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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 24, 1997
THE HE-RO GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 1-10860 13-36155898
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
530 Seventh Avenue, New York, New York 10018
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (212) 398-6161
550 Seventh Avenue, New York, New York 10018
(Former name or former address, if changed since last report)
Page 1 of 7 total pages
(Exhibit index is found on page 7)
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ITEM 1. Change in Control of Registrant/ITEM 2. Acquisition of Assets.
On December 24, 1997 (the "Closing Date"), The He-Ro Group, Ltd.
("He-Ro" or the "Issuer") acquired from Hong J. Han all of the outstanding
capital stock of Nah Nah Collection, Inc. ("Nah Nah"), in exchange for the
issuance by the Issuer to Mr. Han of 5,277,905 shares of Common Stock of the
Issuer (equivalent to 44% of the Issuer's issued and outstanding capital stock),
pursuant to a Stock Purchase Agreement dated October 16, 1997 (the "Agreement"),
among the Issuer, Nah Nah, Mr. Han and Della Rounick.
In addition, Ms. Rounick delivered to Mr. Han an irrevocable proxy (the
"Irrevocable Proxy") granting to Mr. Han, or his designee, the right to vote the
4,430,748 shares of Common Stock owned by her. The Irrevocable Proxy has an
initial term of three years, subject to extension upon the occurrence of certain
conditions. Ms. Rounick agreed not to sell, transfer or dispose of any
securities of the Issuer for a period of three years. After the expiration of
the initial three year term of the Irrevocable Proxy, Ms. Rounick may sell
shares covered by the Irrevocable Proxy free and clear of the Irrevocable Proxy,
subject to Mr. Han's right of first refusal with respect to any such sale, and
provided that Mr. Han owns a certain percentage of the securities of the Issuer.
In addition, pursuant to certain conditions set forth in the Agreement,
on the Closing Date, Mr. Han purchased from Ms. Rounick subordinated
indebtedness of The He-Ro Group, Inc., a wholly-owned subsidiary of the Issuer
("HGI"), to the Estate of Herbert Rounick (of which Ms. Rounick is executrix) in
the amount of $4,296,000, plus accrued interest. Ms. Rounick retained
$1,000,000, plus accrued interest, of subordinated indebtedness. The aggregate
indebtedness (in the principal amount of $6,660,801, which includes the accrued
interest) is evidenced by subordinated notes of the Issuer in favor of each of
Mr. Han and Ms. Rounick bearing interest at 9.278% per annum. The principal is
due and payable on demand and the interest is due on the first of each month
commencing January 1, 1998, or otherwise on demand. The Issuer and all of its
subsidiaries (except HGI) have guaranteed payment and performance of the Notes.
According to the terms of a certain Debt Purchase and Intercreditor Agreement
dated the Closing Date among Han, Rounick and HGI (the "Intercreditor
Agreement"), which governs the notes, the payments on, and any conversion of,
the notes, as well as other provisions of the notes, will be on a pari passu
basis, subject to certain restrictions. The Intercreditor Agreement also
provides that Ms. Rounick may not take any action to collect, enforce, convert
or otherwise deal with her note unless Mr. Han has taken such action (in which
event Ms. Rounick may take such action but only to the same extent and on the
same terms as Mr. Han) or unless she has received Mr. Han's prior written
consent.
On the Closing Date, Mr. Han also acquired all of the obligations due
and owing by the Issuer to a junior bank group (for whom Marine Midland Bank
N.A. was agent), and all the collateral therefor, under the fourth amended and
restated revolving credit agreement dated as of May 15, 1995 between the Issuer
and the junior bank group (the "Credit Agreement"), in the aggregate principal
amount of $2,750,000. The obligations are evidenced by a term note to each bank
in the junior bank group with interest at 2% above the prime rate. Mr. Han has
none of the lending obligations under the Credit Agreement.
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The Issuer's indebtedness to Mr. Han, as successor to the junior bank group, is
(i) subordinated to the Issuer's indebtedness to its new senior lender, Heller
Financial, Inc. (See Item 5), and (ii) secured by a second lien on the domestic
inventory and accounts receivable, among other collateral, and a first lien on
the inventory located in Hong Kong and China. The junior bank group also
surrendered to the Issuer for cancellation warrants to purchase 250,000 shares
of common stock of the Issuer.
Under the terms of subordination and intercreditor agreements with the
Issuer's senior lender Heller Financial, Inc., all interest payments to Ms.
Rounick and Mr. Han are subject to certain conditions.
Pursuant to the Agreement, on the Closing Date, Martin R. Bring
resigned from the Issuer's Board of Directors and Mr. Han was elected as a
member of the Issuer's Board of Directors. Ms. Rounick, the other member of the
Board of Directors, has agreed to fill remaining vacancies on the board with
three designees of Mr. Han. Ms. Rounick had resigned as Chief Executive Officer
and Chairman of the Board on the date of the Agreement. On the Closing Date, Sam
Kaplan resigned as acting Chief Executive Officer and will remain as Chief
Financial Officer. Additionally, the Board of Directors of each of the Issuer
and each of its subsidiaries appointed Mr. Han as President, Sue Kim as Vice
President and Chris Han as Secretary/Treasurer. Ms. Kim and Chris Han were
officers of Nah Nah prior to the Closing Date. The Issuer, as sole shareholder
of its wholly-owned subsidiaries, elected Mr. Han, Sue Kim and Chris Han as the
directors of each of such subsidiaries.
Nah Nah produces and markets several lines of moderate to better
women's evening and occasion wear under labels including Victor Costa by
Nahdree, Constance Saunders by Nahdree, Nah Nah Collections and under private
labels through its NNP division. Nah Nah was founded by Mr. Han in 1988 and is
presently comprised of four divisions: Nah Nah Collections, Victor Costa by
Nahdree, NNP and Constance Saunders by Nahdree. Nah Nah sells its suits and
dresses to a variety of specialty stores, department stores and catalogue
houses, including Macy's East and Macy's West, Saks Fifth Avenue, Neiman Marcus,
Nordstrom's, Lord & Taylor, Bloomingdale's, Lillie Rubin, May Co., Dillard's and
Gantos. Nah Nah is located in New York City.
ITEM 4. Changes in Registrant's Certifying Accountant.
On the Closing Date, the Issuer retained as its independent accountants
the firm of M.R. Weiser & Co. LLP to replace Arthur Andersen LLP. The decision
to change accountants was recommended and approved by the Issuer's Board of
Directors immediately following the closing of the transactions contemplated by
the Agreement. M.R. Weiser & Co. LLP served as Nah Nah's accountants prior to
the Closing Date.
During the Issuer's last two fiscal years and the subsequent interim
period prior to the dismissal, there were no disagreements between the Issuer
and the accountants on any
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matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The report of the Issuer's independent accountants with respect to the
Issuer's financial statements as of May 31, 1997 and 1996 and for the years then
ended contains an opinion from the accountants that certain factors regarding
the Issuer's operations raise substantial doubt about the Issuer's ability to
continue as a going concern.
ITEM 5. Other Events.
As a further condition to the Agreement, HGI, Nah Nah, HRNL, Inc., a
wholly-owned subsidiary of the Issuer ("HRNL"), the Issuer and all of the
Issuer's additional wholly-owned, active U.S. subsidiaries (collectively, the
"Loan Parties") entered into a new factoring and revolving inventory loan and
security agreement (the "Factoring Agreement") with Heller Financial, Inc.
("Heller"), replacing its prior senior lender, Foothill Capital Corp.
("Foothill"). All of the outstanding obligations of the Issuer and its
subsidiaries to Foothill were paid in full on the Closing Date and Foothill
released its liens on substantially all of the assets of the Issuer and its
subsidiaries. The Factoring Agreement provides for Heller to purchase eligible
receivables and advance to HGI, Nah Nah and HRNL (collectively, the "Borrowers")
up to 85% of the purchase price (as such term is defined in the Factoring
Agreement) of net eligible accounts. In addition, Heller has agreed to make
revolving loans to each of such parties upon request and in Heller's discretion,
in amounts up to approximately 60% of each such party's eligible finished goods
inventory located in the United States, plus certain supplemental amounts. Under
the Factoring Agreement, Heller has also agreed to issue letter of credit
guarantees, subject to certain conditions and restrictions set forth in the
agreement, to induce banks to issue letters of credit to the Borrowers. The
factoring, inventory and letter of credit facility may not exceed an aggregate
of $20,000,000 outstanding at any time. As collateral, the Borrowers granted to
Heller continuing security interests in substantially all of their assets,
including receivables, inventory (other than raw materials and work-in-process),
intangibles, equipment, documents, instruments, intellectual property, deposits,
cash, books and records, tax refunds and any proceeds from any of the above. The
Borrowers' obligations to Heller are further secured by a guaranty by all of the
Loan Parties (other than the Borrowers), and the obligations of such guarantors
are secured by liens on substantially all of the assets of the guarantors. The
Factoring Agreement contains standard events of default, including failure to
make a payment when due and the bankruptcy or insolvency of a party, upon the
occurrence of any one of which Heller shall have the right to immediately cease
making advances, revolving loans and letter of credit guarantees. All of the
Loan Parties' other indebtedness is subordinated to their obligations to Heller.
As of the Closing Date, the Issuer and its subsidiaries commenced doing
business under the name The Nahdree Group. The Issuer intends to amend its
certificate of incorporation to change its name to The Nahdree Group.
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ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Nah Nah Collection, Inc.
Information under Item 7(a) will be filed by
amendment within 15 calendar days from the closing
date of the acquisition.
(b) Pro Forma Financial Information.
Information under Item 7(b) will be filed by
amendment within 15 calendar days from the closing
date of the acquisition.
(c) The following documents are filed herewith as exhibits to this
Form 8-K:
2.1 Stock Purchase Agreement dated as of October 16,
1997, among the Registrant, Nah Nah, Hong J. Han and
Della Rounick.
16.1 Letter from Arthur Andersen regarding change in
certifying accountant will be filed by amendment.
99.1 Factoring and Revolving Inventory Loan and Security
Agreement dated as of December 24, 1997, among The
He-Ro Group, Inc., Nah Nah Collection, Inc., HRNL,
Inc., The He-Ro Group, Ltd. and its several
wholly-owned, active U.S. subsidiaries and Heller
Financial, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 31, 1997
THE HE-RO GROUP, LTD.
By: /s/ Hong J. Han
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Hong J. Han
President and
Chief Executive Officer
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Exhibit Index
2.1 Stock Purchase Agreement dated as of October 16, 1997, among
the Registrant, Nah Nah, Hong J. Han and Della Rounick.
*16.1 Letter from Arthur Andersen regarding change in certifying
accountant.
99.1 Factoring and Revolving Inventory Loan and Security Agreement
dated as of December 24, 1997, among The He-Ro Group, Inc.,
Nah Nah Collection, Inc., HRNL, Inc., The He-Ro Group, Ltd.
and its several wholly-owned, active U.S. subsidiaries and
Heller Financial, Inc.
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* To be filed by amendment.
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Exhibit 2.1
STOCK PURCHASE AGREEMENT, dated as of October 16, 1997, by and
among THE HE-RO GROUP, LTD., a Delaware corporation ("He-Ro"), VASILIKI DELLA
PASVANTIDOU ROUNICK an individual residing at 15 West 53rd Street, New York, New
York 10019 ("Rounick") (to the limited extent provided herein), NAH-NAH
COLLECTION, INC., a New York corporation ("Nah-Nah"), and HONG J. HAN an
individual residing at 12 Timberline Drive, Alpine, New Jersey 07620 ("Han") (to
the limited extent provided herein).
RECITALS
WHEREAS, Han is the sole stockholder of Nah-Nah;
WHEREAS, Han desires to sell all of the outstanding shares of
common stock of Nah-Nah, no par value (the "Nah-Nah Common Stock") to He-Ro upon
the terms and conditions set forth herein;
WHEREAS, as consideration, He-Ro will issue to Han that number
of shares of common stock of He-Ro, par value $.01 (the "He-Ro Common Stock"),
such that after the consummation of the transactions contemplated by this
Agreement, Han will own directly or indirectly 44% of the issued and outstanding
common stock of He-Ro inclusive of all outstanding options and warrants to
purchase common stock of He-Ro exercisable as of the Closing Date (as such term
is defined herein);
WHEREAS, Rounick as executrix of the estate of Herbert Rounick
(the "Estate"), desires to sell to Han and Han desires to purchase from the
Estate, all of the obligations due and owing from He-Ro to the Estate (the
"Rounick Debt"), except for $1,000,000 in principal of such obligations, which
Rounick desires to retain (the "Retained Rounick Debt"), all on the terms and
conditions set forth in an agreement to close contemporaneously with the Closing
hereunder among Rounick, He-Ro and Han (the "Rounick Debt Agreement");
WHEREAS, contemporaneously with the Closing hereunder, Han
will acquire all of the obligations due and owing from He-Ro to the Junior Bank
Group (as such term is defined herein) and all collateral therefor (the "Junior
Debt") under the Fourth Amended and Restated Revolving Credit Agreement dated as
of May 15, 1995, by and among He-Ro and the Junior Bank Group (the "Junior Debt
Agreement" which term includes any and all present and future amendments
thereto) on the terms and conditions set forth in an agreement to close
contemporaneously with the Closing hereunder between Han, He-Ro and the members
of the Junior Bank Group (the "Junior Bank Group Debt Purchase Agreement:
WHEREAS, contemporaneously with the Closing hereunder, He-Ro
and Nah-Nah will obtain the consent to enter into this Agreement from Foothill
Capital Corporation (the "Senior Lender") as required under the Loan and
Security Agreement dated as of May 12, 1995, by and between He-Ro and the Senior
Lender (the "Senior Debt Agreement" which term includes any and all present and
future amendments thereto), or
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secure alternative financing to refinance the principal and accrued interest
then due and owing to the Senior Lender (the "Senior Debt") under the Senior
Debt Agreement;
NOW THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
SALE AND PURCHASE; SCHEDULES
SECTION 1.1 SALE AND PURCHASE OF NAH-NAH COMMON STOCK. Upon
the terms and subject to the conditions hereof, at the closing provided for in
Section 1.3 (the "Closing"), He-Ro shall purchase and acquire from Han and Han
shall sell, assign, transfer, convey and deliver to He-Ro free and clear of all
Liens, the Nah-Nah Common Stock.
SECTION 1.2 CONSIDERATION. Upon the terms and subject to the
conditions hereof, at the Closing He-Ro shall issue and deliver to Han the He-Ro
Common Stock free and clear of all Liens.
SECTION 1.3 CLOSING. Subject to the terms and conditions of
this Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall take place at 10:00 a.m., local time, at the offices of Baer
Marks & Upham LLP, 805 Third Avenue, New York, New York 10022 or at the offices
of the Senior Lender or the substitute senior lender, or at another mutually
acceptable location, no later than the fifth business day following the
satisfaction or waiver of the conditions specified in Article V (the "Closing
Date").
SECTION 1.4 FINAL SCHEDULES; EXHIBITS; FINANCING LETTER. (a)
The validity of this Agreement is subject to the delivery by the parties hereto
on or before October 31, 1997 (the "Schedule Delivery Date") of: (i) the
Schedules required to be delivered pursuant to this Agreement, in each instance
in form and substance satisfactory to the party to whom the Schedule is being
delivered, and (ii) the Exhibits to this Agreement, each in form and substance
mutually satisfactory to the parties hereto.
(b) If the conditions set forth in Section 1.4(a) are
fulfilled, this Agreement may nevertheless be terminated, at the option of
Nah-Nah, if by the Schedule Delivery Date, Nah-Nah does not deliver an executed
letter from the Senior Lender or an alternative senior lender setting forth the
principal terms and conditions, satisfactory to Nah-Nah in its sole discretion,
of such lender's proposed senior financing for He-Ro (the "Financing Letter").
(c) There shall be no liability or expense to any
party hereunder in the event that this Agreement is terminated under Sections
1.4(a) or (b) hereof.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HE-RO
He-Ro represents and warrants to Nah-Nah and Han as follows:
SECTION 2.1 AUTHORITY RELATIVE TO THIS AGREEMENT; VALID AND
BINDING AGREEMENT. He-Ro has full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which it is or, at
the Closing, will be a party and to consummate the transactions contemplated
hereby and thereby (the "Contemplated Transactions"). The execution and delivery
of this Agreement and the consummation of the Contemplated Transactions to which
He-Ro is or, at the Closing, will be a party have been duly and validly
authorized by He-Ro, and no other corporate proceedings on the part of He-Ro are
necessary to authorize the execution and delivery by He-Ro of this Agreement or
the consummation of the Contemplated Transactions to which He-Ro is or, at the
Closing, will be a party. This Agreement has been and, at the Closing, the other
Transaction Documents to which He-Ro is a party will have been, duly and validly
executed and delivered by He-Ro, and (assuming the valid execution and delivery
thereof by the other parties thereto) constitute or will at the Closing
constitute, as the case may be, the legal, valid and binding agreements of He-Ro
enforceable against He-Ro in accordance with their respective terms except as
such obligations and their enforceability may be limited by applicable
bankruptcy and other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is subject to
the discretion of the court before which any proceeding therefor may be brought
(whether at law or in equity).
SECTION 2.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by He-Ro of this Agreement and each other Transaction Document
to which it is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) violate any provision of the Certificate
of Incorporation or By-laws (or comparable instruments) of He-Ro; (ii) require
He-Ro, or any Affiliate of He-Ro to obtain any consent, approval or action of or
waiver from, or make any filing with, or give any notice to, any Governmental
Body or any other person, except as set forth on Schedule 2.2 (the "He-Ro
Required Consents"); (iii) if He-Ro Required Consents are obtained prior to
Closing, violate, conflict with or result in a breach or default under (after
the giving of notice or the passage of time or both), or permit the termination
of, any Contract to which He-Ro or any Subsidiary is a party or by which any of
them or any of their respective assets may be bound or subject, or result in the
creation of any Lien upon any assets of He-Ro or any Subsidiary pursuant to the
terms of any such Contract; (iv) if He-Ro Required Consents are obtained prior
to Closing, violate any Law or Order of any Governmental Body against, or
binding upon, He-Ro or any Subsidiary; or (v) if He-Ro Required Consents are
obtained prior to Closing, violate or result in the revocation or suspension of
any Permit of He-Ro or any Subsidiary.
SECTION 2.3 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES;
OFFICERS AND DIRECTORS. He-Ro is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware. Except for those
Subsidiaries listed on Schedule 2.3(a) hereof (the "Inactive Subsidiaries"),
each Subsidiary is duly organized and validly
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existing under the laws of the state or other jurisdiction of its organization
(which Subsidiaries and their respective state of organization are set forth on
Schedule 2.3(b) hereto). Except as set forth on Schedule 2(a), the Inactive
Subsidiaries do not carry on any activities and do not own or lease any assets
of any kind. Each of He-Ro and each Subsidiary has all requisite power and
authority to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business are presently conducted. Except as set forth on
Schedule 2.3(c) hereto, each of He-Ro and each Subsidiary is duly qualified and
in good standing to do business in each jurisdiction in which the nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary, except where the absence of such qualifications,
individually or in the aggregate, would not have a material adverse effect on
the business, assets, condition (financial or otherwise), prospects or results
of operations of He-Ro and the Subsidiaries, taken as a whole. A list of the
jurisdictions in which He-Ro and the Subsidiaries are so qualified is set forth
on Schedule 2.3(c). Except for the Subsidiaries listed on Schedules 2.3(a) and
(b) hereto, He-Ro does not directly or indirectly own any capital stock of or
other equity interests in any corporation, partnership or other entity or have
any direct or indirect equity interest in any business. Schedule 2.3(d) sets
forth a true and complete list of each director and officer of He-Ro and its
Subsidiaries.
SECTION 2.4 CHARTER DOCUMENTS AND CORPORATE RECORDS. (a) He-Ro
has previously delivered or made available to Nah-Nah true and complete copies
of the Certificate of Incorporation, as amended to date, and By-laws, as amended
to date, or comparable organizational documents, as in effect on the date
hereof, of He-Ro and each Subsidiary. The stock certificate and transfer books
of He-Ro and each Subsidiary (all of which have been made available for
inspection by Nah-Nah) are true and complete. The minute books of He-Ro and each
Subsidiary (all of which have been made available for inspection by Nah-Nah) are
true and complete in all material respects (it being understood that such
materiality limitation shall not apply to items relating to capitalization which
are covered by subsection 2.6 below).
(b) Except as set forth in Schedule 2.4, He-Ro owns,
directly or indirectly, of record and beneficially, free and clear of all Liens,
all of the issued and outstanding capital stock of each of its Subsidiaries.
Except as provided in this Agreement or under the Senior Debt Agreement or
Junior Debt Agreement, there are no restrictions (whether by agreement, statute
(other than the corporate laws of the applicable state incorporation), rule,
regulation, order or otherwise) that may affect or limit the ability of (i) any
Subsidiary to pay dividends or make distributions to He-Ro or (ii) to pay
dividends or make distributions to holders of its capital stock.
(c) All financial, business and accounting books,
ledgers, accounts and official and other records relating to He-Ro have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies contained or reflected therein.
SECTION 2.5 THE HE-RO COMMON STOCK. Upon delivery to Han at
the Closing of certificates representing the He-Ro Common Stock, such stock will
be validly issued, fully paid and non-assessable and good and valid title to the
He-Ro Common Stock
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will pass to Han, free and clear of all Liens. The He-Ro Common Stock to be
issued will not have been registered under the Securities Act and the
certificate representing such stock shall contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION
IS NOT REQUIRED BY SAID ACT OR STATE LAWS.
SECTION 2.6 AUTHORIZED AND OUTSTANDING STOCK. (a) The
authorized capital stock of He-Ro consists of (i) 25,000,000 shares of Common
Stock of which 6,717,333 shares are validly issued and outstanding and, based on
He-Ro's transfer agent list, as of a date not more than thirty (30) days prior
to this Agreement attached hereto as Schedule 2.6(a), held of record by the
shareholders set forth thereon; and all shareholders known to He-Ro who own of
record in excess of 5% of the Common Stock of He-Ro are set forth on Schedule
2.6(b) (setting forth such person's name, amount of shares of Common Stock owned
by such person and the percentage of outstanding Common Stock owned by such
person, as calculated in accordance with the proxy rules of the Exchange Act),
and (ii) 1,000,000 shares of preferred stock, $.01 par value, none of which are
currently outstanding. Except as set forth on Schedule 2.6(c), there are no
treasury shares held by He-Ro. All issued and outstanding shares of capital
stock of each Subsidiary are duly and validly authorized, validly issued and
fully paid and non-assessable. All issued and outstanding shares of capital
stock of He-Ro and its Subsidiaries are free from any restrictions on transfer,
except for restrictions imposed by federal or state securities or "blue-sky"
laws. A sufficient number of authorized but unissued shares of Common Stock has
been reserved for issuance in accordance with the terms of this Agreement.
Except as otherwise set forth in Schedule 2.6(c), there are no outstanding
warrants, options (including, but not limited to, options granted under the
He-Ro's stock option plans), commitments, preemptive rights, rights to acquire
or purchase, conversion rights or demands or any character relating to the
capital stock or other securities of He-Ro (collectively the "Stock Rights").
Schedule 2.6(c) sets forth a detailed listing of the following items with
respect to the Stock Rights: (i) the name of each holder of the Stock Rights,
(ii) the number of shares subject to such Stock Rights, (iii) the exercise price
for the shares to be issued pursuant to such Stock Rights, (iv) the vesting
schedule for such Stock Rights, and (v) any other material information with
respect to the Stock Rights. All issued and outstanding shares of Common Stock
of He-Ro were issued (i) in transactions duly registered under the Securities
Act, or in transactions exempt from the registration provisions of the
Securities Act, and (ii) in compliance with or in transactions exempt from the
registration provisions of applicable state securities or "blue-sky" laws.
(b) Durnard Limited (Hong Kong) ("Durnard") is a
wholly-owned subsidiary of He-Ro. In March 1994, He-Ro issued to Durnard
1,343,462 shares of Common Stock of He-Ro (the "Durnard Shares"). Durnard owns
the Durnard Shares free and clear of all Liens (the lien thereon having been
released in October 1995) and no party
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other than Durnard has any interest in or claim to all or any portion of the
Durnard Shares. The Durnard Shares are not registered under the Securities Act.
The Durnard Shares are validly issued, fully paid and non-assessable,
SECTION 2.7 SEC REPORTS; FINANCIAL INFORMATION. (a) He-Ro has
furnished to Nah-Nah true, correct and complete copies of its Annual Report on
Form 10-K for the fiscal years ended May 31, 1996 and 1997 (and will furnish to
Nah-Nah promptly after the filing thereof, true, correct and complete copies of
all other filings made by He-Ro with the Securities and Exchange Commission (the
"SEC") after the date hereof through and including the Closing Date, (the
"Subsequent SEC Filings"; all such documents, including the Subsequent SEC
Filings, being collectively called the "SEC Documents"), each as filed with the
SEC. The SEC Documents include all of the documents that the Company was
required to file with the SEC since May 31, 1996 through the date hereof and the
Subsequent SEC Filings will include all of the documents that the Company is
required to file with the SEC from the date hereof through and including the
Closing Date. Each of the SEC Documents has been duly filed (other than the
Subsequent SEC Filings which will be duly filed) and when filed was or will be
in the case of the Subsequent SEC Filings, in compliance in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC thereunder applicable to such SEC Document. Each of SEC Documents
(including the financial statements included therein) was or will be in the case
of the Subsequent SEC Filings, complete and correct in all material respects as
of its date and, as of its date, did not or will not, in the case of the
Subsequent SEC Filings, contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements included within the SEC
Documents have been or will be, in the case of the Subsequent SEC Filings,
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and present
fairly or will present fairly, in the case of the Subsequent SEC Filings,
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments) the consolidated financial position of He-Ro and the Subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
(b) He-Ro has previously delivered or made available
to Nah-Nah monthly flash sales and gross profit reports and monthly financial
information consistent with GAAP of He-Ro and its Subsidiaries for the periods
subsequent to the He-Ro Latest Balance Sheet Date. The flash sales and gross
profit reports and monthly financial information previously delivered or made
available to Nah-Nah are true, correct and complete in all material respects.
(c) As of May 31, 1996, for federal income Tax
purposes, He-Ro had net operating loss ("NOL") carryovers incurred in prior
years of $29,630,686 and NOL carryovers for the fiscal year ended May 31, 1997
of approximately $8,600,000, which expire as set forth on Schedule 2.7(c). As of
the date hereof, prior to giving effect to the transactions contemplated herein
(or the Closing Date after giving effect to the transactions contemplated
herein), the use of the full amount of those NOL carryovers by any U.S.
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member of the affiliated group of which He-Ro is the common parent, is not
limited by Sections, 269, 381, 382, 384 or any other provision of the Code,
including, without limitation, the Treasury regulations governing the filing of
consolidated returns by affiliated groups or by any comparable provision of any
state or local income or franchise Tax.
(d) Schedule 2.7(d) attached hereto sets forth (i)
the amount of indebtedness (including accrued expenses, bank debt and accounts
payable) of He-Ro and its Subsidiaries outstanding, on a consolidated basis, as
of August 31, 1997, (ii) any Lien with respect to such indebtedness, and (iii) a
list of each instrument or agreement governing such indebtedness (true and
correct copies of which have been provided to Nah-Nah). Schedule 2.7(d) also
sets forth the total amount outstanding as of September 30, 1997, of each of the
Rounick Debt, the Junior Debt and the Senior Debt. Except as set forth on
Schedule 2.7(d), no default exists with respect to or under any such
indebtedness or any instrument or agreement relating thereto, which has not been
waived in writing by the holder thereof.
SECTION 2.8 LIABILITIES. (a) Except as and to the extent
reflected in the audited balance sheet of He-Ro, including the footnotes thereto
(the "He-Ro Latest Balance Sheet") at May 31, 1997 (the "He-Ro Latest Balance
Sheet Date"), He-Ro did not have, as of the He-Ro Latest Balance Sheet Date, any
Liabilities or obligations (other than obligations of continued performance
under Contracts and other commitments and arrangements entered into in the
ordinary course of business) which GAAP would require He-Ro to reflect on the
He-Ro Latest Balance Sheet, and except as described in Schedule 2.8(a) hereto,
He-Ro has not incurred any Liabilities since the He-Ro Latest Balance Sheet Date
except (i) current Liabilities for trade or business obligations incurred in
connection with the purchase of goods or services in the ordinary course of the
business and consistent with past practice and (ii) Liabilities reflected on the
balance sheet included in any most recent He-Ro Interim Statement (as defined
herein) delivered to Nah-Nah prior to the date hereof.
(b) Except as set forth in Schedule 2.8(b) or in the
He-Ro Latest Balance Sheet, there are no Liabilities of He-Ro or any Subsidiary
which have been guaranteed by, or secured by collateral provided by, any party
other than He-Ro or a Subsidiary.
SECTION 2.9 INVENTORY. Schedule 2.9 sets forth a true and
complete Inventory aging of He-Ro and its Subsidiaries as of September 30, 1997.
All Inventory consists of items which are good and merchantable and of a
quantity and quality usable or saleable in the ordinary course of business
consistent with past practices. All Inventory, whether reflected in Schedule 2.9
or the He-Ro Latest Balance Sheet, is valued at the lower of cost or market at
FIFO (first-in, first-out) and has been determined in accordance with GAAP
consistently applied.
SECTION 2.10 ABSENCE OF CERTAIN CHANGES. Since the He-Ro
Latest Balance Sheet Date, except as disclosed in the profit and loss
projections set forth at Schedule 2.10 (the "Projections") or in any He-Ro
Interim Statement delivered to Nah-Nah prior to the date hereof, He-Ro has
conducted its business in the ordinary course consistent with past practices and
there has not been:
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(a) Any material adverse change in the assets or any
material adverse change in the condition (financial or otherwise), results of
operations or prospects of He-Ro, any Subsidiary or the business of He-Ro or any
Subsidiary (collectively, the "Condition of the Business") or any event,
occurrence or circumstance that could reasonably be expected to cause such a
material adverse change. Without limiting the generality of the foregoing, the
parties agree that any change in the financial condition of He-Ro and its
Subsidiaries that varies more than 15% from the Projections on a cumulative
basis from June 1, 1997, except for those specific changes made in anticipation
of the Contemplated Transactions and consented to by Nah-Nah in writing, is
material.
(b) Any transaction or Contract in the amount of
$25,000 or more on an annual basis with respect to the purchase, acquisition,
lease, disposition or transfer of all or any part of any assets or to any
capital expenditure relating to the business of He-Ro or any Subsidiary (in each
case other than transactions or Contracts entered into in the ordinary course of
business consistent with past practice).
(c) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the assets or business of He-Ro or any Subsidiary, to the extent material to
their businesses;
(d) Any material change in any method of accounting
or accounting practice by He-Ro;
(e) Any material increase in the compensation payable
or to become payable to any officer, stockholder, director, consultant, agent or
employee of He-Ro or any Subsidiary, or any alteration in the benefits payable
to any such person;
(f) Any material adverse change in the relationships
of He-Ro or any Subsidiary with its customers, suppliers and vendors, except as
to the cash flow deficiencies set forth in the Projections;
(g) Except for any changes made in the ordinary
course of business, any material change in any of He-Ro's or any Subsidiary's
business policies, including advertising, marketing, pricing, purchasing,
personnel, returns or budget policies; or
(h) Any action that has impaired, restricted or
limited, or could, to He-Ro's knowledge, cause in the future the impairment,
restriction or limitation of, the use or availability of the NOL carry forward.
