<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10860
THE HE-RO GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 13-3615898
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 Seventh Avenue 10018
New York, NY
(Address of principal (Zip Code)
executive offices)
(212) 398-6161
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock April 20, 1998
--------------------- --------------
<S> <C>
$.01 par value 11,995,238
</TABLE>
<PAGE> 2
THE HE-RO GROUP, LTD. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited):
Balance Sheets
February 28, 1998 and April 30, 1997....................... 3
Statements of Operations
Three and Nine months Ended February 28, 1998 and January
31, 1997................................................... 4
Statements of Changes in Stockholders' Equity
Nine months Ended February 28, 1998
and one month ended may 31, 1997............................. 5
Consolidated Statements of Cash Flows Nine months Ended
February 28, 1998 and year ended April 30, 1997............ 6
Condensed Notes to Consolidated Financial Statements....... 7 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 13 - 19
PART II. OTHER INFORMATION.......................................... 15
<PAGE> 3
THE HE-RO GROUP,LTD. AND SUBSIDIARIES
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Consolidated
February 28, April 30,
1998 1997(1)
------------ ----------------
(Unaudited) (Condensed from
unaudited finan-
cial statements
of Nah Nah
ASSETS Collection, Inc.)
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................ $ 121 $ 0
------- ------
Accounts receivable:
Trade ......................................... 926 350
Due from factor ............................... 408
Suppliers and other ........................... 3,229 0
------- ------
4,155 758
Inventory ....................................... 14,144 4,296
Other current assets ............................ 425 8
------- ------
Total current assets ....................... 18,845 5,062
------- ------
FIXED ASSETS - at cost, net of accumulated
depreciation and amortization ................... 1,115 394
GOODWILL ........................................... 11,218 --
OTHER ASSETS ....................................... 1,055 75
------- ------
$32,233 $5,531
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft .................................. $ 720 $ 166
Bank loans ...................................... 674 1,385
Due to factor ................................... 5,158 --
Accounts payable ................................ 11,436 2,007
Current portion of capital lease obligation ..... 12 20
Accrued expenses and other current
liabilities ................................... 1,478 190
------- ------
Total current liabilities .................. 19,478 3,768
------- ------
Long-term debt--stockholder--Subordinated........... 9,691 250
Long-Term portion of capital lease obligation ...... 57 60
------- ------
9,748 310
COMMITMENTS AND CONTINGENCIES ------- ------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000
authorized shares; no shares outstanding ... -- --
Common stock, $.01 par value; 25,000,000
authorized shares; issued and outstanding
11,995,238 shares .......................... 120 --
Common Stock - no par value, authorized, issued
and outstanding 200 shares ................. -- 50
Additional paid-in capital .................... 2,867 250
Retained earnings ............................. 20 1,153
------- ------
Total stockholders' equity .................... 3,007 1,453
------- ------
Total liabilities and stockholders' equity .... $32,233 $5,531
======= ======
</TABLE>
(1) Reflects the balance sheet of Nah Nah Collection, Inc. prior to
acquisition.
The accompanying condensed notes are an integral part of these consolidated
statements.
3
<PAGE> 4
THE HE-RO GROUP, LTD. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- -----------------------
Consolidated Condolidated
February 28, January 31, February 28, January 31,
1998 1997 1998 1997
-------- ------ -------- -------
(Condensed from (Condensed
unaudited finan- from unaudi-
cial statements ted finan-
of Nah Nah cial state-
Collection, Inc.) ments of
Nah Nah
Collection,
Inc.)
