REGISTRATION NO. 333-______
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EMPIRE OF CAROLINA, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3944 13-2999480
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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5150 LINTON BOULEVARD
DELRAY BEACH, FLORIDA 33484
(561) 498-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
TIMOTHY MORAN
CHIEF EXECUTIVE OFFICER
EMPIRE OF CAROLINA, INC.
5150 LINTON BOULEVARD
DELRAY BEACH, FLORIDA 33484
(561) 498-4000
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(Name, address, including zip code, and telephone number, including area code, of agent for service)
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COPIES TO:
KENNETH G. KOLMIN
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, IL 60606
(312) 876-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is to be a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
registration statement of the earlier effective registration statement for the
same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE(1)
Common Stock, $.10 par value......................... 6,153,846(2) $1.0625(1) $6,538,461 $1,930
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
Based on the closing sale price reported for the Common Stock on the
American Stock Exchange on June 15, 1998 (the "Closing Price").
(2) Includes 1,153,846 shares of common stock issuable in the event that
the closing daily market price of the Company's Common Stock shall not
be at a price of $2.00 per share or higher for each of 45 consecutive
stock trading days within one year from the earlier of: (a) the date
this Registration Statement is declared effective or (b) August 27,
1998.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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(A redherring appears on the left, rotated 90 degrees, with the following text:)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 29, 1998
PROSPECTUS
EMPIRE OF CAROLINA, INC.
COMMON STOCK ($.10 PAR VALUE)
UP TO 6,153,846 SHARES
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This Prospectus relates to:
A. An aggregate of up to 6,153,846 shares (the "Resale Shares"; sometimes
also referred to herein as the "Securities") of common stock, $.10 par
value (the "Common Stock"), of Empire of Carolina, Inc., a Delaware
corporation (the "Company"), issued or issuable from time to time by
the Company. The following Resale Shares are being offered for sale
from time to time by the selling shareholders named or to be named in
this Prospectus (the "Selling Securityholders"):
(i) 5,000,000 outstanding shares of Common Stock (the "Initial
Shares") issued in connection with the Company's purchase of
all of the outstanding capital stock of Apple Sports, Inc. and
Apple Golf Shoes, Inc (collectively, the "Apple Companies")
pursuant to that certain Share Purchase Agreement dated April
10, 1998 (the "Share Purchase Agreement") among the Company
and the shareholders of the Apple Companies (collectively, the
"Apple Company Shareholders"); and
(ii) up to 1,153,846 shares (the "Additional Shares") of common
stock issuable in the event that the closing daily market
price of the Company's Common Stock shall not be at a price of
$2.00 per share or higher for each of 45 consecutive stock
trading days within one year from the earlier of: (a) date
this Registration Statement is declared effective or (b)
August 27, 1998 (together, the Initial Shares and the
Additional Shares are referred to herein as the "Payment
Shares").
The Company will not receive any proceeds from any sale of Resale
Shares by the Selling Securityholders. The Company has been advised by
the Selling Securityholders that there are no underwriting arrangements
with respect to the sale of Common Stock, that the Resale Shares may be
offered hereby from time to time for the account of Selling
Securityholders in transactions on The American Stock Exchange, in
negotiated transactions or a combination of both at prices related to
prevailing market prices, or at negotiated prices. See "Selling
Securityholders" and "Plan of Distribution." The Company will pay the
expenses in connection with the registration of the Resale Shares,
(other than any underwriting discounts and selling commissions, and
fees and expenses of counsel and other advisors, if any, to the Selling
Securityholders) estimated to be $71,307.
The Common Stock is traded on the American Stock Exchange under the
symbol "EMP." On June 15, 1998, the closing sale price for the Common
Stock on the American Stock Exchange was $1.0625 per share.
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 29, 1998
TABLE OF CONTENTS
PAGE
Documents Incorporated by Reference.................................... 4
The Company............................................................ 5
Recent Developments.................................................... 5
Risk Factors........................................................... 6
Use of Proceeds........................................................ 13
Capitalization......................................................... 13
Description of Securities.............................................. 13
Plan of Distribution................................................... 18
Selling Securityholders................................................ 20
Legal Matters.......................................................... 21
Experts................................................................ 21
Available Information.................................................. 22
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained or
incorporated by reference in this Prospectus in connection with the offerings
described herein, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or the Selling
Shareholders. Neither the delivery of this Prospectus nor any offer, sale or
exchange made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs or operations of the Company since
the date of this Prospectus, or that the information herein is correct as of any
time subsequent to such date.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission (the "Commission") under the Securities Exchange Act of 1934
(the "Exchange Act") are incorporated by reference in this Prospectus:
A. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
B. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
C. The Company's Current Reports on Form 8-K filed on February
24, March 30, March 31, and June 12, 1998; and
D. The Company's Form 14A filed on April 28, 1998.
All reports and other documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of the filing of such reports and documents.
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Any statement contained in a document incorporated or deemed to be
incorporated in this Prospectus by reference shall be modified or superseded for
the purpose of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated in this Prospectus by reference modifies or replaces
such statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, on the
written or oral request of such person, a copy of any and all of the information
that has been or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference into the
information that this Prospectus incorporates). Written requests for such copies
should be directed to Secretary, Empire of Carolina, Inc., 5150 Linton
Boulevard, Delray Beach, Florida 33484; telephone (561) 498-4000.
THE COMPANY
Empire of Carolina, Inc. designs, manufactures and markets a broad
variety of toys and plastic decorative holiday products, including Big Wheel (R)
ride-on products, outdoor activities and games such as Snow Works (TM) winter
sleds and Water Works (TM) water slides and pools (including Crocodile Mile (R)
water slides), Buddy L (R) vehicles(TM), Grand Champions (TM) collectible horses
and holiday products featuring plastic decorative holiday display items.
Empire of Carolina, Inc. was incorporated in Delaware in 1979. Unless
the context indicates otherwise, all references to "Empire" or the "Company"
refer to Empire of Carolina, Inc. and its subsidiaries. The Company's principal
executive offices are located at 5150 Linton Boulevard, Delray Beach, Florida
33484, and its telephone number is (561) 498-4000.
RECENT DEVELOPMENTS
On April 10, 1998, the Company executed the Share Purchase Agreement,
whereby the Company agreed to purchase from the Apple Company Shareholders all
of their capital stock representing all of the outstanding capital stock of the
Apple Companies (the "Acquisition"). The Company has issued to the Apple Company
Shareholders 5,000,000 shares of Common Stock, reimbursed certain transfer and
other fees of approximately $325,000 and, under certain circumstances, will be
required to issue an additional 1,153,864 shares of Common Stock.
On May 28, 1998, the Company held its annual meeting and the
stockholders voted to approve all of the proposals presented to the
shareholders, including the Acquisition. Approval of the Acquisition by the
stockholders of the Company was not required by the General Corporation Law of
the State of Delaware or by the Company's Certificate of Incorporation or
By-Laws, as amended. However, the rules of the American Stock Exchange, Inc.
(the "AMEX"), on which the Company's Common Stock is listed for trading, require
stockholder approval, as a prerequisite to approval of applications to list
additional shares to be issued as sole or partial consideration for an
acquisition of the stock of another company under certain circumstances.
On May 28, 1998, the Company consummated the transactions contemplated
by the Share Purchase Agreement. In connection with the consummation of the
Acquisition, the Apple Companies' existing $15 million credit facility with
Citibank, N.A. was replaced with a $12 million facility from LaSalle National
Bank on substantially similar terms. In addition, Timothy Moran was elected to
Empire's Board of Directors on May 28, 1998.
