This paper document is being submitted pursuant to rule 902(g) of Regulation S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from....................to..........................
Commission File Number 1-10860
THE HE-RO GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 13-36155898
-------- -----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization number) identification)
550 Seventh Avenue, New York, New York 10018
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212 840-6047
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
Common Stock $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
Based upon the closing sale price on the New York Stock Exchange on
September 24, 1996, the aggregate market value of the Registrant's Common Stock,
$.01 par value per share ("Common Stock"), held by non-affiliates of the
registrant on such date was approximately $1,851,729.
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER
SHARE, OUTSTANDING AS OF SEPTEMBER 24, 1996: 6,717,333 SHARES.
Documents Incorporated by Reference: None of the information required by Parts
I, II and III is incorporated by reference.
Page 2
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and its
subsidiaries during the fiscal years ended May 31, 1994, 1995 and 1996 to the
Company's Chief Executive Officer and the next three highest paid executive
officers of the Company at May 31, 1996 (the "named executive officers"). On
September 24, 1993, Herbert Rounick, Founder, Chairman of the Board and Chief
Executive Officer of the Company died. Prior to the appointment of Della Rounick
as Chief Executive Officer on June 1, 1995, no person had been elected to the
office of Chief Executive Officer as a replacement to Herbert Rounick. William
J. Carone, the Company's Chairman of the Board, was the person who served the
function closest to chief executive officer.
Page 3
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other Options Other
Annual Restricted Granted Com-
Name and Principal Compen- Stock (No. LTIP pensa-
Position Year Bonus sation Award(s) Shares) Payouts tion
(a) (b) Salary (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Della Rounick ............ 1996 $220,000(1) 0 0 0 0 0 0
CEO, Co-Chairman of
the Board 1995 75,000(1) 0 0 0 0 0 0
1994 N/A N/A N/A N/A N/A N/A N/A
Allan R. Bogner, ......... 1996 $234,724(2) 0 0 0 0 0 0
President and Chief
Operating Officer 1995 296,000 0 0 0 0 0 0
1994 250,000 0 0 0 0 0 0
Sam D. Kaplan ............ 1996 161,346 0 0 0 25,000(3) 0 0
Chief Financial Officer,
Treasurer and Secretary 1995 143,461 0 0 0 0 0 0
1994 117,067 0 N/A N/A 13,000 N/A N/A
Steven Anastos ........... 1996 191,538 0 0 0 20,000(4) 0 0
Senior Vice President-
Sales and Merchandise 1995 186,586 0 0 0 0 0 0
1994 180,192 0 0 0 10,000 0 0
<FN>
(1) Ms. Rounick became Chief Executive Officer at the beginning of fiscal 1996.
During the Company's 1995 fiscal year, Della Rounick served as the
Company's Vice President - Director of Design Coordination. See "Certain
Relationships and Related Party Transactions."
(2) Mr. Bogner resigned from the Company on November 30, 1995. As a result,
$103,250.75 of his salary representing his salary payable through March
1996 was paid as a settlement under his employment agreement. See
"Employment Agreements".
(3) Options to purchase 13,000 shares of Common Stock previously granted were
repriced in fiscal 1996, in addition to a grant of options to purchase
12,000 shares of Common Stock during fiscal 1996.
(4) Options to purchase 10,000 shares of Common Stock previously granted were
repriced in fiscal 1996, in addition to a grant of options to purchase
10,000 shares of Common Stock during fiscal 1996.
</FN>
</TABLE>
Page 4
<PAGE>
OPTION GRANTS TABLE FOR FISCAL 1996
The following table sets forth information relating to stock options, if
any, granted during the year ended May 31, 1996 to the four named executive
officers. The grants of the options set forth below are also reflected in the
table under the heading Summary Compensation Table. In addition, in accordance
with the disclosure rules recently enacted by the Securities and Exchange
Commission, the hypothetical gains or "options spreads" for each option grant
are shown based on compound annual rates of stock price appreciation of 5% and
10% from the date of grant to the expiration date. The assumed rates of growth
are prescribed by the Securities and Exchange Commission and are for
illustrative purposes only; they are not intended to predict the future price of
the Company's stock, which will depend upon market conditions and the Company's
future performance and prospects. The Company has not granted any stock
appreciation rights.