<S> <C> <C> <C> <C>
Net Sales ............... $ 10,736 $5,215 $ 21,339 $16,113
Cost of sales ........... 7,648 4,020 15,767 12,242
-------- ------ -------- -------
Gross profit ............ 3,088 1,195 5,572 3,871
Selling, general and
administrative expenses . 3,033 996 5,324 3,417
-------- ------ -------- -------
Amoritization of goodwill 190 -- 190 --
Operating income ........ (135) 199 (58) 454
Interest Expense ........ 421 125 642 327
-------- ------ -------- -------
Income (loss) before
income taxes ........... (556) 74 (584) 127
Provision for income
taxes ................... -- 12 6 42
-------- ------ -------- -------
Net (loss) income ....... (556) 62 (590) 85
======== ====== ======== =======
Basic and diluted (loss)
income per share ...... $ (0.05) $ 0.01 $ (0.09) $ 0.02
======== ====== ======== =======
Weighted average shares
outstanding ............. 10,279 5,278 6,926 5,278
======== ====== ======== =======
</TABLE>
The accompanying condensed notes are an integral part of these consolidated
statements.
4
<PAGE> 5
THE HE-RO GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional
No. of Paid in Retained
Shares Amount Capital Earnings Total
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1997 Nah Nah
Collection, Inc. 50 250 1,153 1,453
Net Loss for period May 1, 1997
through May 31, 1997 (543) (543)
----- ------ ------- -------- -------
Balance, May 31, 1997 Nah Nah
Collection, Inc. $ $ 50 $ 250 $ 610 $ 910
===== ====== ======= ======== =======
Balance, June 1, 1997 Nah Nah
Collection, Inc. $ $ 50 $ 250 $ 610 $ 910
Increase in Common Stock on
reverse acquisition on December
24, 1997 with The He-Ro Group,
Ltd. and Nah Nah Collection, Inc. 5,278 3 2,617 0 2,620
Common Shares acquired on
reverse acquisition from The
He-Ro Group, Ltd. 6,717 67 0 0 67
Net loss for the period
June 1, 1997 through
February 28, 1998 (590) (590)
------- ------ ------- -------- -------
Balance at February 28, 1998 $11,995 $ 120 $ 2,867 $ 20 $ 3,007
======= ====== ======= ======== =======
</TABLE>
The accompanying condensed notes are an integral part of these consolidated
statements.
5
<PAGE> 6
THE HE-RO GROUP, LTD., AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Undudited)
<TABLE>
<CAPTION>
Consolidated
Nine Months Ended Twelve Months Ended
----------------- -------------------
February 28, 1998 April 30, 1997
----------------- --------------
(Condensed from
unaudited fin-
ancial statement
of Nah Nah
Collection, Inc.)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) .............................. $ (590) $ 147
------- -------
Adjustments to reconcile net income (loss)to net
cash provided by (used in) operating
activities:
Depreciation and amortization ................ 347 134
(Increase) decrease in assets:
Trade receivables .............................. (336) (57)
Other receivables .............................. 1,077 1,609
Inventories .................................... (1,589) (476)
Other current assets ........................... 69 12
Increase (decrease) in liabilities:
Accounts payable ............................... 1,779 4
Accrued expenses and other current liabilities . (169) 42
------- -------
Total adjustments .............................. 1,178 1,268
------- -------
Net cash provided by
operating activities ............................ 588 1,415
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets .................... (531) (180)
Increase in other assets ....................... (322) 0
------- -------
Net cash used in investing activities ............. (853) (180)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of cash overdraft .................... 0 (349)
Increase (decrease) in bank loans .............. 327 (870)
Repayment of equipment lease ................... 0 (16)
------- -------
Net cash provided by (used in)
financing activities ......................... 327 (1,235)
NET INCREASE IN CASH .............................. 62 0
------- -------
CASH, beginning of period ......................... 59 0
------- -------
CASH, end of period ............................... $ 121 $ 0
======= =======
</TABLE>
In connection with the reverse acquisition (see note 2) and a change in Nah
Nah's fiscal year Cash flow information for the nine months ended January 31,
1997 is unavailable, accordingly the above reflects Cash Flow information of
Nah Nah for the year ended April 30, 1997.
The accompanying condensed notes are an integral part of these consolidated
statements.