SECTION 2.11 REAL PROPERTY. (a) Neither He-Ro nor any
Subsidiary owns any real property. Schedule 2.11(a) sets forth the addresses and
uses of all real property that He-Ro or any Subsidiary leases or subleases (the
"He-Ro Real Property"), and any Lien on any such leasehold interest therein,
specifying in the case of each such He-Ro Lease or sublease, the name of the
lessor or sublessor, as the case may be, the lease term and rent obligations of
the lessee thereunder. Except as set forth on Schedule 2.11(a), He-Ro or its
Subsidiary, as the case may be, has a valid leasehold interest in all real
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property leased by either of them and good and marketable title to the
improvements and fixtures constructed thereon ("Improvements"), in each case
free and clear of all Liens. The He-Ro Leases for the Key Stores and, except as
set forth on Schedule 2.11(a), all the other He-Ro Leases listed on Schedule
2.11(a), are valid and enforceable and are in full force and effect, and there
are no material defaults by He-Ro or any Subsidiary under any of such Leases or,
to the knowledge of He-Ro, by any other party thereto, and neither He-Ro, or any
Subsidiary, as the case may be, nor to He-Ro's knowledge, any lessor, has any
existing rights of offset or abatement. The performance by He-Ro of this
Agreement and any Transaction Document will not result in the breach or
termination of, or in any increase or acceleration of any amounts payable under,
any He-Ro Lease listed on Schedule 2.11(a).
(b) Schedule 2.11(b) sets forth with respect to the
He-Ro Real Property a list of all title insurance policies, appraisal reports,
surveys and engineering and environmental reports held or controlled by He-Ro,
copies of which have been provided to Nah-Nah. All Improvements located on the
He-Ro Real Property are in good operating condition (subject to normal wear and
tear) with no structural or other defects known to He-Ro that could interfere in
any material respect with the operation of He-Ro's business, are located within
applicable boundary lines and are suitable for the purposes for which they are
currently used. Neither He-Ro nor any Subsidiary is in violation in any material
respect of any building, zoning, anti-pollution, health, occupational safety or
other Law, Order, Permit or non-transferable license in respect of the He-Ro
Real Property. Except as disclosed on Schedule 2.11(b), no person, other than
He-Ro or a Subsidiary, as the case may be, has any right to occupy or possess
any of the real property.
(c) Except as set forth in Schedule 2.11(c):
(i) all work, repairs and improvements
(including capital improvements) required to have been done on or prior to the
Closing under the He-Ro Leases by He-Ro has been completed in accordance
therewith, and He-Ro has waived any and all rights to terminate the He-Ro Leases
with respect thereto;
(ii) there are no rights of first refusal,
options to purchase, "buy-out" rights, or currently exercisable termination
rights by either party to each of the He-Ro Leases other than as set forth in
such Leases, and there are no other termination rights which have been
exercised;
(iii) all rent and other amounts (including
contingent rent, utilities, taxes and any other escalations) payable by He-Ro
under the He-Ro Leases have been paid to the date hereof, and shall be paid to
the date of Closing.
(d) Parking, Easements and Related Agreements. Except
as set forth in the He-Ro Leases and except for those items which would not have
a material adverse effect on the business, assets, condition (financial or
otherwise), prospects or results of operations of He-Ro, there are no written or
oral parking leases, easements, agreements, grants, licenses, options or any
other agreement pursuant to which He-Ro is granted, for use in connection with
the He-Ro Stores, parking privileges or rights, current or
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prospective, and/or rights of access of any kind or nature in and to the leased
real property.
SECTION 2.12 PERSONAL PROPERTY. He-Ro or a Subsidiary has
good, marketable and valid title to all assets reflected on the He-Ro Latest
Balance Sheet, or thereafter acquired, except those since sold or otherwise
disposed of in the ordinary course of business consistent with past practice and
not in violation of this Agreement, in each case free and clear of all Liens,
except as are disclosed on Schedule 2.12 hereto or Liens, which secure debt that
is reflected as a liability on the He-Ro Latest Balance Sheet and the existence
of which is indicated in the notes thereto. The equipment (whether owned or
leased) have been well-maintained in accordance with industry standards, are in
good condition and repair (subject to normal wear and tear) and are, in the
aggregate, adequate in quantity and quality for the operation of He-Ro's
business as presently conducted.
SECTION 2.13 CONTRACTS. (a) Schedule 2.13 sets forth an
accurate and complete list of all Contracts to which He-Ro or any Subsidiary is
a party or by which it or its assets are bound or subject, relating to the
business of He-Ro and any Subsidiary, except for those Contracts with persons
who are not Affiliates of He-Ro or Rounick which require He-Ro to make or
receive payments not in excess of $50,000 on an annual basis. True and correct
copies of all written Contracts listed on Schedule 2.13 and summaries of the
material provisions of all oral Contracts so listed have been delivered to
Nah-Nah.
(b) All Contracts listed on Schedule 2.13 are valid,
subsisting, in full force and effect and binding upon He-Ro or a Subsidiary, as
the case may be, and, to the knowledge of He-Ro, the other parties thereto in
accordance with their terms, except as set forth on Schedule 2.13. Except as set
forth in Schedule 2.13, neither He-Ro nor any Subsidiary is in default (or
alleged default) under any such material Contract in any material respect, or in
default with respect to any payment obligations, nor, to the knowledge of He-Ro,
is any other party thereto in default thereunder in any material respect, and,
to He-Ro's knowledge, there is no condition that with notice or the lapse of
time or both would constitute a material default (or give rise to a termination
right) under any such Contract. Except as set forth on Schedule 2.13, the
Contemplated Transactions will not give rise to a right of termination under any
material Contract or to any material penalty provision under any Contract. To
the knowledge of He-Ro, none of the other parties to any Contract intends to
terminate or materially alter the provisions thereof by reason of the
Contemplated Transactions or otherwise. Since the He-Ro Latest Balance Sheet
Date, He-Ro has not waived any material right under any Contract, materially
amended or extended any such Contract or terminated or failed to renew (or
received notice of termination or failure to renew with respect to) any such
Contract.
SECTION 2.14 INTANGIBLE PROPERTY. Schedule 2.14 sets forth all
of He-Ro's Intellectual Property Rights, including a copy of all registrations
or, to the extent not available, registration numbers and applications pending
with respect thereto filed with or issued by any Governmental Body. The
Contemplated Transactions will not have a material adverse effect on the right,
title and interest of He-Ro as of the Closing Date in and to the Intellectual
Property Rights. Except as set forth on Schedule 2.14, (i) He-Ro or any
Subsidiary has not received any written notice of invalidity, infringement or
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misappropriation from any third party with respect to any Intellectual Property
Rights; (ii) to the knowledge of He-Ro or any Subsidiary, neither He-Ro nor any
Subsidiary has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights of any third parties;
and (iii) to the knowledge of He-Ro, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property Rights of He-Ro or any Subsidiary.
SECTION 2.15 CLAIMS AND PROCEEDINGS. Except as set forth on
Schedule 2.15(a), there are no outstanding Orders of any Governmental Body
against or involving He-Ro or any Subsidiary, their assets or their businesses.
Except as set forth on Schedule 2.15(b), there are no actions, suits, claims or
counterclaims or legal, administrative, governmental, arbitral or other
proceedings or investigations (collectively, "Claims") (whether or not the
defense thereof or Liabilities in respect thereof are covered by insurance),
pending or to the knowledge of He-Ro threatened on the date hereof, against or
involving He-Ro, any Subsidiary or their businesses. Except as set forth on
Schedule 2.15(c), at the Closing there will be no such Claims pending or, to the
knowledge of He-Ro, threatened, other than Claims that, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
the Condition of the Business. Except as set forth on Schedule 2.15(d), to the
knowledge of He-Ro, on the date hereof, there is no fact, event or circumstances
that would give rise to any Claim.
SECTION 2.16 TAX MATTERS. Except as disclosed on Schedule
2.16, all Tax Returns required to be filed by He-Ro and any Subsidiary (or
predecessors) on or before the Closing Date have been or shall be timely filed
or He-Ro has or will have obtained a valid extension for any such filing, and
all Taxes which are due have been or shall be paid. All Taxes of He-Ro and any
Subsidiary attributable to periods ending on or before the Closing Date which
are not yet due have been adequately provided for. As of the time of filing, the
Tax Returns correctly reflected (and, as to any Tax Returns not filed as of the
date thereof will correctly reflect) the facts regarding the income, business,
assets, operations, activities and status of He-Ro and its Subsidiaries. There
are no Tax Liens upon any assets of He-Ro or any Subsidiary except for Liens for
current Taxes not yet due and payable. All amounts required to be withheld by
He-Ro or any Subsidiary from employees for income Taxes, social security and
other payroll Taxes have been collected and withheld, and either paid to the
respective Governmental Bodies (as defined below), set aside in accounts for
such purpose, or have been or will be accrued, reserved against and entered upon
the books and records of He-Ro or any Subsidiary. All Taxes which are due and
payable by He-Ro or any Subsidiary under any He-Ro Lease for the period prior to
and including the Closing Date have been or shall be paid prior to Closing.
Except for sales Taxes which result from the consummation of the Contemplated
Transactions, if any, He-Ro and each Subsidiary has collected and remitted to
the appropriate Tax Authority all sales and use or similar Taxes required to
have been collected on or prior to the Closing Date and have been furnished
properly completed exemption certificates for all exempt transactions. He-Ro has
maintained and has in its possession all records, supporting documents and
exemption certificates required by applicable sales Tax statutes and regulations
to be retained in connection with the collection and remittance of sales and use
Taxes for all periods up to and including the Closing Date. Neither He-Ro nor
any Subsidiary (or any predecessors) is a party to or has received any notice
with respect to any
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proposed or pending examination, investigation, audit, action or Claim by any
Tax Authority relating to Taxes, nor is either a party to any dispute or, to
He-Ro's knowledge, threatened dispute with respect thereto and no Claim for
assessment or collection of Taxes has been made upon He-Ro or any Subsidiary.
Schedule 2.16 includes a description of all such past examinations,
investigations, audits, actions or Claims within the past three years. He-Ro is
not a "foreign person" within the meaning of section 1445 of the Code, and He-Ro
will furnish Nah-Nah with an affidavit that satisfies the requirements of
section 1445(b)(2) of the Code. He-Ro is not and has never been a member of or
included in any consolidated, combined or unitary group for purposes of filing
Tax Returns or paying Taxes at any time, except for the existing group of which
He-Ro is the common parent. He-Ro has no Liability for Taxes of any other person
under Treasury Regulation section 1.1502-6 (or any similar provision of state or
foreign law), or as a transferee of such person, or under any other provision of
Law or Tax sharing, Tax indemnity or similar Contract.
SECTION 2.17 INSURANCE. Schedule 2.17 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability policies
(the "He-Ro Insurance Policies") covering the assets, the business, operations,
employees, officers and directors of He-Ro and/or its Subsidiaries and true and
complete copies of all such He-Ro Insurance Policies have been delivered to
Nah-Nah. Schedule 2.17 also sets forth a true and complete list of Claims made
in respect of He-Ro Insurance Policies during the year prior to the date hereof.
True and correct copies of all loss runs with respect to such period have been
delivered to Nah-Nah. Except as set forth on Schedule 2.17, there is no Claim by
He-Ro pending under any of such He-Ro Insurance Policies, as to which coverage
has been questioned, denied or disputed by the underwriters of such He-Ro
Insurance Policies or any requirement by any insurer to perform work which has
not been satisfied. All premiums payable on or before the Closing Date under all
He-Ro Insurance Policies have been paid and He-Ro is otherwise in compliance in
all material respects with the terms and conditions of all such He-Ro Insurance
Policies. All He-Ro Insurance Policies are in full force and effect. The He-Ro
Insurance policies are sufficient so that He-Ro or its Subsidiaries, as
applicable, comply with the provisions of all of the He-Ro Leases. The HeRo
Latest Balance Sheet has adequate reserves with respect to insurance coverage,
including but not limited to audit adjustments and policy renewals.
SECTION 2.18 COMPLIANCE WITH LAWS. Neither He-Ro nor any
Subsidiary is in violation in any material respect of any order, judgment,
injunction, award, citation, decree, consent decree or writ (collectively,
"Orders"), or any material law, statute, code, ordinance, rule, regulation or
other requirement (collectively, "Laws"), of any government or political
subdivision thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court or
arbitrator (collectively, "Governmental Bodies") affecting its assets or
business. Notwithstanding the generality of the previous sentence, to the best
of He-Ro's knowledge, neither He-Ro nor any Subsidiary is in violation of any
Laws of any Governmental Bodies regarding importing, quotas or labelling, or any
similar Laws.
SECTION 2.19 PERMITS. He-Ro has obtained all Permits and has
made all required registrations and filings with, any Governmental Body that are
material to the use and occupancy of the He-Ro Real Property or the conduct of
its business, including the
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importing of goods. All material Permits are listed on Schedule 2.19 and are in
full force and effect; no material violations are or have been recorded in
respect of any Permit within the three years prior to the Closing Date; and no
proceeding is pending or, to the knowledge of He-Ro, threatened to revoke or
limit any Permit. Except as listed on Schedule 2.19, no Permit will terminate by
reason of the Contemplated Transactions.
SECTION 2.20 ENVIRONMENTAL MATTERS. (a) Neither He-Ro nor any
Subsidiary has received any written notice of (i) any alleged violation with
respect to any environmental Law; or (ii) any prior, pending or threatened
Regulatory Action or other Claim involving He-Ro, any Subsidiary or any present
or former owner, lessee or operator of the He-Ro Real Property.
(b) Except as referenced in Schedule 2.20, to He-Ro's
knowledge: (i) there has been, directly or indirectly, no use, manufacture,
generation, refining, storage, transport, disposal or treatment of Hazardous
Substances by He-Ro (or, to the knowledge of He-Ro, any predecessor in interest)
or any Subsidiary, or any Release at, on or under any He-Ro Real Property by
He-Ro or any Subsidiary, or, to the knowledge of He-Ro, by any other person, in
violation of any environmental Law or which would require remedial action under
any environmental Law; to He-Ro's knowledge, neither He-Ro nor any Subsidiary
has contaminated the soil, ground water or surface water, and to the knowledge
of He-Ro, none of the soil, ground water or surface water of such He-Ro Real
Property is or has been contaminated by any Release, (ii) to He-Ro's knowledge
without independent investigation, there are no incinerators, underground or
aboveground tanks or cesspools, pipes or pipelines for the storage or
transportation of Hazardous Materials located, or, to He-Ro's knowledge without
independent investigation, which have been located, on, at or under the He-Ro
Real Property, (iii) and without independent investigation, all sewage from the
He-Ro Real Property is discharged into a public sanitary sewer system, and (iv)
there has been no Release by He-Ro or any Subsidiary, or to He-Ro's knowledge
without independent investigation, by any other party, into the atmosphere, any
adjoining or adjacent body of water, or adjoining or adjacent property in
violation of any environmental Law.
(c) Neither He-Ro nor any Affiliate constructed any
of the buildings comprising the He-Ro Real Property.
SECTION 2.21 FINDERS; FEES. Except as set forth on Schedule
2.21, there is no investment banker, broker, finder or other intermediary which
has been retained by or is authorized to act on behalf of He-Ro who might be
entitled to any fee or commission from He-Ro upon consummation of the
Contemplated Transactions.
SECTION 2.22 SUPPLIER AND CUSTOMERS. (a) He-Ro and each
Subsidiary have adequate sources of supply for their businesses as currently
conducted. Schedule 2.23(a)(i) sets forth the top suppliers of He-Ro (on a
consolidated basis) during the 12-month period ended August 31, 1997, together
with the dollar amount purchased from such supplier during such period. He-Ro
has no knowledge that any supplier will cease doing business with He-Ro or will
threaten to do so as a result of the Contemplated Transactions. Except as set
forth on Schedule 2.23(a)(ii), there is no commitment or
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agreement between He-Ro and any supplier with a term of six months or more,
unless such agreement or commitment is terminable at will by He-Ro.
(b) Schedule 2.23(b) sets forth the top 20 customers
of He-Ro (on a consolidated basis) during the 12-month period ended August 31,
1997, together with the dollar amount of goods purchased by such customers
during such period. He-Ro has no knowledge that any customer will cease doing
business with He-Ro or will threaten to do so as a result of the Contemplated
Transactions.
SECTION 2.23 INVESTMENT INTENTION. He-Ro is acquiring the
Nah-Nah Common Stock for He-Ro's own account and not with a present intention to
make any sale, disposition, distribution or other transfer of the Nah-Nah Common
Stock in a manner that would be in violation of any applicable securities Laws.
He-Ro acknowledges and understands that the Nah-Nah Common Stock has not been
registered under the Securities Act, is subject to restrictions on
transferability imposed by the Securities Act and applicable state securities
laws and that the certificate evidencing the Nah-Nah Common Stock will contain a
legend with respect thereto.
SECTION 2.24 HE-RO RECEIVABLES. All the accounts receivable of
He-Ro reflected in the He-Ro Latest Balance Sheet delivered hereunder and all
receivables that have arisen since the He-Ro Latest Balance Sheet delivered
hereunder (except such receivables as have been collected since such date) are
valid and enforceable claims, and constitute bona fide receivables resulting
from the sale of goods and services in the ordinary course of business in
conformity with applicable purchase orders, agreements and specifications.
Except as set forth on Schedule 2.25, the receivables are subject to no valid
defense, offsets, returns, allowances or credits of any kind other than
merchandise disputes in the ordinary course of business and are fully
collectible within 90 days from the date they are invoiced except to the extent
of the amount of the reserve for doubtful accounts reflected in the He-Ro Latest
Balance Sheet. He-Ro has heretofore delivered to Nah-Nah a schedule as at
September 30, 1997 setting forth the total amount of He-Ro's receivables and a
schedule of the aging of such receivables based on 0-30 days, 31-60 days, 61-90
days and over 90 days. This schedule is true, correct and complete in all
material respects. Except as set forth on Schedule 2.25, He-Ro is not a party to
any buy-sell arrangements with respect to piece goods or other Inventory and no
customer of He-Ro is also a supplier to He-Ro, or would otherwise be able to
offset all or any portion of He-Ro's receivables.
SECTION 2.25 RELATED PARTY TRANSACTIONS. Except as set forth
on Schedule 2.26 or in the SEC Documents, neither He-Ro or Rounick is a party to
any Contract that gives rise to current or future obligations thereunder
(whether or not in writing), or any other transaction between He-Ro or Rounick,
on the one hand, and any officer, director, shareholder or former shareholder of
He-Ro or any Affiliate of any of them, on the other hand, that gives rise to
current or future obligations thereunder.
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ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF ROUNICK
Rounick represents and warrants to Nah-Nah and Han as follows:
SECTION 2A.1 VALID AND BINDING AGREEMENT. Rounick has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document to which she is or, at the Closing, will be a party
and to consummate the Contemplated Transactions. This Agreement has been and, at
the Closing, the other Transaction Documents to which Rounick is a party will
have been, duly and validly executed and delivered by Rounick, and (assuming the
valid execution and delivery thereof by the other parties thereto) constitute or
will at the Closing constitute, as the case may be, the legal, valid and binding
agreements of Rounick enforceable against Rounick in accordance with their
respective terms except as such obligations and their enforceability may be
limited by applicable bankruptcy and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought (whether at law or in equity).
SECTION 2A.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Rounick of this Agreement and each other Transaction Document
to which she is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) require Rounick, the Estate, or any
Affiliate of Rounick (excluding He-Ro and its Subsidiaries, whose
representations and warranties are set forth in Section 2.2 hereof) to obtain
any consent, approval or action of or waiver from, or make any filing with, or
give any notice to, any Governmental Body or any other person, except as set
forth on Schedule 2A.2 (the "Rounick Required Consents"); (ii) if Rounick
Required Consents are obtained prior to Closing, violate, conflict with or
result in a breach or default under (after the giving of notice or the passage
of time or both), or permit the termination of, any Contract regarding He-Ro or
any Subsidiary to which Rounick is a party or by which her or any of their
respective assets may be bound or subject, or result in the creation of any Lien
upon any assets of He-Ro or any Subsidiary pursuant to the terms of any such
Contract; or (iii) if Rounick Required Consents are obtained prior to Closing,
violate any Law or Order of any Governmental Body against, or binding upon,
Rounick regarding He-Ro or any Subsidiary.
SECTION 2A.3 STOCK OWNERSHIP. Since the death of Herbert
Rounick in September 1993, the Estate has owned 4,409,066 shares of the common
stock of He-Ro and since such date there have been no changes in the amount of
shares of common stock so owned by the Estate, except that the Estate owned
4,573,333 shares of common stock immediately after the death of Herbert Rounick,
and Maria Ng, a former officer of He-Ro, purchased (by exercise of an option)
from the Estate 164,267 shares of common stock on or about April 1995. The
Estate does not own (beneficially or of record) any other shares of common stock
of He-Ro or any Stock Rights that will not be cancelled prior to the Closing
pursuant to Section 4A.1(b) hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF NAH-NAH
Nah-Nah represents and warrants to He-Ro as follows:
SECTION 3.1 AUTHORITY RELATIVE TO THIS AGREEMENT; VALID AND
BINDING AGREEMENT. Nah-Nah has full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which it is or, at
the Closing, will be a party and to consummate the Contemplated Transactions.
The execution and delivery of this Agreement and the consummation of the
Contemplated Transactions to which Nah-Nah is or, at the Closing, will be a
party have been duly and validly authorized by Nah-Nah, and no other corporate
proceedings on the part of Nah-Nah are necessary to authorize the execution and
delivery by Nah-Nah of this Agreement or the consummation of the Contemplated
Transactions to which Nah-Nah is or, at the Closing, will be a party. This
Agreement has been and, at the Closing, the other Transaction Documents to which
Nah-Nah is a party will have been, duly and validly executed and delivered by
Nah-Nah, and (assuming the valid execution and delivery thereof by the other
parties thereto) constitute or will at the Closing constitute, as the case may
be, the legal, valid and binding agreements of Nah-Nah enforceable against
Nah-Nah in accordance with their respective terms except as such obligations and
their enforceability may be limited by applicable bankruptcy and other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 3.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Nah-Nah of this Agreement and each other Transaction Document
to which it is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) violate any provision of the Certificate
of Incorporation or By-laws (or comparable instruments) of Nah-Nah; (ii) require
Nah-Nah, or any Affiliate of Nah-Nah to obtain any consent, approval or action
of or waiver from, or make any filing with, or give any notice to, any
Governmental Body or any other person, except as set forth on Schedule 3.2 (the
"Nah-Nah Required Consents"); (iii) if Nah-Nah Required Consents are obtained
prior to Closing, violate, conflict with or result in a breach or default under
(after the giving of notice or the passage of time or both), or permit the
termination of, any Contract to which Nah-Nah or any Subsidiary is a party or by
which it or any of their respective assets may be bound or subject, or result in
the creation of any Lien upon the Nah-Nah Common Stock or any assets of Nah-Nah
or any Subsidiary pursuant to the terms of any such Contract; (iv) if Nah-Nah
Required Consents are obtained prior to Closing, violate any Law or Order of any
Governmental Body against, or binding upon, Nah-Nah or any Subsidiary; or (v) if
Nah-Nah Required Consents are obtained prior to Closing, violate or result in
the revocation or suspension of any Permit of Nah-Nah or any Subsidiary.
SECTION 3.3 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES.
Nah-Nah is a corporation duly organized, validly existing and in good standing
under the laws of the state of New York. Each Subsidiary is duly organized and
validly existing under the laws
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of the state or other jurisdiction of its organization (which Subsidiaries and
their states or other jurisdictions are set forth on Schedule 3.3(a) hereto).
Each of Nah-Nah and each Subsidiary has all requisite power and authority to
enable it to own, lease or otherwise hold its properties and assets and to carry
on its business are presently conducted. Each of Nah-Nah and each Subsidiary is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except where the absence of such
qualifications, individually or in the aggregate, would not have a material
adverse effect on the business, assets, condition (financial or otherwise),
prospects or results of operations of Nah-Nah and the Subsidiaries, taken as a
whole. A list of the jurisdictions in which Nah-Nah and the Subsidiaries are so
qualified is set forth on Schedule 3.3(b). Except for the Subsidiaries listed on
Schedule 3.3(a) hereto, Nah-Nah does not directly or indirectly own any capital
stock of or other equity interests in any corporation, partnership or other
entity or have any direct or indirect equity interest in any business.
SECTION 3.4 CHARTER DOCUMENTS AND CORPORATE RECORDS. (a)
Nah-Nah has previously delivered or made available to He-Ro true and complete
copies of the Certificate of Incorporation, as amended to date, and By-laws, as
amended to date, or comparable organizational documents, as in effect on the
date hereof, of Nah-Nah and each Subsidiary. The stock certificate and transfer
books of Nah-Nah and each Subsidiary (all of which have been made available for
inspection by He-Ro) are true and complete. The minute books of Nah-Nah and each
Subsidiary (all of which have been made available for inspection by He-Ro) are
true and complete in all material respects (it being understood that such
materiality limitation shall not apply to items relating to capitalization which
are covered by subsection 3.6 below).
(b) Except as set forth in Schedule 3.4, Nah-Nah
owns, directly or indirectly, of record and beneficially, free and clear of all
Liens, all of the issued and outstanding capital stock of each of its
Subsidiaries. Except as described in this Agreement, there are no restrictions
(whether by agreement, statute (other than the corporate laws of the applicable
state incorporation), rule, regulation, order or otherwise) that may affect or
limit the ability of (i) any Subsidiary to pay dividends or make distributions
to Nah-Nah or (ii) to pay dividends or make distributions to holders of its
capital stock.
(c) All financial, business and accounting books,
ledgers, accounts and official and other records relating to Nah-Nah have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies contained or reflected therein.
SECTION 3.5 THE NAH-NAH COMMON STOCK. The Nah-Nah Common Stock
is validly issued, fully paid and non-assessable. The Nah-Nah Common Stock has
not been registered under the Securities Act and is free from any restrictions
on transfer, except for restrictions imposed by federal or state securities or
"blue-sky" laws.
SECTION 3.6 AUTHORIZED AND OUTSTANDING STOCK. The authorized
capital stock of Nah-Nah consists of 200 shares of Common Stock of which 200
shares are validly issued and outstanding and beneficially owned by Han. There
are no shares of
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capital stock held in treasury. Except as otherwise set forth in Schedule 3.6,
there are no outstanding Stock Rights to purchase securities of Nah-Nah.
Schedule 3.6 sets forth a detailed listing of the following items with respect
to the Stock Rights: (i) the name of each holder of the Stock Rights, (ii) the
number of shares subject to such Stock Rights, (iii) the exercise price for the
shares to be issued pursuant to such Stock Rights, (iv) the vesting schedule for
such Stock Rights, and (v) any other material information with respect to the
Stock Rights.
SECTION 3.7 FINANCIAL INFORMATION. (a) Nah-Nah has furnished
to He-Ro copies of the unaudited balance sheets of Nah-Nah as of April 30, 1996
and 1997, and the related statements of income and retained earnings and cash
flows for the fiscal years ended April 30, 1996 and 1997 (the "Nah-Nah Financial
Statements"). The Nah-Nah Financial Statements are true, complete and correct in
all material respects and fairly present the financial condition of Nah-Nah as
of such date and its results of operations for the periods then ended.
(b) Nah-Nah has previously delivered or made
available to He-Ro monthly financial information of Nah-Nah and its Subsidiaries
by division for the periods subsequent to the Nah-Nah Latest Balance Sheet Date
consistent with GAAP. The monthly financial information previously delivered or
made available to He-Ro are true, correct and complete in all material respects.
(c) Schedule 3.7(c) attached hereto sets forth (i)
the amount of indebtedness of Nah-Nah and its Subsidiaries outstanding, on a
consolidated basis, as of the most recent month end closing, (ii) any Lien with
respect to such indebtedness, and (iii) a list of each instrument or agreement
governing such indebtedness (true and correct copies of which have been provided
to He-Ro). Except as set forth on Schedule 3.7(c), no default exists with
respect to or under any such indebtedness or any instrument or agreement
relating thereto, which has not been waived in writing by the holder thereof.
SECTION 3.8 LIABILITIES. (a) Except as and to the extent
reflected in the unaudited balance sheet of Nah-Nah, including the footnotes
thereto (the "Nah-Nah Latest Balance Sheet") at April 30, 1997 (the "Nah-Nah
Latest Balance Sheet Date"), Nah-Nah did not have, as of the Nah-Nah Latest
Balance Sheet Date, any Liabilities or obligations (other than obligations of
continued performance under Contracts and other commitments and arrangements
entered into in the ordinary course of business) which GAAP would require
Nah-Nah to reflect on the Nah-Nah Latest Balance Sheet, and except as described
in Schedule 3.8 hereto, Nah-Nah has not incurred any Liabilities since the
Nah-Nah Latest Balance Sheet Date except current Liabilities for trade or
business obligations incurred in connection with the purchase of goods or
services in the ordinary course of the business and consistent with past
practice.
(b) Except as set forth on Schedule 3.8(a) or in the
Nah-Nah Latest Balance Sheet, there are no Liabilities of Nah-Nah or any
Subsidiary which have been guaranteed by, or secured by collateral provided by,
any party other than Nah-Nah or a Subsidiary.
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<PAGE> 19
SECTION 3.9 INVENTORY. Schedule 3.9 sets forth a true and
complete Inventory aging for Nah-Nah and its Subsidiaries as of September 30,
1997. All inventory consists of items which are good and merchantable and of a
quantity and quality usable or saleable in the ordinary course of business
consistent with past practices.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Since the Nah-Nah
Latest Balance Sheet Date, except as disclosed in Schedule 3.10 or in any
Nah-Nah Interim Statement delivered to He-Ro prior to the date hereof, Nah-Nah
has conducted its business in the ordinary course consistent with past practices
and there has not been:
(a) Any material adverse change in the Condition of
the Business or any event, occurrence or circumstance that could reasonably be
expected to cause such a material adverse change.
(b) Any transaction or Contract in the amount of
$25,000 or more on an annual basis with respect to the purchase, acquisition,
lease, disposition or transfer of all or any part of any assets or to any
capital expenditure relating to the business of Nah-Nah or any Subsidiary (in
each case other than transactions or Contracts entered into in the ordinary
course of business consistent with past practice).
(c) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the assets or business of He-Ro or any Subsidiary, to the extent material to
their businesses;
(d) Any material change in any method of accounting
or accounting practice by Nah-Nah;
(e) Any material increase in the compensation payable
or to become payable to any officer, stockholder, director, consultant, agent or
employee of Nah-Nah or any Subsidiary, or any alteration in the benefits payable
to any such person;
(f) Any material adverse change in the relationships
of Nah-Nah or any Subsidiary with its customers, suppliers and vendors; or
(g) Except for any changes made in the ordinary
course of business, any material change in any of Nah-Nah's or any Subsidiary's
business policies, including advertising, marketing, pricing, purchasing,
personnel, returns or budget policies.
