-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+AlysTkLP6fxF/FMaqu/x+ApDQj/Di8ENvXH/lhvkqsbBft/B2yUufdwc/uBPsQ mQkbeqaJo3dE1t7oH+tG/g== 0000950168-97-001711.txt : 19970701 0000950168-97-001711.hdr.sgml : 19970701 ACCESSION NUMBER: 0000950168-97-001711 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970617 ITEM INFORMATION: Changes in control of registrant ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970630 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE OF CAROLINA INC CENTRAL INDEX KEY: 0000312840 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 132999480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07909 FILM NUMBER: 97633206 BUSINESS ADDRESS: STREET 1: 501 DANIEL ST STREET 2: PO BOX 4000 CITY: TARBORO STATE: NC ZIP: 27886-4000 BUSINESS PHONE: 9198234111 MAIL ADDRESS: STREET 1: P O BOX 4000 CITY: TARBORO STATE: NC ZIP: 27886 8-K 1 EMPIRE OF CAROLINAS - 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 June 17, 1997 ------------------------------------------------ Date of Report (Date of earliest event reported) Empire of Carolina, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 1-7909 13-2999480 - ---------------------------- ------------ ------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 5150 Linton Boulevard, 5th Floor, Delray Beach, Florida 33484 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (561) 498-4000 ------------------------------- (Registrant's telephone number) 1 ITEM 1. CHANGES IN CONTROL OF REGISTRANT The transactions described in Item 5 below may be deemed to have resulted in a change in control of the Company. See Item 5 below. ITEM 5. OTHER EVENTS. On June 17, 1997, pursuant to a Securities Purchase Agreement dated as of May 5, 1997, as amended by Amendment No. 1 to the Securities Purchase Agreement, dated as of June 5, 1997 (the "Securities Purchase Agreement"), among Empire of Carolina, Inc., a Delaware corporation (the "Company"), HPA Associates, LLC ("HPA") and EMP Associates, LLC ("EMP"), the Company issued to HPA, EMP and other accredited investors (as defined in Rule 501 under the Securities Act of 1933, as amended) ("Accredited Investors") 1,100,000 shares of the Company's Series A preferred stock, $.01 par value per share, $10 face value per share (the "Series A Preferred Stock") and 5,000,000 warrants to purchase shares of the Company's common stock, $.10 par value per share (the "Common Stock") (the "Principal Investment"). On June 18, 1997, the Company issued to HPA and other Accredited Investors an additional 500,000 shares of the Series A Preferred Stock and an additional 2,500,000 warrants (the "Additional Investment"). The investors in the Principal Investment and Additional Investment are collectively referred to herein as the "Purchasers". The total shares of Series A Preferred Stock issued to Purchasers in connection with the foregoing was 1,600,000 and the total number of warrants issued was 7,500,000. The total gross proceeds from the sale of such securities was $16,000,000 (the "Purchase Price"). $5,000,000 of the Purchase Price was non-cash consideration represented by the conversion of $5 million of 12% bridge notes funded by HPA and EMP in May 1997 in connection with the execution of the Securities Purchase Agreement. The Series A Preferred Stock is convertible into Common Stock at an initial conversion price of $1.25 per share (subject to adjustment in certain circumstances) and the exercise price per share of the warrants is $1.375 per share (subject to adjustment in certain circumstances). The Series A Preferred Stock has the right, as a class of stock of the Company, to designate two directors and is entitled to vote on all matters presented to stockholders on an as if converted basis. Purchasers also received certain registration rights. The Certificate of Designation relating to the Series A Preferred Stock, the Warrant Amendment to Warrant Certificate, the related Warrant Agreement, and the Letter of the Company regarding the registration rights and provisions affecting the Series A Preferred Stock are being filed herewith as Exhibits 3.5, 4.7, 4.8, and 10.43, respectively, and are incorporated herein by reference. Pursuant to the Securities Purchase Agreement, all closing conditions set forth in the Securities Purchase Agreement were met or waived prior to the Principal Investment, including the following: o The Company's 9% convertible debentures issued to affiliates of Weiss, Peck & Greer in the original principal amount of $15 million were exchanged by the holders thereof for newly-issued shares of Series C Preferred Stock of the Company with an aggregate Stated Value (as defined) of $15 million. Such holders also released, among other things, their claims to accrued and unpaid interest, fees and expenses. Each share of Series C Preferred Stock is 2 convertible at any time, at the option of the holder thereof, into fully paid and nonassessable shares of Common Stock at a rate of one share of Common Stock for each $2.00 of Stated Value of Series C Preferred Stock (subject to adjustment in certain circumstances). Except as otherwise expressly provided in the Charter or the By-laws of the Company, the Certificate of Designation relating to the Series C Preferred Stock, or as may otherwise be required by law, the Series C Stockholders, by virtue of their ownership thereof, have no voting rights. The Certificate of Designation relating to the Series C Preferred Stock, the WPG Release Agreement and the WPG Registration Rights Agreement are being filed herewith as Exhibits 3.6, 10.45 and 10.46, respectively, and are incorporated herein by reference. o The successor to the seller under the Company's agreement to purchase the assets of Buddy L waived or released the claim to certain earn out, price protection and registration rights in exchange for: (i) $100,000 in cash; (ii) 250,000 shares of Common Stock of the Company; (iii) a $2.5 million 9% note from the Company's major subsidiary, and guaranteed by the Company, providing for $625,000 principal payments on the first four anniversaries of the closing date of the Preferred Stock Investment (which note includes certain affirmative and negative covenants which could in certain circumstances accelerate payments with respect to such note); and (iv) certain other benefits, including registration rights. The Buddy L Settlement Agreement, the Buddy L Promissory Note and the Buddy L Registration Rights Agreement are being filed herewith as Exhibits 10.42, 4.10 and 10.44, respectively, and are incorporated herein by reference. o The bank lenders under the Company's Credit Agreement were to have agreed to certain amendments to the Credit Agreement as a closing condition. This condition was waived by HPA. The Company's senior lenders agreed, however, to extend the May 31, 1997 deadline for receipt of $6 million of additional equity financing to June 30, 1997 (which deadline was satisfied upon the closing of the Principal Investment), and have orally advised the Company that they will agree to the adoption of a proposed amendment to the Credit Agreement to convert the current portion of the term loan to a one year and a day obligation and have agreed to engage in further discussions with the Company following the completion of the Principal Investment. On June 12, 1997, the Company and American Stock Transfer & Trust Company, a New York corporation, as Rights Agent (the "Rights Agent"), adopted the Second Amendment (the "Second Amendment") to the Rights Agreement dated as of September 11, 1996 (the "Rights Agreement") between the Company and the Rights Agent, as amended by the First Amendment thereto dated as of May 5, 1997. The Second Amendment, among other things, amends the definition of "Acquiring Person" in Section 1(a) of the Rights Agreement to base the 15% threshold specified therein on the aggregate number of "Fully- Diluted Common Shares" (as defined in the Second Amendment) of the Company. The 3 Second Amendment is attached as Exhibit 4.9 hereto, and is incorporated herein by reference. On June 19, 1997, the Company issued the press release attached hereto as Exhibit 99.1, which press release is hereby incorporated by reference herein, announcing the closing of the Principal Investment and the Additional Investment. As of May 23, 1997, the Company had 7,403,564 shares of Common Stock outstanding. Immediately following the closing of the Additional Investment, the Company had 7,653,564 shares of Common Stock outstanding and the Purchasers in the aggregate represent approximately 63% of the total voting power on matters presented to the Company's stockholders, in each case without giving effect to the exercise of any warrants, stock options or other derivative securities issued by the Company. If all of the Series A Preferred Stock and Series C Preferred Stock issued pursuant to the Securities Purchase Agreement were converted, all outstanding warrants and stock options were exercised and all authorized shares of Common Stock under the Company's employee benefit plans were issued, the Purchasers in the aggregate would represent approximately 53% of the total voting power on matters presented to the Company's stockholders. However, to the knowledge of the Company, immediately following the consummation of the Additonal Investment, no Purchaser beneficially owns securities representing 10% or more of the voting power on matters to be presented to the Company's stockholders or would have such voting power on a fully-diluted basis. On June 24, 1997, the Company issued the press release attached hereto as Exhibit 99.2, which press release is hereby incorporated by reference herein, announcing the election of Charles S. Holmes to replace Steve Geller as Chairman of the Board of Directors of the Company. In addition to the securities offered in connection with the Principal Investment and Additional Investment, the Company intends to offer for sale 500,000 additional shares of Series A Preferred Stock and 500,000 warrants to purchase shares of Common Stock) at an initial exercise price of $1.375 per share. In connection with the sale of such additional securities, an additional 2,000,000 warrants to purchase shares of Common Stock will be allocated as follows: 750,000 warrants to the placement agents who place the additional securities in addition to a 6% cash commission payable upon closing of the sale of such additional securities and 1,250,000 warrants to HPA. The additional securities will be offered pending and conditioned upon receiving stockholder approval. The offering of such additional securities will have a significant dilutive effect upon stockholders of the Company, including the Purchasers. There can be no assurance that the sale of such additional securities will be approved by the stockholders or consummated. Reference is made to Amendment No. 1 to the Securities Purchase Agreement filed as Exhibit 10.41 hereto for additional information regarding the sale of such additional securities, which exhibit is incorporated herein by reference. 4 The foregoing descriptions of documents are summaries that do not purport to be complete and are qualified in their entirety by reference to the actual terms and provisions of such documents filed as exhibits hereto. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. Exhibit Number Description ------- ----------- 3.5 Certificate of Designation relating to Series A Preferred Stock 3.6 Certificate of Designation relating to Series C Preferred Stock 4.7 Warrant Amendment dated May 6, 1997 to Warrant Certificate issued May 6, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC. 4.8 Warrant Agreement dated as of June 17, 1997 between the Company and the holders from time to time of the warrants. 4.9 Second Amendment dated as of June 12, 1997, to Rights Agreement, dated as of September 11, 1996, between Empire of Carolina, Inc. and American Stock Transfer & Trust Company as Rights Agent. 4.10 Promissory Note from the Company to Smedley Industries, Inc. Liquidating Trust in the amount of $2,500,000. 10.40 Securities Purchase Agreement dated as of May 5, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 and is incorporated by reference herein). 10.41 Amendment No. 1 dated as of June 5, 1997 to Securities Purchase Agreement dated as of May 5, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC. 10.42 Buddy L Settlement Agreement, dated as of June 17, 1997 between the Company and Smedley Industries, Inc. Liquidating Trust. 10.43 Letter of the Company to Pellinore Securities Corp., Axiom Capital Management, Inc., and Commonwealth Associates, Inc., regarding the registration rights provisions affecting the Series A Preferred Stock. 10.44 Buddy L Registration Rights Agreement dated as of June 17, 1997 between the Company and Smedley Industries, Inc. Liquidating Trust. 5 10.45 WPG Registration Rights Agreement dated as of June 17, 1997 between the Company and WPG Corporate Development Associates IV, L.P., WPG Corporate Development Associates IV (Overseas), Ltd., Weiss, Peck & Greer, as trustee under Craig Whiting IRA, Peter B. Pfister, Weiss, Peck & Greer, as Trustee under Nora Kerppola IRA, Westpool Investment Trust Plc, Eugene M. Matalene, Jr., Richard Hochman, and Glenbrook Partners, L.P. (collectively, the "WPG-Affiliated Entities). 10.46 WPG Release Agreement dated as of June 17, 1997 between the Company and the WPG-Affiliated Entities. 99.1 Press Release, dated June 19, 1997. 99.2 Press Release, dated June 24, 1997. 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EMPIRE OF CAROLINA, INC. By /s/ Lawrence Geller ------------------------- Name: Lawrence Geller Title: Vice President and General Counsel Date: June 30, 1997 7 EXHIBIT INDEX Exhibit Number Description ------- ----------- 3.5 Certificate of Designation relating to Series A Preferred Stock 3.6 Certificate of Designation relating to Series C Preferred Stock 4.7 Warrant Amendment dated May 6, 1997 to Warrant Certificate issued May 6, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC. 4.8 Warrant Agreement dated as of June 17, 1997 between the Company and the holders from time to time of the warrants. 4.9 Second Amendment dated as of June 12, 1997, to Rights Agreement, dated as of September 11, 1996, between Empire of Carolina, Inc. and American Stock Transfer & Trust Company as Rights Agent. 4.10 Promissory Note from the Company to Smedley Industries, Inc. Liquidating Trust in the amount of $2,500,000. 10.40 Securities Purchase Agreement dated as of May 5, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 and is incorporated by reference herein). 10.41 Amendment No. 1 dated as of June 5, 1997 to Securities Purchase Agreement dated as of May 5, 1997 among the Company, HPA Associates, LLC and EMP Associates, LLC. 10.42 Buddy L Settlement Agreement, dated as of June 17, 1997 between the Company and Smedley Industries, Inc. Liquidating Trust. 10.43 Letter of the Company to Pellinore Securities Corp., Axiom Capital Management, Inc., and Commonwealth Associates, Inc., regarding the registration rights provisions affecting the Series A Preferred Stock. 10.44 Buddy L Registration Rights Agreement dated as of June 17, 1997 between the Company and Smedley Industries, Inc. Liquidating Trust. 8 10.45 WPG Registration Rights Agreement dated as of June 17, 1997 between the Company and WPG Corporate Development Associates IV, L.P., WPG Corporate Development Associates IV (Overseas), Ltd., Weiss, Peck & Greer, as trustee under Craig Whiting IRA, Peter B. Pfister, Weiss, Peck & Greer, as Trustee under Nora Kerppola IRA, Westpool Investment Trust Plc, Eugene M. Matalene, Jr., Richard Hochman, and Glenbrook Partners, L.P. (collectively, the "WPG-Affiliated Entities). 10.46 WPG Release Agreement dated as of June 17, 1997 between the Company and the WPG-Affiliated Entities. 99.1 Press Release, dated June 19, 1997. 99.2 Press Release, dated June 24, 1997. 9 EX-3.(I) 2 EXHIBIT 3.5 EXHIBIT 3.5 CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK OF EMPIRE OF CAROLINA, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) --------------------------------- Empire of Carolina, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), hereby certifies that the following resolution was adopted by the Board of Directors of the Company (the "Board of Directors" or the "Board") as required by Section 151 of the General Corporation Law at a meeting duly called and held at 3:00 P.M. on June 10, 1997; RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and the authorized number of shares constituting the Series A Preferred Stock shall be 2,100,000. The stated value of each share of the Series A Preferred Stock (the "Stated Value") shall be $10. Such shares may be issued only in connection with the sale of shares by the Company pursuant to the Securities Purchase Agreement dated as of May 5, 1997, as amended, among the Company, HPA Associates, LLC and EMP Associates LLC (the "Securities Purchase Agreement"). From and after the first issuance of Series A Preferred Stock, such number of shares shall be decreased automatically to the number of shares sold pursuant to the Securities Purchase Agreement upon the completion of sales pursuant thereto, provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding. 10 Section 2. Dividends. The holders of shares of the Series A Preferred Stock (the "Series A Stockholders") shall be entitled to receive, when, as and if declared by the Board of Directors, out of the assets of the Company legally available therefor, dividends, distributions and offers of subscription, if any, equivalent (both in amount and kind) to the dividends paid, and offers of subscriptions made available, to the holders of the number of shares of Common Stock into which the Series A Preferred Stock may be converted pursuant to Section 6 hereof, provided that if any dividend is declared in shares of Common Stock or any other security into which the Series A Preferred Stock is from time to time convertible, rather than payment of such dividend to holders of Series A Preferred Stock, the number of shares of Common Stock or such other security into which the Series A Preferred Stock may be converted shall be adjusted in accordance with the provisions of Section 6 hereof. Section 3. Voting Rights. In addition to any voting rights provided by law, the Series A Stockholders shall have the following voting rights: a. So long as the Series A Preferred Stock is outstanding, each share of Series A Preferred Stock shall entitle the holder thereof to vote at all meetings of the stockholders of the Company on any matter voted on by holders of Common Stock, together with the holders of Common Stock and of all other securities entitled to vote with the Common Stock on such matter (the "Voting Securities"). With respect to any such vote, from and after the first date on which shares of the Series A Preferred Stock are issued (the "Issue Date"), each share of the Series A Preferred Stock shall be entitled to cast a number of votes equal to the number of shares of Common Stock into which a share of Series A Preferred Stock may then be converted in accordance with Section 6 hereof. b. In addition to any class votes required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of the Series A Preferred Stock, voting separately as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, shall be necessary to (i) authorize, create, increase the authorized or issued number of shares of, or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification), any shares of any class or classes or series of the Company's capital stock having rights senior or superior to (either as to dividends or upon distribution of assets, voluntary or involuntary liquidation, dissolution or winding up) the Series A Preferred Stock, or class or series of stock that ranks on a parity with Series A Preferred Stock, or to increase the number of shares of Series A Preferred Stock that are authorized for issuance, or (ii) amend, alter or repeal any of the provisions of the Articles of Incorporation of the Company or the Certificate of Designation of the Series A Preferred Stock (the "Certificate of Designation") in a manner which would materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock or the holders thereof (provided, however, that, subject to (i) above, any increase in the amount of authorized capital stock or the creation and issuance of any capital stock ranking junior to the Series A Preferred Stock shall not be deemed materially and adversely to affect such rights, preferences or voting powers). 11 c. In addition to any class votes required by law or Section 3(b) hereof, the affirmative vote of the holders of at least a majority of the outstanding shares of the Series A Preferred Stock and Series C Preferred Stock of the Company, voting together as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, shall be necessary to authorize, create, increase the authorized or issued number of shares of, or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification), any shares of any class or classes or series of the Company's capital stock having rights senior or superior in preference to the Series A Preferred Stock or the Series C Preferred Stock as to any of dividends, voluntary or involuntary liquidation, dissolution or winding up, or (y) any shares of any class or series of stock that ranks on a parity with Series A Preferred Stock or the Series C Preferred Stock as to any dividends, voluntary or involuntary liquidation, dissolution or winding up. d. Notwithstanding anything to the contrary contained in the Company's Articles of Incorporation or By-Laws, from and after the Issue Date, the Series A Stockholders shall have the right, voting separately as a class, to elect to the Board of Directors two directors of the Company and shall have the right to approve any expansion of the size of the Company's Board beyond five. e. (1) The foregoing rights of Series A Stockholders to take any actions as provided in this Section 3 may be exercised at any regular meeting of stockholders or at a special meeting of stockholders held for such purpose as hereinafter provided or at any adjournment thereof, or by written consent pursuant to Section 228 of the Delaware General Corporation Law. (2) So long as the right of the Series A Stockholders to elect directors pursuant to Section 3(d) continues (and unless such right has been exercised by written consent of the minimum number of shares required to take such action), the Chairman of the Board of the Company may call, and upon the written request of holders of record of 10% of the outstanding shares of the Series A Preferred Stock addressed to the Secretary of the Company at the principal office of the Company shall call, a special meeting of the Series A Stockholders entitled to vote as provided herein. Such meeting shall be held within 30 days after delivery of such request to the Secretary, at the place and upon the notice provided by law and in the By-Laws of the Company for the holding of meetings of stockholders. (3) At each meeting of stockholders at which the Series A Stockholders have the right, voting separately as a single series, or voting separately as series with holders of Series C Preferred Stock of the Company, to take action pursuant to Section 3(b) or Section 3(c), or to elect directors of the Company as provided in Section 3(d), the presence in person or by proxy of the holders of record of 50% of the total number of shares of the Series A Preferred Stock, or, as applicable, Series A Preferred Stock and Series C Preferred Stock, then outstanding and entitled to vote on the matter shall be necessary and sufficient to constitute a quorum. At any such meeting or at any adjournment thereof: 12 (A) the absence of a quorum of the Series A Stockholders shall not prevent the election of directors other than those to be elected by the Series A Stockholders and the absence of a quorum of the holders of shares of any other class or series of capital stock shall not prevent the election of directors to be elected by the Series A Stockholders or the taking of any action as provided in this Section 3; and (B) in the absence of a quorum of the Series A Stockholders, or, as applicable, holders of Series A Preferred Stock and Series C Preferred Stock, the holders of a majority of such shares present in person or by proxy shall have the power to adjourn the meeting as to the actions to be taken by the Series A Stockholders, or as applicable, holders of the Series A Preferred Stock and the Series C Preferred Stock, from time to time and place to place without notice other than announcement at the meeting until a quorum is present. (4) For the taking of any action as provided in Sections 3(b) and 3(d) by the Series A Stockholders, or as provided in Section 3(c) with respect to actions to be taken by holders of Series A Preferred Stock and Series C Preferred Stock acting together, each such holder shall have one vote for each share of such stock standing in his or her name on the transfer books of the Company as of any record date fixed for such purpose or, if no such date be fixed, at the close of business on the business day next preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day or which the meeting is held. A business day shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. (5) Each director elected by the Series A Stockholders as provided in Section 3(d) shall, unless his term expires earlier, hold office until the regular meeting of stockholders next succeeding his election or, in each case, until his successor, if any, is elected and qualified. In case any vacancy occurs among the directors elected by the Series A Stockholders, as provided in Section 3(d), the remaining director or directors theretofore elected by such holders (if there is such a remaining director or directors), or such directors' successor in office, shall designate a director to fill such vacancy for the unexpired portion of the term. If any such vacancy is not so filled within 20 days after the creation thereof or if the directors so elected by the Series A Stockholders cease to serve as directors before their terms expire, the Series A Stockholders may, by written consent as herein provided, or at a special meeting of such holders called as provided herein, elect successors to hold office for the unexpired terms of the directors whose places are vacant. Any director elected by the Series A Stockholders voting separately as a single series may be removed from office with or without cause by the vote or written consent of the holders of at least a majority of the outstanding shares of the Series A Preferred Stock voting 13 separately as a single series. A special meeting of the Series A Stockholders may be called in accordance with the procedures set forth in Section 3(e) (ii) for the purpose of such vote. Section 4. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation or in any other certificate of designation creating a series of Preferred Stock or Preferred Stock or any similar stock or as otherwise required by law. Section 5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the Series A Stockholders shall have received $10 per share, or (B) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. The Series A Preferred Stock shall rank on a parity with the Company's Series C Preferred Stock with a stated value of no more than an aggregate of $15,000,000 issued pursuant to the terms of the Securities Purchase Agreement and senior to the shares of the Company's Series B Preferred Stock. Section 6. Conversion. a. Each share of Series A Preferred Stock shall be convertible at any time, at the option of the holder, thereof, into fully paid and nonassessable shares of Common Stock at a rate of one share of Common Stock for each $1.25 of Stated Value of Series A Preferred Stock, subject to adjustment as set forth in this Section 6 (the "Conversion Price"). b. The Conversion Price shall be adjusted from time to time in certain cases as follows: if the Company, at any time or from time to time, (1) declares a dividend on the Common Stock payable in shares of Common Stock, (2) subdivides the outstanding Common Stock, (3) combines the outstanding Common Stock into a smaller number of shares or (4) issues any shares of its capital stock in respect of shares of Common Stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each such case, the Conversion Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall be adjusted to that price which will permit the number of shares of Common Stock (or, in the case of (4), other capital stock into which shares of Common Stock have been converted) into which Series A Preferred Stock may be converted to be increased or reduced in the same proportion as the number of shares of Common Stock (or, in the case of (4), other capital stock into 14 which shares of Common Stock have been converted) are increased or reduced in connection with such dividend, subdivision, combination or reclassification. Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision, combination or reclassification. Such adjustments shall be made successively whenever any event listed above occurs. In the event a dividend is declared but such dividend is not paid, the Conversion Price shall be adjusted to the Conversion Price in effect immediately prior to the record date of such dividend. c. Conversion of the Series A Preferred Stock may be effected by any Series A Stockholder upon the surrender to the Company at the Company's principal executive office or at the office of any agent or agents of the Company, as may be designated by the Board of Directors (the "Transfer Agent"), of the certificate for such shares of the Series A Preferred Stock to be converted (duly endorsed or assigned to the Company or in blank), or by transfer of such shares to the Company's account through a securities clearing house, accompanied by a written notice stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section 6 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice specifies a name or names other than that of such holder, such notice shall be accompanied by a payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Company shall pay any and all issue and other taxes (other than taxes based on or measured by income or gain) that may be payable in respect of any issue or delivery of shares of Common Stock upon conversion of the Series A Preferred Stock pursuant hereto. As promptly as practicable, and in any event within five business days after the surrender of such certificate or certificates (or transfer of such shares through a clearing house) and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Company that such taxes have been paid), the Company shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock equal to the number of shares of Series A Preferred Stock that are being converted and (ii) if less than the full number of shares of the Series A Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates (or transfer of such shares through a clearing house) representing the shares of the Series A Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock (or other capital stock in accordance with Section 6(b)) in accordance herewith, and the person entitled to receive the shares of Common Stock (or other capital stock in accordance with Section 6(b)) shall be treated for all purposes as having become the record holder of such shares of Common Stock (or other capital stock in accordance with Section 6(b)) at such time. 15 d. Except as specifically provided in Section 6(c), the issuance and delivery of certificates for shares of Common Stock upon the conversion of shares of Series A Preferred Stock shall be made without charge to a Series A Stockholder for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby. e. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock, and such amount or number of securities or other property (if the Series A Preferred Stock becomes convertible into the same in accordance with the provisions of Section 6(b)), as are from time to time sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase the number of shares of its authorized but unissued shares of Common Stock (or such securities or other property) to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Certificate of Incorporation. Section 7. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 6, then, and in each such case, the Company shall promptly deliver to the Transfer Agent of the Series A Preferred Stock and Common Stock a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion set forth in Section 6. The Company shall also promptly after the making of such adjustment give written notice to the registered Series A Stockholder at the address of each holder as shown on the books of the Company maintained by the Transfer Agent thereof, which notice shall state the Conversion Ratio then in effect, as adjusted, and the increased or decreased number of shares issuable upon the exercise of the right of conversion granted by Section 6, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Section 8. Enforceability. If any provision of this Certificate of Designation is held to be invalid or unenforceable, such holding shall not affect the validity or enforceability of any other provision hereof. 16 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Company by its Chairman of the Board of Directors and attested by its Secretary as of the 12th day of June 1997. /s/ Steven Geller ------------------------------------ Steve Geller Chairman and Chief Executive Officer 17 EX-3.