<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EMPIRE OF CAROLINA, INC.
................................................................................
(Name of Registrant as Specified in Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:.........
(2) Aggregate number of securities to which transaction applies:...........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (1)................................
(4) Proposed maximum aggregate value of transaction:.......................
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid: _________________________________________________
2) Form, Schedule or Registration Statement No.: ___________________________
3) Filing Party: ___________________________________________________________
4) Date Filed: _____________________________________________________________
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
EMPIRE OF CAROLINA, INC.
5150 LINTON BOULEVARD
DELRAY BEACH, FLORIDA 33484
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 11, 1996
------------------------
To the Stockholders of
EMPIRE OF CAROLINA, INC.:
You are cordially invited to attend the Annual Meeting of the Stockholders
(the "Annual Meeting") of Empire of Carolina, Inc. (the "Company"), which will
be held at the Holiday Inn, 651 Winstead Avenue, Rocky Mount, North Carolina
27804 on September 11, 1996, at 9:00 a.m., local time, for the following
purposes:
(1) To elect six members to the Board of Directors to hold office for a
one-year term and until their successors are duly elected and
qualified.
(2) To consider and act upon a proposal to amend Article Eleventh of the
Company's Restated Certificate of Incorporation to change the required
affirmative vote to take certain specified corporate actions enumerated
therein from more than 80% of the Directors then in office to more than
two-thirds (66 2/3%) of such Directors;
(3) To consider and act upon a proposal to cause the shares of Series A
Preferred Stock to automatically convert into shares of Common Stock on
a share-for-share basis.
(4) To consider and act upon a proposal to approve the adoption of the
Empire of Carolina, Inc. 1996 Outside Directors Stock Option Plan.
(5) To consider and act upon a proposal to approve the adoption of the
Empire of Carolina, Inc. 1996 Employee Stock Purchase Plan.
(6) To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996.
(7) To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on August 23, 1996,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournments or postponements thereof. A list of stockholders entitled to vote
at the Annual Meeting will be open to examination by any stockholder, for any
purpose genuine to the meeting, at the offices of Sonnenschein Nath & Rosenthal,
counsel to the Company, at 8000 Sears Tower, Chicago Illinois 60606 during
ordinary business hours for ten days prior to the Annual Meeting. Such list
shall also be available during the Annual Meeting.
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1995 is enclosed herewith.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE. YOUR PROXY WILL NOT BE USED IF YOU ARE PRESENT AND
PREFER TO VOTE IN PERSON OR IF YOU REVOKE THE PROXY.
By order of the Board of Directors,
Lawrence Geller, Secretary
August 27, 1996
Delray Beach, Florida
<PAGE> 3
EMPIRE OF CAROLINA, INC.
5150 LINTON BOULEVARD
DELRAY BEACH, FLORIDA 33484
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 11, 1996
SOLICITATION AND REVOCATION OF PROXIES
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Empire of Carolina, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders of
the Company and for any adjournments or postponements thereof (the "Annual
Meeting"), to be held at the Holiday Inn, 651 Winstead Avenue, Rocky Mount,
North Carolina 27804 on September 11, 1996, at 9:00 a.m., local time, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
A Board of Directors proxy (the "Proxy") for the Annual Meeting is enclosed, by
means of which you may indicate your votes as to each of the proposals described
in this Proxy Statement. All Proxies which are properly completed, signed and
returned to the Company prior to the Annual Meeting, and which have not been
revoked, will be voted in accordance with the stockholder's instructions
contained in such Proxy. A stockholder may revoke his Proxy at any time before
it is exercised by filing with the Secretary of the Company at its executive
offices in Delray Beach, Florida, either a written notice of revocation or a
duly executed Proxy bearing a later date, or by appearing in person at the
Annual Meeting and expressing a desire to vote his or her shares in person. This
Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders,
the Proxy, and the 1995 Annual Report to Stockholders are first being mailed to
stockholders on or about August 27, 1996.
The entire cost of preparing, assembling, printing and mailing this Proxy
Statement, the enclosed Proxy and other materials, and the cost of soliciting
Proxies with respect to the Annual Meeting, will be borne by the Company. The
Company will request banks and brokers to solicit their customers who
beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses of
such solicitations. The original solicitation of Proxies by mail may be
supplemented by telephone, facsimile, telegram and personal contacts by officers
and other regular employees of the Company, but no additional compensation will
be paid to such individuals.
VOTING RIGHTS AND COMMON STOCK OUTSTANDING
The Company has fixed August 23, 1996 as the record date (the "Record
Date") for the determination of stockholders entitled to notice of and to vote
at the Annual Meeting or any adjournments or postponements thereof. As of the
Record Date, the Company had outstanding 6,961,300 shares of Common Stock, the
only outstanding voting securities of the Company. Each holder of Common Stock
is entitled to one vote for each share held upon all matters to be considered at
the Annual Meeting.
The holders of shares of Common Stock have non-cumulative voting rights,
which means that the holders of a majority of the shares represented and
entitled to vote at a meeting where a quorum is present have sufficient voting
power to elect all of the members of the Company's Board of Directors.
The affirmative vote by holders of a majority of the shares of common
stock, $ .10 par value ("Common Stock"), present in person or by proxy and
entitled to vote at the Annual Meeting is required for the election of Directors
(Proposal 1), the conversion of the outstanding shares of Series A Preferred
Stock into Common Stock on a share-for-share basis (Proposal 3), the adoption of
the Empire of Carolina, Inc. 1996 Outside Directors Stock Option Plan (the
"Outside Directors Stock Option Plan") (Proposal 4), the adoption of the Empire
of Carolina, Inc. 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") (Proposal 5), and the ratification of the appointment of the
Company's independent auditors (Proposal 6).
<PAGE> 4
The affirmative vote by holders of a majority of the outstanding Common Stock is
required for the adoption of the amendment to the Company's Restated Certificate
of Incorporation (Proposal 2). Members of the Geller Group and the WPG Group
(each as defined under "Shareholders' Agreement"), who as of the Record Date
beneficially own approximately 34% of the Company's outstanding Common Stock,
have advised the Company that they intend to vote their shares FOR the election
of the nominees listed in Proposal 1 to the Board of Directors, and FOR all of
the other proposals set forth in this Proxy Statement. In the absence of
contrary instructions, shares represented by such Proxy will be voted FOR the
election of the nominees listed in Proposal 1 to the Board of Directors, and FOR
all of the other proposals set forth in this Proxy Statement.
A majority of the outstanding shares of Common Stock will constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. With regard to the election of directors, votes may be cast in
favor or withheld; votes that are withheld will be excluded entirely from the
vote and will have no effect on the outcome. Abstentions may be specified on all
proposals (other than the election of directors) and will be counted as present
for purposes of the item on which the abstention is noted. Since the proposed
amendment to the Company's Restated Certificate of Incorporation (Proposal 2)
requires the a majority of the outstanding shares of Common Stock, abstentions
will have the effect of a negative vote. Abstentions on the other proposals will
have the same effect because they require the affirmative vote of a majority of
the shares present, in person or by proxy, and entitled to vote at the Annual
Meeting. Under applicable Delaware law, a broker non-vote will have the same
effect as a vote against the proposed amendment to the Company's Restated
Certificate of Incorporation (Proposal 2), and will have no effect on the
outcome of the other proposals set forth in this Proxy Statement.
A list of stockholders entitled to vote at the Annual Meeting will be open
to examination by any stockholder, for any purpose genuine to the meeting, at
the offices of Sonnenschein Nath & Rosenthal, counsel to the Company, at 8000
Sears Tower, Chicago Illinois 60606 during ordinary business hours for ten days
prior to the Annual Meeting. Such list also shall be available at the Annual
Meeting.
SHAREHOLDERS' AGREEMENT
Certain stockholders of the Company, including Steven Geller, the Chairman
and Chief Executive Officer of the Company, Marvin Smollar, the President and
Chief Operating Officer of the Company, and certain affiliates of Weiss, Peck &
Greer, L.L.C. ("WPG") are parties to a shareholders' agreement (the
"Shareholders' Agreement") pursuant to which the parties thereto and their
permitted transferees have agreed, among other things, to vote their shares of
Common Stock to effect the composition of the Board of Directors and certain
committees of the Board of Directors specified in the Shareholders' Agreement
and to carry out certain corporate governance provisions specified in the
Shareholders' Agreement.
In connection with the purchase of Common Stock and convertible debentures
by WPG Corporate Development Associates IV, L.P. ("WPG IV"), WPG Corporate
Development Associates IV (Overseas), L.P. ("WPG Overseas") and certain
affiliates of WPG, including Peter B. Pfister, a director of the Company
(collectively the "WPG Group"), on December 22, 1994, the WPG Group, Messrs.
Geller and Smollar, Neil Saul, the former President of Empire Industries, Inc.
("EII"), and Champ Enterprises Limited Partnership, an Illinois limited
partnership ("Champ") of which Mr. Smollar is a general partner, entered into
the Shareholders' Agreement. Subsequent to entering into the Shareholders'
Agreement, Champ transferred its shares of Common Stock to The Autumn Glory
Trust, a Cook Islands Registered International Trust (the "Trust"). See note 6
to "Stock Ownership of Management and Certain Beneficial Owners." (Messrs.
Geller, Smollar and Saul, and their permitted transferees (including the Trust)
are hereinafter referred to collectively as the "Geller Group"). The Trust
agreed to be bound by all the terms and conditions of the Shareholders'
Agreement.
The Shareholders' Agreement also contains provisions regarding the
composition of the Board of Directors of the Company. The parties agreed that
after the 1995 Annual Meeting, they would vote all their shares of Common Stock
for a Board of Directors comprised of three persons designated by the Geller
Group, two persons designated by the WPG Group and two persons who are not an
affiliate of the parties to the
2
<PAGE> 5
Shareholders' Agreement or the Company (the "Independent Directors") jointly
designated by the WPG Group and the Geller Group, with the remaining director to
be designated by the Board at such time as it so determines. In addition, the
parties agreed to use their best efforts to ensure that certain directors
designated by the WPG Group are named as members of the Compensation Committee
and the Audit Committee of the Board of Directors.
The Board of Directors is currently comprised of Messrs. Geller, Smollar,
Pfister, Hutchinson, Greenberg and Matalene. Mr. Pfister and Mr. Hutchinson are
the designees of the WPG Group and Messrs. Matalene and Greenberg are the
Independent Directors. See "Board of Directors." Of the nominees for election as
directors at the Annual Meeting, Messrs. Geller and Smollar are designees of the
Geller Group, Messrs. Pfister and Hutchinson are designees of the WPG Group and
Messrs. Matalene and Greenberg as designees to serve as Independent Directors.
The Geller Group has not designated a third designee for election to the Board
at the Annual Meeting, nor has it decided to designate any person to fill such
vacancy following the Annual Meeting. See Proposal 1.
If, at any time, the percentage of shares of Common Stock held by the WPG
Group and certain of their transferees declines below 10% of the shares of
Common Stock on a fully diluted basis, the WPG Group would have the right to
designate only one director and the other members of the Board of Directors
previously designated by the WPG Group would be replaced by a person selected by
all of the other members of the Board of Directors. If, at any time, the
percentage of shares of Common Stock held by the WPG Group and certain of their
transferees declines below 5% of the shares of Common Stock on a fully diluted
basis, the WPG Group would have no right to designate members of the Board of
Directors, Audit Committee or Compensation Committee.
The Shareholders' Agreement includes certain supermajority provisions which
may effectively give to each of the WPG Group and the Geller Group veto power
over certain corporate transactions. These include a merger or similar business
combination, sales of assets of the Company or its subsidiaries outside of the
ordinary course of business, amendment to the Restated Certificate of
Incorporation or By-laws, any payment, other than employment compensation, to
any director, officer or stockholder or affiliate of the Company or to their
family members, any declaration or payment of dividends, any public or private
offering of debt or equity (with some limited exceptions), incurrence of certain
indebtedness, adoption of a plan of liquidation, and acquisition of stock or
assets, other than in the ordinary course of business, for more than $10 million
in any calendar year. The Shareholders' Agreement also includes provisions which
give the WPG Group the right to designate all of the directors if the Company
experiences specified financial difficulties or Messrs. Geller and Saul
collectively fail to purchase (including pursuant to the exercise of options or
warrants) at least 500,000 shares of Common Stock by December 22, 1997. However,
the WPG Group has agreed that it will designate Mr. Smollar as one of the
directors if he and his affiliates own at least 5% of the shares of Common Stock
of the Company. These provisions terminate on December 22, 2000, or earlier if
(i) the percentage of shares of Common Stock held by the WPG Group and certain
of their transferees on a fully-diluted basis declines below 19.59% and the
market capitalization of the Company, on a fully diluted basis (as defined in
the Shareholders' Agreement) exceeds $125 million, or (ii) the percentage of
shares of Common Stock held by the WPG Group and certain of their transferees on
a fully-diluted basis declines below 14.69%.
As required by the Shareholders' Agreement, the parties to the
Shareholders' Agreement and their permitted transferees are subject to a voting
agreement under which they and their permitted transferees agree to vote their
shares of Common Stock in order to carry out the corporate governance provisions
contained in the Shareholders' Agreement. In addition, Mr. Pfister and certain
other parties affiliated with WPG (collectively, the "Individual Purchasers")
granted a proxy to WPG IV to vote all shares owned by them on all matters
requiring a vote of stockholders of the Company, and granted WPG IV full power
and authority to take such actions and refrain from taking such actions under
the Shareholders' Agreement as WPG IV deems necessary or appropriate.
3
<PAGE> 6
Members of the Geller Group and the WPG Group, who as of the Record Date
beneficially own approximately 34% of the Company's outstanding Common Stock,
have advised the Company that they intend to vote their shares FOR the election
of the nominees listed in Proposal 1 to the Board of Directors, and FOR all of
the other proposals set forth in this Proxy Statement.
Under the Shareholders' Agreement, the parties have been granted rights of
first refusal and co-sale rights upon certain transfers of shares of Common
Stock.
