreement is attached hereto as Exhibit 2.1.
The consideration payable by Empire described above was determined in
arms'-length negotiations by the Board of Directors of Empire and the Apple
Company Shareholders. In determining the consideration, the Board of Directors
and Apple Company Shareholders considered, among other factors, the Apple
Companies' history of growth and profitability, the growth potential of the golf
industry and the prospects of Empire and the Apple Companies on a combined
basis. The funds used to pay for the transfer fees and other fees due at closing
were paid from the Company's working capital.
Dilution of Existing Stockholders
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The exchange of shares of Common Stock of the Company for shares of the
Apple Companies caused substantial dilution to the voting power and interests of
current Empire stockholders. The issuance of the Payment Shares pursuant to the
Share Purchase Agreement may also adversely affect the market price of the
Company's securities. Based on the 7,848,761 shares of Empire Common Stock
outstanding as of April 15, 1998, the issuance of the Initial Payment Shares and
the Additional Payment Shares will equal approximately 39% and 44% of the Common
Stock outstanding respectively and approximately 11% and 14% respectively, on a
fully diluted basis, assuming the exercise of issued and outstanding options,
the exercise of outstanding warrants and the conversion of issued and
outstanding preferred stock.
Consolidated Business of Apple Sports, Inc. and Apple Golf Shoes, Inc.
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The Apple Companies are privately held golf products companies engaged in
the development, marketing and sale of golf footware and golf related
accessories.
Apple Sports, Inc. and Apple Golf Shoes, Inc. are the exclusive United
States licensees of golf accessory products and golf shoes for Xxxxxx(R)
Sporting Goods Inc., one of the most recognized names in golf. The Apple
Companies' broad range of golf products include shoes, pull carts, gloves, head
covers, spikes, tees, umbrellas and many other accessory items. The Apple
Companies also sell golf accessories under the Xxxxxx(R) brand, which has been a
recognized name in golf accessories since the 1940s.
Apple Golf Shoes, Inc. offers a variety of golf related footware for men
and women. Its primary competitors are major footware manufacturing companies,
including Dexter, Etonic, Foot Joy and Nike. Apple Sports, Inc.'s competes with
other golf accessory companies, including Gold Eagle, Dennco, and Ajay Sports,
which sells products under license from Spalding.
The Apple Companies source their products both domestically and overseas.
The majority of its products are manufactured in the Far East (principally
China, Indonesia, Thailand and Taiwan). The Apple Companies sell their products
in the United States (90%) and internationally. Customers include sporting goods
chains (40%), mass merchandisers (40%), pro shops and other golf product
retailers (20%). The pro shop accounts are managed by commissioned
manufacturers' representatives, whereas mass merchandisers and sporting goods
chains are managed by the Apple Companies sales personnel in concert with
manufacturers' representatives.
The Company intends to continue to operate the businesses of the Apple
Companies and to use the assets of the Apples Companies in furtherance of such
operations.
Apple Sports, Inc. Capital Stock
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Apple Sports, Inc.'s authorized capital stock consists of 200 shares of
Common Stock, no par value. Immediately prior to the Acquisition, 100 shares of
Common Stock were outstanding. The following shares were acquired from their
respective owners of record: 70 shares from Xxxx Xxxx Companies Ltd.; 5 shares
from X. Xxx Xxxx; 15 shares from Xxxxxxx Xxxxx; 5 shares from Xxxxxx X. Xxxxxxx;
and 5 shares from Xxxx X. Xxxx.
Apple Golf Shoes, Inc. Capital Stock
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Apple Golf Shoes, Inc.'s authorized capital stock consists of 200 shares
of Common Stock, no par value. Immediately prior to the Acquisition, 100 shares
of Common Stock were outstanding. The following shares were acquired from their
respective owners of record: 25 shares from Xxxxxxx Xxxxx; 5 shares from Xxxxxx
X. Xxxxxxx; 23 1/3 shares from Xxxxxx X. Xxxxxxx; as Trustee for Xxxx Xxxx
Irrevocable Trust f/b/o Xxxxxxx X. Xxxxx; 23 1/3 from Xxxxxx X. Xxxxxxx, as
Trustee for Xxxx Xxxx Irrevocable Trust f/b/o Xxxxx Xxxxx; and 23 1/3 shares
from Xxxxxx X. Xxxxxxx, as Trustee for Xxxx Xxxx Xxxxxxxxxxx Trust f/b/o Baylee
Xxxx Xxxx.
Interest of Certain Persons in the Acquisition; Certain Affiliated Transactions
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Xxxxxxx Xxxxx, the President and Chief Executive Officer of Empire, is
also the President, Chief Operating Officer and a significant stockholder of the
Apple Companies. In connection with the Acquisition, Xx. Xxxxx received twenty
percent of the Payment Shares. Additionally, Xx. Xxxxx and Xxxx Xxxx, formerly
the majority stockholder of the Apple Companies, each owns 50,000 shares of
Empire Series A Preferred Stock and holds warrants to acquire 50,000 shares of
Common Stock. There are no past, present or proposed material contracts,
agreements, arrangements, understandings, negotiations or transactions between
Empire and the Apple Companies during the periods for which financial statements
are presented or incorporated by reference. In addition, Xxxxxxx Xxxxx was
elected to Empire's Board of Directors on the May 28, 1998.