(I) 3 EXHIBIT 3.6 EXHIBIT 3.6 CERTIFICATE OF DESIGNATION OF SERIES C PREFERRED STOCK OF EMPIRE OF CAROLINA, INC. (PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW) Empire of Carolina, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), hereby certifies that the following resolution was adopted by the Board of Directors of the Company (the "Board of Directors" or the "Board") as required by Section 151 of the General Corporation Law at a meeting duly called and held on June 10, 1997; RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the 18 "Preferred Stock"), of the Company and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series C Preferred Stock" (the "Series C Preferred Stock") and the authorized number of shares constituting the Series C Preferred Stock shall be 1,500. The stated value of each share of the Series C Preferred Stock (the "Stated Value") shall be $10,000. Such shares may be issued only in connection with the sale of shares by the Company pursuant to the Securities Purchase Agreement dated as of May 5, 1997, as amended, among the Company, HPA Associates, LLC and EMP Associates LLC (the "Securities Purchase Agreement") and the execution of that certain agreement dated June 17, 1997 by and among the Company, and WPG Corporate Development Associates IV, L.P., WPG Corporate Development Associates IV (Overseas), Ltd., Weiss, Peck & Greer, as trustee under Craig Whiting IRDA, Peter B. Pfister, Weiss, Peck & Greer, as Trustee under Nora Kerppola IRA, Westpool Investment Trust PLC Eugene M. Matalene, Jr., Richard Hochman, and Glenbrook Partners, L.P. (collectively, the "WPG Affiliates") regarding the release by the WPG Affiliates of the Company's obligations and liabilities to the WPG Affiliates under the Debenture Purchase Agreement, dated December 2, 1994 and the Registration Rights Agreement dated December 22, 1994. Section 2. Dividends. The holder of shares of the Series C Preferred Stock (the "Series C Stockholders") shall be entitled to receive, when, as and if declared by the Board of Directors, out of the assets of the Company legally available therefor, dividends, distributions and offers of subscription, if any, equivalent (both in amount and 19 kind) to the dividends and distributions and offers of subscription, if any, paid and offers of subscription made available to the holders of the number of shares of Common Stock into which the Series C Preferred Stock may be converted pursuant to Section 6 hereof, provided that if any dividend is declared in shares of Common Stock or any other security into which the Series C Preferred Stock is from time to time convertible, rather than payment of such dividend to holders of Series C Preferred Stock, the number of shares of Common Stock or such other security into which the Series C Preferred Stock may be converted shall be adjusted in accordance with the provisions of Section 6 hereof. Section 3. Voting Rights. Except as otherwise expressly provided herein or in the Certificate of Incorporation or the Amended and Restated By-laws of the Company, or as may otherwise be required by law, the Series C Stockholders, by virtue of their ownership thereof, shall have no voting rights. (a) in addition to any class votes required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of the Series C Preferred Stock, voting separately as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, shall be necessary to: (i) amend, alter or repeal any of the provisions of the Certificate of Incorporation of the Company or the Certificate of Designation of the Series A Preferred Stock (the "Series A Certificate of Designation") to change the conversion ratio (or rights of adjustment therein) rights to receive dividends or distributions or liquidation preference thereof in such a manner as to favor the 20 Series A Preferred Stock over the Series C Preferred Stock (except as necessary to reflect differences in conversion ratios); (ii) authorize any exchange, conversion or reclassification of the Series A Preferred Stock into other capital stock or securities of the Company (whether through recapitalization, merger, consolidation, exchange, reorganization or otherwise) in terms different from those applicable to the Series A Preferred Stock (except to the extent that such terms differ to reflect differences in the conversion ratios of the Series C Preferred Stock and the Series A Preferred Stock into Common Stock) except for conversion of the Series A Preferred Stock into Common Stock of the Company in accordance with Section 6 of the Series A Certificate of Designation; (iii) authorize any repurchase, redemption, retirement, defeasance or similar transaction (or set aside property of the Company for any such purpose) (a "Stock Redemption") in respect of the Series A Preferred Stock prior to the conversion of all Series C Preferred Stock, unless there shall have been a Stock Redemption in respect of a prorata portion of the Series C Preferred Stock on the same relative terms (in relation to the conversion ratios of the Series A Preferred Stock and the Series C Preferred Stock into Common Stock), such prorata portion to be determined by multiplying the number of shares of Series C Preferred Stock then outstanding by the fraction the numerator of which is the number of shares of Series A Preferred Stock subject to such Stock Redemption at such time and the denominator of which is the number of shares of Series A Preferred Stock then outstanding; 21 (iv) amend, alter or repeal any of the provisions of the Certificate of Incorporation of the Company or the Certificate of Designation of the Series C Preferred Stock (the "Series C Certificate of Designation") to increase the number of shares of Series C Preferred Stock that are authorized for issuance; (v) amend, alter or repeal any of the provisions of the Certificate of Incorporation of the Company of the Series C Certificate of Designation in a manner which would materially and adversely affect any right, preference, privilege or voting power of the Series C Preferred Stock or any holder thereof. (b) In addition to any class votes required by law or Section 3(a) hereof, the affirmative vote of the holders of at least a majority of the outstanding shares of the Series C Preferred Stock and Series A Preferred Stock, voting together as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, shall be necessary to: (i) authorize, create, increase the authorized or issued number of shares of, or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification): (x) any shares of any class or classes or series of the Company's capital stock having rights senior or superior in preference to the Series A Preferred Stock or the Series C Preferred Stock as to any of dividends, voluntary or involuntary liquidation, dissolution or winding up; or 22 (y) any shares of any class or series of stock that ranks on a parity with Series A Preferred Stock or the Series C Preferred Stock as to any of dividends, voluntary or involuntary liquidation, dissolution or winding up. (c) (i) The foregoing rights of holders of Series C Stock ("Series C Stockholders") to take any actions as provided in this Section 3 may be exercised at any regular meeting of stockholders or at a special meeting of stockholders held for such purpose as hereinafter provided or at any adjournment thereof, or by written consent pursuant to Section 228 of the Delaware General Corporation Law. (ii) At each meeting of stockholders at which the Series C Stockholders have the right, voting separately as a single series, or voting separately as series with holders of Series A Preferred Stock of the Company, to take action pursuant to Section 3(a) or Section 3(b), the presence in person or by proxy of the holders of record of 50% of the total number of shares of the Series C Preferred Stock, or, as applicable, Series C Preferred Stock and Series A Preferred Stock, then outstanding and entitled to vote on the matter shall be necessary and sufficient to constitute a quorum. At any such meeting or at any adjournment thereof, in the absence of a quorum of the Series C Stockholders, or, as applicable, holders of Series C Preferred Stock and Series A Preferred Stock, the holders of a majority of such shares present in person or by proxy shall have the power to adjourn the meeting as to the actions to be taken by the Series C Stockholders, or as applicable, holders of 23 the Series C Preferred Stock and the Series A Preferred Stock, from time to time and place to place without notice other than announcement at the meeting until a quorum is present. (iii) For the taking of any action as provided in Sections 3(a) by the Series C Stockholders, or as provided in Section 3(b) with respect to actions to be taken by holders of Series C Preferred Stock and Series A Preferred Stock acting together, each such holder shall have one vote for each share of such stock standing in his or her name on the transfer books of the Company as of any record date fixed for such purpose or, if no such date be fixed, at the close of business on the business day next preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A business day shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. Section 4. Reacquired Shares. Any shares of Series C Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation or in any other certificate of designation creating a series of Preferred Stock or Preferred Stock or any similar stock or as otherwise required by law. 24 Section 5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior thereto, the Series C Stockholders shall have received $10,000 per share, or (B) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. The Series C Preferred Stock shall rank on a parity with the Company's Series A Preferred Stock, issued pursuant to the terms of the Securities Purchase Agreement (and Senior to the shares of Series B Preferred Stock), which Series A Preferred Stock will have a stated value of no more than an aggregate of $21,000,000 and senior to the shares of the Company's Series B Preferred Stock. Section 6. Conversion. (a) Each share of Series C Preferred Stock shall be convertible at any time, at the option of the holder, thereof, into fully paid and nonassessable shares of Common Stock at a rate of one share of Common Stock for each $2.00 of Stated Value of Series C Preferred Stock, subject to adjustment as set forth in this Section 6 (the "Conversion Price"). (b) The Conversion Price shall be adjusted from time to time in certain cases as follows: if the Company, at any time or from time to time, (1) declares a dividend on the Common Stock payable in shares of Common Stock, (2) subdivides the outstanding Common Stock, (3) combines the outstanding Common Stock into a smaller number of 25 shares or (4) issues any shares of its capital stock in respect of shares of Common Stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each such case, the Conversion Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall be adjusted to that price which will permit the number of shares of Common Stock (or, in the case of (4), other capital stock into which shares of Common Stock have been converted) into which Series C Preferred Stock may be converted to be increased or reduced in the same proportion as the number of shares of Common Stock (or, in the case of (4), capital stock into which shares of Common Stock have been converted) are increased or reduced in connection with such dividend, subdivision, combination or reclassification. Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision, combination or reclassification. Such adjustments shall be made successively whenever any event listed above occurs. In the event a dividend is declared but such dividend is not paid, the Conversion Price shall be adjusted to the Conversion Price in effect immediately prior to the record date of such dividend. (c) Conversion of the Series C Preferred Stock may be effected by any Series C Stockholder upon the surrender to the Company at the Company's principal executive office or at the office of any agent or agents of the Company, as may be designated by the Board of Directors (the "Transfer Agent"), of the certificate for such shares of the Series C Preferred Stock to be converted (duly endorsed or assigned to the Company or in blank), or by transfer of such shares to the Company's account through a securities clearing house, accompanied by a written notice stating that such holder elects to 26 convert all or a specified whole number of such shares in accordance with the provisions of this Section 6 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice specifies a name or names other than that of such holder, such notice shall be accompanied by a payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Company shall pay any and all issue and other taxes (other than taxes based on or measured by income or gain) that may be payable in respect of any issue or delivery of shares of Common Stock upon conversion of the Series C Preferred Stock pursuant hereto. As promptly as practicable, and in any event within five business days after the surrender of such certificate or certificates (or transfer of such shares through a clearing house) and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Company that such taxes have been paid), the Company shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock equal to the number of shares of Series C Preferred Stock that are being converted and (ii) if less than the full number of shares of the Series C Preferred Stock evidenced by the surrender certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates (or transfer of such shares through a clearing house) representing the shares of the Series C Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to 27 receive shares of Common Stock (or other capital stock in accordance with Section 6(b)) in accordance herewith, and the person entitled to receive the shares of Common Stock (or other capital stock in accordance with Section 6(b)) shall be treated for all purposes as having become the record holder of such shares of Common Stock (or other capital stock in accordance with Section 6(b)) at such time. (d) Except as specifically provided in Subsection 6(c), the issuance and delivery of certificates for shares of Common Stock upon the conversion of shares of Series C Preferred Stock shall be made without charge to a Series C Stockholder for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby. (e) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock, and such amount or number of securities or other property (if the Series C Preferred Stock becomes convertible into the same in accordance with the provisions of Section 6(b), as are from time to time sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock, and if at any time the number of authorized by unissued shares of Common Stock is not sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase the number of shares of its authorized but unissued shares of Common Stock (or such securities or other property) to such number of shares as shall be sufficient for such purpose, including, without limitation, 28 engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Certificate of Incorporation. Section 7. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 6, then, and in each such case, the Company shall promptly deliver to the Transfer Agent of the Series C Preferred Stock and Common Stock a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion set forth in Section 6. The Company shall also promptly after the making of such adjustment give written notice to the registered Series C Stockholder at the address of each holder as shown on the books of the Company maintained by the Transfer Agent thereof, which notice shall state the Conversion Ratio then in effect, as adjusted, and the increased or decreased number of shares issuable upon the exercise of the right of conversion granted by Section 6, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Section 8. Enforceability. If any provision of this Certificate of Designation is held to be invalid or unenforceable, such holding shall not affect the validity or enforceability of any other provision hereof. 29 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Company by its Chairman of the Board of Directors and attested by its Secretary as of the 12th day of June 1997. /s/ Steven Geller ---------------------------------- Steve Geller Chairman of the Board of Directors 30 EX-4 4 EXHIBIT 4.7 EXHIBIT 4.7 WARRANT AMENDMENT THIS AMENDMENT is made as of May 6, 1997, by and among Empire of Carolina, Inc., a Delaware corporation (the "Company"), HPA Associates, LLC, a Delaware limited liability company ("HPA"), and EMP Associates LLC, a Delaware limited liability company ("EMP"). Reference is hereby made to the Securities Purchase Agreement by and among the Company, HPA and EMP, dated as of May 5, 1997 (the "Securities Purchase Agreement"), and the Common Stock Purchase warrants, dated May 6, 1997, issued pursuant thereto (the "warrants"). Capitalized terms used in this Amendment and not otherwise defined herein have the meanings ascribed to them in the Securities Purchase Agreement. HPA and EMP are the sole holders of the currently outstanding warrants; and the Company, HPA and EMP desire to amend the warrants as specified below. NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendment to the warrants. Article 2(a) of the warrants is amended in its entirety to read as follows: "(a) Exercise; Payment of Purchase Price. Subject to the provisions of Section 2.2.1.3 of the Securities Purchase Agreement, this Warrant may be exercised, in whole or in part, at any time and from time to time from and after the Permanent Financing Final Date, as such date may be extended by the parties to the Securities Purchase Agreement, and on or prior to the Expiration Date by surrendering to the Company at its principal office this Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit A duly executed by the Holder and accompanied by payment of the Purchase Price for the number of shares of Common Stock specified in such form, in United States currency by wire transfer to an account designated by the Company or delivery of a certified check or bank check payable to the order of the Company." Section 2. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original but all of which counterparts, taken together, shall constitute but one and the same instrument. 31 IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amendment on the date first written above. EMPIRE OF CAROLINA, INC. By: /s/ Steve Geller --------------------------------------------- Name: Steve Geller Title: Chairman and Chief Executive Officer HPA ASSOCIATES, LLC By: /s/ Charles S. Holmes --------------------------------------------- Name: Title: Managing Director EMP ASSOCIATES LLC By: EMP Management LLC as Managing Member By: /s/ J. Richard Messina --------------------------------------------- Name: J. Richard Messina Title: Manager 32 EX-4 5 EXHIBIT 4.8 EXHIBIT 4.8 WARRANT AGREEMENT (the "AGREEMENT"), dated as of June 17, 1997, by and between Empire of Carolina, Inc., a Delaware corporation (the "COMPANY"), on the one hand, and the holders from time to time of the warrants on the other (each, a "HOLDER", and collectively, the "HOLDERS"). The Company has agreed to issue to the persons and in the amounts designated by HPA Associates, LLC, a Delaware limited liability company ("HPA"), warrants (the "OLD WARRANTS") to purchase up to an aggregate of 10,000,000 shares, subject to adjustment (the "WARRANT SHARES"), of Common Stock, par value $.10 per share, of the Company pursuant to a Securities Purchase Agreement dated as of May 5, 1997, as amended, among the Company, HPA and EMP Associates LLC, a Delaware limited liability company ("EMP"). The parties hereto desire to restate the Old warrants in their entirety pursuant to Section 18 of the Old warrants and to replace the Old warrants by new warrants to be issued under this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein, the parties hereto agree as follows: 1. Definitions. For the purposes of this Agreement, the following terms have the meanings indicated: "Agreement" has the meaning ascribed to such term in the first paragraph of this Agreement. "Applicable Price" means the higher of (a) the Current Market Price per share of Common Stock on the applicable record or other relevant date and (b) the Purchase Price. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Closing Price" means, with respect to each share of Common Stock for any day, (a) the last reported sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as reported on the principal national securities exchange on which the Common Stock is listed or admitted for trading, or (b) if the Common Stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for the Common Stock, in either case as reported on the NASDAQ or a similar service if NASDAQ is no longer reporting such information. 33 "Commission" means the Securities and Exchange Commission or any successor authority thereof. "Common Stock" means the shares of Common Stock, par value $.10 per share, of the Company and any class or series of common stock of the Company authorized after the date of this Agreement, or any other class of stock resulting from successive changes or reclassifications of such Common Stock. "Company" has the meaning ascribed to such term in the first paragraph of this Agreement. "Current Market Price" shall be determined in accordance with Section 5(e). "Election to Purchase Shares" has the meaning ascribed to such term in Section 4(a). "EMP" has the meaning ascribed to such term in the second paragraph of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exercise Date" has the meaning ascribed to such term in Section 4(d). "Expiration Date" means 5:00 P.M., New York City time, on May 6, 2003. "Final Exercise Date" has the meaning ascribed to such term in Section 11. "Holder" has the meaning ascribed to such term in the first paragraph of this Agreement. "HPA" has the meaning ascribed to such term in the first paragraph of this Agreement. "NASDAQ" means the National Association of Securities Dealers Automated Quotation system. "Person" means any individual, firm, corporation, company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Purchase Price" means $1.375 per Warrant Share, subject to adjustment as provided under Section 5. 34 "Registration Expenses" means the expenses set forth in Section 14(e). "Registrable Securities" has the meaning ascribed to such term in Section 14(a). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Triggering Event" has the meaning ascribed to such term in Section 11. "Trigger Price" has the meaning ascribed to such term in Section 11. "Warrant" means the Old Warrants and the new warrants to be issued pursuant to this Agreement. "Warrant Register" has the meaning ascribed to such term in Section 3. "Warrant Share" has the meaning ascribed to such term in the second paragraph of this Agreement. 2. Issuance of Warrants; Form of Warrants. The form of the Warrants shall be substantially as set forth in Exhibit A attached hereto. The Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman, President or Vice President of the Company, under its corporate seal, affixed or in facsimile, attested by the manual or facsimile signature of the Secretary or an Assistant Secretary of the Company. Warrants shall be dated as of the date of the execution thereof by the Company either upon initial issuance or upon division, exchange, including an exchange of the Old Warrants for any new warrant issued hereunder, substitution or transfer. 3. Registration. The Warrants shall be numbered and shall be registered on the books of the Company (the "WARRANT REGISTER") as they are issued. The Warrant Register shall reflect and identify, at all times, the ownership of any interest in the Warrants. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with knowledge of such facts that its participation therein amounts to bad faith. The Warrants shall be issued to the persons and in the amounts specified by HPA. 35 4. Exercise of Warrants. (a) Exercise; Payment of Purchase Price. The Warrants may be exercised, in whole or in part, at any time or from time to time on or prior to the Expiration Date, by surrendering to the Company at its principal office the Warrants, with the form of Election to Purchase Shares attached thereto (the "ELECTION TO PURCHASE SHARES") duly executed by the Holder and accompanied by payment of the Purchase Price for the number of shares of Common Stock specified in such form, in United States currency by wire transfer to an account designated by the Company or delivery of a certified check or bank check payable to the order of the Company. (b) Delivery of Shares. As soon as practicable after surrender of the Warrants and receipt of payment, the Company shall promptly issue and deliver to the Holder a certificate or certificates for the number of shares of Common Stock set forth in the Election to Purchase Shares, in such name or names as may be designated by such Holder, along with a check for the amount of cash to be paid in lieu of issuance of fractional shares, if any. (c) Partial Exercise. If a Warrant is exercised for less than all of the shares of Common Stock purchasable under the Warrant, the Company shall cancel the Warrant upon surrender hereof and shall execute and deliver to the Holder a new Warrant of like tenor for the balance of the shares of Common Stock purchasable thereunder. (d) When Exercise Effective. The exercise of the Warrants shall be deemed to have been effective immediately prior to the close of business on the Business Day on which the Warrants are surrendered to and the Purchase Price is received by the Company as provided in this Section 4 (the "EXERCISE DATE"), and the Person in whose name any certificate for shares of Common Stock shall be issuable upon such exercise, as provided in Section 4(b), shall be deemed to be the record holder of such shares of Common Stock for all purposes on the Exercise Date. If the last day for the exercise of the Warrants is not a Business Day, then such exercise may be made on the next succeeding Business Day. 5. Adjustment of Purchase Price and Number of Shares. The Purchase Price, the Trigger Price and the number of shares of Common Stock issuable upon exercise of the Warrants shall be adjusted from time to time upon the occurrence of the following events: (a) Dividend, Subdivision, Combination or Reclassification of Common Stock. If the Company shall, at any time or from time to time, (i) declare a dividend on the Common Stock payable in shares of its capital stock (including Common Stock), (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each such case, the Purchase Price and the Trigger Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, 36 and the number and kind of shares of capital stock issuable on such date shall be proportionately adjusted so that the Holder of any Warrant exercised after such date shall be entitled to receive, upon payment of the same aggregate amount as would have been payable before such date, the aggregate number and kind of shares of capital stock which, if such Warrant had been exercised immediately prior to such date, such Holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If a dividend is declared and such dividend is not paid, the Purchase Price shall again be adjusted to be the Purchase Price in effect immediately prior to such record date. (b) Issuance of Rights to Purchase Common Stock Below Current Market Price or Purchase Price. If the Company shall, at any time or from time to time, fix a record date for the issuance of rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Stock or securities convertible into Common Stock at a price per share of Common Stock, or having a conversion price per share of Common Stock, if a security is convertible into Common Stock (determined in either such case by dividing (x) the total consideration payable to the Company upon exercise, conversion or exchange of such rights, warrants or other securities convertible into Common Stock by (y) the total number of shares of Common Stock covered by such rights, warrants or other securities convertible into Common Stock) lower than either the Current Market Price per share of Common Stock to be issued upon exercise of the Warrants on such record date (or, if an ex-dividend date has been established for such record date, on the day next preceding such ex-dividend date) or the Purchase Price, then the Purchase Price shall be reduced to the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at the Applicable Price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such price for subscription or purchase may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be determined in good faith by the Board of Directors of the Company. Any such adjustment shall become effective immediately after the record date for such rights or warrants. Such adjustment shall be made successively whenever such a record date is fixed. If such rights or warrants are not so issued, the Purchase Price shall be adjusted to the Purchase Price in effect immediately prior to such record date. 37 (c) Certain Distributions. If the Company shall, at any time or from time to time, fix a record date for the distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, assets or other property (other than regularly scheduled cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in capital stock for which adjustment is made under Section 5(a)) or subscription rights or warrants (excluding those referred to in Section 5(b)), the Purchase Price shall be reduced to the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction (which shall in no event be less than zero), the numerator of which shall be the Current Market Price per share of Common Stock to be issued upon exercise of the Warrants on such record date (or, if an ex-dividend date has been established for such record date, on the next day preceding such ex-dividend date), less the fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, evidences of indebtedness, other property, subscription rights or warrants so to be distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of Common Stock to be issued upon exercise of the Warrants. Any such adjustment shall become effective immediately after the record date for such distribution. Such adjustments shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Purchase Price shall be adjusted to the Purchase Price in effect immediately prior to such record date. (d) Issuance of Common Stock Below Current Market Price or Purchase Price. If the Company shall after the date hereof, directly or indirectly, sell or issue shares of Common Stock (regardless of whether originally issued or from the Company's treasury), or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding shares issued (i) in any of the transactions described in Sections 5(a), (b) and (c), (ii) upon exercise of the Warrants, (iii) upon the exercise or conversion of options, warrants or any other securities convertible into or exchangeable for shares of Common Stock outstanding as of the date hereof, and (iv) to the Company's employees, independent contractors or directors under bona fide benefit plans approved or adopted by the Company's Board of Directors, if such shares would otherwise be included in this Section 5(d)) at a price per share of Common Stock (determined, in the case of rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total consideration received or receivable by the Company in consideration of the sale or issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) lower than either the Current Market Price per share of Common Stock to be issued upon exercise of the Warrants or the Purchase Price immediately prior to such sale or issuance, then the Purchase Price shall be reduced to a price determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such sale or issuance plus the number of shares of Common Stock which the aggregate consideration received 38 (determined as provided below) for such sale or issuance would purchase at the Applicable Price and the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such sale or issuance. Such adjustment shall be made successively whenever such sale or issuance is made. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale or issuance and the consideration "received" by the Company therefor shall be deemed to be the consideration actually received or receivable by the Company (plus any underwriting discounts or commissions in connection therewith) for such rights, options, warrants or convertible or exchangeable securities, plus the consideration stated in such rights, options, warrants or convertible or exchangeable securities to be payable to the Company for the shares of Common Stock covered thereby. If the Company shall sell or issue shares of Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration" received or receivable by or payable to the Company for purposes of the first sentence and the immediately preceding sentence of this Section 5(d), the fair value of such property shall be determined in good faith by the Board of Directors of the Company. The determination of whether any adjustment is required under this Section 5(d) by reason of the sale and issuance of rights, options, warrants or convertible or exchangeable securities and the amount of such adjustment, if any, shall be made only at the time of such issuance or sale and not at the subsequent time of issuance of shares of Common Stock upon the exercise of such rights to subscribe or purchase. Any such adjustment shall become effective immediately after the record date of such issuance or sale. Such adjustment shall be made successively whenever any event listed above shall occur. In the event that such issuance or sale of shares of Common Stock or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, at a price below the Current Market Price or the Purchase Price, is not made, the Purchase Price shall be adjusted to the Purchase Price in effect immediately prior to such record date. (e) Determination of Current Market Price. For the purpose of any computation under paragraph (b), (c) or (d) of this Section 5 or any other provision of this Agreement, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for the 10 consecutive trading days commencing 15 trading days before such date. If on any such date the shares of Common Stock are not listed or admitted for trading on any national securities exchange or quoted by NASDAQ or a similar service, the Current Market Price for such shares shall be the fair market value of such shares on such date as determined in good faith by a committee of disinterested members of the Board of Directors of the Company based on a written opinion of an independent investment banking firm of nationally recognized stature. (f) De Minimis Adjustments. No adjustment in the Purchase Price shall be made if the amount of such adjustment would result in a change in the Purchase Price per share of less than $.02, but in such case any adjustment that would otherwise be required to be made shall be carried forward and shall be made at the time of and together with the next 39 subsequent adjustment that, together with any adjustment so carried forward, would result in a change in the Purchase Price of $.05 per share. If the Company shall, at any time or from time to time, issue Common Stock by way of dividends on any stock of the Company or subdivide or combine the outstanding shares of the Common Stock, such amounts of $.02 and $.05 (as theretofore increased or decreased, if such amounts shall have been adjusted in accordance with the provisions of this clause) shall forthwith be proportionately increased in the case of a combination or decreased in the case of a subdivision or stock dividend so as appropriately to reflect the same. Notwithstanding the provisions of the first sentence of this Section 5(f), any adjustment postponed pursuant to this Section 5(f) shall be made no later than the earlier of (i) three years from the date of the transaction that would, but for the provisions of the first sentence of this Section 5(f), have required such adjustment, (ii) an Exercise Date or (iii) the Expiration Date. (g) Adjustments to Other Shares. In the event that at any time, as a result of an adjustment made pursuant to Section 5(a), any Holder shall become entitled to receive, upon exercise of the Warrants, any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of the Warrants shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in Section 5(a), (b), (c) and (d), inclusive, and the provisions of Sections 4, 6, 7, 8 and 9 with respect to the shares of Common Stock shall apply on like terms to any such other shares. (h) Adjustment of Number of Shares Issuable Upon Exercise. Upon each adjustment of the Purchase Price as a result of the calculations made in Section 5(a), (b), (c) or (d), the Warrants shall thereafter evidence the right to receive, at the adjusted Purchase Price, that number of shares of Common Stock (calculated to the nearest one-hundredth) obtained by dividing (x) the product of the aggregate number of shares of Common Stock covered by the Warrants immediately prior to such adjustment and the Purchase Price in effect immediately prior to such adjustment of the Purchase Price by (y) the Purchase Price in effect immediately after such adjustment of the Purchase Price. 