4
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of the Record Date, certain information
concerning those persons known to the Company, based on information obtained
from such persons, with respect to the beneficial ownership (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, hereinafter
referred to as the "Exchange Act") of Common Stock by (i) each person known by
the Company to be the owner of more than 5% of the outstanding Common Stock,
(ii) each Director and nominee for election as a director, (iii) each executive
officer named in the Summary Compensation Table and (iv) all directors, nominees
and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(2)
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------------------------------------------------------- --------- -------
<S> <C> <C>
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Steven Geller(4)(5)........................................................ 1,550,836 20.5
Marvin Smollar(5)(6)....................................................... 969,283 13.9
Neil B. Saul............................................................... 0 --
Stephen N. Hutchinson(7)................................................... 2,574,057 28.4
One New York Plaza
New York, NY 10004
Eugene M. Matalene, Jr.(8)................................................. 7,667 *
Leonard E. Greenberg(5)(9)................................................. 477,000 6.4
11500 El Clair Ranch Road
Boynton Beach, FL 33437
Peter B. Pfister(5)(10).................................................... 2,041 *
One New York Plaza
New York, NY 10004
J. Artie Rogers............................................................ 0 --
OTHER 5% STOCKHOLDERS
Halco Industries, Inc.(11)................................................. 734,039 10.5
441 South Federal Highway
Deerfield Beach, FL 33441
The Autumn Glory Trust(5)(6)............................................... 819,283 11.8
P.O. Box 11
Avarua, Rarotonga
Cook Islands
WPG Corporate Development Associates IV, L.P.(5)(12)....................... 2,099,294 24.2
One New York Plaza
New York, NY 10004
WPG Corporate Development Associates IV (Overseas), L.P.(5)(13)............ 459,834 6.3
One New York Plaza
New York, NY 10004
Smedley Industries, Inc.(14)............................................... 416,467 6.0
(formerly Buddy L Inc.)
30 Rockefeller Plaza, Suite 4314
New York, NY 10112
All directors, nominees and executive officers as a group (7
persons)(15)............................................................. 5,578,843 55.0
</TABLE>
- -------------------------
* Less than 1%.
5
<PAGE> 8
(1) Unless otherwise indicated, the business address of the 5% beneficial
owners named in the above table is care of Empire of Carolina, Inc., 5150
Linton Boulevard, Delray Beach, Florida 33484.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares listed in the table, subject to community
property laws, where applicable. For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares
which such person has the right to acquire within 60 days. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above, any security which such person or group of persons
has the right to acquire within 60 days is deemed to be outstanding for the
purpose of computing the percentage ownership for such person or persons,
but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Based upon 6,961,300 shares of Common Stock outstanding plus shares
issuable upon exercise of options, warrants and convertible securities
which are included in the number of shares beneficially owned by such
person.
(4) Includes 1,049,872 shares of Common Stock with respect to which Steven
Geller has held voting power pursuant to a voting agreement with Halco
Industries, Inc. ("Halco"), which shares include 17,501 shares of Common
Stock with respect to which Steven Geller has an option to purchase from
Halco over a period of two years at prices ranging from $6.50 per share to
$7.78 per share (the "Halco Option"). Includes 291,674 shares of Common
Stock which Steven Geller has a right to acquire within 60 days pursuant to
options granted under the Company's Amended 1994 Stock Option Plan and
warrants to purchase an additional 325,000 shares of Common Stock at an
exercise price of $7.50 per share. Mr. Geller directly owns 200,128 shares
of Common Stock.
(5) Under the Shareholders' Agreement, each of the WPG Group and the Geller
Group may have voting rights, rights of first refusal and co-sale rights in
the other group's shares. Those rights generally become effective upon the
occurrence of certain events, such as a major corporate transaction or
financial difficulty. The shares owned by one group have not been shown in
the table as also beneficially owned by the other group as a result of the
provisions of the Shareholders' Agreement.
(6) Mr. Smollar disclaims beneficial ownership of all of these shares. The
beneficial and direct owner of such shares are The Autumn Glory Trust, a
Cook Islands trust, and the Iridium Trust, a Bahamian trust (collectively,
the "Trusts"). The discretionary beneficiaries of the Trusts are Champ
Enterprises Limited Partnership, an Illinois limited partnership ("Champ"),
of which Mr. Smollar is a general partner, as well as the limited partners
of Champ individually, including Mr. Smollar and members of his family.
Champ irrevocably transferred shares to the respective Trust subject to the
terms of the Shareholders' Agreement and the Marchon Stockholders'
Agreement, and The Autumn Glory Trust irrevocably shares to the Iridium
Trust, subject to the terms of the Shareholders' Agreement and the Marchon
Stockholders' Agreement. Pursuant to such agreements, Mr. Smollar is to be
designated a director for such time as the Trusts and certain permitted
transferees own 5% of the outstanding Common Stock. The Trusts, through
their respective independent trustees (the "Trustees"), possess all voting
rights with respect to the shares of the Common Stock, subject to the
Shareholders' Agreement and the Marchon Stockholders' Agreement. However,
the Trustees require the confirmation of the respective Protectors of the
Trusts (the "Protector"), in connection with certain activities, including
the exercise of dispositive powers with respect to such shares. Mr. Kar Ye
Yeung, an officer of a subsidiary of the Company, is the Protector of each
of the Trusts, and cannot be removed by any third party. The Protector has
the sole right to appoint his successor, as well as the right to remove the
Trustee at any time. Mr. Smollar does not directly or indirectly have the
legal right to vote or dispose of the shares.
(7) Solely in his capacity as one of two managing general partners of WPG
Private Equity Partners IV, L.P., the general partner of WPG Corporate
Development Associates IV, L.P. and in his capacity as one of the two
managing general partners of WPG Private Equity Partners IV (Overseas),
L.P., and in his capacity as a director of WPG CDA IV (Overseas), Ltd., the
general partner of WPG Corporate Development Associates IV (Overseas),
Ltd., and includes all shares beneficially owned by these entities. Mr.
Hutchinson does not directly own any shares of Common Stock.
6
<PAGE> 9
(8) Represents 6,667 shares of Common Stock which Mr. Matalene has the right to
acquire upon the conversion of Convertible Debentures and 1,000 shares held
for the benefit of Mr. Matalene's child. Excludes warrants held by
PaineWebber Incorporated to purchase 63,000 shares of Common Stock at $7.50
per share, expiring December 27, 1997, which were received in connection
with its performance of investment banking services for the Company for the
one year period ending December 27, 1995, as to which Mr. Matalene
disclaims beneficial ownership.
(9) Includes 475,000 shares of Common Stock which Mr. Greenberg has the right
to acquire upon exercise of warrants at an exercise price of $7.50 per
share.
(10) Includes 1,735 shares of Common Stock which may be acquired upon conversion
of Convertible Debentures and 306 shares directly owned by him which are
subject to the Shareholders' Agreement pursuant to which WPG Corporate
Development Associates, IV, L.P. has the right to vote such shares and
certain other rights. Does not include shares owned by WPG Private Equity
Partners, L.P. and WPG Private Equity Partners (Overseas), L.P. Mr. Pfister
is a general partner of each of these partnerships.
(11) All of these shares are directly owned by Halco, subject to the Halco
Option. Voting power with respect to these shares is held by Steven Geller
pursuant to the Halco Voting Agreement. Maurice A. Halperin is the indirect
owner of the shares owned by Halco and shares investment power with respect
to the shares of Common Stock owned by Halco. Maurice A. Halperin does not
directly own any shares of Common Stock. Barry S. Halperin, as the owner of
substantially all of the shares of common stock of Halco, is the indirect
owner of the shares of Common Stock owned by Halco and shares investment
power with respect to the shares of Common Stock owned by Halco. Barry S.
Halperin does not directly own any shares of Common Stock.
(12) Voting and dispositive powers are exercised through its sole general
partner, WPG Private Equity Partners, L.P. Voting and dispositive powers of
WPG Private Equity Partners, L.P., which does not directly own any shares
of Common Stock, are exercised through its two managing general partners,
Steven N. Hutchinson and Wesley W. Lang, Jr. Includes (a) 1,531,252 shares
of Common Stock which WPG Corporate Development Associates IV, L.P. has the
right to acquire upon conversion of the Convertible Debentures; (b) 25,573
shares owned in the aggregate by Mr. Pfister and other affiliates of WPG
which are subject to the Shareholders' Agreement pursuant to which WPG
Corporate Development Associates IV, L.P. has the right to vote such
shares, and certain other rights, (c) 86,175 shares of Common Stock which
such persons have the right to acquire upon conversion of Convertible
Debentures and (d) warrants held by WPG Corporate Development Associates
IV, L.P. to purchase an additional 80,571 shares of Common Stock at an
exercise price of $7.50 per share which were received as consideration for
agreeing to provide certain managerial services to the Company for the
period ending December 31, 1995. However, does not include shares of Common
Stock currently owned by Halco Industries, Inc. which WPG Corporate
Development Associates IV, L.P. may have the right to purchase pursuant to
the terms of a certain stock purchase agreement with Mr. Geller. WPG
Corporate Development Associates IV, L.P. disclaims beneficial ownership of
all such shares. WPG Corporate Development Associates IV, L.P. directly
owns 460,723 shares of Common Stock. Does not include shares of Common
Stock issuable upon conversion of the Class A Preferred Stock, of which
341,372 are held by WPG Corporate Development Associates IV, L.P., 82,317
are held by WPG Corporate Development Associates IV (Overseas), L.P., and
18,575 are held in the aggregate by Westpool Investment Trust plc
("Westpool") and Glenbrook Partners, L.P. ("Glenbrook").
(13) Voting and dispositive powers may be deemed to be shared with its two
general partners, WPG Private Equity Partners (Overseas), L.P. and WPG CDA
IV (Overseas), Ltd. Steven N. Hutchinson and Wesley W. Lang, Jr. serve as
managing general partners of WPG Private Equity Partners (Overseas), L.P.
and as directors of WPG CDA IV (Overseas), Ltd. Includes 369,238 shares of
Common Stock which it has the right to acquire upon conversion of
Convertible Debentures. Does not include shares of Common Stock issuable
upon conversion of the Class A Preferred Stock, of which 341,372 are held
by WPG Corporate Development Associates IV, L.P., 82,317 are held by WPG
Corporate Development
7
<PAGE> 10
Associates IV (Overseas), L.P., and 18,575 are held in the aggregate by Westpool
and Glenbrook. In addition to shares owned of record by WPG Corporate
Development Associates IV (Overseas), L.P., WPG Private Equity Partners
(Overseas), L.P. beneficially owns warrants to purchase 19,429 shares of
Common Stock which are not included in the shares listed as beneficially
owned by WPG Corporate Development Associates IV (Overseas), L.P., but
which are included in the shares listed as beneficially owned by Steven N.
Hutchinson.
(14) Does not include a maximum of 454,000 additional shares of Common Stock
which may be issued for price protection related to the Buddy L
acquisition.
(15) Where more than one person or entity is the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of the same shares listed in the table,
such shares are counted only once in determining the totals listed in the
table. Includes the shares of Common Stock attributable to Mr. Smollar as
to which he disclaims beneficial ownership. See note 6 above. Such shares
are directly owned and voted by the Trusts, even though they may be voted
on certain occasions with the Geller Group and the WPG Group pursuant to
the Shareholders' Agreement.
BOARD OF DIRECTORS
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established three committees: an Executive
Committee, a Compensation Committee and an Audit Committee. Each such committee
has two or more members, who serve at the pleasure of the Board of Directors.
See "Shareholders' Agreement" above.
The Company's Board of Directors met five times during 1995. The
Compensation Committee met two times and the Audit Committee and Executive
Committee each met one time during 1995. All members of the Board of Directors
attended at least 75% of the meetings of the Board and each of the committees on
which he served during the period in which he was a director in 1995.
The Executive Committee is authorized to exercise all of the authority of
the Board of Directors that may be delegated to a committee of the Board under
Delaware law, other than the authority to authorize dividends and other
distributions, to fill vacancies on the Board or its committees, to amend, adopt
or repeal certificate of incorporation or by-law provisions, to approve mergers
or matters requiring stockholder approval, or (except within certain prescribed
limits) to authorize or approve the issuance or reacquisition of shares and
related matters. Currently, all members of the Board of Directors serve on the
Executive Committee.
The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors with respect to compensation of
executive officers, other compensation matters and awards under the Company's
equity benefit plans. Currently, Messrs. Matalene and Hutchinson serve on the
Compensation Committee.
The Audit Committee is responsible for reviewing the Company's financial
statements, audit reports, internal financial controls and the services
performed by the Company's independent public accountants, and for making
recommendations with respect to those matters to the Board of Directors.
Currently, Messrs. Greenberg, Matalene and Pfister serve on the Audit Committee.
DIRECTORS' COMPENSATION
The Company has agreed to pay each person who is not an affiliate of the
Company or any party to the Shareholders' Agreement a retainer of $4,000 per
quarter for serving on the Board of Directors. Messrs. Matalene and Greenberg
are currently the only two Independent Directors. None of the other directors of
the Company is paid directors' fees for serving on the Board of Directors or its
committees. All directors are reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors and meetings of
committees of the Board of Directors. In addition, stockholders at the Annual
Meeting are to consider and vote upon a proposal to adopt the Outside Directors
Stock Option Plan described in Proposal 4 below.
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<PAGE> 11
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors has nominated Steven Geller, Marvin
Smollar, Steven N. Hutchinson, Peter B. Pfister, Leonard Greenberg and Eugene M.
Matalene, Jr. for election as Directors at the Annual Meeting to hold office for
a one-year term and until their successors are duly elected and qualified. Each
of the nominees currently serves as a Director.
The voting persons named in the enclosed Proxy intend to nominate and vote
in favor of the election of each of the persons named below unless authorization
is withheld. If any of the nominees becomes unavailable for election, votes will
be cast for the election of such other person or persons as the proxy holders,
in their judgment, may designate. Management has no reason to believe that any
of the nominees will not be a candidate or will be unable to serve.
Set forth below is certain information as of the Record Date concerning
each nominee, including his age, present principal occupation and business
experience during the past five years and the period he has served as a
director.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
-------------------------------------------------------- --- --------------
<S> <C> <C>
Steven E. Geller........................................ 54 October 1994
Marvin Smollar.......................................... 50 October 1994
Steven N. Hutchinson.................................... 45 March 1995
Peter B. Pfister........................................ 36 March 1995
Leonard E. Greenberg.................................... 68 October 1995
Eugene M. Matalene, Jr. ................................ 48 March 1995
</TABLE>
Steven E. Geller has 34 years experience in the toy industry. Mr. Geller
has served as Chairman of the Board and Chief Executive Officer of the Company
since September 1994, and as Chairman of the Board and Chief Executive Officer
of EII since July 1994. Prior to joining the Company, Mr. Geller served as
President of Arco Toys, Inc. (toy company), a wholly owned subsidiary of Mattel
from December 1986 through December 1991 and as a consultant for Mattel from
January 1991 through December 1993. From January 1994 to July 1994, Mr. Geller
was self-employed, engaged in structuring, negotiating and financing the
acquisition of the Company. See "Certain Transactions."