6
<PAGE> 7
THE HE-RO GROUP, LTD. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The HE-RO
Group, Ltd. and its subsidiaries (hereinafter collectively referred to as
the "Company" unless the context clearly otherwise requires). The
consolidated financial statements are presented in accordance with the
requirements of the quarterly report on Form 10-Q and consequently do not
include all of the disclosures normally made in an annual report on Form
10-K filing. Accordingly, the consolidated financial statements included
herein should be reviewed in conjunction with the consolidated financial
statements and the notes included therein with the Company's Annual Report
on Form 10-K and 8-KA filed on March 9, 1998.
The financial information as of and for the nine months ended February
28, 1998 and January 31, 1997 has been prepared in accordance with the
Company's customary accounting practices and has not been audited. In the
opinion of management, the information presented reflects all adjustments
necessary for a fair statement of interim results. All such adjustments
are of a normal and recurring nature. The foregoing interim results are
not necessarily indicative of the results of operations for the full year
ending May 31, 1998 ("Fiscal 1998").
2. Aquisition
On December 24, 1997 (the "Closing Date"), the Company acquired all of
the outstanding capital stock of Nah Nah Collection, Inc. ("Nah Nah") from
Hong J. Han, president of Nah Nah, in exchange for the issuance by the
Company to Mr. Han of 5,277,905 shares of Common Stock (equivalent to 44%
of the Company's issued and outstanding capital stock), pursuant to a
Stock Purchase Agreement dated October 16, 1997 (the "Stock Purchase
Agreement"), among the Company, Nah Nah, Mr. Han and Della Rounick. In
addition, Ms. Rounick granted to Mr. Han, or his designee, an irrevocable
proxy to vote the 4,430,748 shares of Common Stock owned by her, giving
Mr. Han voting control over a total of approximately 81% of the Company's
issued and outstanding stock. Nah Nah produces and markets several lines
of women's ready to wear and special occasion wear consisting of suits and
dresses under labels including Victor Costa by Nahdree, Constance Saunders
by Nahdree, Nah Nah Collections and under private label through its NNP
division.
On the Closing Date, the Company and all of its active subsidiaries
entered into a new factoring and revolving inventory loan and security
agreement (the "Factoring Agreement") with Heller Financial, Inc.
("Heller"), replacing Foothill Capital Corporation ("Foothill") as the
senior lender. All of the outstanding obligations of the Company to
Foothill were paid in full and Foothill released its liens on the assets
of the Company and its subsidiaries. The factoring advances, inventory
7
<PAGE> 8
and letter of credit facility under the Factoring Agreement may not exceed
an aggregate of $20,000,000 outstanding at any time and includes (a)
collection factoring with advances not to exceed 85% of the purchase price
of net eligible accounts; (b) advances not to exceed 60% of eligible
finished goods inventory located in the United States; (C) documentary
letters of credit; and (d) an over advance formula facility. The
significant restrictive covenants as defined in the Factoring Agreement
are as follows:
- Minimum tangible net worth for each fiscal year: $4,250,000 for
1998; $7,000,000 for 1999; $10,500,000 for 2000; and $15,500,000
for each fiscal year thereafter.
- Minimum working capital: $2,200,000.
- Minimum current ratio: 1.30 to 1.10.
- Capital expenditures may not exceed $300,000 in one fiscal year.
The Company's principal subsidiaries granted to Heller continuing
security interests in substantially all of their assets, including
receivables, inventory (other than raw materials and work-in-progress),
intangibles, equipment, and any proceeds from any of the above. The
obligations to Heller are further secured by a guaranty by the Company and
its other subsidiaries, and the obligations of such guarantors are secured
by liens on substantially all of the assets of the guarantors.
At February 28, 1998 the Company was in default of certain financial
covenants.
In addition, Mr. Han acquired all of the Company's outstanding
obligations ($2,750,000 in principal amount) to the Bank Group, and all of
the collateral therefor, under the Bank Group Credit Agreement. The
Company's indebtedness to Mr. Han, as successor to the Bank Group, is (i)
subordinated to the Company's indebtedness to Heller, its new senior
lender, and (ii) secured by a second lien on the domestic inventory and
accounts receivable, among other collateral, and a first lien on the
inventory located in Hong Kong and China. The Bank Group also surrendered
to the Company for cancellation warrants to purchase 250,000 shares of
common stock of the Company.