6. Reorganization, Reclassification, Merger and Sale of Assets. If there occurs any capital reorganization or any reclassification of the Common Stock of the Company, the consolidation or merger of the Company with or into another Person (other than a merger or consolidation of the Company in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Common Stock) or the sale or conveyance of all or substantially all of the assets of the Company to another Person, then the Holders will thereafter be entitled to receive, upon the exercise of the Warrants in accordance with the terms hereof, the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Common Stock of the Company upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Common Stock then deliverable upon the exercise of the Warrants if the Warrants had been exercised immediately prior to such reorganization, reclassification, consolidation, 40 merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Company) shall be made to assure that the provisions hereof (including provisions with respect to changes in, and other adjustments of, the Purchase Price) shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon exercise of the Warrants. 7. Certificate as to Adjustments. Whenever the Purchase Price and the number of shares of Common Stock issuable, or the securities or other property deliverable, upon the exercise of the Warrants shall be adjusted pursuant to the provisions hereof, the Company shall promptly give written notice thereof to the Holders, in accordance with Section 20, in the form of a certificate signed by the Chairman, President or one of the Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or one of the Assistant Treasurers of the Company, stating the adjusted Purchase Price, the number of shares of Common Stock issuable, or the securities or other property deliverable, upon exercise of the Warrants calculated to the nearest cent or the nearest one one-hundredth of a share and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment is required. 8. Fractional Shares. Notwithstanding any adjustment pursuant to Section 5(h) in the number of shares of Common Stock covered by the Warrants or any other provision of this Agreement, the Company shall not be required to issue fractions of shares upon exercise of the Warrants or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company may make payment to the Holders, at the time of exercise of the Warrants as herein provided, of an amount in cash equal to such fraction multiplied by the greater of the Current Market Price of a share of Common Stock on the Exercise Date and the Purchase Price. 9. Notice of Proposed Actions. In case the Company shall propose at any time or from time to time (a) to declare or pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock (other than a regularly scheduled cash dividend), (b) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its Common Stock, (d) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Company which would, if consummated, adjust the Purchase Price or the securities issuable upon exercise of the Warrants, (e) to effect the liquidation, dissolution or winding up of the Company, or (f) to take any other action that would require a vote of the Company's stockholders, then, in each such case, the Company shall give to the Holders, in accordance with Section 20, a written notice of such proposed action, which shall specify (i) the record date for the purposes of such stock dividend, distribution of rights or warrants or vote of the stockholders of the Company, or if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend, 41 distribution of rights or warrants, or vote is to be determined, or (ii) the date on which such reclassification, consolidation, merger, sale, transfer, disposition, liquidation, dissolution or winding up is expected to become effective, and such notice shall be so given as promptly as possible but in any event at least ten (10) Business Days prior to the applicable record, determination or effective date specified in such notice. 10. No Dilution or Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement or the Warrants, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, (b) shall at all times reserve and keep available the maximum number of its authorized shares of Common Stock, free from all preemptive rights therein, which will be sufficient to permit the full exercise of the Warrants, and (c) shall take all such action as may be necessary or appropriate in order that all shares of Common Stock as may be issued pursuant to the exercise of the Warrants will, upon issuance, be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. 11. Mandatory Exercise. Notwithstanding the provisions of Section 4, if, at any time after May 6, 2000, the Closing Price of shares of Common Stock for a period of not less than thirty (30) consecutive trading days is equal to or greater than the following "Trigger Prices" (subject to adjustment as set forth in Section 5(a)) for any of the following periods: Period Trigger Price May 7, 2000 to May 6, 2001 $6.25 May 7, 2001 to May 6, 2002 $7.75 May 7, 2002 to February 28, 2003 $9.25 (each such event being referred to herein as the "TRIGGERING EVENT"), the Company may elect to cancel all Warrants that have not been exercised pursuant to Section 4 and that remain outstanding on or prior to the date that is 45 days from the Triggering Event (the "FINAL EXERCISE DATE"), without compensation to the Holders for their loss. To invoke such mandatory exercise mechanism, the Company shall provide written notice to each Holder of Warrants, which notice shall be mailed no later than the 35th day before the Final Exercise Date, by registered mail, return receipt requested, which notice shall (i) state that a Triggering Event has occurred and inform the Holders of Warrants that the Company has elected to cancel all Warrants that have not been exercised on or prior to the Final Exercise Date, (ii) set forth the Purchase Price then in effect and the number of shares of Common Stock that may be purchased upon exercise of the Warrants and (iii) inform the Holders that 42 all Warrants that have not been exercised in compliance with Section 4 by the close of business on the Final Exercise Date shall automatically be canceled in accordance with this Section 11 and that all rights of the Holders of such Warrants as holders will cease with respect to such Warrants at such time. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such mandatory exercise except as to a Holder (a) to whom notice was not mailed or (b) whose notice was defective. Effective at 5:00 P.M. (New York City time) on the Final Exercise Date, all Warrants then outstanding shall be canceled and the Holders thereof shall have no further rights thereunder. In connection herewith, the Company shall comply with all other notification requirements of any securities exchanges and other markets on which any securities of the Company are traded. 12. Replacement of Warrants. On receipt by the Company of an affidavit of an authorized representative of a Holder stating the circumstances of the loss, theft, destruction or mutilation of any Warrant (and in the case of any such mutilation, on surrender and cancellation of such Warrant) and of such bond and indemnification as the Company may reasonably require, the Company at its expense will promptly execute and deliver, in lieu thereof, a new Warrant of like tenor. 13. Divisibility of Warrants; Transfer. (a) The Warrants may be divided into warrants of [one hundred] shares or multiples thereof, upon surrender at the principal office of the Company, without charges to the Holders. Upon such division, the Warrants may be transferred of record as the Holders may specify without charge to the Holders (other than any applicable transfer taxes). In addition, Holders shall also have the right to transfer the Warrants in their entirety to any Person. (b) The term "Holder" as used herein shall also include any transferee of the Warrants whose name has been recorded by the Company in the Warrant Register. Subject to Section 14 hereof, each transferee of the Warrants acknowledges that the Warrants have not been registered under the Securities Act and may be transferred only pursuant to an effective registration under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act. (c) Upon surrender for registration of transfer or exchange of the Warrants together with a properly completed and executed Form of Assignment attached thereto and all documents required to be provided by the Form of Assignment, at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Warrants of like tenor which shall be exercisable for a like aggregate number of shares of Common Stock, registered in the name of the Holder or a transferee or transferees upon partial exercises return balance. Partial exercise of any Warrant issued hereunder shall be subject to Section 4(d). 43 14. Registration Rights. The Holders of the Warrants and of the Warrant Shares shall be entitled to the following registration rights: (a) Shelf Registration. Within 180 days from the Closing Date, the Company shall cause to be filed a registration statement (a "SHELF REGISTRATION") on Form S-3 or any other appropriate form under the Securities Act for an offering to be made on a delayed or continuous basis pursuant to Rule 415 thereunder or any similar rule that may be adopted by the Commission and permitting (i) sales of Warrants, both in ordinary course brokerage or dealer transactions or in any other transfer for consideration not involving an underwritten public offering, and (ii) the sale of Warrant Shares (together, the "REGISTRABLE SECURITIES") (and in both cases shall register or qualify the shares to be sold in such offering under such other securities or "blue sky" laws, if any, as would be required pursuant to paragraph (d)(ii) hereof). In addition, shares of Common Stock ("HPA PARTY COMMON STOCK") that are acquired upon the exercise of Warrants by HPA, Charles S. Holmes or James J. Pinto, or any direct or indirect transferee of Warrants from any of them in transactions not involving a public offering (an "HPA PERSON"), shall constitute Registrable Securities and, subject to paragraph (c) below, shall be registered as part of the Shelf Registration promptly upon such party's request. Prior to the filing of the Shelf Registration or any supplement or amendment thereto, the Company will furnish copies of the Shelf Registration or such amendment to one counsel designated by HPA, and will not file the Shelf Registration or such amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld. The Company shall use its reasonable efforts to (1) cause the Shelf Registration to be declared effective by the Commission as soon as practicable after its filing with the Commission and (2) keep the Shelf Registration continuously effective, subject to paragraph (c) below. The Company shall, if necessary, supplement or make amendments to the Shelf Registration, if required by the registration form used by the Company for the Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations thereunder or as may reasonably be requested by HPA. The Company shall pay all Registration Expenses incurred in connection with the Shelf Registration. (b) Piggyback Registration. At any time prior to May 6, 2000 (or, with respect to the HPA Party Common Stock, so long as shares of HPA Party Common Stock are held by an HPA Party who is an affiliate of the Company for purposes of Rule 144 (as defined below)), whenever the Company proposes to file a registration statement under the Securities Act with respect to an underwritten public offering of Common Stock by the Company for its own account or for the account of any other holder of Common Stock, the Company shall give written notice (the "OFFERING NOTICE") of such proposed filing to each Holder of at least 100,000 Warrants at least 30 days before the anticipated filing date. Such Offering Notice shall offer all such Holders the opportunity to register such number of Warrants or HPA Party Common Stock as each such Holder may request in writing, which request for registration (each, a "PIGGYBACK REGISTRATION") must be received by the Company within 15 days after the Offering Notice is given. The Company shall use all reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Holders of the Registrable Securities requested to be 44 included in the registration for such offering to include such Registrable Securities in such offering on the same terms and conditions as the securities of the Company included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such offering exceeds the number of Registrable Securities that can be sold in such offering without adversely affecting the market for the Company's securities or the price that may be obtained in such offering, the Company will include in such registration the number of Registrable Securities that in the opinion of such managing underwriter or underwriters can be sold without adversely affecting the market for the Company's common stock or the price to be received in such offering. In such event, the number of Registrable Securities, if any, to be offered for the accounts of Holders shall be reduced pro rata on the basis of the relative number of any Registrable Securities requested by each such Holder to be included in such registration to the extent necessary to reduce the total number of Registrable Securities to be included in such offering to the number recommended by such managing underwriter or underwriters, provided that if any other Person has rights to a Piggyback Registration with respect to the same underwritten public offering, the rights of the Holders to sell their securities together with such other Persons holding Piggyback Rights shall be cut back proportionately (in relation to the number of shares that each Person so participating in the Piggyback Registration has requested to be included compared to the number of all shares with respect to which inclusion has been properly requested (with Warrants to be considered shares for the purposes of this calculation)), except to the extent that the instrument providing for such other Piggyback Rights specifically provides that the rights held by such other Person either take precedence over or shall be subordinated to the Piggyback Rights held by the Holders hereunder. The Company shall pay all Registration Expenses incurred in connection with any Piggyback Registration. (c) Termination of Registration Rights; Provision of Rule 144 Information. As used in this section "affiliate" has the meaning given to it in Rule 144 under the Securities Act ("RULE 144"). The registration rights provided hereunder shall continue so long as any Warrants remain outstanding and shall then terminate (except in the case of HPA Party Common Stock), provided that (i) the Company shall be entitled to remove from registration under paragraph (a) Warrants held by Persons (other than HPA Persons who are affiliates of the Company) who have acquired such Warrants for consideration pursuant to a transaction covered by the registration provided by paragraph (a), and (ii) at any time after two years after the date of the issuance of the Warrants, so long as the Warrants are freely tradable under Rule 144 in the hands of Persons who are not affiliates of the Company, (A) the Company shall be entitled to remove Warrants held by non-affiliates from registration under paragraph (a) and, (B) if no HPA Person remains an affiliate of the Company, or no HPA Person who is an affiliate of the Company owns more than 1% of the then outstanding Warrants, registration of the Warrants under paragraph (a) shall no longer be required. Registration may terminate with respect to HPA Party Common Stock when, and to the extent that, no HPA Person who remains an affiliate of the Company owns more than 1% of the then outstanding shares of Common Stock. 45 For a period of at least two years, and continuing while any HPA Person remains an affiliate of the Company and continues to hold Warrants or HPA Party Common Stock, the Company shall be required (i) to file such reports under the Exchange Act, or otherwise make publicly available such information, as may be required by section (c) of Rule 144 in order for sales to be permitted under the provisions of Rule 144 and (ii) to provide confirmation of such filing or availability upon request to any Holder or HPA Person who seeks to rely upon Rule 144 (other than section (k) thereof) in the sale of Warrants or HPA Party Common Stock. (d) Registration Procedures. Whenever Registrable Securities are to be registered pursuant hereto, the Company shall use its best efforts to effect the registration of Registrable Securities in accordance with the intended method of disposition thereof as expeditiously as practicable and, in connection with any such request, the Company shall as expeditiously as possible: (i) furnish to each seller of Registrable Securities such number of copies of the registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as each seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (ii) if required, use best efforts to register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller reasonably requests in writing and to do any and all other acts and things that may be reasonably necessary or advisable to register or qualify for sale in such jurisdictions the Registrable Securities owned by such seller; 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 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; (iii) use best efforts to cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (iv) notify each seller of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the 46 circumstances under which they were made, not misleading, and prepare and file with the Commission a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided, in the use of a Piggyback Registration, that prior to the filing of such supplement or amendment, the Company will furnish copies thereof to the Holders whose shares or Warrants are included in such registration, any underwriters and counsel for such Holders, and will not file such supplement or amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld; (v) enter into customary agreements (including an underwriting agreement in customary form) if the offering is an underwritten offering) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; (vi) make available for inspection by any seller of Registrable Securities and any attorney, accountant or other agent retained by any such seller (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as are reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors, employees and agents to supply all information reasonably requested by any such Inspector in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is, in the reasonable judgment of any Inspector, necessary to avoid or correct a misstatement or omission of a material fact in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or governmental agency of competent jurisdiction or required (in the written opinion of counsel to such Holder or underwriter, which counsel shall be reasonably acceptable to the Company) pursuant to applicable state or federal law. Each seller of Registrable Securities shall be required to agree, however, that it will, upon learning that disclosure of such Records are sought by a court or governmental agency, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (vii) if such sale is pursuant to an underwritten offering, use reasonable efforts to obtain a "cold comfort" letter and updates thereof from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter or underwriters reasonably request; and (viii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, 47 beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. Provided that the applicable listing requirements continue to be satisfied, the Company shall use its best efforts to maintain the listing of the Common Stock on the American Stock Exchange or, if such stock is delisted from the American Stock Exchange, to provide for the listing of the Common Stock on NASDAQ/NMS; and provided that such a listing continues to be in effect, the Company shall cause any Common Stock received upon the exercise of the Warrants to be listed on the applicable market. In the case of the Warrants, if (i) at least 500,000 Warrants have been sold pursuant to one or more Piggyback Registrations or (ii) Holders of at least 20% of the then outstanding Warrants request the Company to make a determination whether the public distribution and float of the Warrants will qualify for such a listing and the Company determines that the applicable standards have been met, the Company shall use its best efforts to cause the Warrants to be registered under the Exchange Act and to be listed for trading on each securities market, if any, on which the Common Stock is then listed or, with the consent of the Company (which shall not be unreasonably withheld), on any other United States securities exchange that is registered under the Exchange Act or over-the-counter market that is maintained by the National Association of Securities Dealers, Inc. The Company may require each seller or prospective seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such securities and other matters as may be required to be included in the registration statement. Upon receipt of any notice from the Company of the happening of any event of the kind described in clause (iv), each holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by this clause (iv) and, if so directed by the Company, such holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company gives any such notice, the Company shall extend the period during which such registration statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice pursuant to clause (iv) to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated in clause (iv). Notwithstanding anything to the contrary set forth above in this paragraph, the Company may not require the holders of Registrable Securities to discontinue disposition of Registrable Securities for purposes of effecting a public offering of any securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8). Notwithstanding the foregoing, if the Company furnishes to the Holders a certificate signed by the Chief Financial Officer of the Company stating that (i) in the good faith judgment of the Board of Directors of the Company it would be 48 significantly disadvantageous to the Company and its stockholders for any such Shelf Registration to be amended or supplemented and (ii) the need for such an amendment or supplement is not caused by a proposed secondary public offering of securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8), the Company may defer such amending or supplementing of such Shelf Registration for not more than 45 days and in such event the Holders shall be required to discontinue disposition of any Registrable Securities covered by such Shelf Registration during such period. Notwithstanding the foregoing, in connection with any amendment or supplement required to reflect a public offering of securities by the Company, the Company shall file such amendment or supplement no later than the same day that it files a registration statement relating to such offering and shall provide written notice of the filing of such amendment or supplement to the holders of Registrable Securities promptly following such filing. (e) Registration Expenses. The Company shall pay all expenses incident to its performance of or compliance with this Agreement, regardless of whether such registration becomes effective including, without limitation, (a) all Commission, stock exchange or market and National Association of Securities Dealers, Inc. registration and filing fees, (b) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Securities), (c) all printing, messenger and delivery expenses, (d) all fees and disbursements of the Company's independent public accountants and counsel, (e) all fees and expenses of any special experts retained by the Company in connection with any Piggyback Registration pursuant to the terms of this Agreement, and (f) the fees and disbursements of one counsel retained collectively by the Holders for a registration; provided, however, that the Company shall not pay the costs and expenses of any counsel, accountants or other representatives retained by the Holders, individually or in the aggregate. (f) Indemnification; Contribution. (1) Indemnification by the Company. The Company shall indemnify, to the fullest extent permitted by law, each Holder, its officers, directors and agents and each Person, if any, who controls such Holder (within the meaning of the Securities Act) (it being understood that, for these purposes, an HPA Person who is an affiliate of the Company shall be considered a Holder in respect of HPA Party Common Stock), against any and all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information with respect to such Holder furnished in writing to the Company by such Holder expressly for use therein or by such Holder's failure to deliver a copy of the prospectus or any supplements thereto after the Company has furnished such 49 Holder with a sufficient number of copies of the same or by the delivery of prospectuses by such Holder after the Company notified such Holder in writing to discontinue delivery of prospectuses. The Company also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders. (2) Indemnification by Holders. In connection with any registration statement in which a Holder is participating, each such Holder shall furnish to the Company in writing such information and affidavits with respect to such Holder as the Company reasonably requests for use in connection with any such registration statement or prospectus and agrees to indemnify, severally and not jointly, to the fullest extent permitted by law, the Company, its officers, directors and agents and each Person, if any, who controls the Company (within the meaning of the Securities Act) against any and all losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission is contained in or improperly omitted from, as the case may be, any information or affidavit with respect to such Holder so furnished in writing by such Holder. Each Holder also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company. (3) Conduct of Indemnification Proceedings. Any party that proposes to assert the right to be indemnified hereunder shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties hereunder, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. If the indemnifying party assumes the defense, the indemnifying party shall have the right to settle 50 such action without the consent of the indemnified party; provided, however, that the indemnifying party shall be required to obtain such consent (which consent shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the indemnified party or any decree or restriction on the indemnified party or its officers or directors; provided, further, that no indemnifying party, in the defense of any such action, shall, except with the consent of the indemnified party (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such action against the indemnified party. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (a) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (b) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (c) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (d) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time from all such indemnified party or parties unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists (based on advice of counsel to an indemnified party) between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written consent (which consent shall not be unreasonably withheld). (4) Contribution. If the indemnification provided for herein from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, to the extent such indemnification is unavailable, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses. The relative fault of such indemnifying party and indemnified parties shall be 51 determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in subparagraph (3) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. If indemnification is available hereunder, the indemnifying parties shall indemnify each indemnified party to the full extent provided in subparagraphs (1) and (2) hereof without regard to the relative fault of said indemnifying parties or indemnified party. 15. Warrant Certificates to Bear Legend. Each Warrant and each stock certificate for the Warrant Shares shall (and each Warrant or stock certificate issued upon direct or indirect transfer or in substitution for any Warrant or any Warrant Share pursuant to Sections 12 and 13 shall) be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND May NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. 16. No Rights or Liability as a Stockholder. The Warrants do not entitle the Holders thereof to any voting rights or other rights as a stockholder of the Company. No provisions in this Agreement or the Warrants, in the absence of affirmative action by the Holders thereof to purchase Common Stock, and no enumeration herein and therein of the rights or privileges of the Holders shall give rise to any liability of such Holders as stockholders of the Company. 17. Reservation of Shares. The Company shall at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue or delivery upon exercise of the Warrants, as provided herein, the maximum number of shares of Common Stock that may be issuable or deliverable upon such exercise. Such shares shall, when issued or delivered in accordance with the Warrants, be duly and validly issued and fully paid and non-assessable. The Company shall issue such shares in accordance with the provisions of the Warrants, and shall otherwise comply with the terms thereof. 18. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of the Warrants shall be made without charge to the Holders thereof 52 for any issue or transfer tax, or other incidental expense, in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Company. 19. Amendment or Waiver. This Agreement and any term hereof may be amended, waived, discharged or terminated only by and with the written consent of the Company and the Holders of 75% of the Warrants given in writing upon at least 20 days' notice or at a meeting called for the purpose in accordance with the By-laws of the Company applicable to meetings of stockholders. This Agreement and any term hereof may be amended, waived, discharged or terminated without the written consent of the Holders to (i) cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provisions herein, or to (ii) add to the covenants of the Company or add any other provision for the benefit of the Holders; provided, however, that any action pursuant to (i) and (ii) above shall not adversely affect the interest of the Holders in any respect. 20. Notices. Any notice or other communication (or delivery) required or permitted hereunder shall be made in writing and shall be by registered mail or certified first class mail, return receipt requested, telecopier, courier service or personal delivery to each Holder at its address as it appears in the Warrant Register and to the Company at: EMPIRE OF CAROLINA, INC. 5150 Linton Blvd. Delray Beach, FL 33484 Telecopier No.: (561) 498-0722 Attention: Steve Geller, Chairman and Chief Executive Officer Lawrence Geller, General Counsel All such notices and communications (and deliveries) shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. 21. Effect of Failure to Notify. Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice shall not affect the legality or validity of the adjustment to the Exercise Price, the number of shares purchasable upon exercise of this Warrant, or any transaction giving rise thereto. 22. Appointment of Agent. The Company/Holders representing not less than a majority of the outstanding Warrants may at any time appoint an agent to take any and all actions under this Agreement as instructed by Holders representing not less than a majority of the outstanding Warrants (subject to Section 19), which instructions shall be binding upon all Holders. The Company may be appointed to act as agent pursuant to this Section 22. 53 23. Certain Remedies. The Holders shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which such Holders may be entitled at law or in equity. 24. Consent. The terms of the Warrants to be issued hereunder and the effectiveness of this Agreement shall be subject in all respects to the specific written consent of HPA and EMP. 25. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to the principles of conflicts of law of such State. 26. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. EMPIRE OF CAROLINA, INC. By: /s/ Lawrence Geller ----------------------------------------- Name: Lawrence Geller Title: Vice-President and General Counsel 54 EXHIBIT A TO WARRANT AGREEMENT [FORM OF WARRANT CERTIFICATE] May 6, 1997 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. No. __ Warrant to Purchase _______ Shares of Common Stock EMPIRE OF CAROLINA, INC. COMMON STOCK PURCHASE WARRANT Void after 5 p.m. on May 6, 2003 EMPIRE OF CAROLINA, INC., a Delaware corporation (the "COMPANY"), hereby certifies that for value received, ___________________, a __________________, or successors and assigns (the "HOLDER") is entitled to purchase, subject to the terms and conditions hereinafter set forth, an aggregate of _____________ fully paid and nonassessable shares of Common Stock (as hereinafter defined) of the Company, at an exercise price of $1.375 per share subject to adjustment as provided herein (the "PURCHASE PRICE"), at any time or from time to time prior to 5:00 P.M., New York City time, on May 6, 2003 (the "EXPIRATION DATE"). Payment of the Purchase Price may be made in United States currency by wire transfer to an account designated by the Company or delivery of a certified check or bank check payable to the order of the Company. On the Expiration Date, the Warrants evidenced by this Warrant certificate not theretofore exercised shall become null and void, and all rights of the Holder hereof shall cease. As provided in the Warrant Agreement referred to below, the Purchase Price and the number or kind of shares which may be purchased upon the exercise of the Warrants evidenced by this Warrant certificate are, upon the happening of certain events, subject to modification and adjustment. 55 This Warrant Certificate is subject to, and entitled to the benefits of, all of the terms, provisions and conditions of an agreement, dated as of ____________ __, 1997 (the "WARRANT AGREEMENT"), between the Company and ______________________, which Warrant Agreement is hereby incorporated herein by reference and made a part hereof and to which Warrant Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Company and the holders of the Warrant Certificates. Copies of the Warrant Agreement are on file at the principal office of the Company. The Holder hereof may be treated by the Company and all other persons dealing with this Warrant Certificate as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding, and until such transfer on such books, the Company may treat the Holder hereof as the owner for all purposes. The Holders of the Warrants are entitled to certain registration rights with respect to the Warrants and the shares of Common Stock purchasable upon exercise thereof. Said registration rights are set forth in full in the Warrant Agreement. No fractional shares of Common Stock will be issued upon the exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be made as provided in the Warrant Agreement. No Holder shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon such Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or, to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or, except as provided in the Warrant Agreement, to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate shall have been exercised as provided in the Warrant Agreement. 56 IN WITNESS WHEREOF, Empire of Carolina, Inc. has caused its Chairman, President or Vice President and its Secretary or one of its Assistant Secretaries to execute this Warrant Certificate (or such officers' facsimile signatures to be printed hereon) and has caused its corporate seal (or facsimile thereof) to be printed hereon. Dated: EMPIRE OF CAROLINA, INC. [SEAL] By: Name: Title: Attest: By: Name: Title: 57 FORM OF ELECTION TO PURCHASE SHARES [To Be Executed upon Exercise of Warrant] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to receive ______ shares of Common Stock and herewith tenders payment for such shares to the order of Empire of Carolina, Inc. in the amount of $___________ in accordance with the terms hereof. The undersigned requests that a certificate for such shares be registered in the name of _______________________, whose address is __________________________ _________________ and that such shares be delivered to __________________ whose address is ____________________________. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant representing the remaining balance of such shares be registered in the name of ____________________________, whose address is _________________________________ _______________________________, and that such Warrant be delivered to _____________, whose address is ________________________ _____________________________________. Signature: Date: Signature Guaranteed: 58 ASSIGNMENT FORM To assign this Warrant, fill in the form below: I or we assign and transfer this Warrant to: (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) Date: Your Signature*: Signature Guarantee: (Signature must be guaranteed by a participant in [a recognized signature guarantee medallion program or] bank or trust company) (*) Sign exactly as your name appears on this Warrant. 59 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF WARRANTS This certificate relates to ________ Warrants held in (check applicable space) ____ book-entry or ____ certificated form by the undersigned. In connection with any transfer or exchange of any of the Warrants evidenced by this certificate, the undersigned confirms that such Warrants are being: CHECK ONE BOX BELOW: (1) |_| acquired for the undersigned's own account, without transfer; or (2) |_| transferred to the Company; or (3) |_| transferred pursuant to and in compliance with Rule 144A or in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"); or (4) |_| transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has furnished to the Company a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Administrators); or (5) |_| transferred pursuant to another available exemption from the registration requirements of the Securities Act; or (6) |_| transferred pursuant to an effective registration statement. Unless one of the boxes is checked, the Company shall refuse to register any of the Warrants evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that (i) if box (1) is checked and the Warrants are being acquired prior to registration under the securities laws, or (ii) if box (3), (4) or (5) is checked, the Company may require, prior to registering any such transfer of the Capital Securities, in its sole discretion, such legal opinions, certifications and other information as is reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, such as the exemption provided by Rule 144 under such Act; provided, further, that if box 3 60 is checked, the transferee must also certify that it is a qualified institutional buyer as defined in Rule 144A of the Securities Act. Signature: Signature Guarantee: (Signature must be guaranteed by a participant in a [signature guarantee medallion program or] bank or trust company) 61 EX-4 6 EXHIBIT 4.9 EXHIBIT 4.9 SECOND AMENDMENT TO RIGHTS AGREEMENT THIS SECOND AMENDMENT to the Rights Agreement (the "Rights Agreement") dated as of September 11, 1996, between Empire of Carolina, Inc. and American Stock Transfer & Trust Company as Rights Agent ("American Stock Transfer") is dated as of the 12th day of June 1997. WHEREAS, following the consummation of the transactions contemplated by that certain Securities Purchase Agreement dated as of May 5, 1997 among the Corporation, HPA Associates L.L.C., a Delaware limited liability company, and EMP Associates L.L.C., a Delaware limited liability company, as amended by Amendment No. 1 thereto (as amended, the "Securities Purchase Agreement"), the Company will have issued securities convertible into or exercisable for a substantial number of shares of the Corporation's Common Stock and certain investors will beneficially own securities convertible into or exercisable for significant levels of the Corporation's outstanding Common Stock; and WHEREAS, the Board of Directors of the Company believes that it is in the best interests of the Company and its stockholders that the Rights Agreement be amended as set forth herein; and WHEREAS, Section 27 of the Rights Agreement authorizes the Board of Directors of the Company and the Rights Agent to adopt the proposed amendment without the approval of the Company's stockholders; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties agree to amend the Rights Agreement as follows: 1. Section 1(a) of the Rights Agreement is hereby amended by deleting Section 1(a) thereof in its entirety and substituting the following therefor: (a) "Acquiring Person" means any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the aggregate number of Fully-Diluted Common Shares of the Company, but shall in no event include any Exempt Person. 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, by reducing the number of the Company's Common Shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Fully-Diluted 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 62 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 own 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 determines in good faith that a Person who would otherwise be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph (a), 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, as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. 2. Section 1 of the Rights Agreement is hereby amended by inserting the following immediately after Section 1(l) thereof: (m) "Fully-Diluted Common Shares" means the sum of (A) the aggregate number of Common Shares of the Company then outstanding and (B) the aggregate number of Common Shares of the Company then issuable upon the exercise of all outstanding stock options, warrants, convertible securities, and other rights to acquire Common Shares of the Company then outstanding. 3. Section 1 of the Rights Agreement is hereby amended by redesignating paragraphs (m) through (y) thereof as paragraphs (n) through (z). 4. Capitalized terms used but not defined herein shall have the meaning assigned to such terms in the Rights Agreement. 5. Except as expressly amended hereby, the Rights Agreement remains in full force and effect. 6. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware, and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and performed entirely within such State. 7. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 63 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. EMPIRE OF CAROLINA, INC. Attest: By /s/ Lawrence Geller By /s/ Steven Geller - ------------------------------------ ------------------------- Name: Lawrence Geller Name: Steven Geller Title: General Counsel and Secretary Title: Chairman and Chief Executive Officer AMERICAN STOCK TRANSFER & TRUST COMPANY Attest: By [SIGNATURE] By /s/ Herbert J. Lemmer - ------------------------------------ ------------------------- Name: Name: Herbert J. Lemmer Title: Title: Vice President 64 EX-4 7 EXHIBIT 4.10 EXHIBIT 4.10 PROMISSORY NOTE $2,500,000 June 17, 1997 New York, New York FOR VALUE RECEIVED, EMPIRE INDUSTRIES, INC., a North Carolina corporation (the "Company"), with offices at 5150 Linton Boulevard, Delray Beach, Florida 33484, hereby promises to pay to the order of SMEDLEY INDUSTRIES, INC. LIQUIDATING TRUST, with offices at c/o Kahn Consulting, Inc., 152 West 57th Street, New York, New York 10019, or its successors or registered assigns (the "Payee"), the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000), which shall be due and payable as hereinafter provided. 1. Maturity. The unpaid principal amount of this Note shall be due and payable on the following dates in the amounts indicated: Date Amount June 1, 1998 $625,000 June 1, 1999 $625,000 June 1, 2000 $625,000 June 1, 2001 $625,000 2. Interest. This Note shall bear interest from June 17, 1997 on the unpaid principal balance at the rate of 9.0% per annum (the "Base Rate"), payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing September 1, 1997. Upon the occurrence of an Event of Default (as defined in Section 7 hereof) and at all times thereafter until all Events of Default shall have been cured or waived, interest shall be payable on demand at the rate of the Base Rate plus 3.0% per annum on (i) the unpaid principal balance and (ii) to the fullest extent permitted by law, all accrued but unpaid interest and all other amounts owing hereunder. Interest shall be computed on the basis of twelve 30-day months and a 360-day year. 3. Registered Note. This Note is a registered Note and, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the Payee or the Payee's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration and transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. 65 4. Payments. The Company shall make each payment hereunder not later than 12:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by wire transfer in immediately available funds, without deduction, setoff or counterclaim, pursuant to the following wire transfer instructions: The Chase Manhattan Bank N.A. ABA # 021-000-021 Acct. # 0371289679 Ref:Smedley Ind. Inc. Liquidating Trust Attn: Robert Kennedy (212) 397-6222 or pursuant to such other instructions as the Payee shall from time to time designate in writing. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holiday or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. Prepayments. (a) The Company shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with interest on the portion of the principal amount so prepaid accrued to the date of prepayment. (b) In the event that the Company shall at any time sell, transfer or otherwise dispose of any assets other than (i) in the ordinary course of business or (ii) pursuant to a Permitted Asset Sale (as defined herein in Section 10(c)), then, in such event, the Company shall apply all net proceeds of such sales, transfers and dispositions to the prepayment of the aggregate outstanding principal amount of this Note, in whole or in part, plus interest thereon accrued to the date of prepayment. 6. Guarantee. (a) For value received, Empire of Carolina, Inc. and its successors and assigns (the "Guarantor") hereby guarantees to the Payee the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal amount of this Note and interest thereon and all other amounts at any time owing to the Payee by the Company under this Note, in each case strictly in accordance with the terms hereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Guarantor hereby further agrees that if the Company shall fail to pay in full when due (whether at maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, without deduction, setoff or counterclaim, and without any demand or notice whatsoever. 66 (b) The obligations of the Guarantor hereunder are absolute and unconditional, and shall not be impaired, modified, released or limited by any occurrence or condition whatsoever, including, without limitation, (i) any compromise, settlement, release, waiver, renewal, extension, indulgence or modification of, or any change in, any of the obligations and liabilities of the Company contained in this Note, (ii) any impairment, modification, release or limitation of the liability of the Company or its estate in bankruptcy, or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of any applicable bankruptcy law, as amended, or other statute or from the decision of any court, (iii) the assertion or exercise by the Company or the holder of the Note of any rights or remedies under this Note or their delay in or failure to assert or exercise any such rights or remedies, (iv) the assignment or the purported assignment of any property as additional security for this Note, including all or any part of the rights of the Company hereunder, (v) the extension of the time for payment by the Company of any payments or other sums or any part thereof owing or payable under any of the terms and provisions of this Note or of the time for performance by the Company of any other obligations under or arising out of any such terms and provisions or the extension or the renewal of any thereof, (vi) the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Company set forth in this Note, (vii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, the Company or the Guarantor or any of their respective assets, or the disaffirmance of this Guarantee pursuant to this Section 6 or this Note in any such proceeding, (viii) the release or discharge of the Company from the performance or observance of any agreement, covenant, term or condition contained in any of such instruments by operation of law, (ix) the unenforceability of this Note or the Guarantee, or (x) any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (c) The Guarantor hereby (i) waives diligence, presentment, demand of payment, filing of claims with a court in the event of the merger, insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company or to realize on any collateral, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever, (ii) acknowledges that any agreement, instrument or document evidencing the Guaranteed Obligations may be transferred and that the benefit of its obligations hereunder shall extend to each holder of any agreement, instrument or document evidencing the Guaranteed Obligations without notice to them, and (iii) covenants that its Guarantee pursuant to this Section 6 will not be discharged except by complete performance of the Guaranteed Obligations and of its Guarantee pursuant to this Section 6. (d) The Guarantee pursuant to this Section 6 shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of any of the Guaranteed Obligations is, pursuant to 67 applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by the holder of this Note, whether as a result of any proceeding in bankruptcy (including as a "voidable preference," "fraudulent conveyance" or "fraudulent transfer") or otherwise (of the Company, the Guarantor or any third party), all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, (i) the Guaranteed Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned, and (ii) the Guarantor shall indemnify the Payee on demand for all costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Payee in connection with such rescission, reduction, restoration or return, including any such costs and expenses incurred in defending against any claim alleging that such payment consisted a preference, fraudulent conveyance, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. (e) The Guarantee in this Section 6 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. (f) In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of the Guarantor hereunder would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability hereunder, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by the Guarantor, the Payee or any other person or entity, be automatically limited and reduced to the highest amount which is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. 7. Event of Default. In case one or more of the following events of default (each, an "Event of Default") shall have occurred and be continuing: (a) the Company fails to make any payment of any principal, interest or other amount under this Note when due (whether at stated maturity, by acceleration or otherwise); (b) the Company fails to perform, comply with or observe any term, covenant or agreement contained in Section 9(c), (d) or (e) of this Note and such failure shall continue for a period of five days; (c) the Company fails to perform, comply with or observe any term, covenant or agreement contained in this Note (other than Section 9(c), (d) or (e) hereof) and such failure shall continue for a period of five days after notice thereof to the Company by the Payee; 68 (d) any representation or warranty made by the Company herein shall prove to be false or misleading in any material respect as of the date made or deemed to have been made; (e) the Company or the Guarantor fails to perform, comply with or observe any term, covenant or agreement to be performed, complied with or observed by the Company or the Guarantor pursuant to the Registration Rights Agreement of even date herewith by and between the Guarantor and Smedley Industries, Inc. Liquidating Trust; (f) (i) the Company or the Guarantor fails to perform, comply with or observe any term, covenant or agreement to be performed, complied with or observed by either of them pursuant to (x) the Loan and Security Agreement, dated May 29, 1996, among BT Commercial Corporation, LaSalle National Bank and the Company, as amended from time to time (the "Loan Agreement"), (y) the documentation evidencing or relating to the Refinancing Debt (as defined in Section 10(b)) or (z) any other evidence of indebtedness or liability for borrowed money (other than this Note), or (ii) any other event shall occur or condition shall exist, if the effect of such failure, event or condition is to accelerate or otherwise cause the maturity of any indebtedness under the Loan Agreement, the documentation evidencing or relating to the Refinancing Debt or any other evidence of indebtedness or liability for borrowed money (other than this Note); (g) material adverse orders, judgments or decrees shall be entered against the Company or the Guarantor in excess of $1,000,000 in the aggregate, and such orders, judgments or decrees shall continue unstayed and in effect for a period of 30 days; (h) Charles S. Holmes ("Holmes") shall not be a director of the Company and the Guarantor; (i) Holmes shall not be the sole legal and beneficial owner and holder of, or shall not have good and marketable title to, at least 510,000 shares of the Company's Series A Preferred Stock (the "Shares") and 1,020,000 warrants entitling him to purchase 1,020,000 shares of the Company's common stock (or such shares, to the extent Holmes has exercised such rights) (the "Warrants") (or, in each case, the number and type of securities Holmes would be entitled to had he owned the Shares and the Warrants on the date hereof and never assigned, transferred or otherwise disposed of such Shares or Warrants, i.e. after giving effect to stock splits, combinations and dividends, recapitalizations and similar events), in each case free and clear of all liens, claims, security interests, encumbrances and other rights of any kind; 69 (j) the Company or the Guarantor shall sell, transfer or otherwise dispose of all or substantially all of its assets; (k) a court having jurisdiction shall have entered a decree or order for relief against the Company or the Guarantor in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have appointed a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or the Guarantor or for any of their respective assets or properties, or shall have ordered the winding-up or liquidation of either of their affairs, and such decree or order shall have remained unstayed and in effect for a period of thirty consecutive days; (l) the Company or the Guarantor shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or the Guarantor or for any of their respective assets or properties, or shall have made an assignment for the benefit of creditors, or shall have admitted in writing either of their inability to pay their debts as they mature, or shall have taken any corporate action in furtherance of any of the foregoing; or (m) the Guarantor has not received after the date hereof and prior to July 1, 1997, net proceeds in cash from HPA Associates, LLC and EMP Associates LLC in consideration for the issuance of $5 million of its Series A Preferred Stock of at least $4.5 million (after taking into account the placement agent's fees and the expenses of such offering); then the holder of this Note, by notice to the Company in writing, may at its option declare the principal amount of this Note and accrued interest thereon to the date of such declaration to be due and payable immediately. Upon any such declaration, the same shall become and shall be immediately due and payable; provided, however, that if an event specified in clause (k) or (l) above occurs, such amount shall become and be immediately due and payable automatically, without any declaration or other act on the part of the holder of this Note. 8. Representations and Warranties. The Company and the Guarantor hereby represent and warrant to the holder of this Note as follows: (a) The Company and the Guarantor and each subsidiary of either of them that is an operating entity or that has any material assets are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of their respective incorporations, (ii) have all requisite power and authority to own or to lease and to operate their respective properties and assets and to carry on their respective businesses as now conducted and as proposed to be conducted, and (iii) are duly qualified and authorized to do business and are in good standing in every jurisdiction in which they 70 own or lease property and in which the conduct of its business requires them to so qualify or be licensed. (b) This Note has been duly authorized, executed and delivered by the Company and the Guarantor. The execution and delivery of this Note by the Company and the Guarantor and the performance of their respective obligations hereunder: (i) is within the Company's and the Guarantor's corporate powers, (ii) is duly authorized by all necessary corporate action, including by the Company's and the Guarantor's Board of Directors and, if necessary, stockholders, (iii) is not in contravention of the terms of the Company's or the Guarantor's charter documents, (iv) does not conflict with or result in the breach of, or constitute a default under, any material indenture, contract, agreement, mortgage, deed of trust, lease or other instrument or undertaking binding on or affecting the Company or the Guarantor or any of their respective subsidiaries or any of their respective properties, (v) does not violate or contravene any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, and (vi) will not result in or require the creation or imposition of any lien. None of the Company, the Guarantor or any of their respective subsidiaries is in violation of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or, except as provided in the Guarantor's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, in breach of any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance of this Note or (ii) the exercise by the holder of this Note of its rights and remedies under or in respect of this Note. (d) This Note is the legal, valid and binding joint and several obligation of the Company and the Guarantor and is enforceable against each of them in accordance with its terms. (e) No information, exhibit or report furnished by the Company or the Guarantor or any of their respective subsidiaries to the Payee contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (f) Set forth on Schedule I hereto is a complete and accurate list of each subsidiary of the Company or the Guarantor that is an operating entity or that has any material assets, showing as of the date hereof (as to each such subsidiary) the jurisdiction of its incorporation and the percentage ownership (direct and indirect) of the Company and the Guarantor in each class of capital stock or other equity interests of each of its respective subsidiaries and also identifies the direct owner thereof. Except for the subsidiaries set forth on Schedule I, neither the Company nor the Guarantor has any subsidiary that is engaged in business or that owns material assets. 71 (g) Except as disclosed in Schedule II, there is no judgment outstanding against the Company or the Guarantor or any of their respective subsidiaries, or any of their respective assets or properties, nor is there any action, suit, investigation, litigation, contested claim or proceeding affecting any of them or any of their respective assets or properties, now pending or, to the best of their knowledge after diligent inquiry of their executive officers, threatened, that (i) could reasonably be expected to have, in the aggregate, a material adverse effect on (A) the business operations, results of operations, assets, liabilities or condition (in each case financial or otherwise) of the Company or the Guarantor, (B) the ability of the Company or the Guarantor to perform any of their respective obligations under this Note or the Guarantee or (C) the rights and remedies of the holder of this note hereunder (a "Material Adverse Effect"), or (ii) purports to affect the legality, validity or enforceability of any of this Note or any of the actions contemplated hereby. (h) Except for defaults under the Loan Agreement, and except for litigation listed on Schedule II, none of the Company, the Guarantor or any of their respective subsidiaries is in default under any material contract, lease, commitment or other agreement to which it is a party or by which it is bound which could reasonably be expected to have, in the aggregate, a Material Adverse Effect. None of the Company, the Guarantor or any of their respective subsidiaries knows of any dispute regarding any material contract, lease, commitment or other agreement which could reasonably be expected to have, in the aggregate, a Material Adverse Effect. (i) The Guarantor has received net proceeds in cash from HPA Associates, LLC and EMP Associates LLC in consideration for the issuance of $6 million of its Series A Preferred Stock of at least $5.09 million (after taking into account the placement agent's fees and the expenses of such offering). All $5 million aggregate principal amount of the Guarantor's Promissory Notes Due February 6, 1998 have been converted into $5 million of the Guarantor's Series A Preferred Stock, and all $15 million of the Guarantor's outstanding debentures have been converted into $15 million of the Guarantor's Series C Preferred Stock, and all such Notes and debentures have been surrendered to and cancelled by the Guarantor. 9. Affirmative Covenants. Until such time as the Company shall have paid in full in cash all amounts outstanding hereunder to the holder of this Note, the Company and the Guarantor hereby covenant to and to cause each of their respective subsidiaries to: (a) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights (charter and statutory), licenses and franchises. (b) Cause copies of all quarterly and annual reports and of the information, documents and other reports ("SEC Reports") which the Company and/or the Guarantor files or is required to file with the Securities and Exchange Commission (the "SEC") to be delivered to the holder of this Note at the address set forth herein, in each case, 72 within five days of filing with the SEC. If the Company or the Guarantor is not subject to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") or shall cease to be required by the SEC to file SEC Reports, the Company and the Guarantor shall nevertheless continue to cause SEC Reports, comparable to those which it would be required to file pursuant to Section 13(a) or 15(d) of the Exchange Act if it were subject to the requirements of either such Section, to be delivered to the holder of this Note, but only upon such holder's written request, in each case, within the same time periods as would have applied (including under the preceding sentence) had the Company and the Guarantor been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act. (c) Deliver to the holder of this Note a written statement of an officer of the Company and the Guarantor setting forth the nature of any fact or circumstance that, with the giving of notice and/or the passage of time, would allow (i) the holder of this Note to accelerate the maturity hereof, or (ii) so long as the holder thereof or any other person or entity shall be entitled to receive notice thereof, the acceleration of any indebtedness of the Company or the Guarantor in excess of $1,000,000. Such statement shall be delivered as soon as possible, and in any event within two days after the initial occurrence of any such fact or circumstance. (d) Deliver to the holder of this Note within 30 days after the end of each quarterly fiscal period of each fiscal year of the Guarantor, a certificate of a senior financial officer of the Company and the Guarantor to the effect that no Event of Default, and no event that with the giving of notice and/or the passage of time could become an Event of Default, has occurred and is continuing (or, if any Event of Default or any such event has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto). (e) Upon the written request of the holder of this Note, deliver to such holder within five business days' of such request documents and information to evidence the accuracy and completeness of the certificates delivered pursuant to Section 9(d) hereof. 