Marvin Smollar has 18 years experience in the toy industry. Mr. Smollar has
been President and Chief Operating Officer of the Company since October 1994. He
founded Marchon, Inc. in 1983 and served as President of Marchon until its
acquisition by the Company in October 1994. From 1978 to 1983, Mr. Smollar was a
co-founder and President of Kidco, Inc., a toy manufacturer and marketing
company. Mr. Smollar is an attorney and prior to entering the toy industry in
1978, he practiced patent, trademark and copyright law. See "Certain
Transactions."
Leonard E. Greenberg has served as a director of the Company since 1995.
Since 1986, Mr. Greenberg has served as the Chairman of the Board and Chief
Executive Officer of the Resort at Indian Springs, a real estate development
company and home builder.
Stephen N. Hutchinson has served as a director of the Company since 1995.
Mr. Hutchinson has been a Principal of Weiss Peck & Greer, L.L.C. (investment
management) since July 1993. From September 1978 to June 1993, he served as a
Vice President and Director of The Hillman Company (investment management). Mr.
Hutchinson is a member of the board of directors of Core Source, Inc. and Dollar
Financial Corporation. See "Certain Transactions."
Eugene M. Matalene, Jr. has served as a director of the Company since 1995.
Mr. Matalene has been an investment banker with Furman Selz LLC since June 1996.
Mr. Matalene served as a Managing Director of PaineWebber Incorporated from
January 1989 to June 1996, as director of the Private Placement Group in the
Investment Banking division of PaineWebber Incorporated from May 1994 to June
1996, as President and director of PaineWebber Development Corporation from June
1993 to June 1996, and as a director of
9
<PAGE> 12
PaineWebber Properties Incorporated from June 1993 to June 1996. Mr. Matalene
has served as a member of the board of directors of American Bankers Insurance
Group since May 1990. See "Certain Transactions."
Peter B. Pfister has served as a director of the Company since 1995. Mr.
Pfister has been a Principal of Weiss Peck & Greer, L.L.C. or its predecessor,
since January 1987. Mr. Pfister is a member of the board of directors of Core
Source, Inc.; MAC Acquisition, L.P. and Sunbelt Beverage Corporation. See
"Certain Transactions."
PROPOSAL 2
PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has adopted, subject to the approval of stockholders
at this Annual Meeting, an amendment to Article Eleventh of the Company's
Restated Certificate of Incorporation which would change the required
affirmative vote to take certain specified corporate actions enumerated therein
from more than 80% of the Directors then in office to more than two-thirds of
the Directors then in office (including for this purpose directors who are not
present or abstain from voting).
In connection with the investment by the WPG Group in the Company,
stockholders at the 1995 Annual Meeting approved an amendment to the Company's
Restated Certificate of Incorporation to add Article Eleventh which, among other
things, requires the approval of more than 80% of the Directors then in office
for the Company to take corporate action with respect to (a) any merger,
consolidation or other business combination of the Company or any of its
subsidiaries; (b) sales of assets (other than sales solely of inventory in the
ordinary course of business) of the Company or its subsidiaries (including
assets consisting of shares of stock of a subsidiary of the Company) where the
gross proceeds of sale (exclusive of assumption of liabilities) are, in the
aggregate, in excess of $7,000,000 in any calendar year; (c) any amendment to
the Restated Certificate of Incorporation or By-laws of the Company or its
subsidiaries; (d) any payment (other than employee compensation and other
ordinary incidents of employment) to any director, officer, stockholder or
affiliate of the Company or any of its subsidiaries or any present or former
known spouse, ancestor or descendant of any of such persons or a trust or other
similar entity for the benefit of any of the foregoing persons; (e) any
declaration or payment of dividends or similar distributions on securities of
the Company; (f) any public or private offering of convertible debt or equity
securities of the Company or its subsidiaries, other than the offering of shares
of Common Stock pursuant to an employee stock option plan for the benefit of the
Company and its subsidiaries and certain other issuances of securities; (g)
incurrence of indebtedness (other than indebtedness under the Company's loan
with Wachovia (or a replacement thereof) and the Debenture Purchase Agreement)
by the Company and its subsidiaries or guaranties of indebtedness aggregating
$10,000,000 or more; (h) any adoption of a plan of liquidation of the Company;
or (i) any acquisition of assets and/or stock or related series of acquisitions
of assets and/or stock (other than purchases of inventory and capital
expenditures in the ordinary course of business) which would cause the amount
expended (or committed to be expended) by the Company and its subsidiaries for
the acquisition of such assets and/or stock during a calendar year to exceed
$10,000,000. the Directors.
The 1995 amendment was intended to restrict the Geller Group and the WPG
Group from effecting any of the enumerated corporate actions without the consent
of the other group, and therefore each group will have the ability to block any
of those corporate actions. In view of the increased public ownership of the
Company's Common Stock following the June 1996 public offering of Common Stock,
the Board of Directors believes it is appropriate and in the best interests of
stockholders to reduce the super-majority vote required to take such specified
corporate actions from more than 80% of the Directors then in office to more
than two-thirds of such Directors. Although not intended as an anti-takeover
device, the adoption of this super-majority Board voting amendment could have
the effect of discouraging bidders from seeking to acquire the Company.
The text of the proposed amendment to the first paragraph of Article
Eleventh of the Restated Certificate of Incorporation is included in the
Restated Certificate of Incorporation set forth in Exhibit A to this Proxy
Statement and should be read in its entirety by stockholders. The proposed
revisions are set forth in BOLDFACE type.
10
<PAGE> 13
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for approval of the proposed amendment to the
Company's Restated Certificate of Incorporation. See "Shareholders' Agreement."
The enclosed Proxy will be voted for the proposal unless a contrary
specification is made.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL 3
PROPOSED CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK
In connection with the Company's acquisition of Buddy L, affiliates of WPG
purchased 442,264 shares of Series A Cumulative Convertible Preferred Stock,
$.01 par value (the "Series A Preferred Stock") at $7.25 per share. All of such
shares of Series A Preferred Stock were outstanding as of the Record Date. Two
principals of WPG, Messrs. Hutchinson and Pfister, are members of the Company's
Board of Directors. See "Board of Directors."
The certificate of designation relating to the Series A Preferred Stock
provides that the holders of the Company's Series A Preferred Stock generally do
not have the right to convert such shares into shares of Common Stock.
Notwithstanding such provision, such certificate of designation provides that
the shares of Series A Preferred Stock shall automatically convert into shares
of Common Stock on a share-for-share basis, as adjusted for any stock split,
reverse stock split, stock dividend, merger, reorganization, reclassification or
other recapitalization of the Company, upon the affirmative vote of a majority
of the shares of Common Stock represented at the 1996 Annual Meeting.
If the proposed conversion is approved by Stockholders at the Annual
Meeting, the conversion would result in the issuance of 442,264 shares of Common
Stock to the holders of Series A Preferred Stock and there would be no shares of
Series A Preferred Stock outstanding after such conversion. In addition, on or
after such conversion of the outstanding shares of Series A Preferred Stock in
Common Stock, all rights to any accrued and unpaid dividends shall lapse.
The Board of Directors believes that conversion of the Series A Preferred
Stock is in the best interests of stockholders because it would eliminate all
outstanding shares of preferred stock of the Company and the obligation of the
Company to pay dividends with respect to the Series A Preferred Stock. In the
event that the Series A Preferred Stock is not automatically converted into
Common Stock on the day after the Annual Meeting, dividends shall be payable
quarterly at a preferential return equal to 15% per annum of the Stated
Liquidation Value (an amount equal to $7.25 per share for each share of Series A
Preferred Stock then held, as adjusted for any stock split, stock dividend,
merger, reorganization, reclassification or other recapitalization of the
Company, less any distributions previously made to such holders upon the
occurrence of certain events) out of funds legally available therefor, such
dividend shall commence on the first day of the third month after the date of
the Annual Meeting. Such right to return shall be cumulative until such dividend
is paid by the Company. To the extent that dividends are declared and unpaid,
additional dividends or interest shall accumulate on such unpaid dividends.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Annual Meeting is required to approve the conversion of
all outstanding shares of Series A Preferred Stock into Common Stock. See
"Shareholders' Agreement." The enclosed Proxy will be voted for the proposal
unless a contrary specification is made.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE CONVERSION OF ALL OUTSTANDING SHARES OF SERIES A PREFERRED STOCK INTO
COMMON STOCK.
11
<PAGE> 14
PROPOSAL 4
PROPOSED ADOPTION OF OUTSIDE DIRECTORS STOCK OPTION PLAN
The Board of Directors of the Company has adopted, subject to the approval
of stockholders, the Empire of Carolina, Inc. 1996 Outside Directors Stock
Option Plan, under which eligible directors of the Company will be granted on a
formula basis options to purchase Common Stock. The purpose of the Outside
Directors Stock Option Plan is to encourage qualified persons to become
directors of the Company, provide directors of the Company with a more direct
stake in its success, and encourage them to remain directors of the Company.
Summary of Plan Provisions
The following is a summary of the Outside Directors Stock Option Plan. This
summary is qualified in its entirety by reference to the full text of the
Outside Directors Stock Option Plan, which is appended to this Proxy Statement
as Exhibit B.
Eligible directors are directors who at the time of the grant of an option
are not (i) employees of the Company or any of its subsidiaries or (ii)
designees of either the Geller Group or the WPG Group pursuant to the
Shareholders' Agreement ("Eligible Directors"). See "Shareholders' Agreement."
As of the date of this Proxy Statement, Messrs. Greenberg and Matalene are
Eligible Directors.
The Outside Directors Stock Option Plan is intended to allow Eligible
Directors to receive options without requiring discretionary action by any
administrative body with regard to any transaction under such plan. To the
extent that questions of administration do arise, they shall be resolved by the
Board of Directors.
If the Outside Directors Stock Option Plan is approved by stockholders at
the Annual Meeting and Messrs. Greenberg and Matalene are reelected to the Board
of Directors, each of such persons will automatically be granted an option to
acquire 5,000 shares of Common Stock at the conclusion of the Annual Meeting. At
the conclusion of every Annual Meeting of Stockholders after the 1996 Annual
Meeting, each Eligible Director will be granted an option to acquire 2,500
shares of Common Stock, except that if an Eligible Director has not previously
been granted an option under the Outside Directors Stock Option Plan, such
Eligible Director shall be granted an option to acquire 5,000 shares of Common
Stock instead of 2,500 shares of Common Stock. An Eligible Director who is
appointed by the Board shall be granted an option on the date of such
appointment to purchase a pro-rated number of shares based on the number of
months remaining until the next option grant under the Outside Directors Stock
Option Plan. The exercise price of each such option shall be 100% of the fair
market value of the Common Stock on the grant date.
Each option will have a term of 10 years from its grant date and will
become exercisable as to one-third of the number of shares for which such option
was granted on each of the first three anniversaries of the grant date. All
options will be fully vested upon a change of control (as defined in the Outside
Directors Stock Option Plan) of the Company. Any option that has become
exercisable will remain exercisable for 90 days after a grantee ceases to be a
director (180 days in the event of death), but not beyond the 10-year term of
the option. The Outside Directors Stock Option Plan has a 10-year term, and a
maximum of 75,000 shares of Common Stock are available for awards, subject to
anti-dilution adjustments.
The Outside Directors Stock Option Plan provides that the exercise price of
any shares as to which an option is exercised must be paid in full at the time
of the exercise. Payment may, at the election of the grantee, be made in any one
or any combination of (a) cash, personal check or electronic funds transfer, (b)
Common Stock held by the grantee for at least six months prior to the exercise
of the option, valued at its fair market value on the date of exercise or (c)
subject to certain conditions, through certain cashless exercise procedures
specified in such plan.
The Outside Directors Stock Option Plan shall terminate on the tenth
anniversary of the effective date of the Outside Directors Stock Option Plan,
unless sooner terminated by the Board. Any termination of the Outside Directors
Stock Option Plan shall not affect any option then outstanding. The Outside
Directors Stock Option Plan may be amended at any time and from time to time by
the Board as it shall deem advisable including, amendments necessary to qualify
for any exemption or to comply with applicable law or regulations;
12
<PAGE> 15
provided that no amendment to such plan may be made without the approval of the
stockholders of the Company if such amendment requires stockholder approval in
order for such plan to meet the requirements of Rule 16b-3 under the Exchange
Act or to comply with applicable Nasdaq or stock exchange rules and regulations.
Federal Income Tax Consequences
The following discussion is limited to United States federal income tax
laws, as in effect on the date of this Proxy Statement, applicable to grantees
who are both citizens and residents of the United States. This summary does not
purport to cover any foreign, state or local taxes.
Generally, Eligible Directors do not realize any taxable income for federal
income tax purposes at the time they are granted an option. However, upon
exercise of such option, the excess of the fair market value of the Common Stock
on the date of exercise over the aggregate option exercise price will be taxable
to the Eligible Director as ordinary income. The Eligible Director will have a
capital gain (or loss) upon the subsequent sale of the Common Stock in an amount
equal to the sale price reduced by the fair market value of the Common Stock on
the date the option was exercised. The holding period for purposes of
determining whether the capital gain (or loss) is a long- or short-term capital
gain (or loss) will commence on the date you exercise the option. The Company is
entitled to a tax deduction in the same amount and in the same year in which a
grantee recognizes ordinary income resulting from the exercise of an option.
The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, and entitled to vote at the Annual Meeting
is required to adopt the Outside Directors Stock Option Plan. See "Shareholders'
Agreement." The enclosed Proxy will be voted for the proposal unless a contrary
specification is made.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION
OF THE OUTSIDE DIRECTORS STOCK OPTION PLAN.
PROPOSAL 5
1996 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors of the Company has adopted, subject to the approval
of stockholders, the Empire of Carolina, Inc. 1996 Employee Stock Purchase Plan,
under which eligible employees will be given the opportunity to purchase Common
Stock at a discount. The Employee Stock Purchase Plan is administered by the
Committee and is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. A maximum of 200,000 shares of Common
Stock are reserved for issuance under the Employee Stock Purchase Plan, subject
to anti-dilution adjustments.