Pursuant to certain conditions set forth in the Stock Purchase
Agreement, on the Closing Date, Mr. Han also purchased from Ms. Rounick
subordinated indebtedness of The He-Ro Group, Inc. ("HGI") to the Estate
of Herbert Rounick (of which Ms. Rounick is executrix) in the amount of
$4,296,000, plus accrued interest. Ms. Rounick retained $1,000,000, plus
accrued interest, of subordinated indebtedness. The aggregate indebtedness
(in the principal amount of $6,660,801, which includes the accrued
interest) is evidenced by subordinated notes of the Company in favor of
each of Mr. Han and Ms. Rounick bearing interest at 9.278% per annum. The
principal is due and payable on demand and the interest is due on the
first of each month commencing January 1, 1998, or otherwise on demand.
The Company and all its subsidiaries (except HGI) have guaranteed payment
and performance of the notes. The payments on, and any conversion of, the
notes, as well as other provisions on the notes, will be on a pari passu
basis, subject to certain restrictions, and Ms. Rounick may not take any
action to collect, enforce, convert or otherwise deal with her note unless
Mr. Han has taken such action (in
8
<PAGE> 9
which event Ms. Rounick may take such action but only to the same extent
and on the same terms as Mr. Han) or unless she has received Mr. Han's
prior written consent.
Under the terms of subordination and intercreditor agreements with
Heller, all interest payments to Ms. Rounick and Mr. Han are subject to
certain conditions.
The transaction has been accounted for as a reverse acquisition
therefore, the financial statements presented here represent the
historical results of Nah Nah (June 1, 1997 to February 28, 1998) and the
results of operation of The He-Ro Group, Ltd. from the date of acquisition
(December 24, 1997 to February 28, 1998)
Prior to the reverse acquisition Nah Nah's fiscal year end was
April 30, subsequently, Nah Nah has changed its fiscal year end to May 31.
Assuming the reverse acquisition had occurred on June 1, 1996, the
Company's (unaudited) net revenues, net loss and basic and diluted loss
per share would have been approximately as follows:
For 1997 the results include the nine months and three months ended
February 28, 1997 for the He-Ro and nine months and three months ended
January 31, 1997 for Nah Nah.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
Three Months February 28, Nine Months February 28,
Ended 1997 Ended 1997
February 28, and January 31, February 28, and January 31,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenue $ 12,289 $ 14,863 $ 43,712 $ 51,242
======== ======== ======== ========
Net loss $ (1,267) $ (2,902) $ (3,024) $ (4,002)
======== ======== ======== ========
Basic and diluted loss
per share $ (.12) $ (.55) $ (.44) $ (.76)
======== ======== ======== ========
</TABLE>
10
3. Earnings (Loss) Per Share
As of December 15, 1997, the Company adopted Statement of Financial
Accounting Standards no. ("SFAS") 128, Earnings Per Share Basic Earnings
share excludes dilution and is computed by dividing earnings available to
Common Shareholders by the weighted average number of Common Shares
outstanding for the period.
Diluted earnings per share is computed by dividing earnings available to
Common Shareholders by the weighted average number of Common Shares
outstanding for the period, adjusted to reflect potentially dilutive
securities. Options and warrants were not included in the computation of
diluted earnings per share because the exercise price was greater then
the market price of the stock.
9
<PAGE> 10
4. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market.
<TABLE>
<CAPTION>
(In Thousands)
February 28, April 30,
1998 1997
--------- -----
(Condensed
from unaudited
financial
statements of
Nah Nah
Collection, Inc.)
<S> <C> <C>
Finished goods .................. $11,020 $2,342
Raw materials and work in process 3,124 1,954
------- ------
$14,144 $4,296
======= ======
</TABLE>
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
(In Thousands)
February 28, April 30,
1998 1997
----------- -----
(Condensed
from unaudited
financial
statements of
Nah Nah
Collection, Inc.)