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THE OFFERING
Common Stock outstanding as of June 15, 1998(1)... 14,086,070 shares
SECURITIES OFFERED BY SELLING SECURITYHOLDERS:
Common Stock offered by the Selling 6,153,846 shares
Securityholders(1).............................
OTHER:
Risk Factors...................................... The Securities involve a high
degree of risk. Investors
should carefully consider the
information set forth under
"Risk Factors."
Use of Proceeds to the Company.................... None. See "Use of Proceeds."
American Stock Exchange Symbol for Common Stock... EMP
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(1) See "Selling Securityholders."
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IN
ADDITION, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS (WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT) WHICH INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY:
FINANCIAL CONDITION; CONTINUING LOSSES. The Company incurred a net loss of
$21.1 million in 1997 and had negative operating cash flows of $19.6 million
during 1996. In addition, the Company's Tarboro, North Carolina facility
suffered significant manufacturing problems in 1996. However, Management
believes it has taken significant corrective actions to improve operations and
reduce the outflow of cash. There can be no assurances that those efforts will
be successful. If the Company's efforts are not largely successful, the
Company's operating cash flows and current lines of credit may be insufficient
to fund continued operations. There can be no assurances that these efforts will
be successful.
As a result of the operating difficulties experienced by the Company,
the report of the Company's independent public accountants, in connection with
the audit of the Company's Consolidated Financial Statements as of December 31,
1997, includes an explanatory paragraph stating that the Company's substantial
1997 net loss and cash flow difficulties raise substantial doubt about the
Company's ability to continue as a going concern. The 1997 Consolidated
Financial Statements have been prepared on a going concern basis which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The 1997 Consolidated Financial Statements do not
include adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities, that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
operate profitably under its restructured organization.
ISSUANCE OF ADDITIONAL SHARES. In order to complete the transaction
contemplated by the Share Purchase Agreement, the Company has issued 5,000,000
shares of Common Stock as consideration for the stock of the Apple Companies.
Empire may be required to issue an additional 1,153,846 shares of common stock
under certain circumstances in the next year pursuant to the terms of the Share
Purchase Agreement. The issuance of these securities could adversely affect the
market price of the Company's Common Stock.
POSSIBLE FUTURE FINANCING NEEDS; USE OF PROCEEDS TO REPAY INDEBTEDNESS. The
Company may require additional capital to finance continued operations. The
Company's continued operations will depend upon revenues and operating cash
flows, if any, and the availability of additional equity or debt financing.
Furthermore, if this Registration Statement is
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not declared effective within 90 days of the closing date of the Apple
Transaction, the Company may be required to repurchase up to 500,000 of the
5,000,000 shares issued at a price per share of $2.00, for a total repurchase
price of $1,000,000. The repurchase of shares could constitute a default under
the terms of a $2.5 million promissory note (the "Note") from the Company to
Smedley Industries, Inc. liquidating trust. Currently, there is $1,875,000 in
principal outstanding on the Note. In the event that the repurchase is required
and a default occurs pursuant to the terms of the Note, the Company may require
additional capital to finance the repurchase or the repayment of the Note. The
Company has no commitments for additional financing and there can be no
assurance that the Company's operations will be profitable, that the Company
will be able to generate levels of revenues and cash flows sufficient to fund
operations and/or the above-mentioned repurchase, or, if necessary, that the
Company will be able to obtain additional financing on satisfactory terms, if at
all. In addition, the Company may choose to raise additional capital either
through debt or equity financing prior to the date on which capital is required
which may have a dilutive effect.
LEVERAGE/RESTRICTIVE COVENANTS. The Company has significant debt service
obligations. As of December 31, 1997, the Company had outstanding indebtedness
of approximately $23.4 million. The degree to which the Company is leveraged
could have important consequences to the holders of any of the Securities,
including the following: (i) the Company's ability to obtain additional
financing for working capital or other purposes in the future may be limited;
(ii) a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing funds available for operations and capital expenditures; and (iii) the
Company may be more vulnerable to economic downturns or other adverse
developments with respect to its business than certain less leveraged
competitors and, thus, may be limited in its ability to withstand competitive
pressures. In addition, borrowings under the Credit Agreements bear interest at
fluctuating rates. Increases in interest rates on such borrowings would increase
the Company's interest payment obligations and could adversely affect the
amounts that would be available for payment of interest and principal on other
indebtedness of the Company. The Company's ability to make scheduled payments of
the principal of or interest on, or to refinance, its indebtedness will depend
on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond its control.
The Credit Agreements contains numerous financial and operating
covenants including, among others, restrictions on the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to make
certain payments, distributions and investments, and to sell or otherwise
dispose of assets and merge or consolidate with another entity. The Credit
Agreement also requires the Company to meet certain financial ratios and tests.
If the Company fails to comply with the existing financial covenants, there can
be no assurance that the Company's senior lenders will not declare an event of
default under the Credit Agreement, that the Company would be able to arrange
for any alternative financing, on terms acceptable to it, or in time to meet the
Company's short-term liquidity requirements. If the Company cannot reach an
agreement or arrange for alternative financing in a timely fashion on terms
acceptable to it, the Company may be forced to cease operations, in which case
purchasers of the Securities offered hereby would likely lose their entire
investment. Even if the Company is able to obtain alternative financing, other
indebtedness of the Company that may be incurred in the future could contain
financial or other covenants more restrictive than those contained in the Credit
Agreement.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUISITIONS. The future success of the
Company depends in large measure on the Company's ability to integrate the
operations and financial and management information systems of the businesses it
has acquired and may acquire in the future. In addition to the acquisition of
the Apple Companies described above, the Company may pursue the purchase of
other related businesses as part of its growth strategy. The process of
integrating acquired businesses often involves unforeseen difficulties and may
require a disproportionate amount of the Company's financial and other
resources, including management time. The Company also intends to seek increased
sales in markets outside of the United States as part of its growth strategy.
Considering the Company's acquisitions and divestitures in recent years and its
recent operating difficulties, the Company's historical financial results may
not be indicative of its future performance. There can be no assurance that the
Company will grow, be successful in identifying or consummating favorable
acquisition opportunities, be effective in integrating recent or future
acquisitions, be successful in increasing its sales in international markets, or
that the Company will be effective in managing its growth, expanding its
facilities and operations or in attracting and retaining qualified personnel.
Any failure to effectively achieve or manage
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growth, manage its facilities and operations, or attract and retain qualified
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's operations and prospects are
dependent in large part on the performance of its senior management team. No
assurance can be given that the Company would be able to find qualified
replacements for any of these individuals if their services were no longer
available. The loss of the services of one or more members of the management
team could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's future success and plans for
growth also depend on its ability to attract, train and retain skilled personnel
in all areas of its business. There is strong competition for skilled personnel
in the toy and decorative holiday product businesses. There can be no assurance
that those persons will remain with the Company and if they should leave, that
the Company will be successful in attracting replacement personnel. In May 1997,
the Company replaced its chief financial officer and in February, 1998, the
Company's Board of Directors appointed Timothy Moran as President to fill the
existing vacancy. In May, 1998, Steve Geller, Empire's Chief Executive officer
resigned, and Mr. Moran was named President and Chief Executive Officer. In
addition, Mr. Moran was elected to Empire's Board of Directors (the "Board").
The success of the Company is dependent on the ability of the new CEO and other
new management personnel to effectively integrate themselves into the Company's
management structures and manage the Company. There can be no assurances that
their efforts or methods will ultimately be successful or effective.
MANUFACTURING. The Company's 1996 and 1997 operating results were negatively
and materially impacted by serious difficulties encountered during 1996 at its
Tarboro, North Carolina plant, which produces substantially all of the Company's
domestically manufactured products. While management has implemented
cost-cutting measures which it believes will significantly lower factory
overhead and selling and administrative expenses, there can be no assurance that
such measures will be successful or that the anticipated savings will be
realized. Furthermore, there can be no assurance that the Company will not
experience material manufacturing difficulties or negative manufacturing
variances in the future. The Company's future business plan contemplates
significant additional cost-cutting measures.