Summary of Plan Provisions
The following is a summary of the Employee Stock Purchase Plan. This
summary is qualified in its entirety by reference to the full text of the
Employee Stock Purchase Plan, which is appended to this Proxy Statement as
Exhibit C.
The Employee Stock Purchase Plan shall be administered by a committee of
not less than two persons who are directors of the Company. Membership on the
Committee shall be subject to such limitations as the Board deems appropriate to
permit transactions in Common Stock pursuant to the Employee Stock Purchase Plan
to be exempt from liability under Section 16(b) of the Exchange Act pursuant to
Rule 16b-3 thereunder.
Except as set forth below, all employees of the Company and designated
subsidiaries who have at least one year of service, customarily work more than
20 hours per week for more than five months per year and own less than 5% of the
Common Stock of the Company will be eligible to participate in the Employee
Stock Purchase Plan. Employees who are also directors or executive officers of
the Company may participate only in accordance with the requirements of Rule
16b-3 under the Exchange Act.
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<PAGE> 16
Under the Employee Stock Purchase Plan, eligible employees may elect, prior
to the commencement of an enrollment period, to contribute up to 10% of their
compensation to be applied at the end of the enrollment period to the purchase
of Common Stock. Each enrollment period will be 12 months or such other period
(between six and 27 months) as the Committee may designate. Unless otherwise
specified by the Committee, the initial enrollment period under the Employee
Stock Purchase Plan shall be the 12-month period commencing on January 1, 1997.
A new enrollment period will begin on the anniversary of the commencement of the
prior enrollment period or on such other date as the Committee designates. A
participant's rights to purchase shares may not accrue at a rate which exceeds
$25,000 of fair market value of Common Stock (based on the fair market value of
the Common Stock at the beginning of the enrollment period) for each calendar
year in which the option to purchase such shares is outstanding.
As of the last trading day in an enrollment period (or as otherwise
established by the Committee), employee contributions will be used to purchase
Common Stock, except for participants who have elected to withdraw from the
Employee Stock Purchase Plan at any time up to four weeks (or such shorter time
as the Committee may permit) before the end of the period. The price to be paid
by participating employees is 85% of the lower of (1) the fair market value of
the Common Stock on the date the option to purchase such Common Stock is granted
or (2) the fair market value of the Common Stock on the date of purchase. If a
participant holds the shares for the applicable holding period, the discount is
not deductible by the Company from its taxable income and is not taxable income
to the participant until he or she sells the shares.
The Board of Directors may amend, alter or terminate the Employee Stock
Purchase Plan at any time. No amendment shall be effective unless within one
year after it is adopted by the Board it is approved by the holders of a
majority of the voting power of the Company's outstanding shares, if such
amendment would require stockholder approval under Section 423 of the Code, Rule
16b-3, or the requirements of any securities exchange or quotation system on
which the Common Stock is listed.
If the Employee Stock Purchase Plan is terminated, the Board may elect to
terminate all outstanding options either prior to their expiration or upon
completion of the purchase of shares on the next purchase date, or may elect to
permit options to expire in accordance with their terms (and participation to
continue through such expiration dates). If the options are terminated prior to
expiration, all funds contributed to such plan that have not been used to
purchase shares shall be returned to the participants without interest as soon
as administratively feasible.
Federal Income Tax Consequences
The following summary is limited to United States federal income tax laws,
as in effect on the date of this Proxy Statement, applicable to persons who are
both citizens and residents of the United States. This summary does not purport
to cover any foreign, state or local taxes.
For purposes of the Employee Stock Purchase Plan, the terms "disposes" and
"disposition" include any sale, exchange, transfer of legal title or gift (even
to a member of the participating employee's family) of the Common Stock
purchased under such plan. Such terms do not include (1) a transfer by a
decedent to his or her estate or a transfer by bequest or inheritance, (2) a
transfer into joint ownership with the right of survivorship, where the
participating employee is one of the joint owners (there may, however, be a
disposition when the joint ownership is terminated other than by the death of a
joint owner, except to the extent the employee reacquires ownership of the
shares), (3) a transfer of Common Stock into the name of a brokerage firm, bank,
other financial institution or nominee of any of the foregoing if such transfer
is for the purpose of (a) deposit into a segregated account covering securities
held for the transferor or (b) mere pledge or hypothecation.
Enrollment or Purchase of Shares under the Employee Stock Purchase Plan. No
federal income tax consequences arise at the time of a participating employee's
enrollment in the Employee Stock Purchase Plan or upon the purchase of Common
Stock under the Employee Stock Purchase Plan. However, as discussed below, if a
participating employee disposes of Common Stock acquired under the Employee
Stock Purchase Plan, such person will have the federal income tax consequences
described below in the year of such
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<PAGE> 17
disposition. Amounts withheld by payroll deduction are subject to federal income
tax as though such amounts had been paid in cash.
Early Dispositions. If a participating employee disposes of Common Stock
purchased under the Employee Stock Purchase Plan within two years after the
enrollment date or within one year after the transfer of the Common Stock to
such person, such person will have included in his or her compensation taxable
as ordinary income in the year of disposition an amount equal to the difference
between (A) the fair market value of the Common Stock on the date of purchase of
the shares and (B) the price paid by such employee for the shares, regardless of
the price received in connection with the disposition of the shares. The amount
of such ordinary income is added to the purchase price and becomes part of the
cost basis for that Common Stock for federal income tax purposes. If the
disposition of the Common Stock involves a sale or exchange, such employee
generally will also realize a short-term capital gain or loss equal to the
difference between your cost basis (calculated pursuant to the preceding
sentence) and the proceeds from the sale or exchange.
Later Dispositions. If a participating employee disposes of Common Stock
purchased under the Employee Stock Purchase Plan on a date which is both more
than two years after the enrollment date and more than one year after the
transfer of the Common Stock to such person, or if such person dies at any time
while owning such Common Stock, such person (or his or her estate) will have
included in their compensation taxable as ordinary income in the year of
disposition (or death) an amount equal to the lesser of (1) the excess of the
fair market value of the Common Stock on the enrollment date over the purchase
price paid by such person for the shares, or (2) the excess of the fair market
value of the Common Stock on the date of disposition (or death) over the
purchase price paid by such person for the shares.
The amount of any such ordinary income is added to the cost basis of that
Common Stock for federal income tax purposes. The cost basis is therefore the
sum of the purchase price of the Common Stock and the ordinary income recognized
from the formula above. If the disposition of the Common Stock involves a sale
or exchange, such person will also realize a long-term capital gain or loss
equal to the difference between your cost basis (calculated pursuant to the
preceding sentence) and the proceeds from the sale or exchange.
Tax Consequences to the Company. The Company is not entitled to a tax
deduction upon the grant, exercise, purchase or subsequent transfer of shares of
Common Stock acquired on the purchase date, provided the participating employee
holds the shares received during the period that is two years from the first day
of the enrollment period or one year from the date shares are transferred to
such person. If such person transfers the Common Stock before the end of that
period, the Company will have a deduction at the time such person recognizes
ordinary income in an amount equal to the amount of ordinary income such person
is required to recognize as the result of such transfer during that period,
provided, however, that the Company may not be entitled to the deduction to the
extent that such person's compensation (including the ordinary income that you
are required to recognize as a result of such transfer) exceeds $1 million.
The affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote at the Annual Meeting is required to adopt the Employee
Stock Purchase Plan. See "Shareholders' Agreement." The enclosed Proxy will be
voted for the proposal unless a contrary specification is made.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION
OF THE EMPLOYEE STOCK PURCHASE PLAN.
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<PAGE> 18
PROPOSAL 6
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, certified
public accountants, to continue as the Company's independent auditors and to
audit the books of account and other records of the Company for the fiscal year
ending December 31, 1996.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting to respond to appropriate questions from stockholders and to make
a statement if they desire to do so.
The affirmative vote of holders of a majority of the shares entitled to
vote at the Annual Meeting is required to ratify the appointment of the
Company's auditors. See "Shareholders' Agreement." The enclosed Proxy will be
voted for the proposal unless a contrary specification is made.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
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<PAGE> 19
EXECUTIVE COMPENSATION
The following summary compensation table (the "Compensation Table")
summarizes compensation information with respect to the President and Chief
Executive Officer of the Company and each of the Company's most highly
compensated executive officers who earned more than $100,000 for services
rendered during the year ended December 31, 1995 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS OTHER ANNUAL OPTIONS COMPENSATION
PRINCIPAL POSITION(S) YEAR ($) ($) COMPENSATION (#) $
- ----------------------------------- ------ -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Geller................... 1995 $324,519 -- $ 83,028(1) 200,000(2) $508,075(3)
(Chairman of the Board and 1994(4) 132,692 $150,000 -- 500,000(5) --
Chief Executive Officer) 325,000(6)
Marvin Smollar..................... 1995 318,750 -- -- 200,000(2) $290,338(7)
(President and Chief 1994(8) 69,230 32,699 -- -- --
Operating Officer)
J. Artie Rogers.................... 1995 132,211 15,000 -- -- --
(Senior Vice President -- 1994 95,385 35,000 -- 35,000(2) 1,190(9)
Finance)
1993 90,000 25,000 -- -- 1,009(9)
Neil B. Saul....................... 1995(10) 262,019 -- 29,153(11) -- 69,175(12)
(Former President of 1994(13) 132,692 150,000 -- 500,000(5) --
Empire Industries, Inc.) 475,000(6)
</TABLE>
- -------------------------
(1) Includes $70,000 paid to Mr. Geller in lieu of reimbursement of expenses
incurred for the benefit of the Company and allowances of $13,028 for
automobile expenses and club dues.
(2) Options granted pursuant to the Company's 1994 Employee Stock Option Plan.
(3) Relocation expenses including a gross-up for individual income taxes.
(4) Includes compensation paid to Mr. Geller from July 15, 1994 through
December 31, 1994.
(5) Includes 60,376 incentive stock options and 439,624 non-qualified stock
options granted pursuant to the Company's 1994 Employee Stock Option Plan.
(6) Represents warrants granted in connection with services rendered with
respect to the Debenture Purchase Agreement.
(7) Includes $287,908 of relocation expenses grossed up for individual income
taxes and $2,430 of life insurance premiums. Excludes $122,265 paid to Mr.
Smollar in 1995 which he earned at Marchon, Inc. prior to its acquisition
by the Company on October 13, 1994, which amount was paid by the Company in
1995.
(8) Includes compensation paid to Mr. Smollar from October 13, 1994 through
December 31, 1994.
(9) Includes Company contributions to the Carolina Employee Stock Bonus Plan.
(10) Mr. Saul resigned as President of EII effective October 13, 1995. Under the
terms of a settlement and termination agreement, Mr. Saul will be paid at
an annual rate of $300,000 from January 1, 1996 to July 15, 1998 plus
fringe benefits (which benefits are subject to reduction if Mr. Saul
obtains employment with an entity not affiliated with the Company).
(11) Includes $10,000 paid to Mr. Saul in lieu of reimbursement of expenses
incurred for the benefit of the Company and allowances of $19,153 for
automobile expenses and club dues.
(12) Includes $62,500 of payments subsequent to resignation (see note 10 above)
and $6,675 of life insurance premiums.
(13) Includes compensation paid to Mr. Saul as President of EII from July 15,
1994 through December 31, 1994.
17
<PAGE> 20
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM ($)(2)
OPTIONS EMPLOYEES BASE PRICE (1) EXPIRATION --------------------
NAME GRANTED IN 1995 ($/SHARE) DATE 5% 10%
- ------------------------- ---------- ------------- -------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven Geller............ 200,000(3) 40% 6.75 12/13/2005 849,008 2,151,552
Marvin Smollar........... 200,000(3) 40% 6.75 12/13/2005 849,008 2,151,552
J. Artie Rogers.......... -- -- -- -- -- --
Neil B. Saul............. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on the closing price of the Common Stock on the American Stock
Exchange on the date of grant.
(2) The amounts shown as potential realizable values are based on assumed
annualized rates of appreciation in the price of the Common Stock of five
percent and ten percent over the term of the options, as set forth in the
rules of the Securities and Exchange Commission. Actual gains, if any, on
stock option exercises are dependent upon the future performance of the
Common Stock. There can be no assurance that the potential realizable values
reflected in this table will be achieved.
(3) Options granted on December 13, 1995. Options to acquire 50,000 shares vest
on December 13, 1996 with like annual vesting thereafter through December
13, 1999.
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers that were outstanding at
December 31, 1995:
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (2)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME UPON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven Geller.......... -- -- 208,338 491,662 $ 100,395 $ 192,058
Marvin Smollar......... -- -- -- 200,000 -- 50,000
J. Artie Rogers........ -- -- -- 35,000 -- 39,375
Neil B. Saul (3)....... 9,940 $ 21,123 -- -- -- --
</TABLE>
- -------------------------
(1) Does not include warrants to acquire shares of Common Stock. See "Certain
Transactions."
(2) Based on the $7 per share closing price of the Company's Common Stock on the
American Stock Exchange on December 29, 1995.
(3) In connection with Mr. Saul's settlement and termination agreement, 500,000
options existing at December 31, 1995 were due to expire on February 7,
1996. On that date, Mr. Saul exercised options to acquire 9,940 shares, and
the remaining 490,060 options expired.
EMPLOYMENT AGREEMENTS
On July 15, 1994, Steven Geller entered into an employment agreement
pursuant to which he became Chairman and Chief Executive Officer of EII. Upon
the closing of the redemption of Common Stock from the Halperin Group in
connection with the Change of Control, the obligations of EII under such
agreement were assigned to the Company, and Mr. Geller subsequently became
Chairman of the Board and Chief Executive Officer of the Company. The agreement
provides for a base salary of $300,000 per annum, which was
18
<PAGE> 21
increased by the Compensation Committee to $325,000 per annum effective January
1, 1995. The initial term of the agreement expires on July 15, 1998, provided
that such term is automatically extended for successive one-year periods on July
15 of each year (the "Extension Date") commencing July 15, 1996, unless either
the Company or Mr. Geller gives 60 days prior written notice to the other party
that it or he elects not to extend the term of the agreement. Mr. Geller's
employment agreement includes non-competition and confidentiality provisions and
a change of control provision which provides that if for any reason Mr. Geller
opposes a change of control (as defined in the agreement) which occurs while Mr.