<TABLE>
OPTIONS GRANTED DURING THE FISCAL YEAR
ENDED MAY 31, 1996
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------
Percent of
Total
Options
Granted to
Employees Exercise Market
Options in Fiscal Price Price Expiration
Name Granted Year ($/Sh) ($/Sh) Date 5%($) 10%($)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Della Rounick 0 N/A N/A N/A N/A N/A N/A
Allan R. Bogner 0 N/A N/A N/A N/A N/A N/A
Sam Kaplan 10,000 5.4% $1.00 $1.63 2001 $9,535 $14,048
Sam Kaplan 12,000 6.5% 1.00 N/A 2003 0 0
Sam Kaplan 3,000 1.6% 1.00 4.75 2000 16,031 22,455
Steven Anastos 10,000 5.4% 1.00 N/A 2003 0 0
Steven Anastos 5,000 2.7% 1.00 1.63 2001 4,767 7,024
Steven Anastos 5,000 2.7% 1.00 4.75 2000 16,031 37,424
</TABLE>
Page 5
<PAGE>
AGGREGATED OPTIONS EXERCISED DURING AND OPTION VALUE TABLE AT THE END OF THE
YEAR ENDED MAY 31, 1996
During the year ended May 31, 1996 none of the named executive officers
exercised any stock options. The following table sets forth information relating
to the value at May 31, 1996 of unexercised stock options of the named executive
officers who own stock options. (See "1991 Stock Option Plan").
<TABLE>
VALUE OF OPTIONS AT MAY 31, 1996 (1)
<CAPTION>
Number of Unexercised
Shares Options at Value of Unexercised
Acquired May 31, 1996 (1) in-the-Money Options
on Value (#) at May 31, 1996(2)
Exercise Realized (d) (e)
Name (#) ($)
(a) (b) (c) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Della Rounick 0 N/A 0 0 0 0
Allan R. Bogner 0 N/A 0 0 0 0
Sam Kaplan 0 N/A 5,800 19,200 $4,350 $14,400
Steven Anastos 0 N/A 5,000 15,000 $3,750 $11,250
<FN>
(1) For the number of shares subject to options exercisable within 60 days of
September 26, 1996.
(2) Options are "in-the-money" if on May 31, 1996 the market price of the
Common Stock exceeded the exercise price of the option. The value of
options is calculated by determining the difference between the aggregate
market price of the Common Stock covered by the options on May 31, 1996 and
the aggregate exercise price of such options.
</FN>
</TABLE>
Page 6
<PAGE>
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
During the year ended May 31, 1996, the Compensation Committee approved the
repricing of options to purchase 13,000 shares of Common Stock held by Sam
Kaplan, and 10,000 shares of Common Stock of Steven Anastos. The repricing was
effected by amending the outstanding options under the 1991 Stock Option Plan
providing for a lower exercise price and maintaining the existing vesting
schedule. The exercise price of the cancelled options significantly exceeded the
market price of the Company's Common Stock on the date the replacement options
were issued. The exercise price of the replacement options granted to Messrs.
Kaplan and Anastos was $1.00, which was also above the market price of a share
of Common Stock on the date the replacement option was granted, but closer to
the market price than the exercise price had been. The Compensation Committee
approved the replacement of the options held by Messrs. Kaplan and Anastos
because it concluded that these options, being significantly out-of-the-money,
did not provide the desired incentive to Messrs. Kaplan and Anastos.