The Company owns only one manufacturing facility, and the Company's
revenues are dependent in substantial part upon the continued operation of such
facility. The operation of a manufacturing plant involves many risks, including
power failures, the breakdown, failure or substandard performance of equipment,
the improper installation or operation of equipment, natural disasters and the
hazards associated with the use of chemicals. While the Company maintains
insurance covering certain of such risks, there can be no assurance that the
occurrence of these or any other operational problems at the Company's facility
would not have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON MAJOR CUSTOMERS. Like other toy companies, the Company is
dependent upon toy retailers and mass merchandisers to distribute its products.
For the fiscal year ended December 31, 1997, approximately 60% of the Company's
sales were to 3 customers: Toys R Us (26%), Wal-mart (21%) and Target (13%). The
Company does not have long-term contracts with its customers. An adverse change
in, or termination of, the Company's relationship with or the financial
viability of one or more of its major customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
In recent years, the retail toy industry has undergone significant
consolidation. To the extent this consolidation continues, the Company's
distribution base could shrink, thereby concentrating an even greater percentage
of the Company's sales in a smaller number of retailers and enhancing the
remaining toy retailers' ability to negotiate more favorable terms and prices
from the Company.
CONTINUED RECEIPT OF GOODS AND SERVICES FROM SUPPLIERS. Due to the Company's
negative cash flow during 1996, it has not paid many of its suppliers of goods
and services on a timely basis. In many cases, the Company has negotiated
payment terms, in others, suppliers have not extended credit to the Company and,
in others, suppliers have threatened or have brought legal actions against the
Company. No assurance can be given that: suppliers will continue to supply goods
and services to the Company as they have in the past, the Company will be able
to replace any such suppliers, suppliers will grant credit to the Company on
favorable terms (if at all) or that the Company will be able to settle
successfully such legal actions or that suppliers will not be successful in any
legal actions that they have or might institute against the Company.
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LICENSE AND ROYALTY OBLIGATIONS. Certain of the Company's product lines employ
concepts or technologies created by outside designers. In addition, certain of
the Company's products incorporate other intellectual property rights, such as
characters or brand names, that are proprietary to third parties. In each
instance, the Company typically enters into a license agreement to acquire the
rights to the concepts, technologies or other rights for use with the Company's
products. These license agreements typically provide for the retention of
ownership of the technology, concepts or other intellectual property by the
licensor and the payment of a royalty to the licensor. Such royalty payments
generally are based on the net sales of the licensed product for the duration of
the license and, depending on the revenues generated from the sale of the
licensed product, may be substantial. In addition, such agreements often provide
for an advance payment of royalties and may require the Company to guarantee
payment of a minimum level of royalties that may exceed the actual royalties
generated from net sales of the licensed product. Some of these agreements have
fixed terms and may need to be renewed or renegotiated prior to their expiration
in order for the Company to continue to sell the licensed product. The Company
intends to continue to obtain third party licenses on a selective basis to
deepen and expand its existing product lines and, to a lesser extent, to enter
new product categories.
CONSUMER PREFERENCES AND NEW PRODUCT INTRODUCTIONS. Consumer preferences in the
toy industry are continuously changing and are difficult to predict. Relatively
few products achieve market acceptance, and even when they do achieve commercial
success, products often have short life cycles. There can be no assurance that
(i) new products introduced by the Company will achieve any significant degree
of market acceptance, (ii) acceptance, if achieved, will be sustained for any
significant amount of time or (iii) such products' life cycles will be
sufficient to permit the Company to recover development, manufacturing,
marketing and other costs associated therewith. Failure of new product lines or
product innovations to achieve or sustain market acceptance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION. The Company operates in a highly competitive environment. The
Company competes with several larger toy companies, such as Mattel, Inc.
("Mattel") and Hasbro, Inc. ("Hasbro"), and many smaller companies in the design
and development of new toys, the procurement of licenses, the improvement and
expansion of previously introduced products and product lines and the marketing
and distribution of its products. Some of these companies have longer operating
histories, broader product lines and substantially greater resources and
advertising budgets than the Company. The ability to compete may be adversely
impacted by the Company's lack of operating capital and losses from operations.
In addition, it is common in the toy industry for companies to market products
which are similar to products being successfully marketed by competitors.
Further, the introduction of new products and product lines by the Company makes
its operations susceptible to the risks associated with new products, such as
production, distribution, and quality control problems and the need to gain
customer acceptance.
RAW MATERIAL PRICES. The principal raw materials in most of the Company's
products are petrochemical resin derivatives such as polyethylene and high
impact polystyrene. The prices for such raw materials are influenced by numerous
factors beyond the control of the Company, including general economic
conditions, competition, labor costs, import duties and other trade restrictions
and currency exchange rates. Changing prices for such raw materials may cause
the Company's results of operations to fluctuate significantly. A large, rapid
increase in the price of raw materials could have a material adverse effect on
the Company's operating margins unless and until the increased cost can be
passed along to customers.
INVENTORY MANAGEMENT. Each of the Company's top five customers uses, to some
extent, inventory management systems which track sales of particular products
and rely on reorders being rapidly filled by suppliers rather than on large
inventories being maintained by retailers to meet consumer demand. Although
these systems reduce a retailer's investment in inventory, they increase
pressure on suppliers like the Company to fill orders promptly and shift a
portion of the retailer's inventory risk onto the supplier. Production of excess
products by the Company to meet anticipated retailer demand could result in
markdowns and increased inventory carrying costs for the Company on even its
most popular items. In addition, if the Company fails to anticipate the demand
for products, it may be unable to provide adequate supplies of popular toys to
retailers in a timely fashion, particularly during the Christmas season, and may
consequently lose sales.
FOREIGN SOURCING. Approximately 36% of the Company's net sales in the year
ended December 31, 1997 were attributable to products manufactured for the
Company by unaffiliated parties in the Far East, substantially all of whom
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are located in the People's Republic of China ("China"). The Company has not
entered into long-term contracts with any of these manufacturers. Accordingly,
the Company expects to continue to be dependent upon these sources for timely
production and quality workmanship. Given the seasonal nature of the Company's
business, any delay or quality control problems of such manufacturers, delay in
product deliveries, delay in locating or providing new tooling to acceptable
substitutes, or delay in increasing the production of alternative manufacturers
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, foreign operations are subject
to a number of risks, including transportation delays and interruptions,
political and economic disruptions, labor strikes, the imposition of tariffs and
import and export controls, changes in governmental policies, and fluctuations
in currency exchange rates, the occurrence of any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Changes in Chinese labor market conditions in recent years have made
it more difficult for Hong Kong based manufacturers, and in particular toy
manufacturers, to obtain the workforce necessary to meet aggressive seasonal
production schedules. The Company is working with its manufacturers to ensure
timely delivery of the Company's product. However, there can be no assurance
that such manufacturers will be able to meet the Company's production schedules.
The Company's foreign sourcing and contract manufacturing management
office is located in Hong Kong, until recently a British Crown Colony.
Consequently, the Company may be materially adversely affected by factors
affecting Hong Kong's political situation and its economy or its international
political and economic relations. On July 1, 1997, China assumed sovereignty
over Hong Kong. There can be no assurance that China will continue to grant or
renew or recognize existing licenses, or will continue to abide by the
previously established policies, rules and regulations currently in effect.
