SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...................to.............................
Commission File Number 1-10860
THE HE-RO GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 13-36155898
(State or other jurisdiction of (I.R.S. employer
incorporation or organization number) identification)
550 Seventh Avenue, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212 840-6047
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
Common Stock $.01 par value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing sale price on the OTC Bulletin Board on September
24, 1997, the aggregate market value of the Registrant's Common Stock, $.01 par
value per share ("Common Stock"), held by non-affiliates of the registrant on
such date was approximately $1,683,874.
Number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of September 24, 1997: 6,717,333 shares.
Documents Incorporated by Reference: None of the information required by Parts
I, II and III is incorporated by reference.
2
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and its
subsidiaries during the fiscal years ended May 31, 1995, 1996 and 1997 to the
Company's Chief Executive Officer and the next two highest paid executive
officers of the Company at May 31, 1997 (the "named executive officers"). On
September 24, 1993, Herbert Rounick, Founder, Chairman of the Board and Chief
Executive Officer of the Company died. Prior to the appointment of Della Rounick
as Chief Executive Officer on June 1, 1995, no person had been elected to the
office of then Chief Executive Officer as a replacement to Herbert Rounick. The
late William J. Carone, the Company's Chairman of the Board, was the person who
served the function closest to chief executive officer.
3
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
All
Other Options Other
Annual Restricted Granted Com-
Name and Principal Compen- Stock (No. LTIP pensa-
Position Year Bonus sation Award(s) Shares) Payouts tion
(a) (b) Salary (c) (d) (e) (f) (g) (h) (i)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Della Rounick 1997 $220,000 0 0 0 0 0 0
CEO, Co-Chairman of
the Board 1996 220,000(1) 0 0 0 0 0 0
1995 75,000(1) 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Sam D. Kaplan 1997 $170,000 0 0 0 0 0 0
Chief Financial Officer,
Treasurer and Secretary 1996 161,345 0 0 0 $25,000(2) 0 0
1995 143,461 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Mitchell Simbal 1997 120,000 $15,000 $20,000(3) 0 0 0 0
Chief Operating Officer
1996 120,000 $18,000 10,836(3) 0 0 0 0
1995 118,000 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Ms. Rounick became Chief Executive Officer at the beginning of fiscal
1997. During the Company's 1995 fiscal year, Della Rounick served as
the Company's Vice President - Director of Design Coordination. See
"Certain Relationships and Related Party Transactions." Ms. Rounick,
currently Chairman of the Board, served as Co-Chairman of the Board
until the death of the other Co-Chairman of the Board, William J.
Carone, in June 1997.
(2) Options to purchase 13,000 shares of Common Stock previously granted
were repriced in fiscal 1996, in addition to a grant of options to
purchase 12,000 shares of Common Stock during fiscal 1996.
(3) Represents expense allowance for car and travel.
</FN>
</TABLE>
4
<PAGE>
OPTION GRANTS TABLE FOR FISCAL 1997
The following table sets forth information relating to stock options, if
any, granted during the year ended May 31, 1997 to the three named executive
officers. The grants of the options set forth below are also reflected in the
table under the heading Summary Compensation Table. In addition, in accordance
with the disclosure rules recently enacted by the Securities and Exchange
Commission, the hypothetical gains or "options spreads" for each option grant
are shown based on compound annual rates of stock price appreciation of 5% and
10% from the date of grant to the expiration date. The assumed rates of growth
are prescribed by the Securities and Exchange Commission and are for
illustrative purposes only; they are not intended to predict the future price of
the Company's stock, which will depend upon market conditions and the Company's
future performance and prospects. The Company has not granted any stock
appreciation rights.
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE FISCAL YEAR
ENDED MAY 31, 1997
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------------------------------
Percent of
Total
Options
Granted to
Employees Market
Options in Fiscal Exercise Price Expira-
Name Granted Year Price ($/Sh) ($/Sh) tion Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Della Rounick 0 N/A N/A N/A N/A N/A N/A
Sam D. Kaplan 0 N/A N/A N/A N/A N/A N/A
Mitchell Simbal 0 N/A N/A N/A N/A N/A N/A
</TABLE>
5
<PAGE>
AGGREGATED OPTIONS EXERCISED DURING AND OPTION VALUE TABLE AT THE END OF THE
YEAR ENDED MAY 31, 1997
During the year ended May 31, 1997 none of the named executive officers
exercised any stock options. The following table sets forth information relating
to the value at May 31, 1997 of unexercised stock options of the named executive
officers who own stock options. (See "1991 Stock Option Plan").