10. Negative Covenants. Until such time as the Company shall have paid in full in cash all amounts outstanding hereunder to the holder of this Note, the Company and the Guarantor hereby covenant not to and to cause each of its respective subsidiaries not to: (a) Create, incur, assume or suffer to exist any lien, security interest, pledge or other charge or encumbrance of any kind, or any other type of preferential arrangement (including any easement, right of way or other encumbrance on title to real property) on or with respect to any of its properties or assets of any character, whether real, personal or mixed, whether now owned or hereafter acquired, except for (i) liens granted by the Company pursuant to the Loan Agreement to secure the indebtedness created thereby, (ii) liens granted by the Company to secure Refinancing Debt (as defined herein), (iii) liens granted by the Company to secure indebtedness of the Company of 73 which 100% of the net proceeds thereof is used to repay amounts outstanding under this Note, (iv) liens for taxes or of warehousemen, mechanics, common carriers and landlords arising by operation of law and incurred in the ordinary course of business, for amounts that are not yet due and payable or which are being diligently contested in good faith by the Company by appropriate proceedings promptly instituted, provided that in any such case an adequate reserve is being maintained on the books of the Company in accordance with generally accepted accounting principles, (v) additional liens upon real or personal property to secure Additional Debt (as defined herein in Section 10(c), provided that the aggregate amount of Additional Debt secured thereby plus the aggregate amount of judgments secured by liens may not exceed $2,000,000, (vi) liens securing judgments, provided that the aggregate amount of Additional Debt secured by liens plus judgments secured by liens may not exceed $2,000,000, and (vii) purchase money mortgages or security interests securing indebtedness representing the purchase price of assets acquired by the Company after the date hereof, incurred solely for the purpose of financing the acquisition of such assets; provided, however, that such mortgages or security interests shall encumber only such assets and such indebtedness is non-recourse to the Company, the Guarantor and, except for such acquired assets, their respective properties and assets. (b) Create, incur, assume, guarantee or otherwise be or become liable for any obligations for borrowed money or other indebtedness other than (i) indebtedness arising under this Note, (ii) indebtedness of the Company incurred pursuant to the Loan Agreement, as it exists on the date hereof (the "Bank Debt"), (iii) indebtedness of the Company of which 100% of the net proceeds thereof is used to repay the Bank Debt ("Refinancing Debt"), (iv) indebtedness of the Company of which 100% of the net proceeds thereof is used to repay amounts outstanding under this Note, (v) current trade liabilities of the Company or the Guarantor, as the case may be, or extensions thereof, incurred in the ordinary course of their respective businesses from time to time and payable in accordance with customary practices, (vi) indebtedness that is unsecured and subordinated (on terms being acceptable to the holder of this Note) to the payment in full of all amounts outstanding hereunder, and (vii) indebtedness representing the purchase price of assets acquired by the Company or the Guarantor after the date hereof solely for the purpose of financing the acquisition of such assets; provided, however, that such indebtedness is non-recourse to the Company, the Guarantor and, except for such acquired assets, their respective properties and assets. Notwithstanding the foregoing, the Company and the Guarantor may, in the aggregate, incur an amount of unsecured indebtedness equal to the difference between $5,000,000 and the aggregate gross proceeds of all Permitted Asset Sales ("Additional Debt"); provided, however, that if the rate of interest accruing at any time in respect of any such Additional Debt exceeds 9.0%, then the Base Rate hereunder shall thereafter equal the greater of 9.0% or the highest rate of interest accruing at any time in respect of Additional Debt. (c) Sell, lease, assign, transfer or otherwise dispose of any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except (i) sales of assets in the ordinary course of its business, (ii) sales of assets by the Company and the Guarantor for cash at fair value that do not exceed (on a consolidated basis for the 74 Company, the Guarantor and their respective subsidiaries) an aggregate amount equal to the difference between $5,000,000 and the aggregate amount of Additional Debt outstanding at any time ("Permitted Asset Sales"), and (iii) sales of assets for cash and fair value, 100% of the net proceeds of which are used to repay permanently the Bank Debt, Refinancing Debt or amounts outstanding under this Note. The terms of this Section 10(c) shall apply to, inter alia, the sale, termination, renegotiation and exercise of contract rights, including, without limitation, the termination or renegotiation of the Distribution Agreement dated as of September 24, 1996, between the Company and Tyco Industries, Inc. (the "Distribution Agreement"); provided, however, that the first $3 million of proceeds received by the Company in consideration for the termination or renegotiation of the Distribution Agreement shall not be subject to the terms of this Section 10(c) or Section 5(b). (d) Declare or make any dividend payment or other distribution of assets, properties, cash, warrants, rights, options, obligations or securities on account of any shares of any class of its or any of its subsidiaries' capital stock (other than pursuant to and in consummation of a stock split or a stock dividend or a dividend or distribution by a subsidiary of the Company to the Company), or purchase, redeem, retire or otherwise acquire for value any shares of any class of its or any of its subsidiaries' capital stock or any warrants, rights or options to acquire any such shares, now or hereafter outstanding. (e) Enter into any transaction or series of related transactions, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any of its affiliates, except to the extent that such transaction or series of related transactions is (i) pursuant to the reasonable requirements of the Company's or the Guarantor's business, (ii) upon fair and reasonable terms no less favorable to the Company and the Guarantor than it would obtain in a comparable arm's-length transaction with an unaffiliated person or entity, and (iii) with respect to any transaction or series of related transactions that is of a value greater than $75,000, such transaction or series of related transactions is approved by a majority of the disinterested directors of the Company and the Guarantor. (f) Consolidate with or merge with or into any person or entity. 11. Rights and Remedies. All powers and remedies given to the holder of this Note shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holder of this Note, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. (a) Successors and Assigns. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to 75 the benefit of the Payee and its successors and assigns, including subsequent holders hereof. (b) Governing Law. This Note shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the principles of the conflict of laws thereof. Each party hereto hereby irrevocably consents to the exclusive jurisdiction of the United States Court for the Southern District of New York and the courts of the State of New York located in the City and State of New York in any action to enforce, interpret or construe any provision of this Note or of any agreement or document delivered in connection herewith, and hereby irrevocably waives any defense of improper venue, forum non conveniens or lack of personal jurisdiction to any such action brought in those Courts. Each party hereby irrevocably consents to the service by certified or registered mail, return receipt requested, to be sent to its address set forth herein, or to such other address as it may designate in writing from time to time, of any process in any action to enforce, interpret or construe any provision hereof. (c) Severability. The terms and provisions of this Note are severable, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforceability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. (d) Waiver. Presentment for payment, notice of dishonor, protest, notice of protest and any other notice are hereby waived. The Company and the Guarantor hereby waive any and all common law or statutory setoff rights either of them may have against the Payee, and all payments hereunder shall be without any deduction, setoff or counterclaim. (e) Amendment, Waiver. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company or the Guarantor herefrom, shall be effective, and no right or obligation under this Note shall otherwise be affected in any way, without the prior written consent of the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. (f) No Third Party Beneficiaries. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the Company and the holder of this Note. 76 IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. EMPIRE INDUSTRIES, INC. By: /s/ Lawrence Geller ---------------------- Name: Lawrence Geller Title: Vice President-General Counsel GUARANTOR: EMPIRE OF CAROLINA, INC. By: /s/ Lawrence Geller ------------------- Name: Lawrence Geller Title: Vice President-General Counsel Address: 5150 Linton Boulevard Delray Beach, Florida 33484 77 EX-10 8 EXHIBIT 10.41 EXHIBIT 10.41 AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT AMENDMENT, dated as of June 5, 1997, to Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of May 5, 1997 among EMPIRE OF CAROLINA, INC., a Delaware corporation (the "Company"), HPA ASSOCIATES, LLC, a Delaware limited liability company ("HPA"), and EMP ASSOCIATES LLC, a Delaware limited liability company. Capitalized terms used in this Amendment that are not otherwise defined herein have the meanings given to them in the Securities Purchase Agreement. In recognition of certain changes in circumstances since the execution of the Securities Purchase Agreement, the parties thereto wish to modify the Securities Purchase Agreement as set forth in this Agreement. NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: 1. Modification of Permanent Financing. 1.1 The definition of "Permanent Financing Final Date" is hereby amended to provide that such term means June 16, 1997. 1.2 HPA and EMP acknowledge that the Company has exercised the Additional Financing Option pursuant to a letter of notification dated May 14, 1997. Notwithstanding the exercise of the Additional Financing Option, however, the Notes shall be convertible upon the occurrence of the Permanent Financing on or prior to the Permanent Financing Final Date. 1.3 As part of the Permanent Financing, HPA and EMP shall each be required to convert the entire principal amount of their Notes into Series A Preferred Stock in accordance with the terms of the Securities Purchase Agreement and the Notes. 2. Modification of Additional Financing. 2.1 The definition of "Additional Financing Final Date" is hereby amended to provide that such term means June 30, 1997. 2.2 Section 2.2.2.1 of the Securities Purchase Agreement is hereby amended by inserting the following parenthetical phrase after the word "Company" in the seventh line thereof, "(it being understood that, subject to the satisfaction or waiver of the conditions to closing set forth herein, HPA guaranties such purchase, such obligation being primary and not contingent upon the availability of other Additional Preferred Stock Purchasers)". 78 2.3 Section 2.2.2.3 of the Securities Purchase Agreement is hereby deleted. 3. Provision for Further Financing. 3.1 The following new definitions are added: "FURTHER FINANCING CLOSING DATE" means the date agreed upon by HPA and the Company, not later than the Further Financing Final Date, as the date for the closing of the Further Financing. "FURTHER FINANCING FINAL DATE" means December 31, 1997. 3.2 The following new provisions are added to the Securities Purchase Agreement as Section 2.2.3: 2.2.3 Further Financing. 2.2.3.1 Subject to the terms and conditions herein set forth, on the Further Financing Closing Date, the Company shall issue to HPA and such other persons who may agree to acquire (the "FURTHER PREFERRED STOCK PURCHASERS"), and the Further Preferred Stock Purchasers shall acquire from the Company, an additional aggregate amount of up to $5,000,000 of Series A Preferred Stock (the "FURTHER FINANCING"), and the Company shall issue, pro rata in relation to the proportion of $5,000,000 of Series A Preferred Stock that is purchased in the Further Financing, to such Person or Persons as may be specified by HPA (including HPA itself), an additional 2,500,000 Warrants (the "FURTHER WARRANTS"). 2.2.3.2 If, on the Further Financing Final Date, sufficient Further Preferred Stock Purchasers are ready, willing and able to close on the Further Financing and the condition to closing specified in Section 3.6.1 hereof has been satisfied, but the Company fails to close on such Further Financing on the Further Financing Final Date despite such potential Further Preferred Stock Purchasers' readiness to do so, the Company shall issue to such Persons as HPA may designate (including HPA itself) the Further Warrants, promptly after the Further Financing Final Date; provided that if such failure to close by the Company is attributable to a failure by the Company to be able to satisfy the conditions to closing set forth in Section 3.1.1, the Company shall not be required to issue such Warrants unless such failure to satisfy such condition was deliberately caused by the Company, in whole or in part, for the purpose of preventing the Company from being able to satisfy such condition to closing. 2.2.3.3 If sufficient Further Preferred Stock Purchasers are ready, willing and able to close on the full amount of Further Financing on the Further Financing Final Date and the condition to closing specified in Section 3.6.1 hereof has been satisfied, (i) the Company shall issue such amount of Series A Preferred Stock as may be requested by those Further Preferred Stock Purchasers who do wish to 79 purchase Series A Preferred Stock in the Further Financing, together with the appropriate pro rata portion of the Further Warrants (as specified by HPA), (ii) the parties shall have no further obligation to one another under this Agreement with regard to the provision of financing and the issuance of additional securities, but (iii) the obligations of the parties pursuant to Articles 7 through 11 shall continue. 2.2.3.4 All funds raised to fund the Further Financing shall be held in escrow at a bank reasonably acceptable to the Company and HPA pending the closing of the Further Financing and shall not be withdrawable therefrom until the earlier to occur of the closing of the Further Financing, the failure to pass, acknowledged as such by the Company, of a resolution seeking the stockholder approval specified in Section 3.6.1. and the Further Financing Final Date. Persons who have contributed such funds into such escrow shall receive a fee from the Company, payable upon the withdrawal of such funds from escrow, at the rate of 7% per annum from the date of contribution to the date of such withdrawal; and the Company shall be entitled to receive any amount earned upon the investment of such funds (subject to any charge made by the bank at which such escrow is held). 3.3 The following provision is added to the Securities Purchase Agreement: 3.6 Condition to Closing on Further Financing. The following shall be a condition to the closing of the Further Financing: 3.6.1. Stockholder Approval. The issuance of the Series A Preferred Stock and the Further Warrants in the Further Financing, on the terms set forth in Section 2.2.3.1, shall have been approved by the Company's stockholders, by vote of a majority of votes cast thereon. 3.4 Section 11.15 (Expenses) of the Securities Purchase Agreement is hereby amended by adding the words "and the Further Financing" before the comma in the next to last line thereof. 4. Restructuring of Senior Loan Agreement. HPA (i) acknowledges that satisfactory (but not definitive) negotiations have occurred toward the satisfaction of the conditions to the closing of the Permanent Financing on the Permanent Financing Closing Date that are set forth in Section 3.4.2 of the Securities Purchase Agreement and (ii) hereby waives the further satisfaction of such conditions. In consideration of such waiver, the Company shall use its best efforts to cooperate with HPA in connection with the effectuation of a written agreement modifying the Senior Loan Agreement in form and substance satisfactory to HPA. 5. Parties Bound. The parties acknowledge that EMP has no interest in the Further Financing and is not a party to the agreements set forth in Section 3 of this Amendment No. 1. 80 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers hereunto duly authorized as of the date first written above. ================================================================================ EMPIRE OF CAROLINA, INC. By /s/ Steve Geller ----------------------- Name: Steve Geller Title: Chairman & Chief Executive Officer - -------------------------------------------------------------------------------- HPA ASSOCIATES, LLC By /s/ Charles S. Holmes ------------------------ Name: Charles S. Holmes Title: Managing Director - -------------------------------------------------------------------------------- EMP ASSOCIATES LLC By: EMP Management LLC as Managing Member By /s/ J. Richard Messina ------------------------- Name: J. Richard Messina Title: Manager - -------------------------------------------------------------------------------- ================================================================================ 81 EX-10 9 EXHIBIT 10.42 EXHIBIT 10.42 AGREEMENT Agreement, dated as of June 17, 1997, by and among EMPIRE OF CAROLINA, INC., a Delaware corporation (the "Company"), EMPIRE INDUSTRIES, INC., a North Carolina corporation ("Industries"), and SMEDLEY INDUSTRIES, INC. LIQUIDATING TRUST (the "Trust"). WHEREAS, on March 2, 1995, Smedley Industries, Inc. (f/k/a Buddy L Inc.) ("Smedley") filed a voluntary petition for relief under the Bankruptcy Code; WHEREAS, pursuant to the Amended and Restated Asset Purchase Agreement, as amended (the "Asset Purchase Agreement"), dated as of May 19, 1995, by and among the Company, Smedley and Buddy L (Hong Kong) Limited, Smedley sold the toy-related assets of Buddy L Inc. to the Company, and in connection therewith, the parties executed a Registration Rights Agreement, dated as of July 7, 1995 (the "Old Registration Rights Agreement"), which, among other things, provided Smedley with observation rights set forth therein (the "Observation Rights") and the right to additional shares of the Company's common stock upon the occurrence of certain events (the "Price Protection Shares"); WHEREAS, pursuant to Smedley's First Amended and Restated Chapter 11 Plan, dated June 17, 1996 (the "Plan"), and the Order Confirming First Amended Joint Chapter 11 Plan entered by the Bankruptcy Court for the District of Delaware, the Trust succeeded to all of Smedley's rights in, to and under the Asset Purchase Agreement and the Old Registration Rights Agreement, including, without limitation, the Price Protection Shares and the Observation Rights; WHEREAS, the Trust has significant claims against and interests in the Company, including among other things, the contingent payment obligations included in the Asset Purchase Agreement, 416,667 shares of the Company's common stock, certain inventory payment obligations and the Trust's contractual right to the Price Protection Shares; WHEREAS, the Company alleges that it has setoff rights against certain inventory payment obligations and Smedley receivables and disagrees as to, among other things, the number of Price Protection Shares that may be available to the Trust; WHEREAS, HPA Associates, LLC and EMP Associates LLC (collectively, the "HPA Group") and the Company have entered into a Securities Purchase Agreement, dated as of May 5, 1997 (the "HPA Agreement"), pursuant to which the HPA Group is purchasing at least $11 million of the Company's Series A Preferred Stock (the "New Equities"); WHEREAS, the holder of the Company's outstanding debentures (the "Debentureholders") have entered into an Agreement, dated as of June 17, 1997 (the "Debentureholder Agreement"), pursuant to which the Debentureholders are exchanging all $15 million of outstanding debentures 82 (and all rights relating thereto) (the "Debentures") for $15 million of the Company's Series C Preferred Stock; WHEREAS, the Company, the HPA Group and the Debentureholders are unwilling to consummate the transactions contemplated by the HPA Agreement and the Debentureholder Agreement (collectively, the "Transactions") unless and until Industries, the Company and the Trust execute and deliver this Agreement; and WHEREAS, the Trust may receive significantly less than the consideration to the Trust provided herein in respect of its claims against and interests in the Company than if the Transactions are not completed. NOW THEREFORE, in consideration of the premises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Transfer. Contemporaneously with the consummation of the Transactions (the "Closing"), the Company shall wire transfer to the Trust the sum of $100,000.00 (the "Settlement Amount") in immediately available funds pursuant to the following wire transfer instructions: The Chase Manhattan Bank N.A. ABA #021-000-021 Acct. #0371289679 Ref: Smedley Ind. Inc. Liquidating Trust Attn: Robert Kennedy (212) 397-6222 2. Registration Rights. Upon the Trust's receipt of the Settlement Amount, the Additional Shares and the Note (collectively, the "Settlement Distribution"), the Old Registration Rights Agreement shall be terminated and be of no further force or effect. Without in any manner limiting the breadth of the foregoing, it is understood and agreed that, from and after the Trust's receipt of the Settlement Distribution, the Trust shall no longer have Observation Rights or rights to the Price Protection Shares. Contemporaneously with the Closing, the Company and the Trust shall enter into a registration rights agreement in the form annexed hereto as Exhibit A (the "New Registration Rights Agreement"). 3. Asset Purchase Agreement. Upon the Trust's receipt of the Settlement Distribution, all obligations, duties and liabilities of the Trust, Smedley and the Company under or pursuant to the Asset Purchase Agreement shall be deemed to be fully satisfied and none of them shall have any ongoing or future obligations, duties or liabilities thereunder. 4. Issuance of Note. Contemporaneously with the Closing, Industries shall issue to the Trust a promissory note, guarantied by the Company, in the original principal amount of $2,500,000 in the form annexed hereto as Exhibit B. 83 5. Issuance of Stock. Contemporaneously with the Closing, the Company shall issue to the Trust an additional 250,000 shares of its common stock (the "Additional Shares"). 6. Opinion. Contemporaneously with the Closing, Sonnenschein Nath & Rosenthal, counsel to the Company and Industries, shall deliver to the Trust an opinion in the form annexed hereto as Exhibit C. 7. Officer's Certificate. Contemporaneously with the Closing, the Company shall deliver to the Trust an Officer's Certificate in the form annexed hereto as Exhibit D. 8. Releases. (a) The Trust hereby absolutely and unconditionally releases the Company and Industries and each of their respective agents, representatives, directors, officers and counsel (but, in each case, solely in their capacity as such) from any and all claims, liabilities, obligations, demands, actions, causes of action, suits, controversies, promises and damages, in law or in equity, of whatsoever nature, whether known or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect, whether suspected or unsuspected, whether having arisen or hereafter to arise, which the Trust ever had, now has or claims to have or hereafter can, shall or may for any reason have, against the Company or Industries arising out of any matter or event occurring prior to the Closing; provided, however, that nothing contained herein shall in any way be construed to waive or release any claims, actions, causes of action or other rights that (i) the Trust has, or may have, in its capacity as a shareholder of the Company, (ii) the Trust may have in respect of or in connection with the Note or the New Registration Rights Agreement, or (iii) arise from any breach by Industries or the Company of this Agreement. (b) The Company and Industries hereby absolutely and unconditionally release the Trust, Smedley, each of their respective agents, trustees, representatives, directors, officers and counsel (but, in each case, solely in their capacity as such), and Northwestern Mutual Life Insurance Company, Phoenix Home Life Mutual Ins. Co. and Equitable Life Assurance Society of the United States (but, in each case, solely in its capacity as a party to its respective confidentiality agreement with the Company) from any and all claims, liabilities, obligations, demands, actions, causes of action, suits, controversies, promises and damages, in law or in equity, of whatsoever nature, whether known or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect, whether suspected or unsuspected, whether having arisen or hereafter to arise, which the Company or Industries ever had, now has or claims to have or hereafter can, shall or may for any reason have, against any of them arising out of any matter or event occurring prior to the Closing; provided, however, that nothing contained herein shall in any way be construed to waive or release any claims, actions, causes of action or other rights that (i) the Company has or may have against any party that has breached a confidentiality agreement with the Company, but solely to the extent of the actual liability of the Company to a third party (including governmental agencies) directly resulting from such breach, or (ii) arise from any breach by the Trust of this Agreement. 84 9. Representations of the Company and Industries. The Company and Industries represent and warrant to, and covenant with, the Trust as of the date of this Agreement and as of the Closing that: (a) Each of the Company, Industries and each of their respective subsidiaries that is an operating entity or that has any material assets is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary corporate power and authority to conduct its business as currently conducted and to own or lease the properties and assets it now owns or holds under lease. Each of the Company, Industries and each of their respective subsidiaries is duly qualified or licensed to do business and is in good standing as a foreign corporation in every jurisdiction in which the conduct of its business or the ownership or leasing of its properties requires it to be so qualified or licensed, except where the failure to be so qualified or licensed or in good standing would not individually, or in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise), results of operations or prospects of the Company, Industries and their respective subsidiaries, taken as a whole. (b) The Company and Industries have all necessary corporate power and authority to execute and deliver this Agreement, the New Registration Rights Agreement and the Note, to consummate the transactions contemplated hereby and thereby, including the issuance of the Settlement Distribution, and to perform their obligations hereunder and thereunder. The execution and delivery by the Company and Industries of this Agreement, the New Registration Rights Agreement and the Note and the performance of its obligations hereunder and thereunder, including the issuance of the Settlement Distribution, have been duly authorized by all necessary corporate and other action, and no further authorization on the part of the Company or Industries is necessary to authorize such execution, delivery and performance. This Agreement, the New Registration Rights Agreement and the Note have been duly executed and delivered by the Company and Industries. This Agreement, the New Registration Rights Agreement and the Note constitute legal, valid and binding agreements of the Company and Industries, enforceable against them in accordance with their respective terms, except as enforceability may be subject to the application of general equitable principles and to bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally. The execution and delivery by the Company and Industries of this Agreement, the New Registration Rights Agreement and the Note, the consummation of the transactions contemplated hereby and thereby, including the issuance of the Settlement Distribution, and the performance by the Company and Industries of its obligations hereunder and thereunder do not and will not conflict with, violate, result in a breach of, constitute a default under or require any consent or notice not previously obtained or provided under any agreement, instrument, organizational document, law, regulation, judicial, administrative or arbitral decree or governmental order to which it is a party or by which it or its property is bound. 85 (c) The Additional Shares have been duly authorized and, upon issuance at the Closing, will be validly issued, fully paid and non-assessable, and free and clear of any and all liens, security interest, encumbrances and claims of any kind, and the issuance of such Additional Shares is not and will not be subject to any preemptive or similar right of any other stockholder of the Company. (d) The Company has not made any assignment, sale, grant, conveyance or other transfer of any portion of its right, title or interest in, to or under the Asset Purchase Agreement or the Old Registration Rights Agreement, it is the sole legal and beneficial owner and holder thereof, free and clear of all claims, liens, security interests and encumbrances, and it has the sole right to execute this Agreement in connection therewith, either without obtaining or requesting the consent of any other person or entity or having already obtained such consent. (e) Immediately after giving effect to the Transactions and the transactions contemplated by this Agreement, the authorized capital stock of each of the Company and Industries will be as set forth in the Company's most recent Annual Report on Form 10- K and Quarterly Report on Form 10-Q. All of the outstanding shares of capital stock of each of the Company and Industries have been duly authorized and validly issued and are fully paid and non-assessable. Immediately after giving effect to the Transactions and the transactions contemplated by this Agreement, except as provided in the Offering Memorandum of the Company dated May 23, 1997 and the Offering Memorandum Supplement of the Company dated June 9, 1997, there will be no outstanding securities convertible into or exchangeable for capital stock of the Company or Industries or options, warrants or other rights to purchase or subscribe to capital stock of the Company or Industries of any of their respective subsidiaries or contracts, commitments, agreements, understandings or arrangements of any kind to which the Company or Industries is a party relating to the issuance of any capital stock of the Company, Industries or any such subsidiary, any such convertible or exchangeable securities or any such options, warrants or rights. (f) Set forth on Schedule I hereto is a complete and accurate list of each subsidiary of the Company or the Guarantor that is an operating entity or that has any material assets, showing as of the date hereof (as to each such subsidiary) the jurisdiction of its incorporation and the percentage ownership (direct and indirect) of the Company and the Guarantor in each class of capital stock or other equity interests of each of its respective subsidiaries and also identifies the direct owner thereof. Except for the subsidiaries set forth on Schedule I, neither the Company nor the Guarantor has any subsidiary that is engaged in business or that owns material assets. All of the outstanding shares of capital stock of such subsidiaries that are corporations are validly issued, fully paid and non-assessable. As of the date hereof, all of the outstanding shares of capital stock of, or other ownership interests in, each such subsidiary are owned by the Company or Industries, as provided therein, in each case free and clear of any liens, claims, charges or encumbrances of any kind, except to the extent set forth in the Loan Agreement. No subsidiary of the Company or Industries has outstanding options, 86 warrants, subscriptions, calls, rights, convertible securities or other agreements or commitments obligating such subsidiary to issue, transfer or sell any of its securities. (g) The Company has received net proceeds in cash from the HPA Group in consideration for the issuance of the New Equities of at least $10,000,000 (after taking into account the placement agent's fees and the expenses of such offering). The HPA Group has converted $5,000,000 of the Company's Promissory Notes Due February 6, 1998 into an additional $5,000,000 of the Company's Series A Preferred Stock. The Debentures have been surrendered to the Company by the Debentureholders and have been cancelled by the Company. Annexed hereto are true and complete executed copies of the HPA Agreement and the Debentureholder Agreement, each as amended through the date hereof, executed by the respective parties thereto. (h) Except as expressly set forth in this Agreement, the New Registration Rights Agreement or the Note, no party has made any representation or warranty to any other party in connection with, or as an inducement to enter into, this Agreement. 10. Representations of the Trust. The Trust represents and warrants to, and covenants with, the Company and Industries as of the date of this Agreement and as of the Closing that: (a) It is a trust, duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation. It has all necessary power and authority to execute and deliver this Agreement and the New Registration Rights Agreement, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The execution and delivery by it of this Agreement and the New Registration Rights Agreement, and the performance of its obligations hereunder and thereunder, have been duly authorized by all necessary action, and no further authorization on the part of the Trust (including approval of any Bankruptcy Court) is necessary to authorize such execution, delivery and performance. This Agreement and the New Registration Rights Agreement have been duly executed and delivered by the Trust. This Agreement and the New Registration Rights Agreement constitute legal, valid and binding agreements of the Trust, enforceable against the Trust in accordance with their respective terms, except as enforceability may be subject to the application of general equitable principles and to bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally. The execution and delivery by the Trust of this Agreement and the New Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby and the performance by the Trust of its obligations hereunder and thereunder do not and will not conflict with, violate, result in a breach of, constitute a default under or require any consent or notice not previously obtained or provided under any agreement, instrument, organizational document, law, regulation, judicial, administrative or arbitral decree or governmental order to which it is a party or by which it or its property is bound. (b) The Trust hereby represents and warrants to the Company and Industries that, except in respect of shares of the Company's stock sold in connection with the 87 Company's public offering in July 1996, (i) it has made no assignment, sale, grant, conveyance or other transfer of any portion of its right, title or interest in, to or under the Asset Purchase Agreement or the Old Registration Rights Agreement, (ii) it is the sole legal and beneficial owner and holder thereof, free and clear of all claims, liens, security interests and encumbrances, and (iii) it has the sole right to execute this Agreement in connection therewith, either without obtaining or requesting the consent of any other person or entity or having already obtained such consent. (c) Except as expressly set forth in this Agreement, the New Registration Rights Agreement or the Note, no party has made any representation or warranty to any other party in connection with, or as an inducement to enter into, this Agreement. (d) The Additional Shares delivered to the Trust on the date hereof have not been registered for sale under the Securities Act of 1933 (the "Securities Act"), and may be sold only as permitted thereunder or pursuant to registration or an exemption therefrom, and the certificate evidencing the Trust's ownership of the Additional Shares will contain a legend to that effect. 