<S> <C> <C>
Machinery and equipment ........... 2,396 $399
Furniture and fixtures ............ 2,588 182
Leasehold improvements ............ 2,571 237
------ ----
7,555 818
Less - Accumulated depreciation and
amortization ...................... 6,440 424
------ ----
$1,115 $394
====== ====
</TABLE>
6. GOODWILL
Goodwill has been recogized to the extent the aggregate fair value of
He-Ro's outstanding stock exceeds the fair value of the net assets of
10
<PAGE> 11
He-Ro as of December 24, 1997. Amoritization expense is calculated on a
straight line basis over ten years. The Company's policy is to evaluate
long-lived assets, goodwill and certain identifiable intangibles for
possible impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. This
evaluation is based on a number of factors, including expectations for
operating income and undiscounted cash flows that will result from the use
of such assets. The Company will evaluate the carrying value of goodwill
at the end of the first full financial year following the acquisition (May
31, 1999).
7. NOTE PAYABLE BANK
At February 28, 1998, the Company had $674,000 outstanding under a
promissory note which was due and paid by March 31, 1998.
8. RELATED PARTY TRANSACTIONS
The Company has an investment of $798,000 in Great Projects Limited
("GPL"), a Hong Kong corporation. Fifty percent of GPL is owned by a
subsidiary of the Company, and 25% is owned by each of two Hong Kong
companies that are unaffiliated with the Company or its officers or
directors. As of October 31, 1993, the partners agreed to discontinue the
operations of GPL. In January 1996, liquidation proceedings in Hong Kong
were commenced to wind up GPL. Included in accounts payable is $2,151,000
due to the foreign affiliate at November 30, 1997 and May 31, 1996. The
Company does not expect any material impact on its results of operations
due to the liquidation of GPL.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Payments of income taxes were $8,000 and $6,000 for the nine months
ended February 28, 1998 and year ended April 30, 1997, respectively.
Payments of interest during the corresponding periods were $45,500 and
$452,000 respectively.
10. CONTINGENCIES
The Company has entered into certain employment contacts that
expire October 1998. The aggregate amount due on these contrcts at
February 28, 1998 is $227,000. The Company has also entered into certain
agreements with design that expire on various years ending in 2002.
The aggregate amount due in these contracts at February 28, 1998 is
$1,198,000
11
<PAGE> 12
The Company is a party to various claims, legal actions, and
complaints arising in the ordinary course of business. In the opinion of
the Company's management, all such matters are without merit or involve
such amounts in which an unfavorable disposition would not have a material
effect on the consolidated financial statements of the Company.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
THE HE-RO GROUP, LTD. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion provides information and analysis of registrant's
results of operations for the three-month and nine-month periods ended February
28, 1998, and its liquidity and capital resources. The following discussion and
analysis should be read in conjunction with the unaudited consolidated financial
statements included elsewhere herein.
On December 24, 1997, He-Ro Group, Ltd. ("He-Ro") acquired all the
outstanding capital stock of Nah Nah Collection, Inc. ("Nah Nah") from Hong J.
Han, president of Nah Nah, in exchange for the issuance by He-Ro to Mr. Han of
5,277,905 shares of He-Ro common stock (equivalent to 44% of the combined
entities' issued and outstanding capital stock), pursuant to a Stock Purchase
Agreement dated October 16, 1997 (the "Stock Purchase Agreement"), among the
Company, He-Ro, Mr. Han and the former principal shareholder of He-Ro. In
addition, the former principal shareholder of He-Ro granted to Mr. Han, or his
designee, an irrevocable proxy to vote the 4,430,748 shares of He-Ro common
stock owned by her, giving Mr. Han voting control over a total of approximately
81% of He-Ro's issued and outstanding stock. This transaction will be accounted
for as a reverse acquisition.
