SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by registrant [X]
Filed by party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, For Use of the
Commission Only (as permitted by
[ ] Definitive proxy statement Rule 141-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE HE-RO GROUP, LTD.
---------------------
(Name of Registrant as specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than Registrant))
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
THE HE-RO GROUP, LTD. 4-8-97
550 Seventh Avenue
New York, New York 10018
NOTICE OF SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY , 1997
To the Stockholders of THE HE-RO GROUP, LTD.:
NOTICE IS HEREBY GIVEN THAT a Special and Annual Meeting of
Stockholders of The He-Ro Group, Ltd., a Delaware corporation (the "Company"),
will be held at the offices of the Company counsel at c/o Lowenthal, Landau,
Fischer & Bring, P.C., 250 Park Avenue, New York, New York 10177 on May ___,
1997 at 10:00 A.M., New York time, for the following purposes:
(1) To elect seven directors, effective upon the closing of the
transactions set forth below;
(2) To ratify and approve the appointment of Arthur Andersen & Co. as
independent auditors of the Company for the fiscal year ending May 31, 1997;
(3) To approve the issuance of 26,869,332 shares of Common Stock, par
value $.01 per share, to Stonehill Investment Corp. and Oleg Cassini pursuant to
the terms and conditions of a Purchase Agreement dated March 11, 1997 (the
"Purchase Agreement") as more fully described in the accompanying Proxy
Statement (a copy of the Purchase Agreement is attached as Exhibit A to the
Proxy Statement);
(4) To amend the Certificate of Incorporation of the Company to
increase the authorized capital stock of the Company to 60,000,000 shares of
common stock and 5,000,000 shares of preferred stock.
(5) To amend the Certificate of Incorporation of the Company to change
of the name of the Company to Oleg Cassini Group International, Ltd., effective
immediately following the closing of the transactions contemplated by the
Purchase Agreement (a copy of the Certificate of Amendment of the Certificate of
Incorporation is attached hereto as Exhibit B); and
(6) To consider and transact such other business as may properly come
before the Special and Annual Meeting or any adjournments thereof.
<PAGE>
The Board of Directors has fixed the close of business on April ___,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Special and Annual Meeting and at any adjournments
thereof.
A proxy statement and proxy are enclosed.
PLEASE READ THE ENCLOSED PROXY STATEMENT CAREFULLY.
Dated: April ___, 1997 By Order of the Board of Directors,
Della Rounick, Co-Chairman and Chief
Executive Officer
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN AND
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL AND ANNUAL MEETING. THE BOARD OF
DIRECTORS URGES YOU TO DATE, SIGN AND RETURN AS SOON AS POSSIBLE THE ENCLOSED
PROXY CARD IN THE SELF-ADDRESSED ENVE- LOPE PROVIDED, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ATTEND THE SPECIAL AND ANNUAL MEETING, YOU MAY WITHDRAW
YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
- --------------------------------------------------------------------------------
<PAGE>
THE HE-RO GROUP, LTD.
550 Seventh Avenue
New York, New York 10018
PROXY STATEMENT
SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS
May __, 1997
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of THE HE-RO GROUP, LTD., a Delaware corporation (the
"Company") of proxies in the form enclosed for use at a Special and Annual
Meeting of Stockholders of the Company (the "Meeting") to be held on May ___,
1997, and at any adjournments thereof, at the time and place set forth in the
accompanying Notice of Special and Annual Meeting of Stockholders.
The Meeting is being held to consider and vote upon (i) the election
of seven directors, (ii) the ratification and approval of Arthur Andersen & Co.
as independent auditors of the Company for the fiscal year ending May 31, 1997,
(iii) the proposed issuance by the Company of 26,869,332 shares (the "Shares")
which, upon issuance, will represent approximately eighty percent (80%) of its
common stock, par value $.01 per share ("Common Stock") to Stonehill Investment
Corp., a New York corporation ("Stonehill") and Oleg Cassini ("Cassini") in
exchange for $7 Million, of which $5 Million will be payable at the Closing (as
defined), and the License Management Fees described below, in accordance with an
Agreement dated March 11, 1997 (the "Purchase Agreement") by and between
Stonehill, Cassini, Oleg Cassini, Inc., a New York corporation ("OCI"), the
Company and Della Rounick, individually and as executrix of the Estate of
Herbert Rounick ("Rounick"), (iv) the proposed amendment to the Company's
Certificate of Incorporation increasing the authorized capital stock of the
Company to 60,000,000 shares of common stock and 5,000,000 shares of preferred
stock, and (v) the proposed amendment to the Company's Certificate of
Incorporation changing the name of the Company to Oleg Cassini Group
International, Ltd. effective immediately following the closing of the
transactions contemplated by the Purchase Agreement (each of (iii), (iv) and (v)
are collectively referred to as the "Transactions").
In connection with the Transactions, a License Management Agreement
will be entered into by the Company and OCI, pursuant to which the Company will
manage the day-to-day operations and supervise five of OCI's existing and all
future license agreements relating to women's apparel in exchange for half the
royalties collected under such license agreements (the "License Management
Fees"). In connection with the election of directors and the Transactions,
Rounick has granted an irrevocable proxy (the "Rounick Proxy") to authorize
Messrs. Ronald A. LaBow and Stewart E. Tabin, individually ("LaBow-Tabin"), to
vote all of Rounick's shares. The Company has been advised that (i) LaBow-Tabin
intends to vote all of the shares subject to the Rounick Proxy in favor of the
seven nominated directors, the issuance of the Shares and the amendments to the
Company's Certificate of Incorporation, and (ii) Rounick intends to vote all of
her shares not subject to the Rounick Proxy for the appointment of Arthur
Andersen & Co. as independent auditors of the Company for the fiscal year ending
May 31, 1997. Since Rounick's shares represent 66% of the issued and outstanding
shares of common stock of the Company, no additional favorable stockholder votes
are required under Delaware law to approve any of the proposals to be voted upon
at the Meeting. The granting of the Rounick Proxy to LaBow/Tabin may be deemed
to be a "change of control" of the Company, as such term is defined in the
federal securities laws, and accordingly the Company filed a Current Report on
Form 8-K with the Securities and Exchange Commission on March 26, 1997.
1
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Your proxy, if properly executed, will be voted as you direct and may
be revoked by you by written notice received by the Secretary of the Company at
any time before it is voted. Unless contrary instructions are indicated on the
proxy, it is expected that all shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock") represented by valid proxies received
pursuant to this solicitation (and not revoked before they are voted) will be
voted FOR the election of the seven nominees for director named herein,
effective upon the closing of the Transactions, FOR ratification of the
appointment of Arthur Andersen & Co. as the Company's independent auditors for
the 1997 fiscal year, FOR the issuance of the Shares, FOR the amendment to the
Certificate of Incorporation to increase the authorized capital stock and FOR
the amendment to the Certificate of Incorporation to change of name of the
Company immediately following the closing of the Transactions, and in the
discretion of the proxies named on the proxy card with respect to any other
matters properly brought before the meeting and any adjournments thereof. This
proxy statement and the accompanying form of proxy are being mailed on or about
April , 1997 to all stockholders of record at the close of business on April ,
1997.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum at
the Meeting.
Delaware law does not require the Company's stockholders to approve
the issuance of the Shares to Stonehill and Cassini or to approve and ratify the
Agreement and the transactions thereby contemplated. However, the Company's
Common Stock is listed on the New York Stock Exchange ("NYSE"), and as a
condition to maintaining the Common Stock's designation as a NYSE security and
therefore its eligibility for listing on the NYSE, the Company, in accordance
with NYSE rules, is required (i) to seek the approval of the stockholders of the
Company of the issuance of the Shares, which constitutes a change in control
under NYSE rules, and (ii) meet certain other criteria. There can be no
assurance that the Company will be able to meet such criteria and maintain its
NYSE listing. Such approval is a condition precedent to closing the transactions
contemplated by the Agreement.
THIS PROXY STATEMENT SHOULD BE READ CAREFULLY.
2
<PAGE>
VOTING SECURITIES OF THE COMPANY
AND PRINCIPAL HOLDERS THEREOF
The Company's Common Stock is the only security of the Company
entitled to be voted at the Meeting. At the close of business on April ___,
1997, there were 6,717,333 shares of Common Stock entitled to be voted at the
Meeting. Each stockholder of record is entitled to one vote for each share held
on all matters to come before the Meeting. There are no cumulative voting
rights. Only stockholders of record at the close of business on April ___, 1997
are entitled to notice of, and to vote at, the Meeting.
All proposals described in this proxy statement which are being
submitted to stockholders for a vote at the Meeting were duly adopted and
approved by the Board of Directors. Each proposal will be voted upon separately;
however, proposals 4 and 5, relating to the amendments to the Company's
Certificate of Incorporation, are conditioned upon the approval of the issuance
of the Shares (proposal 3). Rounick, the Company's principal stockholder, and
the incumbent members of the Board of Directors own collectively 4,431,248
shares of Common Stock, constituting approximately 66% of the outstanding shares
of Common Stock entitled to vote. In connection with the Rounick Proxy,
LaBow-Tabin will vote all of Rounick's shares with respect to proposals 1, 3, 4
and 5. Each of Rounick, LaBow-Tabin and the incumbent members of the Board of
Directors has indicated that he or she will vote his or her shares in favor of
all of the proposals described in this proxy statement which are being submitted
to stockholders for a vote at the Meeting. As a result these proposals will be
approved by the affirmative vote of the holders of the requisite number of
outstanding shares of Common Stock.
Pursuant to the policies of the NYSE, in order to maintain a
security's eligibility for designation on the NYSE, an issuer must obtain
stockholder approval of the issuance, other than in a public offering, of common
stock or securities convertible into common stock, if such stock has or would
have upon issuance voting power equal to or in excess of 20% of the voting power
outstanding prior to such issuance, or if such issuance would result in a change
of control of the issuer. Upon issuance of the Shares, Stonehill and Cassini
would have approximately 80% of the voting power, which would result in a change
of control. In response to the NYSE policy, the issuance of the Shares and
change in control must be approved by a majority of the total votes of Common
Stock cast in regard to the proposal at a stockholder's meeting at which there
is a quorum present in person or by proxy, and is one of the conditions to the
Closing under the Purchase Agreement.
In addition, upon a change in control, the NYSE may review the
capitalization of the issuer, among other things, to determine whether the
issuer would meet the requirements for original listing on the NYSE upon the
change in control. There is no assurance that the issuer will continue to be
listed on the NYSE. Continued listing on the NYSE is one of the conditions
precedent to closing the transaction under the Purchase Agreement. Consequently,
the Board of Directors is hereby submitting the Transactions to the stockholders
for their approval. The Company has been advised that (i) LaBow-Tabin intends to
vote all of the shares subject to the Rounick Proxy in favor of the seven
nominated directors, the issuance of the Shares and the amendments to the
Company's Certificate of Incorporation, and (ii) Rounick intends to vote all of
her shares not subject to the Rounick Proxy for the appointment of Arthur
Andersen & Co. as independent auditors of the Company for the fiscal year ending
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<PAGE>
May 31, 1997. Thus, no additional favorable stockholder votes are required under
Delaware law to approve any of the proposals to be voted upon at the Meeting. As
of the date of this Proxy Statement, the Board of Directors anticipates
consummating the Transactions as soon as practicable but in no case later than
May 31, 1997 assuming and subject to satisfaction or waiver of all other
conditions to closing.
Holders of a majority of the outstanding voting stock of the Company
must be present in person or by proxy in order to establish a quorum for
conducting business at the Meeting. Under Delaware law, and the Company's Bylaws
and Certificate of Incorporation, shares as to which a stockholder abstains or
withholds from voting and shares as to which a broker indicates that it does not
have discretionary authority to vote ("broker non-votes") will be treated as
present at the Meeting for the purposes of determining a quorum but will not be
counted as votes cast on such matters.
Under the Company's Bylaws, no business may be transacted at the
Meeting except as set forth in the Notice of Special and Annual Meeting of
Stockholders accompanying this Proxy Statement or as properly brought before the
meeting by or at the direction of the Board of Directors. If any other matters
are properly presented to the Meeting for consideration such as consideration of
a motion to adjourn the Meeting to another time or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment. As of the date hereof, the Board of
Directors knows of no such other matters.
The following table sets forth certain information as of April 7, 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
director and nominee of the Company and by directors and officers of the Company
as a group.
4
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name and Address Beneficial Common
of Beneficial Owner Title Ownership Stock
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Della Vasiliki Pasvantidou Rounick Principal Stockholder, Co- 4,430,748(1)(2) 66.0%(2)
15 West 53rd Street Chairman of the Board and
New York, New York 10019 Chief Executive Officer
and Director of the Com-
pany
Durnard Limited Subsidiary of the Company 1,343,462(3) 16.67%
17th Fl.
9 Queens Road Central
Hong Kong
William J. Carone Co-Chairman of the Board 50,000(4) *
c/o Rosenthal & Rosenthal, Inc. and Director
1370 Broadway
New York, New York 10018
Martin R. Bring Director 85,500(5) 1.5%
c/o Lowenthal, Landau, Fischer &
Bring, P.C.
250 Park Avenue
New York, New York 10177
Sam D. Kaplan Chief Financial Officer, 5,200(6) *
The He-Ro Group, Ltd. Treasurer and Secretary
One American Way
Secaucus, New Jersey 07094
Mitchell Simbal Vice President, and upon 6,000(7) *
The He-Ro Group, Ltd. Closing will become
One American Way Acting Chief Executive
Secaucus, New Jersey 07094 Officer of the Company
Ronald LaBow Nominee, Voting Trustee 4,430,748(2)(8) 66.0%
Stonehill Investment Corporation
110 East 59 Street, 30th Floor
New York, New York 10022
Stewart E. Tabin Voting Trustee 4,430,748(2)(8) 66.0%
Stonehill Investment Corporation
110 East 59 Street, 30th Floor
New York, New York 10022
Oleg Cassini Nominee 0 *
Oleg Cassini, Inc.
3 West 57th Street
New York, New York 10019
Sari L. Dweck Nominee 0 *
Lowenthal, Landau, Fischer & Bring, P.C.
250 Park Avenue
New York, New York 10177
Marianne Nestor Nominee 0 *
Oleg Cassini, Inc.
3 West 57 Street
New York, New York 10119
All directors and executive officers as 4,583,548(9)(10) 66.7%
a group (5 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 3 below.
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<PAGE>
(2) In connection with the Transactions, Della Rounick has granted to Stonehill
and Cassini an irrevocable proxy to authorize Messrs. Ronald A. LaBow and
Stewart E. Tabin, individually, to vote all of Della Rounick's shares for
the purposes of electing the directors and approving the Transactions.
Consequently, Della Rounick has no power to vote the shares of common stock
she beneficially owns for Proposals 1, 3, 4 and 5.
(3) 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. 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. Messrs. Carone
and Bring, who serve as directors of Durnard Limited and (iii) Della
Rounick who is a controlling stockholder of the Company, 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. Prior to the Closing, the Shares
will be contributed to the Company and will become treasury shares.
(4) Includes 50,000 shares which Mr. Carone has the right to acquire upon
exercise of stock options which are exercisable within 60 days. Excludes
1,343,462 shares as to which Mr. Carone shares dispositive power. See
footnote 2 above.
(5) Includes 83,000 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.
(6) Includes 5,200 shares which Mr. Kaplan has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
(7) Includes 6,000 shares which Mr. Simbal has the right to acquire upon
exercise of stock options which are exercisable within 60 days.
(8) Messrs. LaBow and Tabin disclaim beneficial ownership with respect to such
shares.
(9) Includes an aggregate of 142,200 shares which certain officers and/or
directors have the right to acquire upon exercise of stock options which
are exercisable within 60 days.
(10) Includes 4,430,748 shares of common stock owned by Della Rounick and by the
Estate of Herbert Rounick, that Della Rounick, for purposes of electing the
directors and approving the Transactions, does not have the right to vote.
See footnote (2) above.
</FN>
</TABLE>
PROPOSAL 1: ELECTION OF DIRECTORS
Under the terms of the Purchase Agreement, Cassini and/or LaBow
("Cassini/LaBow") are entitled to designate five representatives to serve on the
Company's Board of Directors in addition to the Chief Executive Officer of the
Company, and it is a condition to the Closing of the Transactions that the
constitution of the Company's Board of Directors shall be as Cassini/LaBow
designate, other than one director who shall be Rounick's designee. Accordingly,
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<PAGE>
the Company's Board of Directors has nominated the following seven persons to be
elected at the Meeting to serve as directors of the Company until the next
annual meeting of stockholders and until their respective successors shall have
been elected and shall have qualified, effective upon the closing of the
Transactions. None of the nominees currently serve as directors of the Company.
If any nominee for director becomes unavailable for any reason, an event which
the Board of Directors does not now anticipate, the shares of Common Stock
represented by properly executed proxies will be voted for any substitute
nominees designed by the Board of Directors in accordance with the terms of the
Purchase Agreement. The incumbent directors shall continue to serve in their
capacities as directors until the closing of the Transactions, or if the
Transactions do not close, until their successors are elected and shall have
qualified. The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present, in person or by proxy, and entitled to vote at
the Meeting is required for the election of directors. The Board of Directors
recommends a vote FOR the election of the seven nominees for director named
herein.
The following information is furnished as of April 7, 1997 with
respect to each nominee for director.
Current position and office with
the Company and principal Year
occupation during the past five first elected
Name and Age years; other directorships or appointed
- --------------------------------------------------------------------------------
Oleg Cassini (84) Upon Closing Mr. Cassini will 1997
become Chairman of the Board
and Chief Designer of the
Company. Mr. Cassini has also
been the President and Chief
Executive Officer of Oleg
Cassini, Inc., a fashion design
and licensing company since _____,
and Chairman of Cassini Perfums,
Ltd., a fragrances and toiletry
manufacturing and distribution
company, since 199__.
- --------------------------------------------------------------------------------
Marianne Nestor (__) Ms. Nestor has been Director of
Licensing for Oleg Cassini,
Inc., a fashion design and
licensing company since _____.
7
<PAGE>
Current position and office with
the Company and principal Year
occupation during the past five first elected
Name and Age years; other directorships or appointed
- --------------------------------------------------------------------------------
Ronald LaBow (61) Upon Closing, Mr. LaBow will 1997
become a principal stockholder
of the Company. Mr. LaBow
has been Chairman of the Board
of WHX Corp. and its
predecessors, a NYSE listed
company, since January 1991.
Mr. LaBow is also Chairman of
the Board and President of
Stonehill Investment Corp.
Since February 1990 Mr.
LaBow has also been a director
of Regency Equities Corp., a
real estate company
- --------------------------------------------------------------------------------
Mitchell Simbal (43) Vice President of the Company 1997
since 1994 (upon Closing Mr.
Simbal will become _________ Acting
Chief Executive Officer); prior to
joining the Company, Mr. Simbal was
a Vice President-Retail of each of
St. John Knits since 1992, and
Escada U.S.A. from 1988-1992,
upscale women's apparel companies.
- --------------------------------------------------------------------------------
Sam Kaplan (__) Chief Financial Officer and 1997
Secretary of the Company since
March 1994. Prior to that Mr. Kaplan
served as the Corporate Controller
since joining the Company in
November 1991.
- --------------------------------------------------------------------------------
Sari L. Dweck (35) Attorney, at the law firm of 1997
Lowenthal, Landau, Fischer & Bring,
P.C., since 1989.