Geller is employed by the Company, Mr. Geller may within six months of such
change in control elect to terminate his employment by giving the Company 30
days prior written notice. In the event that Mr. Geller elects to terminate his
employment in such circumstances, he is entitled to receive a lump sum severance
payment equal to (i) 290% of his then-current compensation (determined in
accordance with the agreement) if the majority of the Company's Board of
Directors opposed the change of control or (ii) 250% of his then-current
compensation if the majority of the Company's Board of Directors approved the
change of control, subject in either case to certain tax limitations.
On October 13, 1994, the Company entered into an employment agreement with
Marvin Smollar pursuant to which Mr. Smollar became President and Chief
Operating Officer of the Company. The agreement provides for a base salary of
$300,000 per annum, which was increased by the Compensation Committee to
$325,000 per annum effective January 1, 1995. The initial term of the agreement
expires on July 15, 1998, provided that such term is automatically extended for
successive one-year periods on July 15 of each year, commencing July 15, 1996,
in the same manner as Mr. Geller's employment agreement. Mr. Smollar's
employment agreement contains non-competition, confidentiality and change of
control provisions which are substantially identical to those in Mr. Geller's
employment agreement.
The Company entered into an employment agreement with Neil Saul, the former
President of EII, on July 15, 1994, Mr. Saul's employment agreement contains
compensation, non-competition, confidentiality and change of control provisions
which are substantially identical to those in Mr. Geller's employment agreement.
Mr. Saul resigned as President of EII effective October 13, 1995. Under the
terms of a settlement and termination agreement, Mr. Saul will be paid at an
annual rate of $300,000 from January 1, 1996 to July 15, 1998 plus fringe
benefits (which benefits are subject to reduction if Mr. Saul obtains employment
with an entity not affiliated with the Company).
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16 of the Exchange Act, the Company's directors and
executive officers and beneficial owners of more than 10% of the Common Stock
are required to file certain reports, within specified time periods, indicating
their holdings of and transactions in the Common Stock. Based solely on a review
of such reports provided to the Company and written representations from such
persons regarding the necessity to file such reports, the Company has determined
that Mr. Matalene filed one report late and Mr. Greenberg filed three reports
late during 1995.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company has a Compensation Committee consisting of two directors, Mr.
Eugene M. Matalene, Jr., who is the Chairman of the Committee, and Mr. Steven N.
Hutchinson. The board of directors has delegated matters relating to
compensation, including the grant of options under the stock option plan, to the
Compensation Committee. This report describes the Company's compensation
policies, the application of those policies to the Company's executive officers,
and the basis for the Chief Executive Officer's compensation for 1995.
General Compensation Policies
The policy and objectives of the Company with respect to executive
compensation is to improve stockholder value by enhancing corporate performance
through attracting and retaining highly qualified key executive personnel. The
philosophy of the Committee is to base executive compensation on short and long
19
<PAGE> 22
term performance criteria, thereby providing the motivation and incentive for
outstanding performance by executive officers. The Company's executive
compensation program is designed to:
- Create an inducement and motivation for executive officers to facilitate
and sustain Company growth and market share and to find attractive
acquisition prospects complementary to the Company's business.
- Align the financial interests of the executive officers with those of the
Company's stockholders.
- Reward above-average performances which will result in increased returns
to stockholders.
- Induce corporate loyalty in both the short and long term.
The Company's executive compensation program has three major components:
base salaries, bonuses, and long-term incentives.
Base Salaries
In determining an executive officer's salary, the Committee or the Chairman
and the President, as the case may be, generally review such officer's
knowledge, abilities, experience, responsibilities and anticipated workload for
the year, and his commitment and contribution to the Company's development and
financial performance. The Company has not established any formula or
pre-determined relationship between corporate performance and salary. Salary is
also intended to maintain the Company's competitiveness with similar companies
in the marketplace in attracting and retaining qualified executives. In those
cases where an executive has entered into an employment agreement, the base
salary is determined by that agreement, which is often the result of negotiation
between the new employee and the Company. The base salaries of Mr. Steven
Geller, the Chief Executive Officer, and Mr. Marvin Smollar, the Chief Operating
Officer, are set by their employment agreements, which were entered into in
1994.
Bonus Program
The Company's bonus program for its executive officers is designed to
motivate these individuals to enhance the value of the Company, reward
individual effort and further assist the Company in attracting and retaining
highly qualified executives. In setting bonuses, the Committee or the Chairman
and the President, as the case may be, consider specific goals and performance
criteria that are selected to enhance the profitability of the Company, the
prospects of the Company and the financial condition of the Company. In
addition, the Company attempts to recognize exceptional contributions to the
Company made by individual executives during the year.
Long-Term Incentives
The Company established a Stock Option Plan, pursuant to which stock
options are awarded by the Committee periodically to key employees, including
executive officers. The Stock Option Plan is designed to encourage executives to
acquire an equity interest in the Company and thereby align their long-term
financial interests with those of the shareholders.
20
<PAGE> 23
Compensation to the Chief Executive Officer
Mr. Steven Geller, the Chief Executive Officer, has an existing employment
agreement providing for a base salary of $325,000. The Committee believes that
Mr. Geller's compensation is principally through his equity interest in the
Company and not through his salary, and for that reason, his salary is modest
compared to chief executive officers of other toy companies. Consistent with
that theme, and in reviewing the Company's financial performance in 1995, the
Committee determined that a cash bonus for the Chief Executive Officer (and for
the other executive officers) was not appropriate. However, this lack of cash
bonus was not in any way intended to demonstrate that the Committee was critical
of the performance of the Chief Executive Officer, or of any of the executive
officers. Rather, the Committee recognized that the restructuring of the
Company, together with the acquisition of Buddy L, involved extraordinary effort
on the part of the Chief Executive Officer and the other executive officers,
which could result in enhanced stockholder value in the future. For that reason,
the Committee determined that the appropriate method of compensation was the
grant of stock options, which would permit the Chief Executive Officer and the
Chief Operating Officer to participate in any such increased stockholder value,
and granted each of them a stock option for 200,000 shares.
Members of the Compensation Committee
Eugene M. Matalene, Jr., Chairman
Steven N. Hutchinson
21
<PAGE> 24
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total returns
(assuming dividend reinvestment) for the five years ended December 31, 1995 of a
$100 investment on December 31, 1990 in the Company's Common Stock, the Media
General Toys and Games Industry Group Index (a representative industry index)
and the American Stock Exchange Market Index ("Amex Index") (a broad equity
market index). The Media General Toys and Games Industry Group Index is
comprised of 38 toy and game companies.
<TABLE>
<CAPTION>
MG Toys &
Empire of Games In-
Measurement Period Carolina, dustry Group
(Fiscal Year Covered) Inc. Index AMEX Index
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 177.27 223.98 123.17
1992 231.82 299.11 124.86
1993 236.36 331.61 148.34
1994 240.91 254.93 131.04
1995 254.55 284.05 168.90
</TABLE>
CERTAIN TRANSACTIONS
To provide a portion of the funds needed to finance the acquisition of
substantially all of the toy assets of Buddy L Inc. ("Buddy L"), the Company
issued $7.58 million of three-year 12% senior subordinated notes (which notes
grant the Company the right to call all but not less than all of the notes on
the first anniversary thereof at a premium equal to 10% of the principal balance
and the right of a majority in interest of the holders of such notes to put them
to the Company at a premium equal to 20% of the principal balance thereof on the
second anniversary of the issuance of such notes) and 758,000 detachable
four-year warrants exercisable commencing July 7, 1997 at $9.00 per share, which
warrants lapse if such notes are repaid by the Company on the first or second
anniversary of the issuance thereof. The Company redeemed all of the outstanding
senior subordinated notes in July 1996, thereby causing the related warrants to
lapse. Mr. Geller and Mr. Matalene acquired $500,000 and $100,000 principal
amount of these senior subordinated notes, respectively. In addition, Mr.
Matalene serves as a non-employee director of American Bankers Insurance Company
of Florida, which together with one of its affiliates, acquired an aggregate of
$5 million principal amount of these senior subordinated notes.
Also in connection with the financing of the Company's acquisition of Buddy
L, affiliates of WPG purchased 247,392 shares of Common Stock at $7.25 per share
and 442,264 shares of Series A cumulative convertible preferred stock at $7.25
per share for an aggregate purchase price of approximately $5 million. Two
principals of WPG, Messrs. Hutchinson and Pfister, are members of the Company's
Board of Directors. See "Board of Directors."
22
<PAGE> 25
WP&G, on behalf of investment funds for which they are managers, is the
holder of approximately $14.9 million of the Company's 9%, five-year,
subordinated convertible debentures and a party to the Shareholders' Agreement
dated December 22, 1994. Concurrent with the closing of this debenture financing
in December 1994, WP&G were issued warrants to purchase 100,000 shares of common
stock at the exercise price of $7.50 per share.
Effective June 12, 1995, the Company terminated the lease of a facility
located at 555 Corporate Woods Parkway, Vernon Hills, Illinois, formerly
occupied by Marchon. The owner of this property was indebted to Marchon for
costs incurred during the construction of the facility in the principal amount
of $506,000 as of December 31, 1995. The loan bears interest at 7.5% per annum,
and principal and interest are due and payable on December 31, 1998. Mr. Smollar
is a guarantor of the debt.
1431 Kingsland Avenue Limited Partnership, of which Mr. Smollar is a
limited partner, owns a facility located at 1431 Kingsland Avenue, St. Louis,
Missouri, which is leased to Marchon Manufacturing, Inc. under a lease
commencing December 15, 1992 and continuing through June 30, 2013. The lease was
assumed by Marchon in connection with the Marchon Transaction. The lease
provides for a monthly rental of $15,000 through December 15, 1995 and $20,000
thereafter. Marchon has transferred its manufacturing function to the Company's
facility in Tarboro, North Carolina, and is attempting to sublet the
aforementioned property in St. Louis or negotiate a lease termination
arrangement. 1431 Kingsland Avenue Limited Partnership was indebted to Marchon
in the principal amount of $55,000 at December 31, 1995, the repayment of which
indebtedness is guaranteed by Mr. Smollar. The loan is due December 31, 1998 and
is non-interest bearing.
During 1994, the Company paid PaineWebber Incorporated ("PaineWebber"), of
which Mr. Matalene, a director of the Company, was a Managing Director, the sum
of $257,055 in connection with the placement of Convertible Debentures. On
December 27, 1994, the Company and PaineWebber entered into an agreement whereby
PaineWebber agreed to perform investment banking services for the Company for a
one year term ending December 27, 1995, in consideration for $275,000 and
warrants to purchase 63,000 shares of Common Stock at $7.50 per share, expiring
December 27, 1997. In 1995, PaineWebber was also paid fees in the amounts of (a)
$225,000 in connection with the placement of $15 million principal amount of
convertible debentures of the Company, (b) $260,000 in connection with the
placement of $7.5 million principal amount of one-year notes of the Company and
(c) $94,000 as an advisory fee in connection with the arrangement of a $25
million bank facility. The Company has committed to pay PaineWebber an advisory
fee of $318,750 in connection with the arrangement of the new $85 million bank
facility.
On March 13, 1995, a written agreement was entered into to confirm an
agreement of December 28, 1994 by and between the Company, WPG IV and WPG
Private Equity Partners (Overseas), L.P. ("Private Equity") whereby WPG IV and
Private Equity agreed to provide certain managerial services for the Company to
assist the executive officers of the Company in strategic and financial planning
for the Company for a period ending December 31, 1995. WPG IV and Private Equity
agreed to provide no less than 30 hours per month of service to the Company. In
consideration for such services, WPG IV and Private Equity received,
respectively, warrants to purchase 80,571 and 19,429 shares of Common Stock at
$7.50 per share, expiring December 27, 1997.
The Company's policy is that all transactions between the Company and its
executive officers, directors and principal stockholders occurring outside the
ordinary course of the Company's business be on terms no less favorable than
could be obtained from unaffiliated third parties or are subject to the approval
of the Company's disinterested directors.
23
<PAGE> 26
EXECUTIVE OFFICERS
Information concerning the executive officers of the Company, their ages,
position and business experience during the last five years is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Steven E. Geller............. 54 Chairman of the Board of Directors and Chief Executive Officer
Marvin Smollar............... 50 President and Chief Operating Officer; Director
Jeffrey L. Currier........... 56 Executive Vice President -- Chief Financial Officer
Michael S. Bauer............. 55 Executive Vice President -- Marketing and Sales of Empire
Industries, Inc. ("EII")
Stuart J. Drell.............. 55 Executive Vice President -- Operations of EII
J. Artie Rogers.............. 36 Senior Vice President -- Finance and Assistant Secretary
Lawrence A. Geller........... 32 Secretary and Counsel
</TABLE>
Jeffrey L. Currier has more than 20 years of financial management
experience with manufacturing businesses. Mr. Currier has served as Chief
Financial Officer of the Company since August 1996. Prior to joining the
Company, Mr. Currier was Chief Financial Officer of Foamex International, Inc.
(manufacturer and marketer of foam products) from August 1994 to January 1996,
Vice President and Controller of Crystal Brands, Inc. (manufacturer and marketer
of clothing and jewelry) from January 1993 to July 1994. Crystal Brands, Inc.
filed a Chapter 11 bankruptcy petition in July 1994. Prior to joining Crystal
Brands, Inc., Mr. Currier served for 15 years in various executive capacities
for Babcock Industries, Inc. (diversified manufacturing company), most recently
as its Chief Financial Officer.
Michael S. Bauer has 30 years experience in the toy industry. Mr. Bauer has
served as a consultant to the Company since February 1996, and as of May 1,
1996, will serve as Executive Vice President -- Sales and Marketing of EII. From
1988 to 1996, Mr. Bauer owned and managed MSB, Inc., a management consulting
firm specializing in toy sales and marketing. Mr. Bauer served as Executive Vice
President of Sales of Coleco Industries (toy company) from 1985 to 1988.
Stuart J. Drell has 35 years experience in the toy industry. Mr. Drell has
served as Executive Vice President of EII since November 1994. Prior to joining
the Company, he served as an Executive Vice President of Grand Toys (toy
company) from 1993 to 1994, as a Vice President of Tyco from 1991 to 1992 and as
President of Matchbox USA (toy company) from 1989 to 1991.
J. Artie Rogers has 10 years experience in the toy industry. Mr. Rogers has
served as Senior Vice President -- Finance of the Company since December 1994.