The Acquisition is being accounted for as a purchase. Therefore, the
operating results of the accounting acquiror (i.e., Nah Nah) are required to be
presented for periods prior to the effective date of the acquisition to the end
of the period and include He-Ro from the date of Acquisition to the end of the
period.
LIQUIDITY AND CAPITAL RESOURCES
On December 24, 1997, registrant entered into a Factoring and Revolving
Inventory Loan and Security Agreement ("Heller Agreement") with Heller
Financial, Inc. ("Heller"), replacing the credit agreement with He-Ro's prior
senior lender, Foothill Capital Corp. ("Foothill"). All obligations of He-Ro to
Foothill were paid in full at the time of the Acquisition.
The Heller Agreement provides that Heller will (i) purchase eligible
receivables and advance to specified operating affiliates of registrant up to
85% of the amount thereof, (ii) in its discretion, make revolving loans, secured
by a lien on assets, upon request in amounts up to approximately 60% of eligible
finished goods inventory located in the United States, plus certain supplemental
amounts, and (iii) arrange for the issuance of letters of credit secured by
funds available to registrant, provided that
13
<PAGE> 14
the amount of loans and letters of credit outstanding at any time may not exceed
$20,000,000 in the aggregate.
The Heller Agreement contains certain financial covenants, including that
registrant's working capital shall not be less than $2.2 million and its current
ratio shall not be less than 1.30 to 1.00. At February 28, 1998, registrant was
in default of the foregoing covenants, having a negative working capital at such
date of $0.6 million and a current ratio of just under 1 to 1. Registrant
believes that it will be able to work out an accommodation with Heller to
maintain the availability of the resources made available pursuant to the Heller
Agreement. However, there is no assurance that such accommodation will be
achieved. Registrant does not have any alternative sources of funds arranged at
this time to cover the eventuality that Heller might terminate, or curtail the
funds available under, the Heller Agreement.
Registrant does not anticipate making any significant capital investments
during the forthcoming year and believes that, assuming the accommodation
referred to in the immediately preceding paragraph, the Heller Agreement
provides sufficient capital resources to meet its capital needs for the
foreseeable future. By contracts with registrant's present situations vio-a-vio
Heller, prior to the Acquisition, He-Ro's losses made it impossible to service
its bank debt without violating its credit agreement with Foothill, there was
serious concern about He-Ro's ability to replace or extend that credit
agreement, and as a result, there was substantial doubt about He-Ro's ability to
continue as a going concern.
CHANGES IN FINANCIAL CONDITION
A comparison of the balance sheet of registrant as at February 28, 1998,
with its balance sheet as at April 30, 1997, indicates that (i) total assets
have increased from $5.5 million to $32.2 million, including $11.2 million of
good will arising out of the Acquisition, and (ii) working capital is a negative
$0.6 million compared with a working capital of $1.3 million at April 30, 1997.
These changes are attributable principally to the effects of the Acquisition.
RESULTS OF OPERATIONS
Comparison of Three and Nine-Month Ended
January 31, 1997, and February 28, 1998
For the reasons discussed under "General" above, the operating results of
registrant for the three and nine-month periods ended February 28, 1998, and the
corresponding periods ended January 31, 1997, are not truly comparable because
of the reverse acquisition accounting treatment. However, the footnote 2 to the
financial statements included herein indicates that if the Acquisition had
occurred on June 1, 1996, instead of December 24, 1997, registrant's net
revenues for the three months ended February 28, 1998, would have declined to
$12.3 million from $14.9 million for the corresponding period one year earlier,
and for the nine months ended February 28, 1998, would have declined to $43.7
million from $51.2 million for the corresponding period one year earlier. For
the same periods, registrant's loss would have decreased from $2.9 million to
$1.3 million (three-month periods) and from $4.0 million to $3.0 million
(nine-month periods). The declines in net revenues were principally due to a
decline in He-Ro's net revenues during the periods ending with the Acquisition,
the reduction in the losses were principally due to He-Ro's reduction in its
less profitable activities during such periods.