There can be no assurance as to the continued stability of political, economic,
or commercial conditions in Hong Kong or that the Company's financial condition
and results of operations will not be materially and adversely affected as a
consequence of these events. In the event of any disruption or other political
or economic change in Hong Kong or China affecting the Company's business, the
Company may be required to seek alternate manufacturing sources. The Company
currently does not have in place plans or arrangements for securing alternate
manufacturing sources in the event that its present relationships with
manufacturers prove impracticable to maintain, and there can be no assurance
that there would be sufficient alternative facilities to meet the increased
demand for production that would likely result from a disruption of
manufacturing operations in China. Furthermore, such a shift to alternate
facilities would likely result in increased manufacturing costs and could
subject the Company's products to increased duties, tariffs or other
restrictions.
China currently enjoys "most favored nation" ("MFN") status under
United States tariff laws, which provides the most favorable category of United
States import duties. There has been, and continues to be, opposition to the
extension of MFN status for China. The loss of MFN status for China would result
in a substantial increase in the import duty of toy products (which vary
depending on product category, and currently include duties of up to 70% for
non-MFN countries) manufactured in China which would result in increased costs
for the Company. Although the Company would attempt to mitigate this increased
cost by shifting its productions to other countries and/or increasing prices,
there can be no assurance that the Company would be able to do so or be
successful in doing so in a timely manner.
PRICE PROTECTION; TIMING OF PAYMENTS. Many companies in the toy industry
discount prices of existing products, provide for certain advertising allowances
and credits or give other sales incentives to customers. In addition, many toy
companies lower the prices of their products to provide price adjustments
(referred to as price protection) for retail inventories on hand at the time the
price change occurs. There can be no assurance that the Company will not, as a
result of competitive practices or otherwise, make such accommodations to a
significant degree in the future. Any such accommodations by the Company in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations. Further, like other toy manufacturers, a
substantial portion of the Company's shipments of products is made on terms that
permit payment more than 90 days after shipment of merchandise.
PRODUCT LIABILITY AND REGULATION. Due to the nature of its business, the
Company, at any particular time, is subject to a number of product liability
claims for personal injuries allegedly relating to the Company's products. The
Company has to date not incurred any material uninsured losses in defending or
settling such claims. The Company's products are designed to meet applicable
guidelines currently prescribed by the American Society of Testing and Materials
and Underwriters Laboratories, voluntary regulatory associations, as well as
requirements prescribed by the Consumer Product Safety Commission (the "CPSC").
Although the Company has not incurred material liabilities claims to date, there
can
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be no assurance that the Company will not be subject to material liabilities on
account of product liability claims in the future.
The Company assumes a self-insured retention limit and, to date, the
Company has disposed of substantially all of its product liability claims on
this basis. The Company does maintain insurance on an occurrence basis to
provide excess coverage above the self-insured retention limit for each claim.
There can be no assurance that the limits provided by the excess insurance will
be sufficient to satisfy an adverse judgment in one or more large product
liability suits or to satisfy all claims in the aggregate within a single policy
period. Further, there can be no assurance that an insurer will be solvent at
the time of settlement of an insured claim that exceeds the amount of any state
guaranty fund, or that the Company will be able to obtain excess insurance at
acceptable levels and costs in the future. Successful assertion against the
Company of one or a series of claims that materially exceed the limits of any
insurance coverage could have a material adverse effect on the Company's
business, financial condition or results of operation.
The Company's toys are subject to the provisions of the Consumer
Product Safety Act, the Federal Hazardous Substances Act (including the Federal
Child Protection and Toy Safety Act of 1969) and the Flammable Fabrics Act, and
the regulations promulgated thereunder. The Consumer Product Safety Act and the
Federal Hazardous Substances Act enable the CPSC to exclude from the market
consumer products that fail to comply with applicable product safety regulations
or otherwise create a substantial risk of injury and articles that contain
excessive amounts of a banned hazardous substance. The Flammable Fabrics Act
enables the CPSC to regulate and enforce flammability standards for fabrics used
in consumer products. In addition, the Company may be required to give public
notice of any hazardous or defective products and to repair, replace or
repurchase any such products previously sold. The Company is also subject to
various state, local and foreign laws designed to protect children from
hazardous or potentially hazardous products. If any of the Company's products
materially contributing to its dollar volume of sales was found to be hazardous
to the public health and safety or to contain a defect which created a risk of
injury to the public, the Company's business, financial condition and results of
operations could be materially adversely affected.
During 1997, the CPSC requested that the Company provide it with
information regarding specified products. The Company does not believe that
these products are defective, or that any repair, replacement or repurchase will
be required. If, however, products contributing materially to the Company's
dollar volume of sales were to require repair, replacement or repurchase, the
Company's business, financial condition and results of operations could be
materially adversely affected.
The Company maintains a quality control program to comply with the
various federal, state, local and international product safety requirements, as
well as to maintain appropriate quality and reliability standards of its
products.
The Company uses paint and other raw materials classified as hazardous
substances and generates waste in the manufacture of its products. The Company
is subject to federal and state regulations in the emission, storage and
disposal of such materials.
SEASONALITY; QUARTERLY FLUCTUATIONS. The Company, like the toy and seasonal
holiday industries in general, experiences a significant seasonal pattern in
sales and net income due to the heavy demand for toys and holiday products
during the Christmas season. During 1995, 1996 and 1997, 75%, 62% and 46%,
respectively, of the Company's net sales were realized during the months of July
through December. The Company expects that its business will continue to
experience a seasonal pattern for the foreseeable future. Consequently, the last
six months of the year have tended to generate greater sales than the rest of
the year. The timing of large, initial orders from customers, fluctuations in
demand from retailers during the peak selling season and weather patterns have
also contributed to quarterly fluctuations. The seasonality of the Company's
business requires funding of its working capital requirements to provide for
increased inventory levels and trade accounts receivable prior to the Christmas
season. To build its inventory in anticipation of the Christmas season, the
Company manufactures products and pays its suppliers throughout the year,
although a majority of the Company's shipments occur in the last five months of
the year.
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EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS. Certain provisions
of the Company's Charter and Amended and Restated By-laws (the "By-laws") could
delay or frustrate the removal of incumbent directors and could make more
difficult a merger, tender offer or proxy contest involving the Company, even if
such events could be beneficial, in the short term, to the interests of the
stockholders. The Company also is subject to provisions of Delaware corporation
law that prohibit a publicly-held Delaware corporation from engaging in a broad
range of business combinations with a person who, together with affiliates and
associates, owns 15% or more of the corporation's common stock (an "interested
stockholder") for three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. Those
provisions could discourage or make more difficult a merger, tender offer or
similar transaction, even if favorable to the Company's stockholders.
AUTHORIZED PREFERRED AND COMMON STOCK. Pursuant to the Charter, shares of
preferred stock and Common Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate transactions, could have the effect of
making it more difficult for a third party to acquire, or effectively preventing
a third party from acquiring, a majority of the outstanding voting stock of the
Company.
SHARES AVAILABLE FOR FUTURE ISSUANCE. As of the date of this Prospectus, there
are 14,086,070 shares of Common Stock outstanding. In addition, a very
substantial number of shares of Common Stock are issuable upon the exercise of
outstanding options or warrants and the conversion of outstanding equity
securities. See "Capitalization." Sales, or the possibility of sales, of Common
Stock by the Company's existing stockholders, whether in connection with the
exercise of registration rights or otherwise, could adversely affect the market
price of the Company's Common Stock.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS. The Company does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. Any
future dividend payments will depend upon the financial condition, funding
requirements and earnings of the Company as well as other factors that the Board
of Directors may deem relevant, including any contractual or statutory
restrictions on the Company's ability to pay dividends.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment to recognize
and properly process data fields containing a two digit year is commonly
referred to as the Year 2000 Compliance issue. As in the case with most
companies using computers, the Company is in the process of addressing the Year
2000 Compliance issue.
Due to the operational problems experienced by the Company during 1996
and the financial constraints affecting the Company during 1997, the Company did
not commit resources to address the Year 2000 issues until 1998. As a result,
the Company has not quantified the potential cost of Year 2000 Compliance.