11. Indemnification (a) The Company and Industries agree and covenant to hold harmless and indemnify the Trust and each of its affiliates and their respective employees, directors, officers, trustees, principals, equity holders, controlling persons, advisors and agents (each of the foregoing Persons being an "Indemnified Person"), from and against any losses, claims, damages, liabilities and expenses (including attorneys' fees and expenses of investigation) incurred by such Indemnified Person in connection with (i) any breach by the Company or the Guarantor of any its representations, warranties, covenants or agreements contained herein, in the New Registration Rights Agreement or in the Note, or in any agreement, instrument or document delivered by the Company or the Guarantor hereunder or thereunder or (ii) enforcing the rights of an Indemnified Person under this Agreement, the New Registration Rights Agreement or the Note. 88 (b) The Trust agrees and covenants to hold harmless and indemnify the Company, Industries and their affiliates and their respective employees, directors, officers, principals, equity holders, controlling persons, advisors and agents (each of the foregoing Persons being an "Indemnified Person"), from and against any losses, claims, damages, liabilities and expenses (including attorneys' fees and expenses of investigation) incurred by such Indemnified Person in connection with (i) any breach by the Trust of any its representations, warranties, covenants or agreements contained herein, in the New Registration Rights Agreement or in the Note, or in any agreement, instrument or document delivered by the Trust hereunder or thereunder or (ii) enforcing the rights of an Indemnified Person under this Agreement, the New Registration Rights Agreement or the Note. 12. Miscellaneous. (a) Specific Performance. Each of the Company, Industries and the Trust acknowledges that the other parties hereto will be irreparably damaged, and cannot be fully compensated by monetary relief, in the event that such party commits a breach of its obligations under this Agreement. Accordingly, in the event of a breach of this Agreement by any party, any aggrieved party shall be entitled to specific performance and other appropriate equitable relief, without the requirement of posting a bond, and without forgoing any claim for monetary damages. The provisions of this Section 11.a. shall not be deemed incorporated into any other agreements between the parties hereto. (b) Entire Agreement; Modifications. This document constitutes the entire agreement of the Company, Industries and the Trust with respect to the subject matter hereof and supersedes all prior agreements. This Agreement may not be amended or terminated, and no provision hereof may be waived, except with the written consent of the party to be bound thereby. (c) Exclusive Jurisdiction. The Company, Industries and the Trust agree that the courts located in the City and State of New York shall have exclusive jurisdiction to hear any dispute concerning, and to enforce, this Agreement and any document entered into in connection herewith. Each of the parties hereby submits to the personal jurisdiction of the courts in the City and State of New York in connection with any such matter, and agrees that service of process shall be deemed effective if delivered by certified mail, return receipt requested, addressed in accordance with the foregoing notice provisions. (d) Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 89 (e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company, Industries and the Trust and their respective successors and assigns. (f) Notices. All notices, demands and other communications provided for hereunder shall be in writing, given by registered or certified mail, return receipt requested, telecopy, courier service or personal delivery, addressed to the Company or Industries as follows: Empire of Carolina, Inc. Empire Industries, Inc. 5150 Linton Boulevard Delray Beach, FL 33484 Attention: Mr. Steve Geller Telecopy: (561) 498-0722 with a copy to: Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, IL 60606 Attention: Mr. Kenneth Kolmin Telecopy: (312) 876-7934 and to the Trust as follows: Smedley Industries, Inc. Liquidating Trust Kahn Consulting, Inc., Trustee 152 West 57th Street, Suite 4500 New York, NY 10019 Attention: Christopher J. Kearns Telecopy: (212) 841-9350 with a copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022 Attention: Saul E. Burian, Esq. Telecopy: (212) 715-8000 (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 90 (h) Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. (i) Termination. This Agreement is terminable at will by the Trust in the event that (i) the Transactions have not been fully consummated on or prior to the date hereof, (ii) the Trust has not received the Settlement Distribution on or before the date hereof, or (iii) the New Registration Rights Agreement has not become effective on or before the date hereof. 91 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement. EMPIRE OF CAROLINA, INC. By: /s/ Lawrence Geller ------------------- Name: Lawrence Geller Title: Vice President-General Counsel EMPIRE OF INDUSTRIES, INC. By: /s/ Lawrence Geller ------------------- Name: Lawrence Geller Title: Vice President-General Counsel SMEDLEY INDUSTRIES, INC. LIQUIDATING TRUST By: /s/ Christopher J. Kearns ------------------------- Name: Christopher J. Kearns Title: Director Kahn Construction, Inc.- Trustee 92 EX-10 10 EXHIBIT 10.43 EXHIBIT 10.43 Empire of Carolina, Inc. 5150 Linton Boulevard Delray Beach, FL 33484 June 17, 1997 Pellinore Securities Corp. 745 Fifth Avenue New York, New York 10151 Axiom Capital Management Inc. 399 Park Avenue 27th Floor New York, New York 10022 Commonwealth Associates Inc. 733 Third Avenue New York, New York 10018 Gentlemen: This is to advise each of you and all purchasers of Series A Preferred Stock of Empire Carolina, Inc. ("Empire") that Empire agrees to be bound by the Registration Rights provisions affecting the Series A Preferred Stock that are appended to the Supplement to the Subscription Agreement relating to the Empire financing. Very truly yours, Empire Carolina, Inc. By: /s/ Lawrence Geller ------------------- Lawrence Geller Vice President and General Counsel 93 [THE FOLLOWING ARE THE REGISTRATION RIGHTS PROVISIONS AFFECTING THE SERIES A PREFERRED STOCK THAT ARE AN APPENDIX TO THE SUPPLEMENT TO THE SUBSCRIPTION AGREEMENT AND ARE REFERENCED IN THE PRECEDING LETTER.] APPENDIX TO SUBSCRIPTION AGREEMENT REGISTRATION RIGHTS Capitalized terms used in this Appendix that are not otherwise defined are used with the meanings given to them in the Certificate of Designation for the Series A Preferred Stock of Empire of Carolina, Inc. (the "Company") (the "Certificate of Designation") to be purchased pursuant to the Subscription Agreement to which this Appendix is attached. (a) Shelf Registration. Within 180 days from the first date of issuance of the Series A Preferred Stock, the Company shall cause to be filed a registration statement (a "Shelf Registration") on Form S-3 or any other appropriate form under the Securities Act of 1933 (the "Securities Act") for an offering to be made on a delayed or continuous basis pursuant to Rule 415 thereunder or any similar rule that may be adopted by the Securities and Exchange Commission (the "Commission") and permitting (i) sales of shares ("Preferred Shares") of Series A Preferred Stock, both in ordinary course brokerage or dealer transactions or in any other transfer for consideration not involving an underwritten public offering, and (ii) the sale in such transactions of shares of Common Stock ("Common Shares") of the Company into which Preferred Shares may be converted ("Converted Common Shares") pursuant to the Certificate of Designation (together, the "Registrable Securities") (and in both cases shall register or qualify the shares to be sold in such offering under such other securities or "blue sky" laws, if any, as would be required pursuant to paragraph (d)(ii) hereof). Prior to the filing of the Shelf Registration or any supplement or amendment thereto, the Company shall furnish copies of the Shelf Registration or such amendment to one counsel designated by HPA Associates, LLC ("HPA"), and will not file the Shelf Registration or such amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld. The Company shall use its reasonable efforts to (1) cause the Shelf Registration to be declared effective by the Commission as soon as practicable after its filing with the Commission and (2) keep the Shelf Registration continuously effective, subject to paragraph (c) below. The Company shall, if necessary, supplement or make amendments to the Shelf Registration, if required by the registration form used by the Company for the Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations thereunder or as may reasonably be requested by HPA. The Company shall pay all Registration Expenses incurred in connection with the Shelf Registration. (b) Piggyback Registration. The following provisions apply at any time prior to the later of June 18, 2000 and the date upon which the right of Piggyback Registration is no longer held by any holder of the Company's Series C Preferred Stock (or, with respect to Registrable Securities that are owned by HPA, Charles S. Holmes 94 or James J. Pinto, or any direct or indirect transferees of Registrable Securities from them in a transaction not involving a public offering (such parties being referred to as "HPA Parties" and such Registrable Securities as "HPA Party Shares"), so long as HPA Party Shares are held by an HPA Party who is an affiliate of the Company for purposes of Rule 144 (as defined below)). Whenever the Company proposes to file a registration statement under the Securities Act with respect to an underwritten public offering of Preferred Shares or Common Shares by the Company for its own account or for the account of any other holder of Preferred Shares or Common Shares or any other security convertible into Common Shares, the Company shall give at least 30 days' written notice before the anticipated filing date (the "Offering Notice") of such proposed filing to each person identified on the transfer records of the Company (a "Holder") as holding Preferred Shares that are convertible into at least 50,000 Common Shares or at least 50,000 Converted Common Shares, or Preferred Shares and Converted Common Shares that aggregate the equivalent of 50,000 Common Shares upon conversion. Such Offering Notice shall offer all such Holders the opportunity to register such number of Preferred Shares, Common Shares or HPA Party Shares as each such Holder may request in writing, which request for registration (each, a "Piggyback Registration", with the rights to registration thereof being referred to as "Piggyback Rights") must be received by the Company within 15 days after the Offering Notice is given. The Company shall use all reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Holders of the Registrable Securities requested to be included in the registration for such offering to include such Registrable Securities in such offering on the same terms and conditions as the securities of the Company included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such offering exceeds the number of Registrable Securities that can be sold in such offering without adversely affecting the market for the Company's securities or the price that may be obtained in such offering, the Company shall include in such registration the number of Registrable Securities that in the opinion of such managing underwriter or underwriters can be sold without adversely affecting the market for the Preferred Shares or the Common Shares or the price to be received in such offering. In such event, the number of Registrable Securities, if any, to be offered for the accounts of Holders shall be reduced pro rata on the basis of the relative number of any Registrable Securities requested by each such Holder to be included in such registration to the extent necessary to reduce the total number of Registrable Securities to be included in such offering to the number recommended by such managing underwriter or underwriters, provided that if any other Person has rights to a Piggyback Registration with respect to the same underwritten public offering, the rights of the Holders to sell their securities together with such other Persons holding Piggyback Rights shall be cut back proportionately (in relation to the number of shares that each Person so participating in the Piggyback Registration has requested to be included (using Converted Common Share equivalents in a case in which a cutback is required of a Piggyback Registration of Preferred Shares) compared to the number of all shares with respect to which inclusion has been properly requested), except to the extent that the instrument governing such other Piggyback Rights specifically provides that the rights held by such other Person either take precedence over or shall be subordinated to the Piggyback Rights held by the Holders hereunder, it being 95 understood that the rights of holders of Series A Preferred Stock hereunder take precedence as to cutbacks over the rights of holders of Series C Preferred Stock. The Company shall pay all Registration Expenses incurred in connection with any Piggyback Registration. (c) Termination of Registration Rights; Provision of Rule 144 Information. As used in this section "affiliate" has the meaning given to it in Rule 144 under the Securities Act ("Rule 144"). The registration rights provided hereunder shall continue so long as any Series A Shares and Converted Common Shares remain outstanding and shall then terminate (except in the case of HPA Party Shares), provided that (i) the Company shall be entitled to remove from registration under paragraph (a) Preferred Shares held by Persons (other than HPA Persons who are affiliates of the Company) who have acquired such Preferred Shares or Converted Common Shares for consideration pursuant to a transaction covered by the registration provided by paragraph (a), and (ii) at any time after two years after the date of the issuance of the Preferred Shares, so long as the Preferred Shares and Converted Common Shares are freely tradable under Rule 144 in the hands of Persons who are not affiliates of the Company, (A) the Company shall be entitled to remove Registrable Securities held by non-affiliates from registration under paragraph (a) and, (B) if no HPA Person remains an affiliate of the Company, or no HPA Person who is an affiliate of the Company owns more than 1% of the then outstanding Preferred Shares or Common Shares, registration of the Preferred Shares or Converted Common Shares (as applicable) under paragraph (a) shall no longer be required. Registration may terminate under paragraph (a) with respect to HPA Party Shares when, and to the extent that, no HPA Person who remains an affiliate of the Company owns more than 1% of the then outstanding Preferred Shares or Common Shares. For a period of at least two years, and continuing while any HPA Person remains an affiliate of the Company and continues to hold Preferred Shares or Converted Common Shares, the Company shall be required (i) to file such reports under the Exchange Act, or otherwise make publicly available such information, as may be required by section (c) of Rule 144 in order for sales to be permitted under the provisions of Rule 144 and (ii) to provide confirmation of such filing or availability upon request to any Holder or HPA Person who seeks to rely upon Rule 144 (other than section (k) thereof) in the sale of Preferred Shares or Converted Common Shares. (d) Registration Procedures. Whenever Registrable Securities are to be registered pursuant hereto, the Company shall use its best efforts to effect the registration of Registrable Securities in accordance with the intended method of disposition thereof as expeditiously as practicable and, in connection with any such request, the Company shall as expeditiously as possible: (i) furnish to each seller of Registrable Securities such number of copies of the registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as each seller 96 may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (ii) if required, use best efforts to register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller reasonably requests in writing and to do any and all other acts and things that may be reasonably necessary or advisable to register or qualify for sale in such jurisdictions the Registrable Securities owned by such seller; 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 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; (iii) use best efforts to cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (iv) notify each seller of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and prepare and file with the Commission a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided, in the use of a Piggyback Registration, that prior to the filing of such supplement or amendment, the Company shall furnish copies thereof to the Holders whose Registrable Securities are included in such registration, any underwriters and counsel for such Holders, and will not file such supplement or amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld; (v) enter into customary agreements (including an underwriting agreement in customary form) if the offering is an underwritten offering) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; (vi) make available for inspection by any seller of Registrable Securities and any attorney, accountant or other agent retained by any such seller (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents 97 and properties of the Company (collectively, the "Records") as are reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors, employees and agents to supply all information reasonably requested by any such Inspector in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is, in the reasonable judgment of any Inspector, necessary to avoid or correct a misstatement or omission of a material fact in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or governmental agency of competent jurisdiction or required (in the written opinion of counsel to such Holder or underwriter, which counsel shall be reasonably acceptable to the Company) pursuant to applicable state or federal law. Each seller of Registrable Securities shall be required to agree, however, that it will, upon learning that disclosure of such Records are sought by a court or governmental agency, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (vii) if such sale is pursuant to an underwritten offering, use reasonable efforts to obtain a "cold comfort" letter and updates thereof from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter or underwriters reasonably request; and (viii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. Provided that the applicable listing requirements continue to be satisfied, the Company shall use its best efforts to maintain the listing of the Common Shares on the American Stock Exchange or, if such stock is delisted from the American Stock Exchange, to provide for the listing of the Common Shares on NASDAQ/NMS; and provided that such a listing continues to be in effect, the Company shall cause any Converted Common Shares to be listed on the applicable market. In the case of the Preferred Shares, if (i) Preferred Shares convertible into at least 500,000 Common Shares have been sold pursuant to one or more Piggyback Registrations or (ii) Holders of at least 10% of the then outstanding Preferred Shares request the Company to make a determination whether the public distribution and float of the Preferred Shares will qualify for such a listing and the Company determines that the applicable standards have been met, the Company shall use its best efforts to cause the Preferred Shares to be registered under the Securities Exchange Act of 1934 (the "Exchange Act") and to be listed for trading on each securities market, if any, on which the Common Shares are listed or, with the consent of the Company (which shall not be unreasonably withheld), on any other United States securities exchange that is registered under the 98 Exchange Act or over-the-counter market that is maintained by the National Association of Securities Dealers, Inc. The Company may require each seller or prospective seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such securities and other matters as may be required to be included in the registration statement. Upon receipt of any notice from the Company of the happening of any event of the kind described in clause (iv), each holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by this clause (iv) and, if so directed by the Company, such holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company gives any such notice, the Company shall extend the period during which such registration statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice pursuant to clause (iv) to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated in clause (iv). Notwithstanding anything to the contrary set forth above in this paragraph, the Company may not require the holders of Registrable Securities to discontinue disposition of Registrable Securities for purposes of effecting a public offering of any securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8). Notwithstanding the foregoing, if the Company furnishes to the Holders a certificate signed by the Chief Financial Officer of the Company stating that (i) in the good faith judgment of the Board of Directors of the Company it would be significantly disadvantageous to the Company and its stockholders for any such Shelf Registration to be amended or supplemented and (ii) the need for such an amendment or supplement is not caused by a proposed secondary public offering of securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8), the Company may defer such amending or supplementing of such Shelf Registration for not more than 45 days and in such event the Holders shall be required to discontinue disposition of any Registrable Securities covered by such Shelf Registration during such period. Notwithstanding the foregoing, in connection with any amendment or supplement required to reflect a public offering of securities by the Company, the Company shall file such amendment or supplement no later than the same day that it files a registration statement relating to such offering and shall provide written notice of the filing of such amendment or supplement to the holders of Registrable Securities promptly following such filing. (e) Registration Expenses. The Company shall pay all expenses incident to its performance of or compliance with this Agreement ("Registration Expenses"), regardless of whether such registration becomes effective including, without 99 limitation, (a) all Commission, stock exchange or market and National Association of Securities Dealers, Inc. registration and filing fees, (b) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Securities), (c) all printing, messenger and delivery expenses, (d) all fees and disbursements of the Company's independent public accountants and counsel, (e) all fees and expenses of any special experts retained by the Company in connection with any Piggyback Registration pursuant to the terms of this Agreement, and (f) the fees and disbursements of one counsel retained collectively by the Holders for a registration; provided, however, that the Company shall not pay the costs and expenses of any counsel, accountants or other representatives retained by the Holders, individually or in the aggregate. (f) Indemnification; Contribution. (1) Indemnification by the Company. The Company shall indemnify, to the fullest extent permitted by law, each Holder, its officers, directors and agents and each Person, if any, who controls such Holder (within the meaning of the Securities Act) (it being understood that, for these purposes, an HPA Person who is an affiliate of the Company shall be considered a Holder in respect of HPA Party Shares), against any and all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information with respect to such Holder furnished in writing to the Company by such Holder expressly for use therein or by such Holder's failure to deliver a copy of the prospectus or any supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same or by the delivery of prospectuses by such Holder after the Company notified such Holder in writing to discontinue delivery of prospectuses. The Company also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders. (2) Indemnification by Holders. In connection with any registration statement in which a Holder is participating, each such Holder shall furnish to the Company in writing such information and affidavits with respect to such Holder as the Company reasonably requests for use in connection with any such registration statement or prospectus and agrees to indemnify, severally and not jointly, to the fullest extent permitted by law, the Company, its officers, directors and agents and each Person, if any, who controls the Company (within the meaning of the Securities Act) against any and all losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in any registration statement, prospectus or preliminary prospectus 100 or any amendment thereof or supplement thereto or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission is contained in or improperly omitted from, as the case may be, any information or affidavit with respect to such Holder so furnished in writing by such Holder. Each Holder also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company. (3) Conduct of Indemnification Proceedings. Any party that proposes to assert the right to be indemnified hereunder shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties hereunder, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. If the indemnifying party assumes the defense, the indemnifying party shall have the right to settle such action without the consent of the indemnified party; provided, however, that the indemnifying party shall be required to obtain such consent (which consent shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the indemnified party or any decree or restriction on the indemnified party or its officers or directors; provided, further, that no indemnifying party, in the defense of any such action, shall, except with the consent of the indemnified party (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such action against the indemnified party. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (a) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (b) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (c) a conflict or potential conflict exists (based on advice of counsel 101 to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (d) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time from all such indemnified party or parties unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists (based on advice of counsel to an indemnified party) between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written consent (which consent shall not be unreasonably withheld). (4) Contribution. If the indemnification provided for herein from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, to the extent such indemnification is unavailable, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in subparagraph (3) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. If indemnification is available hereunder, the indemnifying parties shall indemnify each indemnified party to the full extent provided in subparagraphs (1) and (2) hereof without regard to the relative fault of said indemnifying parties or indemnified party. 102 EX-10 11 EXHIBIT 10.44 EXHIBIT 10.44 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of June 17, 1997 ("Agreement"), by and among EMPIRE OF CAROLINA, INC., a Delaware corporation (the "Company"), and SMEDLEY INDUSTRIES, INC. LIQUIDATING TRUST (the "Investor"). RECITALS A. Pursuant to that certain Agreement by and between the Company and Investor dated as of June 17, 1997 (the "Buddy L Agreement"), the Investor, among other things, agreed to release the Company from its obligations and liabilities under certain agreements in return for certain cash and stock payments as contemplated by that certain Securities Purchase Agreement ("Securities Purchase Agreement"), dated as of May 5, 1997 by and between HPA Associates, LLC, EMP Associates LLC and the Company. B. As a condition to the consummation of the transactions contemplated by the Buddy L Agreement and the Securities Purchase Agreement, the parties hereto (collectively, the "Parties" and each, individually, a "Party") have entered into this Agreement to provide certain securities registration rights to the Investor. C. The provisions of this Agreement supersede and replace any and all registration rights previously held by any Party with respect to securities of the Company, including the registration rights contemplated by that certain Registration Rights Agreement dated July 7, 1995 (the "Buddy L Registration Rights Agreement") between the Company and Investor. AGREEMENTS In consideration of the foregoing recitals (which are hereby incorporated into and shall be deemed a part of this Agreement), the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. Definitions. For the purposes of this Agreement, the following terms have the meanings indicated: "Commission" shall mean the United States Securities and Exchange Commission or any successor to the functions of such agency. "Common Stock" shall mean the Company's Common Stock, $.10 par value, and any Stock into which such Common Stock may hereafter be changed. 103 "Company" shall mean Empire of Carolina, Inc., a Delaware corporation, and all successor corporations thereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all amendments and supplements thereto. "Holders" shall mean the Persons who shall from time to time own of record any Security. The term "Holder" shall mean any one of the Holders. "Person" shall mean an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated organization or a governmental organization or any agency or political subdivision thereof or other similar entity. "Prospectus" shall mean any prospectus which is a part of a Registration Statement, together with all amendments or supplements thereto. "Registrable Securities" shall mean, at any time, the shares of the then outstanding Common Stock issued to the Investor pursuant to the Buddy L Agreement or any subsequent Holder of Registrable Securities having rights hereunder pursuant to Section 10 hereof; provided, however, that Registrable Securities shall not be deemed to include any shares after such shares have been registered under the Securities Act and sold pursuant to such registration or any shares sold without registration under the Securities Act in compliance with Rule 144, or pursuant to any other exemption from registration under the Securities Act to a Person who is free to resell such shares without registration or restriction under the Securities Act; and provided, further, that Registrable Securities shall not include any shares which are eligible to be sold without registration under the Securities Act in compliance with subsection (k) of Rule 144. "Registration Statement" shall mean any registration statement filed with the Commission in accordance with the Securities Act, together with all amendments or supplements thereto. "Securities" shall mean any debt or equity securities of the Company, whether now or hereafter authorized, and any instrument convertible into or exchangeable for Securities or a Security. The term "Security" shall mean any one of the Securities. "Securities Act" shall mean the Securities Act of 1933, as amended, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all rules and regulations promulgated thereunder. 2. Shelf Registration. Within 180 days from the Closing Date, the Company shall cause to be filed a Registration Statement (a "Shelf Registration") on Form S-3 or any other appropriate form under the Securities Act for an offering to be made on a delayed or continuous basis pursuant to Rule 415 thereunder or any similar rule that may be adopted by 104 the Commission and permitting the sale of Registrable Securities by the Holders thereof (and shall register or qualify the shares to be sold in such offering under such other securities or "blue sky" laws, if any, as would be required pursuant to Section 5 below). Prior to the filing of the Shelf Registration or any supplement or amendment thereto, the Company will furnish copies of the Shelf Registration or such amendment to one counsel designated by Investor, and will not file the Shelf Registration or such amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld. The Company shall use its reasonable efforts to (1) cause the Shelf Registration to be declared effective by the Commission as soon as practicable after its filing with the Commission and (2) keep the Shelf Registration continuously effective, subject to Sections 4 and 5 below. The Company shall, if necessary, supplement or make amendments to the Shelf Registration, if required by the registration form used by the Company for the Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations thereunder or as may reasonably be requested by Investor. The Company shall pay all Registration Expenses (as defined below) incurred in connection with the Shelf Registration. 