<TABLE>
<CAPTION>
VALUE OF OPTIONS AT MAY 31, 1997 (1)
Number of Unexercised
Shares Options at Value of Unexercised
Acquired May 31, 1997 (1) in-the-Money Options
on Value (#) at May 31, 1997(2)
Exercise Realized (d) (e)
Name (#) ($)
(a) (b) (c) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Della Rounick 0 N/A 0 0 0 0
Sam D. Kaplan 0 N/A 10,800 14,200 $1,404 $1,846
Mitchell Simbal 0 N/A 6,000(3) 14,000 780 1,820
- ------------
<FN>
(1) For the number of shares subject to options exercisable within
60 days of May 31, 1997.
(2) Options are "in-the-money" if on May 31, 1997 the market price
of the Common Stock exceeded the exercise price of the option.
The value of options is calculated by determining the
difference between the aggregate market price of the Common
Stock covered by the options on May 31, 1997 and the aggregate
exercise price of such options.
(3) Mitchell Simbal resigned from the Company effective July 11,
1997. Accordingly, his options expire on October 10, 1997.
</FN>
</TABLE>
6
<PAGE>
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY. The Company's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. Performance is measured in terms of both quantitative and
qualitative goals at the corporate level, the division level and the individual
level. Executive compensation consists of base salary, annual cash incentive
compensation in the form of bonuses or commissions and long term incentive
compensation in the form of stock options. The compensation of the Company's
executive officers was reviewed and approved by the Compensation Committee,
which was composed entirely of nonemployee directors. Management compensation is
intended to be set at levels that the Compensation Committee believes is
consistent with others in the Company's industry. Since the death in June 1997
of William J. Carone, former Director, Co-Chairman of the Board and member of
the Compensation Committee, and until another nonemployee director is appointed
to fill the vacancy created by his death, the remaining members of the Board of
Directors have assumed the responsibilities of the Compensation Committee.
In reviewing compensation levels of the Company's key executives, the
Compensation Committee considers, among other items, corporate profitability on
an absolute basis as well as relative to budget; previous years' and
competitors' profitability; revenues and market shares; efficiency; and the
quality of products and services. Many of the same measures are used in
reviewing the profitability and efficiency of the division. No specific weight
is accorded to any single factor. Relative weights differ from executive to
executive and change from time to time as circumstances warrant.
BASE SALARIES. Base salaries for new management employees are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for managerial and creative talent. Annual salary adjustments are determined by
evaluating the competitive marketplace, the performance of the Company, the
performance of the executive and any increased responsibility assumed by the
executive. Salary adjustments are determined and normally made on an annual
basis.
ANNUAL BONUSES. The Company has awarded bonuses in the past and may award
bonuses in the future to certain employees. The amount of any bonus is
discretionary and is determined based upon a combination of the level of
achievement by the Company of its strategic and operating goals and the level of
achievement by the individual of his or her individual objectives and goals. In
addition, in determining whether to award a bonus, the Compensation Committee
considers an individual's initiative and commitment to the Company. Certain of
the employees earn a commission based on a percentage of the Company's net sales
of the division managed by such executive.
7
<PAGE>
EQUITY OWNERSHIP. The Company initiated a stock option program for its key
employees at the time of the Company's initial public stock offering in
September 1991. Significant employee stock ownership has become an important
goal in the Company's effort to link the performance of the Company to the
efforts and compensation of its executives. The Compensation Committee believes
that equity ownership by management is a means of aligning management's and
stockholders' interests in the enhancement of stockholder value and, accordingly
endorses the Company's 1991 Stock Option Plan. The Compensation Committee serves
as the stock option committee under the 1991 Stock Option Plan; the purpose of
the stock option committee is to administer the plan.
ESTABLISHMENT. The Compensation Committee was established in September 1991, at
the time of the Company's initial public offering. The Company's general
compensation plans and policies currently in effect under which its executives
have been compensated for services rendered, other than the specific employment
agreements for certain executive officers of the Company entered into after
September 1991, were in place prior to the establishment of the Compensation
Committee. These plans and polices evolved over the years when the Company
operated as a private company prior to the initial public stock offering in
September 1991. Currently, the Chief Executive Officer submits to the
Compensation Committee for approval, proposals to hire new executives whose
annual salary is expected to exceed $100,000. The Compensation Committee
reviewed the terms of each of the employment agreements which the Company has
entered into with its executive officers in light of the factors referred to
elsewhere in this report, including compensation of comparable executives in
other publicly traded apparel companies.