The Company will utilize both internal and external resources to
reprogram or replace and test all of its software for Year 2000 compliance. The
potential costs and uncertainties associated with the Year 2000 issue will
depend on a number of factors, including software modification costs, hardware
costs, and the availability and cost of consultants.
The Company also plans to communicate with customers, vendors and
others to ensure that their systems are Year 2000 compliant. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material effect on the Company.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE. This registration statement
contains various forward-looking statements and information that are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used in this document, the words "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including those identified above. Should one or
more of these risks or uncertainties materialize, or should
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underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. In addition to the other risk factors
set forth above, among the key factors that may have a direct bearing on the
Company's results are the Company's ability to manage inventory production and
costs, to meet potential increases or decreases in demand, potential adverse
customer impact due to delivery delays including effects on existing and future
orders, competitive practices in the toy, golf, and decorative holiday products
industries, changing consumer preferences and risks associated with consumer
acceptance of new product introductions, potential increases in raw material
prices, potential delays or production problems associated with foreign sourcing
of production and the impact of pricing policies including providing discounts
and allowances. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
undertakes no obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
USE OF PROCEEDS
The Company will not receive any proceeds from any sale of the
Securities by the Selling Securityholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1998, as adjusted to reflect the effect of the issuance of $5,000,000
shares of common stock (valued at the closing market price of $1.125 per share
on May 28, 1998) to purchase all of the stock of Apple Sports, Inc. and Apple
Golf Shoes, Inc. and the assumption of short-term bank debt.
<TABLE>
<S> <C>
ACTUAL ADJMTS OF
3/31/98 APPLE ISSUANCE AS ADJUSTED
-------- --------------- ------------
Short-term debt............................................. $16,418 $ 3,739 $20,157
Long-term debt.............................................. 8,275 8,275
Total debt............................................ 24,693 3,739 28,432
Stockholders' Equity:
Common stock, $.10 par value, 60,000,000 shares authorized;
Issued and outstanding: Historical - 7,849,000; As
Adjusted - 12,849,000................................... 785 500 1,285
Preferred stock, $.01 par value, 5,000,000 shares authorized;
Issued and outstanding: 2,100,000 shares of Series A
convertible preferred stock and 1,461 shares of Series C
convertible preferred stock.............................. 21 21
Additional paid-in capital................................. 109,282 5,125 114,407
Deficit.................................................... (97,610) (97,610)
Total stockholders' equity.............................. 12,478 5,625 18,103
Total capitalization.................................. $37,171 $9,364 $46,535
</TABLE>
DESCRIPTION OF THE SECURITIES
The authorized capital stock of the Company consists of 60,000,000
shares of Common Stock, par value $.10 per share, and 5,000,000 shares of
preferred stock, par value $.01 per share, issuable in series (the "Preferred
Stock"). The Board of Directors has designated 2,100,000 shares of Preferred
Stock as Series A Preferred Stock, and 1,944,674 of such shares of Series A
Preferred Stock are outstanding as of the date of this Prospectus. As of June
15, 1998, there were 14,086,070 shares of Common Stock outstanding held of
record by approximately 4,659 securityholders.
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The following description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Company's restated certificate of incorporation and
by-laws, in each case as amended to date.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election by the Common Stock shareholders. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of holders of any outstanding Preferred Stock. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, fully paid and nonassessable.
PREFERRED STOCK
The Company's Charter provides that the Board of Directors is
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, to issue from time to time up to an aggregate of 5,000,000
shares of Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future. The
Company has no present plans to issue any additional shares of Preferred Stock.
TERMS OF SERIES B PREFERRED STOCK
The Board of Directors has designated two million shares of Preferred
Stock as Series B Preferred Stock in connection with the adoption of the
Stockholder Rights Agreement described below. Because of the nature of the
Series B Preferred Shares' dividend, liquidation and voting rights, the value of
the one one-hundredth interest in a Series B Preferred Share purchasable upon
exercise of each Right (as defined below) should approximate the value of one
Common Share. Series B Preferred Shares purchasable upon exercise of the Rights
will not be redeemable. Each Series B Preferred Share will be entitled to the
greater of (1) a preferential quarterly dividend payment of $1.00 per share, or
(2) an aggregate dividend of 100 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Series B Preferred Shares will
be entitled to a preferential liquidation payment of $100 per share, plus an
amount equal to 100 times the aggregate amount to be distributed per share of
common stock of 100 times the payment made per Common Share. Each Series B
Preferred Share will have 100 votes, voting together with the Common Shares
except as otherwise required by law. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Series B Preferred Share will be entitled to receive 100 times the amount
received per Common Share. These rights are protected by customary antidilution
provisions.
STOCKHOLDER RIGHTS PLAN
The Board of Directors adopted a Stockholder Rights Agreement in
September 1996 and declared a dividend of one preferred share purchase right
("Right") on each outstanding share of the Company's Common Stock payable to
stockholders of record as of the close of business on September 11, 1996 (the
"Record Date"). Except as described below, each Right, when exercisable,
entitles the holder thereof to purchase from the Company one one-hundredth of a
share of Series B Preferred Stock of the Company at an exercise price of $40 per
one one-hundredth of a Series B Preferred
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Share (the "Purchase Price"), subject to adjustment. The terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company and
American Stock Transfer & Trust Company, a New York corporation, as Rights
Agent.
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group has become an "Acquiring Person" (as defined
below) or (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person or group
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in a person or group (other than certain exempt persons) becoming
an Acquiring Person (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced by Common Share certificates.
An "Acquiring Person" is a person or group of affiliated or associated
persons who have acquired beneficial ownership of 15% or more of the Fully-
Diluted outstanding Common Shares (as defined in the Second Amendment), other
than the Company, any subsidiary of the Company, any employee benefit plan of
the Company or its subsidiaries, or WPG Corporate Development Associates IV,
L.P., WPG Corporate Development Associates IV (Overseas) L.P., Glenbrook
Partners, L.P., Westpool Investment Trust plc, Steven E. Geller, and certain
persons affiliated or associated with or related to the foregoing persons
("Exempt Persons"). The Stockholder Rights Agreement, as amended, also provides
that HPA and EMP (collectively with HPA, the "Investors") and their respective
affiliates are "Exempt Persons" from and after the execution of the Securities
Purchase Agreement; provided that (A) if the Investors or their respective
affiliates acquire beneficial ownership of any shares of Common Stock other than
in a transaction with the Company or with the written consent of the Company
from and after the execution of the Securities Purchase Agreement and prior to
the consummation of the investment by the Investors contemplated by the
Securities Purchase Agreement, then the Investors and their affiliates shall not
be deemed to be "Exempt Persons" at any time after such acquisition of
beneficial ownership, or (B) if the investment by the Investors contemplated by
the Securities Purchase Agreement is not consummated, then the Investors and
their respective affiliates shall not be deemed to be "Exempt Persons" at any
time after the Securities Purchase Agreement terminates in accordance with its
terms. Notwithstanding the foregoing, (i) no person shall become an Acquiring
Person as the result of (A) an acquisition of Common Shares by the Company which
increases the proportionate number of shares beneficially owned by such person
and its affiliates and associates to 15% or more of the Common Shares or (B) the
lapse, forfeiture, cancellation, termination or expiration without exercise or
conversion into Common Shares of the Company of any stock option, warrant,
convertible security or other right to acquire Common Shares; PROVIDED, HOWEVER,
that if a person shall become the Beneficial Owner of 15% or more of the Fully-
Diluted Common Shares of the Company by reason of share acquisitions by the
Company or the lapse, forfeiture, cancellation, termination or expiration
without exercise or conversion into Common Shares of any stock option, warrant,
convertible security or other right to acquire Common Shares of the Company and
shall, after such share acquisitions by the Company or such lapse, forfeiture,
cancellation, termination or expiration, (A) acquire, in one or more
transactions, beneficial ownership of an additional number of Common Shares
which exceeds the LESSER of 10,000 Common Shares or 0.25% of the
then-outstanding Common Shares and (B) beneficially owns after such acquisition
15% or more of the Fully-Diluted Common Shares of the Company at such time, then
such person shall be deemed to be an Acquiring Person, and (ii) if the Board of
Directors of the Company determines in good faith that a person who would
otherwise be an Acquiring Person has become such inadvertently, and such person
divests as promptly as practicable a sufficient number of Common Shares so that
such person would no longer be an Acquiring Person, then such person shall not
be deemed to be an Acquiring Person for any purposes of the Rights Agreement.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date will contain a notation incorporating the Rights Agreement
by reference. Until the Distribution Date (or earlier redemption or expiration
of the Rights), the surrender for transfer of any certificates for Common Shares
will also constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
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The Rights are not exercisable until the Distribution Date. The Rights
will expire on September 11, 2001 (the "Final Expiration Date"), unless the
Rights are earlier redeemed or exchanged by the Company, as described below.