SECTION 3.11 REAL PROPERTY. (a) Schedule 3.11(a) sets forth
the addresses and uses of all real property that Nah-Nah or any Subsidiary owns,
leases or subleases (the "Nah-Nah Real Property"), and any Lien on any such
owned real property or on Nah-Nah's or a Subsidiary's leasehold interest
therein, specifying in the case of each such Nah-Nah Lease or sublease, the name
of the lessor or sublessor, as the case may be, the lease term and rent
obligations of the lessee thereunder. Except as set forth on Schedule 3.11(a),
Nah-Nah or its Subsidiary, as the case may be, has a valid leasehold interest in
all real property leased by either of them and good and marketable title to the
Improvements on the Nah-Nah Real Property and has good and marketable title to,
and owns all real
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property listed on such schedule as owned by Nah-Nah or any Subsidiary, in each
case free and clear of all Liens. All the Nah-Nah Leases listed on Schedule
3.11(a) are valid and enforceable and are in full force and effect, and there
are no material defaults by Nah-Nah or any Subsidiary under any of such Leases
or, to the knowledge of Nah-Nah, by any other party thereto, and neither
Nah-Nah, or any Subsidiary, as the case may be, nor to Nah-Nah's knowledge, any
lessor, has any existing rights of offset or abatement. The performance by
Nah-Nah of this Agreement and any Transaction Document will not result in the
breach or termination of, or in any increase or acceleration of any amounts
payable under, any Nah-Nah Lease listed on Schedule 3.11(a).
(b) Schedule 3.11(b) sets forth with respect to the
Nah-Nah Real Property a list of all title insurance policies, appraisal reports,
surveys and engineering and environmental reports held or controlled by Nah-Nah,
copies of which have been provided to He-Ro. All Improvements located on the
Nah-Nah Real Property are in good operating condition (subject to normal wear
and tear) with no structural or other defects known to Nah-Nah that could
interfere in any material respect with the operation of Nah-Nah's business, are
located within applicable boundary lines and are suitable for the purposes for
which they are currently used. Neither Nah-Nah nor any Subsidiary is in
violation in any material respect of any building, zoning, anti-pollution,
health, occupational safety or other Law, Order, Permit or non-transferable
license in respect of the Nah-Nah Real Property. Except as disclosed on Schedule
3.11(b), no person, other than Nah-Nah or a Subsidiary, as the case may be, has
any right to occupy or possess any of the real property.
(c) Except as set forth in Schedule 3.11(c):
(i) all work, repairs and improvements
(including capital improvements) required to have been done on or prior to the
Closing under the Nah-Nah Leases by Nah-Nah has been completed in accordance
therewith, and Nah-Nah has waived any and all rights to terminate the Nah-Nah
Leases with respect thereto;
(ii) the Nah-Nah Leases are superior to any
and all mortgages now or hereafter constituting a Lien on the real property
and/or the interest of either party to each of the Nah-Nah Leases therein;
(iii) there are no rights of first refusal,
options to purchase, "buy-out" rights, or other termination rights which have
been exercised, or are currently exercisable, by either party to each of the
Nah-Nah Leases; and
(iv) all rent and other amounts payable by
Nah-Nah under the Nah-Nah Leases have been paid to the date hereof, and shall be
paid to the date of Closing.
(d) Parking, Easements and Related Agreements. Except
as set forth in the Nah-Nah Leases and except for those items which would not
have a material adverse effect on the business, assets, condition (financial or
otherwise), prospects or results of operations of Nah-Nah, there are no written
or oral parking leases, easements, agreements, grants, licenses, options or any
other agreement pursuant to which Nah-Nah is
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<PAGE> 21
granted, for use in connection with the Nah-Nah Stores, parking privileges or
rights, current or prospective, and/or rights of access of any kind or nature in
and to the leased real property.
SECTION 3.12 PERSONAL PROPERTY. Nah-Nah or a Subsidiary has
good, marketable and valid title to all assets reflected on the Nah-Nah Latest
Balance Sheet, or thereafter acquired, except those since sold or otherwise
disposed of in the ordinary course of business consistent with past practice and
not in violation of this Agreement, in each case free and clear of all Liens,
except as are disclosed on Schedule 3.12 hereto or Liens, which secure debt that
is reflected as a liability on the Nah-Nah Latest Balance Sheet and the
existence of which is indicated in the notes thereto. The equipment (whether
owned or leased) has been well-maintained in accordance with industry standards,
is in good condition and repair (subject to normal wear and tear) and is, in the
aggregate, adequate in quantity and quality for the operation of Nah-Nah's
business as presently conducted.
SECTION 3.13 CONTRACTS. (a) Schedule 3.13 sets forth an
accurate and complete list of all Contracts to which Nah-Nah or any Subsidiary
is a party or by which it or its assets are bound or subject, relating to the
business of Nah-Nah and any Subsidiary, except for those Contracts with persons
who are not Affiliates of Nah-Nah or Han which require Nah-Nah to make or
receive payments not in excess of $50,000 on an annual basis. True and correct
copies of all written Contracts listed on Schedule 3.13 and summaries of the
material provisions of all oral Contracts so listed have been delivered to
He-Ro.
(b) All Contracts listed on Schedule 3.13 are valid,
subsisting, in full force and effect and binding upon Nah-Nah or a Subsidiary,
as the case may be, and, to the knowledge of Nah-Nah, the other parties thereto
in accordance with their terms, except as set forth on Schedule 3.13. Neither
Nah-Nah nor any Subsidiary is in default (or alleged default) under any such
material Contract in any material respect, nor, to the knowledge of Nah-Nah, is
any other party thereto in default thereunder in any material respect, and, to
Nah-Nah's knowledge, there is no condition that with notice or the lapse of time
or both would constitute a material default (or give rise to a termination
right) under any such Contract. The Contemplated Transactions would not give
rise to a right of termination under any material Contract or to any material
penalty provision under any Contract. To the knowledge of Nah-Nah, none of the
other parties to any Contract intends to terminate or materially alter the
provisions thereof by reason of the Contemplated Transactions or otherwise.
Since the Nah-Nah Latest Balance Sheet Date, Nah-Nah has not waived any material
right under any Contract, materially amended or extended any such Contract or
terminated or failed to renew (or received notice of termination or failure to
renew with respect to) any such Contract.
SECTION 3.14 INTANGIBLE PROPERTY. Schedule 3.14 sets forth all
of Nah-Nah's Intellectual Property Rights, including a copy of all registrations
and applications pending with respect thereto filed with or issued by any
Governmental Body. The Contemplated Transactions will not have a material
adverse effect on the right, title and interest of Nah-Nah as of the Closing
Date in and to the Intellectual Property Rights. Except as set forth on Schedule
3.14, (i) Nah-Nah or any Subsidiary has not received any
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written notice of invalidity, infringement or misappropriation from any third
party with respect to any Intellectual Property Rights; (ii) to the knowledge of
Nah-Nah, Nah-Nah or any Subsidiary has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights of any third parties; and (iii) to the knowledge of Nah-Nah, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property Rights of Nah-Nah or any
Subsidiary.
SECTION 3.15 CLAIMS AND PROCEEDINGS. Except as set forth on
Schedule 3.15(a), there are no outstanding Orders of any Governmental Body
against or involving Nah-Nah or any Subsidiary, their assets or their
businesses. Except as set forth on Schedule 3.15(b), there are no Claims
(whether or not the defense thereof or Liabilities in respect thereof are
covered by insurance), pending or to the knowledge of Nah-Nah threatened on the
date hereof, against or involving Nah-Nah, any Subsidiary or their businesses.
Except as set forth on Schedule 3.15(c), at the Closing there will be no such
Claims pending or, to the knowledge of Nah-Nah, threatened, other than Claims
that, individually or in the aggregate, could not reasonably be expected to have
a material adverse effect on the Condition of the Business. Except as set forth
on Schedule 3.15(d), to the knowledge of Nah-Nah, on the date hereof, there is
no fact, event or circumstances that would give rise to any Claim.
SECTION 3.16 TAX MATTERS. Except as disclosed on Schedule
3.16, all Tax Returns required to be filed by Nah-Nah and any Subsidiary (or
predecessors) on or before the Closing Date have been or shall be timely filed
and all Taxes which are due have been or shall be paid. All Taxes of Nah-Nah and
any Subsidiary attributable to periods ending on or before the Closing Date
which are not yet due have been adequately provided for. As of the time of
filing, the Tax Returns correctly reflected (and, as to any Tax Returns not
filed as of the date thereof will correctly reflect) the facts regarding the
income, business, assets, operations, activities and status of Nah-Nah and its
Subsidiaries. There are no Tax Liens upon any assets of Nah-Nah or any
Subsidiary except for Liens for current Taxes not yet due and payable. All
amounts required to be withheld by Nah-Nah or any Subsidiary from employees for
income Taxes, social security and other payroll Taxes have been collected and
withheld, and either paid to the respective Governmental Bodies, set aside in
accounts for such purpose, or have been or will be accrued, reserved against and
entered upon the books and records of Nah-Nah or any Subsidiary. All Taxes which
are due and payable by Nah-Nah or any Subsidiary under any Nah-Nah Lease for the
period prior to and including the Closing Date have been or shall be paid prior
to Closing. Except for sales Taxes which result from the consummation of the
Contemplated Transactions, if any, Nah-Nah and each Subsidiary has collected and
remitted to the appropriate Tax Authority all sales and use or similar Taxes
required to have been collected on or prior to the Closing Date and have been
furnished properly completed exemption certificates for all exempt transactions.
Nah-Nah has maintained and has in its possession all records, supporting
documents and exemption certificates required by applicable sales Tax statutes
and regulations to be retained in connection with the collection and remittance
of sales and use Taxes for all periods up to and including the Closing Date.
Neither Nah-Nah nor any Subsidiary (or any predecessors) is a party to or has
received any notice with respect to any proposed or pending examination,
investigation, audit, action or Claim
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by any Tax Authority relating to Taxes, nor is either a party to any dispute or,
to Nah-Nah's knowledge, threatened dispute with respect thereto and no Claim for
assessment or collection of Taxes has been made upon Nah-Nah or any Subsidiary.
Schedule 3.16 includes a description of all such past examinations,
investigations, audits, actions or Claims within the past three years. Nah-Nah
is not a "foreign person" within the meaning of section 1445 of the Code, and
Nah-Nah will furnish He-Ro with an affidavit that satisfies the requirements of
section 1445 (b) (2) of the Code. Nah-Nah is not and has never been a member of
or included in any consolidated, combined or unitary group for purposes of
filing Tax Returns or paying Taxes at any time. Nah-Nah has no Liability for
Taxes of any other person under Treasury Regulation section 1.1502-6 (or any
similar provision of state or foreign law), or as a transferee of such person,
or under any other provision of Law or Tax sharing, Tax indemnity or similar
Contract.
SECTION 3.17 INSURANCE. Schedule 3.17 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability policies
(the "Nah-Nah Insurance Policies") covering the assets, the business,
operations, employees, officers and directors of Nah-Nah and/or its Subsidiaries
and true and complete copies of all such Nah-Nah Insurance Policies have been
delivered to He-Ro. Schedule 3.17 also sets forth a true and complete list of
Claims made in respect of Nah-Nah Insurance Policies during the year prior to
the date hereof. True and correct copies of all loss runs with respect to such
period have been delivered to He-Ro. There is no Claim by Nah-Nah pending under
any of such Nah-Nah Insurance Policies, as to which coverage has been
questioned, denied or disputed by the underwriters of such Nah-Nah Insurance
Policies or any requirement by any insurer to perform work which has not been
satisfied. All premiums payable on or before the Closing Date under all Nah-Nah
Insurance Policies have been paid and Nah-Nah is otherwise in compliance in all
material respects with the terms and conditions of all such Nah-Nah Insurance
Policies. All Nah-Nah Insurance Policies are in full force and effect. The
Nah-Nah Insurance Policies are sufficient so that Nah-Nah or its Subsidiaries,
as applicable, comply with the provisions of the Nah-Nah Leases.
SECTION 3.18 COMPLIANCE WITH LAWS. Neither Nah-Nah nor any
Subsidiary is in violation in any material respect of any Order or any material
Law of any Governmental Bodies affecting its assets or business. Notwithstanding
the generality of the previous sentence, to the best of Nah-Nah's knowledge,
neither Nah-Nah nor any Subsidiary is in violation of any Laws of any
Governmental Bodies regarding importing, quotas or labelling, or any similar
Laws.
SECTION 3.19 PERMITS. Nah-Nah has obtained all Permits and has
made all required registrations and filings with, any Governmental Body that are
material to the use and occupancy of the Nah-Nah Real Property or the conduct of
its business. All material Permits are listed on Schedule 3.19 and are in full
force and effect; no material violations are or have been recorded in respect of
any Permit within the three years prior to the Closing Date; and no proceeding
is pending or, to the knowledge of Nah-Nah, threatened to revoke or limit any
Permit. Except as listed on Schedule 3.19, no Permit will terminate by reason of
the Contemplated Transactions.
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SECTION 3.20 ENVIRONMENTAL MATTERS. (a) Neither Nah-Nah nor
any Subsidiary has received any written notice of (i) any alleged violation with
respect to any environmental Law; or (ii) any prior, pending or threatened
Regulatory Action or other Claim involving Nah-Nah, any Subsidiary or any
present or former owner, lessee or operator of the Nah-Nah Real Property.
(b) Except as referenced in Schedule 3.20, to
Nah-Nah's knowledge: (i) there has been, directly or indirectly, no use,
manufacture, generation, refining, storage, transport, disposal or treatment of
Hazardous Substances by Nah-Nah (or, to the knowledge of Nah-Nah, any
predecessor in interest) or any Subsidiary, or any Release at, on or under any
Nah-Nah Real Property by Nah-Nah or any Subsidiary, or, to the knowledge of
Nah-Nah, by any other person, in violation of any environmental Law or which
would require remedial action under any environmental Law; to Nah-Nah's
knowledge, neither Nah-Nah nor any Subsidiary has contaminated the soil, ground
water or surface water, and to the knowledge of Nah-Nah or any Subsidiary, none
of the soil, ground water or surface water of such Nah-Nah Real Property is or
has been contaminated by any Release, (ii) to Nah-Nah's knowledge without
independent investigation, there are no incinerators, underground or aboveground
tanks or cesspools, pipes or pipelines for the storage or transportation of
Hazardous Materials located, or, to Nah-Nah's knowledge without independent
investigation, which have been located, on, at or under the Nah-Nah Real
Property, (iii) and without independent investigation, all sewage from the
Nah-Nah Real Property is discharged into a public sanitary sewer system, and
(iv) there has been no Release by Nah-Nah or any Subsidiary, or to Nah-Nah's
knowledge without independent investigation, by any other party, into the
atmosphere, any adjoining or adjacent body of water, or adjoining or adjacent
property in violation of any environmental Law.
SECTION 3.21 FINDERS; FEES. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Nah-Nah who might be entitled to any fee or commission from
Nah-Nah upon consummation of the Contemplated Transactions.
SECTION 3.22 SUPPLIER AND CUSTOMERS. (a) Nah-Nah and each
Subsidiary have adequate sources of supply for their businesses as currently
conducted. Schedule 3.23(a) sets forth the top suppliers of Nah-Nah (on a
consolidated basis) during the 12-month period ended August 31, 1997, together
with the dollar amount purchased from such supplier during such period. Nah-Nah
has no knowledge that any supplier will cease doing business with Nah-Nah or
will threaten to do so as a result of the Contemplated Transactions.
(b) Schedule 3.23(b) sets forth the top 20 customers
of Nah-Nah (on a consolidated basis) during the 12-month period ended August 31,
1997, together with the dollar amount of goods purchased by such customers
during such period. Nah-Nah has no knowledge that any customer will cease doing
business with Nah-Nah or will threaten to do so as a result of the Contemplated
Transactions.
SECTION 3.23 INTENTIONALLY OMITTED.
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SECTION 3.24 NAH-NAH RECEIVABLES. All the accounts receivable
of Nah-Nah reflected in the Nah-Nah Latest Balance Sheet delivered hereunder and
all receivables that have arisen since the Nah-Nah Latest Balance Sheet
delivered hereunder (except such receivables as have been collected since such
date) are valid and enforceable claims, and constitute bona fide receivables
resulting from the sale of goods and services in the ordinary course of business
in conformity with applicable purchase orders, agreements and specifications.
Except as set forth Schedule 3.25 the receivables are subject to no valid
defense, offsets, returns, allowances or credits of any kind other than in the
ordinary course of business and are fully collectible within 90 days from the
date they are invoiced except to the extent of the amount of the reserve for
doubtful accounts reflected in the Nah-Nah Latest Balance Sheet. Nah-Nah has
heretofore delivered to He-Ro a schedule as at September 30, 1997 setting forth
the total amount of Nah-Nah's receivables and a schedule of the aging of such
receivables based on 0-30 days, 31-60 days, 61-90 days and over 90 days. This
schedule is true, correct and complete in all material respects. Nah-Nah has
advised He-Ro and He-Ro hereby acknowledges that Nah-Nah factors substantially
all of its receivables with Heller Financial Corp. pursuant to a factoring
agreement, a true and complete copy of which has been delivered to He-Ro.
SECTION 3.25 RELATED PARTY TRANSACTIONS. Except for the
license of the Nahdree trademark, and all of the rights related thereto, from a
company wholly-owned (directly or indirectly) by Han to Nah-Nah, neither Nah-Nah
or Han is a party to any Contract that gives rise to current or future
obligations thereunder (whether or not in writing), or any other transaction
between Nah-Nah or Han, on the one hand, and any officer, director, shareholder
or former shareholder of Nah-Nah or any Affiliate of any of them, on the other
hand, that gives rise to current or future obligations thereunder.
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES
OF HAN
Han represents and warrants to He-Ro as follows:
SECTION 3A.1 VALID AND BINDING AGREEMENT. Han has full
capacity to execute and deliver this Agreement and each other Transaction
Document to which he is or, at the Closing, will be a party and to consummate
the Contemplated Transactions. This Agreement has been and, at the Closing, the
other Transaction Documents to which Han is a party will have been, duly and
validly executed and delivered by Han and (assuming the valid execution and
delivery thereof by the other parties thereto) constitute or will at the Closing
constitute, as the case may be, the legal, valid and binding agreements of Han
enforceable against Han in accordance with their respective terms except as such
obligations and their enforceability may be limited by applicable bankruptcy and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought (whether at law
or in equity).
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SECTION 3A.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Han of this Agreement and each other Transaction Document to
which he is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) require Han or any Affiliate of Han to
obtain any consent, approval or action of or waiver from, or make any filing
with, or give any notice to, any Governmental Body or any other person, except
as set forth on Schedule 2A.2 (the "Han Required Consents"); (ii) if Han
Required Consents are obtained prior to Closing, violate, conflict with or
result in a breach or default under (after the giving of notice or the passage
of time or both), or permit the termination of, any Contract regarding Nah-Nah
or any Subsidiary to which Han is a party or by which his or any of their
respective assets may be bound or subject, or result in the creation of any Lien
upon the Nah-Nah Common Stock or any assets of Nah-Nah or any Subsidiary
pursuant to the terms of any such Contract; (iii) if Han Required Consents are
obtained prior to Closing, violate any Law or Order of any Governmental Body
against, or binding upon, Han regarding Nah-Nah or any Subsidiary; or (iv) if
Han Required Consents are obtained prior to Closing, violate or result in the
revocation or suspension of any Permit required for Nah-Nah or any Subsidiary to
operate their businesses.
SECTION 3A.3 OWNERSHIP OF NAH-NAH COMMON STOCK. Han owns the
Nah-Nah Common Stock free and clear of all Liens and upon delivery to He-Ro at
the Closing of certificates representing the Nah-Nah Common Stock, good and
valid title to the Nah-Nah Common Stock will pass to He-Ro, free and clear of
all Liens.
SECTION 3A.4 INVESTMENT INTENTION. Han is acquiring the He-Ro
Common Stock for Han's own account and not with a present intention to make any
sale, disposition, distribution or other transfer of the He-Ro Common Stock in a
manner that would be in violation of any applicable securities laws. Han
acknowledges and understands that the He-Ro Common Stock has not been registered
under the Securities Act, is subject to restrictions on transferability imposed
by the Securities Act and applicable state securities laws and that the
certificate evidencing the He-Ro Common Stock will contain a legend with respect
thereto as set forth in Section 2.5 above.
ARTICLE IV
COMPANY COVENANTS AND AGREEMENTS
SECTION 4.1 COVENANTS AND AGREEMENTS OF HE-RO.
(a) Conduct of Business of He-Ro. (i) From the date
hereof through the Closing Date, He-Ro agrees:
(A) To conduct its operations according to
the ordinary and usual course of the business consistent with past practice, to
preserve intact its present business organization and structure, to use
reasonable efforts to keep available the services of its officers, agents and
full-time employees (except as otherwise provided herein), to use reasonable
efforts to preserve and maintain the good will of the business and to use
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reasonable efforts to preserve its relationships with customers and suppliers,
and others having business dealings with He-Ro;
(B) Not take or permit to be taken any
action that could impair or in any way restrict or limit the use or availability
of the NOL;
(C) To maintain in the ordinary course of
business, consistent with past practice and in accordance with all Contracts,
the He-Ro Real Property (except as required by Section 4.1(j) hereof), all
equipment, the Inventory and other tangible property in their present repair,
order and condition, subject to ordinary wear and tear and to the requirements
of such Contracts;
(D) Not to incur any Liability (other than
Liabilities incurred in the ordinary course of business, consistent with past
practice, which are not in the aggregate material and those relating to the
Contemplated Transactions), nor enter into any material Contract in the amount
of $25,000 or more on an annual basis;
(E) Not to undertake (nor permit to be
undertaken) any of the actions specified in Section 2.10;
(F) Except as otherwise provided for herein,
not to pay, discharge or satisfy any material Claim or Liability, other than the
payment, discharge or satisfaction in the ordinary course of business of Claims
or Liabilities incurred in the ordinary course of business, consistent with past
practice;
(G) to fully comply with the He-Ro Leases
and immediately deliver to Nah-Nah copies of all notices regarding renewals,
default and rental and other material obligations delivered or received
thereunder or in connection therewith;
(H) Not declare or pay any dividend or make
any other distribution to its stockholders;
(I) Not amend its certificate of
incorporation or by- laws or comparable governing instruments; and
(J) Not permit any He-Ro Insurance Policies
to be cancelled or terminated or any of the coverage thereunder to lapse unless
replaced with substantially similar coverage.
(ii) From the date hereof through the Closing Date,
He-Ro agrees that it will use reasonable efforts to conduct its business in such
a manner so that the representations and warranties of He-Ro and Rounick
contained herein shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date.
(iii) From the date hereof through the Closing Date,
He-Ro agrees that it will consult with Nah-Nah prior to any renewal, amendment,
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extension (except extensions to the Senior Debt Agreement so long as any such
extensions do not otherwise materially and adversely change any other terms of
the Senior Debt Agreement or result in additional fees or expenses) or
termination of, waiver of any material right under, or any failure to renew, any
material Contract and will not take any such action if Nah-Nah objects thereto
in writing. He-Ro understands and acknowledges that if Nah-Nah reasonably
objects to any such actions and He-Ro nonetheless performs or permits the
performance of any such action, Nah-Nah shall be entitled to terminate this
Agreement at no expense to Nah-Nah or Han.
(b) Interim Financial Statements. From the date
hereof until the Closing Date, beginning with the month ended August 31, 1997,
He-Ro will deliver to Nah-Nah within 15 days after the end of each month, a
true, correct and complete flash sales and gross profit report and, within 45
days after the end of each month, true, correct and complete monthly financial
information of He-Ro and its Subsidiaries, consistent with GAAP (which, together
with the financial statements included in any of the Subsequent SEC Filings and
the financial information delivered in accordance with Section 2.7(b), shall be
referred to herein as the "He-Ro Interim Statements".) In addition, He-Ro shall
provide Nah-Nah with such additional information reasonably requested by
Nah-Nah.
(c) Filings and Authorizations. After the execution
and delivery of this Agreement, He-Ro shall timely file or supply, or cause to
be filed or supplied, all notifications, reports and other information required
to be filed or supplied pursuant to the Exchange Act and the rules and
regulations of any exchange or bulletin board on which the He-Ro Common Stock is
listed or traded in connection with the Contemplated Transactions, and shall
make all such filings and notices which are required by Law to effectuate the
consummation of the Contemplated Transactions. He-Ro shall cooperate with
Nah-Nah in connection with such filings and furnish Nah-Nah with copies of such
filings and any correspondence received from any Governmental Body in connection
therewith. He-Ro, as promptly as practicable, shall make, or cause to be made,
all filings and submissions under such Laws as are applicable to it or to its
Affiliates, as may be required for them to consummate the Contemplated
Transactions in accordance with the terms of this Agreement and shall furnish
copies thereof prior to such filing and shall not make any such filing or
submission to which Nah-Nah, reasonably objects in writing. All such filings
shall comply in form and content in all material respects with applicable Law.
(d) Waiver. He-Ro shall file a request for the waiver
of the requirement to file in any report or other filing under the Exchange Act,
the audited financial statements of Nah-Nah for each of the last two fiscal
years, and use its best efforts to obtain such written waiver from the SEC, in
form and substance reasonably satisfactory to Nah-Nah and He-Ro. Nah-Nah hereby
agrees that the waiver requested in the letter from He-Ro's counsel to the SEC
dated the date hereof, and the restrictions on registration set forth therein,
are acceptable.
(e) Information Statement. Notwithstanding the
requirements of Section 4.1(c), He-Ro shall, as soon as practicable (and in any
event prior to the Closing Date) in accordance with the rules and regulations
under the Exchange Act, file with the SEC and transmit to all holders of record
of Common Stock of He-Ro an information
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statement with respect to the Contemplated Transactions ("Information
Statement"). Prior to filing or transmitting the Information Statement, He-Ro
shall consult with Nah-Nah and afford Nah-Nah an opportunity to comment thereon
and suggest changes thereto.
(f) Lock-Up Agreements with 5% and Certain Other
Holders; List. Prior to the Closing Date, He-Ro shall use its best efforts
(without requiring the expenditure of substantial funds) to obtain an agreement
similar in form and substance to the Rounick Lock-Up from each beneficial owner
of 5% or more of the outstanding Common Stock of He-Ro (other than Rounick, who
will be providing the Rounick LockUp pursuant to the provisions of Section 4A.1
below). Within five (5) days after the date hereof, He-Ro shall initiate the
search for and diligently pursue obtaining a true and complete list of the
beneficial owners of all of the Common Stock of He-Ro, including those shares
held in street name by brokers, and the amount of stock held by such persons,
and, to the extent so obtained, shall deliver such list to Nah-Nah prior to the
Closing Date. Nah-Nah will cooperate and assist He-Ro in such efforts.
(g) Mesirow Report. He-Ro will have, prior to the
Schedule Delivery Date, obtained a preliminary oral report satisfactory to He-Ro
and Nah-Nah, from Mesirow Financial Corp. ("Mesirow") with respect to an opinion
regarding the fairness of the transactions contemplated herein among Han,
Nah-Nah and He-Ro from a financial standpoint to the existing holders of He-Ro
common stock, excluding Rounick as executrix of the Estate and individually,
which opinion will be issued to He-Ro by Mesirow and delivered by He-Ro to
Nah-Nah at the Closing.
(h) Estoppel Certificates. Prior to Closing, He-Ro
shall obtain estoppel certificates from the lessors and sublessors, as the case
may be, of the He-Ro Leases with respect to those He-Ro Stores (the "Key
Stores") for those locations set forth on Schedule 4.1(h), in each case in form
and substance reasonably satisfactory to Nah-Nah (the "Lease Documents").
(i) Negotiations With Others. From and after the date
hereof unless and until this Agreement shall have terminated in accordance with
its terms, He-Ro agrees that neither He-Ro, nor any of its Affiliates or any
officer, director, employee, shareholder or other Representative of He-Ro or its
Affiliates, will directly or indirectly (i) solicit, engage in discussions or
engage in negotiations with any person (other than Nah-Nah or any of its
Affiliates) with respect to an Acquisition Proposal; (ii) provide non-public
information to any person (other than Nah-Nah or any of its Representatives) in
connection with an Acquisition Proposal; or (iii) enter into any transaction
with any person (other than Nah-Nah or any of its Affiliates) with respect to an
Acquisition Proposal. Notwithstanding the foregoing, He-Ro's Board of Directors
may, to the extent required in the exercise of the fiduciary duties of its Board
of Directors under applicable law as advised by counsel, engage in or
participate in negotiations concerning, and, in connection therewith, provide
nonpublic information or data to and have any discussions relating to, an
Acquisition Proposal. If He-Ro, any Affiliate or shareholder or Representative
thereof receives any Acquisition Proposal, or any offer relating to an
Acquisition Proposal, He-Ro will immediately notify Nah-Nah in writing as to the
identity of the offeror or the party making any such proposal and the specific
terms of such offer or
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proposal, and shall provide Nah-Nah with seven (7) business days from the date
of Nah-Nah's receipt of such notification to match such Acquisition Proposal
prior to any acceptance by He-Ro of an Acquisition Proposal. If this Agreement
is not terminated as of or prior to the Schedule Delivery Date pursuant to
Section 1.4 hereof or otherwise, then, if He-Ro accepts any Acquisition Proposal
on or after the Schedule Delivery Date, He-Ro shall immediately upon demand from
Nah-Nah, pay to Nah-Nah an amount equal to Nah-Nah's and Han's fees and expenses
incurred in connection with this Agreement and the Contemplated Transactions
(including without limitation attorneys and accountants fees and expenses) and
shall also pay to Nah-Nah upon the closing of such other transaction, 10% of the
gross proceeds thereof or $300,000, whichever is less. The parties hereby
acknowledge and agree that He-Ro and Rounick shall be jointly and severally
liable for any amounts payable under this Section 4.1(i) and Section 4A.1(e)
hereof and that any amounts paid under this Section 4.1(i) will be offset by any
amounts paid under Section 4A.1(e) hereof.
(j) Lease Negotiations. From the date hereof, He-Ro
hereby agrees to use its best efforts, and to cause its officers and employees
to use their best efforts, to enter into agreements on or before the Closing
with the landlords for those He-Ro leases listed on Schedule 4.1(j) to reduce
the rental obligations by the percentage set forth on said Schedule or to
terminate such leases, as indicated on said Schedule, without penalties that are
reasonably unacceptable to Nah-Nah and He-Ro. Nah-Nah shall cooperate and assist
in such efforts.
(k) Structuring. He-Ro acknowledges that Nah-Nah may
prior to Closing propose an alternative structure for the Contemplated
Transactions and agrees that, unless in the reasonable opinion of He-Ro such
alternative adversely affects the rights and obligations of He-Ro or Rounick or
such alternative structure results in a net expense to He-Ro, the parties at or
prior to Closing shall enter into such amendments hereto or other instruments
and documents as shall be required to effect such alternative structure.
SECTION 4.2 MUTUAL COVENANTS AND AGREEMENTS OF THE PARTIES.
(a) Notices of Certain Events. Prior to the Closing
Date, He-Ro and Nah-Nah shall promptly notify the other of:
(i) any notice or other communication from
any person alleging that the consent of such person is or may be required in
connection with the Contemplated Transactions;
(ii) any notice or other communication from
any Governmental Body in connection with the Contemplated Transactions; and
(iii) any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
violation or breach of or make untrue or incorrect any representation or
warranty, whether made as of the date hereof or as of the Closing Date, or that
would constitute a violation or breach of any covenant of any party contained in
this Agreement.