COMPENSATION COMMITTEE
William J. Carone
Martin R. Bring
<TABLE>
<CAPTION>
Market Length of
Price of Exercise Original Option
Number of Stock at Price at New Term Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sam Kaplan 1/19/96 10,000 $.41 $2.00 $1.00 4/12/2001
Sam Kaplan 1/19/96 3,000 .41 2.00 1.00 6/29/2000
Sam Kaplan 4/12/94 3,000 1.63 4.75 2.00 6/29/2000
Steven Anastos 1/19/96 5,000 .41 2.00 1.00 4/12/2001
Steven Anastos 1/19/96 5,000 .41 2.00 1.00 6/29/2000
Steven Anastos 4/12/94 5,000 1.63 4.75 2.00 6/29/2000
</TABLE>
Page 7
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY. the Company's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. Performance is measured in terms of both quantitative and
qualitative goals at the corporate level, the division level and the individual
level. Executive compensation consists of base salary, annual cash incentive
compensation in the form of bonuses or commissions and long term incentive
compensation in the form of stock options. the compensation of the Company's
executive officers is reviewed and approved by the Compensation Committee, which
is composed entirely of nonemployee directors. Management compensation is
intended to be set at levels that the Compensation Committee believes is
consistent with others in the Company's industry.
In reviewing compensation levels of the Company's key executives, the
Compensation Committee considers, among other items, corporate profitability on
an absolute basis as well as relative to budget; previous years' and
competitors' profitability; revenues and market shares; efficiency; and the
quality of products and services. Many of the same measures are used in
reviewing the profitability and efficiency of the division. No specific weight
is accorded to any single factor. Relative weights differ from executive to
executive and change from time to time as circumstances warrant.
BASE SALARIES. Base salaries for new management employees are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for managerial and creative talent. Annual salary adjustments are determined by
evaluating the competitive marketplace, the performance of the Company, the
performance of the executive and any increased responsibility assumed by the
executive. Salary adjustments are determined and normally made on an annual
basis.
ANNUAL BONUSES. The Company has awarded bonuses in the past and may award
bonuses in the future to certain employees. The amount of any bonus is
discretionary and is determined based upon a combination of the level of
achievement by the Company of its strategic and operating goals and the level of
achievement by the individual of his or her individual objectives and goals. in
addition, in determining whether to award a bonus, the Compensation Committee
considers an individual's initiative and commitment to the Company. Certain of
the employees earn a commission based on a percentage of the Company's net sales
of the division managed by such executive of pre-tax income of the Company.
EQUITY OWNERSHIP. The Company initiated a stock option program for its key
employees at the time of the Company's initial public stock offering in
September 1991. Significant employee stock ownership has become an important
goal in the Company's effort to link the performance of the Company to the
efforts and compensation of its executives. The Compensation Committee believes
that equity ownership by management is a means of aligning management's and
stockholders' interests in the enhancement of stockholder value and, accordingly
endorses the Company's 1991 Stock Option Plan. The Compensation Committee serves
as the stock option committee under the 1991 Stock Option Plan; the purpose of
the stock option committee is to administer the plan.
Page 8
<PAGE>
ESTABLISHMENT. The Compensation Committee was established in September 1991, at
the time of the Company's initial public offering. The Company's general
compensation plans and policies currently in effect under which its executives
have been compensated for services rendered, other than the specific employment
agreements for certain executive officers of the Company entered into after
September 1991, were in place prior to the establishment of the Compensation
Committee. These plans and polices evolved over the years when the Company
operated as a private company prior to the initial public stock offering in
September 1991. Currently, the Chief Executive Officer submits to the
Compensation Committee for approval, proposals to hire new executives whose
annual salary is expected to exceed $100,000. The Compensation Committee
reviewed the terms of each of the employment agreements which the Company has
entered into with its executive officers in light of the factors referred to
elsewhere in this report, including compensation of comparable executives in
other publicly traded apparel companies.
During the months following the death in September 1993, of Herbert
Rounick, founder of the Company and its former Chairman and Chief Executive
Officer, the Board of Directors retained an executive search firm to find a
replacement chief executive officer for the Company. Because a suitable chief
executive officer was not found, Mr. Carone, Chairman of the Board, in order to
fill the gap caused by the death of Mr. Rounick, became involved in the daily
decision making activities of the Company. In June 1995, Della Rounick, the
widow of Herbert Rounick and the Company's principal stockholder, assumed the
responsibilities of Chief Executive Officer and Co-Chairman of the Board. Prior
to such time, Ms. Rounick had been a Vice President - Director of Design
Coordination for which she was paid $75,000.00 during fiscal 1995. In
consideration of the additional time, effort and responsibilities assumed by Ms.