Management of registrant does not believe that there have been any
significant developments indicative of registrant's future operating results
except that after the Acquisition and prior to February 28, 1998:
14
<PAGE> 15
(a) registrant liquidated inventory held in Hong Kong, the
right to sell which had been restricted by the credit agreement with
Foothill, a prior lender to He-Ro which was repaid in full as part of the
Acquisition. Such liquidation involved the sale to a vendor, for about
$135,000, of inventory with a cost basis of approximately $2.4million,
resulting in a non-recurring loss of about $500,000 in excess of
reserves established therefor. Such non-recurring loss is included in the
cost of goods sold.
(b) in the period ending May 31, 1999, registrant's earnings
will be reduced by about $95,000 per month because of the amortization of
its goodwill on a straight-line basis over ten years. In addition, at
May 31, 1999, (the end of the first full fiscal year following the
Acquisition), registrant will evaluate the carrying value of certain
intangible assets which may not be recoverable, including goodwill, and
currently anticipates that the unamortized portion of such goodwill not
amortized prior to May 31, 1999, may be expressed in its entirety at
that date.
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On December 24, 1997, 5,277,905 shares of Common Stock of registrant
("Common Stock"), par value $.01 per share, were issued Hong J. Han in exchange
for the acquisition by He-Ro of all the outstanding shares of capital stock of
Nah Nah, as a result of which Nah Nah became a wholly owned subsidiary of
registrant. Such issuance of Common Stock was exempt from registration under the
Securities Act of 1933 as a transaction by an issuer not involving any public
offering pursuant to Section 4(2) of that Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Prior to the Acquisition, He-Ro Group, Inc. (a subsidiary of
registrant, was indebted to the estate of Herbert Rounick in the amount of
$5,296,000 plus $1,119,000 of accrued and unpaid interest thereon (the "Rounick
Debt"). Although, under the terms of registrant's credit agreements, payments on
the Rounick debt was prohibited, interest was payable monthly and the failure to
pay such interest constituted a default on the Rounick Debt. The interest on the
Rouncik Debt was added to principal and new demand promissory notes representing
the outstanding Rounick Debt were issued to H. J. Han and the to Della rouncik
(the distributee of the estte of Rounick) reflecting principal of $4,296,000 to
Mr. Han and of $1,000,000 to Mrs Rouncik. Such debt bears interest at 9.278% per
annum payable on
15
<PAGE> 16
the first of each month commencing January 1, 1998, or otherwise on demand.
Because of the terms of the subordination agreements with Heller and Hong J.
Han, interest has not been paid to the estate of Rounick since December 24,
1997. He-Ro had also been in default prior to the Acquisition under its Bank
Groupo Credit Agreement. And registrant is currently in default under certain
financial covenants under the Heller Agreement, as more fully discussed under
"Liquidity and Capital Resources" above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Restated Certificate of Incorporation of registrant.
Incorporated by reference to Exhibit 3.1 of registrant's
Annual Report on Form 10-K for the year ended May 31, 1995
("Registrant's 1995 10-K").
3.2 Bylaws of registrant, as amended. Incorporated by reference to
Exhibit 3.2 of Registrant's 1995 10-K.
10.1 Stock Purchase Agreement dated October 16, 1997, among
Registrant, Vasiliki Della Pasvantidou Rou-nick ("Della
Rounick"), Nah Nah Collection, Inc. ("Nah Nah"), and Hong J.
Han. Incorporated by reference to Exhibit 2.1 of registrant's
Current Report on Form 8-K dated December 31, 1997.
10.2 Debt Purchase and Intercreditor Agreement dated December 24,
1997, among Hong J. Han, Della Rounick and The He-Ro Group,
Inc. Incorporated by reference to Exhibit C of Form 13-D of
Hong H. Han filed January 13, 1998.
*10.3 Guaranty by registrant and its subsidiaries in favor of Hong
J. Han and Della Rounick as Executrix of the Estate of Herbert
Rounick dated December 24, 1997.
*10.4 Registration Rights Agreement dated December 24, 1997, between
registrant and Hong J. Han.