The Purchase Price payable, and the number of Series B Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series B Preferred Shares, (ii) upon the grant to holders of the Series B
Preferred Shares of certain rights or warrants to subscribe for or purchase
Series B Preferred Shares at a price, or securities convertible into Series B
Preferred Shares with a conversion price, less than the then-current market
price of the Series B Preferred Shares or (iii) upon the distribution to holders
of the Series B Preferred Shares of evidences of indebtedness, assets or capital
stock (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Series B Preferred Shares) or of
subscription rights or warrants (other than those referred to above). With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. The Company will not be required to issue fractional Common Shares or
Series B Preferred Shares (other than fractions which are integral multiples of
one one-hundredth of a Series B Preferred Share, which may, at the election of
the Company, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash may be made based on the market price of the Common Shares or
Series B Preferred Shares on the last trading day prior to the date of exercise.
If any person or group becomes an Acquiring Person, then each holder of
a Right (other than Rights beneficially owned by the Acquiring Person, any
Associate or Affiliate thereof (as such terms are defined in the Rights
Agreement), and certain transferees thereof, which will be void) will have the
right to receive upon exercise of such Right that number of Common Shares (or,
in certain circumstances, cash, property or other securities of the Company)
having a market value of two times the exercise price of the Right.
If at any time after the time that any person or group becomes an
Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power is sold, proper provision will be made so that each holder of a Right
(other than Rights beneficially owned by the Acquiring Person, any Associate or
Affiliate thereof, and certain transferees thereof, which will be void) will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after the time that any person or group becomes an
Acquiring Person and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights beneficially owned by such person or
group, any Associate or Affiliate thereof, and certain transferees thereof,
which will be void), in whole or in part, at an exchange ratio of one Common
Share or one one-hundredth of a Series B Preferred Share (or of a share of a
class or series of the Company's preferred stock having equivalent rights,
preferences and privileges) per Right (subject to adjustment).
At any time prior to the time that any person becomes an Acquiring
Person, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right, subject to adjustment (the
"Redemption Price"), which may (at the option of the Company) be paid in cash,
Common Shares or other consideration deemed appropriate by the Board of
Directors. The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish; PROVIDED, HOWEVER, that no redemption will be
permitted or required after the time that any person becomes an Acquiring
Person. Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of the Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
make the Rights redeemable if the Rights are not then redeemable in accordance
with the terms of the Rights Agreement or may adversely affect the interests of
the holders of the Rights.
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Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The provisions of the Company's Charter, By-laws and Delaware statutory
law described in this section may delay or make more difficult acquisitions or
changes in control of the Company that are not approved by the Board of
Directors.
The Company is subject to the provisions of Section 203 of the DGCL.
Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
As permitted by the DGCL, the Charter and By-laws provide that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director by
reason of any act or omission occurring on ar after July 18, 1988, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, (iv) for any transaction from which the director shall derive an
improper personal benefit or (v) to any extent that such liability shall not be
limited or eliminated by virtue of the provisions of Section 102(b)(7) of the
DGCL or any successor thereof. In addition, the Charter provides that the
Company shall, to the fullest extent authorized by the DGCL, as amended from
time to time, indemnify and hold harmless all directors and officers against all
expense, liability and loss reasonably incurred or suffered by such indemnitee
in connection therewith. Such indemnification shall continue as to an indemnitee
who has ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. The right to indemnification
includes the right to be advanced funds from the Company for expenses incurred
in defending any proceeding for which a right to indemnification is applicable.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company's By-laws provide that special meetings of the stockholders
may be called at any time by resolution of the Board of Directors, the Chairman
of the Board, the Chief Executive Officer, the Chief Operating Officer or the
President, but may not be called by other persons.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, is American
Stock Transfer & Trust Company, New York, New York.
17
<PAGE>
PLAN OF DISTRIBUTION
SALE BY THE SELLING SECURITYHOLDERS COMMON STOCK. The Company issued 5,000,000
shares of common stock to the Apple Shareholders on May 28, 1998. The Company
will receive no proceeds from the resale of the Common Stock.
The Selling Securityholders may sell all or a portion of the Securities
offered hereby in accordance with the procedures set forth in this Prospectus
from time to time while the Registration Statement of which this Prospectus is a
part remains effective. The Company has been advised by the Selling
Securityholders that the Securities may be sold on terms to be determined at the
times of such sales through customary brokerage channels, negotiated
transactions or a combination of these methods, at fixed prices that may be
changed, at market prices then prevailing or at negotiated prices then
obtainable. There is no assurance that the Selling Securityholders will sell any
or all of the Securities offered pursuant to this Prospectus. Each of the
Selling Securityholders reserves the right to accept and, together with its
agents from time to time, to reject in whole or in part any proposed purchase of
the Securities to be made directly or through agents. The Company will receive
no portion of the proceeds from the sale of Securities offered hereby. The
aggregate proceeds to the Selling Securityholders from the sale of the
Securities offered by the Selling Securityholders hereby will be the purchase
price of such Securities less any discounts or commissions.
The Selling Securityholders, acting as principals for their own
account, may sell Securities from time to time directly to purchasers or through
agents, dealers or underwriters to be designated by the Selling Securityholders
from time to time who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any agents, broker-dealers or underwriters that participate
with the Selling Securityholders in the distribution of the Securities may be
deemed to be "underwriters" within the meaning of the Securities Act, in which
event any discounts, commissions or concessions received by such broker-dealers,
agents or underwriters and any profit on the resale of the Securities purchased
by them may be deemed to be underwriting discounts or commissions under the
Securities Act.
A Selling Securityholder may elect to engage a broker or dealer to
effect sales of the Securities in one or more of the following transactions: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, and (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, brokers and dealers engaged
by a Selling Securityholder may arrange for other brokers or dealers to
participate. Broker-dealers may agree with the Selling Securityholders to sell a
specified number of such Securities at a stipulated price and, to the extent
required, to fulfill the broker-dealer commitment to such Selling
Securityholder. Broker-dealers who acquire Securities as principal may
thereafter resell such Securities from time to time in transactions (which may
involve crosses and block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Securities commissions as described above.