Rounick with her new title, Ms. Rounick was paid $220,000.00 during fiscal 1996.
COMPENSATION COMMITTEE*
WILLIAM J. CARONE
MARTIN R. BRING
- --------
*Members of the Compensation Committee did not participate in the creation of
the 1992 Outside Directors Option Plan, and abstained from granting options
thereunder and from voting thereon. The Board of Directors in its entirety
participated in the creation of and the granting of options under the 1993
Outside Directors Option Plan and the 1994 Outside Directors Option Plan and all
of the directors voted to approve such Plans.
Page 9
<PAGE>
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total stockholder return on its Common Stock with
the cumulative total stockholder return of (i) a broad equity market index and
(ii) a published industry index or "peer group." Although the chart would
normally be for a five-year period, the Common Stock of the Company began
trading on September 20, 1991 and, as a result, the following chart commences as
of such date. This chart compares the Common Stock with (i) the New York Stock
Exchange Market Value Index and (ii) a group of public companies, each of which
manufacturers apparel, and assumes an investment of $100 on September 20, 1991
in each of the Common Stock, the stocks comprising the New York Stock Exchange
Market Value Index and the stocks of the selected apparel manufacturers.
Fiscal Year Ending
-----------------------------------------------------
Company 1991 1992 1993 1994 1995 1996
- --------------- -----------------------------------------------------
He-Ro Group Ltd. 100 52.38 23.81 6.55 4.17 8.33
Peer Group 100 110.42 111.55 97.40 96.76 142.84
Broad Market 100 108.31 120.89 127.90 147.02 187.45
(1) The total return for each of the Company's Common Stock, the New York Stock
Exchange Market Value Index and the selected apparel manufacturer assumes an
investment of $100 on September 20, 1991 and the reinvestment of dividends
(although dividends have not been declared on the Company's Common Stock) and is
based on market capitalization.
(2) The "peer group" of selected apparel manufacturers consists of the following
companies: Bernard Chaus, Inc., G-III Apparel Group, Ltd., Garan Incorporated,
Jones Apparel Group, Inc., Kellwood Company, Liz Claiborne, Inc., Unitog Co., VF
Corporation, and Yes Clothing Co.
Page 10
<PAGE>
EMPLOYMENT AGREEMENTS
In May 1993, the Company entered into a three year employment agreement
expiring on may 31, 1996 with Allan R. Bogner pursuant to which Mr. Bogner
agreed to serve as the Company's President and Chief Operating Officer. Under
the employment agreement, as amended, Mr. Bogner's salary for the fiscal year
ended May 31, 1996 was $305,059. In addition, the employment agreement provided
for a performance bonus in each fiscal year assuming certain minimum
requirements of income were met by the Company. Effective November 30, 1995, Mr.
Bogner resigned from the Company. On such date, Mr. Bogner entered into a
settlement Agreement with the Company, pursuant to which Mr. Bogner was paid
$103,250.75, his employment agreement was terminated, and Mr. Bogner agreed to
certain non-compete and non-solicitation provisions.
1991 STOCK OPTION PLAN
During 1991, the Company adopted the 1991 Stock Option Plan (the "1991
Option Plan"). The Board of Directors believes that the plan is desirable to
attract and retain executives and other key employees of outstanding ability.
Under the 1991 Option Plan, options to purchase an aggregate of not more than
500,000 shares of Common Stock may be granted from time to time to key
employees, officers, directors, advisors and independent consultants to the
Company or to any of its subsidiaries.