3. Piggyback Registration. At any time prior to May 6, 2000 whenever the Company proposes to file a Registration Statement under the Securities Act with respect to an underwritten public offering of Common Stock by the Company for its own account or for the account of any other holder of Common Stock, the Company shall give written notice (the "Offering Notice") of such proposed filing at least 30 days before the anticipated filing date. Such Offering Notice shall offer Holder the opportunity to register such number of Common Stock as Investor may request in writing, which request for registration (each, a "Piggyback Registration") must be received by the Company within 25 days after the Offering Notice is given. The Company shall use all reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit Holder requested to include such Registrable Securities in such offering on the same terms and conditions as the Securities of the Company included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such offering exceeds the number of Registrable Securities that can be sold in such offering without adversely affecting the market for the Company's Securities or the price that may be obtained in such offering, the Company will include in such registration the number of Registrable Securities that in the opinion of such managing underwriter or underwriters can be sold without adversely affecting the market for the Company's common stock or the price to be received in such offering. In such event, the number of Registrable Securities, if any, to be offered for the account of Holder shall be reduced to the extent necessary to reduce the total number of Registrable Securities to be included in such offering to the number recommended by such managing underwriter or underwriters, provided that if any other Person has rights to a Piggyback Registration with respect to the same underwritten public offering, the right of the Holder to sell its securities together with such other Persons holding Piggyback Rights shall be cut back proportionately (in relation to the number of shares that each Person so participating in the Piggyback Registration has requested to be included compared to the number of all shares with respect to which inclusion has been 105 properly requested). The Company shall pay all Registration Expenses (as defined below) incurred in connection with any Piggyback Registration. 4. Termination of Registration Rights. The registration rights provided hereunder shall continue so long as Registrable Securities remain outstanding and shall then terminate. 5. Registration Procedures. Whenever Registrable Securities are to be registered pursuant hereto, the Company shall use its best efforts to effect the registration of Registrable Securities in accordance with the intended method of disposition thereof as expeditiously as practicable and, in connection with any such request, the Company shall as expeditiously as possible: (i) furnish to Holder such number of copies of the Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), the Prospectus included in such Registration Statement (including each preliminary Prospectus) and such other documents as Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by Holder; (ii) if required, use best efforts to register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as Holder reasonably requests in writing and to do any and all other acts and things that may be reasonably necessary or advisable to register or qualify for sale in such jurisdictions the Registrable Securities owned by such Holder; 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 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; (iii) use best efforts to cause the Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (iv) notify Holder at any time when a Prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and prepare and file with the Commission a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in 106 light of the circumstances under which they were made, not misleading, provided, in the use of a Piggyback Registration, that prior to the filing of such supplement or amendment, the Company will furnish copies thereof to the Holder and any underwriters and counsel for Holder, and will not file such supplement or amendment without the prior consent of such counsel, which consent shall not be unreasonably withheld; (v) enter into customary agreements (including an underwriting agreement in customary form if the offering is an underwritten offering) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; (vi) make available for inspection by any seller of Registrable Securities and any attorney, accountant or other agent retained by Holder (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as are reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors, employees and agents to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that have not been filed by the Company with the Commission shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is, in the reasonable judgment of any Inspector, necessary to avoid or correct a misstatement or omission of a material fact in the Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or governmental agency of competent jurisdiction or required (in the written opinion of counsel to such Holder or underwriter, which counsel shall be reasonably acceptable to the Company) pursuant to applicable state or federal law. Each seller of Registrable Securities shall be required to agree, however, that it will, upon learning that disclosure of such Records are sought by a court or governmental agency, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (vii) if such sale is pursuant to an underwritten offering, use reasonable efforts to obtain a "cold comfort" letter and updates thereof from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter or underwriters reasonably request; (viii) provide, if such sale is pursuant to a firm commitment underwriting, at the request of the Investor, a legal opinion of the Company's independent counsel for purpose of such registration with respect to the Registration Statement, each amendment and supplement thereto, the Prospectus included therein (including any preliminary Prospectus) and such other documents relating thereto in customary form and covering such matters of that type customarily covered by legal opinions is such nature at the date thereof; and (ix) otherwise use best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon 107 as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. Provided that the applicable listing requirements are satisfied, the Company shall use reasonable best efforts to maintain the listing of the Common Stock on the American Stock Exchange or, if such stock is delisted from the American Stock Exchange, to provide for the listing of the Common Stock on the Nasdaq National Market. The Company may require Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such securities and other matters as may be required by applicable federal law to be included in the Registration Statement. Upon receipt of any notice from the Company of the happening of any event of the kind described in clause (iv) of this Section, Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by this clause (iv) and, if so directed by the Company, Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company gives any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice pursuant to clause (iv) to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated in clause (iv). Notwithstanding anything to the contrary set forth above in this paragraph, the Company may not require Holder of Registrable Securities to discontinue disposition of Registrable Securities for purposes of effecting a public offering of any securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8). Notwithstanding the foregoing, if the Company furnishes to Holder a certificate signed by the Chief Financial Officer of the Company stating that (i) in the good faith judgment of the Board of Directors of the Company it would be significantly disadvantageous to the Company and its stockholders for any such Shelf Registration to be amended or supplemented and (ii) the need for such an amendment or supplement is not caused by a proposed secondary public offering of securities of the Company by any of its securityholders (other than an offering made pursuant to a registration on Form S-8), the Company may defer such amending or supplementing of such Shelf Registration for not more than 45 days and in such event Holder shall be required to discontinue disposition of any Registrable Securities covered by such Shelf Registration during such period. Notwithstanding the foregoing, in connection with any amendment or supplement required to reflect a public offering of securities by the Company, the Company shall file such amendment or supplement no later than the same day that it files a Registration Statement 108 relating to such offering and shall provide written notice of the filing of such amendment or supplement to the Holder promptly following such filing. 6. Registration Expenses. The Company shall pay all expenses incident to its performance of or compliance with this Agreement, regardless of whether such registration becomes effective including, without limitation, (a) all Commission, stock exchange or market and National Association of Securities Dealers, Inc. registration and filing fees, (b) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Securities), (c) all printing, messenger and delivery expenses, (d) all fees and disbursements of the Company's independent public accountants and counsel, (e) all fees and expenses of any special experts retained by the Company in connection with any Piggyback Registration pursuant to the terms of this Agreement, and (f) the fees and disbursements of one counsel retained collectively by the Holder for a registration; provided, however, that the Company shall not pay the costs and expenses of any counsel, accountants or other representatives retained by the Holder, individually or in the aggregate (the "Registration Expenses"). 7. Indemnification; Contribution. (i) Indemnification by the Company. The Company shall indemnify, to the fullest extent permitted by law, Holder, its officers, directors and agents and each Person, if any, who controls Holder (within the meaning of the Securities Act and the Exchange Act), against any and all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information with respect to Holder furnished in writing to the Company by Holder expressly for use therein, by Holder's failure to deliver a copy of the Prospectus or any supplements thereto after the Company has furnished Holder with a sufficient number of copies of the same or by the delivery of Prospectuses by Holder after the Company notified Holder in writing to discontinue delivery of Prospectuses or by any violation of any federal, state or common law rule or regulation applicable to the Company and relating to action required of, or inaction by the Company in connection with such regulation. The Company also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Person seeking indemnification and shall survive the transfer of such securities by such Person seeking information. (ii) Indemnification by Holder. In connection with any Registration Statement in which Holder is participating, Holder shall furnish to the Company in writing 109 such information and affidavits with respect to Holder as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and agrees to indemnify, severally and not jointly, to the fullest extent permitted by law, the Company, its officers, directors and agents and each Person, if any, who controls the Company (within the meaning of the Securities Act) against any and all losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in any Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein (in the case of a Prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission is contained in or improperly omitted from, as the case may be, any information or affidavit with respect to Holder so furnished in writing by Holder. Holder also shall indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Person seeking indemnification and shall survive the transfer of such securities by such Person seeking information. (iii) Conduct of Indemnification Proceedings. Any party that proposes to assert the right to be indemnified hereunder shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties hereunder, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. If the indemnifying party assumes the defense, the indemnifying party shall have the right to settle such action without the consent of the indemnified party; provided, however, that the indemnifying party shall be required to obtain such consent (which consent shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the indemnified party or any decree or restriction on the indemnified party or its officers or directors; provided, further, that no indemnifying party, in the defense of any such action, shall, except with the consent of the indemnified party (which consent shall not be unreasonably withheld), consent to entry 110 of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such action against the indemnified party. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (a) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (b) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (c) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (d) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time from all such indemnified party or parties unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists (based on advice of counsel to an indemnified party) between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written consent (which consent shall not be unreasonably withheld). (iv) Contribution. If the indemnification provided for herein from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, to the extent such indemnification is unavailable, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to 111 include, subject to the limitations set forth in subparagraph (3) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 7(iv) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(iv), no Holder shall be liable for or required to contribute pursuant to this Section 7(iv) or otherwise aggregate amounts exceeding the product of the public offering price, less underwriting discounts, commissions and expenses, per Registrable Securities and the number of Registrable Securities being sold by such Holder. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. If indemnification is available hereunder, the indemnifying parties shall indemnify each indemnified party to the full extent provided in subparagraphs (i) and (ii) hereof without regard to the relative fault of said indemnifying parties or indemnified party. 8. Rule 144. The Company hereby covenants that, after the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement on Form S-4, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, it will, upon the request of the Holder, make publicly available other information so long as necessary to permit sales by the Holder under Rule 144 under the Securities Act), and it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of the Holder, the Company will deliver to such Holder a written statement as to whether it has compiled with such requirements. 9. Assignability of Registration Rights. The registration rights set forth in this Agreement shall accrue to each subsequent Holder of Registrable Securities who consents in writing to be bound by the terms and conditions of this Agreement. 10. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, in the event that any court or any governmental authority or agency declares all or any part of 112 any Section of this Agreement to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any other Section of this Agreement, and in the event that only a portion of any Section is so declared to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate the balance of such Section. 11. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 12. Notices. All notices required or permitted hereunder shall be in writing and shall be: (a) sent by telex or facsimile transmission (to be effective when receipt is acknowledged unless sent after 5:00 p.m. on any business day, in which event notice shall be deemed received on the next business day); (b) personally delivered; (c) sent by certified mail, return receipt requested; or (d) sent by a nationally recognized commercial overnight delivery service with provisions for a receipt, postage or delivery charges prepaid and, except as otherwise provided in Section 12(a) above, shall be deemed given when personally delivered or within three business days after such mailing and addressed to the Party, to the Investors at their address on the books and records of the Company, and to the Company as follows: To the Company: Empire of Carolina, Inc. 5150 Linton Boulevard Delray Beach, Florida 33484 Attn.: Lawrence Geller, Vice President and General Counsel Facsimile: (561) 498-0722 with a copy to: Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Attn: Kenneth G. Kolmin Facsimile: (312) 876-7934 Such addresses may be changed by any such Party by providing like notice to the other Parties in accordance with this Section. 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same document. 14. Entire Agreement. This Agreement contains the entire agreement and understanding of the Parties concerning the subject matter hereof, and supersedes and replaces all prior and contemporaneous negotiations, proposed agreements and agreements, written and oral, relating to such subject matter. There are no agreements, representations or warranties between the Parties as to the subject matter hereof other than those provided herein. Each of the Parties agrees and acknowledges that this Agreement replaces and 113 terminates any and all registration rights provided for in the Buddy L Registration Rights Agreement. 15. Amendments and Governing Law. This Agreement may be amended, modified or supplemented only by a written instrument executed by the Company and Holders of a majority of the then existing shares of Registrable Securities. Any term, covenant, agreement or condition in this Agreement may be waived (either generally or in particular instances and either retroactively or prospectively) by written instruments signed by the Company and Holders of a majority of the existing shares of Registrable Securities. Any such waiver shall be limited to its express terms and shall not be deemed a waiver of any other term, covenant, agreement or condition. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state. Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder of Registrable Securities then outstanding, each future Holder of such Registrable Securities and the Company. 16. JURISDICTION. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE ADDRESS SET FORTH BELOW, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING. 17. Further Assurances. Each Party agrees to take all such steps, execute and deliver such further documents and perform such acts as may be reasonably requested by any other Party in order to effectuate the transactions contemplated by this Agreement. 114 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the date first above written. EMPIRE OF CAROLINA, INC. SMEDLEY INDUSTRIES, INC. LIQUIDATING TRUST By: /s/ Lawrence Geller By: /s/ Christopher J. Kearns ------------------- ------------------------- Name: Lawrence Geller Name: Christopher J. Kearns Title: Vice President-General Counsel Title: Director-Kahn Construction, Inc., Trustee Address: Address: 115 EX-10 12 EXHIBIT 10.45 EXHIBIT 10.45 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of June 17, 1997 ("Agreement"), by and among EMPIRE OF CAROLINA, INC., a Delaware corporation ("Empire" or the "Company"), and WPG CORPORATE DEVELOPMENT ASSOCIATES IV, L.P. ("CDA IV"), WPG CORPORATE DEVELOPMENT ASSOCIATES IV (OVERSEAS), LTD. ("CDA IV Overseas"), WEISS, PECK & GREER, as trustee under Craig Whiting IRA, Peter B. Pfister, WEISS, PECK & GREER, as Trustee under Nora Kerppola IRA, WESTPOOL INVESTMENT TRUST PLC, EUGENE M. MATALENE, JR., RICHARD HOCHMAN, and GLENBROOK PARTNERS, L.P. (collectively, the "Investors"). RECITALS A. Pursuant to that certain Agreement by and between the Company and Investors dated as of June 17, 1997 (the "WPG Agreement"), the Investors, among other things, agreed to exchange their outstanding 9% convertible debentures in return for non-voting Series C Preferred Stock as contemplated by that certain Securities Purchase Agreement ("Securities Purchase Agreement"), dated as of May 5, 1997, by and between HPA Associates, LLC, EMP Associates LLC and Empire. B. As a condition to the consummation of the transactions contemplated by the WPG Agreement and the Securities Purchase Agreement, the parties hereto (collectively, the "Parties" and each, individually, a "Party") have entered into this Agreement to provide certain securities registration rights to the Investors. C. The provisions of this Agreement supersede and replace any and all registration rights previously held by any Party with respect to securities of the Company, including the registration rights contemplated by that certain Registration Rights Agreement dated December 22, 1994 (the "WPG Registration Rights Agreement") between the Company and Investors. AGREEMENTS In consideration of the foregoing recitals (which are hereby incorporated into and shall be deemed a part of this Agreement), the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. Definitions. For the purposes of this Agreement, the following terms have the meanings indicated: 116 "Board" shall mean the Board of Directors of the Company. "Blackout Event" shall mean any of the following events: (i) if the Board or the Executive Committee of the Board determines in good faith that effecting such a registration or continuing such disposition at such time would have a material adverse effect upon a proposed sale of all (or substantially all) of the assets of the Company or a merger, reorganization, recapitalization or similar current transaction materially affecting the capital structure or equity ownership of the Company, or (ii) if the Company is in possession of material information which the Board or the Executive Committee of the Board determines in good faith it is not in the best interests of the Company to disclose in a registration statement at such time. "Common Stock" shall mean the Company's Common Stock, $.10 par value, and any Stock into which such Common Stock may hereafter be changed. "Company" shall mean Empire of Carolina, Inc., a Delaware corporation, and all successor corporations thereof. "Conversion Stock" means Common Stock issued upon conversion of the Series C Preferred Stock. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all amendments and supplements thereto. "Holders" shall mean the Persons who shall from time to time own of record any Security. The term "Holder" shall mean any one of the Holders. "Other WPG Stock" shall mean Common Stock issuable or issued to, or acquired by, the Investors (other than Conversion Stock or Series C Preferred Stock (as defined below)) and any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, rights or other security which is issued as) a dividend, stock split or other distribution with respect to, or in exchange for or in replacement of such Common Stock. "Person" shall mean an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated organization or a governmental organization or any agency or political subdivision thereof. "Prospectus" shall mean any prospectus which is a part of a Registration Statement, together with all amendments or supplements thereto. "Registrable Stock" shall mean at any time: (i) the shares of the then outstanding Conversion Stock; (ii) the Conversion Stock then issuable upon conversion of the then outstanding Series C Preferred Stock; and (iii) Other WPG Stock owned by any Investor 117 or any subsequent Holder of Registrable Stock having rights hereunder pursuant to Section 10 hereof; provided, however, that Registrable Stock shall not be deemed to include any shares after such shares have been registered under the Securities Act and sold pursuant to such registration or any shares sold without registration under the Securities Act in compliance with Rule 144, or pursuant to any other exemption from registration under the Securities Act to a Person who is free to resell such shares without registration or restriction under the Securities Act. "Registration Statement" shall mean any registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act, together with all amendments or supplements thereto. "Securities" shall mean any debt or equity securities of the Company or a Subsidiary, whether now or hereafter authorized, and any instrument convertible into or exchangeable for Securities or a Security. The term "Security" shall mean any one of the Securities. "Securities Act" shall mean the Securities Act of 1933, as amended, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all rules and regulations promulgated thereunder. "Securities and Exchange Commission" shall mean the United States Securities and Exchange Commission or any successor to the functions of such agency. "Seller" shall mean each Holder of Securities of the Company as to which Securities the Company could be required to file a Registration Statement or which could be registered under the Securities Act at the request of such Holder pursuant to any of the provisions of this Agreement. "Stock" shall include any and all shares, interests or other equivalents (however designated) of, or participation in, corporate stock. "Securities Purchase Agreement" shall have the meaning given such term in the Recitals hereto. "Series C Preferred Stock" shall mean the Company's Series C Convertible Preferred Stock, $.01 par value, and any Stock into which such Stock may hereafter be changed, other than by exercise of the conversion right of such Series C Preferred Stock. 2. Required Registrations. (A) Subject to Sections 2(B) and 5 below, upon the written request to register any number of shares of Registrable Stock under the Securities Act made at any time by Holders of a majority of the shares of Registrable Stock then outstanding, the Company will use its reasonable best efforts to effect the registration of Registrable Stock under the 118 Securities Act and the registration or qualification thereof under all applicable state securities or blue sky laws, but only to the extent provided for in the following provisions of this Agreement. A request pursuant to this Section 2(A) shall state the intended method of disposition of the Registrable Stock sought to be registered. Whenever the Company shall, pursuant to this Section 2(A), be requested to effect the registration of any Registrable Stock under the Securities Act, the Company shall promptly give written notice of such proposed registration to all Holders of Registrable Stock, stating that such Holders have the right to request that any or all of the Registrable Stock owned by them be included in such registration. The Company shall include in such registration all Registrable Stock with respect to which the Company receives written requests from the Holders thereof for inclusion therein (stating the intended method of disposition of such Registrable Stock); and thereupon the Company will, as expeditiously as is practicable, use its reasonable best efforts to effect the registration, under the Securities Act, of such Registrable Stock which the Company has been requested to register for disposition by such Holders in accordance with the intended method of disposition described in the requests of such Holders, all to the extent requisite to permit such sale or other disposition by such Holders of the Registrable Stock so registered. (B) The foregoing registration rights of Holders of Registrable Stock shall be deemed satisfied by the Company when two Registration Statements shall have been filed by the Company with and made effective by the Securities and Exchange Commission under the Securities Act pursuant to requests made pursuant to Section 2(A) and all Registrable Stock offered pursuant to each such Registration Statement shall have been sold. All Holders of Registrable Stock shall use their best efforts to include all shares of Registrable Stock of such Holder in the first demand registration pursuant to this Section 2; provided that such Holders shall not be required to include all such shares of Registrable Stock if it reasonably believes that the inclusion of all such shares of Registrable Stock would adversely affect the price at which such shares could be sold. The Company shall have the right to select the investment banker or bankers who shall serve as the manager and/or co-managers for the offering of Securities covered by such Registration Statement, but only with the consent of the Holders of a majority of the Registrable Stock included in a Registration Statement filed pursuant to this Section 2, which consent shall not be unreasonably withheld. 3. Piggyback Registration. At any time whenever the Company proposes to file a Registration Statement under the Securities Act with respect to an underwritten public offering of Common Stock by the Company for its own account or for the account of any other holder of Common Stock, the Company shall give written notice (the "Offering Notice") of such proposed filing at least 30 days before the anticipated filing date. Such Offering Notice shall offer Holder the opportunity to register such number of Common Stock as Investor may request in writing, which request for registration (each, a "Piggyback Registration") must be received by the Company within 15 days after the Offering Notice is given. Subject to Section 9 hereof, the Company shall use all reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit Holder requested to include such Registrable Securities in such offering on the same terms and conditions as the Securities of the Company included therein. No registrations of Registrable 119 Stock under this Section 3 shall relieve the Company of its obligation to effect registrations under Section 2 hereof, or shall constitute a registration request by any Holder of Registrable Stock under Section 2. The Company shall have the right to select the investment banker or bankers who shall serve as the manager and/or co-managers for all offerings of Securities under this Section 3. 4. Registration Procedures. Whenever the Company is required by the provisions of this Agreement to use its reasonable best efforts to effect the registration of any Registrable Stock under the Securities Act, the Company will, as expeditiously as is practicable: (A) prepare and file with the Securities and Exchange Commission a Registration Statement with respect to such Registrable Stock and use its reasonable best efforts to cause such Registration Statement to become and remain effective for a period of not less than one year, provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company will furnish to counsel for the Holders of Registrable Stock included in such Registration Statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel and shall not be filed without the consent of such counsel (which consent shall not be unreasonably withheld or delayed); (B) prepare and file with the Securities and Exchange Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of not less than one year and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Stock covered by such Registration Statement during such period in accordance with the intended method or methods of disposition by the Sellers thereof set forth in such Registration Statement; (C) furnish to each Seller such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in the Registration Statement (including each preliminary Prospectus), and such other documents, as such Seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Stock owned by such Seller; (D) use every reasonable effort to register or qualify all the Registrable Stock covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as each Seller shall reasonably request, and use every reasonable effort to do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such Seller to consummate the public sale or other disposition in such jurisdiction of the Registrable Stock owned by such Seller covered by such Registration Statement; (E) notify each Seller at any time when a Prospectus relating to the Registrable Stock of such Seller covered by such Registration Statement is required to be 120 delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and at the request of Sellers holding a majority of the Registrable Stock covered by such Registration Statement and subject to Section 5 below, prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of the Registrable Stock covered by such Registration Statement, such Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (F) cause all such Registrable Stock covered by such Registration Statement to be listed on each securities exchange on which Securities of the same class are then listed; (G) enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of a majority of the Registrable Stock included in such Registration Statement pursuant to the provisions of this Agreement or underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Stock (including effecting a stock split or a combination of shares); (H) make available for inspection by any Seller, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Seller who is the Holder of Registrable Stock included in such registration pursuant to the provisions of this Agreement or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Seller, underwriter, attorney, accountant or agent in connection with such Registration Statement; (I) if such sale is pursuant to an underwritten offering, use reasonable efforts to obtain a "cold comfort" letter and updates thereof from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter or underwriters reasonably request; and (J) provide, if such sale is pursuant to a firm commitment underwriting, at the request of the Investor, a legal opinion of the Company's independent counsel for purpose of such registration with respect to the Registration Statement, each amendment and supplement thereto, the Prospectus included therein (including any preliminary Prospectus) and such other documents relating thereto in customary form and covering such matters of that type customarily covered by legal opinions of such nature at the date thereof. 121 5. Blackout Events. (A) Notwithstanding any provision of this Agreement to the contrary, during any period of up to 90 days' duration following the occurrence of a Blackout Event (a "Blackout Period"), the Company shall not be required to file, or cause to be declared effective, under the Securities Act any Registration Statement hereunder, and the Holders of Registrable Stock will discontinue the disposition of Common Stock pursuant to a Registration Statement filed pursuant to this Agreement. The aggregate number of days during which one or more Blackout Periods are in effect shall not exceed 180 days during any 12-month period. (B) The Company shall promptly notify the Holders in writing of any decision not to file a Registration Statement or not to cause a Registration Statement to be declared effective or to discontinue sales of Registrable Securities pursuant to this Section 6, which notice shall set forth the reason for such decision (but not disclosing any nonpublic material information) and shall include an undertaking by the Company promptly to notify the Holders as soon as exchanges or sales, as applicable, may resume. 