From 1987 to December 1994, Mr. Rogers served as Vice President -- Finance of
the Company. From 1987 to December 1995, Mr. Rogers served as Secretary of the
Company, and has served as Assistant Secretary since December 1995. Mr. Rogers
is a certified public accountant, and prior to joining the Company in 1986, he
worked for Deloitte Haskins & Sells, predecessor to the Company's current
independent public accountants, for six years.
Lawrence A. Geller has served as Secretary of the Company since December
1995. Mr. Geller joined the Company in April 1995 as corporate counsel. Prior to
joining the Company, Mr. Geller was engaged in the practice of law with an
emphasis on litigation as a partner with the firm of Imhoff & Geller in Norwalk,
Connecticut from 1993 to 1995. During 1991 and 1992, Mr. Geller was an associate
with the law offices of John W. Imhoff, Jr. and from 1989 to 1991 he was an
associate with the law offices of Francis J. Discala. Mr. Geller is the son of
Steven Geller, the Chairman and Chief Executive Officer of the Company.
For information concerning the business experience of Messrs. Steven Geller
and Marvin Smollar, see "Board of Directors" above.
24
<PAGE> 27
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least 1% or $1,000 in market value of shares of
Common Stock, has held such shares for at least one year at the time the
proposal is submitted, and such person shall continue to own such shares through
the date on which the meeting is held, (b) provides the Company in writing with
his name, address, the number of shares held by him and the dates upon which he
acquired such shares with documentary support for a claim of beneficial
ownership, (c) notifies the Company of his intention to appear personally at the
meeting or by a qualified representative under Delaware law to present his
proposal for action, and (d) submits his proposal timely. A proposal to be
included in the proxy statement or proxy for the Company's next annual meeting
of stockholders, will be submitted timely only if the proposal has been received
at the Company's principal executive office in Delray Beach, Florida no later
than April 30, 1997. If the date of such meeting is changed by more than 30
calendar days from the date of the Annual Meeting, or if the proposal is to be
presented at any meeting other than the next annual meeting of stockholders, the
proposal must be received at the Company's principal executive office at a
reasonable time before the solicitation of proxies for such meeting is made.
If the foregoing requirements are satisfied, a person may submit only one
proposal of not more than 500 words with a supporting statement if the latter is
requested by the proponent for inclusion in the proxy materials, and under
certain circumstances enumerated in the Securities and Exchange Commission's
rules relating to the solicitation of proxies, the Company may be entitled to
omit the proposal and any statement in support thereof from its proxy statement
and form of proxy.
OTHER INFORMATION
The Board of Directors does not know of any other matters that may be
brought before the Annual Meeting. In the event that any other matter shall come
before the Annual Meeting, the persons named in the enclosed Proxy will have
discretionary authority to vote all Proxies not marked to the contrary with
respect to such matter in their discretion.
By Order Of The Board Of Directors,
Lawrence Geller
Secretary
Delray Beach, Florida
August 27, 1996
25
<PAGE> 28
EXHIBIT A
TEXT OF PROPOSED AMENDMENT TO
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
ELEVENTH: The Corporation will not take, and will not permit any of its
Subsidiaries to take corporate action with respect to the following matters,
except upon the affirmative vote of more than TWO-THIRDS (66 2/3%) of the
directors then in office (INCLUDING FOR THIS PURPOSE DIRECTORS WHO ARE NOT
PRESENT OR ABSTAIN FROM VOTING):
(a) any merger, consolidation or other business combination of the
Corporation or any of its Subsidiaries;
(b) sales of assets (other than sales solely of inventory in the ordinary
course of business) of the Corporation or the Subsidiaries (including assets
consisting of shares of stock of a subsidiary) where the gross proceeds of sale
(exclusive of assumption of liabilities) are, in the aggregate, in excess of
$7,000,000 in any calendar year;
(c) any amendment to the Certificate of Incorporation or By-laws of the
Corporation or the Subsidiaries;
(d) any payment (other than employee compensation and other ordinary
incidents of employment) to any director, officer, stockholder or affiliate of
the Corporation or any of its Subsidiaries or any present or former known
spouse, ancestor or descendant of any of the aforementioned Persons or a trust
or similar entity for the benefit of the foregoing Persons;
(e) any declaration or payment of dividends or similar distributions on
Securities;
(f) any public or private offering of convertible debt or equity securities
of the Corporation or the Subsidiaries, other than (i) the offering of the
Shares pursuant to an employee stock option plan for the benefit of the
Corporation or the Subsidiaries and (ii) Shares issued pursuant to rights
provided the members of the CDA IV Group or the Geller Group pursuant to
agreements between the Corporation, members of the Geller Group or members of
the CDA IV Group, as the case may be, executed either on or prior to December
22, 1994;
(g) incurrence of Indebtedness (other than Indebtedness under the Senior
Credit Agreement and the Debenture Purchase Agreement) by the Corporation and
its Subsidiaries where such Indebtedness incurred, together with other
Indebtedness then outstanding (other than the Senior Credit Agreement, the
Debenture Purchase Agreement and Indebtedness attributable to amounts owed the
Marchon Stockholders as a result of the exchange of their shares in Old Marchon
for Shares) is $10,000,000 or more;
(h) any adoption of a plan of liquidation of the Corporation; or
(i) any acquisition of assets and/or stock or related series of
acquisitions of assets and/or stock (other than purchases of inventory and
capital expenditures in the ordinary course of business) which would cause the
amount expended (or committed to be expended) by the Corporation and its
Subsidiaries for the acquisition of such assets and/or stock during a calendar
year to exceed $10,000,000.
A-1
<PAGE> 29
EXHIBIT B
EMPIRE OF CAROLINA, INC.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the Empire of Carolina, Inc. 1996 Outside Directors Stock
Option Plan (as set forth herein and as amended from time to time, the "Plan")
is to encourage qualified persons to become directors of Empire of Carolina,
Inc. (the "Company"), provide directors of the Company with a more direct stake
in its success, and encourage them to remain directors of the Company.
ARTICLE II
DEFINITIONS
2.1 "Annual Meeting" means an annual meeting of the stockholders of the
Company.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change of Control" means any of the following:
(i) the acquisition or holding by any person, entity or "group" within
the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (other than by
the Company or any of its subsidiaries or any employee benefit plan of the
Company or its subsidiaries), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of either the
then-outstanding Stock or the combined voting power of the Company's
then-outstanding voting securities entitled to vote generally in the
election of Directors ("Voting Power"); except that no such person, entity
or group shall be deemed to own beneficially (1) any securities held by the
Company or a Subsidiary or any employee benefit plan (or any related trust)
of the Company or a Subsidiary, (2) any securities acquired pursuant to a
benefit plan of the Company or a Subsidiary, (3) any securities issuable
pursuant to an option, warrant or right owned by such person, entity or
group as of the close of business on the business day immediately preceding
September 11, 1996, (4) any security that would otherwise be beneficially
owned by such person, entity or group as of the close of business on the
business day immediately preceding September 11, 1996 and (5) any
securities issued in connection with a stock split, stock dividend or
similar recapitalization or reorganization with respect to shares covered
by the foregoing exceptions; provided, however, that no Change of Control
shall be deemed to have occurred solely by reason of any such acquisition
by a corporation with respect to which, after such acquisition, more than
60% of both the then-outstanding common shares of such corporation and the
Voting Power of such corporation are then-beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of the Stock and
voting securities of the Company immediately before such acquisition in
substantially the same proportions as their respective ownership,
immediately before such acquisition, of the then-outstanding Stock or the
Voting Power of the Company, as the case may be; or
(ii) approval by the stockholders of the Company of (A) a merger,
reorganization or consolidation with respect to which persons who were the
respective beneficial owners of the Stock and Voting Power of the Company
immediately before such merger, reorganization or consolidation do not,
immediately thereafter, beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding common shares and the Voting
Power of the corporation resulting from such merger, reorganization or
consolidation, (B) a liquidation or dissolution of the Company or (C) the
sale or other disposition of all or substantially all of the assets of the
Company.
2.4 "Common Stock" means the common stock, par value $.10 per share, of the
Company.
2.5 "Director" means a member of the Board.
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2.6 "Eligible Director" means, as of the date of any grant of an Option to
him pursuant to Article V, a Director who (i) is not an employee of the Company
or any of its subsidiaries, and (ii) is not the designee of the Geller Group or
the WPG Group (as such terms are defined in such Shareholders' Agreement)
pursuant to that certain Shareholder Agreement dated as of December 22, 1994, as
amended, by and among Steven Geller, Marvin Smollar, certain affiliates of
Weiss, Peck & Greer, L.L.C. and certain other stockholders of the Company.
2.6 "Fair Market Value" of any security of the Company means, as of any
applicable date:
(i) if the security is listed for trading on the American Stock
Exchange, the closing price, regular way, of the security as reported on
the American Stock Exchange Composite Tape, or if no such reported sale of
the security shall have occurred on such date, on the next preceding date
on which there was such a reported sale, or
(ii) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on the National
Association of Securities Dealers Inc.'s Nasdaq National Market ("Nasdaq
NM"), the closing price, regular way, of the security on such exchange or
Nasdaq NM, as the case may be, or if no such reported sale of the security
shall have occurred on such date, on the next preceding date on which there
was such a reported sale, or
(iii) if the security is not listed for trading on a national
securities exchange or authorized for quotation on Nasdaq NM, the average
of the closing bid and asked prices as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq") or, if no such
prices shall have been so reported for such date, on the next preceding
date for which such prices were so reported.
2.7 "Grantee" means the holder of an Option or any person entitled to
exercise an Option under Article VI of this Plan.
2.8 "1934 Act" means the Securities Exchange Act of 1934.
2.9 "Option" means a right to purchase Common Stock granted under this
Plan.
ARTICLE III
ADMINISTRATION
The Plan is intended to allow Eligible Directors to receive Options and not
to require discretionary action by any administrative body with regard to any
transaction under the Plan. To the extent that questions of administration do
arise, they shall be resolved by the Board. Subject to the provisions of the
Plan, the Board shall have the power to construe and interpret the Plan, to
determine all questions (including factual questions) arising thereunder, and to
adopt and amend such rules for the administration of the Plan as it may deem
desirable; provided, however, that no such interpretation or rule shall change
the number of Options that may be granted under the Plan or the terms upon
which, or the times at which, or the periods within which, such Options may be
exercised. Any decision of the Board in the administration of the Plan shall be
final. No Director shall be liable for anything done or omitted to be done by
such Director or by any other Director in connection with the Plan, except for
such Director's willful misconduct.
ARTICLE IV
AMOUNT OF COMMON STOCK
The number of shares of Common Stock which may be sold pursuant to the Plan
shall not exceed 75,000, subject to adjustment pursuant to Article VII. Such
shares of Common Stock may be either authorized and unissued shares or
previously issued shares reacquired by the Company. If Options terminate or
expire without being exercised in whole or in part, new Options may be granted
covering the shares not purchased under such lapsed Options.
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ARTICLE V
GRANT OF OPTIONS
5.1 Option Grants.
(a) Regular Grants. At the conclusion of the 1996 Annual Meeting and
every Annual Meeting thereafter, each Eligible Director who is elected or
reelected to serve as a Director shall automatically be granted an Option
as to 2,500 shares of Common Stock. If the Eligible Director has not
previously been granted an Option under this Plan, the Eligible Director
shall be granted an Option as to 5,000 shares of Common Stock instead of
2,500.
(b) Appointment of Director. In the event an Eligible Director is
appointed by the Board to serve as a Director, such Eligible Director shall
automatically be granted on the date of such appointment an Option to
purchase a number of shares determined by multiplying 5,000 (or if the
Eligible Director has previously been granted an Option under this Plan,
2,500) by a fraction, the numerator of which is the number of whole months
until the date of the next regular Option grant pursuant to Section 5.1(a)
(determined by reference to the by-laws of the Company) and the denominator
of which is 12.
5.2 Term of Options. Each Option shall have a term of 10 years from the
date of grant, unless earlier terminated as provided herein (such period, the
"Term").
5.3 Exercise Price. The Option exercise price per share shall be, subject
to adjustment pursuant to Article VII, the Fair Market Value of a share of
Common Stock on the date of grant.
5.4 Option Agreements. Each Option shall be evidenced by an agreement in
such form as the Board shall prescribe from time to time and shall be consistent
with the terms and conditions of the Plan.
ARTICLE VI
TERMINATION OF OPTIONS; LIMITATIONS ON EXERCISE
6.1 Exercise After Termination of Directorship. If a person shall cease to
be a Director for any reason while holding an unexpired Option that has not been
fully exercised, such Option shall thereupon terminate, provided that such
person, or in the case of his death or adjudication of incompetency, his
executor, administrator, distributees, guardian or legal representative, as the
case may be, may, at any time until the earlier to occur of (i) if the Director
ceased to be a Director for any reason other than death, 90 days after the date
such person ceased to be a Director, (ii) if the Director ceased to be a
Director on account of death, 180 days after the date such person ceased to be a
Director, and (iii) the expiration of the Term of such Option, exercise the
Option to the extent that it was exercisable pursuant to Section 6.4 on the date
the person ceased to be a Director.
6.2 Options Non-Transferable. An Option shall not be transferable by its
grantee otherwise than by will or the laws of descent and distribution and shall
be exercisable during his lifetime only by the grantee or his guardian or legal
representative.
6.3 Exercise. No Option shall be exercised unless written notice of the
exercise is delivered to the Company during the Term of the Option specifying
the number of shares to be purchased. The Option exercise price of any shares as
to which an Option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in any one or any
combination of the following: (a) cash, personal check or electronic funds
transfer; (b) Common Stock held by the Grantee for at least 6 months prior to
the exercise of the Option, valued at its Fair Market Value on the date of
exercise; (c) subject to the approval of the Company's securities counsel,
through simultaneous sale through a broker of shares acquired on exercise, as
permitted under Regulation T of the Federal Reserve Board; or (d) subject to the
approval of the Company's securities counsel, and pursuant to procedures
previously approved by the Company, through the sale of the Common Stock
acquired on exercise of the Option through a broker-dealer to whom the Grantee
has submitted an irrevocable notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan proceeds sufficient
to pay for such Common Stock,
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together with, if requested by the Company, the amount of federal, state, local
or foreign withholding taxes payable by Optionee by reason of such exercise.