Selling Securityholders may also offer the Securities covered by this
Prospectus under other registration statements or pursuant to exemptions from
the registration requirements of the Securities Act, including sales which meet
the requirements of Rule 144 under the Securities Act. Selling Securityholders
should seek advice from their own counsel with respect to the legal requirements
for such sales.
To comply with the securities laws of certain states if required, the
Company shall use its best efforts to register or qualify the Resale Shares
under such other securities or "blue sky" laws of such jurisdictions as any
Selling Securityholder reasonably requests in writing and to do any or all other
acts and things that may be reasonably necessary or advisable to register or
qualify for sale in such jurisdictions the Securities owned by such Selling
Securityholder; PROVIDED, HOWEVER, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified, (ii) subject itself to taxation in any such jurisdiction, (iii)
consent to general service of process in any such jurisdiction or (iv) provide
any undertaking required by such other securities or "blue sky" laws or make any
18
<PAGE>
change in its charter or by-laws that the Board of Directors of the Company
determines in good faith to be contrary to the best interest of the Company and
its stockholders.
Each of the Selling Securityholders has certain registration rights
with respect to the Securities owned by such Selling Securityholder. The Company
has filed the Registration Statement of which this Prospectus is a part pursuant
to such registration rights.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Securities may not simultaneously
engage in market making activities with respect to the Common Stock for a period
of one business day prior to the commencement of such distribution. In addition
and without limiting the foregoing, the Selling Securityholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M. These provisions may
limit the timing of purchases and sales of the Securities by the Selling
Securityholders.
A supplement to this Prospectus will be filed, if required, pursuant to
Rule 424 under the Securities Act disclosing (a) the name of the participating
broker-dealer(s); (b) the number of Resale Shares involved; (c) the price at
which such Resale Shares were sold; (d) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable; and (e) other
facts material to the transaction, including the name and other information
regarding the Selling Securityholders.
The Company will maintain the effectiveness of the Registration
Statement so long as any Payment Shares remain outstanding and shall then
terminate the effectiveness, provided that (i) the Company shall be entitled to
remove from registration herein Payment Shares held by any persons who have
acquired such Payment Shares for consideration pursuant to a transaction covered
by the registration herein, and (ii) at any time after two years after the date
of the issuance of the Payment Shares, so long as the Payment Shares are freely
tradable under Rule 144 in the hands of persons who are not affiliates of the
Company. As used in this paragraph, "affiliate" as the meaning given to it in
Rule 144 under the Securities Act of 1933.
19
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information concerning those
persons known to the Company, based on information known to the Company,
contained in statements filed with the Securities and Exchange Commission
pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and/or obtained from such persons, with respect to
the beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act) of Common Stock, by each Selling Securityholder:
<TABLE>
<S> <C>
SECURITIES BENEFICIALLY OWNED
SELLING SECURITYHOLDER PRIOR TO THE OFFERING* SECURITIES TO BE SOLD**
- ---------------------- ----------------------------- -----------------------
Timothy Moran (1)
Common Stock 1,763,773 1,230,773
Series A Preferred Stock 50,000 0
Warrants 50,000 0
Robert A. Wertley (2)
Common Stock 310,853 307,693
Series A Preferred Stock 0 0
Warrants 0 0
Robert A. Wertley, as Trustee for Mark Rose
Irrevocable Trust f/b/o Bridget A. Moran
Common Stock 717,950 717,950
Series A Preferred Stock 0 0
Warrants 0 0
Robert A. Wertley, as Trustee for Mark Rose Irrevocable
Trust f/b/o Stacy Dugan
Common Stock 717,950 717,950
Series A Preferred Stock 0 0
Warrants 0 0
Robert A. Wertley, as Trustee for Mark Rose Irrevocable
Trust f/b/o Baylee Shea Rose 717,950 717,950
Common Stock 0 0
Series A Preferred Stock 0 0
Warrants
Mark S. Rose(3) 628,849 153,849
Common Stock 50,000 0
Series A Preferred Stock 50,000 0
Warrants
20
<PAGE>
<CAPTION>
SECURITIES BENEFICIALLY OWNED
SELLING SECURITYHOLDER PRIOR TO THE OFFERING* SECURITIES TO BE SOLD**
- ---------------------- ----------------------------- -----------------------
Mark Rose Companies Ltd.
Common Stock 2,153,852 2,153,852
Series A Preferred Stock 0 0
Warrants 0 0
Elice Joy Rose
Common Stock 153,847 53,847
Series A Preferred Stock 0 0
Warrants 0 0
- ----------
</TABLE>
* For Common Stock, includes (a) all shares of Common Stock outstanding
owned by the applicable person, (b) all shares of Common Stock
acquirable upon conversion or exercise of the Company's warrants to
purchase shares of the Company's Common Stock at an exercise price of
$1.375 per share (the "Warrants") and the Series A convertible
preferred stock, $.01 par value (the "Series A Preferred Stock") and
(c) issuance of the Additional Shares owned by the applicable person.
** Except as otherwise indicated, all Selling Securityholders will hold
less than one percent (1%) of the Securities after the offering. The
Selling Securityholders are not required to sell all or any part of
the Securities covered by this Prospectus; therefore the number and
percentage of outstanding Securities to be held by them after
completion of the offering may exceed that indicated herein.
(1) Includes 83,000 options to purchase Common Stock at $2.00 per share.
Timothy Moran also holds 367,000 options to purchase Common Stock,
117,000 at $2.00 per share and 250,000 at $1.375 per share. The options
are exercisable as follows: 83,000 on May 13, 1999, 66,666 on May 28,
1999, 84,000 on May 13, 2000, 66,666 on May 28, 2000 and 66,668 on May
28, 2001. Mr. Moran will continue to hold these options after the
completion of the offering. Mr. Moran is also a Director, the President
and Chief Executive Officer of the Company and President and Chief
Operating Officer of the Apple Companies. Although Mr. Moran currently
holds less than 1% of the Common Stock outstanding, if he were to
convert all of his Series A Preferred Stock, exercise all of his
Warrants and vested stock options, Mr. Moran would hold approximately
3.6% of the Common Stock outstanding.
(2) In connection with the Acquisition, Mr. Wertley resigned as a director
and corporate secretary of Apple Sports, Inc. and as a director and
corporate secretary of Apple Golf Shoes, Inc.
(3) Assuming the shares are not sold, Mark S. Rose will beneficially own
25,000 shares of Common Stock after the offering. In connection with
the Acquisition, Mr. Rose resigned as Chairman of the Board of
Directors and Vice President and Treasurer of Apple Golf Shoes, Inc.
and as Chairman of the Board of Directors and Vice President and
Treasurer of Apple Sports, Inc. Although Mr. Rose currently holds less
than 1% of the Common Stock outstanding, if he were to convert all of
his Series A Preferred Stock and exercise all of his Warrants, Mr.
Moran would hold approximately 3.3% of the Common Stock outstanding.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Sonnenschein Nath & Rosenthal, Chicago, Illinois.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this Registration Statement by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, (which reports express an unqualified opinion and include an
explanatory paragraph as to an uncertainty regarding the Company's ability to
continue as a going concern), which are incorporated herein by reference, and
have been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
21
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement with the Securities and
Exchange Commission (the "Commission") on Form S-3 under the Securities Act of
1933, as amended, with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by rules of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. With
respect to each such contract or other document filed as a part of or otherwise
incorporated in the Registration Statement, reference is made to the exhibit for
a more complete description of the matters involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Commission. The
Registration Statement, including the schedules and exhibits thereto, as well as
such reports, proxy statements and other information filed by the Company can be
inspected, without charge, and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices maintained by the
Commission at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048. The Commission maintains a Website at http://www.sec.gov that contains
electronically filed reports, proxy and information statements and other
information regarding the Company. Copies of such materials can also be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock Series A Preferred Stock & Warrant are listed on the American Stock
Exchange and copies of such materials may also be inspected and copied at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
offering described in this Registration Statement.