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(b) Corporate Examinations and Investigations. Prior
to the Closing Date, each of He-Ro and Nah-Nah agree that the other shall be
entitled, through its directors, officers, Affiliates, employees, attorneys,
accountants, representatives, lenders, consultants and other agents
(collectively, "Representatives") to make such investigation of the business and
operations of each other and each of their Subsidiaries, and such examination of
the books, records and financial condition of each other and each of their
Subsidiaries, as the other reasonably deems necessary. Any such investigation
and examination shall be conducted at reasonable times, under reasonable
circumstances and upon reasonable notice, and each party shall cooperate fully
with the investigation of the other. In that connection, each party shall make
available to the Representatives of the other, without however causing any
unreasonable interruption in business operations, all such information and
copies of such documents and records concerning the affairs of He-Ro, Nah-Nah or
any Subsidiary, as the case may be, as such Representatives may reasonably
request, shall permit the Representatives of each party access to the assets of
the other and their respective Subsidiaries and all parts thereof and to the
employees, customers, suppliers, and contractors of the other, and shall cause
their respective Representatives to cooperate fully in connection with such
review and examination. No investigation by a party shall diminish or obviate
any of the representations, warranties, covenants or agreements of the other
parties contained in this Agreement. This paragraph shall not be construed to
permit any party to terminate this Agreement as a result of unsatisfactory due
diligence in its discretion, unless such termination is expressly permitted
elsewhere herein.
(c) Public Announcements. Prior to the Closing Date,
He-Ro and Nah-Nah will consult with each other before issuing any press release
or otherwise making any public statement with respect to the Contemplated
Transactions, and neither will issue any such press release or make any such
public statement without the prior approval of the other, except as may be
required by applicable Law in which event the other party shall have the right
to review and comment upon (but not approve) any such press release or public
statement prior to its issuance.
(d) Expenses. Except as otherwise specifically
provided in this Agreement, Nah-Nah and He-Ro shall bear their respective
expenses, in each case, incurred in connection with the preparation, execution
and performance of this Agreement and the Contemplated Transactions, including,
without limitation, all fees and expenses of their respective Representatives.
(e) Certain Renewals. With respect to each Permit
which may expire prior to the Closing Date or within sixty days thereafter, each
of He-Ro and Nah-Nah shall (i) timely file with the appropriate Governmental
Bodies applications for renewal of each such Permit (the "Applications"), (ii)
deliver to the other party true and complete copies of such Applications, (iii)
diligently prosecute such Applications prior to Closing, and (iv) cooperate
fully with all Governmental Bodies in the processing of such Applications.
(f) Efforts to Consummate. Subject to the terms and
conditions herein, each of He-Ro and Nah-Nah, without payment or further
consideration, shall use
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its good faith efforts to take or cause to be taken all action and to do or
cause to be done all things necessary, proper or advisable under applicable
Laws, Permits and Orders to consummate and make effective, as soon as reasonably
practicable, the Contemplated Transactions, including, but not limited to, the
obtaining of all He-Ro Required Consents and Nah-Nah Required Consents and
Permits or consents of any third party, whether private or governmental,
required in connection with such party's performance of such transactions and
each party hereto shall cooperate with the other in all of the foregoing.
(g) Rounick Debt Agreement. Han and Rounick shall
enter into the Rounick Debt Agreement, to close contemporaneously with the
closing under this Agreement, pursuant to which Han will acquire the Rounick
Debt for a purchase price of $500,000 cash payable at Closing, and Rounick shall
retain the $1,000,000 Retained Rounick Debt on an unsecured basis to be
restructured on terms acceptable to Rounick, Han and the Senior Lender or the
replacement senior lender(s), as the case may be, pari passu with the Rounick
Debt.
(h) Junior Bank Group Debt Purchase Agreement. Han
shall enter into the Junior Bank Group Debt Purchase Agreement with 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 "Junior Bank
Group"), subject to the approval of the Senior Lender (or alternative senior
lender), to close contemporaneously with this Agreement, pursuant to which Han,
or his designee, will acquire the Junior Debt for $1,125,000 cash paid at
Closing and the surrender by the Junior Bank Group of their existing warrants to
purchase Common Stock of He-Ro, as agreed to by Nah-Nah and the Junior Bank
Group, in either case on terms acceptable to Han. He-Ro will cooperate and sign
documents reasonably requested with respect thereto including a confirmation, a
waiver of claims and UCC-3s and other documents to transfer the security
interests.
(i) Intercreditor Agreement. He-Ro, Han and the
Senior Lender (or alternative senior lender) will enter into an intercreditor
agreement to close contemporaneously with this Agreement (the "Intercreditor
Agreement").
(j) Access After Closing. After the Closing and from
time to time, each party hereto shall permit the other parties and their
Representatives to have access during regular business hours and upon reasonable
notice, to inspect and copy agreements, records, books and other documents that
are included in or relate to the assets or business of the other and identified
with reasonable particularity, wherever located, for the purposes of (i)
preparing Tax Returns and financial statements and responding to Tax audits, and
(ii) prosecuting or defending any Claim. Each party shall cooperate fully with
the other party in connection with the foregoing. If, after the Closing, any
party determines to destroy any agreements, records, books or documents referred
to above, it will give to the other party at least two months' prior written
notice thereof, and such other party shall have the right during such two-month
period upon reasonable notice and during regular business hours to take
possession of any such agreements, records, books or documents.
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(k) Rounick Medical Coverage. He-Ro agrees that for a
period of three years after the Closing Date, He-Ro will continue Rounick's
medical coverage, at He-Ro's expense, under whatever medical insurance He-Ro
provides, from time to time, to its senior executives, provided that He-Ro shall
be released from said obligation if Rounick breaches any of her representations,
warranties, covenants or agreements in this Agreement or any Transaction
Document in any material respect.
SECTION 4.3 COVENANTS AND AGREEMENTS OF NAH-NAH.
(a) Conduct of Business of Nah-Nah. (i) From the date
hereof through the Closing Date, Nah-Nah agrees:
(A) To conduct its operations according to
the ordinary and usual course of the business consistent with past practice, to
preserve intact its present business organization and structure, to use
reasonable efforts to keep available the services of its officers, agents and
full-time employees, to use reasonable efforts to preserve and maintain the good
will of the business and to use reasonable efforts to preserve its relationships
with customers and suppliers, and others having business dealings with Nah-Nah.
(B) To maintain in the ordinary course of
business, consistent with past practice and in accordance with all Contracts,
the Nah-Nah Real Property, all equipment, the Inventory and other tangible
property in their present repair, order and condition, subject to ordinary wear
and tear and to the requirements of such Contracts.
(C) Not to incur any Liability (other than
Liabilities incurred in the ordinary course of business, consistent with past
practice, which are not in the aggregate material and those relating to the
Contemplated Transactions), nor enter into any material Contract, except that
Nah-Nah or an Affiliate may consummate the lease for an outlet store in
Secaucus, New Jersey currently under negotiation. Nah-Nah agrees to deliver a
copy of said lease to He-Ro promptly after execution and delivery thereof.
(D) Not to undertake (nor permit to be
undertaken) any of the actions specified in Section 3.10.
(E) Except as otherwise provided for herein,
not to pay, discharge or satisfy any material Claim or Liability, other than the
payment, discharge or satisfaction in the ordinary course of business of Claims
or Liabilities incurred in the ordinary course of business, consistent with past
practice.
(F) To fully comply with the Nah-Nah Leases
and immediately deliver to He-Ro copies of all notices regarding renewals,
default and rental and other obligations delivered or received thereunder or in
connection therewith.
(G) Not declare or pay any dividend or make
any other distribution to its stockholders.
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(H) Not amend its certificate of
incorporation or by-laws or comparable governing instruments.
(I) Not permit any Nah-Nah Insurance
Policies to be cancelled or terminated or any of the coverage thereunder to
lapse unless replaced with substantially similar coverage.
(ii) From the date hereof through the Closing Date,
Nah-Nah agrees that it will use reasonable efforts to conduct its business in
such a manner so that the representations and warranties of Nah-Nah and Han
contained herein shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date.
(iii) From the date hereof through the Closing Date,
Nah-Nah agrees that it will consult with He-Ro prior to any renewal, amendment,
extension or termination of, waiver of any material right under, or any failure
to renew, any material Contract and will not take any such action if He-Ro
objects thereto in writing. Nah-Nah understands and acknowledges that if He-Ro
reasonably objects to any such actions and Nah-Nah nonetheless performs or
permits the performance of any such action, He-Ro shall be entitled to terminate
this Agreement at no expense to He-Ro or Rounick.
ARTICLE IVA
INDIVIDUAL COVENANTS AND AGREEMENTS
SECTION 4A.1 COVENANTS AND AGREEMENTS OF ROUNICK.
(a) Irrevocable Proxy. Contemporaneously with the Closing,
Rounick and any persons other than Rounick, if any, having control over the
voting or disposition of the Rounick Family Stock (as defined below) shall
execute and deliver to Nah-Nah irrevocable proxies ("Irrevocable Proxies"), in
the form set forth at Exhibit D hereto, granting to Han, or his designee, the
right to vote the Rounick Family Stock in connection with all matters submitted
to a vote of the stockholders of He-Ro, and shall contain such other terms and
conditions as shall be reasonable and acceptable to Nah-Nah. The Irrevocable
Proxies shall each have an initial term of three years from the Closing Date,
provided that, if at the end of such initial three year period, Han does not own
stock of He-Ro representing at least 55% of the issued and outstanding common
stock of He-Ro, inclusive of all outstanding options and warrants to purchase
common stock of He-Ro exercisable at the end of the initial three-year period,
the Irrevocable Proxies shall continue for an additional three year period or
until such time as Han owns of record common stock of He-Ro representing at
least 55% of the issued and outstanding common stock of He-Ro, inclusive of all
outstanding options and warrants to purchase common stock of He-Ro then
currently exercisable, whichever is earlier (this period, together with the
initial three-year period, shall be referred to herein as the "Voting Control
Period"). After the expiration of the initial three years of the Voting Control
Period (and subject to the restrictions set forth in this paragraph), Rounick
may sell shares of the Rounick Family
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Stock subject to Rule 144 of the Securities Act or in a privately negotiated,
bona fide arms length transaction free and clear of the Irrevocable Proxy,
provided that she first give written notice of any such proposed sale to Han;
upon receipt of such notice, Han shall have five (5) business days to elect in
writing to purchase the shares at Fair Market Value (or, in the event of a
proposed privately negotiated bonafide arms length sale, at such other price as
set forth in the offer received by Rounick (the "Offer Price")). If Han so
elects to purchase, Han shall have an additional five (5) business days to
consummate such purchase. If Han elects not to purchase or does not timely elect
to purchase such shares, Rounick may during the next 60 day period sell such
shares free and clear of the Irrevocable Proxy at Fair Market Value or at the
Offer Price, as the case may be, and all remaining shares of Rounick Family
Stock shall remain subject to the Irrevocable Proxy for the remainder of the
Voting Control Period. If Rounick desires to make such sale after the expiration
of the 60 days, she shall repeat the above process. Notwithstanding anything
previously provided in this Section 4A.1(a), Rounick must retain during the
Voting Control Period and subject to the Irrevocable Proxy that number of shares
of Rounick Family Stock which, when added to the number of shares of common
stock of He-Ro owned of record by Han, represents 55% of the issued and
outstanding common stock of He-Ro, inclusive of all outstanding options and
warrants to purchase common stock of He-Ro then currently exercisable.
(b) Rounick Lock-Up Agreement. Rounick hereby agrees
not to sell, transfer or dispose of any securities of He-Ro now or hereafter
owned or controlled by her, (including stock of which she is voting trustee),
her Affiliates and family members (including step family) (the "Rounick Family
Stock") for a period of the lesser (i) three years after the Closing or (ii)
until He-Ro's NOL carry forward has been utilized or lost in its entirety (the
"Rounick Lock-Up"). Rounick further agrees to cancel, effective as of the
Closing, any outstanding Stock Rights for securities of He-Ro which she may
have. Prior to the Closing, Rounick shall submit to He-Ro's transfer agent the
certificates representing the Rounick Family Stock with instructions directing
the transfer agent to cancel such certificates and reissue certificates
representing the Rounick Family Stock, each with a legend indicating that such
shares are subject to an irrevocable proxy and a lock-up agreement restricting
the transfer thereof, so that the new certificates with the appropriate legends
are available for inspection at the Closing.
(c) Covenant Not to Compete. (i) Rounick hereby
agrees that from the date of the Closing and for a period of three (3) years
from the date of the Closing, Rounick shall not directly or indirectly on her
own behalf or on behalf of any other person: (A) own, manage, operate, control,
be employed by, participate in, design for, license her name for, provide
consulting services to, or be connected or associated in any manner with the
ownership, management, operation, or control of any business or enterprise
involved in the design, manufacture, sales or marketing of women's evening and
special occasion wear (excluding advertising or marketing firms that perform
advertising or marketing services for women's apparel); or (B) persuade or seek
to persuade any supplier, customer, contractor, employee, agent or consultant or
other person having business relations with He-Ro to cease such relationship.
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(ii) Rounick acknowledges and agrees that,
upon the Closing and her receipt of $500,000 for the purchase of the Rounick
Debt and a promissory note evidencing the Retained Rounick Debt, as well her
rights herein to continued medical coverage and a seat for herself or a designee
on He-Ro's board of directors, she will have received adequate consideration in
connection with the Contemplated Transactions in exchange for her agreement to
the restrictive covenants set forth in this Section 4A.1(c) (the "Restrictive
Covenants") and that the Restrictive Covenants are reasonable and valid in all
respects. If any court of competent jurisdiction determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect, without regard to the invalid or unenforceable
parts. Rounick acknowledges that in the event of a breach of the Restrictive
Covenants, monetary damages may not be sufficient and that He-Ro and Nah-Nah
shall be entitled to injunctive or such other relief as a court of competent
jurisdiction may deem appropriate.
(d) NOL. Without limiting any other covenants and
provisions hereof, Rounick covenants and agrees that (i) until the earlier of
(x) the tenth day following the third anniversary of the Closing, (y) the
utilization of the entire amount of the NOL, or (z) the termination of this
Agreement pursuant to Article VII hereof, neither she nor her Affiliates
(including but not limited to the Estate) will acquire, dispose of or transfer
any shares of He-Ro Common Stock (or any Stock Rights to acquire, dispose of or
transfer any shares of He-Ro Common Stock) that would result in any restriction
or impairment of the use or availability of the NOL, including, but not limited
to, a distribution by the Estate to its beneficiaries, unless such beneficiaries
agree in writing to be bound by the provisions of this Section 4A.1(d) and such
distribution does not restrict or impair the use or availability of the NOL, and
(ii) prior to the Closing, neither she nor her Affiliates will sell, pledge or
otherwise dispose of shares of He-Ro Common Stock beneficially owned by Rounick
(as defined in Rule 13d-3 promulgated under the Exchange Act) to any third
person, enter into any proxy or voting arrangement with respect to any of such
shares or vote such shares in any manner inconsistent with this Agreement or
enter into any agreement with respect to any of the foregoing.
(e) Negotiations With Others. From and after the date
hereof unless and until this Agreement shall have terminated in accordance with
its terms, Rounick agrees that neither Rounick, nor any of her Affiliates, will
directly or indirectly (i) solicit, engage in discussions or engage in
negotiations with any person (other than Nah-Nah or any of its Affiliates) with
respect to an Acquisition Proposal; (ii) provide non-public information to any
person (other than Nah-Nah or any of its Representatives) in connection with an
Acquisition Proposal; or (iii) enter into any transaction with any person (other
than Nah-Nah or any of its Affiliates) with respect to an Acquisition Proposal.
Notwithstanding the foregoing, Rounick may, as a director of He-Ro, to the
extent required in the exercise of her fiduciary duty under applicable law as
advised by counsel, engage in or participate in negotiations concerning, and, in
connection therewith, provide nonpublic information or data to and have any
discussions relating to, an Acquisition Proposal. If Rounick or any of her
Affiliates receives any Acquisition Proposal or any offer relating to an
Acquisition Proposal, Rounick will immediately notify Nah-Nah in writing as to
the identity of the offeror or the party making any such proposal and the
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specific terms of such offer or proposal, and shall provide Nah-Nah with seven
(7) business days from the date of Nah-Nah's receipt of such notification to
match such Acquisition Proposal prior to any acceptance by Rounick of an
Acquisition Proposal. If this Agreement is not terminated as of or prior to the
Schedule Delivery Date pursuant to Section 1.4 hereof or otherwise, then, if
Rounick accepts any Acquisition Proposal on or after the Schedule Delivery Date,
Rounick shall immediately upon demand from Nah-Nah, pay to Nah-Nah an amount
equal to Nah-Nah's and Han's fees and expenses incurred in connection with this
Agreement and the Contemplated Transactions (including without limitation
attorneys and accountants fees and expenses) and shall also pay to Nah-Nah upon
the closing of such other transaction, 10% of the gross proceeds thereof or
$300,000, whichever is less. The parties hereby acknowledge and agree that He-Ro
and Rounick shall be jointly and severally liable for any amounts payable under
this Section 4A.1(e) and Section 4.1(i) hereof, and that any amounts paid under
this Section 4A.1(e) will be offset by any amounts paid under Section 4.1(i)
hereof.
(f) Rounick Resignation. Rounick hereby resigns as
Chief Executive Officer and Chairman of the Board of He-Ro (provided that
Rounick will retain her seat on He-Ro's Board of Directors).
SECTION 4A.2 COVENANTS AND AGREEMENTS OF HAN
(a) Deposit. Prior to or contemporaneously with the
Schedule Delivery Date, Han has delivered or will deliver a good faith deposit
in the amount of $100,000 to an escrow account pursuant to an escrow agreement
dated the date hereof, attached hereto as Exhibit A, among He-Ro, Han and Baer
Marks & Upham, LLP as escrow agent (the "Escrow Agreement"). The Escrow
Agreement shall provide that upon the Closing, the escrow deposit shall be
applied to the purchase price of the Rounick Debt and delivered to Rounick in
accordance with the Rounick Debt Agreement. If this Agreement is terminated
prior to Closing, the escrow deposit will be returned to Han, or pursuant to
Section 7.3(iv) or (v) hereof, to He-Ro, as the case may be.
(b) Voting. From and after the Closing Date and until
the expiration of the Voting Control Period (or, if sooner, until Rounick dies
or otherwise terminates this provision), Han hereby agrees to vote the He-Ro
Common Stock and the Rounick Family Stock subject to the Irrevocable Proxies to
retain Rounick (or her designee) as a director of He-Ro.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. The
obligations of He-Ro and Nah-Nah to consummate the Contemplated Transactions are
subject to the satisfaction of the following conditions:
(a) No Injunction. No provision of any applicable Law
and no Order shall prohibit the consummation of the Contemplated Transactions.
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(b) No Proceeding or Litigation. No Claim instituted
by any person (other than Nah-Nah, He-Ro, Han or Rounick or their respective
Affiliates) shall have been commenced or pending against Nah-Nah, He-Ro or any
of their respective Affiliates, officers or directors which Claim seeks to
restrain, prevent, change or delay in any material respect the Contemplated
Transactions or seeks to challenge any of the material terms or provisions of
this Agreement or seeks material damages in connection with any of such
transactions.
(c) Fairness Opinion. He-Ro shall have delivered to
Nah-Nah at Closing a fairness opinion addressed to He-Ro from Mesirow regarding
the Contemplated transactions contemplated hereby among Han, Nah-Nah and He-Ro
satisfactory to Nah-Nah and He-Ro.
(d) Senior Debt. Nah-Nah shall have arranged for
He-Ro to have either (i) restructured the Senior Debt with the Senior Lender, on
terms acceptable to Nah-Nah in its sole discretion, and delivered to Nah-Nah
written evidence thereof, or (ii) entered into a financing agreement, with an
alternative senior lender on terms acceptable to Nah-Nah in its sole discretion,
and paid to the Senior Lender all amounts owing under the Senior Debt Agreement
without penalty therefor and the Senior Lender shall have waived all notice
requirements and released all collateral securing the payment of the Senior
Debt, in either case on the terms and conditions set forth in the Financing
Letter.
(e) Intercreditor Agreement. He-Ro, Han and the
Senior Lender (or alternative senior lender) shall have delivered the
Intercreditor Agreement.
(f) SEC Waiver. He-Ro shall have obtained from the
SEC the written waiver described in Section 4.1(d) hereof. If the waiver has not
been obtained or the waiver as obtained is not reasonably acceptable to Nah-Nah,
the parties hereby agree to enter into good faith negotiations with respect to
either complying with the SEC response to the waiver request or restructuring
this Agreement and the Contemplated Transactions consistent with Section 4.1(k)
above. Nah-Nah hereby agrees that the waiver requested in the letter from
He-Ro's counsel to the SEC dated the date hereof, and the restrictions on
registration set forth therein, are acceptable.
SECTION 5.2 CONDITIONS TO THE OBLIGATIONS OF HE-RO. All
obligations of He-Ro hereunder are subject, at the option of He-Ro, to the
fulfillment prior to or at the Closing of each of the following further
conditions:
(a) Performance. Nah-Nah and Han shall have performed
and complied with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it or him, as the case may be, at
or prior to the Closing Date.
(b) Representations and Warranties. The respective
representations and warranties of Nah-Nah and Han contained in this Agreement,
in any Schedule or Exhibit to this Agreement and in any certificate or other
writing delivered by Nah-Nah pursuant hereto shall be true at and as of the
Closing Date (except as to those
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representations and warranties that, by their terms, speak only as of a specific
date) as if made at and as of such time.
(c) Required Consents. All Nah-Nah and Han Required
Consents shall have been obtained.
(d) Nah-Nah Common Stock. Han shall have delivered to
He-Ro one or more stock certificates representing the Nah-Nah Common Stock,
together with duly executed stock powers in proper form to effect the transfer
thereof.
(e) Purchase Price for Junior Debt. Han shall have
paid to the Junior Bank Group by wire transfer of immediately available funds an
amount equal to $1,125,000 in full satisfaction of the purchase price for the
Junior Debt in accordance with the Junior Bank Group Debt Purchase Agreement.
(f) Claims. There shall be no Claims threatened
against Nah-Nah or any Subsidiary as of the Closing Date that could reasonably
be expected to have a material adverse effect on the Condition of the Business.
(g) Transfer to Nah-Nah of Certain Leasehold
Interests. Han shall transfer to Nah-Nah free and clear of all Liens his
ownership interests in the entities controlled by Han that are the tenants of
the Nah-Nah outlet stores including the store in the Riverhead, New York outlet
center and the store currently under negotiation at the Secaucus, New Jersey
outlet center.
(h) Closing Documentation. There shall have been
delivered to He-Ro the following:
(i) A certificate, dated the Closing Date,
of the Chairman of the Board, the President or Chief Financial Officer of
Nah-Nah confirming the matters set forth in Section 5.2(a) and (b) hereof;
(ii) A certificate, dated the Closing Date,
of the Secretary or Assistant Secretary of Nah-Nah certifying, among other
things, that attached or appended to such certificate (A) is a true and correct
copy of the Certificate of Incorporation and all amendments if any thereto as of
the date thereof of Nah-Nah and each Subsidiary; (B) is a true and correct copy
of the By-laws, as amended, as of the date thereof of Nah-Nah and each
Subsidiary; (C) is a true copy of all corporate actions taken by it, including
resolutions of its board of directors authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by such party pursuant hereto; and (D) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith;
(iii) Evidence of the good standing and
corporate existence of Nah-Nah reasonably requested by He-Ro;
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(iv) A signed opinion of Nah-Nah's counsel,
dated the Closing Date and addressed to He-Ro, substantially in the form of
opinion annexed as Exhibit B hereto; and
(v) Copies of all Nah-Nah and Han Required
Consents.
(i) Junior Bank Agreements. There shall have been
delivered to He-Ro executed copies of the Junior Bank Group Debt Purchase
Agreements.
(j) Rounick. Rounick shall have received from Han
$500,000 in consideration for the Rounick Debt and there shall have been
delivered to Rounick a new promissory note for the Retained Rounick Debt
pursuant to the Rounick Debt Agreement.
SECTION 5.3 CONDITIONS TO THE OBLIGATIONS OF NAH-NAH. All
obligations of Nah-Nah hereunder are subject, at the option of Nah-Nah, to the
fulfillment prior to or at the Closing of each of the following further
conditions:
(a) Performance. He-Ro and Rounick shall have
performed and complied with all agreements, obligations and covenants required
by this Agreement to be performed or complied with by it or her, as the case may
be, at or prior to the Closing Date.
(b) Representations and Warranties. The respective
representations and warranties of He-Ro and Rounick contained in this Agreement,
in any Schedule or Exhibit to this Agreement and in any certificate or other
writing delivered by He-Ro pursuant hereto shall be true at and as of the
Closing Date (except as to those representations and warranties that, by their
terms, speak only as of a specific date) as if made at and as of such time.
(c) Required Consents. All He-Ro and Rounick Required
Consents shall have been obtained.
(d) He-Ro Common Stock. He-Ro shall have delivered to
Han a stock certificate representing the He-Ro Common Stock.
(e) Director and Officer Resignations. Unless
otherwise agreed to or requested by Nah-Nah, all current directors and officers
of He-Ro and the Subsidiaries shall have resigned (other than Rounick or her
designee as a director of He-Ro). All qualifying capital stock of any Subsidiary
issued to any officers, directors or other parties shall be surrendered (with
appropriate transfer documentation), to He-Ro and Rounick shall have agreed to
elect persons designated by Nah-Nah to fill the resulting vacancies.
(f) Stockholder Approval. The Board of Directors and,
to the extent necessary, the stockholders of He-Ro, shall have approved and
adopted, by the requisite vote and in accordance with applicable Law, this
Agreement, the Transaction Documents and the Contemplated Transactions.
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(g) Claims. There shall be no Claims threatened
against He-Ro or any Subsidiary as of the Closing Date that could reasonably be
expected to have a material adverse effect on the Condition of the Business.
(h) SEC Reports; Information Statement. He-Ro shall
have filed with the SEC its quarterly report on Form 10-Q for the quarter ended
August 31, 1997, and all other reports required to be filed with the SEC in
connection with the Contemplated Transactions, including the Information
Statement, and delivered the Information Statement to all holders of record of
the Common Stock of He-Ro in accordance with the rules and regulations under the
Exchange Act.
(i) Treasury Stock. All Common Stock of He-Ro held in
treasury shall have been cancelled and He-Ro shall have delivered to Nah-Nah
evidence thereof.
(j) Durnard Shares. The Durnard Shares shall have
been cancelled via a corporate method reasonably acceptable to He-Ro and Nah-Nah
and in accordance with applicable law.
(k) Closing Documentation. There shall have been
delivered to Nah-Nah the following:
(i) A certificate dated the Closing Date, of
the Chairman of the Board, President or Chief Financial Officer of He-Ro
confirming the matters set forth in Sections 5.3(a) and (b);
(ii) A certificate, dated the Closing Date,
of the Secretary or Assistant Secretary of He-Ro certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy of
the Certificate of Incorporation and all amendments if any thereto as of the
date thereof of He-Ro and each Subsidiary; (B) is a true and correct copy of the
By-laws, as amended, as of the date thereof of He-Ro and each Subsidiary; (C) is
a true copy of all corporate actions taken by it, including resolutions of its
board of directors and shareholders authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by such party pursuant hereto; and (D) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith;
(iii) Evidence of the good standing and
corporate existence of He-Ro and each Subsidiary reasonably requested by
Nah-Nah;
(iv) A signed opinion of He-Ro's counsel,
dated the Closing Date, addressed to Nah-Nah, substantially in the form of
opinion annexed as Exhibit C hereto; and
(v) Copies of all He-Ro and Rounick Required
Consents and all Permits.
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(l) Leases; Lease Documents. There shall have been
delivered to Nah-Nah certified, true and complete copies of the He-Ro Leases and
all amendments and modifications thereof, and the Lease Documents for the Key
Stores.
(m) Trademarks. There shall have been delivered to
Nah-Nah a true, complete and accurate schedule of all filings (domestic and
foreign) that He-Ro or any Subsidiary will be required to perform within six
months after the Closing in order to maintain He-Ro's Intellectual Property
Rights.
(n) Compliance With Financing Agreement. He-Ro shall
be in compliance with or satisfy all reasonable customary and usual terms and
conditions (not inconsistent with the terms of this Agreement) set forth in the
Senior Debt financing agreement required to be delivered under Section
5.3(o)(vii).
(o) Agreements. There shall have been delivered to
Nah-Nah executed copies of the following agreements, in form and substance
satisfactory to Nah-Nah:
(i) All existing promissory notes evidencing
the Rounick Debt and all documents relating thereto;
(ii) The Rounick Debt Agreement and the new
note issued to Han pursuant thereto;
(iii) The Junior Bank Group Debt Purchase
Agreement and all documents to be delivered in connection therewith;
(iv) The Irrevocable Proxies;
(v) Lock-Up Agreements from the 5% and
certain other holders of the Common Stock of He-Ro if obtained under Section
4.1(h);
(vi) A Registration Rights Agreement dated
the Closing Date, pursuant to which He-Ro shall agree to register the He-Ro
Common Stock under the Securities Act on terms acceptable to Han (it being
understood that the restrictions on registration as set forth in the letter from
He-Ro's counsel to the SEC dated the date hereof are acceptable to Han); and
(vii) Either, the agreement with the Senior
Lender consenting to the Contemplated Transactions and, if applicable,
restructuring the Senior Debt, or the financing agreement with the alternative
senior lender, in either case acceptable to Nah-Nah in its sole discretion.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of Nah-Nah and He-Ro to fully investigate the affairs
of each other and notwithstanding any knowledge of facts determined or
determinable by either of them pursuant to such investigation or right of
investigation, each has the right to rely fully upon the representations,
warranties, covenants and agreements of the other contained in this Agreement,
or listed or disclosed on any Schedule hereto or in any instrument delivered in
connection with or pursuant to any of the foregoing. All such representations
and warranties contained in this Agreement, on any Schedule hereto or in any
instrument delivered in connection with or pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing hereunder
for a period of 18 months after the Closing Date, (other than the
representations and warranties in Sections 2.5, 2.7, 2.11, 2.12, 2.16, 2.18,
2.20, 2A.1, 2A.2, 3.5, 3.7, 3.11, 3.12, 3.16, 3.18, 3.20, 3A.1, 3A.2, 3A.3, and
3A.4, which shall terminate and expire upon expiration of the applicable statute
of limitations).
SECTION 6.2 OBLIGATION OF HE-RO AND ROUNICK TO INDEMNIFY. (a)
He-Ro agrees to indemnify, defend and hold harmless Nah-Nah and Han (and its
respective directors, officers, employees, Affiliates, successors and assigns)
from and against all Claims, losses, Liabilities, damages, deficiencies,
judgments, settlements, costs of investigation or other expenses (including
interest, penalties and reasonable attorneys' fees and disbursements and
expenses incurred in enforcing this indemnification) (collectively, the
"Losses") suffered or incurred by Nah-Nah or any of the foregoing persons or
He-Ro arising out of (i) any breach of the representations and warranties of
He-Ro contained in this Agreement or in the Schedules or any Transaction
Document, (ii) any breach of the covenants and agreements of He-Ro contained in
this Agreement or in the Schedules or any Transaction Document, (iii) any
undisclosed Liabilities of He-Ro or any Subsidiary, or (iv) the Losses described
on Schedule 6.2(a) hereto (collectively, the "JV Liabilities").
(b) Rounick agrees indemnify and hold harmless
Nah-Nah (and its directors, officers, employees, Affiliates or successors and
assigns) and Han from and against any Losses suffered or incurred by any of the
foregoing persons arising out of any breach of the representations or warranties
of Rounick contained in this Agreement, the Schedule or any of the Transaction
Documents.
SECTION 6.3 OBLIGATIONS OF NAH-NAH AND HAN TO INDEMNIFY. (a)
Nah-Nah agrees to indemnify, defend and hold harmless He-Ro (and its respective
directors, officers, employees, Affiliates or successors and assigns) from and
against any Losses suffered or incurred by He-Ro or any of the foregoing persons
arising out of (i) any breach of the representations and warranties of Nah-Nah
contained in this Agreement or in the Schedules or any Transaction Document,
(ii) any breach of the covenants and agreements of Nah-Nah contained in this
Agreement or in the Schedules of any Transaction Document, or (iii) any
undisclosed Liabilities of Nah-Nah or any Subsidiary.