6.4 Vesting.
(a) Any Option granted shall become exercisable with respect to
one-third of the number of shares for which the Option is granted each year
on the first to occur of the annual anniversary of the grant date of such
Option or the next Annual Meeting; provided in each such case that the
Grantee has remained a Director at all times since such grant date.
(b) Notwithstanding the foregoing provisions of this Section 6.4, all
unvested Options shall become fully exercisable upon a Change of Control.
ARTICLE VII
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
7.1 Adjustments. If the outstanding Common Stock is changed by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, reverse stock split, rights offering, combination, spinoff, exchange of
shares, or the like, or dividends payable in the Common Stock, an appropriate
adjustment shall be made by the Board in the aggregate number of shares then
remaining available under the Plan, the number of shares subject to, and the
vesting schedule of, subsequent Option grants to Eligible Directors, and in the
number of shares subject to, and vesting schedule and exercise price of,
outstanding Options, to the extent that such adjustment is necessary to preserve
the economic value of unexercised Options.
7.2 No Fractional Shares. If a fraction of a share would otherwise result
from any adjustment pursuant to Section 7.1, the adjusted share amount shall be
reduced to the next lower whole number.
ARTICLE VIII
MISCELLANEOUS
8.1 Exercise after Death. If an Option is exercised by the executors,
administrators, legatees or distributees of the estate of a deceased Grantee or
by the guardian or legal representative of a Grantee, the Company shall be under
no obligation to issue stock thereunder unless and until it is satisfied that
the person or persons exercising the Option are the duly appointed legal
representatives of the optionee or of the deceased optionee's estate or the
proper legatees or distributees of such estate.
8.2 Expenses. The expenses of the Plan shall be borne by the Company. Any
taxes imposed on a Grantee upon exercise of an Option shall be paid by such
Grantee.
8.3 No Right to Re-Election. Except as expressly provided for in the Plan,
no Director or other person shall have any right to be granted an Option.
Neither the Plan nor any action taken hereunder shall be construed as giving any
Director any right to be retained or re-elected as a Director.
8.4 Securities Registration. The Company shall not be obligated to deliver
any shares of Common Stock hereunder until they have been listed on each
securities exchange on which the Common Stock may then be listed, or until there
has been compliance with such state or federal laws, rules or regulations as the
Company may deem applicable.
8.5 Taxes. It shall be a condition to the obligation of the Company to
issue shares of Common Stock upon exercise of an Option that the Grantee pay to
the Company such amount, if any, as may be requested by the Company to satisfy
any liability to withhold federal, state, local or foreign income or other taxes
relating to such exercise.
8.6 Rights as Stockholder. A Grantee shall not by reason of any Option have
any right as a stockholder of the Company with respect to the shares of Common
Stock which may be deliverable upon exercise of such Option until such shares
have been delivered to him.
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8.7 Severability. If all or any part of the Plan is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Article or part of an Article so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Article or part of an Article to the fullest extent
possible while remaining lawful and valid.
8.8 Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Delaware.
ARTICLE IX
AMENDMENT
The Plan may be amended at any time and from time to time by the Board as
it shall deem advisable including, but not limited to, amendments necessary to
qualify for any exemption or to comply with applicable law or regulations;
provided, however, that no amendment to the Plan may be made without the
approval of the stockholders of the Company if such amendment requires
stockholder approval in order for the Plan to meet the requirements of Rule
16b-3 under the Exchange Act or to comply with applicable Nasdaq or stock
exchange rules and regulations. No amendment of the Plan will adversely affect
the rights of any Grantee under an Option without the consent of such Grantee.
ARTICLE X
TERMINATION
The Plan shall terminate on the tenth anniversary of the Effective Date of
the Plan, unless sooner terminated by the Board. Any termination of the Plan
shall not affect any Option then outstanding.
ARTICLE XI
EFFECTIVE DATE
The Plan shall become effective on September 11, 1996, subject to its
approval by the Company's stockholders at the 1996 Annual Meeting of
Stockholders.
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EXHIBIT C
EMPIRE OF CAROLINA, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE AND HISTORY
A. The purpose of the Empire of Carolina, Inc. 1996 Employee Stock Purchase
Plan (the "Plan") is to provide an opportunity for eligible employees to acquire
a proprietary interest in Empire of Carolina, Inc. (the "Company") through the
purchase of shares of common stock of the Company. The Plan shall be effective
on the Effective Date (as defined below), subject to the approval of the
Company's stockholders within one year before or after the date the Plan is
approved by the Board of Directors. No option shall be granted under the Plan
after the tenth anniversary of the Effective Date.
B. The Company intends the Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The provisions of the Plan shall be construed in a manner consistent
with the requirements of Section 423 of the Code.
II. DEFINITIONS
The following words and phrases, when used in this Plan, unless their
context clearly indicates otherwise, shall have the following respective
meanings:
A. "Base Earnings" means all compensation received by a Participant from
the Company or a Participating Subsidiary, including salary deferrals by the
Participant under Sections 401(k) and 125 of the Code, bonuses and overtime pay,
but excluding short-term disability, long-term disability or workers
compensation payments and similar amounts.
B. "Board" means the board of directors of the Company.
C. "Code" -- see Section 1.1.
D. "Committee" means the committee of the Board appointed pursuant to
Section 3.1.
E. "Common Stock" means the Company's common stock, $.10 par value.
F. "Company" -- see Section 1.1.
G. "Cut-Off Date" means the date established by the Committee from time to
time by which enrollment forms must be received prior to an Enrollment Date.
H. "Effective Date" means September 11, 1996 or such later date as may be
specified by the Committee.
I. "Eligible Employee" means an Employee eligible to participate in the
Plan in accordance with Article V.
J. "Employee" means an individual who performs services for the Company or
a Participating Subsidiary pursuant to an employment relationship described in
Treasury Regulations Section 31.3401(c)-1 or any successor provision.
K. "Enrollment Date" means (a) for any Employee who has completed the
service requirement for participation in the Plan prior to the first trading day
of an Enrollment Period, the first trading day of such Enrollment Period, (b)
for any Employee who has not completed the service requirement prior to the
first trading day of an Enrollment Period, the first trading day coinciding with
or following the April 1, July 1, or October 1 following the date on which the
Employee completes the service requirement, and (c) such other trading days
established by the Committee from time to time. A trading day means any day on
which securities are traded on the Nasdaq National Market.
L. "Enrollment Period" means, as to the Company or a Participating
Subsidiary, a period of six months or such other duration not in excess of 27
months as shall be established from time to time by the Committee
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with respect to the Employees of the Company or such Participating Subsidiary,
as applicable. Each Enrollment Period shall commence on a date specified by the
Committee. Enrollment Periods and the commencement dates for Enrollment Periods
may, but need not, be different for the Company and each Participating
Subsidiary. Unless otherwise specified by the Committee, the initial Enrollment
Period shall be the 12-month period commencing on January 1, 1997. Succeeding
Enrollment Periods shall, unless otherwise specified by the Committee, be
12-month periods beginning on each successive anniversary of the first day of
the initial Enrollment Period.
M. "Exchange Act" means the Securities Exchange Act of 1934.
N. "Fair Market Value" means, as of any applicable date:
(a) if the security is listed on a national securities exchange or
authorized for quotation on the National Association of Securities Dealers
Inc.'s Nasdaq National Market ("Nasdaq NM"), the closing price, regular
way, of the security on such exchange or Nasdaq NM, as the case may be, or
if no such reported sale of the security shall have occurred on such date,
on the latest preceding date on which there was such a reported sale, or
(b) if the security is not listed for trading on a national securities
exchange or authorized for quotation on Nasdaq NM, the average of the
closing bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") or, if no such
prices shall have been so reported for such date, on the latest preceding
date for which such prices were so reported, or
(c) if the security is not listed for trading on a national securities
exchange or is not authorized for quotation on Nasdaq NM or Nasdaq, the
fair market value of the security as determined in good faith by the Board.
O. "Grant Date" means a date on which an Eligible Employee is granted
options under the Plan.
P. "including" means "including without limitation".
Q. "Participant" means an Eligible Employee who has enrolled in the Plan
pursuant to Article VI.
R. "Participating Subsidiary" means a Subsidiary which has been designated
by the Committee in accordance with Section 3.2(d) as covered by the Plan.
S. "Purchase Date" means such one or more trading days during an Enrollment
Period as may be established by the Committee from time to time prior to the
beginning of the Enrollment Period for all options to be granted during such
Enrollment Period on which shares of Common Stock are purchased in accordance
with Article IX of the Plan.
T. "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange
Act.
U. "SEC" means the Securities and Exchange Commission.
V. "Securities Act" means the Securities Act of 1933.
W. "Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company, if as of the applicable Enrollment Date, each of the
corporations other than the last corporation in the chain owns stock
representing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
III. ADMINISTRATION
A. The Plan shall be administered by a Committee which shall consist of not
less than two persons who are directors of the Company. Membership on the
Committee shall be subject to such limitations as the Board deems appropriate to
permit transactions in Common Stock pursuant to the Plan to be exempt from
liability under Section 16(b) of the Exchange Act pursuant to Rule 16b-3 of the
SEC thereunder.
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B. The Committee shall have the power, subject to the express provisions of
the Plan:
(a) to determine from time to time the time or times when options
shall be granted;
(b) to construe and interpret the Plan and options granted under it,
and to establish, amend and revoke rules for its administration. The
Committee in the exercise of this power may correct any defect, or supply
any omission, or reconcile any inconsistency in the Plan, in a manner and
to the extent it shall deem necessary or appropriate to carry out the
intent of the Plan;
(c) to prescribe the terms and provisions for participation in the
Plan;
(d) to designate from time to time which Subsidiaries of the Company
shall be Participating Subsidiaries; and
(e) to determine all questions of policy and expediency that may arise
in the administration of the Plan, and, generally, to exercise such powers
and perform such acts as are deemed necessary or expedient to promote the
best interests of the Company.
C. This Article III relating to the administration of the Plan may be
amended by the Board from time to time as may be desirable to satisfy any
requirements of or under the federal securities and/or other applicable laws of
the United States, or to obtain any exemption under such laws.
IV. NUMBER OF SHARES
A. 200,000 shares of Common Stock are reserved for sales and authorized for
issuance pursuant to the Plan. Subject to the foregoing limitation, shares sold
under the Plan may be newly-issued shares or outstanding shares that have been
reacquired by the Company. If any option granted under the Plan shall for any
reason terminate without having been exercised, the shares not purchased under
such option shall again become available for the Plan.
B. In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, merger,
consolidation, acquisition of property or shares, separation, asset spin-off,
stock rights offering, liquidation or other similar change in the capital
structure of the Company, the Committee shall make such adjustment, if any, as
it deems appropriate in the number, kind and purchase price of the shares
available for purchase under the Plan. In the event that, after a Grant Date,
there occurs a dissolution or liquidation of the Company, except pursuant to a
transaction to which Section 424(a) of the Code applies, each option to purchase
Common Stock shall terminate, but the Participant holding such option shall have
the right to exercise his option prior to such dissolution or liquidation.
V. ELIGIBILITY REQUIREMENTS
A. Except as provided in Section 5.2, each Employee shall become eligible
to participate in the Plan in accordance with Article VI on the first Enrollment
Date following the Employee's completion of one year of employment by the
Company or a Participating Subsidiary, as applicable. Participation in the Plan
is voluntary.
B. The following Employees are not eligible to participate in the Plan:
(a) Employees who would, immediately upon enrollment in the Plan, own
directly or indirectly, or hold options or rights to acquire, an aggregate
of 5% or more of the total combined voting power or value of all
outstanding shares of all classes of the Company or any Subsidiary (without
giving effect to the exercise of any outstanding options);
(b) Employees who are customarily employed by the Company or a
Participating Subsidiary for not more than five months in any calendar
year; and
(c) Employees who are customarily employed by the Company or a
Participating Subsidiary for 20 hours or less per week.
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C. Employees who are also directors or officers (as defined in Rule
16a-1(f) under the Exchange Act, as such rule may be amended from time to time)
of the Company may participate only in accordance with the requirements of Rule
16b-3. The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and all regulations and
rules promulgated by the SEC thereunder, including Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the options
shall be granted and may be exercised, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law, the
Plan and the options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
VI. ENROLLMENT
A. Any Eligible Employee may enroll in the Plan as of an Enrollment Date.
In order to enroll with respect to any Enrollment Period, an Eligible Employee
must complete, sign and submit to the Company an enrollment form in such form as
provided by the Committee which shall include, among other items, the Eligible
Employee's contribution election. Any enrollment form received by the Company
before the Cut-Off Date will be effective as of the Enrollment Date to which it
relates.
VII. GRANT OF OPTIONS ON ENROLLMENT
A. Enrollment by an Eligible Employee in the Plan as of an Enrollment Date
will constitute the grant by the Company to such Participant on the Enrollment
Date of an option to purchase shares of Common Stock from the Company pursuant
to the Plan.
B. Each option granted under the Plan shall have the following terms:
(a) whether or not all shares subject thereto have been purchased, the
option will expire on the earliest to occur of (A) the completion of the
purchase of shares on the last Purchase Date occurring within 27 months of
the Grant Date for such option, or such shorter option period as may be
established by the Committee from time to time prior to an Enrollment
Period for all options to be granted during such Enrollment Period, or (B)
the date on which participation of such Participant in the Plan terminates
for any reason;
(b) payment for shares purchased under the option will be made only in
accordance with Article VIII;
(c) purchase of shares upon exercise of the option will be
accomplished only in accordance with Article IX;
(d) the purchase price per share under the option will be determined
as provided in Article IX;
(e) notwithstanding Section 8.1, no Participant shall be granted an
option which permits the Participant's rights to purchase shares under all
employee stock purchase plans under Section 423 of the Code of the Company
and any Subsidiary to accrue at a rate which exceeds $25,000 of Fair Market
Value of such shares (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time as
determined in accordance with Section 423(b)(8) of the Code and the
treasury regulations thereunder;
(f) the option will in all respects be administered so as to comply
with Section 423 of the Code; and
(g) the option will in all respects be subject to the terms and
conditions of the Plan, as amended from time to time and as interpreted by
the Committee from time to time.