- --------------------------------------------------------------------------------
William J. Carone (___) Co-Chairman of the Board. Mr. 1994
Carone was first appointed
Chairman of the Board of the
Company as of January 24, 1994. He
is a Senior Vice President of
Rosenthal & Rosenthal, a finance
company. Prior to that, he was
employed by Marine Midland Bank from
1986 to 1991 as a Senior Vice
President and Chemical Bank from
1991 to 1993.
8
<PAGE>
MEETINGS AND COMMITTEES
The Board of Directors currently consists of Della Rounick, William J.
Carone and Martin R. Bring. Each of the incumbent directors will continue to
serve in his or her capacity as director until the Closing of the Transactions,
or, if the Transactions do not close, until their successors are duly elected
and shall have qualified. The Board of Directors held six meetings during the
fiscal year ended May 31, 1996, each of which was attended by all of the
directors then in office. The Board of Directors has a standing Audit Committee
and a standing Compensation Committee.
Audit Committee
The Audit Committee recommends to the Board of Directors a firm of
independent auditors to conduct the annual audit of the Corporation's financial
statements, reviews with such firm the overall scope and results of the annual
audit, reviews and approves the performance by such independent auditors of
professional services in addition to those which are audit-related and reviews
the fees charged by the independent auditors for professional services. In
addition, the Audit Committee meets periodically with the independent auditors
and representatives of management to review accounting activities, financial
control and reporting. The Audit Committee currently consists of Messrs. Carone
and Bring. During the fiscal year ended May 31, 1996, the Audit Committee held
one meeting, which was attended by both Committee members. The Board of
Directors will appoint a new Audit Committee consisting of outside directors of
the newly constituted Board of Directors immediately after the closing of the
Purchase Agreement.
Compensation Committee
The Compensation Committee recommends to the Board of Directors
overall compensation philosophy and policies for the Company and the specific
compensation for the Company's chief executive officer. The Compensation
Committee reviews and makes recommendations to the Board of Directors concerning
plans, programs or benefits which relate to executive compensation, including
incentive compensation and stock options. In addition, the Compensation
Committee reviews and makes recommendations to the Board of Directors concerning
selection, recruiting, hiring and promotion of key executive personnel. The
Compensation Committees functions as the Option Committee under the Company's
1991 Stock Option Plan. The Compensation Committee currently consists of Messrs.
Carone and Bring. During the fiscal year ended May 31, 1996, the Compensation
Committee held one meeting, which was attended by both Committee members. The
Board of Directors will appoint a new Compensation Committee consisting of
outside directors of the newly constituted Board of Directors immediately after
the closing of the Purchase Agreement.
Compensation of Directors
Each of the outside directors received options under the 1993 Outside
Directors Option Plan and the 1994 Outside Directors Option Plan, as amended.
See also "Compensation Committee Report on Executive Compensation." Mr. Carone
and Mr. Bring were compensated at the rate of $60,000 and $15,000, respectively,
for their services during the fiscal year ended May 31, 1996. Following the
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Special and Annual Meeting, each director who is not a full-time employee of the
Company will receive an annual director's fee of $5,000 as well as a fee of
$1,000 for each meeting of the Board of Directors or any committee meeting
thereof attended.
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EXECUTIVE OFFICERS
The executive officers of the Company and certain information about
them are set forth below:
Name Age Office
- --------------------------------------------------------------------------------
Della Rounick 50 Co-Chairman of the Board and Chief
Executive Officer
William J. Carone 52 Co-Chairman of the Board
Sam D. Kaplan 41 Chief Financial Officer, Treasurer
and Secretary
Mitchell Simbal 43 Vice President
- --------------------------------------------------------------------------------
Executive officers are elected by and serve at the discretion of the
Board of Directors.
DELLA ROUNICK was appointed Co-Chairman of the Board and Chief Executive Officer
in July 1995, after being appointed Vice-Chairman of the Board and Chief
Executive Officer in June 1995. She was appointed to the Company's Board of
Directors in January 1994. Mrs. Rounick beneficially owns 4,430,748 shares of
the Company's common stock, representing approximately 66% of the common stock
outstanding. Prior to being appointed Chief Executive Officer, Mrs. Rounick
served as Head of Design for certain divisions of the Company since 1988. Mrs.
Rounick also served as a fashion advisor to her late husband, the Company's
founder, for eight years, and sold her own line of clothing in Greece under the
Della label.
WILLIAM J. CARONE currently is the Co-Chairman of the Board. Mr. Carone was
first appointed Chairman of the Board of the Company as of January 24, 1994. He
is a Senior Vice President of Rosenthal & Rosenthal, a finance company. Prior to
that, he was employed by Marine Midland Bank from 1986 to 1991 as a Senior Vice
President and Chemical Bank from 1968 to 1986 and 1991 to 1993.
SAM D. KAPLAN was appointed Chief Financial Officer and Secretary of the Company
in March 1994. Prior to that he served as the Corporate Controller since joining
the Company in November 1991. From 1988 to 1991, Mr. Kaplan, a certified public
accountant, was an audit manager for the accounting firm of Ferro, Berdon &
Company and, from 1983 to 1988, he was employed by Treasure Island, Inc., a
retail specialty chain, as Financial Vice President.
MITCHELL SIMBAL has been Vice President of the Company since 1994 (upon Closing,
Mr. Simbal will become Acting Chief Executive Officer); prior to joining the
Company, Mr. Simbal was a Vice President-Retail of each of St. John Knits since
1992 and Escada U.S.A. from 1988-1992, upscale women's apparel companies,
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
and its subsidiaries during the fiscal years ended May 31, 1994, 1995 and 1996
to the Company's Chief Executive Officer and/or Chairman of the Board and the
next other highest paid executive officers of the Company at May 31, 1996 whose
compensation exceeded $100,000 (three individuals; the "named executive
officers"). On September 24, 1993, Herbert Rounick, Founder, Chairman of the
Board and Chief Executive Officer of the Company died. Prior to the appointment
of Della Rounick as Chief Executive Officer on June 1, 1995, no person had been
elected to the office of Chief Executive Officer as a replacement to Herbert
Rounick, but William Carone, the Company's Chairman of the Board, during such
time was the person who served the function closest to chief executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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(5)
(a) (b) Salary (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Della Rounick 1996 $220,000(1) 0 0 0 0 0 0
CEO, Co-Chairman of
the Board 1995 75,000(1) 0 0 0 0 0 0
1994 N/A N/A N/A N/A N/A N/A N/A
Allan R. Bogner, 1996 $234,724(2) 0 0 0 0 0 0
President and Chief
Operating Officer 1995 296,000 0 0 0 0 0 0
1994 250,000 0 0 0 0 0 0
Sam D. Kaplan 1996 161,346 0 0 0 25,000(3) 0 0
Chief Financial Officer,
Treasurer and Secretary 1995 143,461 0 0 0 0 0 0
1994 117,067 0 N/A N/A 13,000 N/A N/A
Steven Anastos 1996 191,538 0 0 0 20,000(4) 0 0
Senior Vice President-
Sales and Merchandise 1995 186,586 0 0 0 0 0 0
1994 180,192 0 0 0 10,000 0 0
<FN>
- ----------------
(1) Ms. Rounick became Chief Executive Officer at the beginning of fiscal 1996.
During the Company's 1995 fiscal year, Della Rounick served as the
Company's Vice President - Director of Design Coordination. See "Certain
Relationships and Related Party Transactions."
12
<PAGE>
(2) Mr. Bogner resigned from the Company on November 30, 1995. As a result,
$103,250.75 of his salary representing his salary payable through March
1996 was paid as a settlement under his employment agreement. See
"Employment Agreements".
(3) Options to purchase 13,000 shares of Common Stock previously granted were
repriced in fiscal 1996, in addition to a grant of options to purchase
12,000 shares of Common Stock during fiscal 1996.
(4) Options to purchase 10,000 shares of Common Stock previously granted were
repriced in fiscal 1996, in addition to a grant of options to purchase
10,000 shares of Common Stock during fiscal 1996.
(5) Perquisites and other personal benefits, securities or property received by
each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's annual salary and bonus.
</FN>
</TABLE>
OPTION GRANTS TABLE FOR FISCAL 1996
The following table sets forth information relating to stock options,
if any, granted during the year ended May 31, 1996 to the four named executive
officers. The grants of the options set forth below are also reflected in the
table under the heading Summary Compensation Table. In addition, in accordance
with the disclosure rules recently enacted by the Securities and Exchange
Commission, the hypothetical gains or "options spreads" for each option grant
are shown based on compound annual rates of stock price appreciation of 5% and
10% from the date of grant to the expiration date. The assumed rates of growth
are prescribed by the Securities and Exchange Commission and are for
illustrative purposes only; they are not intended to predict the future price of
the Company's stock, which will depend upon market conditions and the Company's
future performance and prospects. The Company has not granted any stock
appreciation rights.
13
<PAGE>
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE FISCAL YEAR
ENDED MAY 31, 1996
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------------------------------------
Percent of
Total
Options
Granted to Market
Options Employees in Exercise Price Expira-
Name Granted Fiscal Year Price ($/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
Allan R. Bogner 0 N/A N/A N/A N/A N/A N/A
Sam Kaplan 10,000 5.4% 1.00 $1.63 2001 $ 9,535 $14,048
Sam Kaplan 12,000 6.5% 1.00 N/A 2003 0 0
Sam Kaplan 3,000 1.6% 1.00 4.75 2000 16,031 22,455
Steven Anastos 10,000 5.4% 1.00 N/A 2003 0 0
Steven Anastos 5,000 2.7% 1.00 1.63 2001 4,767 7,024
Steven Anastos 5,000 2.7% 1.00 4.75 2000 16,031 37,424
</TABLE>
AGGREGATED OPTIONS EXERCISED DURING AND OPTION VALUE TABLE AT THE END OF THE
YEAR ENDED MAY 31, 1996
During the year ended May 31, 1996 none of the named executive
officers exercised any stock options. The following table sets forth information
relating to the value at May 31, 1996 of unexercised stock options of the named
executive officers who own stock options. (See "1991 Stock Option Plan").
VALUE OF OPTIONS AT MAY 31, 1996 (1)
<TABLE>
<CAPTION>
Number of Unexercised
Shares Options at Value of Unexercised
Acquired May 31, 1996 (1) in-the-Money Options
on Value (#) at May 31, 1996(2)
Exercise Realized (d) (e)
Name (#) ($)
(a) (b) (c) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Della Rounick 0 N/A 0 0 0 0
Allan R. Bogner 0 N/A 0 0 0 0
Sam Kaplan 0 N/A 5,800 19,200 $4,350 $14,400
Steven Anastos 0 N/A 5,000 15,000 $3,750 $11,25
<FN>
- ------------------
(1) For the number of shares subject to options exercisable within 60 days of
April ____, 1997.
(2) Options are "in-the-money" if on May 31, 1996 the market price of the
Common Stock exceeded the exercise price of the option. The value of
options is calculated by determining the difference between the aggregate
market price of the Common Stock covered by the options on May 31, 1996 and
the aggregate exercise price of such options.
</FN>
</TABLE>
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
During the year ended May 31, 1996, the Compensation Committee
approved the repricing of options to purchase 13,000 shares of Common Stock held
by Sam Kaplan, and 10,000 shares of Common Stock of Steven Anastos. The
repricing was effected by amending the outstanding options under the 1991 Stock
Option Plan providing for a lower exercise price and maintaining the existing
vesting schedule. The exercise price of the cancelled options significantly
exceeded the market price of the Company's Common Stock on the date the
replacement options were issued. The exercise price of the replacement options
granted to Messrs. Kaplan and Anastos was $1.00, which was also above the market
price of a share of Common Stock on the date the replacement option was granted,
but closer to the market price than the exercise price had been. The
Compensation Committee approved the replacement of the options held by Messrs.
14
<PAGE>
Kaplan and Anastos because it concluded that these options, being significantly
out-of-the-money, did not provide the desired incentive to Messrs. Kaplan and
Anastos.
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE
William J. Carone
Martin R. Bring
Market Length of
Price of Exercise Original Option
Number of Stock at Price at New Term Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sam Kaplan 1/19/96 10,000 $.41 $2.00 $1.00 4/12/2001
Sam Kaplan 1/19/96 3,000 .41 2.00 1.00 6/29/2000
Sam Kaplan 4/12/94 3,000 1.63 4.75 2.00 6/29/2000
Steven Anastos 1/19/96 5,000 .41 2.00 1.00 4/12/2001
Steven Anastos 1/19/96 5,000 .41 2.00 1.00 6/29/2000
Steven Anastos 4/12/94 5,000 1.63 4.75 2.00 6/29/2000
====================================================================================================================
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY. The Company's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. Performance is measured in terms of both quantitative and
qualitative goals at the corporate level, the division level and the individual
level. Executive compensation consists of base salary, annual cash incentive
compensation in the form of bonuses or commissions and long term incentive
compensation in the form of stock options. The compensation of the Company's
executive officers is reviewed and approved by the Compensation Committee, which
is composed entirely of nonemployee directors. Management compensation is
intended to be set at levels that the Compensation Committee believes is
consistent with others in the Company's industry.
In reviewing compensation levels of the Company's key executives, the
Compensation Committee considers, among other items, corporate profitability on
an absolute basis as well as relative to budget; previous years' and
competitors' profitability; revenues and market shares; efficiency; and the
quality of products and services. Many of the same measures are used in
reviewing the profitability and efficiency of the division. No specific weight
15
<PAGE>
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 performance of the executive and any increased responsibility
assumed by the executive, the competitive marketplace, and the performance of
the Company. Salary adjustments are determined and normally made on an annual
basis.
ANNUAL BONUSES. The Company has awarded bonuses in the past and may award
bonuses in the future to certain employees. The amount of any bonus is
discretionary and is determined based upon a combination of the level of
achievement by the Company of its strategic and operating goals and the level of
achievement by the individual of his or her individual objectives and goals. In
addition, in determining whether to award a bonus, the Compensation Committee
considers an individual's initiative and commitment to the Company. Certain of
the employees earn a commission based on a percentage of the Company's net sales
of the division managed by such executive of pre-tax income of the Company.
EQUITY OWNERSHIP. The Company initiated a stock option program for its key
employees at the time of the Company's initial public stock offering in
September 1991. Significant employee stock ownership has become an important
goal in the Company's effort to link the performance of the Company to the
efforts and compensation of its executives. The Compensation Committee believes
that equity ownership by management is a means of aligning management's and
stockholders' interests in the enhancement of stockholder value. 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, either Co-Chairman of the Board and/or the President
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
16
<PAGE>
Officer, the Board of Directors retained an executive search firm to find a
replacement chief executive officer for the Company. Because a suitable chief
executive officer was not found, Mr. Carone, Chairman of the Board, in order to
fill the gap caused by the death of Mr. Rounick, became involved in the daily
decision making activities of the Company. In June 1995, Della Rounick, the
widow of Herbert Rounick and the Company's principal stockholder, assumed the
responsibilities of Chief Executive Officer and Co-Chairman of the Board. Prior
to such time, Ms. Rounick had been a Vice President Director of Design
Coordination for which she was paid $75,000.00 during fiscal 1995. In
consideration of the additional time, effort and responsibilities assumed by Ms.
Rounick with her new title, Ms. Rounick was paid $220,000.00 during fiscal 1996.
COMPENSATION COMMITTEE*
William J. Carone
Martin R. Bring
- --------
* Members of the Compensation Committee did not participate in the creation
of the 1992 Outside Directors Option Plan, and abstained from granting
options thereunder and from voting thereon. The Board of Directors in its
entirety participated in the creation of and the granting of options under
the 1993 Outside Directors Option Plan and the 1994 Outside Directors
Option Plan and all of the directors voted to approve such Plans.
17
<PAGE>
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total stockholder return on its Common Stock with
the cumulative total stockholder return of (i) a broad equity market index and
(ii) a published industry index or "peer group." Although the chart would
normally be for a five-year period, the Common Stock of the Company began
trading on September 20, 1991 and, as a result, the following chart commences as
of such date. This chart compares the Common Stock with (i) the New York Stock
Exchange Market Value Index and (ii) a group of public companies, each of which
manufacturers apparel, and assumes an investment of $100 on September 20, 1991
in each of the Common Stock, the stocks comprising the New York Stock Exchange
Market Value Index and the stocks of the selected apparel manufacturers.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------------------
Company 1991 1992 1993 1994 1995 1996
- --------------------------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
He-Ro Group Ltd. 100 52.38 23.81 6.55 4.17 8.33
Peer Group 100 110.42 111.55 97.40 96.76 142.84
Broad Market 100 108.31 120.89 127.90 147.02 187.45
</TABLE>
(1) The total return for each of the Company's Common Stock, the New York Stock
Exchange Market Value Index and the selected apparel manufacturer assumes
an investment of $100 on September 20, 1991 and the reinvestment of
dividends (although dividends have not been declared on the Company's
Common Stock) and is based on market capitalization.
(2) The "peer group" of selected apparel manufacturers consists of the
following companies: Bernard Chaus, Inc., G-III Apparel Group, Ltd., Garan
Incorporated, Jones Apparel Group, Inc., Kellwood Company, Liz Claiborne,
Inc., Unitog Co., VF Corporation, and Yes Clothing Co.
18
<PAGE>
EMPLOYMENT AGREEMENTS
In May 1993, the Company entered into a three year employment agreement
expiring on May 31, 1996 with Allan R. Bogner pursuant to which Mr. Bogner
agreed to serve as the Company's President and Chief Operating Officer. Under
the employment agreement, as amended, Mr. Bogner's salary for the fiscal year
ended May 31, 1996 was $305,059. In addition, the employment agreement provided
for a performance bonus in each fiscal year assuming certain minimum
requirements of income were met by the Company. Effective November 30, 1995, Mr.
Bogner resigned from the Company. On such date, Mr. Bogner entered into a
settlement Agreement with the Company, pursuant to which Mr. Bogner was paid
$103,250.75, his employment agreement was terminated, and Mr. Bogner agreed to
certain non-compete and non-solicitation provisions.
1991 STOCK OPTION PLAN
During 1991, the Company adopted the 1991 Stock Option Plan (the "1991
Option Plan"). The Board of Directors believes that the plan is desirable to
attract and retain executives and other key employees of outstanding ability.
Under the 1991 Option Plan, options to purchase an aggregate of not more than
500,000 shares of Common Stock may be granted from time to time to key
employees, officers, directors, advisors and independent consultants to the
Company or to any of its subsidiaries.
The Compensation Committee of the Board of Directors serves as the Stock
Option Committee under the 1991 Stock Option Plan. The Stock Option Committee
exercises all of the powers of the Board of Directors in relation to the 1991
Option Plan and is generally empowered to interpret the 1991 Option Plan,
prescribe rules and regulations relating thereto, determine the terms of the
option agreements, amend them with the consent of the optionee, determine the
employees to whom option are to be granted, determine the number of shares
subject to each option and the exercise price thereof, determine the terms of
paying the exercise price and other terms and conditions including whether the
exercise price of an option is payable in cash or by delivery of a promissory
note or previously acquired shares of Common Stock. The per share exercise price
for incentive stock options ("ISO's) may not be less than 100% of the fair
market value of a share of Common Stock on the date the option is granted (110%
of fair market value on the date of grant of an ISO if the optionee owns more
than 10% of the Common Stock of the Company), and for non-qualified stock
options ("NQSOs") may not be less than 85% of the fair market value of a share
of Common Stock on the date the option is granted.