Securities and Exchange Commission registration fee............ $1,930
American Stock Exchange Listing Fee............................ $17,500
------
Accounting Fees and Expenses................................... $7,500
-----
Printing and Engraving Expenses................................ $10,000
------
Legal Fees and Expenses........................................ $35,000
------
Blue Sky Fees and Expenses..................................... $0
Miscellaneous.................................................. $0
Total.................................................... $71,930
-------
- -----------
* Also includes legal fees and expenses incurred in connection with the
listing of the Securities on the American Stock Exchange.
The foregoing items, except for the Securities and Exchange Commission
fee, are estimated. All expenses will be borne by the Company.
22
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL"), INTER
ALIA, empowers a Delaware corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Similar
indemnity is authorized for such persons against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of any such threatened, pending or completed action or suit by or in
the right of the corporation if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the shareholders or disinterested
directors or by independent legal counsel in a written opinion that
indemnification is proper because the indemnitee has met the applicable standard
of conduct. The Certificate of Incorporation of the Company provides that
directors and officers shall be indemnified as described above in this paragraph
to the fullest extent permitted by the DGCL; provided, however, that any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person shall be indemnified only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Company.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in such capacity,
or arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145.
The Charter provides that, to the fullest extent permitted by the DGCL,
no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the DGCL currently provides that such provisions do not
eliminate the liability of a director (i) for a breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (relating to the declaration of
dividends and purchase or redemption of shares in violation of the DGCL), or
(iv) for any transaction from which the director derived an improper personal
benefit. Reference is made to the Company's Charter and By-laws filed as
Exhibits 3.1 and 3.2 hereto, respectively.
The Company maintains directors' and officers' liability insurance
policies covering certain liabilities of persons serving as officers and
directors and providing reimbursement to the Company for its indemnification of
such persons.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company(1)
3.2 First Amendment to Restated Certificate of Incorporation of
the Company(2)
3.3 Amended and Restated By-laws of the Company(3)
4.14 Share Purchase Agreement(4)
5.1 Opinion of Sonnenschein Nath & Rosenthal dated as of June 26,
1998.
23.1 Consent of Deloitte & Touche LLP dated as of June 25, 1998.
23
<PAGE>
24.1 Power of attorney(5)
- -----------
(1) Previously filed as an exhibit to the Company's Current report on Form
10-Q dated as of September 30, 1997, and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Current report on Form
10-Q dated as of September 30, 1997, and incorporated herein by
reference.
(3) Previously filed as an exhibit to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated March 31, 1998 and incorporated by reference.
(5) See Part II, page 5.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof), which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration
Statement.
2. That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be
24
<PAGE>
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes (1) to use its best
efforts to distribute prior to the opening of bids, to prospective bidders,
underwriters, and dealers, a reasonable number of copies of a prospectus which
at that time meets the requirements of Section 10(a) of the Act, and relating to
the securities offered at competitive bidding, as contained in the Registration
Statement, together with any supplements thereto, and (2) to file an amendment
to the Registration Statement reflecting the results of bidding, the terms of
the reoffering and related matters to the extent required by the applicable
form, not later than the first use, authorized by the issuer after the opening
of bids, of a prospectus relating to the securities offered at competitive
bidding, unless no further public offering of such securities by the issuer and
no reoffering of such securities by the purchasers is proposed to be made.
(d) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to securityholders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be filed on its behalf by the undersigned, thereunto duly
authorized in Delray Beach, Florida on June 29, 1998.
EMPIRE OF CAROLINA, INC.
By: /s/ Charles S. Holmes
-----------------------------------------
Charles S. Holmes
CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Empire of Carolina, Inc.,
hereby severally constitute and appoint Charles S. Holmes, Steven Geller and
Lawrence Geller, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this Registration Statement, including any filings pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and generally to do all things in our
names and on our behalf in such capacities to enable Empire of Carolina, Inc. to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
NAME TITLE DATE
---- ----- ----
/s/ Charles S. Holmes
- ---------------------------------
Charles S. Holmes Chairman of the Board of Directors June 29, 1998
/s/ Timothy Moran
- ---------------------------------
Timothy Moran President and Chief Executive Officer (Principal June 29, 1998
Executive Officer)
/s/ Steven Geller
- ---------------------------------
Steven Geller Director June 29, 1998
/s/ William Craig
- ---------------------------------
William Craig Executive Vice President Finance and Chief Financial June 29, 1998
Officer (Principal Financial and Accounting Officer)
/s/ Frederick W. Rosenbauer, Jr.
- ---------------------------------
Frederick W. Rosenbauer, Jr. Director June 29, 1998
/s/ James J. Pinto
- ---------------------------------
James J. Pinto Director June 29, 1998
/s/ Lenore H. Schupak
- ---------------------------------
Lenore H. Schupak Director June 29, 1998
/s/ John J. Doran
- ---------------------------------
John J. Doran Director June 29, 1998
</TABLE>
26
EXHIBIT 5.1
SONNENSCHEIN NATH & ROSENTHAL OPINION
KENNETH G. KOLMIN
(312) 876-3191
June 26, 1998
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: Empire of Carolina, Inc. Registration Statement on Form S-3
(File No. 333-_________)
Ladies and Gentlemen:
We have acted as counsel to Empire of Carolina, Inc. a Delaware corporation
(the "Company"), in connection with the registration by the Company under the
Securities Act of 1933 (the "Act") pursuant to the Company's Registration
Statement on Form S-3 (File No. 333-_________ ) to be filed with the Securities
and Exchange Commission (the "Commission") on or about the date of this letter
(the "Registration Statement") of (i) 5,000,000 shares (the "Issued Shares")
of the Company's common stock, par value $.10 per share (the "Common Stock")
and (ii) up to 1,153,846 shares of Common Stock to be issued under certain
circumstances (the "Issuable Shares") pursuant to the Share Purchase Agreement
by and among the Company and the shareholders of Apple Sports, Inc. and Apple
Golf Shoes, Inc. dated April 10, 1998 (the "Share Purchase Agreement").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation of the Company, as amended to date (the "Certificate");
Certificates of Good Standing of a recent date, and certificates of certain
officers of the Company, and such agreements, instruments, certificates of
public officials and others, and such other documents, certificates and records;
and have made such other investigations, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
We have assumed the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents. In making our examination of documents executed by parties
other than the Company, we have assumed that such parties had the power,
corporate and otherwise, to enter into and perform their respective obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate and otherwise, and the execution and delivery by such parties of such
documents and the validity and binding effect thereof. As to any facts material
to the opinions expressed herein, we have relied upon oral or written statements
and representations of officers and other representatives of the Company and
others.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Issued Shares are duly authorized and validly issued, fully paid and
non-assessable.
2. The Issuable Shares, when issued, sold and delivered in the manner and for
the consideration stated in the Prospectus included in the Registration
Statement, will be duly authorized and validly issued, fully paid and
non-assessable.
27
<PAGE>
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Prospectus included in the
Registration Statement.
Very truly yours,
SONNENSCHEIN NATH & ROSENTHAL
By: /s/Kenneth G. Kolmin
----------------------
Kenneth G. Kolmin
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Empire of Carolina, Inc. on Form S-3 of our reports dated March 30, 1998,
(which express an unqualified opinion and include an explanatory paragraph as to
an uncertainty regarding the Company's ability to continue as a going concern),
appearing in the Annual Report on Form 10-K of Empire of Carolina, Inc. for the
year ended December 31, 1997 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
Raleigh, North Carolina
June 25, 1998
29