During the months following the death in September 1993, of Herbert
Rounick, founder of the Company and its former Chairman and Chief Executive
Officer, the Board of Directors retained an executive search firm to find a
replacement chief executive officer for the Company. Because a suitable chief
executive officer was not found, the late Mr. Carone, then Chairman of the
Board, in order to fill the gap caused by the death of Mr. Rounick, became
involved in the daily decision making activities of the Company. In June 1995,
Della Rounick, the widow of Herbert Rounick and the Company's principal
stockholder, assumed the responsibilities of Chief Executive Officer and
Co-Chairman of the Board (and after Mr. Carone's death became Chairman of the
Board), for which she receives an annual salary of $220,000. Prior to such time,
Ms. Rounick had been a Vice President - Director of Design Coordination for
which she was paid $75,000.00 during fiscal 1995.
BOARD OF DIRECTORS
Martin R. Bring
Della Rounick
8
<PAGE>
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total stockholder return on its Common Stock with
the cumulative total stockholder return over a five-year period of (i) a broad
equity market index and (ii) a published industry index or "peer group." This
chart compares the Common Stock with (i) the New York Stock Exchange Market
Value Index and (ii) a group of public companies, each of which manufacturers
apparel, and assumes an investment of $100 on May 31, 1992 in each of the Common
Stock, the stocks comprising the New York Stock Exchange Market Value Index and
the stocks of the selected apparel manufacturers. (The Company had been listed
on the New York Stock Exchange through the end of its last fiscal year ended May
31, 1997.)
<TABLE>
<CAPTION>
Company 1992(1) 1993 1994 1995 1996 1997
- --------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The He-Ro Group Ltd. 100 45.45 12.50 7.95 15.91 10.23
Peer Group(2) 100 101.16 88.66 87.89 129.54 175.14
NYSE Market 100 111.61 118.09 135.74 173.07 216.32
<FN>
(1) The total return for each of the Company's Common Stock, the New York Stock
Exchange Market Value Index and the selected apparel manufacturer assumes an
investment of $100 on May 31, 1992 and the reinvestment of dividends (although
dividends have not been declared on the Company's Common Stock) and is based on
market capitalization.
(2) The "peer group" of selected apparel manufacturers consists of the following
companies: Bernard Chaus, Inc., G-III Apparel Group, Ltd., Garan Incorporated,
Jones Apparel Group, Inc., Kellwood Company, Liz Claiborne, Inc., Unitog Co. and
VF Corporation. Yes Clothing Co., which was part of the peer group in past
years, was omitted from the peer group for the fiscal year ended 5/31/92 because
it was delisted from the New York Stock Exchange and is now traded on the OTC
Bulletin Board, where information relating to stock price is not as accessible.
</FN>
</TABLE>
9
<PAGE>
1991 STOCK OPTION PLAN
During 1991, the Company adopted the 1991 Stock Option Plan (the "1991
Option Plan"). The Board of Directors believes that the plan is desirable to
attract and retain executives and other key employees of outstanding ability.
Under the 1991 Option Plan, options to purchase an aggregate of not more than
500,000 shares of Common Stock may be granted from time to time to key
employees, officers, directors, advisors and independent consultants to the
Company or to any of its subsidiaries.
The Compensation Committee of the Board of Directors serves as the Stock
Option Committee under the 1991 Stock Option Plan. The Stock Option Committee
exercises all of the powers of the Board of Directors in relation to the 1991
Option Plan and is generally empowered to interpret the 1991 Option Plan,
prescribe rules and regulations relating thereto, determine the terms of the
option agreements, amend them with the consent of the optionee, determine the
employees to whom option are to be granted, determine the number of shares
subject to each option and the exercise price thereof, determine the terms of
paying the exercise price and other terms and conditions including whether the
exercise price of an option is payable in cash or by delivery of a promissory
note or previously acquired shares of Common Stock. The per share exercise price
for incentive stock options ("ISO's) may not be less than 100% of the fair
market value of a share of Common Stock on the date the option is granted (110%
of fair market value on the date of grant of an ISO if the optionee owns more
than 10% of the Common Stock of the Company), and for non-qualified stock
options ("NQSOs") may not be less than 85% of the fair market value of a share
of Common Stock on the date the option is granted.