The Compensation Committee of the Board of Directors serves as the Stock
Option Committee under the 1991 Stock Option Plan. The Stock Option Committee
exercises all of the powers of the Board of Directors in relation to the 1991
Option Plan and is generally empowered to interpret the 1991 Option Plan,
prescribe rules and regulations relating thereto, determine the terms of the
option agreements, amend them with the consent of the optionee, determine the
employees to whom option are to be granted, determine the number of shares
subject to each option and the exercise price thereof, determine the terms of
paying the exercise price and other terms and conditions including whether the
exercise price of an option is payable in cash or by delivery of a promissory
note or previously acquired shares of Common Stock. The per share exercise price
for incentive stock options ("ISO's) may not be less than 100% of the fair
market value of a share of Common Stock on the date the option is granted (110%
of fair market value on the date of grant of an ISO if the optionee owns more
than 10% of the Common Stock of the Company), and for non-qualified stock
options ("NQSOs") may not be less than 85% of the fair market value of a share
of Common Stock on the date the option is granted.
Options are exercisable for a term determined by the Stock Option
Committee, which may not be less than one year or greater than ten years from
the date of grant. Options may be exercised only while the original optionee has
a relationship with the Company which confers eligibility to be granted options
or within three months after termination of such relationship with the Company,
or up to one year after death or disability. Options are not transferable other
than by will or the laws of descent and distribution and may be exercised during
the holder's lifetime only by the holder, his or her guardian or legal
representative. No options may be granted under the 1991 Option Plan after
September 26, 2001.
Page 11
<PAGE>
Options granted pursuant to the 1991 Option Plan may be designated as ISOs,
with the attendant tax benefits provided under Section 421 and 422 of the
Internal Revenue Code of 1986, as amended. Accordingly, the 1991 Option Plan
provides that the aggregate fair market value (determined at the time an ISO is
granted) of the Common Stock subject to ISOs exercisable for the first time by
an employee during any calendar year (under all plans of the Company and its
subsidiaries) may not exceed $100,000. The Stock Option Committee may modify,
suspend or terminate the 1991 Option Plan; provided, however, that certain
material modifications affecting the 1991 Option Plan must be approved by the
Company's stockholders, and any change in the 1991 Option Plan that may
adversely affect an optionee's rights under an option previously granted under
the 1991 Option Plan requires the consent of the optionee.
During the year ended May 31, 1996, the Company granted to its employees
184,000 ISOs (inclusive of options that were repriced at $1.00 during the fiscal
year). The last reported sale price per share of the Company's Common Stock as
reported on the New York Stock Exchange Composite Tape on September 24, 1996 was
$.81.
1992 OUTSIDE DIRECTORS STOCK OPTION PLAN
On October 30, 1992, the Board of Directors adopted, subject to stockholder
approval, the 1992 Outside Directors Stock Option Plan (the "1992 Plan")
pursuant to which 30,000 shares of Common Stock are reserved for issuance upon
the exercise of stock options granted under the 1992 Plan to directors at such
time who were not employees of the Company. The stockholder of the Company
approved the adoption of the 1992 Plan on March 17, 1994. The purpose of the
1992 Plan was to advance the interests of the Company by affording outside
directors the opportunity to increase their equity interests in the Company by
further aligning the interests of the Company's management with its
stockholders. On October 30, 1992, options to purchase 10,000 shares of the
Company's common stock at a price of $4.875 per share were granted under the
1992 Plan to each of Matthew A. Berdon, Martin R. Bring and Richard D. White,
each of whom were the outside directors of the Company on such date. Options
granted to Messrs. White and Berdon under the 1992 Plan terminated three months
after the effective date of each such director's resignation from the Company's
Board of Directors.
1993 OUTSIDE DIRECTORS STOCK OPTION PLAN
On September 29, 1993, at a special meeting of the Board of Directors held
after Mr. Rounick's death, the Board of Directors adopted, subject to
stockholder approval, the 1993 Outside Directors Stock Option Plan (the "1993
Plan") pursuant to which 115,000 shares of Common Stock were reserved for
issuance upon the exercise of stock options granted under the 1993 Plan to
directors at such time who were not employees of the Company. The stockholders
of the Company approved the adoption of the 1993 Plan on March 17, 1994. The
1993 Plan was proposed by the Board of Directors in recognition of the
additional responsibilities assumed by the outside directors in managing the
Company's affairs after the death of Mr. Rounick, the Company's former principal
stockholder. On September 29, 1993, options to purchase 75,000, 25,000 and
15,000 shares of the Company's Common Stock at a price of $3.50 per share were
granted under the 1993 Plan to each of Messrs. Berdon, Bring and White,
respectively. Options granted to Messrs. White and Berdon under the 1993 Plan
terminated three months after the effective date of each such director's
resignation from the Company's Board of Directors.