Options are exercisable for a term determined by the Stock Option
Committee, which may not be less than one year or greater than ten years from
the date of grant. Options may be exercised only while the original optionee has
a relationship with the Company which confers eligibility to be granted options
or within three months after termination of such relationship with the Company,
or up to one year after death or disability. Options are not transferable other
than by will or the laws of descent and distribution and may be exercised during
19
<PAGE>
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.
During the year ended May 31, 1996, the Company did not grant any ISOs or
NQSOs to its employees. The last reported sale price per share of the Company's
Common Stock as reported on the New York Stock Exchange Composite Tape on April
4, 1997 was $1.00.
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 is 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
20
<PAGE>
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During the year ended May 31, 1996, the Compensation Committee of the
Company's Board of Directors consisted of William Carone and Martin R. Bring.
Mr. Bring is a member of the New York, New York law firm Lowenthal, Landau,
Fischer & Bring, P.C. which performs legal services for the Company.
21
<PAGE>
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, 1995,
the Company owed the Estate of Herbert Rounick an aggregate $2,796,000 in
principal. 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 Della Rounick, as executrix of the
Estate of Herbert Rounick, loaned to the Company on January 24, 1995
simultaneously with being released on a guarantee of the credit facility with
its bank group. Accordingly, as of May 31, 1996, the aggregate amount of the
Company's indebtedness to the Estate of Herbert Rounick was $5,923,755
(including $627,755 in accrued and unpaid interest) all of which is unsecured
and is subordinated to the Company's indebtedness to its lenders (the
"Subordinated Debt"). Under the terms of the Purchase Agreement, Stonehill will
purchase all of the Subordinated Debt, excluding $1,000,000 thereof (the
"Retained Subordinated Debt"), for a purchase price of $1,000,000 to be paid in
cash on the Closing Date. The Retained Subordinated Debt will be payable by the
Company in $200,000 installments over a period of five years, subject to
subordination conditions of the Company's lenders.
Della Rounick, as the principal stockholder, currently is a Co-Chairman of
the Board and Chief Executive Officer for which she is receiving a salary of
$220,000 per annum; however, Ms. Rounick will resign on the Closing of the
Transactions from her positions as an officer and director of the Company.
Upon the Closing of the Transactions, the Company intends to enter into an
employment agreement with Mr. Cassini, who will become Chairman of the Board and
Chief Designer, for a three-year term at an annual rate of compensation of
$200,000, $300,000 and $500,000 respectively for each of the first, second and
third years following the Closing.
Mr. Cassini has been and will continue to be a licensor to the Company.
Under the Company's license agreement with Mr. Cassini, dated June 1990, as
amended (the "License Agreement"), for the fiscal years ended May 31, 1996
through 1999, minimum annual royalties of $350,000 are payable to OCI, a
corporation wholly-owned by Mr. Cassini, plus percentage royalties ranging from
1% to 4%. [For the fiscal year ended May 31, 1996, $440,000 was paid by the
Company to OCI.] Commencing upon the Closing of the Transactions, pursuant to
the License Management Agreement, 50% of the minimum annual and percentage
royalties payable under the License Agreement will be repaid to the Company as
Management Licensing Fees.
See also "Executive Compensation - Compensation Committee Interlocks and
Insider Participation."
22
<PAGE>
PROPOSAL 2: APPOINTMENT OF INDEPENDENT AUDITORS AND RATIFICATION OF
APPOINTMENT
The Board of Directors has appointed Arthur Andersen & Co. as the
independent auditors of the Company and its subsidiaries for the fiscal year
ending May 31, 1997. A representative of Arthur Andersen & Co. expects to be
present at the Meeting to respond to appropriate questions and will be given the
opportunity to make a statement if such representative desires to do so.
The Board of Directors recommends that stockholders vote FOR the
ratification of the appointment of Arthur Andersen & Co. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present, in
person or by proxy, and entitled to vote at the Meeting is required for approval
of this proposed action.
PROPOSAL 3: APPROVAL OF THE ISSUANCE OF 26,869,332 SHARES OF COMMON
STOCK
PROPOSAL 4: AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO INCREASE THE AUTHORIZED CAPITAL STOCK
PROPOSAL 5: AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO CHANGE ITS NAME
THE TRANSACTIONS
The stockholders of the Company will be asked at the Meeting to consider
and approve the following matters which are required to be implemented pursuant
to the Purchase Agreement: (i) the issuance of 26,869,332 shares (the "Shares")
of common stock, par value $.01 (the "Common Stock"), to Stonehill and Cassini,
for a purchase price of approximately $7,000,000, as more fully described below,
plus the License Management Fees, (ii) an amendment to the Company's Certificate
of Incorporation to increase the total authorized capital shares to 60,000,000
shares of common stock and 5,000,000 shares of preferred stock and (iii) an
amendment to the Company's Certificate of Incorporation to change of the
Company's name to Oleg Cassini Group International, Ltd., subject to the Closing
of the Transactions.
Under the terms of the Purchase Agreement, among other things, the Company
has agreed to issue and sell to (i) Stonehill 6,869,332 shares of Common Stock,
(which shares when issued will represent approximately 20% of the then issued
and outstanding shares of Common Stock) for a purchase price of $4,000,000
23
<PAGE>
payable in cash at the Closing and (ii) to Cassini 20,000,000 shares of its
Common Stock (which shares when issued will represent approximately 60% of the
then issued and outstanding shares of Common Stock) for (a) $3,000,000, of which
$1,000,000 is payable in cash at the Closing and the balance is payable by the
delivery on the Closing of two non-interest bearing promissory notes of Mr.
Cassini payable to the Company each in the principal amount of $1,000,000 (the
"Cassini Notes"), one of which will be due on the first anniversary of the
Closing and the second of which will be due on the second anniversary of the
Closing and each of which will be secured by 6,666,666 shares of Common Stock to
be issued to Mr. Cassini on the Closing of the Transactions, and (b) the
execution and delivery by OCI of a certain Management License Agreement pursuant
to which on and after the Closing, the Company will manage the day to day
operations and supervise five of OCI's existing license agreements and any
future license agreements (collectively the "Cassini License Agreements")
relating to women's apparel in exchange for half of the royalties collected
under such license agreements. The actual royalites collected by OCI for the
twelve months ended December 31, 1996 on account of the Cassini Licenses was in
excess of $1,500,000. In accordance with generally accepted accounting
principles, the Company's management has estimated that 50% of the net present
value of the guaranteed minimum royalties due under the Cassini License
Agreements at May 31, 1997, is approximately $950,000. See also "Certain
Relationships and Related Transactions."
The closing sale price of the Company's Common Stock on the NYSE as of
March 11, 1997, the date the Agreement was executed, was $1.13. Upon issuance to
Stonehill and Cassini (the "Purchasers") the Shares will represent approximately
80% of the fully diluted issued and outstanding common equity of the Company,
and approximately 80% of the voting power, as of March 11, 1997, and will have
the effect of a change of control of the Company.
The Company's execution of the Purchase Agreement in connection with the
Transactions was the result of negotiations which began on or about December
1995 between the Company and several potential purchasers, including Cassini. In
May, 1996, the Company announced its engagement of Arthur Andersen--Worldwide
Corporate Finance (the "Financial Advisor") as its financial advisor to explore
alternatives that would enable the Company to meet its strategic objectives.
As part of its plan to meet these objectives, the Company asked its
Financial Advisor to explore options including alliances with other companies,
an infusion of capital into the Company, the sale or merger of the Company, or
any combination of the foregoing. During the Spring of 1996, the Purchasers and
the Company, together with its Financial Advisor, held several meetings to
discuss the size and nature of an equity investment in the Company. During these
meetings the Company also considered other alternatives such as private
placements with other parties, traditional bank financings and public offerings,
but determined that such financings would not be as significant or as timely as
the Transactions. The Company was also aware that it was not able to borrow
significant additional funds using bank financing, and that the public finance
markets might not be receptive to an offering of the size proposed by the
Purchasers. See "Board of Director's Recommendations."
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In addition the Company requested its Financial Advisor to conduct
negotiations with potential purchasers and investors, including an affiliate of
Sun Capital Partners, Inc. ("Sun Capital"), a merchant banking and investment
banking firm located in West Palm Beach, Florida and Cassini, both of whom had
already begun negotiations with the Company. Cassini had an ongoing relationship
as licensor to the Company's largest division since 1985 and believed that a
strategic alliance could be mutually beneficial. In Spring 1996, Cassini set up
a meeting with Stonehill and the Board of Directors. Stonehill expressed an
interest in pursuing a transaction with Cassini and the Company. Negotiations
were conducted by the Company together with its Financial Advisor regarding
potential transactions with Sun Capital on the one hand and Stonehill and
Cassini, on the other hand, during the Spring of 1996. At such time Stonehill
and Cassini proposed terms of a transaction with the Company and had a series of
meetings to negotiate the terms, but negotiations came to a standstill in July,
1996.
During the Summer of 1996, the Company signed a letter of intent with Sun
Capital. Under the terms of the letter of intent, as revised, Sun Capital would
have invested $2,500,000 in the Company for which it would have received Common
Stock of the Company. As part of the transaction, Sun Capital had agreed to
purchase the Subordinated Debt held by the Company's principal stockholder,
Rounick, as executrix of the Estate of Herbert Rounick, in the approximate face
amount of $6,000,000, at a substantial discount and to convert some of the debt
into equity of the Company. In addition, Sun Capital would receive options to
purchase common stock of the Company at declining exercise prices, based on a
formula linked to the performance of the Company. The Common Stock received upon
closing and the options, if fully exercised, would have represented up to 49.9%
of the Common Stock of the Company.
On September 25, 1996, a purchase agreement was executed with Sun Capital
(the "Sun Purchase Agreement"). However the transactions contemplated in such
agreement were subject to significant closing conditions, including due
diligence and Sun Capital obtaining financing.
On November 18, 1996, the parties entered into an amendment to the Sun
Purchase Agreement that, among other things amended the no-shop provisions of
the Sun Purchase Agreement to allow the Company to negotiate with other
potential investors and purchasers without incurring a break-up fee. Thereafter
negotiations promptly resumed with Stonehill and Cassini. Stonehill and Cassini
began extensive due diligence. On January 14, 1997, the parties mutually agreed
to terminate the Sun Purchase Agreement. On March 11, 1997, the Company entered
into the Purchase Agreement with Stonehill and Cassini.
On April 8, 1997, the Board of Directors received a draft opinion of
Mesirow Financial, Inc., a national securities firm (hereinafter, "Mesirow") to
the effect that the consideration to be paid by the Purchasers for their equity
investment in the Company as then contemplated was fair to the stockholders of
the Company, other than Rounick, from a financial point of view. Subsequently,
the Company received the fairness opinion of Mesirow dated , 1997 (included as
Exhibit C hereto). See "Other Consideration Regarding the Transactions --
Opinion of Mesirow Financial, Inc."
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<PAGE>
Among other provisions, the Agreement provided that the Company will amend
its Certificate of Incorporation to increase its authorized capital stock.
BOARD OF DIRECTORS' RECOMMENDATIONS
Access to capital is the most critical need for the Company to continue its
operations. However, the Company believes that prior to the investment by the
Purchasers (the "Investment"), available capital was insufficient to enable the
Company to continue operations on a long term basis. The Investment offers
access to a significant amount of capital, on terms which the Company believes
to be favorable. Mesirow has delivered a draft opinion to the effect that the
consideration to be paid by the Purchasers to acquire the Shares of Common Stock
for a purchase price of approximately $7,000,000 (payable $5,000,000 on the
Closing and $1,000,000 payable on each of the second and third anniversaries of
the Closing Date pursuant to the Cassini Notes) plus License Management Fees is
fair to the Company from a financial point of view. Mesirow's fairness opinion
is included as Exhibit C hereto.
The Board of Directors, in recommending stockholder approval of the
Transactions, considered a number of material factors which were: (a) the
substantial increase in the Company's capitalization as a result of the
Investment, (b) the terms of the Agreement, (c) the alternatives to Stonehill's
investment and the likelihood of such alternatives, and (d) the opinion of
Mesirow to the effect that the financial terms of the Investment are fair to the
stockholders of the Company, other than Rounick, from a financial point of view.
The Board of Directors considered that the Company needed a significant capital
infusion to continue its operations. The Board of Directors, together with its
Financial Advisor, did review other financing alternatives, including the
potential for a private offering of debt or equity securities and/or a bank
financing. In the Board's view, the Company was not likely to successfully
complete any of those transactions in a timely manner, if at all, given its
financial condition. The Board of Directors did carefully review the Investment
in the Company as compared to the voting percentage to be held by the Purchasers
but determined that the size of the Purchasers' investment was appropriate given
the Company's capital needs. In regard to the use of proceeds and financial
impact of the Investment on the Company's stockholders, the Board considered the
likelihood that the proceeds provided by the Investment could enable the Company
to improve the Company's financial performance and reduce some of its bank debt
at a discount, thereby benefiting the Company's stockholders. The Board also
considered the impact of the Purchasers's presence on the Board of Directors of
the Company, and determined that additional directors bringing diverse business
experience, some of whom would be more directly involved in the daily management
of the Company, would be a positive addition to the Board. This determination
was based on a number of extensive meetings between the Company and the
Purchasers before the execution of the Purchase Agreement. The Board also
recognized that the Transactions might hinder a sale of the Company to a buyer
other than the Purchasers and would result in a significant increase in the
number of shares of Common Stock outstanding. In both cases, the Board
determined that the capital and liquidity provided by the Purchasers was
critical to enable the Company to continue operations and that any dilution to
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the stockholders or deterrence of possible acquirors was outweighed by the
significant impact this capital infusion could have on the Company's operations
and financial conditions.
The Board of Directors has reviewed and considered the terms and conditions
of the Agreement and the Transactions and believes that the Agreement and the
Transactions are fair to, are advisable to and in the best interests of, the
Company and its stockholders, and has unanimously approved the Agreement and the
Transactions.
The Board of Directors unanimously recommends that stockholders vote "FOR"
Proposals 3, 4 and 5 and for approval of the Transactions.
SUMMARY OF SECURITIES PURCHASE AGREEMENT
The following summary of certain material terms of the Agreement is
qualified in its entirety by reference to the provisions of the Agreement, which
is included as Exhibit A hereto.
The Agreement provides for the purchase by the Purchasers of shares of
Common Stock for a consideration of $7,000,000 (of which $5,000,000 is payable
on the Closing Date and $1,000,000 payable on each of the second and third
anniversaries of the Closing Date pursuant to the Cassini Notes) plus the
License Management Fees. Each of the Cassini Notes is secured by a pledge of
6,666,666 shares of Cassini's Common Stock. The closing (the "Closing," or in
reference to the actual day of closing, the "Closing Date") is scheduled for the
fifth business day after the first date on which closing conditions set forth
below have been satisfied or waived; however, such date may not be later than
May 31, 1997.
RIGHTS TO DESIGNATE REPRESENTATIVES ON THE COMPANY'S BOARD OF DIRECTORS
Cassini and/or LaBow ("Cassini/LaBow") are entitled to designate five
representatives in addition to the Chief Executive Officer of the Company and
Rounick is entitled to designate one representative to serve on the Company's
Board of Directors, and it is a condition to the Closing of the Transactions
that the constitution of the Board of Directors as designated by Cassini/LaBow
(in addition to Rounick's designee) shall be appointed prior to or at Closing.
Each designated nominee, when and if elected, shall be entitled to the
compensation commensurate with that available to each other director. The
persons nominated for election of directors by the Board of Directors in
Proposal 1 of the Proxy Statement have been nominated in compliance with the
conditions of the Purchase Agreement.
LICENSE MANAGEMENT AGREEMENT
In accordance with the terms of the Purchase Agreement and upon the Closing
of the Transactions, the Company and OCI will execute a License Management
Agreement (the "LMA") pursuant to which the Company will manage all of the day
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to day business of OCI with respect to five of OCI's existing and all future
license agreements for the manufacture, promotion and sale of women's apparel
("OCI-Women's").
The LMA shall terminate on the expiration of the last license agreement
contemplated by the LMA (including any extensions, modifications or renewals of
such license agreements). As compensation for its services under the LMA, the
Company shall receive a management fee equal to one-half of the royalties
collected from the licensees of OCI-Women's during the term hereof.
REGISTRATION RIGHTS
Pursuant to the Agreement, the Purchasers or their permitted assigns who in
the aggregate are holders of ten percent (10%) or more of the shares have the
right, following three months after the Closing, to demand that the Company file
a registration statement on Form S-3, if available, or if not available, then on
Form S-1 or S-2 (the "Demand Registration"). The Demand Registration is subject
to certain limitations in the discretion of any managing underwriter.
The Purchasers are also granted the right to participate and register all
of the Shares in any offering proposed by the Company or any secondary offering
proposed by any of the Company's stockholders (the "Piggy-Back Registration")
with the exception of a registration relating solely to employee benefit plans,
a registration relating solely to a Securities and Exchange Commission Rule 145
Transaction or any registration on any registration form which does not permit
secondary sales. This Piggy-Back Registration right is subject to certain
limitations in the discretion of any managing underwriter.
PROXY
In connection with the Transactions, Rounick, who has the power to vote
4,430,748 shares of Common Stock, has granted to the Purchasers an irrevocable
proxy to authorize LaBow-Tabin to vote all of Rounick's shares. The Company has
been advised that LaBow-Tabin intends to vote all of the shares subject to the
proxy in favor of the issuance of the Shares, the amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares, the
change of name of the Company, and the election of all of the directors
nominated. Therefore, no additional favorable stockholders' votes are required
under Delaware law to approve the proposed issuance of Shares, Amendments to the
Certificate of Incorporation increasing the authorized capital stock and
changing the name of the corporation, and election of directors if the shares
subject to the proxy are so voted.
NON-SOLICITATION OF OTHER TRANSACTIONS BY THE COMPANY
The Company agreed that prior to the Closing, subject to certain fiduciary
obligations in regard to tender offers, it (and its representatives) will not
initiate or encourage or engage in any discussions with third parties concerning
any proposals or offers for mergers, consolidations, sales of stock, sales of
assets or similar such transactions (other than the Transactions).
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VOTING ARRANGEMENTS
At Closing, Messrs. LaBow and Cassini will enter into a voting trust
agreement pursuant to which Mr. Cassini will grant to Mr. LaBow the right to
vote all of Mr. Cassini's shares, subject to the pledge of such shares to the
Company to secure the Cassini Notes, for a period of three years, or terminating
earlier (i) in the event of Mr. LaBow's death, disability or resignation as a
director of the Company, or (ii) at such time as Mr. Cassini ceases to be
Chairman of the Board and Chief Designer of the Company.
OLEG CASSINI'S ROLE; CHANGE OF NAME
Under the terms of the Purchase Agreement, the name of the Company will be
changed to Oleg Cassini Group International, Ltd. On the Closing Date Cassini
will be appointed the Chairman of the Board and Chief Designer.
CLOSING CONDITIONS
The obligation of the Company to sell, and of the Purchasers to Purchase,
the Shares are subject to the satisfaction on or prior to the Closing of certain
conditions, including, among other things: (i) the issuance of the Shares has
been approved by a majority of the Company's stockholders present in person or
by proxy at a meeting duly called and convened for that purpose, (ii) the Shares
have been approved for listing on the NYSE and (iii) obtaining all other third
party consents to the Transactions, including the Company's lenders.