(b) Han agrees to indemnify, defend and hold harmless
He-Ro (and its directors, officers, employees, Affiliates or successors and
assigns) from and against
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any Losses suffered or incurred by any of the foregoing persons arising out of
any breach of the representations and warranties of Han contained in this
Agreement, the Schedules or any of the Transaction Documents.
SECTION 6.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY
CLAIMS. (a) Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim or circumstance which would or might give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give prompt notice thereof (the "Claims Notice") to the party
or parties obligated to provide indemnification pursuant to Section 6.2 or 6.3
(collectively, the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at
its own expense and with its own counsel, any Asserted Liability unless (i) the
Asserted Liability seeks an Order, injunction or other equitable or declaratory
relief against the Indemnitee or (ii) the Indemnitee shall have reasonably
concluded that (x) there is a conflict of interest between the Indemnitee and
the Indemnifying Party in the conduct of such defense or (y) the Indemnitee
shall have one or more defenses not available to the Indemnifying Party. If the
Indemnifying Party elects to defend such Asserted Liability, it shall within 30
days (or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the defense of such Asserted Liability. If
the Indemnifying Party elects not to defend the Asserted Liability, is not
permitted to defend the Asserted Liability by reason of the first sentence of
this Section 6.4(b), fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement with
respect to such Asserted Liability, the Indemnitee may pay, compromise or defend
such Asserted Liability at the sole cost and expense of the Indemnifying Party.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the reasonable written objection of the
other, provided that the Indemnitee may settle or compromise any claim as to
which the Indemnifying Party has failed to notify the Indemnitee of its election
under this Section 6.4(b) or as to which the Indemnifying Party is contesting
its indemnification obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of any
Asserted Liability. If the Indemnifying Party chooses to defend any Asserted
Liability, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. Any Losses of any Indemnitee for which
indemnification is available hereunder shall be paid upon written demand
therefor.
SECTION 6.5 LIMITS ON INDEMNIFICATION. (a) He-Ro shall not be
liable to Nah-Nah (and its respective directors, officers, employees,
Affiliates, successors and assigns) for any Losses arising under Section 6.2
above unless and until one or more Losses amounts to or exceeds $50,000 in the
aggregate, in which case He-Ro, shall be liable for the full amount of such
Losses in excess of said amount (the "He-Ro Stipulated Amount").
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Notwithstanding the foregoing, any Losses in respect of the JV Liabilities shall
be fully indemnifiable without regard to the provisions hereof relating to the
He-Ro Stipulated Amount and, in the event He-Ro indemnifies Nah-Nah with respect
to such Losses, the amount of such Losses shall not be included in the
calculation of the He-Ro Stipulated Amount.
(b) Nah-Nah shall not be liable to He-Ro (and its
respective directors, officers, employees, Affiliates, successors and assigns)
for any Losses arising under Section 6.3 above unless and until one or more
Losses amounts to or exceeds $100,000 in the aggregate, in which case Nah-Nah
shall be liable for the full amount of such Losses in excess of said amount.
SECTION 6.6 REMEDIES CUMULATIVE. Except as otherwise provided
in this Agreement, the remedies provided herein shall be cumulative and shall
not preclude the assertion by any party hereto of any other rights or the
seeking of any other remedies against the other party hereto, including
rescission.
ARTICLE VII
SPECIFIC PERFORMANCE; TERMINATION
SECTION 7.1 SPECIFIC PERFORMANCE. (a) He-Ro acknowledges and
agrees that, if He-Ro fails to proceed with the Closing in any circumstance
other than those described in clauses (a), (b), (d) (e) or (f) of Section 7.2
below, Nah-Nah will not have adequate remedies at law with respect to such
breach and that, in such event, Nah-Nah shall be entitled, without the necessity
or obligation of posting a bond or other security, to commence a suit in equity
to obtain specific performance of He-Ro's obligations under this Agreement.
He-Ro specifically affirms the appropriateness of such injunctive or other
equitable relief in any such action.
(b) Nah-Nah acknowledges and agrees that, if Nah-Nah
fails to proceed with the Closing in any circumstance other than those described
in clauses (a), (c), (d) or (e) of Section 7.2 below, He-Ro will not have
adequate remedies at law with respect to such breach and that, in such event,
He-Ro shall be entitled, without the necessity or obligation of posting a bond
or other security, to commence a suit in equity to obtain specific performance
of Nah-Nah's obligations under this Agreement. Nah-Nah specifically affirms the
appropriateness of such injunctive or other equitable relief in any such action.
SECTION 7.2 TERMINATION. Except as otherwise set forth in
Section 1.4, this Agreement may be terminated and the Contemplated Transactions
may be abandoned at any time prior to the Closing:
(a) By mutual written consent of He-Ro and Nah-Nah;
(b) By He-Ro if (i) there has been a material
misrepresentation or breach of warranty on the part of Nah-Nah or Han in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is
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not cured within 10 days after written notice thereof from He-Ro; (ii) Nah-Nah
or Han has committed a material breach of any covenant imposed upon it or him
hereunder and fails to cure such breach within 10 days after written notice
thereof from He-Ro; or (iii) any condition to He-Ro's obligations hereunder
becomes incapable of fulfillment through no fault of He-Ro or Rounick and is not
waived by He-Ro, provided that, on the date of termination, the conditions to
Nah-Nah's obligations hereunder specified in Section 5.3 hereof shall have been
satisfied and He-Ro shall be otherwise ready, willing and able to proceed with
the Closing hereunder;
(c) By Nah-Nah, if (i) there has been a material
misrepresentation or breach of warranty on the part of He-Ro or Rounick in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within 10 days
after written notice thereof from Nah-Nah; (ii) He-Ro or Rounick has committed a
material breach of any covenant imposed upon it or her hereunder and fails to
cure such breach within 10 days after written notice thereof from Nah-Nah; or
(iii) any condition to Nah-Nah's obligations hereunder becomes incapable of
fulfillment through no fault of Nah-Nah or Han and is not waived by Nah-Nah,
provided that, on the date of termination, the conditions to He-Ro's obligations
hereunder specified in Section 5.2 hereof shall have been satisfied, and Nah-Nah
shall be otherwise ready, willing and able to proceed with the Closing
hereunder;
(d) By He-Ro or by Nah-Nah, if there shall be any Law
that makes consummation of the Contemplated Transactions illegal or otherwise
prohibited, or if any Order enjoining He-Ro or Nah-Nah from consummating the
Contemplated Transactions is entered and such Order shall have become final and
nonappealable;
(e) By either He-Ro or Nah-Nah if the Closing shall
not have occurred on or prior to December 20, 1997, provided that (i) if so
terminated by He-Ro, the conditions specified in the proviso of Section 7.2(b)
shall have been satisfied on the date of termination and He-Ro shall be then
otherwise ready, willing and able to proceed with the Closing, or (ii) if so
terminated by Nah-Nah, the conditions specified in the proviso of Section 7.2(c)
shall have been satisfied on the date of termination and Nah-Nah shall be then
otherwise ready, willing and able to proceed with the Closing; and
(f) By He-Ro pursuant to the provisions of said
Section 4.1(i) above.
(g) By Nah-Nah if any of the JV Liabilities are
asserted by a third party prior to Closing.
SECTION 7.3 EFFECT OF TERMINATION; RIGHT TO PROCEED. Subject
to the provisions of Section 7.1 hereof, in the event that this Agreement shall
be terminated pursuant to Section 7.2, all further obligations of the parties
under the Agreement shall terminate without further liability of any party
hereunder except (i) to the extent that a party has made a material
misrepresentation hereunder or committed a breach of any material covenant and
agreement imposed upon it hereunder; (ii) to the extent that any condition to a
party's obligations hereunder became incapable of fulfillment because of the
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breach by a party of its obligations hereunder; (iii) that the agreements
contained in Sections 4.1(i), 4.2(c) and 4.2(d) shall survive the termination
hereof; (iv) He-Ro shall be entitled to receive the $100,000 good faith deposit
as liquidated damages if Nah-Nah terminates the agreement other than in
accordance with Section 7.2 hereof; and (v) if on the Schedule Delivery Date
Nah-Nah elected under Section 1.4(b) hereof not to terminate this Agreement,
He-Ro shall be entitled to receive the $100,000 good faith deposit as liquidated
damages if Nah-Nah has not obtained a financing agreement with respect to the
Senior Debt by the time the parties are otherwise ready to close and all other
conditions to closing have either been satisfied or waived by Nah-Nah, provided
no other grounds for termination by Nah-Nah are applicable under this Agreement,
unless the basis for the failure to obtain such financing is that He-Ro is
unable to satisfy any reasonable, customary and usual terms or conditions (not
inconsistent with the terms of this Agreement) of the financing agreement. In
the event that a condition precedent to its obligation is not met, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Contemplated Transactions.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 NOTICES. (a) Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally by hand or by recognized overnight courier, telecopied or mailed (by
registered or certified mail, postage prepaid) as follows:
(i) If to Han or Nah-Nah, one copy to:
Nah-Nah Collection, Inc.
213 West 35th Street
New York, New York 10001
Telecopier: (212) 947-3195
Attn: Hong J. Han
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
Attn: Jeffrey M. Cole, Esq.
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(ii) If to He-Ro, one copy to: or, if to Rounick, one copy to
The He-Ro Group, Ltd. Della Rounick
550 Seventh Avenue 15 West 53rd Street
New York, NY 10016 New York, NY 10019
Telecopier: (212) 757-9879
Attn: Della Rounick
in either case, with a copy to:
Lowenthal, Landau, Fischer
& Bring, P.C.
250 Park Avenue
New York, NY 10177
Telecopier: (212) 986-0604
Attn: Martin R. Bring, Esq.
(b) Each such notice or other communication shall be
effective upon receipt or refusal. Any party by notice given in accordance with
this Section 8.1 to the other party may designate another address (or telecopier
number) or person for receipt of notices hereunder. Notices by a party may be
given by counsel to such party.
SECTION 8.2 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits hereto) and the collateral agreements executed in
connection with the consummation of the Contemplated Transactions contain the
entire agreement among the parties with respect to the subject matter hereof and
related transactions and supersede all prior agreements, written or oral, with
respect thereto, except the confidentiality provisions set forth in the letter
of intent between the parties dated August 27, 1997.
SECTION 8.3 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, cancelled,
renewed or extended only by a written instrument signed by He-Ro, Nah-Nah,
Rounick and Han. The provisions hereof may be waived in writing by the party to
be charged therewith. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. Except as otherwise provided herein, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
SECTION 8.4 GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.
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SECTION 8.5 BINDING EFFECT; NO ASSIGNMENT. This Agreement and
all of its provisions, rights and obligations shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
heirs and legal representatives. This Agreement may not be assigned (including
by operation of Law) by a party without the express written consent of Nah-Nah
(in the case of assignment by He-Ro or Rounick) or He-Ro (in the case of
assignment by Nah-Nah or Han) and any purported assignment, unless so consented
to, shall be void and without effect.
SECTION 8.6 SEVERABILITY. If any provision of this Agreement
for any reason shall be held to be illegal, invalid or unenforceable, such
illegality shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such illegal, invalid or unenforceable
provision had never been included herein.
SECTION 8.7 COUNTERPARTS. The Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories, including faxed signatures.
SECTION 8.8 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein express or implied is intended or shall be
construed to confer upon or give to any person other than the parties hereto and
their permitted successors or assigns, any rights or remedies under or by reason
of this Agreement or the Contemplated Transactions.
SECTION 8.9 FURTHER ASSURANCES. At any time and from time to
time after the Closing Date, upon the request of either party, the other party
will do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged or delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney or assurances as may be reasonably requested for
the better effecting of the Contemplated Transactions. He-Ro and Nah-Nah will
each, respectively, bear their own costs and expenses incurred in compliance
with its obligations under this Section 8.9.
ARTICLE IX
DEFINITIONS
SECTION 9.1 DEFINITIONS. (a) The following terms, as used
herein (including any Schedules or Exhibits hereto), have the following
meanings:
"Acquisition Proposal" shall mean any proposal for the
acquisition of, or merger or other business combination involving He-Ro or the
sale of any equity interest in, or the business or any assets of, He-Ro (except
in the ordinary course), other than the transactions contemplated by this
Agreement.
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"Affiliate" of any person means any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words
"herein", "hereof" and "hereunder" and words of similar import shall refer to,
this agreement as it from time to time may be amended.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Certificate of Incorporation" shall mean, in the case of any
corporation, the certificate of incorporation, articles of incorporation or
charter of a corporation, howsoever denominated under the laws of the
jurisdiction of its incorporation.
"Contract" shall mean any contract, agreement, indenture,
note, bond, lease, conditional sale contract, mortgage, license, franchise,
instrument, commitment or other binding arrangement, whether written or oral,
and all modifications and amendments thereto and substitutions thereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
The term "control," with respect to any person, shall mean the
power to direct the management and policies of such person, directly or
indirectly, by or through stock ownership, agency or otherwise, or pursuant to
or in connection with an agreement, arrangement or understanding (written or
oral) with one or more other persons by or through stock ownership, agency or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean, with respect to common stock
of He-Ro quoted on the OTC Electronic Bulletin Board, the average of the bid and
asked prices for the 20 consecutive trading days prior to the date of the notice
of sale, and with respect to common stock of He-Ro traded on a national exchange
or quoted on Nasdaq, the average closing sale price for the 20 consecutive
trading days prior to the date of the notice of sale.
"GAAP" shall mean generally accepted accounting principles in
effect on the date hereof as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States.
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"Hazardous Substances" shall mean any dangerous, toxic,
radioactive, caustic or otherwise hazardous material, pollutant, contaminant,
chemical, waste or substance defined, listed or described as any of such in or
governed by any Environmental Law, including but not limited to
urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos-containing
materials, radon, explosives, known carcinogens, petroleum and its derivatives,
petroleum products, flammable materials, radioactive materials, controlled or
toxic substances, any pollutant or contaminant, or any substance which might
cause any injury to human health or safety or to the environment or might
subject the owner or operator of the Real Property to any Regulatory Actions or
Claims.
"He-Ro Leases" shall mean the lease agreements for the He-Ro
Stores set forth on Schedule 2.11(a) as well as any other premises leased by
He-Ro.
"He-Ro Stores" shall mean all of the retail outlets owned or
operated by He-Ro.
"Intellectual Property Rights" shall mean all patents,
trademarks (registered or unregistered), trade names, service marks, copyrights
and applications therefor owned, used or filed by or licensed to He-Ro or
Nah-Nah, as the case may be, or either of their Subsidiaries.
"Inventory" shall mean, as of any date, collectively, all
inventories of women's apparel, merchandise, and other products owned by He-Ro
or Nah-Nah, as the case may be, and held for resale or for distribution,
together with packaging and samples thereof, owned by He-Ro or Nah-Nah, as the
case may be, as of such date.
"IRS" shall mean the Internal Revenue Service.
"Liability" shall mean any direct or indirect indebtedness,
liability, assessment, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, actual or potential,
contingent or otherwise (including any liability under any guaranties, letters
of credit, performance credits or with respect to insurance loss accruals).
"Lien" shall mean any mortgage, lien (including mechanics,
warehousemen, laborers and landlords liens), claim, pledge, charge, security
interest, preemptive right, right of first refusal, option, judgment, title
defect, or encumbrance of any kind.
"Nah-Nah Leases" shall mean the lease agreements for the
Nah-Nah Stores set forth on Schedule 3.11(a)_, as well as any other premises
leased by Nah-Nah.
"Nah-Nah Stores" shall mean all of the retail outlets owned or
operated by Nah-Nah.
"Permit" shall mean all of He-Ro's or Nah-Nah's, as the case
may be, rights under all governmental licenses, certificates, permits and
approvals relating to or necessary to the conduct of its business as of the
Closing Date.
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The term "person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity, including a government or political subdivision or an agency or
instrumentality thereof.
"Regulatory Actions" shall mean any Claim, demand, action,
suit, summons, citation, directive, investigation, litigation, inquiry,
enforcement action, Lien, encumbrance, restriction, settlement, remediation,
response, clean-up or closure arrangement or other remedial obligation or
proceeding brought or instigated by any Governmental Body in connection with any
environmental Law, including, without limitation, the listing of the Real
Property on any list of contaminated or potentially contaminated sites or
potential or verified Hazardous Waste sites under any environmental Law, civil,
criminal and/or administrative proceedings, whether or not seeking costs,
damages, penalties or expenses.
"Release" shall mean the intentional or unintentional,
spilling, leaking, disposing, discharging or disturbance of, or emitting,
depositing, injecting, leaching, escaping, or any other release or threatened
release to or from, however defined, any Hazardous Substance in violation of any
environmental Law.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Subsidiary" of He-Ro or Nah-Nah shall mean any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are owned directly or indirectly, by He-Ro or Nah-Nah, as the case may
be.
"Tax" (including, with correlative meaning, the terms "Taxes"
and "Taxable") shall mean (i) any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax,
with respect to either He-Ro or Nah-Nah, as the case may be, and Seller, the
business or the assets (or the transfer thereof) of each of them; (ii) any
liability for the payment of any amount of the type described in the immediately
preceding clause as a result of either He-Ro or Nah-Nah, as the case may be,
being a member of an affiliated or combined group with any other corporation at
any time on or prior to the Closing Date and (iii) any liability of either He-Ro
or Nah-Nah, as the case may be, for the payment of any amounts of the type
described in clause (i) above as a result of a contractual obligation to
indemnify any other person.
"Tax Return" shall mean any return or report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to any Tax Authority.
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"Transaction Documents" shall mean, collectively, this
Agreement, and each of the other agreements and instruments to be executed and
delivered by all or some of the parties hereto in connection with the
consummation of the transactions contemplated hereby.
(b) The following terms are defined in the following
sections of this Agreement or Schedule:
Term Section
---- -------
Applications 4.2(e)
Claims 2.15
Claims Notice 6.4(a)
Closing 1.1
Closing Date 1.3
Condition of the Business 2.10(a)
Contemplated Transactions 2.1
Durnard 2.6(b)
Durnard Shares 2.6(b)
Escrow Agreement 4.3
Estate Recitals
Financing Letter 1.4
Governmental Bodies 2.18
GPL Schedule 6.2(a)
Han Required Consents 3A.2
He-Ro Common Stock Recital
He-Ro Insurance Policies 2.17
He-Ro Interim Statements 4.1(b)
He-Ro Latest Balance Sheet 2.8
He-Ro Latest Balance Sheet Date 2.8
He-Ro Real Property 2.11
He-Ro Required Consents 2.2
Improvements 2.11(a)
Inactive Subsidiaries 2.3
Indemnifying Party 6.4(a)
Indemnitee 6.4(a)
Information Statement 4.1(e)
Intercreditor Agreement 4.2(i)
Irrevocable Proxy 4A.1(a)
Junior Bank Group 4.2(h)
Junior Bank Group Debt Purchase Agreement Recital
Junior Debt Recital
Junior Debt Agreement Recital
JV Liabilities 6.2(a)
Key Stores 4.1(h)
Laws 2.18
Lease Documents 4.1(i)
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Losses 6.2
Nah-Nah Common Stock Recital
Nah-Nah Financial Statements 3.7
Nah-Nah Insurance Policies 2.17
Nah-Nah Latest Balance Sheet 3.8
Nah-Nah Latest Balance Sheet Date 3.8
Nah-Nah Real Property 3.11
Nah-Nah Required Consents 3.2
NOL 2.7
Offer Price 4A.1(a)
Orders 2.18
Projections 2.10
Representatives 4.2
Restrictive Covenants 4A.1(c)
Retained Rounick Debt Recital
Rounick Debt Recital
Rounick Debt Agreement Recital
Rounick Lock-Up 4A.1(b)
Rounick Family Stock 4A.1(b)
Rounick Required Consents 2A.2
Schedule Delivery Date 1.4
SEC 2.7
SEC Documents 2.7
Senior Debt Recital
Senior Debt Agreement Recital
Senior Lender Recital
Subsequent SEC Filings 2.7
Stock Rights 2.6
Voting Control Period 4A.1(a)
SECTION 9.2 INTERPRETATION. Unless the context otherwise requires, the
terms defined in Section 9.1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. All accounting terms defined in Section 9.1,
and those accounting terms used in this Agreement not defined in Section 9.1,
except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
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IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date set forth above.
THE HE-RO GROUP, LTD.
By: /s/ Sam Kaplan
----------------------------------------
Name/Title: Chief Financial Officer
/s/ Vasiliki Della Pasvantidou Rounick
--------------------------------------------
VASILIKI DELLA PASVANTIDOU ROUNICK
(FOR THE LIMITED PURPOSES SET FORTH HEREIN)
NAH-NAH COLLECTION, INC.
By: /s/ Hong J. Han
----------------------------------------
Name/Title: President
/s/ Hong J. Han
--------------------------------------------
HONG J. HAN
(FOR THE LIMITED PURPOSES SET FORTH HEREIN)
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SALE AND PURCHASE; SCHEDULES........................................................... 2
SECTION 1.1 Sale and Purchase of Nah-Nah Common Stock.................................................. 2
SECTION 1.2 Consideration.............................................................................. 2
SECTION 1.3 Closing.................................................................................... 2
SECTION 1.4 Final Schedules; Exhibits; Financing Letter................................................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF HERO................................................. 3
SECTION 2.1 Authority Relative to this Agreement;
Valid and Binding Agreement................................................... 3
SECTION 2.2 No Conflicts; Consents..................................................................... 3
SECTION 2.3 Corporate Existence and Power;
Subsidiaries Officers and Directors........................................... 3
SECTION 2.4 Charter Documents and Corporate Records.................................................... 4
SECTION 2.5 The HeRo Common Stock...................................................................... 4
SECTION 2.6 Authorized and Outstanding Stock........................................................... 5
SECTION 2.7 SEC Reports; Financial Information......................................................... 6
SECTION 2.8 Liabilities................................................................................ 7
SECTION 2.9 Inventory.................................................................................. 7
SECTION 2.10 Absence of Certain Changes................................................................ 7
SECTION 2.11 Real Property............................................................................. 8
SECTION 2.12 Personal Property......................................................................... 10
SECTION 2.13 Contracts................................................................................. 10
SECTION 2.14 Intangible Property....................................................................... 10
SECTION 2.15 Claims and Proceedings.................................................................... 11
SECTION 2.16 Tax Matters............................................................................... 11
SECTION 2.17 Insurance................................................................................. 12
SECTION 2.18 Compliance with Laws...................................................................... 12
SECTION 2.19 Permits................................................................................... 12
SECTION 2.20 Environmental Matters..................................................................... 13
SECTION 2.21 Finders; Fees............................................................................. 13
SECTION 2.22 Supplier and Customers.................................................................... 13
SECTION 2.23 Investment Intention...................................................................... 14
SECTION 2.24 HeRo Receivables.......................................................................... 14
SECTION 2.25 Related Party Transactions................................................................ 14
ARTICLE IIA REPRESENTATIONS AND WARRANTIES OF ROUNICK.............................................. 15
SECTION 2A.1 Valid and Binding Agreement............................................................... 15
SECTION 2A.2 No Conflicts; Consents.................................................................... 15
SECTION 2A.3 Stock Ownership........................................................................... 15
</TABLE>
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<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NAH-NAH..................................... 15
SECTION 3.1 Authority Relative to this Agreement;
Valid and Binding Agreement................................................... 15
SECTION 3.2 No Conflicts; Consents..................................................................... 16
SECTION 3.3 Corporate Existence and Power; Subsidiaries................................................ 16
SECTION 3.4 Charter Documents and Corporate Records.................................................... 17
SECTION 3.5 The Nah-Nah Common Stock................................................................... 17
SECTION 3.6 Authorized and Outstanding Stock........................................................... 17
SECTION 3.7 Financial Information...................................................................... 17
SECTION 3.8 Liabilities................................................................................ 18
SECTION 3.9 Inventory.................................................................................. 18
SECTION 3.10 Absence of Certain Changes................................................................ 18
SECTION 3.11 Real Property............................................................................. 19
SECTION 3.12 Personal Property......................................................................... 20
SECTION 3.13 Contracts................................................................................. 21
SECTION 3.14 Intangible Property....................................................................... 21
SECTION 3.15 Claims and Proceedings.................................................................... 21
SECTION 3.16 Tax Matters............................................................................... 22
SECTION 3.17 Insurance................................................................................. 23
SECTION 3.18 Compliance with Laws...................................................................... 23
SECTION 3.19 Permits................................................................................... 23
SECTION 3.20 Environmental Matters..................................................................... 23
SECTION 3.21 Finders; Fees............................................................................. 24
SECTION 3.22 Supplier and Customers.................................................................... 24
SECTION 3.23 Intentionally Omitted..................................................................... 24
SECTION 3.24 Nah-Nah Receivables....................................................................... 24
SECTION 3.25 Related Party Transactions................................................................ 25
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF HAN.................................................. 25
SECTION 3A.1 Valid and Binding Agreement............................................................... 25
SECTION 3A.2 No Conflicts; Consents.................................................................... 25
SECTION 3A.3 Ownership of Nah-Nah Common Stock......................................................... 26
SECTION 3A.4 Investment Intention...................................................................... 26
SECTION 3A.5 Contracts; Leases......................................................................... 26
ARTICLE IV COMPANY COVENANTS AND AGREEMENTS....................................................... 26
SECTION 4.1 Covenants and Agreements of HeRo................................................. 26
SECTION 4.2 Mutual Covenants and Agreements of the Parties................................... 30
SECTION 4.3 Covenants and Agreements of Nah-Nah.............................................. 33
ARTICLE IVA INDIVIDUAL COVENANTS AND AGREEMENTS.................................................... 34
SECTION 4A.1 Covenants and Agreements of Rounick....................................................... 34
SECTION 4A.2 Covenants and Agreements of Han........................................................... 37
</TABLE>
ii
<PAGE> 58
<TABLE>
<S> <C>
ARTICLE V CONDITIONS TO CLOSING.................................................................. 37
SECTION 5.1 Conditions to the Obligations of the Parties............................................... 37
SECTION 5.2 Conditions to the Obligations of HeRo...................................................... 38
SECTION 5.3 Conditions to the Obligations of Nah-Nah................................................... 39
ARTICLE VI INDEMNIFICATION........................................................................ 42
SECTION 6.1 Survival of Representations and Warranties................................................. 42
SECTION 6.2 Obligation of HeRo and Rounick to Indemnify................................................ 42
SECTION 6.3 Obligations of Nah-Nah and Han to Indemnify................................................ 43
SECTION 6.4 Notice and Opportunity to Defend Third Party Claims........................................ 43
SECTION 6.5 Limits on Indemnification.................................................................. 44
SECTION 6.6 Remedies Cumulative........................................................................ 44
ARTICLE VII SPECIFIC PERFORMANCE; TERMINATION...................................................... 44
SECTION 7.1 Specific Performance....................................................................... 44
SECTION 7.2 Termination................................................................................ 45
SECTION 7.3 Effect of Termination; Right to Proceed.................................................... 46
ARTICLE VIII MISCELLANEOUS.......................................................................... 46
SECTION 8.1 Notices.................................................................................... 46
SECTION 8.2 Entire Agreement........................................................................... 47
SECTION 8.3 Waivers and Amendments; NonContractual Remedies;
Preservation of Remedies...................................................... 47
SECTION 8.4 Governing Law.............................................................................. 48
SECTION 8.5 Binding Effect; No Assignment.............................................................. 48
SECTION 8.6 Severability............................................................................... 48
SECTION 8.7 Counterparts............................................................................... 48
SECTION 8.8 Third Parties.............................................................................. 48
SECTION 8.9 Further Assurances......................................................................... 48
ARTICLE IX DEFINITIONS................................................................................... 49
SECTION 9.1 Definitions................................................................................ 49
SECTION 9.2 Interpretation............................................................................. 53
</TABLE>
EXHIBITS:
Exhibit A Escrow Agreement
Exhibit B Form of Opinion of Nah-Nah's counsel
Exhibit C Form of Opinion of He-Ro's counsel
Exhibit D Irrevocable Proxy
iii
<PAGE> 59
Execution Copy
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE HE-RO GROUP, LTD.
VASILIKI DELLA PASVANTIDOU ROUNICK,
NAH-NAH COLLECTION, INC.
AND
HONG J. HAN
OCTOBER 16, 1997
<PAGE> 60
Schedule 6.2(a)
Any Liabilities of Great Projects Limited, formerly a Hong Kong
corporation ("GPL"), or He-Ro or any Subsidiary of He-Ro with respect to GPL, or
with respect to the liquidation and winding up of GPL (collectively, the "JV
Liabilities").
<PAGE> 1
Exhibit 99.1
HELLER FINANCIAL, INC.
FACTORING AND REVOLVING INVENTORY LOAN AND SECURITY AGREEMENT
This FACTORING AND REVOLVING INVENTORY LOAN AND SECURITY AGREEMENT
(this "Agreement") is dated and effective as of the Effective Date and entered
into among THE HE-RO GROUP, INC., a New York corporation whose chief executive
office is 530 Seventh Avenue, New York, New York 10018, telecopy number (212)
268-1625 ("HG"), NAH NAH COLLECTION, INC., a New York corporation, whose chief
executive office is 213 West 35th Street, New York, New York 10001, telecopy
number (212) 947-3195 ("NN"), HRNL, Inc., a New York corporation, whose chief
executive office is 530 Seventh Avenue, New York, New York 10018, telecopy
number (212) 268-1625 ("HRNL", NN and HG hereafter collectively and severally
referred to as "Client"), the other Loan Parties signatory hereto and HELLER
FINANCIAL, INC., a Delaware corporation, with offices at 150 East 42nd Street,
New York, New York 10017, telecopy number (212) 880-7158 ("Heller").
WHEREAS, Client has requested and Heller has agreed to purchase all of
Client's Accounts, provide Advances against such Accounts, provide a Revolving
Loan against each Loan Party's Inventory, guaranty Letters of Credit and provide
certain services (see Section 16 for the definitions of certain capitalized
terms); and
WHEREAS, each Guarantor is willing to guaranty all of the obligations
of Client to Heller under the Loan Documents and to grant to Heller a security
interest hereunder in certain property of such Guarantor to secure such
guaranty.
NOW, THEREFORE, in consideration of the agreements, provisions, and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each Loan Party and
Heller agree as follows:
SECTION 1. PURCHASE OF ACCOUNTS
1.1. Client hereby sells, assigns, and transfers to Heller, and
Heller hereby agrees to purchase all of Client's Accounts, with full power to
Heller to collect and otherwise deal with such Accounts as the sole and
exclusive owner thereof.
1.2. (a) Client will submit for Heller's credit approval the
credit requirements of Client's customers, a description of Client's normal
selling terms and such other information as Heller requests concerning Client's
customers. Heller may, in Heller's sole credit judgment, establish credit lines
for sales to Client's customers on Client's normal selling terms or on other
selling terms approved by Heller by Written Notice. Client may also submit for
Heller's credit approval specific orders from Client's customers and Heller may,
in Heller's sole credit judgment, approve such orders on a single order credit
approval basis. All of Heller's credit approvals will be by Written Notice
and/or Transmission to Client.
<PAGE> 2
(b) Heller may amend or withdraw a credit line or single
order credit approval at any time prior to the Delivery by notifying Client
verbally and/or by Written Notice or Transmission. A single order credit
approval will be automatically withdrawn: (i) in the event Delivery is not made
on or prior to the expiration date indicated on the single order credit
confirmation form Heller sends to Client by Written Notice or Transmission or
(ii) in the event any change is made in any of the terms of the Account without
Heller's prior approval by Written Notice or Transmission.