Page 12
<PAGE>
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
On January 5, 1994, at a special meeting of the Board of Directors, the
Board of Directors adopted, subject to stockholder approval, the 1994 Outside
Directors Stock Option Plan (the "1994 Plan") pursuant to which 300,000 shares
of Common Stock were reserved for issuance upon the exercise of stock options
granted under the 1994 Plan to directors at such time who were not employees of
the Company. The stockholders of the Company approved the adoption of the 1994
Plan on March 17, 1994. The 1994 Plan was proposed by the Board of Directors to
provide the outside directors with additional compensation upon the execution by
the Company and Marine Midland Bank, N.A., The Chase Manhattan Bank, The Hong
Kong and Shanghai Banking Corporation Limited and ABN AMRO Bank N.V.
(collectively, the "Banks") of an amendment (the "Amendment") to the Company's
credit facility with the Banks to bring the Company back into compliance with
the terms of the credit facility, as so amended, and in recognition of the
additional time and attention devoted to negotiating with the Banks since the
death of Mr. Rounick. The Board approved the grant of options to purchase
100,000 shares of Common Stock at a price of $2.00 per share under the 1994 Plan
to each of Messrs. Berdon, Bring and Carone, which grant was dependent upon and
became effective on the date of the execution of an Amendment.
The Board of Directors on October 11, 1995 approved an amendment to the
1994 Plan (the "Amended 1994 Plan"), subject to stockholder approval, pursuant
to which the Company has granted options to purchase 50,000 shares of Common
Stock to each 1994 Outside Director, with a reduced exercise price of $1.00 per
share, in exchange for the options to purchase 100,000 shares of Common Stock at
an exercise price of $2.00 per share previously granted to each 1994 Outside
Director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During the year ended May 31, 1996, the Compensation Committee of the
Company's Board of Directors consisted of William Carone and Martin R. Bring.
Mr. Bring is a member of the New York, New York law firm Lowenthal, Landau,
Fischer & Bring, P.C. which performs legal services for the Company.
Page 13
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of September 24, 1996
pertaining to beneficial ownership of the Company's Common Stock (determined in
accordance with Rule 13d-3) under the Securities Exchange Act of 1934) by
persons known to the Company to beneficially own 5% or more of the Company's
outstanding Common Stock, each named executive officer of the Company, each
current director of the Company and by directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
Amount and Nature % of
Name and Address of Beneficial Common
of Beneficial Owner Title Ownership Stock
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vasiliki Della Pasvantidou Rounick Principal Stockholder, Co- 4,430,748(1) 66%
15 West 53rd Street Chairman of the Board
New York, New York 10019 and Chief Executive
Officer and Director of the
Company
Durnard Limited Subsidiary of the 1,343,462(2) 16.67%
17th Fl Company
9 Queens Road Central
Hong Kong
William J. Carone Co-Chairman of the Board 50,000(3) *
c/o Rosenthal & Rosenthal, Inc. and Director
1370 Broadway
New York, New York 10018
Martin R. Bring Director 85,500(4) 1.5%
c/o Lowenthal, Landau, Fischer &
Bring, P.C
250 Park Avenue
New York, New York 10177
Allan R. Bogner President and Chief 500 *
The He-Ro Group, Ltd. Operating Officer
550 Seventh Avenue
New York, New York 10018
Sam D. Kaplan Chief Financial Officer, 5,800(5) *
The He-Ro Group, Ltd. Treasurer and Secretary
One American Way
Secaucus, New Jersey 07094
Steven Anastos Senior Vice President- 5,000(6) *
The He-Ro Group, Ltd. Sales and Merchandising
550 Seventh Avenue
New York, New York 10018
All directors and executive officers as 4,577,548(7) 66.7%
a group (6 persons)
Page 14
<PAGE>
<FN>
* Less than 1%.