The obligation of the Company to issue the Shares on the Closing Date is
subject to, among other things, the truth and accuracy of Purchasers'
representations and warranties on and as of the Closing Date, to the performance
of Purchasers' covenants and agreements which by their terms are to be performed
in whole or part prior to the Closing Date (including delivery of the purchase
price for the Shares), the delivery of an opinion of Purchasers' counsel and the
execution of the Management License Agreement with OCI.
The obligation of Purchasers to purchase the Shares is also subject to the
satisfaction of the following conditions among other things: (i) delivery of
certificates representing the Shares, (ii) delivery of an opinion of Company's
counsel, (iii) all representations and warranties of the Company are true and
accurate as of the Closing Date, and the Company shall have performed its
covenants and agreements, and (iv) there has been no material adverse change in
the financial condition, business or assets of the Company and its subsidiaries
as a whole.
TERMINATION FEES AND EXPENSES
Pursuant to the terms of the Agreement, the Purchasers and the Company each
have agreed to pay to the other $500,000 as liquidated damages in the event that
the Transactions are not consummated due to the fault of such party.
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ASSIGNABILITY
The rights and obligations of any Purchasers under the Agreement may be
assigned only to a corporate affiliate of such Purchaser.
USE OF PROCEEDS
The proceeds of the purchase price payable at closing will be $5,000,000.
Of the $5,000,000, approximately $1,250,000 will be used to fully satisfy the
Company's obligations to its subordinated lenders who are owed a principal
amount of $2,750,000, approximately $1,000,000 will be used to satisfy certain
outstanding trade payables, approximately $250,000 will be used to pay expenses
incurred in connection with the Transactions, and the balance will be used to
reduce current amounts outstanding under the Company's revolving credit facility
with its senior lender and for general working capital purposes.
OTHER CONSIDERATIONS REGARDING THE TRANSACTIONS
OPINION OF MESIROW FINANCIAL, INC.
The fairness opinion of Mesirow is dated , 1997, and opines on the
financial terms of the Investment as of March 11, 1997, the date of the
Agreement. In connection with rendering its opinion that the financial terms of
the Investment are fair to the stockholders of the Company (other than Rounick)
from a financial point of view, Mesirow reported to the Board of Directors that
it (i) reviewed publicly available information concerning the Company, including
audited and interim, unaudited financial statements of the Company; (ii)
reviewed the Company's financial projections provided by senior management of
the Company, which are not publicly available; (iii) reviewed the efforts of the
Financial Advisor since May, 1996, to identify and solicit alternative sources
of capital or acquirors for the Company and Mesirow has been so advised by the
Financial Advisor and the Company that they have been unable to identify any
other interested sources of capital or acquirors other than Sun Capital as
described elsewhere in this proxy statement; (iv) reviewed the going concern
qualified opinion of Arthur Andersen & Co., the Company's auditor for the year
ending May 31, 1996; and (v) estimated the likely values to be realized by the
Company's common stockholders in the event of a formal bankruptcy proceeding,
liquidation or similar occurrence.
In addition, Mesirow met with certain members of the Company's senior
management to discuss its operations, historical financial statements and future
prospects, and visited the Company's facilities in New York and New Jersey.
Mesirow met with Mr. Cassini concerning his plans for the Company and discussed
the Company's financial condition with representatives of its lending groups. In
the course of such review, Mesirow relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information provided to them by management or publicly available. Mesirow
further relied upon the assurances of management that the financial projections
30
<PAGE>
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future financial
performance of the Company. In arriving at the opinion, Mesirow did not perform
or obtain any independent appraisal of the Company's assets. The written
fairness opinion (attached hereto as Exhibit C) was delivered to the Board of
Directors on , 1997.
Mesirow was selected by the Board of Directors based on its reputation,
experience and expertise. Mesirow is a nationally recognized securities firm. As
part of its investment banking business, Mesirow is regularly engaged in
structuring financing and the valuations of businesses and their securities in
connection with mergers, acquisitions and leveraged buyout transactions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, and private placements. Mesirow's fairness
opinion is directed only to the Board of Directors relating to the Investment
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Meeting or as to the value of the Common Stock,
and does not purport to take into consideration any information or event arising
subsequent to the date of the opinion. Mesirow rendered no opinion regarding the
terms of the transaction between Rounick and Stonehill regarding Stonehill's
purchase of a portion of the Company's outstanding Subordinated Debt from
Rounick. A copy of such fairness opinion is attached hereto as Exhibit C, and
stockholders are encouraged to read the opinion carefully in its entirety.
As compensation for its services, the Company agreed to pay Mesirow a fee
equal to $75,000. In addition, Mesirow is entitled to reimbursement of
out-of-pocket expenses up to $22,000 incurred in performing its services,
including reasonable fees and expenses of counsel and other advisors and
consultants retained by Mesirow and the Company agreed to indemnify Mesirow and
related persons against certain liabilities (including expenses incurred in
connection with investigating, preparing or defending any action or claim
arising out of Mesirow's engagement), including liabilities under Federal
securities laws.
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Transactions are in
the best interests of the Company and its stockholders, the approval of the
Transactions may have certain effects which stockholders should consider. These
considerations are summarized below.
EFFECT ON CONTROL OF THE COMPANY. Purchasers will beneficially own 80% of
the voting stock of the Company, and the right to name six of seven directors.
ABILITY TO SELL THE COMPANY. Due to Purchasers' voting rights and its large
equity interest, it would be impracticable for a third party to acquire the
Company without the consent of Purchasers. Accordingly, approval of the
Securities Issuance and hence the Transactions would hinder the sale of the
Company to a buyer other than Purchasers.
DISSENTER'S RIGHTS OF APPRAISAL. There are no rights of appraisal or
similar rights of dissenters with respect to any matter to be acted upon hereby.
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DESCRIPTION OF CAPITAL STOCK
Pursuant to the Company's Certificate of Incorporation, as amended (the
"Certificate"), the authorized capital stock of the Company currently consists
of 25,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share. Immediately after the
Special and Annual Meeting to which this Proxy Statement relates, the authorized
capital stock of the Company will consist of 60,000,000 shares of common stock,
par value $.01 per share, and 5,000,000 shares of preferred stock, par value
$.01 per share. The following description of certain of the Company's securities
is a summary of the Certificate.
COMMON STOCK. Holders of Common Stock are entitled to one vote per share in
the election of directors and on all other matters on which the stockholders are
entitled or permitted to vote. Holders of Common Stock are not entitled to
cumulative voting rights. The holders of Common Stock are entitled to dividends
in such amounts and at such times as may be declared by the Company's Board of
Directors out of funds legally available therefor. On liquidation or
dissolution, holders of Common Stock are entitled to share ratably in all net
assets available for distribution to stockholders. Holders of Common Stock have
no redemption, conversion or preemptive rights.
PREFERRED STOCK. There are no shares of Preferred Stock outstanding and the
company has no present plans to issue any shares of Preferred Stock. The Board
of Directors has the authority to issue Preferred Stock in one or more series
and to fix the voting powers, conversion rights, other special rights and
qualifications, limitations or restrictions of each series, without further vote
or action by the stockholders. It is not possible to state the actual effect of
the authorization of the Preferred stock upon the rights of holders of the
Common Stock, until the Board of Directors determines the specific rights of the
holders of a series of the Preferred Stock. However, such effects might include
(i) restrictions on dividends on the Common Stock if dividends on the Preferred
Stock have not been paid; (ii) dilution of the voting power of the Common Stock
to the extent that the Preferred Stock has voting rights; (iii) dilution of the
equity interest of the Common Stock to the extent that the Preferred Stock is
converted into Common Stock; or (iv) the Common Stock not being entitled to
share in the Company's assets upon liquidation until satisfaction of any
liquidation preference granted to the holder of the Preferred Stock. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, may have the effect of
discouraging certain types of transactions involving an actual or potential
change in control of the Company, including transactions in which the holders of
Common Stock might otherwise receive a premium for their shares of Common Stock
over then current market prices, and may limit the ability of the holders of
Common Stock to approve transactions that they may deem to be desirable.
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
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of the Company's equity securities. Based solely on the Company's review of the
Section 16 Reports furnished to the Company by its Reporting Persons and, where
applicable, certain written representations by any of them, except as set forth
below, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to fiscal 1996 have been complied with
on a timely basis. The grant of replacement options to each outside director
under the terms of the Amended 1994 Plan was approved by the stockholders of the
Company on May 28, 1996. See "1994 Outside Directors Stock Option Plan". Forms 5
(or alternatively, voluntary reports on Form 4) reflecting the grant of
replacement and repriced options under the Amended 1994 Plan were not filed for
Mr. Carone and Mr. Bring. However, the grant of replacement and repriced options
for Messrs. Carone and Bring was disclosed in the Company's proxy statement
pursuant to which approval to the Amended 1994 Plan was requested, which proxy
statement was filed on April 27, 1996 with the Securities and Exchange
Commission and sent on such date to all of the Company's stockholders of record
as of the record date contained therein.
STOCKHOLDER PROPOSALS
From time to time stockholders may present proposals to be included in the
proxy statement and form of proxy for consideration at the Annual Meeting. In
order to be considered, such proposals must be received at the Company's
principal executive offices no later than December [insert date of Proxy], 1997
and should be directed to the Secretary of the Company.
OTHER MATTERS
The Board of Directors does not know of any matters to be brought before
the Annual Meeting. If any other matters not mentioned in this proxy statement
are properly brought before the Annual Meeting or any adjournment thereof, the
persons named in the accompanying proxy intend to vote the shares represented by
such proxy in accordance with their best judgment on such matters.
Expenses incurred in connection with the solicitation of proxies will be
paid by the Company. The proxies are being solicited principally by mail. In
addition, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone, for which they will receive no consideration
other than their regular compensation. The Company will also request brokerage
houses, nominees, custodians and fiduciaries to forward soliciting material to
the beneficial owners of Common Stock of the Company and will reimburse such
person for their expenses so incurred.
- --------------------------------------------------------------------------------
THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND THE MOST RECENT QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED FEBRUARY , 1997 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, EXCLUSIVE OF ALL EXHIBITS, IS BEING MAILED SIMULTANEOUSLY
WITH THIS PROXY STATEMENT WITHOUT CHARGE TO ANY STOCKHOLDER ENTITLED TO VOTE AT
THE MEETING.
- --------------------------------------------------------------------------------
Dated: April , 1997
BY ORDER OF THE BOARD
OF DIRECTORS
Della Rounick
Co-Chairman and Chief Executive Officer
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EXHIBIT A
AGREEMENT
AGREEMENT, made this ______ day of March, 1997, by and between
STONEHILL INVESTMENT CORP., a New York corporation with offices at 110 East 59th
Street, New York, New York 10022 ("Stonehill") and OLEG CASSINI, an individual
residing at 3 West 57th Street, New York, New York ("Cassini") ( Stonehill and
Cassini are sometimes herewith collectively referred to as the "Purchasers"),
OLEG CASSINI, INC., a New York corporation with offices at 3 West 57th Street,
New York, New York ("O.C.I."), THE HE-RO GROUP, LTD. (the Company"), a Delaware
corporation with offices at 550 Seventh Avenue, New York, New York 10018, and
DELLA ROUNICK ("DR"), an individual and as sole executrix of the Estate of
Herbert Rounick (the "Estate"), residing at 15 West 53rd Street, Apt. 38F, New
York, New York 10019 (DR, the Estate and the Company, are sometimes herewith
collectively referred to as the "Sellers").
W I T N E S S E T H:
WHEREAS, DR, as executrix of the estate of Herbert Rounick (the
"Estate"), desires to sell and Stonehill desires to purchase from DR, as
executrix of the Estate, all but One Million ($1,000,000) Dollars (the "Retained
Subordinated Debt") of the obligations due and owing from He-Ro to the Estate,
<PAGE>
(the "Subordinated Debt"), in the approximate amount of Five Million
($5,000,000) Dollars, including interest and excluding the Retained Subordinated
Debt, for a purchase price of One Million ($1,000,000) Dollars, payable in
immediately available funds at the Closing (as defined below); and
WHEREAS, the Purchasers desire to purchase shares of the Company's
Common Stock ($.01 Par Value) and the Company desires to issue such shares (the
"Shares") to the Purchasers upon the terms and conditions set forth herein; and
WHEREAS, O.C.I. and the Company desire to enter into a License
Management Agreement with respect to certain licenses of O.C.I.; and
WHEREAS, the parties hereto desire to effectuate the other agreements
and understandings set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein and for other good and valuable consideration, the parties hereto agree
as follows:
Article I
Authorization and Sale of the Shares
1.1 Authorization of the Shares. The Company has authorized the sale
and issuance of 26,869,332 shares (the "Shares") of its Common Stock, par value
$.01 per share to the Purchasers at the Closing, upon the terms and conditions
hereinafter set forth.
1.2 Sales of the Shares. Subject to the terms and conditions hereof
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and in reliance upon the representations, warranties and agreements contained
herein, the Company will issue and sell to each of the Purchasers or their
respective designees the number of Shares set forth below:
Purchaser Number of Shares
Stonehill or its Designee(s) 6,869,332
Cassini or his Designee(s) 20,000,000
1.3 Consideration
(a) In consideration for the acquisition of the Shares to be purchased
by Stonehill or its designees, Stonehill shall pay to the Company Four Million
Dollars ($4,000,000} by wire transfer at Closing to such bank account as the
Company shall designate in writing.
(b) In consideration for the acquisition by of the Shares to be
purchased by Cassini or his designees:
(i) O.C.I. shall execute the License Management Agreement as
defined below; and
(ii) Cassini shall pay to the Company Three Million Dollars
($3,000,000), payable as follows:
(x) One Million Dollars ($1,000,000) by wire transfer at
Closing to such bank account as the Company shall
designate in writing;
(y) One Million Dollars ($1,000,000) inclusive of all
interest, evidenced by a non-interest bearing
promissory note due and payable on the first
anniversary date following the Closing in the form
attached hereto as Exhibit "A" (the "First Note");
and
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(z) One Million Dollars ($1,000,000) inclusive of
interest, evidenced by a non-interest bearing
promissory note due and payable on the second
anniversary date following the Closing in the form
attached hereto as Exhibit "B" (the "Second Note").
(c) The First Note will be secured by a pledge of 6,666,666 of the
Shares purchased by Cassini, pursuant to a Pledge Agreement attached hereto as
Exhibit "C" (the "Pledge Agreement"), which Shares will be released upon the
payment in full of the First Note. The Second Note will be secured by a pledge
of 6,666,666 of the Shares purchased by Cassini, pursuant to the Pledge
Agreement, which Shares will be released upon payment in full of the Second
Note. Unless and until an event of default shall occur and be continuing,
Cassini shall control all voting rights of the Shares purchased under the Pledge
Agreement, subject to the terms of the Voting Trust Agreement by and among The
He-Ro Group, Ltd., Cassini and Ronald LaBow.
Article II
Purchase of Subordinated Debt
2.1 Sale of Subordinated Debt. Subject to the terms and conditions
hereof and in reliance upon the representations, warranties and agreements
contained herein Stonehill will purchase the Subordinated Debt, excluding the
Retained Subordinated Debt, from the Estate. At the Closing, the Company shall
deliver to DR, as Executrix of the Estate, a non-interest bearing subordinated
note, payable in five (5) equal consecutive annual installments, each in the
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amount of Two Hundred Thousand ($200,000) Dollars (the "Retained Subordinated
Debt Note"). DR, as Executrix of the Estate, shall execute such agreements as
the lenders to the Company shall require to subordinate such Retained
Subordinated Debt Note to all other obligations of the Company.
2.2 Consideration. In consideration for the acquisition all of the
Subordinated Debt, except for the Retained Subordinated Debt, Stonehill shall
pay to the Estate, One Million Dollars ($1,000,000) by wire transfer at Closing
to such bank account as DR, as Executrix of the Estate shall designate in
writing.
Article III
3.1 Closing Date. The closing of the purchase and sale of the Shares
and the Subordinated Debt hereunder (the "Closing") shall be held on May 31,
1997 (the "Closing Date") at the offices of Lowenthal, Landau, Fischer & Bring,
P.C., or at such other time and place as shall be mutually agreed upon by the
Company and the Purchasers.
3.2 Delivery.
(i) By the Company. At the Closing, the Company will deliver to
each Purchaser certificates, in such denominations and registered in such names
as designated by Stonehill and Cassini, respectively, representing the number of
the Shares to be purchased by each Purchaser from the Company free and clear of
all liens and encumbrances of any nature.
(ii) By DR and the Estate. DR and the Estate shall assign the
Subordinated Debt, except for the Retained Subordinated Debt, free and clear of
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all liens and encumbrances of any nature, duly endorsed for transfer, to
Stonehill and shall execute and deliver the irrevocable proxy referred to in
Section 6.6 below.
(iii) By Stonehill. Stonehill shall complete the wire transfers
to the Company of Four Million Dollars ($4,000,000) and to DR of One Million
Dollars ($1,000,000).
(iv) By Cassini. Cassini shall complete the wire transfer to the
Company of One Million Dollars ($1,000,000) and shall deliver the First Note and
the Second Note to the Company.
(v) By the Company and O.C.I.. The Company and O.C.I. shall
execute the License Management Agreement in the form annexed hereto as Exhibit
"D".
Article IV
Warranties and Representations of the Purchasers
4.1 Warranties and Representations of Stonehill. Stonehill warrants
and represents to each of the Sellers, Cassini and O.C.I. as of the date hereof
and as of the Closing Date as follows:
(a) Corporate Organization, etc. Stonehill is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
New York. Stonehill has the power and authority to execute and deliver this
Agreement and the agreements and instruments contemplated herein and to perform
all of the obligations hereunder and thereunder.
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(b) Authorization. The execution, delivery and performance by
Stonehill of this Agreement and the performance by Stonehill of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
of Stonehill and do not and will not contravene any provisions of law or any
order of any court or other agency of government applicable to Stonehill or its
Articles of Incorporation or By-Laws and will not, at the Closing, contravene
any agreement or other instrument by which it is bound or violate any judgment,
order, injunction, decree, statute, rule or regulation applicable to Stonehill.
Except as set forth on Schedule 4.1(b) annexed hereto, no consents, waivers,
approvals, authorizations or orders of, or registrations or qualifications with,
any person, bank, corporation, association, governmental body or court having
authority or power to regulate, supervise or direct the business and affairs of
Stonehill are necessary for the consummation by Stonehill of the transactions
contemplated by this Agreement. This Agreement and the agreements and
instruments contemplated hereby have been duly and validly executed and
delivered by Stonehill and constitute the legal, valid and binding obligations
of Stonehill, enforceable against it in accordance with their respective terms
except as enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and the availability of equitable remedies (collectively, the
"Bankruptcy Laws"); .
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(c) Investment Intent. Stonehill is acquiring the Shares for its
own account, for investment purposes; and not with a view to the resale,
assignment or distribution thereof within the meaning of the Securities Act.
4.2 Warranties and Representations of O.C.I.. O.C.I. warrants and
represents to the Sellers and Stonehill as of the date hereof and as of the
Closing Date as follows:
(a) Corporate Organization, etc. O.C.I. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. O.C.I. has the power and authority to execute and deliver this
Agreement and the agreements and instruments contemplated herein and to perform
all of the obligations hereunder and thereunder.