(c) Heller will have no liability to Client or to any
customer for Heller's refusal to credit approve an Account or Heller's
withdrawal or amendment of a credit approval.
1.3. Heller will assume the Credit Risk on all Approved Accounts.
Heller will have full recourse to Client for all Non-Approved Accounts.
1.4. In the event that monies are at any time owing by a customer
for both Approved Accounts and Non-Approved Accounts, any amount when paid by or
credited to the customer will be deemed applied first to Approved Accounts.
1.5. If a bankruptcy or insolvency proceeding is instituted by or
against a customer and if Heller agrees by Written Notice to Client to make a
claim in such proceeding for Non-Approved Accounts, all amounts distributed to
Heller in such proceeding will be shared pro rata between Approved Accounts and
Non-Approved Accounts.
SECTION 2. ADVANCES
2.1. As payment for an Account, (a) the Collected Amount of the
Purchase Price of an Account will be credited to Client's account as of the
Collection Date and (b) if an Approved Account remains partially or fully unpaid
solely as a result of the financial inability of the customer thereon to pay
such Approved Account and if such Account is not subject to a Dispute, the
Purchase Price of such Approved Account less any Collected Amounts previously
credited to Client's account with respect to such Approved Account will be
credited to Client's account on the Approved Payment Date for such Approved
Account. The payments, when credited to Client's account, shall first be applied
to all interest, Advances, and other amounts due Heller hereunder.
2.2. Subject to the terms and conditions of this Agreement, Heller
may, upon any Client's request, and in Heller's sole discretion, make advances
to such Client or for such Client's account of up to eighty five percent (85%)
of the Purchase Price of such Client's Eligible Accounts, but in no event shall
the total of outstanding Advances to all Clients at any one time exceed the
Maximum Advance Amount. To the extent that the total of aggregate outstanding
Advances to all Clients exceeds the Maximum Advance Amount, Client shall pay to
Heller upon its demand any and all amounts necessary to reduce the aggregate
outstanding Advances to or below the Maximum Advance Amount. Heller shall
establish and may adjust, in its sole discretion, standards to determine whether
an Account
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<PAGE> 3
purchased by Heller is eligible for an Advance ("Eligible Account(s)") and the
rate of such Advance at such time as any Client requests an Advance. Each such
increase or decrease in the rate or amount of any Advance shall become effective
immediately for the purposes of calculating availability of Advances hereunder.
In addition to the foregoing, at any time Dilution is in excess ("Excess") of
(a) ten percent (10%), the advance rate shall be reduced by one percent (1%) for
each percent of such Excess and (b) fifteen percent (15%), the advance rate
shall be reduced by two percent (2%) for each percent of such Excess. Without
limiting the generality of the foregoing, the following Accounts may, in
Heller's sole discretion, not be considered Eligible Accounts: (1) Accounts
which are not Approved Accounts; (2) Accounts with respect to which the customer
is an Affiliate of Client's or a director, officer, agent, stockholder, or
employee of Client's or any of Client's Affiliates; (3) Accounts with respect to
which there is any Dispute with the respective customer; (4) any Account with
respect to which the customer is a person to which Client is indebted, provided,
however, that any such Account shall only be ineligible as to that portion of
such Account which is less than or equal to the amount owed by Client to such
person; (5) Accounts which have been charged back to Client pursuant to Sections
8.1, 8.2, and 8.3 hereof; (6) cash-on-delivery Accounts; (7) cash sale Accounts;
(8) Accounts arising from sales to one customer in excess of thirty-five percent
(35%) of all outstanding Accounts, but only to the extent of such excess; and
(9) Accounts due from a customer whose principal place of business is located
outside the United States of America that are not covered by a letter of credit,
in acceptable form to Heller, in its sole discretion or which are not otherwise
Approved Accounts.
SECTION 3. REVOLVING LOANS/LETTERS OF CREDIT
3.1. (a) In addition to Advances described in Section 2 above,
subject to the terms and conditions of this Agreement, Heller will make
Revolving Loans to each Client upon such Client's request therefor and in
Heller's sole discretion up to, in the case of (1) NN, the NN Borrowing Base
plus the Undrawn Supplemental Amount, (2) HG, the HG Borrowing Base plus the
Undrawn Supplemental Amount and (3) HRNL, the HRNL Borrowing Base plus the
Undrawn Supplemental Amount; provided, however, in no event shall the aggregate
Revolving Loans to all Clients exceed (i) the Maximum Revolving Loan Amount plus
(ii) the Supplemental Amount; provided, further, the Supplemental Amount shall
equal zero ($0) during at least one consecutive thirty (30) day period during
each Contract Year (the "Clean Up Period"). In the event a Clean Up Period has
not occurred prior to the last month of any Contract Year, the Clean Up Period
shall be deemed to be the last consecutive thirty (30) day period of such
Contract Year. Amounts borrowed hereunder may be repaid and reborrowed from time
to time until such time as this Agreement terminates. "Eligible Inventory"
means, as at any date of determination, the value (determined at the lower of
cost or market on a first-in, first-out basis) of all Specified Finished Goods
Inventory owned by the applicable Client or other HG Entity, as the case may be,
and in the applicable Client's or other HG Entity's possession, as the case may
be, and located in the United States of America. Heller shall establish and may
adjust, in its sole discretion, standards to determine whether Inventory is
eligible for a Revolving Loan. Without limiting the foregoing, the following are
not Eligible Inventory: (a) work-in-process that is not readily marketable in
its current form, (b) finished goods which do not
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<PAGE> 4
meet the specifications of the purchase order for such goods, off-quality goods
and goods classified as seconds; (c) Inventory which Heller determines, in the
exercise of reasonable discretion and in accordance with Heller's or the
applicable Client's or other HG Entity's, as the case may be, customary business
practices, to be unacceptable for borrowing purposes due to age, quality, type,
category, quantity, and/or any other reason; (d) Inventory with respect to which
Heller does not have a valid, first priority and fully perfected security
interest; (e) Inventory with respect to which there exists any lien in favor of
any person other than Permitted Encumbrances; (f) Inventory produced in
violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provisions contained in Title 25 U.S.C. 215 (a) (i); (g) Inventory
located at any location other than those locations set forth on Schedule 7.8;
(h) other than Inventory located at a Retail Location, excess, non-active and
discontinued goods; (i) shop supplies and packaging materials; (j) goods subject
to a proprietary or private label restriction on disposition and (k) Inventory
which is not Specified Finished Goods Inventory.
(b) To the extent that, at any time, the total of all
Revolving Loans outstanding exceeds the Maximum Revolving Loan Amount, Client
shall pay to Heller upon its demand any and all amounts necessary to reduce the
aggregate outstanding Revolving Loans below the Maximum Revolving Loan Amount.
3.2. (a) Subject to the terms and conditions of this Agreement
and provided that there does not exist a Default or an Event of Default and in
reliance upon each Loan Party's representations and warranties herein set forth
and provided that there exists sufficient Letter of Credit Availability, Heller
shall issue guaranties ("Letter of Credit Guaranties") to banks ("Bank") to
induce Bank to issue letters of credit ("Letter of Credit") for Client's
account.
(b) The aggregate amount of Letter of Credit Guaranties
outstanding at any time shall not exceed the Letter of Credit Limit.
(c) The Letter of Credit Availability shall be reduced by
the amount of the Letter of Credit Reserve. In no event shall any Letter of
Credit Guaranty be issued to the extent that the issuance of such Letter of
Credit Guaranty would cause the sum of the Letter of Credit Reserve (after
giving effect to such issuance) plus the outstanding principal balance of the
Revolving Loan and Advances to exceed the Maximum Obligations. At such time as
Heller makes payment to Bank on such Letter of Credit Guaranties on Client's
behalf, all such payments shall be accounted for first as Advances to the extent
of Advance Availability, then as Revolving Loans to the extent of Revolving Loan
Availability, and shall bear interest as provided herein. Client shall be
irrevocably and unconditionally obligated forthwith without presentment, demand,
protest or other formalities of any kind, to reimburse Heller for any amounts
paid by Heller with respect to a Letter of Credit Guaranty including all fees,
costs and expenses paid by Heller to any bank that issues Letters of Credit.
Client hereby authorizes and directs Heller, at its option, to debit Client's
account in the amount of any payment made by Heller with respect to any Letter
of Credit.
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<PAGE> 5
(d) (i) Heller shall deliver a guaranty in form
acceptable to Bank to cause a Letter of Credit to be issued only to the extent
that sufficient Letter of Credit Availability exists under this Agreement.
(ii) In addition to all other terms and
conditions set forth in this Agreement, the issuance of any Letter of Credit
shall be subject to the conditions precedent that the Letter of Credit which
Client requests, be in such form, be for such amount, contain such terms and
support such transactions as are reasonably satisfactory to Heller. The
expiration date of each Letter of Credit shall be on a date which is at least
thirty (30) days prior to the Termination Date.
(e) Client shall give Heller at least three (3) business
days prior notice specifying the date a Letter of Credit is to be issued,
identifying the beneficiary and describing the nature of the transactions
proposed to be supported thereby. The notice shall be accompanied by the form of
the Letter of Credit being requested. No extensions, modifications, or
amendments to the Letter of Credit, the payment of which Heller has guarantied,
shall be made without Heller's prior written consent. The Letter of Credit shall
be drawn for valid purchases of merchandise or for the other purposes
specifically identified on Schedule 3.2(e) and shall be issued for payment at
sight. The execution hereof by Client shall be a continuing authorization and
direction to Heller to pay any draft presented with respect to a Letter of
Credit guarantied by Heller from any of Client's funds in Heller's hands or
under Heller's control and such payment shall be considered made for Client's
benefit and at Client's request.
(f) Client's obligation to reimburse Heller for payments
made under any Letter of Credit shall be unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Agreement under all
circumstances including the following circumstances:
(i) any lack of validity or enforceability of
any Letter of Credit or any other agreement;
(ii) the existence of any claim, set-off, defense
or other right which Client, any of its Affiliates or Heller, on the one hand,
may at any time have against any beneficiary or transferee of any Letter of
Credit (or any persons for whom any such transferee may be acting), Heller or
any other person, on the other hand, whether in connection with this Agreement,
the transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Client or any of its Affiliates and the
beneficiary of the Letter of Credit);
(iii) any draft, demand, certificate or any other
document presented under any Letter of Credit, forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(iv) payment under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit; provided that, in the case of
any payment by Heller under any
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<PAGE> 6
Letter of Credit, Heller has not acted with gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) in determining
that the demand for payment under such Letter of Credit complies on its face
with any applicable requirements for a demand for payment under such Letter of
Credit;
(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(vi) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(g) As between the parties hereto, Client assumes all
risks of the acts and omissions of, or misuse of any Letter of Credit by the
beneficiary thereof. In furtherance and not in limitation of the foregoing,
Heller shall not be responsible: (a) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (b) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (c) for
failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment thereunder; provided that, in the
case of any payment by Heller under any Letter of Credit, Heller has not acted
with gross negligence or willful misconduct (as determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit complies on its face with any applicable requirements for a
demand for payment thereunder; (d) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (e) for errors in
interpretation of technical terms; (f) for any loss or delay in the transmission
or otherwise of any document required in order to make a payment under any
Letter of Credit or of the proceeds thereof; (g) for the credit of the proceeds
of any drawing under any Letter of Credit; or (h) for any consequences arising
from causes beyond Heller's control. None of the above shall affect, impair, or
prevent the vesting of any of Heller's rights or powers hereunder.
(h) In furtherance and extension of and not in limitation
of, the specific provisions hereinabove set forth, any action taken or omitted
by Heller under or in connection with any Letter of Credit if taken or omitted
in good faith, shall not put Heller under any resulting liability to Client.
(i) Client shall comply with all of the terms and
conditions imposed upon Client by the Bank, whether such terms and conditions
are contained in the application for such Letter of Credit or any agreement with
respect thereto.
(j) In the event Client fails to pay to Heller, upon
demand, the total amount of any Letter of Credit Guaranty incurred by Heller on
Client's behalf in connection with any such Letter of Credit Guaranty, Heller
shall have, in addition to its
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<PAGE> 7
rights under the Uniform Commercial Code and under this Agreement, the same
rights as the Bank may have under any agreement relating to the issuance of the
Letters of Credit supported by such Letter of Credit Guaranty, each such
agreement being incorporated herein by reference, including, but without
limitation, the right to dispose of any and all Letters of Credit, and any and
all goods represented thereby, without further notice to Client, at public or
private sale and in accordance with the provisions hereof, for such price or
prices and upon such terms and conditions as Heller deems proper, and to apply
the net proceeds to the Obligations, as applicable, and Client hereby waives any
requirement of law for notice, advertising, or other formalities in connection
with any such sale or sales. Heller shall have the right to buy any such Letters
of Credit or goods represented thereby at any such sale.
(k) Each Loan Party hereby unconditionally agrees to
indemnify Heller and hold Heller harmless from any and all losses, claims, or
liabilities arising from any transactions or occurrences relating to any Letter
of Credit Guaranties, and any drafts or acceptances in connection therewith, and
all obligations incurred in connection therewith, including any such loss or
claim due to any action taken or omitted by the Bank. Each Loan Party's
unconditional obligations to Heller hereunder shall not be modified or
diminished for any reason or in any manner whatsoever. Each Loan Party agrees
that any charges made to Heller for Client's account by the Bank shall be
conclusive as between the parties hereto and may be charged to Client's account
hereunder. Each Loan Party hereby agrees that any action taken by Heller, if
taken in good faith, or any action taken by any Bank, under or in connection
with the Letter of Credit Guaranties, the drafts or acceptances in connection
therewith, or the Collateral relating thereto, shall be binding on each Loan
Party as to Heller and shall not impose any resulting liability on Heller.
3.3. (a) In no event shall the total amount of Revolving Loans
and Letter of Credit Reserve exceed the Revolving Loan Maximum. To the extent
that, at any time, the foregoing limit is exceeded, Client shall pay on demand
any and all amounts necessary to reduce the aggregate outstanding Revolving
Loans and Letter of Credit Reserve to or below the Revolving Loan Maximum.
(b) In no event shall the total amount outstanding of
Advances, Revolving Loans, Letter of Credit Reserve, Ledger Debt, and any other
Obligations exceed the Maximum Obligations. To the extent that, at any time, the
foregoing limit is exceeded, Client shall pay on demand any and all amounts
necessary to reduce the aggregate outstanding Obligations to or below such
amount.
SECTION 4. INTEREST AND COLLECTION CLEARANCE CHARGE/FEES AND EXPENSES
4.1. Client will pay Heller interest on the Daily Balance of
outstanding Advances and Revolving Loans at the Applicable Interest Rate.
Interest will be calculated daily and will be paid by Client or charged to
Client's account monthly at the end of each month. For purposes of interest
calculations hereunder, Client shall receive credit for all funds received by
Heller from Client or on Client's behalf, including the Collected Amount of
Accounts that is credited to Client's account, on the Collection Date. For
purposes of
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<PAGE> 8
availability of Advances, and Revolving Loans, and the issuance of Letter of
Credit Guaranties, Client shall receive credit for any such funds on the date
such funds become immediately available for Heller's use. The Applicable
Interest Rate will also be charged to Client on all other Obligations except
those specifying a different rate, from the date incurred through the date paid.
Any publicly announced decrease or increase in the Base Rate will result in an
adjustment to the Applicable Interest Rate on the next Business Day. Interest
will be calculated on the basis of a 360-day year for the actual number of days
elapsed. After the occurrence of an Event of Default and for so long as such
Event of Default continues, all Obligations under the Loan Documents will, at
Heller's option, bear interest at a rate per annum equal to the Default Rate.
4.2. In no event will the total amount of interest received by
Heller pursuant to the terms of this Agreement exceed the maximum rate permitted
by applicable law and in the event excess interest is determined by a court of
competent jurisdiction to have been paid by Client to Heller, such excess
interest will be applied as a credit against the outstanding Obligations and
Client will not have any action against Heller for any damages arising out of
the payment or collection of such excess interest.
4.3. If funds remain with Heller past the Payment Date and there
are no outstanding Advances, Revolving Loans, or other Obligations ("Matured
Funds"), Heller will credit Client's account with interest on such Matured Funds
at the rate per annum equal to the Base Rate minus three percent (3%).
4.4. If an Account or any payment is charged back to Client after
the Collection Date or Approved Payment Date, Client will pay Heller interest at
the Advance Interest Rate on the Net Amount of such Account or on such payment
from the Payment Date to the charge back date.
4.5. At the time Heller purchases an Account, Heller will charge
Client's account with a factoring commission of seven tenths of one percent
(0.7%) of the Net Amount of each Account. On Accounts bearing terms in excess of
sixty (60) days, the factoring commission will be increased by one-quarter of
one percent (.25%) for each thirty (30) days or part thereof that the stated
terms exceed sixty (60) days.
4.6. Client will pay to Heller or Heller may charge Client's
account (i) wire transfer fees for all wire transfers, (ii) all data
transmission telephone charges relating to Transmissions, (iii) exchanges on
checks, charges for returned items, and all other bank charges, (iv) all Costs,
(v) all other amounts owing by Loan Parties to Heller under this Agreement, and
(vi) all other Obligations.
4.7. Heller shall charge Clients for each audit (a) Heller performs
(utilizing an internal auditor) at a rate of $550.00 per auditor per day or any
portion thereof, together with out-of-pocket expenses and (b) Heller performs
(utilizing an independent auditor) at the daily rate charged by such independent
auditor, together with out-of-pocket expenses, not to exceed an aggregate amount
(with respect to the foregoing clause "(a)" and this clause "(b)" on a combined
basis) equal to $4,500 (exclusive of out-of-pocket expenses) per Contract Year
(absent the occurrence of a Default or an Event of Default).
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<PAGE> 9
4.8. Client shall pay to Heller on the Effective Date a closing fee
in the amount of $25,000 and a due diligence fee of $10,000.
4.9. [Intentionally Omitted.]
4.10. If Client terminates this facility in full prior to the
Termination Date, at the time of such termination, Client shall pay to Heller,
as compensation for the costs of being prepared to make funds available to
Client under this Agreement, and not as a penalty a termination fee as follows:
<TABLE>
<CAPTION>
If Termination Occurs Fee
--------------------- ---
<S> <C>
From the Effective Date through June 30, 1998 $160,000
From July 1, 1998 through December 31, 1998 $120,000
From January 1, 1999 through June 30, 1999 $ 80,000
From July 1, 1999 through December 31, 1999 $ 40,000
From January 1, 2000 and thereafter $ 0
</TABLE>
4.11. Client shall pay to Heller an annual administration fee of
$6,000 which shall be payable in equal monthly installments of $500, commencing
on January 1, 1998 and on the first day of each month thereafter during the term
of this Agreement.
4.12. Client shall pay to Heller a fee with respect to Letters of
Credit in the amount of (a) one quarter of one percent (.25%) of the face amount
thereof upon causing the opening of a Letter of Credit and (b) one eighth of one
percent (.125%) for each thirty (30) days or part thereof that such Letter of
Credit remains outstanding payable monthly in arrears on the first day of each
month. Client shall also reimburse Heller for any and all fees and expenses, if
any, paid by Heller to the issuer of Bank Letters of Credit.
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<PAGE> 10
SECTION 5. ADMINISTRATION
5.1. (a) Client will, from time to time, (i) execute and
deliver to Heller confirmatory schedules of Accounts assigned to Heller (each an
"Assignment Schedule"), together with one copy of each invoice, acceptable
evidence of shipment and such other documentation and proofs of delivery as
Heller may require or (ii) transmit to Heller by Transmission information
concerning Accounts in a format acceptable to Heller and, upon Heller's request,
deliver to Heller copies of invoices, acceptable evidence of shipment and such
other documentation and proofs of deliver as Heller may require relating to
Accounts so transmitted. Client will not will deliver Assignment Schedules in
connection with Transmissions, but Client acknowledges and agrees that every
invoice transmitted to Heller by Transmission will be deemed to have been sent
pursuant to the terms and conditions of an Assignment Schedule. Each Client
invoice relating to an Account and all copies and Transmissions thereof will
bear a notice, in form satisfactory to Heller, that the Account has been sold
and assigned to and is payable only to Heller. Client agrees that Client will
not change such notice on invoices and will not direct its customers to pay
Client or any third party amounts due under invoices. Client, at Heller's
discretion, agrees to prepare and mail (or, when required, send by Transmission)
all invoices relating to Accounts, but Heller may do so at Heller's option. Each
Loan Party agrees to execute and deliver to Heller such further instruments of
assignment, financing statements, and instruments of further assurance as Heller
may reasonably require. Each Loan Party authorizes Heller to execute on such
Loan Party's behalf and file such UCC financing statements as Heller may deem
necessary in order to perfect and maintain the security interests granted by
such Loan Party in accordance with this Agreement. Each Loan Party further
agrees that Heller may file this Agreement or a copy hereof as such UCC
financing statement.
(b) If any remittances are made directly to any Loan
Party or any Loan Party's employees or agents, such Loan Party shall act as
trustee of an express trust for Heller's benefit, hold the same as Heller's
property, and deliver the same to Heller forthwith in kind. Heller, and/or such
designee as Heller may from time to time appoint, are hereby appointed each Loan
Party's attorney-in-fact to endorse such Loan Party's name on any and all checks
or other forms of remittances received by Heller where such endorsement is
required to effect collection and transmit notices to customers, in such Loan
Party's or Heller's name, that amounts owing by them have been assigned and are
payable directly to Heller; this power, being coupled with an interest, is
irrevocable.
(c) Each Client will supply customers, in the format
required by customers, with all forms, documents, certificates, etc. that
customer requires to process the Account for payment. If Heller notifies any
Client verbally and/or by Written Notice or Transmission that a customer which
only accepts invoices for payment from Client through Transmission is requesting
that such Client review its invoice data for correctness and re-transmit
invoices by Transmission and if after thirty (30) days from the date of such
Notice such invoices remain unposted to such customer's records, Heller will
place the Accounts evidenced by such invoices in Dispute.
5.2. On any day when Client desires to have an Advance or Revolving
Loan made in accordance with Subsection 2.2 or 3.1 hereof, Client shall give
Heller telephone
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notice of the requested Advance or Revolving Loan by 12:00 p.m. New York, New
York time. Heller shall not incur any liability to Client for acting upon any
telephonic notice that Heller believes in good faith to have been given by a
duly authorized officer or other person authorized to request Advances or
Revolving Loans on Client's behalf or for otherwise acting in good faith under
this subsection. Heller reserves the right, at its option, to not make any
Revolving Loan pursuant to any telephonic notice unless Heller has also received
the Borrowing Base Certificate for such day and all other documents required by
Section 5.3 by 12:00 p.m. (New York, New York) time.
5.3. Each Loan Party will maintain a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP. Each Loan
Party will promptly furnish Heller with such statements prepared by or for such
Loan Party showing such Loan Party's financial condition and the results of
their operations as Heller requests verbally or by Written Notice. Client and
Parent will deliver to Heller the financial statements and other reports
described below:
(a) Quarterly Financials. As soon as available and in any
event within forty-five (45) days after the end of each quarter of a Fiscal
Year, Parent will deliver the consolidating balance sheet of Parent and its
Reporting Subsidiaries as at the end of such period and the related
consolidating statements of income, stockholders' equity, and cash flow for such
quarter of a Fiscal Year and for the period from the beginning of the then
current Fiscal Year to the end of such quarter of a Fiscal Year and such
financial statements shall have been reviewed by MR Weiser & Co. or such other
firm of independent certified public accountants selected by Parent and
reasonably acceptable to Heller to the extent Parent delivers reviewed financial
statements to the Securities and Exchange Commission.
(b) Year-End Financials. As soon as available and in any
event within one hundred and five (105) days after the end of each Fiscal Year,
Parent will deliver to Heller Parent's and the Reporting Subsidiaries'
consolidated annual financial statements and a report with respect to the
financial statements issued by MR Weiser & Co. or such other firm of independent
certified public accountants selected by Parent and reasonably acceptable to
Heller, which report shall be unqualified as to Parent's and the Reporting
Subsidiaries' going concern and scope of audit and shall state that (a) such
consolidated financial statements present fairly Parent's and the Reporting
Subsidiaries consolidated financial condition as at the dates indicated and the
results of Parent's and the Reporting Subsidiaries' operations and cash flow for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years and (b) the examination by such accountants in connection with such
consolidated financial statements has been made in accordance with generally
accepted auditing standards.
(c) Accountants' Reports. Promptly upon receipt thereof,
Parent will deliver to Heller copies of all significant reports submitted to
Parent by Parent's independent public accountants in connection with each of
Parent's and the Reporting Subsidiaries' annual, interim, or special audit of
the financial statements made by such accountants, including the comment letter
submitted by such accountants to management in connection with their annual
audit.
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<PAGE> 12
(d) Compliance Certificate. Together with the delivery of
each set of financial statements referenced in subparts (a), (b) and (c) and (2)
of this subsection, Client and Parent will deliver to Heller a Compliance
Certificate in form attached as Schedule 5.3.
(e) Access to Accountants. Parent authorizes Heller to
communicate directly with its independent certified public accountants and
authorizes such accountants to discuss Parent's and the Reporting Subsidiaries'
financial condition and financial statements directly with Heller to the extent
Parent delivers reviewed financial statements to the Securities and Exchange
Commission.
(f) Projections. Within thirty (30) days of the first six
(6) months of each Fiscal Year and Fiscal Year end, Parent and the Reporting
Subsidiaries shall provide to Heller Projections for their next twelve (12)
months of operations.
(g) Reports. On the Effective Date and within five (5)
Business Days after the last day of each month and from time to time upon
Heller's request, Client will deliver, and at Heller's request each other Loan
Party will, deliver to Heller with respect to each Loan Party, as applicable:
(i) a list of open orders, (ii) an Inventory and Reconciliation Report, (iii) an
aged trial balance of all then existing accounts payable; and (iv) a schedule of
all outstanding Letters of Credit and acceptances listing opening date,
expiration date, face amount (and a letter supported by Heller or Client's
affiliate). All such reports shall be in form and substance satisfactory to
Heller. If Heller requests, each Loan Party agrees to provide Heller with copies
of all of such Loan Party's bills of lading or proofs of delivery and supplier
invoices and receiving evidence and of such Loan Party's sales registry, sales
journal, or other information regarding sales, including customer open order
reports.
(h) Borrowing Base Certificates, Registers, and Journals.
On Monday of each week, Client shall deliver to Heller (i) a Borrowing Base
Certificate as of Friday of the previous week updated to reflect each Loan
Party's most recent purchases of Inventory and sales and, at Heller's request an
assignment schedule of all Accounts created by Client since submission of the
most recent Borrowing Base Certificate; (ii) an invoice register or sales
journal describing all of Client's Loan Party's sales for that day, in form and
substance satisfactory to Heller, and, if Heller so requests, copies of invoices
evidencing such sales and proofs of delivery relating thereto; and (iii) a cash
receipts journal.
(i) Appraisals. At Heller's request, each Loan Party, at
such Loan Party's expense, will obtain and deliver to Heller appraisal reports
in form and substance and from appraisers satisfactory to Heller, stating the
then current fair market and orderly liquidation values of all or any portion of
the Collateral; provided, however, so long as no Event of Default shall then be
in existence, no such Loan Party shall be required to obtain and deliver any
such appraisal report in the event the aggregate expenses incurred by the Loan
Parties under this clause "(i)" (with supporting backup for such expenses
delivered to Heller) during any Contract Year exceed $16,000; provided, further,
in connection with any such appraisal Heller shall use its reasonable efforts to
instruct the applicable appraiser to conduct such appraisal in a manner which
would not reasonably be expected to interfere with the ordinary operation of
such Loan Party's business.
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<PAGE> 13
5.4. If Heller determines that the credit standing of a customer
has deteriorated after Heller has assumed the Credit Risk on an Account, Client
will, at Heller's request, exercise such rights as Client may have to reclaim or
stop the goods in transit, and Client hereby grants to Heller the right to take
such steps in Client's or Heller's name.
5.5. Heller will render a monthly statement of account to Client
within twenty (20) days after the end of each month. Such statement of account
will constitute an account stated unless Client makes objection thereto by
Written Notice within forty-five (45) days from the date such statement is
rendered to Client.
5.6. Client authorizes Heller to disclose such information as
Heller deems appropriate to persons making credit inquiries about any Loan
Party.
5.7. (a) Each Advance and Revolving Loan to Client hereunder
shall be deposited in immediately available funds in such account as Client may
from time to time designate to Heller in writing. Unless payment is otherwise
timely made by Client, the becoming due of any amount required to be paid under
this Agreement or any other documents as principal, accrued interest, or fees
shall be deemed irrevocably to be a request by Client for an Advance or a
Revolving Loan on the due date of, and in the amount required to pay, such
principal, accrued interest, and fees, and the proceeds of each such Advance or
Revolving Loan if made by Heller shall be disbursed by Heller by way of direct
payment of the relevant Obligation.
(b) All requests for funds by Client shall first be
accounted for as Advances, to the extent of availability of Advances, and then
as Revolving Loans, to the extent of availability of Revolving Loans.
5.8. Each Loan Party shall permit Heller and any authorized
representatives designated by Heller to visit and inspect any of the properties
of such Loan Party or any of such Loan Party's Subsidiaries, including its and
their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances, and business with its
and their officers at such times during normal business hours and as often as
Heller requests. (Each Loan Party acknowledges that Heller intends to make such
inspections on at least a quarterly basis.) Heller may, at any time after the
occurrence and declaration of an Event of Default and acceleration of the
Obligations, remove from such Loan Party's premises all such records, files, and
books relating to Accounts.
SECTION 6. CONDITIONS
6.1. Heller's obligation to make Revolving Loans, Advances, and
issue Letter of Credit Guaranties hereunder on the Effective Date and thereafter
are subject to satisfaction of all of the conditions set forth below:
(a) Heller shall have received, in form and substance
satisfactory to Heller, the duly executed Loan Documents and all other
documents, instruments, and information and agreements, notes, guarantees,
certificates, orders, authorizations, financing
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<PAGE> 14
statements, mortgages, and other documents which Heller may at any time
reasonably request, including, but not limited to, appropriate landlord and
licensor consents and waivers and evidence of insurance.
(b) Heller shall have received satisfactory evidence that
all security interests and liens granted to Heller pursuant to this Agreement or
the other Loan Documents have been duly perfected and constitute first priority
liens in the Collateral.
(c) The representations and warranties contained herein
must be true, correct, and complete in all material respects on and as of the
Effective Date and the date of each request for an Advance or a Revolving Loan
to the same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date or such
changes thereto which have been expressly consented to in writing by Heller. Any
Loan Party may at any time amend any Schedule referred to in this Agreement,
provided that in no event may any Loan Party amend any such Schedule if the
existence of the information contained in such amendment would reflect or
evidence a Default or Event of Default or if the information contained in such
amendment relates to a fact or circumstance occurring prior to such amendment
and the applicable Loan Party was required under the terms of this Agreement to
give prior notice to Heller and such proper notice was not so given.
(d) No event shall have occurred and be continuing or
would result from the consummation of the requested Advance or Revolving Loan or
notice requesting issuance of a Letter of Credit that would constitute a Default
or an Event of Default.
(e) No order, judgment, or decree of any court,
arbitrator, or governmental authority shall purport to enjoin or restrain Heller
from making Advances or Revolving Loans or issuing any Letters of Credit
Guaranties.