(1) Includes 4,409,066 shares owned by the Estate of Herbert Rounick, founder
and former Chairman of the Board and Chief Executive Officer of the
Company, who died on September 24, 1993. Vasiliki Della Pasvantidou Rounick
("Della Rounick"), the surviving spouse of Herbert Rounick was named the
executrix of the Estate of Herbert Rounick. Excludes 1,343,462 shares over
which Della Rounick shares dispositive power. See footnote 2 below.
(2) On March 14, 1994, the Company made a capital contribution of 1,343,462
shares of its Common Stock to Durnard Limited, a Hong Kong corporation, in
exchange for all of the issued and outstanding shares of Capital Stock of
Durnard Limited, to enable it to pledge such shares to Delta Asia Credit
Limited a foreign lender ("Delta Asia") as collateral security for the
obligations of the Company and its subsidiaries to Delta Asia (the
"Obligations"). All of the 1,343,462 shares of the Company referred to
herein were pledged to Delta Asia under a Charge dated March 11, 1994 as
collateral security for the Obligations (the "Share Charge"), and Delta
Asia filed a Schedule 13-D on March 28, 1994 (the "Schedule 13D") reporting
shared voting and/or dispositive power over the shares. Pursuant to Section
160(c) of the General Corporation Law of the State of Delaware so long as
the Company owns a majority of the shares of Durnard Limited, the 1,343,462
shares referred to herein may not be voted by Durnard Limited nor counted
for quorum purposes. In addition, by virtue of the Share Charge, neither
Durnard Limited nor Messrs. Bring and Carone, as directors of Durnard
Limited nor Della Rounick as the controlling stockholder of the Company
(which owns a majority of the shares of Durnard Limited) may dispose of the
1,343,462 shares referred to herein. Although the Obligations have been
paid in full on or about April 21, 1995 and the pledged shares have been
returned to the Company, the Share Charge will remain conditionally in
effect through October 21, 1995 and will terminate on or about such time,
assuming no payment of the Obligations by the Company has been reduced or
repaid by Delta Asia for any reason. Upon final release of the Company from
all liability under the Share Charge, and assuming that (i) the Company
continues to own a majority of the shares of Durnard Limited, (ii) Messrs.
Carone and Bring continue to serve as directors of Durnard Limited and
(iii) Della Rounick continues to be a controlling stockholder of the
Company such persons shall share dispositive power over the 1,343,462
shares referred to herein. For purposes of this table, the 1,343,462 shares
have not been counted as outstanding shares in calculating any of the
percentages of ownership, except with respect to the beneficial ownership
by Durnard Limited.
Page 15
<PAGE>
Because the Obligations have been paid in full and the pledged Shares have
been returned to the Company, Delta Asia is not listed in the table as a
beneficial owner of these shares, even though the Schedule 13D is currently
on file. Other persons who have reported shared voting and/or dispositive
power with Delta Asia Limited Credit on a Schedule 13-D filed with the
Securities and Exchange Commission on their behalf on March 28, 1994 are as
follows: Stanley Au Chong Kit, Forex (Nominees) Limited, Delta Asia Group
(Holdings) Ltd., Banco Delta Asia S.A.R.L.
(3) Includes 50,000 shares which Mr. Carone has the right to acquire upon
exercise of stock options which are exercisable within 60 days. Excludes
1,343,462 shares as to which Mr. Carone shares dispositive power. See
footnote 2 above.
(4) Includes 85,000 shares which Mr. Bring has the right to acquire upon
exercise of stock options which are exercisable within 60 days. Excludes
1,343,462 shares as to which Mr. Bring shares dispositive power. See
footnote 2 above.
(5) Includes 5,800 shares which Mr. Kaplan has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
(6) Includes 5,000 shares which Mr. Anastos has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
(7) Includes an aggregate of 145,800 shares which certain officers and/or
directors have the right to acquire upon exercise of stock options which
are exercisable within 60 days.