Options are exercisable for a term determined by the Stock Option
Committee, which may not be less than one year or greater than ten years from
the date of grant. Options may be exercised only while the original optionee has
a relationship with the Company which confers eligibility to be granted options
or within three months after termination of such relationship with the Company,
or up to one year after death or disability. Options are not transferable other
than by will or the laws of descent and distribution and may be exercised during
the holder's lifetime only by the holder, his or her guardian or legal
representative. No options may be granted under the 1991 Option Plan after
September 26, 2001.
Options granted pursuant to the 1991 Option Plan may be designated as ISOs,
with the attendant tax benefits provided under Section 421 and 422 of the
Internal Revenue Code of 1986, as amended. Accordingly, the 1991 Option Plan
provides that the aggregate fair market value (determined at the time an ISO is
granted) of the Common Stock subject to ISOs exercisable for the first time by
an employee during any calendar year (under all plans of the Company and its
subsidiaries) may not exceed $100,000. The Stock Option Committee may modify,
suspend or terminate the 1991 Option Plan; provided, however, that certain
material modifications affecting the 1991 Option Plan must be approved by the
Company's stockholders, and any change in the 1991 Option Plan that may
adversely affect an optionee's rights under an option previously granted under
the 1991 Option Plan requires the consent of the optionee.
10
<PAGE>
During the year ended May 31, 1997, the Company granted to its employees
50,000 ISOs. The last reported sale price per share of the Company's Common
Stock as reported on the OTC Bulletin Board on September 24, 1997 was $0.38.
1992 OUTSIDE DIRECTORS STOCK OPTION PLAN
On October 30, 1992, the Board of Directors adopted, subject to stockholder
approval, the 1992 Outside Directors Stock Option Plan (the "1992 Plan")
pursuant to which 30,000 shares of Common Stock are reserved for issuance upon
the exercise of stock options granted under the 1992 Plan to directors at such
time who were not employees of the Company. The stockholder of the Company
approved the adoption of the 1992 Plan on March 17, 1994. The purpose of the
1992 Plan was to advance the interests of the Company by affording outside
directors the opportunity to increase their equity interests in the Company by
further aligning the interests of the Company's management with its
stockholders. On October 30, 1992, options to purchase 10,000 shares of the
Company's common stock at a price of $4.875 per share were granted under the
1992 Plan to each of Matthew A. Berdon, Martin R. Bring and Richard D. White,
each of whom were the outside directors of the Company on such date. Options
granted to Messrs. White and Berdon under the 1992 Plan terminated three months
after the effective date of each such director's resignation from the Company's
Board of Directors.
1993 OUTSIDE DIRECTORS STOCK OPTION PLAN
On September 29, 1993, at a special meeting of the Board of Directors held
after Mr. Rounick's death, the Board of Directors adopted, subject to
stockholder approval, the 1993 Outside Directors Stock Option Plan (the "1993
Plan") pursuant to which 115,000 shares of Common Stock were reserved for
issuance upon the exercise of stock options granted under the 1993 Plan to
directors at such time who were not employees of the Company. The stockholders
of the Company approved the adoption of the 1993 Plan on March 17, 1994. The
1993 Plan was proposed by the Board of Directors in recognition of the
additional responsibilities assumed by the outside directors in managing the
Company's affairs after the death of Mr. Rounick, the Company's former principal
stockholder. On September 29, 1993, options to purchase 75,000, 25,000 and
15,000 shares of the Company's Common Stock at a price of $3.50 per share were
granted under the 1993 Plan to each of Messrs. Berdon, Bring and White,
respectively. Options granted to Messrs. White and Berdon under the 1993 Plan
terminated three months after the effective date of each such director's
resignation from the Company's Board of Directors.
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
On January 5, 1994, at a special meeting of the Board of Directors, the
Board of Directors adopted, subject to stockholder approval, the 1994 Outside
Directors Stock Option Plan (the "1994 Plan") pursuant to which 300,000 shares
of Common Stock were reserved for issuance upon the exercise of stock options
granted under the 1994 Plan to directors at such time who were not employees of
the Company. The stockholders of the Company approved the adoption of the 1994
Plan on March 17, 1994. The 1994 Plan was proposed by the Board of Directors to
provide the outside directors with additional compensation upon the execution by
the Company and Marine Midland Bank, N.A., The Chase Manhattan Bank, The Hong
Kong
11
<PAGE>
and Shanghai Banking Corporation Limited and ABN AMRO Bank N.V. (collectively,
the "Banks") of an amendment (the "Amendment") to the Company's credit facility
with the Banks to bring the Company back into compliance with the terms of the
credit facility, as so amended, and in recognition of the additional time and
attention devoted to negotiating with the Banks since the death of Mr. Rounick.