(f) Except as set forth on Schedule 6.1(f), there shall
not be pending or, to Client's knowledge, threatened, any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation, or arbitration
by, against, or affecting Client or any of its Subsidiaries or any of Client's
property or any of Client's Subsidiaries' properties that has not been disclosed
by Client in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation, or arbitration that, in Heller's opinion, would reasonably be
expected to have a Material Adverse Effect.
(g) The Acquisition shall have been completed on terms
and conditions satisfactory to Heller.
(h) Heller shall have received (i) a subordination
agreement with each of Mr. Hong Han and Ms. Della Rounick with respect to
indebtedness owing to them by HG, (ii) a subordination agreement with Mr. Hong
Han with respect to indebtedness owing to him by NN, (iii) [a subordination and
intercreditor agreement with Cho Hung Bank of New York, (iv) a subordination and
intercreditor agreement with Mr. Hong Han
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<PAGE> 15
and (v) an agreement with each Licensor, each of which shall be in form and
substance satisfactory to Heller.
SECTION 7. REPRESENTATIONS, WARRANTIES, AND COVENANTS
7.1. Each Client represents, warrants, and covenants as to each
Account that, at the time of its sale and assignment to Heller, the Account is a
valid, bona fide Account, representing an undisputed indebtedness incurred by
the named customer for goods actually sold and delivered or for services
completely rendered; the Account is payable in United States dollars; there are
no set offs, offsets, counterclaims, or other defenses, genuine or otherwise, to
the payment or collection of the Account; the Account does not represent a sale
to any Client's Subsidiaries or Affiliates other than Accounts arising out of
any Client's sale to any other Loan Party of Inventory in the ordinary course of
business for retail sale, directors, officers, agents, stockholders, or
employees or a consignment sale, guaranteed sale or bill and hold transaction or
a cash on delivery sale (other than in connection with the sale by any Client to
any other Loan Party of Inventory in the ordinary course of business for retail
sale); no agreement exists permitting any deduction or discount (other than the
discount stated on the invoice); such Client is the lawful owner of the Account
and has the right to sell and assign the same to Heller; the Account is free of
all security interests, liens, and encumbrances (including tax liens) other than
those in favor of Heller and Permitted Encumbrances; and the Account is due and
payable in accordance with its terms.
7.2. Except for Permitted Encumbrances, no Loan Party will grant or
suffer to exist in favor of any other party other than Heller any Lien upon or
security interest in the Collateral.
7.3. All books and records pertaining to the Accounts or to any
Inventory owned by each Loan Party will be maintained solely and exclusively at
the above address or the addresses set forth on Schedule 7.8 hereof and no such
books and records shall be moved or transferred without giving Heller thirty
(30) days prior Written Notice.
7.4. After Heller's request, each Loan Party will hold all
returned, replevied, or reclaimed goods relating to Accounts coming into such
Loan Party's possession in trust for Heller and all such goods will be
segregated and identified as held in trust for Heller's benefit and each Loan
Party will, at Heller's request, and at such Loan Party's expense, deliver such
goods to such place or places as Heller may designate.
7.5. (a) The trade names or styles set forth on Schedule 7.5
are the only trade names or styles under which the Loan Parties transact
business or have transacted business during the last five (5) years; Accounts
sold to Heller hereunder and represented by invoices bearing such trade names or
styles are wholly-owned by the applicable Loan Party; the undertakings,
representations, and warranties made in connection therewith will be identical
to and of the same force and effect as those made with respect to invoices
bearing such Loan Party's corporate name; each Loan Party's use of any trade
names or styles is in compliance with all laws regarding the use of such trade
names or styles. Each Loan Party
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<PAGE> 16
will give Heller thirty (30) days prior Written Notice of the change of any
trade name or style or such Loan Party's use of any new trade name or style.
(b) Each Loan Party hereby assigns, transfers, and
conveys to Heller, effective upon the occurrence of any Event of Default
hereunder and acceleration of the Obligations, the non-exclusive right and
license to use all trade names or styles owned by such Loan Party and, to the
extent such Loan Party has the legal right to do so, a license to use all
tradenames or styles not owned but used by such Loan Party, together with any
goodwill associated therewith, all to the extent necessary to enable Heller to
realize on any assets of such Loan Party in which such Loan Party has granted
Heller a security interest. Such right and license is granted free of charge
without requirement that any monetary payment whatsoever be made to such Loan
Party or any third party by Heller.
7.6. No discounts, credits, or allowances will be issued, granted,
or allowed by Client to customers and no returns will be accepted without
Heller's prior written consent; provided, however, that until Heller notifies
such Client to the contrary, such Client may presume Heller's consent.
Discounts, credits, or allowances once issued may be claimed only by the
customer.
7.7. After giving effect to the Acquisition and the transactions
contemplated by this Agreement, each Loan Party is a corporation or limited
liability company, as applicable, duly formed and, except as set forth on
Schedule 7.7, in good standing under the laws of the State of its formation and
qualified in all States where such qualification is required, except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect; the execution, delivery, and performance of this Agreement have
been duly authorized and are not in contravention of any applicable law, any
Loan Party's corporate charter, by-laws, certificate of formation, operating
agreement or any agreement or order by which such Loan Party is bound; no Loan
Party is, to the best of such Loan Party's knowledge, in violation of any law,
ordinance, rule, regulation, order, or other requirement of any government or
instrumentality or agency thereof.
7.8. No Loan Party shall change its corporate name or the location
of its office or open any new offices without giving Heller at least thirty (30)
days prior Written Notice. At the present time, each Loan Party carries on
business and maintains Inventory only at the above address and the addresses set
forth on Schedule 7.8 applicable to such Loan Party.
7.9. Except for sales of Inventory in the ordinary course of each
Loan Party's business, no Loan Party shall sell, lease, transfer, or otherwise
dispose of all or substantially all of such Loan Party's property or assets, or
acquire assets of (outside the ordinary course of business purchases),
consolidate with or merge into or with any corporation or entity without
Heller's prior written consent; provided, however, with prior written notice to
Heller any Loan Party (other than a Client) may merge with any other Loan Party
(other than a Client).
7.10. Each Loan Party covenants and agrees that until payment in
full of all Obligations, each such Loan Party shall comply with all covenants in
this Section 7.10. All
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<PAGE> 17
of the following covenants shall be calculated on a consolidated basis with
respect to Parent and Reporting Subsidiaries.
(a) Tangible Net Worth. Parent and Reporting Subsidiaries
shall at the end of each Fiscal Quarter set forth below maintain Tangible Net
Worth of not less than the amount set forth opposite such Fiscal Quarter end as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ending: Tangible Net Worth:
------------------- -------------------
<S> <C>
5/31/98 $ 4,250,000
5/31/99 7,000,000
5/31/00 10,500,000
5/31/01 and each Fiscal Year 15,500,000
end thereafter
</TABLE>
(b) Working Capital. Parent and Reporting Subsidiaries
shall at the end of each Fiscal Quarter maintain Working Capital of not less
than $2,200,000.
(c) Current Ratio. Parent and Reporting Subsidiaries
shall maintain at the end of each Fiscal Quarter a Current Ratio of not less
than 1.30 to 1.00.
(d) Capital Expenditure Limits. The aggregate amount of
the Loan Parties' Capital Expenditures on a consolidated basis (excluding
trade-ins and excluding Capital Expenditures in respect of replacement assets to
the extent funded with casualty insurance proceeds) will not exceed $300,000 per
Fiscal Year. In the event that any Loan Party enters into a Capital Lease or
other contract with respect to fixed assets, for purposes of calculating Capital
Expenditures under this subsection only, the amount of the Capital Lease or
contract initially capitalized on such Loan Party's balance sheet prepared in
accordance with GAAP shall be considered expended in full on the date that such
Loan Party enters into such Capital Lease or contract. Permitted Capital
Expenditures not made in any Fiscal Year may be carried over for one year only
to the next Fiscal Year, provided, however, any carried over Capital Expenditure
will be deemed used only after all otherwise permitted Capital Expenditures for
that Fiscal Year have been used.
7.11. In order to induce Heller to enter into this Agreement and to
make Advances, and Revolving Loans, and issue Letter of Credit Guaranties, each
Loan Party represents and warrants to Heller that the following statements are
and at all times will be true, correct, and complete:
(a) There are no judgments outstanding, against, or
affecting any Loan Party's property nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation, or arbitration
now pending or, to the best of such Loan Party's knowledge after due inquiry,
threatened against or affecting any Loan Party or any of its property which
could reasonably be expected to result in any Material Adverse Effect. No Loan
Party has received any opinion or memorandum or legal advice from legal counsel
to
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<PAGE> 18
the effect that such Loan Party is exposed to any liability or disadvantage
which could reasonably be expected to result in any Material Adverse Effect.
(b) All of each Loan Party's material tax returns and
reports required to be filed have been timely filed (including permitted
extensions), and all taxes, assessments, fees, and other governmental charges
upon each Loan Party and upon each Loan Party's respective properties, assets,
income, and franchises which are shown on such returns as due and payable have
been paid when due and payable, other than any tax which such Loan Party is
contesting in good faith by appropriate proceedings promptly instituted and
diligently conducted so long as such Loan Party has established appropriate
reserves as shall be required in conformity with GAAP. No Loan Party's United
States income tax returns are under audit as of the date of this Agreement. No
tax liens have been filed and no claims are being asserted with respect to any
such taxes which have not been discharged, released, vacated, bonded, or stayed
within ten (10) days after the filing thereof. The charges, accruals, and
reserves on any Loan Party's books in respect of any taxes or other governmental
charges are in accordance with GAAP.
(c) Except as set forth on Schedule 7.11(c), no Loan
Party is in default in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any of such Loan Party's
contractual obligations and no condition exists that, with the giving of notice
or the lapse of time or both, would constitute such a default, where such
default could reasonably be expected to have a Material Adverse Effect.
(d) No Loan Party is in violation of any law, ordinance,
rule, regulation, order, policy, guideline, or other requirement of any domestic
or foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of such Loan Party's business or the ownership of
such Loan Party's properties, including, without limitation, any violation
relating to any use, release, storage, transport, or disposal of any hazardous
material, which violation would subject such Loan Party or any of such Loan
Party's respective officers to criminal liability or have any Material Adverse
Effect and no such violation has been alleged.
(e) All information furnished to Heller concerning the
Collateral, Accounts, Inventory, contracts relating thereto, and proceeds
thereof, each Loan Party's financial condition or otherwise, is and will be
complete, accurate, and correct in all material respects at the time the same is
furnished.
(f) All covenants, representations, and warranties
contained in this Agreement shall be true and correct on the Effective Date and
shall be deemed continuing, other than any representation or warranty limited by
its terms to a specific date or such changes thereto which have been expressly
consented to in writing by Heller.
7.12. Each Loan Party will maintain or cause to be maintained in
good repair, working order, and condition all material properties used in such
Loan Party's business and will make or cause to be made all appropriate repairs,
renewals, and replacements thereof. Each Loan Party has and will maintain or
cause to be maintained, with financially sound and reputable insurers, public
liability, product liability, and property damage insurance
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<PAGE> 19
with respect to such Loan Party's business and properties against loss or damage
of the kinds customarily carried or maintained by corporations of established
reputation engaged in similar businesses and in amounts acceptable to Heller,
including business interruption insurance. At all times each Loan Party shall
have and maintain insurance with respect to all Inventory, to the fullest extent
of the insurable value thereof, against risks of fire, theft, sprinklers, and
such other risks as Heller may require, in such form, for such periods, and
written by such insurers as may be satisfactory to Heller, such insurance to
bear endorsements, in form acceptable to Heller, naming Heller as additional
insured and designating Heller as loss payee. Each Loan Party shall deliver to
Heller promptly as rendered true copies of all monthly reports made to insurance
companies under any reporting forms of insurance policies. If requested by
Heller, originals of all such policies shall be delivered to and held by Heller
for so long as any of the Obligations are unpaid or unperformed. After the
occurrence of an Event of Default, Heller may act as agent for any Loan Party in
making, adjusting, settling, instituting suit upon, and prosecuting claims
regarding, obtaining, and canceling such insurance and in endorsing and
collecting any drafts and other forms of payment. Except as to business record
insurance, if any Loan Party fails to maintain such insurance, Heller may, but
need not, obtain the same and charge the cost thereof to Client's Revolving Loan
or Advances. The proceeds of any such insurance shall be applied in reduction of
Client's Revolving Loan.
7.13. All of the Inventory now owned or hereafter acquired by any
Loan Party is and will be of good and merchantable quality, and each Loan Party
is and will be the owner of such Inventory free from any lien, security
interest, or encumbrance, except Permitted Encumbrances; that none of the
Inventory is or will be stored with a bailee (hereinafter called "Warehouseman")
without Heller's written consent, and, in such event, such Loan Party will
immediately cause the Warehouseman to issue and deliver to Heller, should Heller
so require, warehouse receipts or other documents in Heller's name and in form
acceptable to Heller, evidencing the storage of such Inventory; that such Loan
Party warrants and will defend the Inventory against all claims and demands of
any persons at any time; and that such Loan Party has good, legal, and absolute
right and power to pledge and grant liens and security interests in the
Inventory to Heller. Except as set forth on Schedule 7.8, no Loan Party does nor
shall, without Heller's prior written consent, maintain any Inventory at any
contractor's location. To the extent any Loan Party uses contractors, such Loan
Party shall execute such documents as Heller may request, and such Loan Party
shall require its contractor to execute such documents as Heller may request in
order for Heller to protect its security interest in any Inventory located at a
contractor. Whenever any Inventory is located upon leased premises, the
applicable Loan Party shall, at Heller's request, use reasonable efforts to
cause the owner and lessor of such premises to execute and deliver to Heller
consents and subordination's of lien in form acceptable to Heller.
7.14. Each Loan Party covenants and agrees:
(a) To notify Heller immediately of any event causing
loss or depreciation (not previously reflected in the then current Borrowing
Base) in the value of Inventory and the amount of such loss or depreciation to
the extent such loss or
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<PAGE> 20
depreciation at any time exceeds $75,000 with respect to any item of Inventory
or $150,000 with respect to all items of Inventory;
(b) To keep correct current stock, cost and sales records
of such Loan Party's Inventory, accurately and sufficiently itemizing and
describing the kinds, type, and quantities of Inventory and the cost and selling
prices thereof, all of which records shall be continuously available to Heller
for inspection, and Heller shall at all reasonable times have access to and the
right to inspect and draw off data from any of such Loan Party's other books and
records for the purposes of checking and verifying all such statements, stock,
cost and sales records;
(c) At all reasonable times and from time to time, by or
through any of such Loan Party's officers, agents, attorneys, or accountants,
permit Heller to examine or inspect the Inventory wherever located and, for such
purposes, to enter upon such Loan Party's premises or wherever any of the
Inventory may be found; and
(d) Until the occurrence of an Event of Default, each
Loan Party may use the Inventory in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon,
may use and consume any raw materials or supplies, the use and consumption of
which is necessary in order to carry on such Loan Party's business, and may also
sell the Inventory in the ordinary course of business. (A sale in the ordinary
course of business does not include a transfer in partial or total satisfaction
of a debt owing by any Loan Party to any person other than Heller.)
7.15. Each Loan Party covenants and agrees that so long as any
Obligations remain outstanding such Loan Party shall not, without Heller's prior
written consent:
(a) Directly or indirectly create, incur, assume,
guaranty (other than the guaranty by one Loan Party of the obligations for which
another Loan Party is the primary obligor), or otherwise become or remain
directly or indirectly liable, on a fixed or contingent basis, with respect to
any Indebtedness except the Obligations, Permitted Intercompany Debt and trade
payables and normal accruals in the ordinary course of business not yet due and
payable or with respect to which such Loan Party is contesting in good faith the
amount or validity thereof by appropriate proceedings and then only to the
extent that such Loan Party has established adequate reserves therefor, if
appropriate under GAAP.
(b) Except for endorsements of instruments or items of
payment for collection in the ordinary course of business, guaranty (other than
pursuant to a Permitted Guaranty), endorse, or otherwise in any way become or be
responsible for any obligations of any other person, whether directly or
indirectly by agreement to purchase the indebtedness of any other person or
through the purchase of goods, supplies or services, or maintenance of Working
Capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other person or otherwise.
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(c) Directly or indirectly create, incur, assume or
permit to exist any Lien on or with respect to any of the Collateral or any
proceeds, income, or profits therefrom, other than Permitted Encumbrances.
(d) Except as set forth on Schedule 7.14(d), enter into
or assume any agreement (other than this Agreement) prohibiting the creation or
assumption of any Lien upon any of such Loan Party's properties or assets,
whether now owned or hereafter acquired.
(e) Except as provided herein, directly or indirectly
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Loan Party's
Subsidiaries to: (1) pay dividends or make any other distribution on any of such
Subsidiary's capital stock owned by such Loan Party or any of such Loan Party's
Subsidiaries; (2) subject to subordination provisions, pay any indebtedness owed
to such Loan Party's Subsidiaries or Affiliates; (3) other than in connection
with Permitted Intercompany Debt, make loans or advances to any of such Loan
Party's Subsidiaries or Affiliates; or (4) transfer any of such Loan Party's
property or assets to any of such Loan Party's Subsidiaries or Affiliates, other
than the sale of Inventory in the ordinary course of business for retail sale.
(f) Make or permit to exist investments in or loans to
any other person except loans and advances to employees for moving,
entertainment, travel, and other similar expenses in the ordinary course of
business and in connection with Permitted Intercompany Debt.
(g) Directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Junior Payment.
(h) Except as set forth in Schedule 7.14(h), directly or
indirectly enter into or permit to exist any transaction (including the
purchase, sale, or exchange of property or the rendering of any service) with
any Affiliate or with any officer, director, or employee of any Affiliate,
except for transactions in the ordinary course of and pursuant to the reasonable
requirements of such Loan Party's business and upon fair and reasonable terms
which are fully disclosed to Heller and which are no less favorable to such Loan
Party than such Loan Party would obtain in a comparable arm's length transaction
with an unaffiliated person and for the sale of Inventory by any Client to any
other Loan Party in the ordinary course of business for retail sale.
(i) From and after the Effective Date, engage in any
business, other than the businesses of the type engaged in by such Loan Party or
its Affiliates on the Effective Date.
(j) Establish any new bank accounts, or amend or
terminate any agreement without Heller's prior written consent. As of the date
hereof, each Loan Party maintains only those bank accounts set forth on Schedule
7.15(j).
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(k) Change or amend the terms of the Subordinated Debt if
the effect thereof would be to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Indebtedness; (c) change any event of default or add any
covenant with respect to such Indebtedness; (d) change the payment provisions of
such Indebtedness; (e) change the subordination provisions thereof; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to any Loan Party or Heller.
7.16. Client shall use the proceeds of all Advances and Revolving
Loans for proper business purposes consistent with all applicable laws,
statutes, rules and regulations. No portion of the proceeds of any Advance or
Revolving Loan shall be used by any Loan Party or any of its Subsidiaries for
the purpose of purchasing or carrying margin stock within the meaning of
Regulation G or Regulation U, or in any manner that might cause the borrowing or
the application of such proceeds to violate Regulation T or Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities and Exchange Act of 1934, as amended.
7.17. On and after that date which is thirty (30) days from the
Effective Date, Client shall maintain key man life insurance covering Mr. Hong
Han in the amount of $1,500,000, which policy shall contain a loss payable
clause in form satisfactory to Heller naming Heller as loss payee and providing
that all proceeds payable thereunder shall be payable in any event to Heller,
unless written consent to the contrary is obtained from Heller.
7.18. Each Loan Party shall provide Heller prompt Written Notice in
the event the United States income tax returns of such Loan Party are under
audit.
7.19. Each entity set forth on Schedule 7.19 is an inactive
Subsidiary of Parent (each, an "Inactive Subsidiary") conducting no business of
any nature whatsoever and owning no assets. No Loan Party shall at any time
during the term of this Agreement make loans to or investments in any such
Inactive Subsidiary.
SECTION 8. DISPUTES, CHARGE BACKS, AND RESERVES
8.1. With respect to any Account, upon the occurrence of a breach
of any of the representations or warranties contained in Sections 7.1 and 7.2,
or upon the assertion by a customer of a Dispute such Account may, at Heller's
option, be charged back to Client. In the event Client does not, within fifteen
(15) days of Heller's request, deliver to Heller a copy of the invoice and such
other information as Heller requests relating to an Account with respect to
which information was transmitted to Heller through Transmission, Heller will
have the right to charge back such Account to Client.
8.2. Each Loan Party will notify Heller immediately by Written
Notice in the event that a customer alleges any Dispute, or returns or desires
to return any goods purchased from Client relating to an Account. After an Event
of Default, Heller may, but
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is not obligated to settle, compromise, adjust, or litigate all such Disputes or
returns upon such terms as Heller deems advisable. If any unadjusted Dispute
delays the payment of any Approved Account when due, Heller will have the right,
within sixty (60) days of the occurrence of such Dispute, to charge back to
Client that Account.
8.3. Heller may, at Heller's option, charge back to Client all
amounts owing on Non-Approved Accounts which are not paid when due.
8.4. Client will pay Heller or Heller may charge Client's account
with the amount of any payment which Heller receives with respect to a
Non-Approved Account if such payment is subsequently disgorged by Heller,
whether as a result of any proceeding in bankruptcy or otherwise.
8.5. Client shall purchase promptly all Accounts charged back by
Heller, provided, however, that until payment by Client to Heller of all monies
due with respect to such charged back Account, title thereto shall remain with
Heller. At such time as Client shall pay to Heller all monies due with respect
to such charged back Account, title shall pass to Client subject, however, to
Heller's security interest therein. Client agrees to indemnify and save Heller
harmless from and against any and all loss, costs and expenses caused by or
arising out of Disputed Accounts, including, but to limited to, collection
expenses and attorneys' fees incurred with respect thereto.
8.6. Heller may maintain such reserves as Heller, in Heller's sole
discretion, deems advisable as security for the payment and performance of the
Obligations, including, without limitation reserves for the amount of any
Account which is subject to a Dispute.
SECTION 9. COLLATERAL SECURITY
9.1. As security for all Obligations, each Loan Party hereby
assigns and grants to Heller a continuing security interest, in and to all of
such Loan Party's right, title, and interest on the following collateral,
whether now owned or existing or hereafter acquired or arising and regardless of
wherever located (the "Collateral"): (A) Accounts, and all guaranties and
security therefor, and all goods and rights represented thereby or arising
therefrom including the right of stoppage in transit, replevin, and reclamation;
(B) Inventory (other than raw materials and work-in-process); (C) general
intangibles (as defined in the UCC); (D) documents (as defined in the UCC) or
other receipts covering, evidencing, or representing goods; (E) instruments (as
defined in the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment;
(H) Intellectual Property; (I) all of such Loan Party's deposit accounts
maintained with any bank or financial institution; (J) all of such Loan Party's
cash and other monies and property in the possession or under the control of
Heller; (K) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the property described above
or are otherwise necessary or helpful in the collection thereof or realization
thereon; (L) all tax refunds from whatever sources; (M) products and proceeds of
all or any of the property described above, including, without limitation, the
proceeds of any insurance policies covering any of the
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above described property. Recourse to the Collateral herein provided shall not
be required, and such Loan Party shall at all times remain liable for the
payment and performance of all Obligations upon demand by Heller.
SECTION 10. EVENTS OF DEFAULT
10.1. The occurrence of any of the following acts or events will
constitute an Event of Default: (a) if any Loan Party fails to make payment of
any of the Obligations when due, (b) if any Loan Party fails to make any
remittance required by this Agreement, (c) if any Loan Party fails to perform or
comply with any term or condition contained in subsections 5.3 (a), (b) or (c),
7.2, 7.10, 7.15 or 7.17, (d) if any Loan Party commits any breach of any of the
terms, representations, warranties, covenants, conditions, or provisions of this
Agreement, other than those set forth in subsection (c) above, or of any present
or future supplement or amendment hereto or of any other agreement between any
Loan Party and Heller and such Default is not remedied or waived within thirty
(30) days (other than the occurrences described in other provisions of this
subsection 10.1 for which a different grace or cure period is specified or which
constitutes immediate Events of Default), (e) any representation, warranty,
certification, or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such person in writing
pursuant to or in connection with any Loan Document is false in any material
respect on the date made, (f) if any Client becomes insolvent or unable to meet
such Client's debts as they mature, (g) if any Loan Party delivers to Heller a
false financial statement, (h) if any Client calls, or has called by a third
party, a meeting of creditors, (i) if any bankruptcy proceeding, insolvency
arrangement, or similar proceeding is commenced by or against any Client, (j) if
any Client suspends or discontinues doing business for any reason, (k) if a
receiver or trustee of any kind is appointed for any Client or any Client's
property, (l) if any Loan Party fails to pay any of its taxes when due, other
than (subject to clause "(q)" of this Section 10.1) any tax which such Loan
Party is contesting in good faith by appropriate proceedings promptly instituted
and diligently conducted so long as such Loan Party has established appropriate
reserves as shall be required in conformity with GAAP, (m) if any guarantor of
any Loan Party's Obligations dies or becomes insolvent or has commenced by or
against such guarantor any bankruptcy proceeding, insolvency arrangement, or
similar proceeding, (n) if any guaranty of any Loan Party's Obligations is
terminated or if there is a default under any such guaranty, (o) other than the
change of ownership occurring on the Effective Date expressly contemplated by
the Acquisition, if any change of ownership occurs with respect to more than (i)
forty percent (40%) of Parent's capital stock or (ii) one hundred percent (100%)
of any Loan Party's capital stock or membership interests, (p) if any Loan Party
fails to pay when due any principal or interest on any Indebtedness or a breach
or default occurs with respect to any Indebtedness if such failure to pay,
breach, or default entitles the holder to cause such Indebtedness having an
individual principal amount in excess of $100,000 or having an aggregate
principal amount in excess of $200,000 to become or be declared due prior to its
stated maturity, (q) if any Lien, money judgment, levy, assessment, seizure, or
writ or warrant of attachment is entered or filed against any Loan Party with
respect to the Accounts or any other Collateral in which such Loan Party has
granted Heller a security interest or any of such Loan Party's assets and any
such Lien, judgment, levy, assessment,
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seizure, or writ, or warrant of attachment remains undischarged, unreleased,
unvacated, unbonded, or unstayed for a period of ten (10) days, (r) if any Loan
Party sells, leases, transfers, or otherwise disposes of all or substantially
all of such Loan Party's property, assets, or inventory, or consolidates with or
merges into or with any corporation or entity or (s) if Mr. Hong J. Han shall at
any time fail to act in the capacity as a principal officer and director of
Parent and HGI.
10.2. (a) (i) Upon the occurrence and during the
continuance of an Event of Default, notwithstanding any grace period or right to
cure, Heller, without notice or demand, may immediately cease making additional
Advances, or Revolving Loans, or issue Letter of Credit Guaranties, provided
that, in the case of a Default, if the subject condition or event is waived or
cured within any applicable grace or cure period, Heller's obligation to make
such Advances, or Revolving Loans, or issue Letter of Credit Guaranties shall be
reinstated.
(ii) Upon the occurrence and during the
continuance of an Event of Default described in the foregoing subsections 10.1
(i) or (k), all Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, or other requirements of any
kind, all of which are hereby expressly waived by each Loan Party and Heller's
obligation to make Advances or Revolving Loans shall thereupon terminate. Upon
the occurrence and during the continuance of any other Event of Default, Heller
may, by Written Notice to Client on behalf of all Loan Parties, (a) declare all
or any portion of the Obligations to be, and the same shall forthwith become,
immediately due and payable and the commitments shall thereupon terminate and
(b) demand that Client immediately deposit with Heller an amount equal to one
hundred five percent (105%) of the Letter of Credit Reserve to enable Heller to
make payments under the Letters of Credit when required and such amount shall
become immediately due and payable.
(b) In addition to the foregoing, upon the occurrence of
an Event of Default, Heller shall have the right to:
(i) take possession of the Collateral without
judicial process and to enter any premises without hindrance and without any
Loan Party's consent where any Collateral may be located, for the purpose of
taking possession of the Collateral; however, should Heller seek to take
possession of any or all of the Inventory by court process, each Loan Party
hereby irrevocably waives any bonds and any surety or security relating thereto
required by any statute, court rule, or otherwise as an incident to such
possession, and waives any demand for possession prior to the commencement of
any suit or action to recover possession thereof;
(ii) sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with or without notice,
demand, or advertisement, in lots or in bulk, for cash or on credit, all as
Heller in its sole discretion may deem advisable; such sales may be adjourned
from time to time with or without notice. If any Collateral is in process or
otherwise unfinished, Heller may, but need not, complete the manufacturing or
processing
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thereof, utilizing without charge each Loan Party's plant, machinery, equipment,
and processes, and any expenses incurred in connection therewith shall be
charged to Client's Revolving Loan. Heller shall have the right to conduct such
sales on each Loan Party's premises or elsewhere and shall have the right to use
each Loan Party's premises without charge for such sales for such term or times
as Heller may see fit. Heller is hereby granted a lien and security interest in
and the right to use (to the extent such Loan Party has the legal right to grant
Heller such a license with respect to names such Loan Party does not own),
without charge, each Loan Party's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trade marks and advertising matter, or any
property of a similar nature, in completing the manufacturing, advertising for
sale and selling any Collateral, and each Loan Party's rights under all licenses
and all franchise agreements shall inure to Heller's benefit. Heller reserves
the right to purchase any Collateral at any such sale. The proceeds realized
from the sale of any Collateral shall be applied first to the costs, expenses,
and reasonable attorneys' fees incurred by Heller for collection and for
acquisition, completion, protection, removal, storage, sale, and delivery of
each Loan Party's Collateral; second to the interest due upon the Obligations;
and third to the principal of each Loan Party's Obligations. The surplus, if
any, shall be paid to the applicable Loan Parties, or if any deficiency shall
arise, each Loan Party shall remain liable to Heller therefor.
(c) Heller shall not be liable or responsible in any way
for the safeguarding of any of said Collateral, for any loss or damage thereto,
for any diminution in the value thereof, or for any act or default of any
carrier, Warehouseman, forwarding agency, or other person whomsoever, but the
same shall be at all times at each Loan Party's risk.
10.3. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, EACH LOAN
PARTY WAIVES (a) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT ANY TIME HELD BY HELLER
ON WHICH SUCH LOAN PARTY MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND
CONFIRMS WHATEVER HELLER MAY DO IN THIS REGARD; (b) NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING HELLER TO EXERCISE ANY OF ITS REMEDIES;
AND (c) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, AND EXEMPTION LAWS.
10.4. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, EACH LOAN PARTY
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY HELLER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR
TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
EACH LOAN PARTY ACKNOWLEDGES THAT CLIENT
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HAS BEEN ADVISED BY COUNSEL OF SUCH LOAN PARTY'S CHOICE WITH RESPECT TO THIS
WAIVER AND THIS AGREEMENT.
10.5. Heller shall not be under any obligation to marshal any assets
in any Loan Party's favor or any other party or against or in payment of any or
all of the Obligations. To the extent that a payment is made to Heller or Heller
enforces its security interests or exercises its rights of set off, and such
payment or payments or the proceeds of such enforcement or set off or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set off had not occurred.
10.6. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Heller, and each assignee of Heller's
interest, is hereby authorized by each Loan Party at any time or from time to
time, without notice to such Loan Party or to any other person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held by Heller at any of Heller's offices for any Loan Party's
account (regardless of whether such balances are then due to such Loan Party)
and any other property at any time held or owing that Heller or its assignee to
or for the credit or for Client's account against and on account of any of the
Obligations then outstanding.