</FN>
</TABLE>
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<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time prior to the initial public offering of the Company's
Common Stock on September 26, 1991, to help finance the Company's operations,
the late Herbert Rounick, the Company's founder, loaned money to various
subsidiaries of the Company for working capital purposes. As of May 31, 1996,
the Company owed the Estate of Herbert Rounick an aggregate $2,796,000 in
principal on account of such loans. Interest on these loans ranges from eight to
12% per annum. The Company believes that the terms of its indebtedness to the
Estate of Herbert Rounick are at least as favorable as those it could have
obtained if it had borrowed from an unrelated third party. In addition, the
Company owes the Estate of Herbert Rounick $1,500,000 representing a death
benefit due and owing under the Company's employment agreement, dated June 1,
1992, with Herbert Rounick, and $1,000,000 representing an amount which the
Estate of Herbert Rounick, loaned to the Company on January 24, 1995 and
concurrently was released on a guarantee of the credit facility with its bank
group. Accordingly, as of May 31, 1996 the aggregate of the Company's
indebtedness to the Estate of Herbert Rounick, was $5,923,755 (including
$627,755 in accrued and unpaid interest), all of which is unsecured and is
subordinated to the Company's indebtedness to its lenders. Under the terms of
the Company's credit agreements, provided no default has occurred and is
continuing thereunder, the Estate of Herbert Rounick is entitled to be repaid by
the Company an amount of $40,947 for each calendar month representing payments
of interest on the subordinated debt.
Della Rounick, as the principal stockholder, currently is a Co-Chairman of
the Board and Chief Executive Officer, effective the beginning of fiscal 1996,
for which she is receiving a salary of $220,000. During the year ended May 31,
1995, Della Rounick was employed by the Company as Vice President-Director of
Design Coordination for which she was paid $75,000.
Great Projects Limited ("GPL") is a Hong Kong corporation of which 50% is
owned by a subsidiary of the Company and 25% is owned by each of two Hong Kong
companies that are unaffiliated with the Company or its officers or directors.
GPL purchases women's wear products manufactured primarily in China for resale
to the Company's subsidiary, which acts as a distributor of finished goods that
are purchased from GPL. As of October 31, 1993, the partners agreed to
discontinue the operations of GPL. In January 1996, liquidation proceedings in
Hong Kong were commenced to wind up GPL. Included in accounts payable is
$2,151,000 due to GPL at May 31, 1996. Maria Ng was a managing director of GPL
during her tenure as a director of the Company. The Company does not expect any
material impact on its results of operations due to the liquidation of GPL.
See also "Item 11. Executive Compensation - Compensation Committee
Interlocks and Insider Participation."
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and greater than 10% stockholders ("Reporting Persons") to
file certain reports ("Section 16 Reports") with respect to beneficial ownership
of the Company's equity securities. Based solely on the Company's review of the
Section 16 Reports furnished to the Company by its Reporting Persons and, where
applicable, certain written representations by any of them, except as set forth
below, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to fiscal 1996 have been complied with
on a timely basis. The grant of replacement options to each outside director
under the terms of the Amended 1994 Plan was approved by the stockholders of the
Company on May 28, 1996. See "1994 Outside Directors Stock Option Plan". Forms 5
(or alternatively, voluntary reports on Form 4) reflecting the grant of
replacement and repriced options under the Amended 1994 Plan were not filed for
Mr. Carone and Mr. Bring. However, the grant of replacement and repriced options
for Messrs. Carone and Bring was disclosed in the Company's proxy statement
pursuant to which approval to the Amended 1994 Plan was requested, which proxy
statement was filed on April 27, 1996 with the Securities and Exchange
Commission and sent on such date to all of the Company's stockholders of record
as of the record date contained therein.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT AND SCHEDULES AND REPORTS ON FORM 8-K
None
Page 18
<PAGE>
SIGNATURE
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.
THE HE-RO GROUP, LTD.
By: /s/Della Rounick
--------------------
Della Rounick,
Co-Chairman of the Board and
Chief Executive Officer
Dated: September 27, 1996