(b) Authorization. The execution, delivery and performance by
O.C.I. of this Agreement and the performance by the O.C.I. of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
of O.C.I. and do not and will not contravene any provisions of law or any order
of any court or other agency of government applicable to O.C.I. or its Articles
of Incorporation or By-Laws and will not, at the Closing, contravene any
agreement or other instrument by which it is bound or violate any judgment,
order, injunction, decree, statute, rule or regulation applicable to O.C.I..
Except as set forth on Schedule 4.2(b) annexed hereto, no consents, waivers,
approvals, authorizations or orders of, or registrations or qualifications with,
any person, bank, corporation, association, governmental body or court having
authority or power to regulate, supervise or direct the business and affairs of
O.C.I. are necessary
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for the consummation by O.C.I. of the transactions contemplated by this
Agreement. This Agreement and the agreements and instruments contemplated hereby
have been duly and validly executed and delivered by O.C.I. and constitute the
legal, valid and binding obligations of O.C.I., enforceable against it in
accordance with their respective terms, except as enforceability may be limited
by the effect of the Bankruptcy Laws.
(c) Investment Intent. O.C.I. is acquiring the Shares for its own
account, for investment purposes; and not with a view to the resale, assignment
or distribution thereof within the meaning of the Securities Act.
(d) Litigation. There is neither pending nor, to O.C.I.'s
knowledge and belief, threatened, any action, suit, proceeding or claim, or any
threat thereof, to which O.C.I. is or may be named as a party relating to the
six licenses which are the subject of the License Management Agreement (the
"Licenses"), or otherwise, and in which an unfavorable outcome, ruling or
finding in any such matter or for all such matters taken as a whole might have a
material adverse effect on the Licenses and O.C.I. has no knowledge of any
unasserted claim, the assertion of which is likely and which, if asserted, will
seek damages, and injunction or other legal, equitable, monetary or nonmonetary
relief which claim individually or collectively with other such unasserted
claims if granted would have a material adverse effect on the Licenses.
(e) Trademarks. O.C.I. possesses all trademarks, trademark
rights, trade names, trade name rights, necessary to conduct its business as now
being conducted relating to the Licenses without conflict with or infringement
upon any valid rights of others, and O.C.I. has not received any notice of
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infringement upon or conflict with the asserted rights of others. Annexed hereto
as Exhibit "E" is a schedule of current trademark registrations owned by O.C.I.
and photocopies of United States trademark registrations with respect thereto.
There are no outstanding options, licenses or agreements of any kind relating to
the Licenses. The execution of the License Management Agreement will not effect
any of the rights and benefits accruing to O.C.I. and the Company under the
Trademarks (as defined in the Licenses).
(f) Managed Licenses. The Licenses have been duly and validly
executed by the respective parties thereto and constitute legal, valid and
binding obligations of the respective licensees enforceable against them in
accordance with their respective terms except as enforceability may be limited
by the effect of the Bankruptcy Laws. O.C.I. , and to the knowledge of O.C.I.,
each such licensee has complied with all the material provisions of the
respective Licenses and there does not exist any event of default under any such
Licenses or any event which, after notice or lapse of time or both, would
constitute an event of default by O.C.I. under any such License. There is no
action, suit, proceeding or investigation pending or threatened against O.C.I.
before any court or before any governmental or administrative agency for the
renegotiation of or any other adjustment of any of the Licenses. Annexed hereto
and made a part hereof as Exhibit "E-1" is a schedule of royalty payments
received by O.C.I. from the Licenses during the 1996 calendar year.
4.3 Warranties and Representations of Cassini. Cassini warrants and
represents to the Company as of the date hereof and as of the Closing Date as
follows:
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(a) Power and Authority. He has the power, and authority, and
capacity to execute and deliver this Agreement and the documents and instruments
contemplated herein and to perform the obligations hereunder and thereunder.
(b) Compliance. The execution, delivery and performance by
Cassini of this Agreement does not and will not contravene any provisions of law
or any order of any court or other agency of government, and will not, at the
Closing, contravene any agreement or other instrument by which he is bound or
violate any judgment, order, injunction, decree, statute, rule or regulation
applicable to him.
This Agreement and the agreements and instruments contemplated
hereby have been duly and validly executed by Cassini and constitute legal,
valid and binding obligations of Cassini enforceable against him in accordance
with their respective terms.
(c) Investment Intent. Cassini is acquiring the Shares for his
own account, for investment purposes; and not with a view to the resale,
assignment or distribution thereof within the meaning of the Securities Act.
Article V
Warranties and Representations of the Company
The Company hereby represents and warrants to each Purchaser as of the
date hereof and as of the Closing Date and DR and the Estate, jointly and
severally warrant and represent with respect to Sections 5.3, 5.4 and 5.5 below
as follows:
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5.1 Organization and Standing: Articles and By-laws. The Company is a
corporation duly organized and validly existing under the laws of its state of
organization and is in good standing under such laws. The Company has the
requisite corporate power to own its properties and to conduct its business as
presently conducted. The Company is qualified to do business as a foreign
corporation in each jurisdiction where qualification is required by the nature
of its business or the character and location of its properties and customers
and does not own or lease property or engage in any activity in any other
jurisdiction which might require its qualification to do business as a foreign
corporation except where the failure to so qualify would not have a material
adverse effect to the Company's financial conditions and results of operations.
The Company has furnished each Purchaser with true, correct and complete copies
of its Certificate of Incorporation, By-laws and all amendments to each to date.
Prior to the Closing, the Company shall have properly filed with the Secretary
of State of Delaware the Amended Articles in the Form acceptable to the
Purchasers containing amendments as described in Exhibit "F" Annexed hereto.
5.2 Corporate Power. The Company has all requisite corporate power to
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares in accordance with the terms of the Agreement
and to carry out and perform its obligations under the terms of this Agreement.
5.3 Power and Authority. Each of DR and the Estate has the power,
authority, and capacity to execute and deliver this Agreement and the documents
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and instruments contemplated herein and to perform the obligations hereunder and
thereunder.
5.4 Compliance. The execution, delivery and performance by DR and the
Estate of this Agreement does not and will not contravene any provisions of law
or any order of any court or other agency of government, and will not, at the
Closing, contravene any agreement or other instrument by which DR or the Estate
is bound or violate any judgment, order, injunction, decree, statute, rule or
regulation applicable to either of them. This Agreement and the agreements and
instruments contemplated hereby have been duly and validly executed by DR and
the Estate and constitute legal, valid and binding obligations of DR and the
Estate enforceable against them in accordance with their respective terms except
as enforceability may be limited by the effect of the Bankruptcy Laws.
5.5 Subordinated Debt. The Estate is the owner of all right, title and
interest in and to the Subordinated Debt, and, except for the Retained
Subordinated Debt and except as set forth of the Schedule of Exceptions,
immediately after the Closing, such ownership interest in the Subordinated Debt
will pass to Stonehill free and clear of all security interests, liens,
encumbrances, charges and rights of others.
5.6 Subsidiaries. Other than as specified in the Schedule of
Exceptions, the Company has no subsidiaries and does not own of record or
beneficially any capital stock or equity interest or investment in any
corporation, association, partnership, limited liability company, joint venture
or other business entity.
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5.7 Capitalization. As of the date hereof, the Company's authorized
capital stock consists of (a) 25,000,000 shares of Common Stock, par value $.01
per share (the "Common Stock"), of which 6,717,333 shares are issued and
outstanding and (b) 1,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding. All the aforesaid issued and outstanding shares are
fully paid and nonassessable, are owned of record and beneficially by the
stockholders and in the amounts set forth in the Schedule of Exceptions, and
have been offered, issued, sold and delivered by the Company in compliance with
applicable Federal and state securities laws. As of the date hereof there are no
outstanding pre-emptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of its capital stock, except as set forth on the
Schedule of Exceptions. To the best of the Company's knowledge and belief, no
stockholder has granted options or other rights to purchase any shares of Common
Stock from any stockholder or the Company other than as set forth in the
Schedule of Exceptions hereto. Except as set forth on the Schedule of Exceptions
the Company and its affiliates hold no shares of its capital stock in its
treasury. The Company will not issue any shares of its capital stock prior to
the Closing except as a result of exercise of existing options.
5.8 Authorization. All corporate action on the part of the Company,
its directors and stockholders necessary for the authorization, execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated herein, and for the authorization, issuance and
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delivery of the Shares have been taken or will be taken prior to the Closing.
This Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforceability may be limited by the effect
of the Bankruptcy Laws. The execution, delivery and performance by the Company
of this Agreement and compliance therewith and the issuance and sale of the
Shares, the execution issuance and delivery of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, any provision of state or Federal law
to which the Company is subject, the Company's Certificate of Incorporation, as
amended, or By-laws, as amended , or any mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restrictions to
which the Company is a party or by which it is bound, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company pursuant to any such term, or result in the suspension,
revocation, impairment, forfeiture or non-renewal of any permit, license,
authorization or approval applicable to the Company's operations or any of its
assets or properties. No stockholder has any pre-emptive rights or rights of
first refusal by reason of the issuance of the Shares or otherwise. The Shares,
when issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances and shall constitute 80% of the Company's issued and outstanding
Common Stock.
5.9 Financial Information. The financial statements of the Company as
of May 31, 1996 and November 30, 1996 and any related notes, attached as Exhibit
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"G" hereto (the "Financial Statements"), including the balance sheet as of May
31, 1996 and November 30, 1996 (the "Balance Sheet"), present fairly the
financial position and results of operations of the Company at the dates and for
the periods to which they relate, have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved and reflect all material liabilities, absolute or contingent
and other obligations, of the Company required to be recorded thereon in
accordance with generally accepted accounting principles as at the respective
dates thereof.
5.10 Minute Books. The minute books of the Company contain a complete
summary of all meetings of the Directors and stockholders of the Company since
the date of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects. All actions taken by the Company
requiring action by the Board of Directors or stockholders of the Company have
been duly authorized or ratified as necessary and are evidenced in the minute
books of the Company.
5.11 Outstanding Debt. Except as set forth on the Schedule of
Exceptions and except as reflected on the Balance Sheet, the Company has no
outstanding indebtedness for borrowed money and is not a guarantor or otherwise
contingently liable for any such indebtedness (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, provide
funds for payment, supply funds or otherwise invest in any debtor or otherwise
to insure any creditor against loss). There exists no default under the
provisions of any instrument evidencing any indebtedness or otherwise or of any
agreement relating thereto.
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5.12 Absence of Undisclosed Liabilities. The Company has no material
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet. The Company does not know of any material liability of any
nature, direct or indirect, contingent or otherwise, not adequately reflected,
disclosed in the footnotes of the Financial Statements or reserved against in
the Balance Sheet.
5.13 Absence of Certain Changes. Since November 30, 1996 and at all
times up to and including the Closing, except as set forth in the Schedule of
Exceptions, there has not been any event or condition of any character which has
materially adversely affected the Company's business or prospects, including but
not limited to:
(a) any Material Adverse Change in the financial condition as
defined in Section 7.1(j);
(b) any damage, destruction or loss of any of the properties or
assets of the Company (whether or not covered by insurance) adversely affecting
in any material respects the assets, properties, financial condition, operating
results, prospects, business or plans of the Company;
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any material change or amendments to any material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject including, without limitation, any loan documents, debt instruments,
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employment agreements, licensing agreements and other arrangements with officers
or affiliates of the Company;
(e) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any such stock by the
Company; or
(f) any labor trouble, or any event or condition of any
character, materially adversely affecting the business or plans of the Company.
(g) other than payments made in the ordinary course of the
Company's business, any new liability or obligation (absolute, accrued,
contingent or otherwise incurred), not to exceed $25,000 in the aggregate, any
debt securities issued or any endorsements, accommodations or guarantees for the
obligations of another individual or entity made, or any change in the
assumptions underlying or method of calculating any kind of debt, contingency or
reserve.
(h) any change in banking arrangements of the Company.
(i) other than capital expenditures in connection with the Las
Vegas Store (which shall not exceed $10,000 after November 30, 1996), any
capital expenditures in excess of $25,000 in the aggregate.
5.14 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the State of Delaware and
(except to the extent that the failure to file would not have a material adverse
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effect on the financial condition or results of operations of the Company) with
all other jurisdictions where such filing is required by law; and the Company
has paid, or made adequate provision in the Balance Sheet for the payment of,
all taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
knows of (i) no other tax returns or reports which are required to be filed
which have not been so filed and (ii) no unpaid assessment for additional taxes
for any fiscal period or any basis therefor. Except as set forth on the Schedule
of Exceptions, the Company's federal income tax returns have not, to the best of
the Company's knowledge and belief, been audited by the Internal Revenue
Service.
5.15 Contracts; Insurance. Except as set forth in the Schedule of
Exceptions, the Company has no currently existing contract, obligation,
agreement, plan, arrangement, commitment or the like (written or oral) of any
material nature, including without limitation the following:
(a) Employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among stockholders and the
Company;
(b) Loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person;
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(c) Agreements with dealers, sales representatives, brokers or
other distributors, jobbers, advertisers or sales agencies;
(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person for
manufacturing of products, furnishing or purchase of machinery, equipment, goods
or services, including without limitation agreements with processors and
subcontractors;
(f) Any indenture, agreement or other document relating to the
sale or repurchase of shares;
(g) Any joint venture, partnership or similar contract,
arrangement or agreement of any nature involving a sharing of profits or
expenses to which the Company is a party;
(h) Agreements limiting the freedom of the Company to compete in
any line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business, assets
or shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) Letter of intent or agreement with respect to the acquisition
of the business, assets or shares of any other business; and
(k) Insurance policies.
Except as disclosed in the reports filed by the Company with the
Securities and Exchange Commission, the Company has complied with all the
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material provisions of all said contracts, obligations, agreements, plans,
arrangements and commitments and, after giving effect to all waivers from senior
lenders on or before the date hereof, there does not exist any event of default
under any such agreement or any event which, after notice or lapse of time or
both, would constitute an event of default under such agreement. There is no
action, suit, proceeding or investigation pending or threatened against the
Company before any court or before any governmental or administrative agency for
the renegotiation of or any other adjustment of any such agreement.
The Company maintains insurance which is adequate to protect the
Company and its financial condition against the risks involved in the business
conducted by the Company.
5.16 Stockholders, Directors and Officers; Indebtedness. Set forth on
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company and its subsidiaries to its officers, directors or
stockholders or any of their respective affiliates as such term is defined under
the Securities Exchange Act of 1934 and of all indebtedness of such persons to
the Company and its subsidiaries. To the best of the Company's knowledge and
belief, none of the officers or directors or significant employees or
consultants of the Company, or their respective affiliates, owns directly or
indirectly, individually or collectively, a material interest in any entity
which is a competitor, customer or supplier of (or has any existing contractual
relationship with) the Company or any of its subsidiaries.
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5.17 Litigation and Bankruptcy Proceedings.
(a) Except as set forth on the Schedule of Exceptions, there is
neither pending nor, to the Company's knowledge and belief, threatened any
action, suit, proceeding or claim, or any basis therefor or threat thereof,
whether or not purportedly on behalf of the Company, to which the Company is or
may be named as a party or its property is or may be subject, or to the
Company's knowledge, after due inquiry, to which any officer, key employee or
principal stockholder of the Company or its subsidiaries is subject, and in
which an unfavorable outcome, ruling or finding in any such matter or for all
such matters taken as a whole might have a material adverse effect on the
condition, financial or otherwise, prospects, or operations of the Company; and
the Company has no knowledge of any unasserted claim, the assertion of which is
likely and which, if asserted, will seek damages, and injunction or other legal,
equitable, monetary or nonmonetary relief which claim individually or
collectively with other such unasserted claims if granted would have a material
adverse effect on the condition, financial or otherwise, prospects or operations
of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
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a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other law or statute of the United
States of America or any other jurisdiction.
5.18 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of this
Agreement, or the offer, sale or issuance of the Shares by the Company, or the
consummation of any other transaction contemplated on the part of the Company
hereby, except the filing of the Amended Articles with the Secretary of State of
the State of Delaware and the recording thereof, and except such filings as have
been (or shall have been) made prior to the Closing.
5.19 Title to Properties; Liens and Encumbrances. The Company has good
and marketable title in fee simple to all the real property and a valid and
indefeasible ownership interest in all the other property and assets recorded on
the Balance Sheet, free from all mortgages, pledges, liens, security interests,
conditional sale agreements, encumbrances or charges, except (i) as shown on the
Balance Sheet; (ii) as listed on the Schedule of Exceptions hereto and (iii)
tax, materialmen's or like liens for obligations not yet due or payable or being
contested in good faith by appropriate proceedings, as set forth on the Schedule
of Exceptions.
5.20 Leases. Set forth on the Schedule of Exceptions is a correct and
complete list (including the amount of rents called for a description of the
leased property) of all material leases as amended (the "Leases") under which
the Company is in possession. All of the Leases are valid and subsisting. No
written notice of any default is currently pending or, except as set forth on
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the Schedule of Exceptions, has been given by any of the landlords since January
1, 1996 under the Leases and no event but for the passage of time would
constitute an event of default has occurred. All rental and other payments under
the Lease have been paid to date and the Company is not in default under any of
the Leases.
5.21 Business of the Company. There is no pending or, to the Company's
knowledge and belief, threatened claim or litigation against or affecting the
Company contesting its right to produce, manufacture, sell or use any product,
process, method, substance, part to other material presently produced,
manufactured, sold or used or planned to be produced, manufactured, sold or used
by the Company in connection with the operations of the Company; and, except as
set forth on the Schedule of Exceptions, the Company has no knowledge or belief
that there exists, or there is pending or planned, any patent, invention,
device, application or principle, or any statute, rule, law, regulation,
standard or code which would materially adversely affect the condition,
financial or otherwise, or the operations of the Company; nor, to the knowledge
of the Company, is there any other factor (other than fire, flood, accident, act
of war or civil commotion, or any other cause or event beyond the control of the
Company) which may materially adversely affect the condition, financial or
otherwise, prospects or operations of the Company.
5.22 Permits, Licenses, Trademarks, Patents and Other Rights.
(a) The Company has all other franchises, permits, licenses and
other similar authority necessary for the conduct of its business as now being
conducted by it and as planned to be conducted, the lack of which could
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materially and adversely affect the prospects, operations or condition,
financial or otherwise, of the Company, and the Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority. The Company possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, trade secrets,
information, proprietary rights and processes necessary to conduct its business
as now being conducted without conflict with or infringement upon any valid
rights of others and the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and has not
received any notice of infringement upon or conflict with the asserted rights of
others.
(b) Except as set forth on the Schedule of Exceptions, there are
no outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, trade secrets,
information, proprietary rights and processes of any other person or entity, and
no stockholder, director, officer or employee of the Company has any interest in
any such patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, copyrights, trade secrets, information, proprietary rights
and processes.
5.23 Inventory and Supplies. The finished goods inventory included as
assets on the Balance Sheet were acquired in the ordinary course of the business
of the Company, and consist of items that are good and merchantable and of a
quality and quantity usable and saleable (in the case of inventory) in the
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ordinary course of business subject to normal reserves (including reserves for
obsolescence) and provisions for "seconds." All of the Company's inventory and
supplies included as assets on the Balance Sheet are valued at the lower of cost
or market (using the standard cost method), in accordance with GAAP consistently
applied. The Company does not have nor will it have at and as of the Closing
Date, any actual, or, to the best knowledge of Sellers, potential liabilities or
obligations with respect to the return of significant inventory in the
possession of customers (except for warranty returns).