10.7. (a) No provision in this Agreement or in any of the other
Loan Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by Heller or any Loan Party.
(b) Neither Heller, nor any of its parent, affiliates,
officers, directors, shareholders, employees, attorneys, or agents shall have
any liability with respect to, and each Loan Party hereby waives, releases, and
agrees not to sue any of them, upon any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by such Loan Party in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. Each Loan Party hereby waives,
releases, and agrees not to sue Heller or any of its parent, affiliates,
officers, directors, shareholders, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby other than claims arising out of such party's gross (not
mere) negligence or willful misconduct.
10.8. Each Loan Party hereby assigns, transfers, and conveys to
Heller, effective upon the occurrence of any Event of Default hereunder, the
non-exclusive right and license to use all Intellectual Property owned or (to
the extent such Loan Party has the legal right to do so with respect to
Intellectual Property it does not own) used by such Loan Party
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together with any goodwill associated therewith, all to the extent necessary to
enable Heller to realize on the Collateral and any successor or assign to enjoy
the benefits of the Collateral. This right and license shall inure to the
benefit of all successors, assigns, and transferees of Heller and its
successors, assigns, and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure, or
otherwise. Such right and license is granted free of charge without requirement
that any monetary payment whatsoever be made to Client by Heller.
10.9. If either party to this Agreement shall bring any action for
any relief against the other, declaratory or otherwise, arising out of this
Agreement, the losing party shall pay to the prevailing party a reasonable sum
for attorney fees incurred in bringing such suit and/or enforcing any judgment
granted therein, all of which shall be deemed to have accrued upon the
commencement of such action and shall be paid whether or not such action is
prosecuted to judgment. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney fees and
costs incurred in enforcing such judgment. For the purposes of this section,
attorney fees shall include, without limitation, fees incurred in the following:
(1) postjudgment motions; (2) contempt proceedings; (3) garnishment, levy, and
debtor and third party examinations; (4) discovery; and (5) bankruptcy
litigation.
SECTION 11. TERM AND TERMINATION
11.1. This Agreement will continue in force and effect for two (2)
years from the Effective Date and shall renew for annual terms thereafter unless
terminated by Client upon not less than thirty (30) days Written Notice but no
more than sixty (60) days Written Notice prior to the end of the initial or any
renewal term; provided, however, Heller may terminate this Agreement at any time
by giving Client not less than sixty (60) days Written Notice. Upon termination,
Client shall cause Heller to be released from all liability under the Letters of
Credit, or, at Heller's option, Client will deposit cash collateral with Heller
in an amount equal to one hundred five percent (105%) of the Letter of Credit
Liability that will remain outstanding after repayment.
11.2. Notice of termination shall be given by messenger, registered
or certified mail, facsimile or commercial delivery service; provided, however,
that Client shall not terminate this Agreement so long as Client is indebted or
obligated to Heller in connection with any other financing arrangements.
Notwithstanding any such Written Notice of termination, each Loan Party's and
Heller's respective rights and obligations arising out of transactions having
their inception prior to the date of termination of this Agreement will not be
affected by the termination of this Agreement and all terms, provisions, and
conditions hereof, including, but not limited to, the security interests
hereinabove granted to Heller (including Heller's security interest in the
Collateral arising, acquired, or created after the date of termination of this
Agreement), will continue in full force and effect until all Obligations have
been paid in full. All of the representations, warranties, indemnities, and
covenants made by each Loan Party herein (including, without limitation, the
undertaking set forth in Section 8.4 hereof) will survive the termination of
this Agreement.
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SECTION 12. MODIFICATIONS
12.1. This Agreement and the other Loan Documents embody the entire
agreement among the parties hereto and supersede all prior commitments,
agreements, representations, and understandings, whether written or oral,
relating to the subject matter hereof, and may not be contradicted or varied by
evidence of prior, contemporaneous, or subsequent oral agreements or discussions
of the parties hereto. This Agreement will be binding upon each Loan Party's and
Heller's respective successors and assigns, but may not be assigned by any Loan
Party without Heller's prior written consent. No delay or failure on Heller's
part in exercising any right, privilege, or option hereunder will operate as a
waiver thereof or of any other right, privilege, or option. No waiver whatsoever
will be valid unless in a Written Notice, signed by Heller, and then only to the
extent therein set forth. If any term or provision of this Agreement is held
invalid under any statute, rule or regulation of any jurisdiction competent to
make such a decision, the remaining terms and provisions will not be affected
but will remain in full force and effect.
SECTION 13. GOVERNING LAW, VENUE, AND WAIVER OF JURY
13.1. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
13.2. CONSENT TO JURISDICTION. EACH LOAN PARTY HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO HELLER'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH
LOAN PARTY EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH LOAN PARTY HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON SUCH LOAN PARTY BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH LOAN PARTY, AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE
SAME HAS BEEN POSTED.
13.3. WAIVER OF JURY TRIAL. EACH LOAN PARTY AND HELLER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. EACH LOAN
PARTY AND HELLER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND
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THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN
THEIR RELATED FUTURE DEALINGS. CLIENT AND HELLER WARRANT AND REPRESENT THAT EACH
HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
SECTION 14. APPLICATION OF PAYMENTS
14.1. All payments made by or on behalf of any Loan Party and all
credits due to any Loan Party may be applied and reapplied in whole or in part
to any of the Obligations to the extent and in the manner that Heller may see
fit.
SECTION 15. MISCELLANEOUS AND NOTICES
15.1. In the event that any provision of this Agreement is deemed to
be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Agreement shall be construed as
not containing such provision, the invalidity of such provision will not affect
the validity of any other provision of this Agreement and all other provisions
of this Agreement which are otherwise lawful and valid shall remain in full
force and effect.
15.2. Any Written Notice to be given under this Agreement (or such
other address as may have been designated in a Written Notice) will be in
writing addressed to the respective party as set forth in this Agreement and
will be personally served, telecopied, or sent by overnight courier service or
United States mail and will be deemed to have been given (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. New York, New
York time) or, if not, on the next succeeding Business Day; (c) if delivered by
overnight courier, on the day of delivery or refusal; or (d) if by United States
mail, certified mail, return receipt requested, on the day of delivery or
refusal, four (4) Business Days after depositing the same in the United States
mail, postage prepared and properly addressed.
15.3. Each Loan Party agrees to jointly and severally indemnify, pay
and hold Heller and its parent, officers, directors, shareholders, employees,
agents, affiliates, and attorneys and such holders (collectively called the
"Indemnities") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses,
and disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnities in connection with any
investigative, administrative, or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or any other Loan Documents, the
consummation of the transactions contemplated by this Agreement, Heller's
agreement to make the Advances, and Revolving Loans, and issue Letter of Credit
Guaranties hereunder, the use or intended use of the
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proceeds of any of the Advances or Revolving Loans or the exercise of any right
or remedy hereunder or under any other Loan Documents (the "Indemnified
Liabilities"); provided that no Loan Party shall have any obligation to an
Indemnitee hereunder with respect or Indemnified Liabilities arising from
willful misconduct or gross (not mere) negligence of that Indemnitee as
determined by a court of competent jurisdiction.
15.4. This Agreement, together with any and all other Loan
Documents, constitutes the final and entire agreement between the parties hereto
and supersedes any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto and no
amendment, modification, termination, or waiver of any provision of this
Agreement or of any other Loan Documents, or consent to any departure by any
Loan Party therefrom, shall be effective unless the same shall be by Written
Notice.
SECTION 16. DEFINITIONS
16.1. The defined terms used in this Agreement shall have the
following meanings:
"Accounts" means all presently existing or outstanding and all
hereafter created or acquired accounts (as defined in the UCC), contract rights,
documents, notes, drafts, instruments, and other forms of obligations owed to or
owned by any Loan Party arising or resulting from the sale of goods or the
rendering of services by any Loan Party, all general intangibles relating
thereto, all proceeds thereof, all guaranties and security therefor, and all
goods and rights represented thereby or arising therefrom, including, but not
limited to, returned, reclaimed, and repossessed goods and the right of stoppage
in transit, replevin, and reclamation.
"Acquisition" means (1) the sale of all of the issued and outstanding
shares of capital stock of NN to Parent and the issuance to Mr. Hong Han of not
less than forty-four percent (44%) of the issued and outstanding capital stock
of Parent and (2) the purchase of certain indebtedness presently due and owing
by Parent to (a) Marine Midland Bank et al and (b) Ms. Vasiliki Della
Pasvantidou Rounick.
"Advance Availability" means the difference between (i) the Maximum
Advance Amount and (ii) Advances outstanding.
"Advance Interest Rate means the Base Rate plus one percent (1%).
"Advances" means all Advances made by Heller to Client pursuant to
Sections 2.2 and 2.3 hereof.
"Affiliate" means any person (other than Heller): (a) directly or
indirectly controlling, controlled by, or under common control with any Loan
Party; (b) directly or indirectly owning or holding five percent (5%) or more of
any equity interest in any Loan Party; and (c) five percent (5%) or more of
whose voting stock or other equity interest is
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directly or indirectly owned or held by any Loan Party. For the purposes of this
definition, "control" (including with the correlative meanings, the terms
"controlling", "controlled by", and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities or by contract or otherwise.
"Applicable Interest Rate" means (a) the Advance Interest Rate with
respect to Advances and (b) the Revolving Loan Interest Rate with respect to
Revolving Loans.
"Approved Account" means an Account representing a sale to a customer
within the credit line established for such customer on Client's normal selling
terms or within the single order credit approval given by Heller for orders from
such customer provided that Delivery is completed while the credit line or
single order credit approval remains in effect and which has not been charged
back to Client.
"Approved Payment Date" means the date which is one hundred twenty
(120) days after the due date for payment of an Approved Account.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Base Rate"
shall mean a variable rate of interest per annum equal to the highest of "prime
rate", "reference rate", "base rate", or other similar rate announced from time
to time by any of The Chase Manhattan Bank, Citibank or Bankers Trust Company,
or their successors (with the understanding that any such rate may merely be a
reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by any such bank).
"Borrowing Base" means, as applicable, the NN Borrowing Base, the HG
Borrowing Base and the HRNL Borrowing Base.
"Borrowing Base Certificate" means a certificate and assignment
schedule duly executed by an officer of Client appropriately completed and in
substantially the form of Exhibit A.
"Business Day" means any day excluding Saturday, Sunday, and any day
which is a legal holiday under the laws of the States of Illinois, Pennsylvania,
or New York or is a day on which banking institutions located in any such states
are closed.
"Capital Expenditures" means all expenditures (including deposits) for,
or contracts for expenditures (excluding contracts for expenditures under or
with respect to Capital Leases entered into prior to the Effective Date, but
including cash down payments for assets acquired under Capital Leases after the
Effective Date) with respect to any fixed
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assets or improvements, or for replacements, substitutions or additions thereto,
which have a useful life of more than one year, including the direct or indirect
acquisition of such assets by way of increased product or service charges,
offset items or otherwise.
"Collateral" has the meaning ascribed to that term in Section 9 hereof.
"Collected Amount" means the amount received by Heller from a customer
in payment of an Account up to the Net Amount of such Account.
"Collection Date" means five (5) Business Days after the date on which
Heller receives payment of an Account.
"Compliance Certificate" means a certificate duly executed by Client's
chief executive officer or chief financial officer appropriately completed and
in substantially the form of Schedule 5.3.
"Contract Year" means the twelve (12) month period immediately
following the Effective Date and each anniversary thereof.
"Costs" means all costs fees and expenses (including attorney's fees
and the allocated costs of internal counsel) incurred by Heller in connection
with (i) the creation, negotiation or administration of this Agreement, any
related instrument, document or agreement, or any waiver, forbearance, amendment
or modification thereof, (ii) the perfection, protection, preservation or
enforcement of Heller's rights in any collateral in which Heller has been
granted a security interest and (iii) all filing fees, filing taxes or search
reports. Audit costs incurred by Heller and appraisal costs incurred by the Loan
Parties shall be subject to the limitations set forth in Sections 4.7 and
5.3(I), as applicable.
"Credit Risk" means the risk that a customer will be financially unable
to pay an Account at maturity, provided that the merchandise has been received
or services rendered and accepted by the customer without Dispute.
"Current Ratio" means the ratio of current assets to current
liabilities, provided, however, for purposes of this calculation, current assets
shall not include intangibles, notes receivable, and amounts due from Affiliates
and current liabilities shall exclude the Revolving Loan.
"Daily Balance" means the outstanding balance of all monies remitted,
paid, or otherwise advanced by Heller to Client or for Client's account plus all
commissions, fees, charges, and expenses charged to Client's account in
accordance with the terms hereof less all amounts credited to Client's account
in accordance with the terms hereof.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" means the Applicable Interest Rate plus three percent
(3%).
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"Delivery" means the delivery of goods or performance of services in
accordance with the terms agreed to in writing between the applicable Loan Party
and a customer, provided that if no such terms are specified in writing,
Delivery shall mean delivery of goods or performance of services at the
customer's place of business.
"Dilution" means the percentage calculated as of January 1, 1998 and as
of the first day of each month thereafter resulting from dividing (a) the
aggregate "chargebacks" made by Heller to Client's account hereunder over the
immediately preceding three-month period (the "Period") by (b) the gross
collections of Accounts over the Period.
"Dispute" means a dispute or claim, bona fide or otherwise, as to
price, terms, quantity, quality, Delivery, or any claim or defense to collection
or payment of an Account whatsoever other than financial inability of a customer
to pay the Account.
"Effective Date" means the date set forth below Heller's signature
hereto.
"Eligible Accounts" has the meaning assigned to that term in Section
2.2 hereof.
"Eligible Inventory" has the meaning absorbed to that term in Section
3.1(a).
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all machinery, motor vehicles, trucks, trailers, vessels,
aircraft and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"Event of Default" means each of the events set forth in Section 10.1
hereof.
"Fiscal Quarter" means each three month period ending on the last day
of August, November, February and May of each Fiscal Year.
"Fiscal Year" means the twelve month period ending on May 31 of each
year.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination.
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"Guarantor" means each Loan Party (other than Clients).
"Guaranty" means collectively the continuing guaranty by Guarantors
substantially in the form reasonably acceptable to Heller as such agreement may
hereafter be amended, restated, supplemented, or otherwise modified from time to
time.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Heller Clients" means any persons, corporations, partnerships,
companies, associations, or entities (other than Client) which have entered into
any other factoring, intercredit, or financing arrangements with Heller.
"HG Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of the HG Entities' Eligible
Inventory bearing the Oleg Cassini or Black Tie by Oleg Cassini label, (ii)
fifty percent (50%) of the HG Entities' Eligible Inventory in-transit from Hong
Kong to the United States of America, (iii) sixty percent (60%) of the HG
Entities' Eligible Inventory not covered by the foregoing clauses "(i)" or
"(ii)" and (iv) fifty percent (50%) times the aggregate amount of outstanding
Letters of Credit relating to finished goods Inventory of the HG Entities.
"HG Entities" means, collectively, HG, H.R.I. Inc., European
Collections of Reading Station, Inc., European Collections of Harriman, Inc.,
European Collections of Gilroy, Inc., European Collections of Chattanooga, Inc.,
European Collections Outlet, Inc., European Collections of Williamsburg, Inc.,
European Collections of Queenstown, Inc., and European Collections of
Silverthorne, Inc.
"HRNL Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of HRNL's Eligible Inventory
in-transit from Hong Kong to the United States of America, (ii) sixty percent
(60%) of HRNL's Eligible Inventory not covered by the foregoing clause "(i)" and
(iii) fifty percent (50%) times the aggregate amount of outstanding Letters of
Credit relating to finished goods Inventory of HRNL.
"Indebtedness" means, at a particular time, (a) indebtedness for
borrowed money or for the deferred purchase price of property or services in
respect of which any Loan Party is liable, contingently or otherwise, as
obligor, guarantor, or otherwise
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or any commitment by which any Loan Party assures a creditor against loss,
including, but not limited to, subordinated indebtedness, (b) obligations under
leases which shall have been or should be, in accordance with GAAP, recorded as
Capital Leases in respect of which obligations any Loan Party is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations any Loan Party assures a creditor against loss, and (c) any
Loan Party's obligation to a multiemployer plan or any other unfunded pension
obligations and liabilities with respect to any other plan.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"Intercreditor Agreements" means (i) the Subordination and
Intercreditor Agreement to be executed by Heller and Mr. Hong Han on the
Effective Date and (ii) the Subordination and Intercreditor Agreement to be
executed by Heller and Cho Hung Bank on the Effective Date, each in form and
substance acceptable to Heller, as the same may be amended, modified and
supplemented from time to time.
"Inventory" means all "inventory" (as defined in the UCC) now owned or
hereafter acquired by any Loan Party, wherever located including finished goods,
raw materials, work in process, and other materials and supplies used or
consumed in any Loan Party's business and goods which are returned to or
repossessed by any Loan Party.
"Inventory Report" means a report duly executed by an officer of Client
appropriately completed and in substantially the form of Exhibit B.
"Ledger Debt" means indebtedness owing by Client to Heller as a result
of Heller's purchases of invoices evidencing sales to Client by Heller Clients.
"Letter of Credit" has the meaning ascribed to that term in Section 3.2
hereof.
"Letter of Credit Availability" means the sum of (a) Advances
Availability and (b) Revolving Loan Availability, less the sum of all Advances,
Revolving Loans, and Letter of Credit Reserves outstanding, but in no event in
excess of the Letter of Credit Limit.
"Letter of Credit Guaranty" has the meaning ascribed to that term in
Section 3.2 hereof.
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"Letter of Credit Liability" means the reimbursement and other
liabilities of Client with respect to each Letter of Credit, whether contingent
or otherwise, including (a) the amount available to be drawn or which may become
available to be drawn; (b) all amounts which have been paid or made available by
the issuing bank to the extent not reimbursed; and (c) all unpaid interest,
fees, and expenses.
"Letter of Credit Limit" means $2,000,000.
"Letter of Credit Reserve" means at any time an amount equal to (a) one
hundred percent (100%) of the aggregate amount of Letter of Credit Liability
with respect to all standby Letters of Credit outstanding at such time, plus (b)
one hundred percent (100%) of the aggregate amount of Letter of Credit Liability
with respect to all documentary Letters of Credit outstanding at such time, plus
(c) the aggregate amount theretofore paid by Heller under Letters of Credit and
not debited to Client's account, otherwise reimbursed by Client.
"Licensor" means each of Oleg Cassini, N.N.C.S. LLC, Constance Saunders
and Vasiliki Della Pasvantidou Rounick.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Documents" means collectively this Agreement, the Guaranty, the
Subordination Agreement, the Intercreditor Agreements and all other instruments,
documents and agreements executed by or on behalf of the Loan Parties and
delivered concurrently herewith or at any time hereafter to Heller in connection
with the Advances or Revolving Loan and other transactions contemplated by this
Agreement, all as amended, restated, supplemented, or modified from time to
time.
"Loan Party" means, collectively, each Client, Parent, H.R.I. Inc.,
N.N.C.S. LLC, NNCS-NJ LLC, European Collections of Reading Station, Inc.,
European Collections of Harriman, Inc., European Collections of Gilroy, Inc.,
European Collections of Chattanooga, Inc., European Collections Outlet, Inc.,
European Collections of Williamsburg, Inc., European Collections of Queenstown,
Inc., and European Collections of Silverthorne, Inc.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets, or condition (financial or
otherwise) of any Loan Party (other than any Client) taken as a whole together
with all other Loan Parties (other than Clients) or any Client on an individual
basis or (b) the ability of any Loan Party (other than any Client) taken as a
whole together with all other Loan Parties (other than Clients) to perform their
respective obligations under any Loan Document to which they are a party or of
any Client on an individual basis to perform its respective obligations under
any Loan Document to which it is a party or of Heller to enforce or collect any
of the Obligations.
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"Maximum Advance Amount" means the lesser of (i) $20,000,000 or (ii)
the percentage rate of Advances provided for in section 2.2 multiplied by the
amount of Eligible Accounts, less any reserves established by Heller hereunder.
"Maximum Obligations" means $20,000,000.
"Maximum Revolving Loan Amount" means the lesser of (i) the appropriate
percentage rate for Revolving Loans provided for in Section 3.1 hereof
multiplied by the amount of Eligible Inventory, less any reserves established by
Heller hereunder, (ii) $8,000,000 or (iii) forty percent (40%) of the total of
all Advances and Revolving Loans outstanding, less any reserves established by
Heller hereunder.
"Net Amount" means the gross amount of an Account less the discount
offered by Client and taken by Heller at the time Heller purchases such Account
and less the amount of credit memos assigned by Client to Heller.
"NN Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of NN's Eligible Inventory in-transit
from Hong Kong to the United States of America, (ii) sixty percent (60%) of NN's
Eligible Inventory not covered by the foregoing clause "(i)" and (iii) fifty
percent (50%) times the aggregate amount of all outstanding Letters of Credit
relating to finished goods Inventory of NN.
"Non-Approved Account" means (a) an Account with respect to which
Heller has not issued a credit approval or has subsequently withdrawn a credit
approval or (b) an Approved Account that has been charged back to Client.
"Obligations" means all Revolving Loans, Advances, Indebtedness, debts,
liabilities, obligations, covenants, and duties owing by Loan Party to Heller,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including, without limitation, Ledger Debt, and
indebtedness arising under any guaranty made by any Loan Party for Heller's
benefit or issued by Heller on any Loan Party's behalf.
"Parent" means The He-Ro Group, Ltd., a Delaware corporation.
"Payment Date" means the Collection Date or the Approved Payment Date
as applicable.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, Warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social
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security, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (d) easements, rights-of-way, restrictions, and other similar charges or
encumbrances not interfering in any material respect with the ordinary conduct
of the business of any Loan Party or any of its Subsidiaries; (e) Liens for
purchase money obligations, provided that (i) the purchase of the asset subject
to any such Lien is permitted hereunder, (ii) the Indebtedness secured by any
such Lien is permitted hereunder, and (iii) such Lien encumbers only the asset
so purchased; (f) Liens in favor of Heller, and (g) Liens set forth on Schedule
7.2.
"Permitted Intercompany Debt" means loans and advances made by a Loan
Party to another Loan Party in connection with ordinary course transactions
among the Loan Parties consistent with past practice.
"Projections" means Parent's and its Reporting Subsidiaries forecasted
consolidated and consolidating: (a) balance sheets; (b) profit and loss
statements; (c) cash flow statements; and (d) capitalization statements, all
prepared on a GAAP basis consistent with Parent's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Purchase Price" means an amount equal to the Net Amount of an Account,
less factoring commissions, credits, (including, without limitation, merchandise
returns and credit memos) charge backs, allowances, and all other fees and
charges provided hereunder.
"Reconciliation Report" means a report duly executed by Client's chief
executive officer or chief financial officer appropriately completed and in
substantially the form of Exhibit C.
"Reporting Subsidiaries" means each Loan Party (other than Parent).
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any Loan Party's shares of any
class of stock or membership interests, as applicable, now or hereafter
outstanding, except a stock dividend; (b) any payment or prepayment of principal
of, premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Subordinated Debt or any Loan
Party's shares of any class of stock or membership interests, as applicable, now
or hereafter outstanding, other than in accordance with the terms and provisions
of the Subordination Agreement and the Intercreditor Agreements; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any Loan Party's class of stock or
membership interests, as applicable, now or hereafter outstanding; and (d) any
payment by any Loan Party of any management fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise, other than
ordinary salary and other compensation paid to employees of such Loan Party.
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"Retail Location" means each location identified on Schedule 3.1(a)(h).
"Revolving Loan" means the loans extended to Client by Heller pursuant
to Section 3 hereof and any amounts added to the principal balance pursuant to
this Agreement.
"Revolving Loan Availability" means the difference between (i) the
Maximum Revolving Loan Amount and the (ii) (a) the sum of Revolving Loans
outstanding and (b) Letter of Credit Reserves.
"Revolving Loan Interest Rate" means the Base Rate plus one and one
quarter percent (1.25%).
"Revolving Loan Maximum" means $10,000,000.
"Specified Finished Goods Inventory" means finished goods Inventory
relating solely to the then most recent five Spring and Fall selling seasons of
the applicable Client or other HG Entity. In determining the foregoing, each
Spring season shall be deemed to commence on December 1 and end on May 31 of
each calendar year and each Fall season shall be deemed to commence on June 1
and end on November 30 of each calendar year.
"Subordinated Debt" means all Indebtedness owing by Client to Mr. Hong
Han, and Ms. Vasiliki Della Pasvantidou Rounick.
"Subordination Agreement" means the Subordination Agreement to be
executed by each of Mr. Hong Han and Ms. Vasiliki Della Pasvantidou Rounick, in
form reasonably acceptable to Heller, as amended, modified and supplemented from
time to time.
"Subsidiary" means, with respect to any person, any corporation,
association, or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof
is at the time owned or controlled, directly or indirectly, by that person or
one or more of the other subsidiaries of that person or a combination thereof.
"Supplemental Amount" means $1,500,000.
"Supplemental Amount Revolving Loans" means, with respect to any
Client, Revolving Loans extended to such Client pursuant to Section 3 hereof in
amounts in excess of its respective Borrowing Base.
"Tangible Net Worth" means an amount equal to: (a) Parent's net worth
as calculated (on a consolidated basis, together with the Reporting
Subsidiaries) in accordance with GAAP; plus (b) the amount of any indebtedness
owing to any person
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by any Loan Party which is subordinated to Heller; less (c) each Loan Party's
intangible assets; less (d) each Loan Party's prepaid expenses; less (e) all
obligations owed to any Loan Party by any Loan Party's Affiliates; and less (f)
all loans by any Loan Party to any Loan Party's officers, stockholders, or
employees.
"Termination Date" means the date described in Section 11.1 hereof.
"Transmission" means Transmission through Heller's proprietary system
or through Electronic Data Interchange.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York as amended from time to time, and any successor
statute.
"Undrawn Supplemental Amount" at a particular date means with respect
to any Client the Supplemental Amount minus the aggregate Supplemental Amount
Revolving Loans then outstanding to all Clients.
"Working Capital" means: (a) Parent and the Reporting Subsidiaries'
current assets on a consolidated basis; less (b) Parent and the Reporting
Subsidiaries' current liabilities on a consolidated basis; and less (c) the
amount of any obligations owed to Parent or any Reporting Subsidiary by any such
entity's Affiliates; and less (d) deferred tax assets.
"Written Notice" means notice given in writing in accordance with
Section 15 hereof.
16.2. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Heller pursuant to this Agreement shall be prepared in accordance with GAAP (as
in effect at the time of such preparation) on a consistent basis. In the event
any Accounting Changes (as defined below) shall occur and such changes affect
the financial covenants, standards, or terms of this Agreement, then the Loan
Parties and Heller each agree to enter into negotiations in order to amend such
provisions of this Agreement so as to equitably reflect such Accounting Changes
with the desired result that the criteria for evaluating each Loan Party's
financial condition shall be the same after such Accounting Changes as if such
Accounting Changes had not been made, and until such time as such an amendment
shall have been executed and delivered by each Loan Party and Heller, (A) all
financial covenants, standards, and terms of this Agreement shall be calculated
and/or construed as if such Accounting Changes had not been made and (B) each
Loan Party shall prepare footnotes to the financial statements required to be
delivered hereunder that show the differences between the financial statements
delivered (which reflect such Accounting Changes) and the basis for calculating
financial covenant compliance (without reflecting such Accounting Changes).
"Accounting Changes" means: (a) changes in accounting principles required by
GAAP and implemented by each Loan Party; (b) changes in accounting principles
recommended by each Loan Party's certified public accountants; and (c) changes
in carrying value of each Loan
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<PAGE> 42
Party's (or any Loan Party's Subsidiaries') assets, liabilities or equity
accounts resulting from the application of purchase accounting principles
(A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109). All such adjustments
resulting from expenditures made subsequent to the Effective Date (including,
but not limited to, capitalization of costs and expenses or payment of
pre-Effective Date liabilities) shall be treated as expenses in the period the
expenditures are made.
16.3. References to "Sections", "subsections", "Exhibits" and
"Schedules" shall be to Sections, subsections, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in subsection 16.1 may, unless the context otherwise requires,
be used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Loan Documents; references to persons include their respective permitted
successors and assigns or, in the case of governmental persons, persons
succeeding to the relevant functions of such persons; and all references to
statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations.
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<PAGE> 43
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the Effective Date.
THE HE-RO GROUP, INC.
By: /s/ Sam Kaplan
--------------------------------
Title: Vice President
FEIN: 13-3081323
NAH NAH COLLECTION INC.
By: /s/ Hong J. Han
---------------------------------
Title: President
FEIN: 13-3496777
HRNL, INC.
By: /s/ Sam Kaplan
----------------------------------
Title: Vice President
FEIN: 13-3579289
THE HE-RO GROUP, LTD.
By: /s/ Sam Kaplan
-----------------------------------
Title: Vice President
FEIN: 13-3615898
H.R.I. INC.
By: /s/ Sam Kaplan
-----------------------------------
Title: Vice President
FEIN: 13-3538741
[SIGNATURE LINES CONTINUED ON FOLLOWING PAGE]
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<PAGE> 44
N.N.C.S. LLC
By: /s/ Hong J. Han
-----------------------------
Title: President
FEIN: 13-3959241
NNCS-NJ LLC
By: /s/ Hong J. Han
-----------------------------
Title: President
FEIN: 22-3547302
EUROPEAN COLLECTIONS OF
READING STATION, INC.
By: /s/ Sam Kaplan
-----------------------------
Title: Vice President
FEIN: 22-3059212
EUROPEAN COLLECTIONS OF
HARRIMAN, INC.
By: /s/ Sam Kaplan
-----------------------------
Title: Vice President
FEIN: 22-2930464
EUROPEAN COLLECTIONS OF GILROY,
INC.
By: /s/ Sam Kaplan
-----------------------------
Title: Vice President
FEIN: 22-3045274
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<PAGE> 45
[SIGNATURE LINES CONTINUED ON FOLLOWING PAGE]
EUROPEAN COLLECTIONS OF
CHATTANOOGA, INC.
By: /s/ Sam Kaplan
-------------------------------
Title: Vice President
FEIN: 22-3004575
EUROPEAN COLLECTIONS OUTLET, INC.
By: /s/ Sam Kaplan
------------------------------
Title: Vice President
FEIN: 13-3253945
EUROPEAN COLLECTIONS OF
WILLIAMSBURG, INC.
By: /s/ Sam Kaplan
------------------------------
Title: Vice President
FEIN: 13-3581029
EUROPEAN COLLECTIONS OF
QUEENSTOWN, INC.
By: /s/ Sam Kaplan
------------------------------
Title: Vice President
FEIN: 13-3581037
EUROPEAN COLLECTIONS OF
SILVERTHORNE, INC.
By: /s/ Sam Kaplan
------------------------------
Title: Vice President
FEIN: 13-3581032
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<PAGE> 46
HELLER FINANCIAL, INC.
By: /s/ Michael Raynor
------------------------------
Title: Vice President
EFFECTIVE DATE: December 24, 1997
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<PAGE> 47
SCHEDULES
3.1(a)(h) Retail Locations
3.2(e) Non-Merchandise Letters of Credit
5.3 Compliance Certificate
6.1(f) Litigation
7.2 Permitted Encumbrances
7.5 Trade styles/names
7.7 No Good Standing/Qualification
7.8 Locations
7.11(c) Defaults
7.14(d) Agreements Prohibiting Liens
7.14(h) Affiliate Transactions
7.15(j) Bank Accounts
7.19 Inactive Subsidiaries
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<PAGE> 48
EXHIBITS
A Borrowing Base Certificates
B Inventory and Reconciliation Report
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