SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
June 17, 1997
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Date of Report (Date of earliest event reported)
Empire of Carolina, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-7909 13-2999480
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5150 Linton Boulevard, 5th Floor, Delray Beach, Florida 33484
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(Address of principal executive offices) (Zip Code)
(561) 498-4000
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(Registrant's telephone number)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
The transactions described in Item 5 below may be deemed to have
resulted in a change in control of the Company. See Item 5 below.
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:
o The Company's 9% convertible debentures issued to affiliates
of Weiss, Peck & Greer 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
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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 Buddy L waived 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
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
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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 Additonal 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 Charles S. Holmes to replace Steve Geller as Chairman
of the Board of Directors of the Company.
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.
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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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit
Number Description
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3.5 Certificate of Designation relating to Series A Preferred Stock
3.6 Certificate of Designation relating to Series C Preferred Stock
4.7 Warrant Amendment dated May 6, 1997 to Warrant Certificate
issued May 6, 1997 among the Company, HPA Associates, LLC and
EMP Associates, LLC.
4.8 Warrant Agreement dated as of June 17, 1997 between the Company
and the holders from time to time of the warrants.
4.9 Second Amendment dated as of June 12, 1997, to Rights
Agreement, dated as of September 11, 1996, between Empire of
Carolina, Inc. and American Stock Transfer & Trust Company as
Rights Agent.
4.10 Promissory Note from the Company to Smedley Industries,
Inc. Liquidating Trust in the amount of $2,500,000.
10.40 Securities Purchase Agreement dated as of May 5, 1997 among the
Company, HPA Associates, LLC and EMP Associates, LLC
(previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1997
and is incorporated by reference herein).
10.41 Amendment No. 1 dated as of June 5, 1997 to Securities Purchase
Agreement dated as of May 5, 1997 among the Company, HPA
Associates, LLC and EMP Associates, LLC.
10.42 Buddy L Settlement Agreement, dated as of June 17, 1997 between
the Company and Smedley Industries, Inc. Liquidating Trust.
10.43 Letter of the Company to Pellinore Securities Corp., Axiom
Capital Management, Inc., and Commonwealth Associates, Inc.,
regarding the registration rights provisions affecting the
Series A Preferred Stock.
10.44 Buddy L Registration Rights Agreement dated as of June 17, 1997
between the Company and Smedley Industries, Inc. Liquidating
Trust.
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10.45 WPG Registration Rights Agreement dated as of June 17, 1997
between the Company and WPG Corporate Development Associates
IV, L.P., WPG Corporate Development Associates IV (Overseas),
Ltd., Weiss, Peck & Greer, as trustee under Craig Whiting IRA,
Peter B. Pfister, Weiss, Peck & Greer, as Trustee under Nora
Kerppola IRA, Westpool Investment Trust Plc, Eugene M.
Matalene, Jr., Richard Hochman, and Glenbrook Partners, L.P.
(collectively, the "WPG-Affiliated Entities).
10.46 WPG Release Agreement dated as of June 17, 1997 between the
Company and the WPG-Affiliated Entities.
99.1 Press Release, dated June 19, 1997.
99.2 Press Release, dated June 24, 1997.
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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 hereunto duly authorized.
EMPIRE OF CAROLINA, INC.
By /s/ Lawrence Geller
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Name: Lawrence Geller
Title: Vice President and
General Counsel
Date: June 30, 1997
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EXHIBIT INDEX
Exhibit
Number Description
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3.5 Certificate of Designation relating to Series A Preferred
Stock
3.6 Certificate of Designation relating to Series C Preferred
Stock
4.7 Warrant Amendment dated May 6, 1997 to Warrant Certificate
issued May 6, 1997 among the Company, HPA Associates, LLC
and EMP Associates, LLC.
4.8 Warrant Agreement dated as of June 17, 1997 between the
Company and the holders from time to time of the warrants.
4.9 Second Amendment dated as of June 12, 1997, to Rights
Agreement, dated as of September 11, 1996, between Empire
of Carolina, Inc. and American Stock Transfer & Trust
Company as Rights Agent.
4.10 Promissory Note from the Company to Smedley
Industries, Inc. Liquidating Trust in the amount of
$2,500,000.
10.40 Securities Purchase Agreement dated as of May 5, 1997 among
the Company, HPA Associates, LLC and EMP Associates, LLC
(previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1997 and is incorporated by reference herein).
10.41 Amendment No. 1 dated as of June 5, 1997 to Securities
Purchase Agreement dated as of May 5, 1997 among the
Company, HPA Associates, LLC and EMP Associates, LLC.
10.42 Buddy L Settlement Agreement, dated as of June 17, 1997
between the Company and Smedley Industries, Inc.
Liquidating Trust.
10.43 Letter of the Company to Pellinore Securities Corp., Axiom
Capital Management, Inc., and Commonwealth Associates,
Inc., regarding the registration rights provisions
affecting the Series A Preferred Stock.
10.44 Buddy L Registration Rights Agreement dated as of June 17,
1997 between the Company and Smedley Industries, Inc.
Liquidating Trust.
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10.45 WPG Registration Rights Agreement dated as of June 17, 1997
between the Company and WPG Corporate Development
Associates IV, L.P., WPG Corporate Development Associates
IV (Overseas), Ltd., Weiss, Peck & Greer, as trustee under
Craig Whiting IRA, Peter B. Pfister, Weiss, Peck & Greer,
as Trustee under Nora Kerppola IRA, Westpool Investment
Trust Plc, Eugene M. Matalene, Jr., Richard Hochman, and
Glenbrook Partners, L.P. (collectively, the "WPG-Affiliated
Entities).
10.46 WPG Release Agreement dated as of June 17, 1997 between the
Company and the WPG-Affiliated Entities.
99.1 Press Release, dated June 19, 1997.
99.2 Press Release, dated June 24, 1997.
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