The Board approved the grant of options to purchase 100,000 shares of Common
Stock at a price of $2.00 per share under the 1994 Plan to each of Messrs.
Berdon, Bring and Carone, which grant was dependent upon and became effective on
the date of the execution of an Amendment.
The Board of Directors on October 11, 1995 approved an amendment to the
1994 Plan (the "Amended 1994 Plan"), subject to stockholder approval, pursuant
to which the Company has granted options to purchase 50,000 shares of Common
Stock to each 1994 Outside Director, with a reduced exercise price of $1.00 per
share, in exchange for the options to purchase 100,000 shares of Common Stock at
an exercise price of $2.00 per share previously granted to each 1994 Outside
Director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During the year ended May 31, 1997, the Compensation Committee of the
Company's Board of Directors consisted of William J. Carone and Martin R. Bring.
Mr. Bring is a member of the New York, New York law firm Lowenthal, Landau,
Fischer & Bring, P.C. which performs legal services for the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of September 22, 1997
pertaining to beneficial ownership of the Company's Common Stock (determined in
accordance with Rule 13d-3) under the Securities Exchange Act of 1934) by
persons known to the Company to beneficially own 5% or more of the Company's
outstanding Common Stock, each named executive officer of the Company, each
current director of the Company and by directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name and Address Beneficial Common
of Beneficial Owner Title Ownership Stock
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vasiliki Della Pasvantidou Rounick Principal Stockholder, 4,430,748(1) 66%
15 West 53rd Street Chairman of the Board
New York, New York 10019 and Chief Executive
Officer and Director of the
Company
12
<PAGE>
Amount and Percent
Nature of of
Name and Address Beneficial Common
of Beneficial Owner Title Ownership Stock
- ------------------------------------------------------------------------------------------------------------
Durnard Limited Subsidiary of the 1,343,462(2) 16.67%
17th Fl. Company
9 Queens Road Central
Hong Kong
Martin R. Bring Director 85,500(3) 1.5%
c/o Lowenthal, Landau, Fischer &
Bring, P.C.
250 Park Avenue
New York, New York 10177
Sam D. Kaplan Chief Financial Officer, 10,800(4) *
The He-Ro Group, Ltd. Treasurer and Secretary
One American Way
Secaucus, New Jersey 07094
Mitchell Simbal Chief Operating Officer 6,000(5) *
36 Westgate Road
Montebello, New York 10901
All directors and executive officers as 4,533,048(6) 67%
a group (4 persons)
- --------------
<FN>
* Less than 1%.
(1) Includes 4,409,066 shares owned by the Estate of Herbert Rounick,
founder and former Chairman of the Board and Chief Executive Officer
of the Company, who died on September 24, 1993. Vasiliki Della
Pasvantidou Rounick ("Della Rounick"), the surviving spouse of Herbert
Rounick was named the executrix of the Estate of Herbert Rounick.
Excludes 1,343,462 shares over which Della Rounick shares dispositive
power. See footnote 2 below.
(2) On March 14, 1994, the Company made a capital contribution of
1,343,462 shares of its Common Stock to Durnard Limited, a Hong Kong
corporation, in exchange for all of the issued and outstanding shares
of Capital Stock of Durnard Limited, to enable it to pledge such
shares to Delta Asia Credit Limited a foreign lender ("Delta Asia") as
collateral security for the obligations of the Company and its
subsidiaries to Delta Asia (the "Obligations"). All of the 1,343,462
shares of the Company referred to herein were pledged to Delta Asia
under a Charge dated March 11, 1994 as collateral security for the
Obligations (the "Share Charge"), and Delta Asia filed a Schedule 13-D
on March 28, 1994 (the "Schedule 13D") reporting
13
<PAGE>
shared voting and/or dispositive power over the shares. Pursuant to
Section 160(c) of the General Corporation Law of the State of Delaware
so long as the Company owns a majority of the shares of Durnard
Limited, the 1,343,462 shares referred to herein may not be voted by
Durnard Limited nor counted for quorum purposes. Although the
Obligations were paid in full on or about April 21, 1995, the Share
Charge remained conditionally in effect through October 1995, and on
or about such time the pledged shares were returned to Durnard.
Assuming that (i) the Company continues to own a majority of the
shares of Durnard Limited, (ii) Mr. Bring continues to serve as a
director of Durnard Limited and (iii) Della Rounick continues to be a
controlling stockholder of the Company such persons shall share
dispositive power over the 1,343,462 shares referred to herein. For
purposes of this table, the 1,343,462 shares have not been counted as
outstanding shares in calculating any of the percentages of ownership,
except with respect to the beneficial ownership by Durnard Limited.