5.24 Compensation. The Sellers have delivered to the Purchasers a true
and complete list of the name, title or job description and total annual
compensation of all current employees of the Company and a schedule setting
forth the policies of the Company concerning vacations, bonuses, leaves of
absence, holidays, severance pay and similar benefits. Other than fees relating
to legal and accounting services, and fees of Andersen Corporate Finance
including all fees paid or payable in connection with this Agreement, the
fairness opinion, the proposed transaction with Sun and any other matters
relating to the proposed financing paid between December 10, 1996 and the
Closing Date which shall collectively aggregate not more than $250,000, the
Company will not be obligated to pay any consultant or professional compensation
or fees at rates or in amounts in excess of $25,000 per annum, except for
reasonable professional compensation, not related to fees payable in connection
with this Agreement, and not in excess of amounts paid in the ordinary course of
business.
5.25 ERISA. The Company (a) is not required to contribute to, or
during the six year period ending on the Closing Date has not been required to
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contribute to, any multi employer plan (within the meaning of Section 3(37) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (b)
is not subject to any withdrawal or partial withdrawal liability within the
contemplation of ERISA Section 4201 and will not become subject thereto as a
result of the transactions contemplated by this Agreement, (c) has not entered
into any transaction which has or could reasonably be expected to subject the
Company to any such withdrawal or partial withdrawal liability and (d) is not
subject to any under-funding liability with respect to any multiemployer plan to
which the Company is or has been required to contribute with respect to the
business of the Company and at the Closing shall not be subject to withdrawal
liability from any multiemployer plan with respect to the business of the
Company assuming it had withdrawn from such plan on the Closing Date.
5.26 Employee Plans.
(i) The Company has complied with and currently is in compliance
in all material respects with the applicable provisions of ERISA and the Code
with respect to each "employee benefit plan" (as defined under Section 3(3) of
ERISA) maintained by the Seller for the benefit of the employees of the Company.
(ii) To the best knowledge of the Company, each employee pension
benefit plan (as defined under Section 3(2)(A) of ERISA) maintained by the
Company for the benefit of its employees is intended to qualify under Section
401(a) of the Code. Each such benefit plan is a standardized plan and the
sponsor of the prototype plan which was adopted by the Company to establish each
such benefit plan has received a favorable opinion on the acceptability of the
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form of the plan from the Internal Revenue Service ("IRS") to that effect. To
the best knowledge of the Company, each such benefit plan has been administered
in accordance with its terms.
5.27 Relationships with Suppliers. No current material supplier to the
Company (and no person or entity which has within the past six months been a
material supplier of the Company) has notified the Company of an intention to
terminate or substantially alter its existing business relationship with the
Company.
5.28 Independent Representatives. Set forth on the Schedule of
Exceptions is a list of the independent sales representatives of the Company and
a summary of the terms of the commission, expense and other arrangements of all
oral arrangements or agreements between the Company and its representatives.
None of the representatives has claimed, and the Company reasonably believes
that no representative could successfully claim, that he or she has a written or
oral agreement with the Company, obligating the Company to continue to engage
such representative with respect to sales of Company products beyond the term of
his or her agreement. To the best knowledge of the Company, there are no facts
or circumstances which may give rise to any material dispute between any such
representative and the Company. Seller has no reason to believe that any
representative would not continue his or her relationship with the Company after
the Closing for the balance of the term of his or her agreement.
5.29 Consultants; Designers. Set forth on the Schedule of Exceptions
is a list of all of the outside consultants and designers of the Company and a
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summary of the material terms of any oral arrangements or agreements between the
Company and those consultants and designers.
5.30 Prohibited Payments. Neither the Company nor any of its employees
or agents has offered, paid or agreed to pay to any person or entity, including
any government official, or solicited, received or agreed to receive from any
such person or entity, directly or indirectly, any money or anything of value
for the purpose or with the intent of obtaining or maintaining business for the
Company or otherwise affecting the business, operations, prospects, properties,
or condition (financial or otherwise) of the Company, and which is or was in
violation of any ordinance, regulation or law, or, if not in violation of any
such ordinance, regulation or law, is not properly and correctly recorded or
disclosed on the books and records of the Company. The Company has not engaged
in any transaction, maintained any bank account or used any other funds except
for transactions, bank accounts and funds which have been and are properly and
correctly reflected in the normally maintained books of the Company.
5.31 Issuance Taxes. All taxes imposed by law in connection with the
issuance, sale and delivery of the Shares shall have been fully paid, or at the
Closing, will be fully paid by the Company, and all laws imposing such taxes
shall have been fully complied with, prior to the Closing Date.
5.32 Offering. Subject in part to the truth and accuracy of the
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the
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"Securities Act", which term shall include any successor federal statute), and
from the registration or qualification requirements of the laws of any
applicable state or other jurisdiction, and neither the Company nor anyone
acting on its behalf will take any action prior to the Closing that would cause
the loss of such exemption.
5.33 Compliance with Other Instruments. The Company is not in
violation of any terms of its Articles of Incorporation, as amended, or By-laws,
as amended. Except as set forth on the Schedule of Exceptions and for bank
waivers listed in the Company's 10-K for the fiscal year ended May 31, 1996, the
Company is not in violation of any term of any mortgage, indenture, contract,
agreement, instrument, judgment, decree, order, statute, rule or regulation to
which the Company is subject and a violation of which would have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
5.34 Employees. To the best of the Company's knowledge and belief, no
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement of any restrictive covenant or any
other common law obligation to a former employer relating to the right of any
such employee to be employed by the Company because of the nature of the
business conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of the
Company's employees does not subject the Company or any Purchaser to any
liability. There are neither pending nor, to the Company's knowledge and belief,
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threatened any actions, suits, proceedings or claims, or to their knowledge any
basis therefor or threat thereof with respect to any contract, agreement,
covenant or obligation referred to in the preceding sentence. The Company does
not have any collective bargaining agreement covering any of its employees.
To the best knowledge of the Sellers, after due inquiry, no officer or
other person designated by the Purchasers as a "key employee" of the Company
other than Della Rounick has any present intention of terminating his or her
employment with the Company.
5.35 Registration Rights. Except as provided for in this Agreement and
in the Schedule of Exceptions, the Company is not under any obligation to
register (as defined in Section 8.2 below) any of its currently outstanding
securities and no individuals or entities hold any registration rights relating
to the Company's securities.
5.36 Disclosure. This Agreement, the Schedule of Exceptions, the
Financial Statements and the documents filed with the Securities and Exchange
Commission, as well as any other document, certificate, schedule or statement
furnished to the Purchasers by or on behalf of the Company in connection with
the transactions contemplated hereby, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained therein or herein not misleading in the light of
the circumstances which materially adversely affects or in the future may
materially adversely affect the condition, financial or otherwise, assets,
business, operations or prospects of the Company which has not been disclosed in
writing to the Purchaser.
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5.37 Environmental Matters. No material permits, licenses or other
authorizations have been, or are required to be obtained or maintained, and no
governmental authority with jurisdiction over the Company has asserted or is
likely to assert that any permits, licenses or other authorizations have been,
or are required to be obtained or maintained by the Company, with respect to the
operation of its business under United States federal, state, local and other
laws in effect on the date hereof relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial toxic
or hazardous substances or wastes in the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or industrial toxic or hazardous substances or wastes (collectively,
the "Environmental Laws"). The Company is in substantial compliance with all
material limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder. No events, conditions, activities, practices, incidents,
actions or plans of action taken or to be taken prior to the Closing Date by the
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Company or, to the Company's knowledge, any predecessor in interest are
reasonably likely to interfere with or prevent substantial compliance or
continued compliance with, to the extent any are applicable, the Environmental
Laws or with any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder.
Article VI
Covenants
6.1 Conduct of Business. The Company covenants that from and after the
execution of this Agreement through the Closing, the Company will conduct its
business in the ordinary course and in the same manner as it has heretofore done
and will not (except to the extent otherwise permitted by this Agreement or
consented to by Stonehill and Cassini in writing):
(i) fail in any material respect to comply with any laws,
ordinances, regulations or other governmental restrictions applicable to it or
fail to attain or maintain all material licenses and permits required to operate
its business as it is presently being operated.
(ii) declare or pay any dividend or distribution on any class of
the capital stock of the Company or redeem, issue or otherwise acquire any
capital stock of the Company (except as provided herein);
(iii) merge or consolidate with, purchase all or a part of the
assets of, or otherwise acquire any business or any proprietorship, firm,
association, corporation or other business organization or division thereof,
other than intercompany transfers;
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(iv) other than in the ordinary and usual course of business and
consistent with past practice or otherwise as specifically contemplated in this
Agreement, incur any material liability or obligation (absolute, accrued,
contingent or otherwise) or issue any debt securities or assume, guarantee,
endorse or otherwise as an accommodation become responsible for, the obligations
of any other individual or entity, or change any assumption underlying, or
methods of calculating, any bad debt, contingency or other reserve;
(v) acquire (including by lease) any material assets or
properties or dispose of, mortgage or encumber any material assets or properties
other than in the ordinary course of business and in accordance with past
practice;
(vi) make any change (except for changes in authorized
signatories arising out of personnel changes) in banking or safety deposit box
arrangements of the Company;
(vii) grant any powers of attorney (other than powers of attorney
granted in the ordinary course of business with respect to securities, tax or
customs matters or powers granted by the parties hereto for the purpose of
executing the documents contemplated by this Agreement);
(viii) except for capital expenditures of not more than $10,000
(including all expenditures since November 30, 1996) in connection with the Las
Vegas store, make any capital expenditure or commitment in excess of $25,000,
except as otherwise permitted by this Agreement;
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(x) engage in or enter into any material transaction of any
nature not expressly provided for herein, except transactions in the ordinary
course of business;
(xi) make any change in any methods of accounting or accounting
practice other than those required by changes in GAAP; or
(xii) agree or commit, whether in writing or otherwise, to do any
of the foregoing.
6.2 Access. From the date hereof until the Closing, the Seller will on
reasonable notice (a) give the Purchasers and their authorized representatives,
access, during normal business hours, to the books, records, properties and
personnel of the Company and (b) permit the Purchasers to make such inspections
with respect to the Company as they may reasonably require. No investigation
conducted by the Purchasers or their representatives or agents or disclosure of
any such information to Seller shall in any way diminish, modify or alter the
representations, warranties or covenants of Sellers or the liability of the
Sellers for any misrepresentation or breach of any representation, warranty or
covenant hereunder or the conditions to Closing contained in Article VII.
6.3 Preservation of Organization. Except (i) for changes to the
conduct of its business requested or approved in writing by an officer of
Stonehill and O.C.I. or (ii) as otherwise permitted by this Agreement, from the
date hereof through the Closing, the Company shall (a) maintain its existence in
good standing and its properties and facilities in as good working order and
condition as at present, ordinary wear and tear excepted; (b) perform all its
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material obligations under agreements related to or affecting its assets,
properties and rights; and (c) pay any and all premiums necessary to keep in
full force and effect present insurance policies or other comparable insurance
coverage.
6.4 Non-Solicitation and Cooperation. The Company will not, and will
not authorize its directors, shareholders, officers, agents or other
representatives of the Company to encourage, solicit, initiate (or otherwise
engage in discussions or negotiations with), or provide any non-public
information to, any corporation, partnership, person or other entity or groups
(other than O.C.I. and is affiliates, representatives and assignees) concerning
any acquisition proposal, tender offer (including a self tender offer), exchange
offer, merger, consolidation, sale of substantial assets or of a substantial
amount of assets, sale of securities, acquisition of beneficial ownership of or
the right to vote shares of capital stock or the Subordinated Debt of the
Company (referred to herein as "Acquisition Proposals"). Notwithstanding the
foregoing, the Company's Board if Directors may, but only to the extent required
in the exercise of its fiduciary duties under applicable law as advised by
counsel, engage in or participate in negotiations in connection therewith and
have discussions relating to Acquisition Proposals; provided, however, that the
Company shall notify the Purchasers within 24 hours orally and within 48 hours
in writing after any such Acquisition Proposal, including the terms thereof and
the identity of the persons making the Acquisition Proposal.
6.5 Subsequent Financial Statements. Sellers will deliver to Stonehill
and O.C.I. within 15 days after the end of each month, a flash sales report and
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gross profit report and within 45 days after the end of each month, monthly
financial information of the Company for periods subsequent to the date of the
Balance Sheet. The delivery of such financial statements to Stonehill and O.C.I.
shall not constitute approval by them of the financial information contained
therein or approval of any transaction reflected therein or result in any waiver
of any rights under this Agreement or exceptions to any representations and
warranties of Sellers.
6.6 Best Efforts. Upon the terms and subject to the conditions hereof,
each of the parties hereto agrees to use its best efforts promptly to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and will use its best efforts to obtain all
waivers, permits, consents and approvals, releases and to effect all
registrations, filings, assignments and notices with or to third parties or
governmental or public bodies or authorities which are in the opinion of any
party hereto necessary or desirable in connection with the transactions
contemplated by this Agreement. The Company will as soon as reasonably possible
call a special meeting of stockholders and file a proxy statement recommending
that shareholders approve of the transactions contemplated hereby (or apply to
the NYSE for an exemption therefrom and file an information statement),
including without limitation, the filing of an amendment to the Company's
Certificate of Incorporation, the issuance of additional shares, and the
election of directors as directed by the Purchasers. The Company will also make
all required regulatory filings and obtain all necessary consents to consummate
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the transactions contemplated hereby. Prior to filing a proxy statement and any
filings with respect to this transaction, the Company shall consult with
Purchasers with respect thereto and shall afford Purchasers an opportunity to
comment thereon and make reasonable changes thereto. If at any time after the
Closing any further action is necessary or desirable to carry out the purposes
of this Agreement, the proper officers, directors or other representatives of
the responsible party will use their best efforts to take such action.
6.7 Notification of Certain Matters. The Purchasers, on the one hand,
and the Company, on the other hand, will each give prompt notices to the other
of (i) the occurrence, or failure to occur, of any event the occurrence or
failure of which would, or would be likely to, cause any of their respective
representations or warranties contained in this Agreement to be untrue and
incorrect at any time from the date hereof to the Closing Date, and (ii) any
failure on their respective parts or on the part of any of their officers,
directors, partners, employees, representatives or agents, if any, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by each of them under this Agreement; provided, however, that no such
notification will alter or otherwise affect such representations, warranties,
covenants, conditions or agreements.
6.8 Covenant Not to Compete. DR agrees that, for a period of two years
following the Closing Date, she shall not, and she shall cause her affiliates
not to, without prior written consent of the Purchasers, either directly or
indirectly, engage in the manufacture and sale of evening wear, including beaded
evening wear within the United States of America, Canada and their respective
territories and possessions.
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6.9 Projections; Expenditures. The Company shall, in consultation with
the Purchasers, implement the cost cutting plan dated February 13, 1997 proposed
by the Company in writing to reduce expenditures, and if requested by the
Purchasers shall consult with the Purchasers on all aspects of the Company's
business until the Closing Date.
Article VII
Conditions Precedent to the Transaction
7.1 Conditions Precedent to the Purchaser's Obligation to Close.
Notwithstanding any other provision herein, the obligations of the Purchasers to
consummate the transactions contemplated hereunder are, at the option of the
Purchasers, subject to the satisfaction of each of the conditions set forth
below:
(a) Agreements and Conditions. On or before the Closing Date, the
Sellers shall have complied with and duly performed all agreements and
conditions to be complied with or performed by them on or before the Closing
Date pursuant to or in connection with this Agreement.
(b) Representations and Warranties. The representations and
warranties of the Sellers contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been restated and made
on and as of the Closing Date except for those representations and warranties
which speak as of a specified date.
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(c) Opinion of Counsel. The Purchasers shall have received an
opinion of Lowenthal, Landau, Fischer & Bring, P.C., counsel for the Sellers,
dated as of the Closing Date, in form and substance satisfactory to the
Purchasers to the effect that (i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has the corporate power and authority to carry on its business as now conducted
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of its activities in relation
to its business or where the character of its properties in relation to its
business makes such qualifications or licensing necessary and in which the
failure to so qualify would have a material adverse effect on the Company; (ii)
the Sellers have the power and authority to execute and deliver this Agreement
and the agreements and instruments contemplated herein and to perform their
obligations hereunder and thereunder; (iii) the execution, delivery and
performance by the Company of this Agreement and the performance by the Company
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action and do not contravene any provisions of law or any
order of any court or other agency of government or its Certificate of
Incorporation, By-Laws or, except as otherwise permitted by this Agreement, any
agreement or other instrument known to such counsel by which the Company is
bound or by which it is affected; (iv) except as otherwise permitted by this
Agreement, to such counsel's knowledge, any and all consents, waivers,
approvals, authorizations or orders of, or registrations or qualifications with,
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any person, bank, corporation, association, governmental body or court having
authority or power to regulate, supervise or direct the business and affairs of
the Company necessary for the consummation by the Company of the transactions
contemplated by this Agreement have been obtained; (v) this Agreement and the
agreements and instruments contemplated hereby have been duly and validly
executed and delivered by the Sellers and constitute the legal, valid and
binding obligations of the Sellers, enforceable against them in accordance with
their respective terms, subject to the effect of the Bankruptcy Laws (vi) to
such counsel's knowledge, except as set forth on Schedule 7.1(c) annexed hereto,
there are no actions, suits, charges, proceedings, complaints, audits or
investigations instituted or threatened against, or affecting, the Company or
the ability of the Sellers to consummate the transactions contemplated hereby;
(vii) the authorized capital stock of the Company is as set forth in Section 5.7
annexed hereto and the outstanding shares of each of the Company have been duly
authorized and are validly issued, fully paid and non-assessable and were issued
in compliance with the registration or qualification requirements of all
applicable laws and regulations; and (viii) to such counsel's knowledge, except
as set forth in Section 5.7, there are no outstanding agreements, subscriptions,
options, warrants, commitments or rights of any kind whatsoever, granting to any
person or entity any interest in or the right to purchase, otherwise acquire or
vote any equity securities of any of the Subsidiaries or any securities
convertible or exchangeable for such equity securities. In rendering such
opinions, such counsel may rely on certificates of officers of the Company and
opinions of other counsel in other jurisdictions where such counsel is not
qualified to render opinions.
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(d) No Legal Proceedings. No action, suit, charge, proceeding,
conflict, audit or investigation (collectively, an "Action") shall have been
instituted against any Seller to restrain or prohibit, or instituted or
threatened against the Sellers to obtain substantial damages upon consummation
of, the acquisition by the Purchasers, or the conveyance by the Seller, of the
Shares or the Subordinated Debt.
(e) Consents under Agreements, etc. The Sellers shall have
obtained the consent of each other party to all contracts, and other agreements
to which the Sellers or any of them is a party, and all governmental consents
and approvals which are required in order to consummate the transactions
contemplated by this Agreement, including governmental, New York Stock Exchange,
("NYSE") and other regulatory approvals, if any, stockholder approval of Company
with regard to this Agreement, listing of the Shares issuable pursuant to this
agreement on the NYSE and amendment of the Company's certificate of
incorporation to increase the authorized common stock. The Purchaser agrees to
cooperate with the Company and expeditiously supply the Company and its
representatives, accountants, employees and counsel with any and all
documentation and financial information that may be required to enable the
Company to solicit proxies for stockholder approval. D.R. agrees that all shares
entitled to vote which are beneficially owned by her (as defined in Rule 13d-3
of the '34 Act) shall be voted in favor of this transaction contemplated hereby.