VIII. CONTRIBUTIONS
A. Each Participant may elect to make contributions at a rate equal to any
whole percentage (not in excess of 10%) of his or her Base Earnings for each
Enrollment Period (or, if the Participant's Enrollment Date occurs during an
Enrollment Period, for the remainder of the Enrollment Period), or such other
lower maximum percentage of Base Earnings as the Committee may establish from
time to time before the
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beginning of an Enrollment Period for all options to be granted during such
Enrollment Period. The rate of contribution shall be designated by the
Participant in the enrollment form. Contributions shall be made only through an
Employee's authorizing payroll withholding on the enrollment form. A Participant
may elect to increase or decrease the rate of contribution for any future
Enrollment Period by delivery to the Company not later than the related Cut-Off
Date of a new enrollment form indicating the revised rate of contribution.
B. Contributions shall be credited to a recordkeeping account for each
Participant as soon as administratively feasible after withholding of Base
Earnings. The Company shall be entitled to use of the contributions and shall
have no obligation to set aside or pay interest on the contributions to any
Participant.
C. During an Enrollment Period, no Participant may elect to reduce or to
cease future contributions to the Plan, but any Participant may withdraw from
the Plan for the remainder of such Enrollment Period pursuant to Article X.
D. Neither the Company nor any Participating Subsidiary shall make
contributions to the Plan.
IX. PURCHASE OF SHARES
A. On each Purchase Date, the Company shall apply the funds credited to
each Participant's account as of such Purchase Date to the purchase of whole
shares of Common Stock. The purchase price for any shares purchased under any
option shall, unless the Committee in its discretion establishes a higher price,
be 85% of the lower of:
(a) the Fair Market Value on the Grant Date for such option; or
(b) the Fair Market Value on the Purchase Date.
B. Within a reasonable time after the Purchase Date, the Company shall
cause to be delivered to the Participant a certificate or certificates for the
number of shares purchased by the Participant unless the Company has made
arrangements to have the shares held at a bank or other appropriate institution
in non-certificated form. If any law or applicable rule or regulation of the SEC
or other body having jurisdiction shall require that the Company or the
Participant take any action in connection with the shares being purchased under
the option, delivery of the certificate or certificates for such shares shall be
postponed until the necessary action shall have been completed, which action
shall be taken by the Company at its own expense, without unreasonable delay.
C. Any amount less than the price of a whole share of Common Stock which
remains credited to a Participant's account on a Purchase Date shall be carried
forward in such account for application on the next Purchase Date.
D. In the case of Participants employed by a Participating Subsidiary, the
Committee may provide for Common Stock to be sold through the Subsidiary to such
Participants, to the extent consistent with Section 423 of the Code.
E. If the aggregate number of shares of Common Stock for which an option is
exercised on any Purchase Date in accordance with this Article IX, when
aggregated with all shares of Common Stock previously granted under this Plan,
would exceed the maximum number of shares reserved in Section 4.1, the Company
shall make a pro rata allocation of the shares available for delivery and
distribution in as nearly a uniform manner as shall be practicable and as it
shall determine to be equitable, and the balance of payroll deductions credited
to the account of each Participant under the Plan shall be returned to him as
promptly as possible.
F. The maximum number of shares of Common Stock which a Participant shall
be permitted to purchase under the Plan on a Purchase Date shall, subject to
Section 7.2(e), be the number calculated by dividing (a) the total amount of
contributions projected to be made by the Participant pursuant to Article VIII
as contributions for such an Enrollment Period by (b) 20% of the Fair Market
Value of a share of Common Stock on the Grant Date. If the payroll deductions
credited to the account of the Participant exceeds the cost of the maximum
number of shares that can be purchased by the Participant, the excess shall be
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<PAGE> 39
returned to him as promptly as possible. The number of shares which a
Participant is permitted to purchase shall be further limited by the amount of
payroll deductions withheld as of the Purchase Date.
G. If a Participant or former Participant sells, transfers, or otherwise
disposes of Common Stock purchased pursuant to an option granted under the Plan
within two years after the date such option is granted or within one year after
the Purchase Date to which such option relates, such Participant or former
Participant shall notify the Company in writing of such sale, transfer or other
disposition within 10 days of the consummation of such sale, transfer or other
disposition, and shall remit to the Company or authorize the Company to withhold
from other sources such amount as the Company may determine to be necessary to
satisfy any federal, state or local tax withholding obligations of the Company
or Participating Subsidiary. The Committee may from time to time establish rules
and procedures (including postponing delivery of shares until the expiration of
the two-year or one-year period) to cause the withholding requirements to be
satisfied.
X. WITHDRAWAL FROM THE PLAN; TERMINATION OF
EMPLOYMENT AND LEAVE OF ABSENCE
A. Withdrawal from the Plan. A Participant may withdraw from the Plan in
full (but not in part) with respect to any Enrollment Period at any time up to
four weeks prior to a Purchase Date upon delivery to the Company of a notice of
withdrawal, or such shorter time in advance of a Purchase Date as the Committee
may permit. If notice is timely received, all funds credited to a Participant's
account shall not be used to purchase Common Stock, but shall instead be
distributed to him without interest as soon as administratively feasible. An
Employee who has withdrawn during an Enrollment Period may not return funds to
the Company during the same Enrollment Period and require the Company to apply
those funds to the purchase of Common Stock. Any Eligible Employee who has
withdrawn from the Plan may, however, re-enroll in the Plan on the next
subsequent Enrollment Date following withdrawal in accordance with the
provisions of Article VI.
B. Termination of Employment. Participation in the Plan terminates
immediately when a Participant ceases to be employed by the Company for any
reason whatsoever (including death or disability) or otherwise ceases to be an
Eligible Employee. As soon as administratively feasible after termination of
participation, the Company shall pay to the Participant or his or her
beneficiary or legal representative all amounts credited to the Participant's
account, without interest.
C. Leave of Absence. Unless a Participant has voluntarily withdrawn from
the Plan, Common Stock will be purchased for that Participant's account on the
Purchase Date next following commencement of a leave of absence by such
Participant. Participation in the Plan will terminate immediately after the
purchase of shares on such Purchase Date, unless:
(a) the leave of absence is due to illness, injury or other reason
approved by the Committee; or
(b) the Participant's right to return to active employment after such
leave is guaranteed by contract or statute.
XI. DESIGNATION OF BENEFICIARY
A. Each Participant may designate in writing one or more beneficiaries to
receive the amount in his account in the event of death and may, in his or her
sole discretion, change such designation in writing at any time. Any such
designation shall be effective upon receipt by the Company and shall control
over any disposition by will or otherwise.
B. As soon as administratively feasible after the death of a Participant,
amounts credited to his or her account shall be paid (without interest) in cash
to the designated beneficiaries or, in the absence of a designation, to the
executor, administrator or other legal representative of the Participant's
estate. Such payment shall relieve the Company of further liability with respect
to the Plan on account of the deceased Participant. If more than one beneficiary
is designated, each beneficiary shall receive an equal portion of the account
unless the Participant has given express contrary instructions.
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<PAGE> 40
XII. MISCELLANEOUS
A. Restrictions on Transfer. Options granted hereunder may not be
transferred otherwise than by will or the laws of descent and distribution. An
option may not be exercised during a Participant's lifetime other than by the
Participant. A Participant may direct the Company in the enrollment form to
issue share certificates to the Participant in the Participant's name, or if the
Participant so indicates in the enrollment form, in the Participant's name
together with the name of one or more other persons, in joint tenancy with right
of survivorship or spousal community property, or in certain forms of trusts
approved by the Committee. The rights of a Participant under the Plan shall not
be assignable by such Participant by operation of law or otherwise.
B. Administrative Assistance. If the Committee in its discretion so elects,
it may retain a brokerage firm, bank or other financial institution to assist in
the purchase of shares, delivery of reports or other administrative aspects of
the Plan. If the Committee so elects, each Participant shall (unless prohibited
by applicable law) be deemed upon enrollment in the Plan to have authorized the
establishment of an account on his or her behalf at such institution. Shares
purchased by a Participant under the Plan shall be held in the account in the
Participant's name, or if the Participant so indicates in the enrollment form,
in the Participant's name together with the name of one or more other persons,
in joint tenancy with right of survivorship or spousal community property, or in
certain forms of trusts approved by the Committee.
C. Costs. All costs and expenses incurred in administering the Plan shall
be paid by the Company, except that any stamp duties, transfer taxes and any
brokerage fees applicable to participation in the Plan shall be charged to the
account of such Participant by the Company.
D. Equal Rights and Privileges. All Eligible Employees shall have equal
rights and privileges with respect to the Plan so that the Plan qualifies as an
"employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Notwithstanding any
term of the Plan, any provision of the Plan which is inconsistent with Section
423 or any successor provision shall automatically be reformed to comply with
the requirements of Section 423.
E. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Delaware.
F. Amendment and Termination. The Board may amend, alter or terminate the
Plan at any time. No amendment shall be effective unless within one year after
it is adopted by the Board it is approved by the holders of a majority of the
voting power of the Company's outstanding shares, if such amendment would
require stockholder approval under Section 423 of the Code, Rule 16b-3, or the
requirements of any securities exchange or quotation system on which the Common
Stock is listed.
If the Plan is terminated, the Board may elect to terminate all outstanding
options either prior to their expiration or upon completion of the purchase of
shares on the next Purchase Date, or may elect to permit options to expire in
accordance with their terms (and participation to continue through such
expiration dates). If the options are terminated prior to expiration, all funds
contributed to the Plan that have not been used to purchase shares shall be
returned to the Participants without interest as soon as administratively
feasible.
G. No Right of Employment. Neither the grant nor the exercise of any rights
to purchase shares under this Plan nor anything in this Plan shall impose upon
the Company or any Participating Subsidiary any obligation to employ or continue
to employ any employee. The right of the Company and the Participating
Subsidiaries to terminate any employee shall not be diminished or affected
because any rights to purchase shares have been granted to such employee.
H. Requirements of Law. The Company shall not be required to sell, issue,
or deliver any shares of Common Stock under this Plan if such sale, issuance, or
delivery might constitute a violation by the Company or the Participant of any
provision of applicable law. Unless a registration statement or qualification
under the Securities Act or any applicable state securities law is in effect
with respect to the shares of Common Stock proposed to be delivered under the
Plan, the Company shall not be required to deliver such shares if, in the
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<PAGE> 41
opinion of the Company's counsel, such issuance could reasonably be expected to
violate the Securities Act or such state securities law, as applicable.
To the extent that such shares of Common Stock have not been registered or
qualified under the Securities Act or any applicable state securities laws, the
Company may impose restrictions upon the hypothecation or further sale or
transfer of such shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company's counsel, such restrictions
are necessary or desirable to achieve compliance with the Securities Act or the
securities laws of any state. If, in the opinion of the Company's counsel, any
legend placed on a stock certificate for shares of Common Stock issued under the
Plan is no longer required by applicable securities or other laws, the holder of
such certificate shall be entitled to exchange such certificate for an
unlegended certificate for a like number of shares.
The Company shall use all reasonable efforts to register or qualify the
Common Stock to be sold pursuant to the Plan under the Securities Act and any
applicable state securities laws. The Company shall not be obligated to take any
other action to cause the grant or exercise of any right or the issuance, sale,
or deliver of shares pursuant to the exercise of any right to comply with any
law.
I. Board and Stockholder Approval. This Plan has been approved by the Board
of Directors and, subject to approval by the Company's stockholders at the 1996
Annual Meeting, shall be effective on the Effective Date.
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<PAGE> 42
PROXY
EMPIRE OF CAROLINA, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
EMPIRE OF CAROLINA, INC.
The undersigned, a holder of Common Stock of Empire of Carolina, Inc., a
Delaware corporation (the "Company"), hereby appoints STEVEN GELLER, MARVIN
SMOLLAR and JEFFREY CURRIER, and each of them, the proxies of the undersigned,
each will full power of substitution, to attend, represent and vote for the
undersigned, all of the shares of the Company which the undersigned would be
entitled to vote, at the Annual Meeting of Stockholders of the Company to be
held on September 11, 1996 and any adjournments or postponements thereof, as
follows:
The undersigned hereby revokes any other proxy to vote at such Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters
not known at the time of the solicitations hereof, said proxies are authorized
to vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF, IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF THE SIX DIRECTORS NAMED IN PROPOSAL 1, "FOR" THE
ADOPTION OF PROPOSALS 2, 3, 4, 5 AND 6 AND AS SAID PROXIES SHALL DEEM ADVISABLE
ON SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.)
SEE REVERSE SIDE
<PAGE> 43
<TABLE>
<S><C>
PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE.
/X/
FOR WITHHOLD AUTHORITY
all nominees listed to vote for all
below nominees listed below
1. Election of / / / / 2. The amendment FOR AGAINST ABSTAIN
Directors, as provided to the Company's / / / / / /
in the Company's Proxy Restated Certificate
Statement. of Incorporation to require the affirmative
vote of more than two-thirds of the Directors
Nominees: Steven E. then in office to take specified corporate
Geller, Marvin Smollar, actions.
Steven N. Hutchinson,
Peter B. Pfister, The undersigned acknowledges receipt of a copy
Leonard E. Greenberg and of the Notice of Annual Meeting and
Eugene M. Matalene, Jr. accompanying Proxy Statement relating to the
Annual Meeting, and the 1995 Annual Report of
(INSTRUCTIONS To Stockholders.
withhold authority to
vote for any individual
nominee, write that
nominee(s) name below.)
- ------------------------
- ------------------------
3. The proposal to cause FOR AGAINST ABSTAIN
the shares of Series / / / / / /
A Preferred Stock to
automatically convert
into shares of Common
Stock on a
share-for-share basis.
4. The proposal to approve
the adoption of the FOR AGAINST ABSTAIN
Empire of Carolina, / / / / / /
Inc. 1996 Outside
Directors Stock Option
Plan.
5. The proposal to FOR AGAINST ABSTAIN
approve the adoption / / / / / /
of the Empire of
Carolina, Inc. 1996
Employee Stock Purchase
Plan.
6. The ratification
of the appointment FOR AGAINST ABSTAIN
of Deloitte & Touche / / / / / /
LLP as the company's
auditors for the
fiscal year ending
December 31, 1996.
7. Upon such other matters as may properly
come before the meeting or any adjournments or
postponements thereof.
SIGNATURE DATE
--------------------------------------- -------------------
NOTE: The signature(s) hereon should correspond exactly with the name(s) of
the Stockholder(s) appearing on the Stock Certificate. If stock is
jointly held, all joint owners should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title
as such. If signer is a corporation, please sign the full corporate
name, and give title of signing officer.
</TABLE>