6. Expenses. To the fullest extent allowable under applicable state securities and blue sky laws, all expenses incurred in effecting the registrations provided for in Sections 2(A) and 3 hereof, including all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one law firm serving as counsel for the Sellers (who shall be selected by Sellers holding a majority of the Registrable Stock being offered and shall be a firm of nationally recognized standing or which has been approved by the Company, which consent shall not be unreasonably withheld), underwriting expenses (other than underwriting discounts and commissions with respect to the Registrable Stock being sold, which shall be the responsibility of the Sellers), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Subsection (D) of Section 4 hereof, shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any out-of-pocket expenses described above (which amount shall in no event include any allocation of overhead) directly related to any registration began pursuant to Section 2 hereof if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Stock to be registered, if any (in which case all participating Holders shall bear such out-of-pocket expenses pro rata), unless the Holders of at least 80% of the then existing Registrable Stock agree to forfeit their right to one registration pursuant to Section 2 of this Agreement. If a registration request is withdrawn at the request of the Holders of a majority of the Registrable Stock to be registered, such participating Holders shall have 30 days after the Company has delivered an itemized statement setting forth in reasonable detail the out-of-pocket expenses incurred by the Company and made available to such Holders appropriate back-up documentation to pay such expenses in accordance with the proviso to the preceding sentence or to notify the Company in writing of their decision to forfeit their right to one registration pursuant to Section 2 of this Agreement; and provided further, however, that if at the time of such withdrawal, the Holders have learned of a 122 material adverse change in the condition, business, or prospects of Empire from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by Empire of such material adverse change, then the Holders shall retain their rights pursuant to Section 2(A). 7. Indemnification. (A) In the event of any registration of any Registrable Stock under the Securities Act pursuant to this Agreement, the Company, to the extent permitted by law, shall indemnify and hold harmless the Seller of such Registrable Stock, each trustee, partner, officer, director and agent of such Seller ("Seller Representatives"), each underwriter (as defined in the Securities Act), each other Person who participates in the offering of such Registrable Stock, and each other Person, if any, who controls (within the meaning of the Securities Act) such Seller, Seller Representatives, underwriter or participating Person, against any losses, claims, damages or liabilities, joint or several, to which such Seller, Seller Representatives, underwriter, participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (1) any alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such Registrable Stock was registered under the Securities Act, any preliminary Prospectus or final Prospectus contained therein, or any summary Prospectus issued in connection with any Registrable Stock being registered, or any amendment or supplement thereto; or (2) any alleged omission to state in any such document a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each such Seller, Seller Representatives, or any such underwriter, participating Person or controlling Person for any legal or other expenses reasonably incurred by such Seller, Seller Representatives, underwriter, participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to any Seller, or any such Seller Representatives, underwriter, participating Person, or controlling Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary Prospectus, summary Prospectus, final Prospectus, or amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by such Seller, specifically for use therein. (B) Each Holder of Registrable Stock, by acceptance thereof, severally and not jointly, indemnifies and holds harmless each other Holder of Registrable Stock, the Company, its directors and officers, each underwriter (as defined in the Securities Act), each other Person who participates in the offering of such Registrable Stock, and each other Person, if any, who controls (within the meaning of the Securities Act) the Company, any underwriter, participating Person or any Holder, against any losses, claims, damages, or liabilities, joint or several, to which any such other Holder, the Company, any such director or officer, any such underwriter, or any such participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as 123 such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (1) any alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which Registrable Stock was registered under the Securities Act at the request of such Holder, any preliminary Prospectus or final Prospectus contained therein, or any summary Prospectus issued in connection with any Registrable Stock being registered, or any amendment or supplement thereto; or (2) any alleged omission to state in any such document a material fact required to be stated therein or necessary to make the statements therein not misleading, in either case to the extent, and only to the extent, that such alleged untrue statement or alleged omission was made in such Registration Statement, preliminary Prospectus, summary Prospectus, final Prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder specifically for use therein, and then only to the extent that such alleged untrue statements or alleged omissions by such Holder were not based on the authority of an expert as to which such Holder had no reasonable ground to believe, and did not believe, that the statements made on the authority of such expert were untrue or that there was an omission to state a material fact. Each such Holder severally and not jointly shall reimburse each such other Holder of Registrable Stock, the Company, its directors and officers, or any such underwriter, participating Person or controlling Person for any legal or other expenses reasonably incurred by such other Holder of Registrable Stock, the Company, its directors and officers, or any such underwriter, participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action. Notwithstanding the foregoing provisions of this Subsection (B), no Holder shall be required to pay under such provisions an amount in excess of the proceeds (net of brokerage or underwriting commissions, discounts or the like) received by such Holder in payment for the Registrable Stock sold by such Holder pursuant to the Registration Statement. (C) Indemnification similar to that specified in Subsections (A) and (B) of this Section 7 shall be given by the Company and each Seller (with such modifications as shall be appropriate) covered by any registration or other qualification of Registrable Stock under any federal or state securities law or regulation other than the Securities Act with respect to any such registration or other qualification effected pursuant to this Agreement. (D) Any Person which proposes to assert the right to be indemnified under Subsection (A), (B) or (C) of this Section 7 shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such Person in respect of which a claim is to be made against an indemnifying Person under such Subsection (A), (B) or (C), notify each such indemnifying Person of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. The omission to notify the indemnifying Person promptly of the commencement of any such action shall not relieve the indemnifying Person of any liability to indemnify the Person claiming indemnification under Section 7 hereof, except to the extent that the indemnifying Person shall suffer any loss by reason of such failure to give notice and shall not relieve the indemnifying Person of any other liabilities which it may have under this Agreement or otherwise. The indemnifying Person shall have the right, if such indemnifying Person so notifies the Person claiming 124 indemnification within ten days after receipt of such notice, to investigate and defend any such loss, claim, damage, liability or action and to employ separate counsel reasonably satisfactory to the Person claiming indemnification in any such action and to control the defense thereof. The Person claiming indemnification shall have the right to participate in the defense of any such loss, claim, damage, liability or action, and so long as the indemnifying Person is defending such claim in good faith, the person claiming indemnification will be responsible for any of the fees and expenses of its own counsel in connection with such participation; provided, however, that notwithstanding the foregoing, in any case when indemnification is sought against the Company and (i) the Person seeking indemnification has been advised by counsel that its defenses may be different from those of the Company, or (ii) the Company has not proceeded in a timely or good faith manner to effect such defense, then the reasonable fees and expenses of counsel for such Person shall be paid by the Company and the indemnified Person shall have the right to control the defense of such action, suit or proceeding as it effects such Person. In no event shall a Person against whom indemnification is sought be obligated to indemnify any Person for any settlement of any claim or action effected without the indemnifying Person's consent, which consent shall not be unreasonably withheld. (E) The indemnification provided for under this Section 7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and will survive the transfer of Registrable Stock. (F) If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to an indemnified Person with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying Person, in lieu of indemnifying such indemnified Person hereunder, shall contribute to the amount paid or payable by such indemnified Person as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable consideration. The relative fault of the indemnifying Person and of the indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of the material fact or the omission to state a material fact relates to information supplied by the indemnifying Person or by the indemnified Person, the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 8. Participation in Underwritten Registrations. No Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's Registrable Stock on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, however, that no Holder of Registrable Stock shall be required to make any representations or 125 warranties or to provide information in the Registration Statement relating to such registration except, in either case, with respect to itself and its intended method of disposition of Registrable Stock. 9. Marketing Restrictions. (A) If: (1) any Holder of Registrable Stock is entitled and wishes to register any Registrable Stock in a registration made pursuant to Section 2 hereof, and (2) the offering proposed to be made by the Holder or Holders for whom such registration is to be made is to be an underwritten public offering, and (3) the Company or one or more Holders of Securities other than Registrable Stock wishes to register Securities in such registration, and (4) the managing underwriters of such public offering furnish a written opinion that the total amount of Securities to be included in such offering would exceed the maximum amount of Securities (as specified in such opinion) which can be marketed at a price reasonably related to the then current market value of such Securities and without otherwise materially and adversely affecting such offering, then the relative rights to participate in such offering of the Holders of Registrable Stock, the Holders of other Securities having the right to include such Securities in such registration, and the Company shall be in the following order of priority: FIRST: The Holders of Registrable Stock shall be entitled to participate in accordance with the number of shares of Registrable Stock which each such Holder shall request to be registered, such participation to be pro rata in accordance with the number of shares which each such Holder shall request be registered if, pursuant to clause 4 of this Subsection (A), the total amount of Securities to be included in the offering will be less than the number of shares of Registrable Stock that all of such Holders shall request be registered; and then SECOND: The Company and all Holders of other Securities having the right to include such Securities in such registration shall be entitled to participate in accordance with the relative priorities, if any, as shall exist among them; and no Securities (issued or unissued) other than those registered and included in the underwritten offering shall be offered for sale or other disposition by the Company or any Holder of Registrable Stock in a transaction which would require registration under the Securities Act until the expiration of 180 days after the effective date of the Registration Statement filed pursuant to Section 2 hereof, or such earlier time consented to by the managing underwriters. 126 (B) If: (1) any Holder of Registrable Stock entitled to do so requests registration of Registrable Stock under Section 3 hereof, and (2) the offering proposed to be made is to be an underwritten public offering, and (3) the managing underwriters of such public offering furnish a written opinion that the total amount of Securities to be included in such offering would exceed the maximum amount of Securities (as specified in such opinion) which can be marketed at a price reasonably related to the then current market value of such Securities and without materially and adversely affecting such offering, then the relative rights to participate in such offering of the Holders of Registrable Stock, the Holders of other Securities having the right to include such Securities in such registration, and the Company shall be in the following order of priority: FIRST: The Person or Persons (including the Company in the case of an offering initiated by the Company) requesting such registration shall be entitled to participate in accordance with the relative priorities, if any, as shall exist among them; and then SECOND: If such registration shall have been requested by a Person or Persons other than the Company, the Company shall be entitled to include Securities in such registration; and then THIRD: The Holders of Registrable Stock and all other Holders of Securities, if any, having the right to include such Securities in such registration shall be entitled to participate pro rata among themselves in accordance with the number of shares of Common Stock which each such Holder shall have requested be registered (for the purposes of this clause, Securities convertible into or exchangeable or exercisable for Common Stock shall be treated as if they were so converted or exchanged or exercised immediately prior to the filing of the Registration Statement covering such registration), except to the extent that the Registration Rights Agreement held by holders of the Series A Preferred Stock pursuant to the Subscription Agreement therefore relating to the acquisition thereof and the rights of warrant holders pursuant to the Warrant Agreement dated as of June 17, 1997, in each case as in effect on the date hereof, specifically provides that the rights of holders named therein (including their transferees) take precedence over the Piggyback Rights held by the holder hereunder; and no Securities (issued or unissued) other than those registered and included in the underwritten offering shall be offered for sale or other disposition by the Company or any Holder of Registrable Stock in a transaction which would require registration under the 127 Securities Act until the expiration of 180 days after the effective date of the Registration Statement in which Registrable Stock was included pursuant to Section 3 hereof, or such earlier time consented to by the managing underwriters. 10. Assignability of Registration Rights. The registration rights set forth in this Agreement shall accrue to each subsequent Holder of Registrable Stock who consents in writing to be bound by the terms and conditions of this Agreement. 11. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, in the event that any court or any governmental authority or agency declares all or any part of any Section of this Agreement to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any other Section of this Agreement, and in the event that only a portion of any Section is so declared to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate the balance of such Section. 12. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 13. Notices. All notices required or permitted hereunder shall be in writing and shall be: (a) sent by telex or facsimile transmission (to be effective when receipt is acknowledged unless sent after 5:00 p.m. on any business day, in which event notice shall be deemed received on the next business day); (b) personally delivered; (c) sent by certified mail, return receipt requested; or (d) sent by a nationally recognized commercial overnight delivery service with provisions for a receipt, postage or delivery charges prepaid and, except as otherwise provided in Section 13(a) above, shall be deemed given when personally delivered or within three business days after such mailing, and addressed to the Party, to the Investors at their address on the books and records of the Company, and to the Company as follows: To the Company: Empire of Carolina, Inc. 5150 Linton Boulevard Delray Beach, Florida 33484 Attn.: Lawrence Geller, Vice President and General Counsel Facsimile: (561) 498-0722 with a copy to: Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Attn: Kenneth G. Kolmin Facsimile: (312) 876-7934 Such addresses may be changed by any such Party by providing like notice to the other Parties in accordance with this Section. 128 14. Rule 144. The Company hereby covenants that after the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act (or a registration statement on Form S-4), the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, it will, upon the reasonable request of the Holder, make publicly available other information so long as necessary to permit sales by the Holder under Rule 144 under the Securities Act), and it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. Upon the request of the Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same document. 16. Entire Agreement. This Agreement contains the entire agreement and understanding of the Parties concerning the subject matter hereof, and supersedes and replaces all prior and contemporaneous negotiations, proposed agreements and agreements, written and oral, relating to such subject matter. There are no agreements, representations or warranties between the Parties as to the subject matter hereof other than those provided herein. Each of the Parties agrees and acknowledges that this Agreement replaces and terminates any and all registration rights provided for in the WPG Registration Rights Agreement. 17. Amendments and Governing Law. This Agreement may be amended, modified or supplemented only by a written instrument executed by the Company and Holders of a majority of the then existing shares of Registrable Stock. Any term, covenant, agreement or condition in this Agreement may be waived (either generally or in particular instances and either retroactively or prospectively) by written instruments signed by the Company and Holders of a majority of the existing shares of Registrable Stock. Any such waiver shall be limited to its express terms and shall not be deemed a waiver of any other term, covenant, agreement or condition. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state. Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder of Registrable Stock then outstanding, each future Holder of such Registrable Stock and the Company. 18. Further Assurances. Each Party agrees to take all such steps, execute and deliver such further documents and perform such acts as may be reasonably requested by any other Party in order to effectuate the transactions contemplated by this Agreement. 129 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the date first above written. WPG CORPORATE DEVELOPMENT EMPIRE OF CAROLINA, INC. ASSOCIATES IV, L.P. By: WPG PRIVATE EQUITY PARTNERS, L.P., its sole General Partner By: /s/ Lawrence Geller ----------------------------------- By: /s/ Steven Hutchinson By: Lawrence Geller ----------------------------- ----------------------------------- Its: Its: Vice President-General Counsel ------------------------- ------------------------------ WEISS, PECK & GREER, as Trustee under WPG CORPORATE DEVELOPMENT Craig Whiting IRA ASSOCIATES IV (OVERSEAS), LTD. WPG CDA IV (OVERSEAS) LTD., By: /s/ Robert Rodriguez GENERAL PARTNER ----------------------------- Its: ------------------------- By: /s/ illegible ----------------------------------- Its: Director ------------------------------ WEISS, PECK & GREER, as Trustee under WESTPOOL INVESTMENT TRUST PLC Nora Kerppola IRA By: /s/ Robert Rayne ----------------------------------- By: /s/ Robert Rodriguez Its: Investment Director ----------------------------- ------------------------------ Its: ------------------------- GLENBROOK PARTNERS, L.P. /s/ Peter B. Pfister ----------------------------------- Peter B. Pfister By: /s/ Pico Sagan ----------------------------- Its: Executive Vice President /s/ Eugene M. Matalene, Jr. ------------------------ ----------------------------------- Eugene M. Matalene, Jr. /s/ Richard H. Hochman ----------------------------------- Richard Hochman 130 EX-10 13 EXHIBIT 10.46 EXHIBIT 10.46 AGREEMENT This AGREEMENT ("Agreement") is made and entered into as of this 17th day of June, 1997 by and among EMPIRE OF CAROLINA, INC., a Delaware corporation ("Empire"), and WPG CORPORATE DEVELOPMENT ASSOCIATES IV, L.P. ("CDA IV"), WPG CORPORATE DEVELOPMENT ASSOCIATES IV (OVERSEAS), LTD. ("CDA IV Overseas"), WEISS, PECK & GREER, as trustee under Craig Whiting IRA, Peter B. Pfister, WEISS, PECK & GREER, as Trustee under Nora Kerppola IRA, WESTPOOL INVESTMENT TRUST PLC, EUGENE M. MATALENE, JR., RICHARD HOCHMAN and GLENBROOK PARTNERS, L.P. (each a "Releasor" and, collectively, the "Releasors"). RECITALS A. Empire and the Releasors are parties to a Debenture Purchase Agreement dated December 22, 1994 ("Debenture Purchase Agreement") and a Registration Rights Agreement dated December 22, 1994 ("Registration Rights Agreement"). The Debenture Purchase Agreement and the Registration Rights Agreement are sometimes collectively referred to herein as the "WPG Agreements." B. Pursuant to the WPG Agreements, Releasors are entitled, among other things, to certain payments and registration rights. C. Releasors desire to release Empire of its obligations and liabilities under the WPG Agreements and to exchange their currently outstanding 9% convertible debentures in return for non-voting Class C Series Preferred Stock of Empire in the event that Empire issues at least $11 million of Series A Preferred Stock (the "Issuance") as contemplated by that certain Securities Purchase Agreement, dated as of May 5, 1997, by and between HPA Associates, LLC, EMP Associates LLC and Empire (the "Securities Purchase Agreement"). NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Upon the closing of the Issuance, Empire shall immediately deliver to Releasors a certificate representing $15 million of newly issued, Class C Series Preferred Stock of Empire pursuant to the form of Certificate of Designation attached hereto as Exhibit 1 ("Class C Series Preferred Stock"); 2. Upon receipt of, and in exchange for, the Class C Preferred Stock set forth in paragraph 1 herein: 131 a) Releasors will deliver to the Company all of the convertible debentures issued pursuant to the Debenture Purchase Agreement; b) Releasors, for themselves and on behalf of their agents, representatives, attorneys, successors or assigns (collectively, "WPG Releasors"), hereby fully and forever release and discharge Empire and each and every one of its successors, predecessors and assigns, as well as each and every one of their past and present directors, officers, agents, employees, attorneys, partners, trustees, divisions, subsidiaries, and their successors, predecessors, heirs and assigns from all manner of actions, causes, causes of action, complaints, suits, litigation, debts, liens, sums of money, accounts, reckonings, bills, contracts, agreements, promises, liabilities, damages, losses, costs, judgments, attorneys' fees, claims and demands, whatsoever, in law or in equity, whether known or unknown, which Releasors now have, had or may hereafter have arising out of, resulting from, relating to or based upon facts, circumstances or events occurring in connection with the WPG Agreements (except as set forth in Section 2(c) below) or any of the transactions or other matters expressly provided for therein or expressly contemplated thereby; including, but not limited to: (i) any and all payments to Releasors due pursuant to Section 2.5 of the Debenture Purchase Agreement or the convertible debentures issued pursuant to the Debenture Purchase Agreement; (ii) any and all approval rights of Releasors pursuant to Section 5.2 or 5.4 of the Debenture Purchase Agreement; (iii) any and all demand and "piggyback" registration rights granted pursuant to Section 1 of the Registration Rights Agreement; (iv) any and all rights to limit registration rights or subsequent registration rights granted pursuant to Section 1 or 2 of the Registration Rights Agreement; and (v) any and all notice rights under the WPG Agreements; and c) Notwithstanding anything to the contrary set forth herein, the indemnification provisions set forth in Section 9.5.2 of the Debenture Purchase Agreement shall survive and shall not be released by the provisions of this Agreement except that the provisions of such Section 9.5.2 shall not apply or be applicable to any and all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel) that arise (i) out of the 132 transactions set forth in this Agreement or (ii) are contemplated by the Securities Purchase Agreement. 3. Empire, for itself and on behalf of its agents, representatives, attorneys, successors or assigns (collectively, "Empire Releasors"), hereby fully and forever releases and discharges the Releasors and each and every one of its successors, predecessors and assigns, as well as each and every one of their past and present directors, officers, partners, trustees, agents, employees, attorneys, divisions, subsidiaries, and their successors, predecessors, heirs and assigns from all manner of actions, causes, causes of action, complaints, suits, litigation, debts, liens, sums of money, accounts, reckonings, bills, contracts, agreements, promises, liabilities, damages, losses, costs, judgments, attorneys' fees, claims and demands, whatsoever, in law or in equity, whether known or unknown, which Releasors now have, had or may hereafter have arising out of, resulting from, relating to or based upon facts, circumstances or events occurring in connection with the WPG Agreements or any of the transactions or other matters expressly provided for therein or expressly contemplated thereby. 4. The Company represents and warrants to the Releasors, after giving effect to the transactions contemplated by this Agreement, each share of Class C Series Preferred Stock will be duly authorized and validly issued fully paid and nonassessable, and free and clear of any security interest, lien, pledge, or adverse claim imposed by the Company. 5. This Agreement contains the entire agreement and understanding concerning the subject matters hereof between the parties, and supersedes and replaces all prior negotiations, proposed agreements and agreements, whether written or oral, between the parties hereto with respect to the subject matter hereof. 6. No change, amendment, alteration, modification, waiver or termination of this Agreement, or any part thereof, shall be valid unless set forth in writing and signed by or on behalf of all parties hereto. 7. This Agreement shall inure to the benefit of and be binding upon Empire's and Releasors' respective successors and assigns. 8. From time to time, at the request of either of the parties to this Agreement, without further consideration and within a reasonable period of time after request hereunder is made, the other party hereby agrees to execute and deliver any and all further documents and instruments and to do all other acts that any of the parties to this Agreement may reasonably request which may be necessary or appropriate to fully implement the provisions of this Agreement. 9. This Agreement may be executed in one or more counterparts, all of which, when taken together, shall constitute one original Agreement. 133 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the date first above written. WPG CORPORATE DEVELOPMENT EMPIRE OF CAROLINA, INC. ASSOCIATES IV, L.P. By: WPG PRIVATE EQUITY PARTNERS, L.P., its sole General Partner By: /s/ Lawrence Geller ----------------------------------- By: /s/ Steven Hutchinson By: Lawrence Geller ----------------------------- ----------------------------------- Its: Its: Vice President-General Counsel ------------------------- ------------------------------ WEISS, PECK & GREER, as Trustee under WPG CORPORATE DEVELOPMENT Craig Whiting IRA ASSOCIATES IV (OVERSEAS), LTD. WPG CDA IV (OVERSEAS) LTD., By: /s/ Robert Rodriguez GENERAL PARTNER ----------------------------- Its: ------------------------- By: /s/ illegible ----------------------------------- Its: Director ------------------------------ WEISS, PECK & GREER, as Trustee under WESTPOOL INVESTMENT TRUST PLC Nora Kerppola IRA By: /s/ Robert Rayne ----------------------------------- By: /s/ Robert Rodriguez Its: Investment Director ----------------------------- ------------------------------ Its: ------------------------- GLENBROOK PARTNERS, L.P. /s/ Peter B. Pfister ----------------------------------- Peter B. Pfister By: /s/ Pico Sagan ----------------------------- Its: Executive Vice President /s/ Eugene M. Matalene, Jr. ------------------------ ----------------------------------- Eugene M. Matalene, Jr. /s/ Richard H. Hochman ----------------------------------- Richard Hochman 134 EX-99.1 14 EXHIBIT 99.1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE EMPIRE OF CAROLINA ANNOUNCES CLOSING OF $16 MILLION INVESTMENT Delray Beach, FL, June 19, 1997 -- Empire of Carolina, Inc. (AMEX: EMP) today announced that investors have purchased a total of $16 million of securities pursuant to the terms of the Securities Purchase Agreement with HPA Associates, LLC and EMP Associates LLC. The $16 million includes $5 million from the conversion of a Bridge Loan. As previously reported, an amendment to the Securities Purchase Agreement provides that the Company may also sell up to another $5 million of securities, on the same terms and conditions as the $16 million investment, subject to shareholder approval. If this additional sale is approved, the total investment may reach up to $21 million. Also in connection with the transaction, $15 million of outstanding convertible debentures are being exchanged for newly issued Series C Preferred Stock. Steven Geller, Chairman and Chief Executive Officer, commented, "We are very happy to announce the closing of this transaction. With these funds, we have satisfied our lenders' requirement to obtain additional financing and are able to move forward with our operating plan." He continued, "We appreciate the patience and support that we have received from our lenders and customers. With these funds in place, we can focus our resources on our business plans, which include the continued turnaround of our Tarboro manufacturing facility, the development of new product lines, and improved customer service." This press release 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, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management's plans and objectives. Such statements are subject to various risks and uncertainties which could cause actual results to vary materially from those stated. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect actual results may vary materially from those anticipated, estimated, expected or projected. Such risks and uncertainties include 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 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. Certain of these as well as other risks and uncertainties are described in more detail in the Company's Registration Statement on Form S-1 135 filed under the Securities Act of 1933, Registration No. 333-4440, and the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 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. Empire of Carolina, Inc. designs, develops, manufactures and markets a broad range of basic plastic children's toys. Its Holiday Products Division produces and markets decorative seasonal items including Christmas, Halloween and Easter illuminated products. The Company's full line of basic toys includes the Big Wheel(R) line of ride-on toys, Grand Champions(R) collectible horses, Buddy L(R) cars and trucks, and Power Driver(R) ride-ons. 136 EX-99.2 15 EXHIBIT 99.2 EXHIBIT 99.2 FOR IMMEDIATE RELEASE EMPIRE OF CAROLINA ANNOUNCES ELECTION OF NEW CHAIRMAN DELRAY BEACH, FL, June 24, 1997 -- Empire of Carolina (AMEX: EMP) today announced that, following the recently completed $16 million investment, Charles S. Holmes has been elected to replace Steve Geller as Chairman of the Board of Directors of Empire of Carolina, Inc. Mr. Geller will continue to serve as a member of the Board and as Chief Executive Officer of the Company and its operating subsidiary, Empire Industries, Inc. Empire of Carolina, Inc. designs, develops, manufactures and markets a broad range of basic plastic children's toys. Its Holiday Products Division produces and markets decorative seasonal items including Christmas, Halloween and Easter illuminated products. The Company's full line of basic toys includes the Big Wheel(R) line of Ride-On toys, Grand Champions(R) collectible horses, Buddy L(R) cars and trucks, and Power Driver(R) ride-ons. 137 -----END PRIVACY-ENHANCED MESSAGE-----