Simultaneously with execution of this Agreement, DR and the Estate shall execute
and deliver to the Purchasers an irrevocable proxy, coupled with an interest, in
the form annexed hereto
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as Exhibit "H", authorizing the Purchasers to vote DR's and the Estate's shares
in favor of this transaction.
(f) Certificate. The Purchasers shall have received a certificate
dated the Closing Date and executed by the Co-Chairman of the Board, the Chief
Executive Officer or any Vice President of the Company, with respect to the
Company's representations, and by DR, individually and as executrix of the
Estate, with respect to her and the Estate's representations, certifying that
the representations and warranties made by such parties in this Agreement are
true and correct in all material respects at and as of the Closing Date (except
for such representations and warranties which speak as of a specified date) and
that it has fulfilled all conditions to closing provided for in this Agreement
to be fulfilled by it.
(g) Certificate of Secretary. The Purchasers shall have received
a certificate of the Secretary of the Company setting forth a copy of the
resolutions adopted by Board of Directors of the Company approving the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, together with a signature and incumbency certificate.
(h) License Management Agreement. The Company shall enter into a
three year License Management Agreement with O.C.I. in the form annexed hereto
as Exhibit "D".
(i) Resignations. The Sellers shall have taken all necessary
actions, including having obtained any required resignations, as are necessary
to achieve the composition of the Board of Directors, composed of seven
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Directors, as follows or otherwise as agreed by the Purchasers (provided one of
such directors shall be a designee of DR): the Chief Executive Officer of the
Company, Ronald LaBow ("LaBow"), Cassini, a designee of DR (other than DR), a
designee jointly approved by LaBow and Cassini, a designee of LaBow and a
designee of Cassini.
(j) No Material Adverse Change. There shall not have occurred a
material adverse change in the financial condition, results of operations,
business or prospects of the Company taken as a whole. The flash results of
operations for the three months ended February 28, 1997 have been delivered to
the Purchasers and the Purchasers acknowledge that any deviation therefrom of
10% relating to net income will not be deemed a material adverse change. The
Purchasers acknowledge that any loss that cumulatively at the end of any month
beginning March 1997 has not exceeded by more than 15% the losses projected in
the "He-Ro Group Financial Projections May 31, 1997 and May 31, 1998" which have
been delivered to Purchasers (the "Projections"), plus an additional loss of
$117,000 per month attributable to cost cutting which has not yet been
implemented ( and exclusive of any restructuring charges relating to the Havre
Bernard Sublease, as defined in the Schedule of Exceptions) shall not be deemed
a material adverse change. The termination of David Minka's ("Minka") employment
with the Company shall also not be deemed a material adverse change provided
such termination involves no payment to him of any severance or otherwise by the
Company and he waives any and all claims he may have against the Company and the
Purchasers.
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(k) Instruments of Transfer. Sellers shall have delivered to the
Purchasers certificates representing the Shares and other consents and
instruments of transfer to transfer the Subordinated Debt in form and substance
reasonably satisfactory to the Purchasers to vest in the Purchasers, the
Company's right, title and interest in the Shares and D.R.'s and the Estate's
right, title and interest in and to the Subordinate Debt (except for the
Retained Subordinated Debt), free and clear of all liens, charges, encumbrances,
pledges or claims of any nature other than the subordination provisions.
(l) Amendments to Charter Documents. The Purchasers shall have
received evidence that the Company's Certificate of Incorporation has been
amended to change the name of the Company to "Cassini Group International" and
to authorize the issuance of additional shares of the Company's Common Stock, as
contemplated hereby and as approved by stockholders pursuant to Section 6.6.
(m) Listing; Minimum Stock Price. The Company's Common Stock
shall continue to be listed on the NYSE. The Closing price of the Company's
Common Stock on the NYSE shall be at least $.45.
(n) Arrangements with Lenders. On the Closing Date, Marine
Midland Bank, as agent for itself and Hong Kong and Shanghai Banking
Corporation, Ltd., Chase Manhattan Bank, and ABN AMRO Bank N.V. (the "Banks")
shall have negotiated with the Purchasers and agreed to accept a sum acceptable
to the Purchasers in full satisfaction of all indebtedness owned to the Banks by
the Company, including interest, and Foothill shall agree to waive all penalties
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and claims against the Company if the Company's indebtedness to Foothill and all
interest thereon is paid in full at Closing.
(o) Arrangements with Professionals. The attorneys, accountants,
investment bankers and other professionals retained by the Company shall have
agreed to accept in lieu of any sums otherwise payable to them, an amount which,
in the aggregate, shall not exceed $250,000.
(p) Minka Employment Agreement. On or before the Closing, the
Employment Agreement between the Company and David Minka ("Minka") shall be
amended in a manner satisfactory to all of the Purchasers and shall provide that
(i) Minka waives his sign on bonus, (ii) Minka shall serve as a designer for the
Company, but not specifically for the "Black Tie" label, (iii) Minka shall
report to the Chairman of the Company's Board of Directors ( the "Chairman") and
Chief Designer, and (iv) the term "Cause" shall include failure to perform
services reasonably requested by the Chairman or Chief Designer.
(q) Fairness Opinion. The Company shall have received a "Fairness
Opinion" in form and substance reasonably satisfactory to the Purchasers
relating to this Agreement and the transactions contemplated hereby, and their
fairness from a financial standpoint to the Company's stockholders, other than
Della Rounick.
(r) Cost Cutting Measures. The Sellers shall have commenced
implementation of the cost cutting measures according to the plan proposed in
writing by the Company to the Purchasers and dated February 13, 1997.
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7.2 Conditions Precedent to the Seller's Obligation to Close.
Notwithstanding any other provision herein, the obligations of the Sellers to
consummate the transactions contemplated hereunder are, at the option of the
Sellers, subject to the satisfaction of each of the conditions set forth below:
(a) Agreements and Conditions. On or before the Closing Date, the
Purchasers shall have complied with and duly performed all agreements and
conditions to be complied with or performed by them on or before the Closing
Date pursuant to or in connection with this Agreement.
(b) Representations and Warranties. The representations and
warranties of the Purchasers contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been restated
and made on and as of the Closing Date except for such representations and
warranties which speak as of a specified date.
(c) No Legal Proceedings. No action shall have been instituted
against the Purchasers to restrain or prohibit, or instituted or threatened (i)
against the Purchasers to obtain substantial damages upon consummation of, the
acquisition of the Shares by the Purchasers or (ii) against O.C.I. in connection
with any of the Licenses other than the License between the Company and O.C.I..
(d) Consents under Agreements, etc. The Sellers shall have
obtained the consent of each other party to all contracts, leases and agreements
to which the Seller is a party, and all governmental consents and approvals
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which are required in order to consummate the transactions contemplated by this
Agreement, including, without limitation the NYSE Listing Application.
(e) Certificate. The Sellers shall have received a certificate
dated the Closing Date and executed by the Chairman of the Board, the President
or any Vice President of Stonehill and O.C.I. certifying that the
representations and warranties made by Stonehill and O.C.I., respectively in
this Agreement are true and correct in all material respects at and as of the
Closing Date (except for such representations and warranties which speak as of a
specified date) and that each has fulfilled all conditions to closing provided
for in this Agreement to be fulfilled by it.
(f) Certificate of Secretary. The Sellers shall have received a
certificate of the Secretary of each of Stonehill and O.C.I. respectively
setting forth a copy of the resolutions adopted by its Board of Directors
approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, together with a signature and incumbency
certificate.
(g) License Management Agreement. O.C.I. shall have entered into
the License Management Agreement with the Company.
(h) Pledge Agreement. Cassini shall have entered into the Pledge
Agreement with the Company.
Article VIII
Restrictions on Transferability of
Securities; Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares shall not be
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transferable, except upon the conditions specified in this Article VIII, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each Purchaser will cause any proposed transferee of Restricted
Securities (as hereinafter defined) held by that Purchaser to agree to take and
hold those securities subject to the provision and upon the conditions specified
in this Article VIII.
8.2 Certain Definitions. As used in this Article VIII, the following
terms shall have the following respective meanings:
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable Securities" shall mean shares of Common Stock issued to
the Purchasers.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 8.5, 8.6 and 8.8 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, reasonable
fees and disbursements of one counsel for all the selling Holders and other
security holders for a "due diligence" examination of the Company, and the
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expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of counsel included in Registration Expenses).
"Holder" shall mean any holder of the outstanding shares of
Registrable Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their permitted
assignees who in the aggregate are Holders of ten percent (10%) or more of the
Shares.
8.3 Restrictive Legend. Each certificate representing the Shares,
other securities issued in respect of the Shares, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
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Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend if, (x) with such request, the
Company shall have received either the opinion referred to in Section 8.4(i) or
the "no-action" letter referred to in Section 8.4 (ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws or (y) in
accordance with paragraph (k) of Rule 144, such holder is not, and has not
during the last three months been, an affiliate of the Company and such holder
has held the securities represented by such certificate for a period of at least
three years. The Company will use its best efforts to assist any holder in
complying with the provisions of this Section 8.3 for removal of the legend set
forth above.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5, 8.6 and 8.8 hereof), the holder thereof shall give written notice
to the Company of such holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of Putney, Twombly,
Hall & Hirson or Olshan, Grundman, Frome & Rosenzweig, L.L.P. or legal counsel
who shall be reasonably satisfactory to the Company, addressed to the Company
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and reasonably satisfactory in form and substance to the Company's counsel, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, or (ii) a "no-action"
letter from the Commission to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 8.3 above, except that such certificate shall not bear such
restrictive legend if the opinion of counsel or "no-action" letter referred to
above is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act.
8.5 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders, at any time or times, following three months after the
Closing, a written request that the Company effect any registration with respect
to all or a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
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applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the Company.
The Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable,
after receipt of the request or requests of the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 8.5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration
(the "Other Stockholders"), and may include securities of the Company being sold
for the account of the Company.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a) (i) above. The right of any Holder to registration
pursuant to Section 8.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
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the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If the Company shall request inclusion in any registration pursuant to
Section 8.5 of securities being sold for its own account, or its officers or
directors of the Company holding other securities of the Company or Other
Stockholders shall request inclusion in any registration pursuant to Section
8.5, the Initiating Holders shall, on behalf of all Holders, offer to include
the securities of the Company and such officers, directors and Other
Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Article VIII. The
Company shall (together with all Holders, officers, directors and Other
Stockholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
of the underwriters advises the Initiating Holders in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
securities of the Company held by officers or directors (other than Registrable
Securities) of the Company shall be excluded from such registration to the
extent so required by such limitation and if a limitation of the number of
shares is still required, the Initiating Holders shall so advise all Holders of
Registrable Securities and Other Stockholders whose securities would otherwise
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be underwritten pursuant hereto, and the number of shares of Registrable
Securities and other securities that may be included in the registration and
underwriting shall be allocated among all such Holders and Other Stockholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement. No Registrable
Securities or any other securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If the Company or any Holder of Registrable Securities, officer, director or
Other Stockholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn from
registration.
8.6 Company Registration
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
Stonwhill.ts.2.cassini/He-Ro 2/26/97
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attempt to qualify such securities under the applicable blue sky or other sate
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within sixty (60) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.6(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 8.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting shall (together with the Company and
other Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company and reasonably acceptable to a majority in
interest of the participating Holders of Registrable Securities. Notwithstanding
any other provision of this Section 8.6, if the representative of the
underwriters advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the representative may
Stonwhill.ts.2.cassini/He-Ro 2/26/97
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(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting. The
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter in the following
manner: the securities of the Company held by officers and directors of the
Company (other than Registrable Securities) shall be excluded from such
registration and underwriting to the extent required by such limitation, and, if
a limitation on the number of shares is still required, then the number of
shares that may be included in the registration and underwriting shall be
allocated among all such Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement. If any Holder of Registrable Securities or any officer,
director or Other Stockholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.7 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to (i) any registration requested pursuant to Section 8.5,
(ii) any registration pursuant to Section 8.6 or (iii) any registrations
requested under any other section of this Article.
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8.8 Registration on Form S-2 or Form S-3. The Company shall use its
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of the Exchange Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Article,
the ten percent (10%) or more of the Shares held by all Holders shall have the
right to request registrations on Form S-2 or Form S-3 (such requests shall be
in writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders).
8.9 Registration Procedures. In the case of each registration effected
by the Company pursuant to Article VIII, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
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delayed basis, such 120 day-period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective amend which
(y) includes any prospectus required by Section 10(a)(3) of the Securities Act
or (z) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (y) and (z) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
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as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers or such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities to be listed on the New
York Stock Exchange or other securities exchange on which similar securities
issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration;
(g) Make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney or accountant retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers and
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directors to supply all information reasonably requested by any such seller,
underwriter, attorney or accountant in connection with such registration
statement;
(h) Furnish to each selling Holder a signed counterpart,
addressed to the selling Holder, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reporter on the Company's financial
statements included in the registration statement, to the extent permitted by
the standards of the AICPA, covering substantially the same matters with respect
to the registration statement (and the prospectus included therein) and (in the
case of the accountants' "comfort" letters) with respect to events subsequent to
the date of the financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' "comfort" letters delivered to the
underwriters in underwritten public offerings of securities;
(i) Furnish to each selling Holder a copy of all documents filed
with and all correspondence from or to the Securities and Exchange Commission in
connection with any such offering;
(j) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an earning
statement covering the period of at least twelve months, but not more than
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eighteen months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(k) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions.
8.10 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
Restricted Securities to the public without registration, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said ninety (90) day period.
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Article IX
Indemnification
9.1 By the Sellers.
(a) The Company agrees to indemnify and hold harmless O.C.I. and
each of the Purchasers from and against (i) any and all liabilities, debts,
obligations, losses, damages, deficiencies, claims, actions, suits, proceedings,
demands, assessments, taxes, additions to tax, customs obligations, penalties,
interest or any other costs, orders and judgments (whether known or unknown,
fixed, contingent, accrued, absolute or otherwise), joint or several, to which
O.C.I., the Purchasers, the holders of the Shares or the Subordinated Debentures
may become subject, arising out of (A) any inaccuracy in any representation or
warranty by either of the Sellers in this Agreement; (B) any breach or default
in the performance or observance by either of them of any of the covenants or
agreements which it is to perform or observe hereunder; (C) any brokerage,
finder's fee or the like incurred as a result of the Seller's actions in
connection with the transactions herein contemplated; or (D) the failure of
Sellers to obtain those consents which are not a condition to the Closing and
(ii) any and all actual costs, fees and expenses (including, without limitation,
reasonable legal and accounting fees) related to, resulting from or arising out
of any of the foregoing.
(b) DR and the Estate jointly and severally agree to indemnify
and hold harmless O.C.I. and each of the Purchasers from and against (i) any and
all liabilities, debts, obligations, losses, damages, deficiencies, claims,
actions, suits, proceedings, demands, assessments, taxes, additions to tax,
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customs obligations, penalties, interest or any other costs, orders and
judgments (whether known or unknown, fixed, contingent, accrued, absolute or
otherwise), joint or several, to which O.C.I., the Purchasers, the holders of
the Shares or the Subordinated Debentures may become subject, arising out of (A)
any inaccuracy in any representation or warranty by either of them in Sections
5.3, 5.4 and 5.5 of this Agreement; (B) any breach or default in the performance
or observance by either of them of any of the covenants or agreements which she
or it is to perform or observe hereunder; (C) any brokerage, finder's fee or the
like incurred as a result of the DR's or the Estate's actions in connection with
the transactions herein contemplated; and (ii) any and all actual costs, fees
and expenses (including, without limitation, reasonable legal and accounting
fees) related to, resulting from or arising out of any of the foregoing.
9.2 By the Purchasers.
(a) O.C.I. and Cassini jointly and severally agree to indemnify
and hold harmless Stonehill from and against (i) any and all liabilities, debts,
obligations, losses, damages, deficiencies, claims, actions, suits, proceedings,
demands, assessments, orders and judgments (whether known or unknown, fixed,
contingent, accrued, absolute or otherwise), joint or several, to which
Stonehill may become subject, arising out of (A) any inaccuracy in any
representation or warranty made by O.C.I. or Cassini in this Agreement; (B) any
breach or default in the performance or observance by O.C.I. or Cassini of any
of the covenants or agreements which they are to perform or observe hereunder;
(C) any brokerage, finder's fee or the like incurred as a result of O.C.I.'s or
Cassini's actions in connection with the transactions herein contemplated; and
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(D) any and all actual costs, fees and expenses (including, without limitation,
reasonable legal and accounting fees) related to, resulting from or arising out
of any of the foregoing.
(b) Stonehill and Ronald LaBow jointly and severally agree to
indemnify and hold harmless O.C.I. and Cassini from and against (i) any and all
liabilities, debts, obligations, losses, damages, deficiencies, claims, actions,
suits, proceedings, demands, assessments, orders and judgments (whether known or
unknown, fixed, contingent, accrued, absolute or otherwise), joint or several,
to which O.C.I. or Cassini may become subject, arising out of (A) any inaccuracy
in any representation or warranty made by Stonehill in this Agreement; (B) any
breach or default in the performance or observance by Stonehill of any of the
covenants or agreements which it is to perform or observe hereunder; (C) any
brokerage, finder's fee or the like incurred as a result of Stonehill's or
Ronald LaBow's actions in connection with the transactions herein contemplated;
and (D) any and all actual costs, fees and expenses (including, without
limitation, reasonable legal and accounting fees) related to, resulting from or
arising out of any of the foregoing.
9.3 Notice of and Defense Against Claims. Promptly after receipt by an
indemnified party of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party, send notice of the commencement thereof to the indemnifying
party. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
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it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such action for any legal or other expenses subsequently incurred by the
indemnified party after the date such notice is given to such indemnified party
in connection with the defense thereof. No indemnifying party shall be liable
for any settlement of any claim or action pursuant to this Article IX effected
without the prior written consent of such indemnifying party; provided, however,
that if the indemnifying party does not consent to a settlement, the indemnified
party may nevertheless settle, unless the indemnifying party secures the
indemnified party against loss to the indemnified party's reasonable
satisfaction.
Article X
Termination
10.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing Date by the mutual written consent of
Purchasers and Sellers. This Agreement shall automatically terminate if the
Closing Date has not occurred on or before May 31, 1997 unless the date is
extended by written consent of all of the parties hereto.
10.2 Termination by Purchasers. The Purchasers may terminate this
Agreement by written notice at any time prior to the Closing if:
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(a) a condition to the performance of Purchasers set forth herein
shall not be fulfilled on or before the date specified for the fulfillment
thereof, unless such failure is a result of acts or failures to act of
Purchasers; or
(b) a material default under or a material breach of this
Agreement or a material misrepresentation or a material breach of any
representation, warranty or covenant of Seller set forth in this Agreement or in
any instrument delivered by Seller pursuant hereto shall have occurred and be
continuing unless the same is curable and is cured by Seller prior to the
Closing; or
(c) a Material Adverse Change (within the meaning of Section
7.1(j) has occurred.