Because the Obligations have been paid in full and the pledged Shares
have been returned to the Company, Delta Asia is not listed in the
table as a beneficial owner of these shares, even though the Schedule
13D is currently on file. Other persons who had reported shared voting
and/or dispositive power with Delta Asia Limited Credit on a Schedule
13-D filed with the Securities and Exchange Commission on their behalf
on March 28, 1994 are as follows: Stanley Au Chong Kit, Forex
(Nominees) Limited, Delta Asia Group (Holdings) Ltd., Banco Delta Asia
S.A.R.L.
(3) Includes 85,000 shares which Mr. Bring has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
Excludes 1,343,462 shares as to which Mr. Bring shares dispositive
power.
See footnote 2 above.
(4) Includes 10,800 shares which Mr. Kaplan has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
(5) Includes 6,000 shares which Mr. Simbal has the right to acquire upon
exercise of stock options which are exercisible within 60 days.
(6) Includes an aggregate of 101,800 shares which certain officers and/or
directors have the right to acquire upon exercise of stock options
which are exercisable within 60 days.
</FN>
</TABLE>
14
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time prior to the initial public offering of the Company's
Common Stock on September 26, 1991, to help finance the Company's operations,
the late Herbert Rounick, the Company's founder, loaned money to various
subsidiaries of the Company for working capital purposes. As of May 31, 1996,
the Company owed the Estate of Herbert Rounick an aggregate $2,796,000 in
principal on account of such loans. Interest on these loans ranges from eight to
12% per annum. The Company believes that the terms of its indebtedness to the
Estate of Herbert Rounick are at least as favorable as those it could have
obtained if it had borrowed from an unrelated third party. In addition, the
Company owes the Estate of Herbert Rounick $1,500,000 representing a death
benefit due and owing under the Company's employment agreement, dated June 1,
1992, with Herbert Rounick, and $1,000,000 representing an amount which the
Estate of Herbert Rounick, loaned to the Company on January 24, 1995 and
concurrently was released on a guarantee of the credit facility with its bank
group. Accordingly, as of May 31, 1997 the aggregate of the Company's
indebtedness to the Estate of Herbert Rounick, was $6,415,000 (including
$1,119,000 in accrued and unpaid interest), all of which is unsecured and is
subordinated to the Company's indebtedness to its lenders. Under the terms of
the Company's credit agreements, provided no default has occurred and is
continuing thereunder, the Estate of Herbert Rounick is entitled to be repaid by
the Company an amount of $40,947 for each calendar month representing payments
of interest on the subordinated debt. Ms. Rounick, as Executrix of the Estate of
Herbert Rounick has not received any interest payments since December, 1995.
Della Rounick, as the principal stockholder, currently is the Chairman of
the Board and Chief Executive Officer, for which she is receiving a salary of
$220,000.
Great Projects Limited ("GPL") is a Hong Kong corporation of which 50% is
owned by a subsidiary of the Company and 25% is owned by each of two Hong Kong
companies that are unaffiliated with the Company or its officers or directors.
GPL purchases women's wear products manufactured primarily in China for resale
to the Company's subsidiary, which acts as a distributor of finished goods that
are purchased from GPL. As of October 31, 1993, the partners agreed to
discontinue the operations of GPL. In January 1996, liquidation proceedings in
Hong Kong were commenced to wind up GPL. Included in accounts payable is
$2,151,000 due to GPL at May 31, 1996. Maria Ng was a managing director of GPL
during her tenure as a director of the Company. The Company does not expect any
material impact on its results of operations due to the liquidation of GPL.
See also "Item 11. Executive Compensation - Compensation Committee
Interlocks and Insider Participation."
15
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and greater than 10% stockholders ("Reporting Persons") to
file certain reports ("Section 16 Reports") with respect to beneficial ownership
of the Company's equity securities. Based solely on the Company's review of the
Section 16 Reports furnished to the Company by its Reporting Persons and, where
applicable, certain written representations by any of them, all Section 16(a)
filing requirements applicable to the Company's Reporting Persons during and
with respect to fiscal 1997 have been complied with on a timely basis.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT AND SCHEDULES AND REPORTS
ON FORM 8-K
None
16
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE HE-RO GROUP, LTD.
By: /s/ Sam Kaplan
Sam Kaplan,
Chief Financial Officer
Dated: September 25, 1997