Simultaneously herewith the Purchasers have deposited Five Hundred
Thousand Dollars (the "Deposit") into escrow with Lowenthal, Landau, Fischer &
Bring, P.C. (the "Escrow Agent"). If all of the conditions to the Purchasers'
obligation to close shall have been met by the Sellers (unless Seller's failure
to meet such conditions is solely a result of Purchasers' acts or Purchasers'
failure to act as required by this Agreement) and the Purchasers have no right
to terminate the transaction (as specified in this Subsection 10.2) and if (i)
the Purchasers, nevertheless, fail to close the transaction contemplated hereby,
or (ii) Seller terminates this Agreement pursuant to the provisions of
Sub-Sections 10.3 (a) or (b) below, the Purchasers authorize the Escrow Agent to
pay the Company the Deposit pursuant to the terms and conditions of an escrow
agreement annexed hereto and made a part hereof as Exhibit "I". Such payment
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shall be made within five days after the date set by the Company as the Closing
Date provided (i) the Company has given the purchasers and the Escrow Agent
prior notice of the Closing Date in writing which notification will state that
all approvals, fairness opinions and consents have been obtained and the Company
is prepared to close. The parties hereto agree that the actual damages which
might be caused as a consequence of the events entitling the Escrow Agent to
make a payment hereunder are difficult to ascertain with any accuracy, and that
payment of the Deposit as provided in this Section shall be, and shall be deemed
to be, liquidated damages and the sole and exclusive remedy of the Sellers for
any breach hereof.
10.3 Termination by Sellers. Sellers may terminate this Agreement by
written notice to Purchasers at any time prior to the Closing Date if:
(a) a condition to the performance of Sellers set forth herein
shall not be fulfilled on or before the date specified for the fulfillment
thereof, unless such failure is a result of acts or failures to act of Sellers;
or
(b) a material default under or a material breach of this
Agreement or a material misrepresentation or a material breach of any
representation, warranty or covenant of Purchasers set forth in this Agreement
or in any instrument delivered by the Purchasers pursuant hereto shall have
occurred and be continuing unless the same is curable and is cured by the
Purchasers or the Purchasers prior to the Closing.
If the Sellers fail to close the transaction contemplated hereby
for any reason except as specified in Subsections 10.3(a) and (b), the Sellers
agree to pay the sum of Two Hundred and Fifty Thousand ($250,000) Dollars to
Stonehill and the sum of Two Hundred and Fifty Thousand ($250,000) Dollars to
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Cassini. Such payments (the "Break Up Fee") together with the Deposit held by
the Escrow Agent (and accrued interest thereon) shall be made within five days
after the date set by the Purchasers as the Closing Date after the Purchasers or
any one of them has given the Company and the Escrow Agent prior written notice
of the Closing Date which will state that the Purchasers are prepared to close.
The parties hereto agree that the actual damages which might be caused as a
consequence of the events entitling Purchasers to receive payment of the Break
Up Fee and return of the Deposit hereunder are difficult to ascertain with any
accuracy, and that payment of the Break Up Fee and return of the Deposit as
provided in this Section shall be, and shall be deemed to be, liquidated damages
and the sole and exclusive remedy of the Purchasers for any breach hereof,
except that the parties further agree that in the event of termination hereof as
a result of the Company's failure to receive a "Fairness Opinion" as provided in
Section.7.1 (q), and not as the result of the failure of any other condition
specified in Section 7.1, the Purchasers shall be entitled to payment of a sum
equal to their expenses incurred or accrued in connection with this transaction
and return of their Deposit, in lieu of the Break Up Fee.
10.4 Effect of Termination. In the event of the termination and
abandonment hereof prior to the Closing Date pursuant to the provisions of this
Article X, this Agreement shall become void and have no effect, and except as
provided in Sections 10.2 and 10,3 above, each party shall pay all of its own
expenses incurred in connection herewith, without any liability on the part of
any party or its partners, directors, officers or shareholders, except for the
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confidentiality obligations between the parties described in Section 11.3;
provided, however, that if either party hereto willfully fails to perform its
obligations hereunder, the other party shall have its expenses reimbursed by
such party at fault.
Article XI
Miscellaneous
11.1 Further Assurances. From and after the Closing, the parties
hereto will, without further consideration, execute and deliver such further
documents and instruments and take such other actions as may be necessary or
desirable to perfect the transactions contemplated hereby.
11.2 Publicity. Each party hereto agrees that prior to the Closing
Date it will not issue any press release or make any other disclosure of this
Agreement or the transactions contemplated hereby without the prior written
approval of the other, which approval shall not be unreasonably withheld or
delayed, unless in the good faith opinion of counsel to such party such
disclosure is required by law or by the rules of any national securities
exchange on which the securities of such party are listed.
11.3 Confidentiality. Each party hereto agrees that it will and will
cause its officers, directors, stockholders, attorneys, accountants, consultants
and agents to keep confidential all non-public information concerning the other
which it has learned in connection with the transactions contemplated by this
Agreement.
11.4 No Waiver. The failure of any of the parties hereto to enforce
any provision hereof on any occasion shall not be deemed to be a waiver of any
proceeding or succeeding breach of such provision or any other provision.
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11.5 Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto and no amendment, modification or waiver
of any provision hereof shall be effective unless in writing, executed by the
party charged therewith.
11.6 Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with and shall be governed by the laws of the State of
New York without giving effect to principles of conflicts of law.
11.7 Binding Effect. This Agreement shall bind and inure to the
benefit of the parties hereto and their successors.
11.8 Assignment. No party may assign its rights or delegate its
obligations under this Agreement; provided, however, that the rights and
obligations of any Purchasers hereunder may be assigned to a corporate affiliate
of such Purchaser; further provided that such assignment shall not eliminate any
liability to Sellers which such assignor may have.
11.9 Arbitration. Except as otherwise expressly provided in this
Agreement, any dispute, controversy or conflict involving this Letter, its
interpretation or the respective rights or obligations of the parties, shall be
submitted to arbitration in New York County, New York before a panel of three
arbitrators and conducted under the auspices of the American Arbitration
Association according to its rules and procedures for commercial arbitration,
applying the laws of the State of New York or the United States District Court
for the Southern District of New York shall have jurisdiction to confirm the
award of the arbitrators.
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11.10 Amendment and Waiver. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), only by the written consent of the
parties hereto prejudiced by the amendment of such term or provision. Any
agreement on the part of a party to any extension or waiver shall only be valid
if set forth in an instrument in writing signed on behalf of such party. Any
such waiver or extension shall not operate as waiver or extension of any other
subsequent condition or obligation.
11.11 Definition of Best Knowledge. Whenever the phrase "to the (best)
knowledge of Seller" or "to the best of Seller's knowledge" is utilized in this
Agreement with regard to specific matter, it shall mean the combined knowledge
of all of the officers and directors of the Company, after careful investigation
into the specified matter. Whenever the phrase "the (best) knowledge of
Purchasers" or "to the best of Purchasers' knowledge" is utilized in this
Agreement with regard to a specific matter, it shall mean the combined knowledge
of all of the officers and directors of Purchasers and O.C.I. after careful
investigation into the specified matter.
11.12 Paragraph Headings. The paragraph headings herein have been
inserted for convenience of reference only and shall in no way be deemed to
modify or restrict any of the terms or provisions hereof.
11.13 Notices. Any notice or other communication under the provisions
of this Agreement shall be given in writing and delivered in person, by
reputable overnight courier or delivery service, by facsimile machine (receipt
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confirmed) or by registered or certified mail, return receipt requested,
directed to the addresses set forth below (or to any new address of which any
party hereto shall have informed the other by the giving of notice in the manner
provided herein):
In the case of the Company, to it at:
The He-Ro Group, Ltd.
550 Seventh Avenue
New York, New York 10016
Attention: Della Rounick
In the case of Della Rounick or the Estate, to her or it at:
15 West 53rd Street
New York, New York 10019
with a copy of notice to the Company or any of the Sellers, to:
Lowenthal, Landau, Fischer & Bring, P.C.
250 Park Avenue
New York, New York 10177
Attention: Martin R. Bring ,Esq.
In the case of Cassini or O.C.I., to him or it at:
Oleg Cassini Inc.
3 West 57th Street
New York, New York 10019
with a copy to:
Putney, Twombly, Hall & Hirson
521 Fifth Avenue
New York, New York 10175
Attention: William M. Pollak, Esq.
In the case of Stonehill, to it at:
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Stonehill Investment Corp.
110 East 59th Street, 30th Floor
New York, New York 10022
Attention: Stewart E. Tabin
with a copy to:
Olshan Grundman
Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
11.14 Unenforceability, Severability. If any provision of this
Agreement is found to be void or unenforceable by a court of competent
jurisdiction, the remaining provisions of this Agreement shall nevertheless be
binding upon the parties with the same force and effect as though the
unenforceable part had been severed and deleted.
11.15 Brokers' Fees. The Company warrants that neither O.C.I. nor
either of the Purchasers shall have any liability with respect to any brokerage
fees or agents' commissions incurred by the Company in connection with the
transactions contemplated hereby. O.C.I. and the Purchasers warrant that the
Company shall have no liability with respect to any brokerage fees or agents'
commissions incurred by O.C.I. or either of the Purchasers in connection with
the transactions contemplated hereby. The Company has retained Andersen
Corporate Finance as a financial advisor in connection with the transactions
contemplated hereby. All fees of Andersen Corporate Finance will be paid by the
Company.
11.16 Counterparts. This Agreement may be executed in counterparts,
all of which shall be deemed to duplicate originals.
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IN WITNESS WHEREOF, the parties hereto have executed this instrument
the date first above written.
THE HE-RO GROUP, LTD.
By: ________________________________
Name: ________________________
Title: _______________________
-------------------------------------
Della Rounick, as Executrix
of the Estate of Herbert
Rounick, and individually
(solely with respect to
Sections 5.3, 5.4, 5.5,
6.8, 7.1(e) and 9.1(b))
STONEHILL INVESTMENT CORPORATION
By: ________________________________
Name: ________________________
Title: _______________________
OLEG CASSINI, INC. AND THE CASSINI
ENTITIES
By: ________________________________
Name: ________________________
Title: _______________________
-----------------------------------
Oleg Cassini, individually
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EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE HE-RO GROUP, LTD.
Pursuant to Section 242 of the
Delaware General Corporation Law
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
The He-Ro Group, Ltd.
2. The date of incorporation is April 16, 1991.
3. The amendments to the Restated Certificate of Incorporation effected by
this Certificate are as follows:
a. To change the name of the Corporation.
b. To increase the number of authorized shares of stock of the
Corporation, to 65,000,000 shares of stock, of which 60,000,000
shall be Common Stock, par value $.01 per share and 5,000,000
shall be Preferred Stock, par value $.01 per share.
4. (a) To effect the change of name of the Corporation, Article FIRST of
the Restated Certificate of Incorporation is hereby amended to read in its
entirety as follows:
"FIRST: The name of the Corporation is Oleg Cassini Group
International, Ltd."
(b) To effect the increase in the authorized number of shares of the
Corporation, Article FOURTH of the Restated Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is Sixty Five Million
(65,000,000) shares, of which 60,000,000 shall be Common Stock,
par value $.01 per share and 5,000,000 shall be Preferred Stock,
par value $.01 per share.
<PAGE>
(b) The designations, preferences, privileges and voting
powers of each class of stock of the Corporation, and the
restrictions and qualifications thereof, shall be as follows:
A. THE PREFERRED STOCK. The Board of Directors is vested with
authority, to the extent permitted by the laws of Delaware, to
issue the Preferred Stock from time to time in one or more
series, each series to have such relative rights, preferences and
limitations as shall be determined by the Board of Directors. All
shares of the Preferred Stock shall be identical except as to the
following relative rights and preferences as to which there may
be variations between different series:
(1) The number of shares constituting such series, and
designation thereof to distinguish the shares of such series
from the shares of all other series;
(2) The rate of dividend, the time of payment and the
dates from which dividends shall be cumulative, and the
extent of participation rights, if any;
(3) Any right to vote with holders of shares of any
other series or class, the number of votes per share and any
right to vote as a class, either generally or as a condition
to specified corporate action;
(4) The price at and the terms and conditions on which
shares may be redeemed;
(5) The amount payable upon shares in the event of
involuntary liquidation;
(6) The amount payable upon shares in the event of
voluntary dissolution, liquidation or distribution of the
assets of the Corporation;
(7) Sinking fund provisions for the redemption or
purchase of shares;
(8) The terms and conditions on which shares may be
converted or exchanged, if the shares of any series are
issued with the privilege of conversion or exchange.
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Prior to the issuance of any shares of Preferred Stock,
the Board of Directors shall have established such series by
adopting a resolution or resolutions setting forth the
designation and number of shares of the series and the
voting powers, designations, preferences and relative,
participating, optional, or other rights, if any, or the
qualifications, limitations or restrictions thereof, if any,
to the extent permitted by the provisions hereof, and the
Corporation shall have filed, in the office of the Secretary
of State of the State of Delaware, a certificate setting
forth a copy of such resolution or resolutions.
B. THE COMMON STOCK. Subject to the preferences, privileges and
voting powers, and the restrictions and qualifications thereof,
of the Preferred Stock, the holders of the common stock shall
have and possess all rights appertaining to capital stock of the
Corporation. Holders of common stock shall have one vote for each
share held. At such election for directors, every stockholder
entitled to vote at such election shall have the right to vote,
in person or by proxy, the number of shares owned by him for as
many persons as there are directors to be elected, at that time,
and for whose election he has a right to vote.
5. The amendment of the restated certificate of incorporation herein
certified has been duly adopted by the board of directors and stockholders of
the Corporation in accordance with the provisions of Sections 141(f) and 228 of
the General Corporation Law of the State of Delaware.
Signed and attested to on April , 1997.
_______________________________________
Della Rounick, Co-Chairman of the Board
and Chief Executive Officer
Attest:
________________________
Sam D. Kaplan, Secretary
3
<PAGE>
STATE OF )
) SS.:
COUNTY OF )
BE IT REMEMBERED that, on April ,1997, before me, a Notary Public duly
authorized by law to take acknowledgment of deeds, personally came Della
Rounick, Co-Chairman of the Board and Chief Executive Officer of The He-Ro
Group, Ltd., who duly signed the foregoing instrument before me and acknowledged
that such signing is his act and deed, that such instrument as executed is the
act and deed of said Corporation, and that the facts stated therein are true.
GIVEN under my hand on April__, 1997.
______________________
Notary Public
4
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EXHIBIT C
April 2, 1997
DRAFT FAIRNESS
OPINION
April , 1997
Board of Directors
William J. Carone
Co-Chairman of the Board
The He-Ro Group, Ltd.
550 Seventh Avenue
New York, New York 10018
Dear Mr. Carone:
You have advised us that the He-Ro Group, LTD. (the "Company") has entered into
a Purchase Agreement, dated March 11, 1997 (the "Agreement"), with Oleg Cassini,
Oleg Cassini, Inc. ("OCI") and Stonehill Investment Corporation ("Stonehill")
pursuant to which Mr. Cassini and Stonehill will invest $7,000,000 in the
Company, and OCI will contribute certain licensing income to the Company through
a licensing management agreement, for which they will receive 26,869,332 shares
of Common Stock in the aggregate, which will represent 80% of the Company's
outstanding Common Stock after the transaction (the "Transaction"). The
foregoing summary of the Transaction is qualified in its entirety by the more
detailed information contained in the Agreement dated March 11, 1997 and the
exhibits thereto.
You have requested our opinion as investment bankers as to whether or not the
financial terms of the Transactions are fair from a financial point of view to
the Company's existing Common stockholders excluding Ms. Della Rounick, as
Executrix of the Estate of Herbert Rounick and individually. Ms. Rounick who
beneficially owns 4,430,748 shares of (or 66% of the presently outstanding)
Common Stock of the Company, is its Co-Chairman of the Board and Chief Executive
Officer and is a party to the Agreement.
<PAGE>
The He-Ro Group, Ltd.
April , 1997
Page 2
Mesirow Financial, Inc. is a nationally recognized securities firm. As part of
its investment banking business, Mesirow is regularly engaged in structuring
financings and the valuations of businesses and their securities in connection
with mergers, acquisitions and leveraged buyout transactions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, and private placements. In conducting our investigation and
analysis, and in arriving at the opinion set forth below, we have reviewed the
Agreement and Exhibits thereto prepared by the parties, and have taken into
account such accepted financial and investment banking procedures as we have
deemed relevant. We have, among other things (i) reviewed publicly available
information concerning the Company, including audited and interim, unaudited
financial statements of the Company; (ii) reviewed the Company's financial
projections provided by senior management of the Company, which are not publicly
available; (iii) reviewed the efforts of Arthur Andersen Corporate Finance (the
Company's financial advisor since May , 1996) to identify and solicit
alternative sources of capital or acquirors for the Company and we have been so
advised by Arthur Andersen Corporate Finance and the Company that they have been
unable to identify any other interested sources of capital or acquirors; (iv)
reviewed the Company's request to the New York Stock Exchange for an exemption
from the New York Stock Exchange requirement for a proxy solicitation for a
shareholders meeting to vote on the Agreement based upon the threat posed to the
Company's financial viability if the transactions contemplated do not close on
or about April 30, 1997; (v) reviewed the going concern qualified opinion of
Arthur Andersen, LLP, the Company's auditor for the year ending May 31, 1996;
and (vi) estimated the likely values to be realized by the Company's common
stockholders in the event of a formal bankruptcy proceeding, liquidation or
similar occurrence.
<PAGE>
The He-Ro Group, Ltd.
April , 1997
Page 3
In addition, we have met and held discussions with the Company's management
concerning the Company's business and operations, assets, financial condition,
and future prospects, and we visited the Company's facilities in New York and
New Jersey. We also met with Mr. Oleg Cassini concerning his plans and future
aspirations for the Company and we reviewed the Company's estimates of the
projected licensing fees to be received by the Company from OCI. We also
discussed the Company's financial condition with representatives of its lending
groups.
In arriving at our opinion, we have not assumed any responsibility for the
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. We have neither made
nor obtained independent evaluations or appraisals of the assets of the Company.
With respect to the financial projections provided us by the Company, we assumed
in reliance upon the assurances of management that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company. Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated as of the date of this opinion. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise or reaffirm this opinion.
We are not rendering any opinion regarding the future performance of the
Company.
<PAGE>
The He-Ro Group, Ltd.
April , 1997
Page 4
This letter is provided solely for the benefit of the Board of Directors of the
Company in connection with and for the purposes of its evaluation of the
Agreement. This letter does not constitute a recommendation to any stockholder
with respect to the Transaction or the value of the Company's Common Stock. Our
opinion is based on the business and operations of the Company as represented to
us as of , and does not purport to take into consideration any information or
event arising subsequent to such date. The information contained in this opinion
may not be used for any other purpose, or reproduced, disseminated, quoted,
referred to or disclosed or otherwise made available to, or relied upon by any
other party nor may reference be made hereto to our firm without our prior
written consent, provided, however, that it is understood that the opinion may
be referred to, and printed, in the proxy statement to be filed by the Company
with the Securities and Exchange Commission describing the Transaction.
<PAGE>
The He-Ro Group, Ltd.
April , 1997
Page 5
Based upon the foregoing and our experience as investment bankers, we are of the
opinion that the financial terms of the Transaction are fair from a financial
point of view to the Company's existing Common stockholders, excluding Ms. Della
Rounick, as Executrix of the Estate of Herbert Rounick and individually as of
the date of this letter.
Sincerely,
MESIROW FINANCIAL, INC.
/s/ Mesirow Financial, Inc.
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