*10.5 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and Katherine Wong.
*10.6 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and David Minka.
*10.7 Agreement dated July 30, 1997, among Nah Nah, C.A.S. Designs,
Inc. and Constance Saunders.
*10.8 Employment Agreement dated January 1, 1997, between Nah Nah,
and Victor Costa.
16
<PAGE> 17
10.9 Sublease dated March 6, 1997, between The He-Ro Group, Inc.
(as sublessor) and Harve Benard (as sublessee) relating to
premises located at One American Way, Secaucus, New Jersey.
Incorporated by reference to Exhibit 10.2 to registrant's
Annual Report on Form 10-K for the year ended May 31, 1997.
10.10.1 License Agreement dated June 1, 1990, between The He-Ro Group,
Inc., and Oleg Cassini, Inc. ("Cassini License"). Incorporated
by reference to Exhibit 10.8 of Registrant's 1995 10-K.
10.10.2 Letter Agreement dated December 15, 1995, from Oleg Cassini,
Inc. to The He-Ro Group, Inc., amending the Cassini License.
Incorporated by reference to Exhibit 10.8.1 of registrant's
Annual Report on Form 10-K for the year ended May 31, 1996
("Registrant's 1996 10-K").
*10.10.3 Agreement dated December 30, 1997, between The He- Ro Group,
Inc., and Oleg Cassini, Inc., amending the Cassini License.
*10.11 Licensing Agreement dated as of December 24, 1997, between
N.N.C.S., Inc. and Nah Nah.
10.12 1991 Stock Option Plan. Incorporated by reference to Exhibit
10.12 of Registrant's 1995 10-K.
10.13 1992 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.13 of Registrant's 1995 10-K.
10.14 1993 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.14 of Registrant's 1995 10-K.
10.15 Amended and Restated 1994 Outside Director Stock Option Plan.
Incorporated by reference to Exhibit 10.15 of Registrant's
1996 10-K.
*11 Computation of Per Share Earnings Statement
*27 Financial Data Schedule
99.1 Irrevocable Proxy granted by Della Rounick in favor of Hong J.
Han. Incorporated by reference to to Exhibit B of Form 13-D of
Hong H. Han filed January 13, 1998.
99.2 Factoring Agreement dated December 24, 1997 among Heller
Financial, Inc., The He-Ro Group, Inc., HRNL, Inc., Nah Nah,
registrant and certain other
17
<PAGE> 18
subsidiaries. Incorporated by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K dated December 31,
1997.
*99.3 Subordination Agreement dated December 24, 1997, among Hong J.
Han, Nah Nah, and Heller Financial Inc. subordinating
indebtedness owed by Nah Nah to Hong H. Han.
*99.4 Subordination Agreement dated December 24, 1997, among Della
Rounick, Hong J. Han, The He-Ro Group, Inc., and Heller
Financial Inc. subordinating indebtedness owed by The He-Ro
Group, Inc. to Della Rounick and Hong J. Han.
-------------------------
* Exhibit filed herewith
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the
quarter ended February 28, 1998:
(i) A report dated December 24, 1997, was filed on December
31, 1997, covering Items 1, 2, 4 and 5. No financial statements were
filed therewith.
(ii) Amendment no. 1 to the report was filed on March 8,
1998, amending Item 7. No financial statements were filed therewith.
(iii) Amendment no. 2 to the report was filed on March 9,
1998, covering Item 7 and filing the following financing statements:
(1) Unaudited Financial Statements of Nah Nah
Collection, Inc. for three years ended April 30, 1995, 1996, and
1997, and Interim Financial Statements for the period May 1, 1997 to
December 23, 1997; and
(2) Pro Forma Combined Condensed Balance Sheet and
Statement of Operations for The He-Ro Group, Ltd. giving effect to
the reverse acquisition.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HE-RO GROUP, LTD.
April 20, 1998 By /s/ HONG J. HAN
--------------------------------
Hong J. Han
President
By /s/ CHRIS HAN
--------------------------------
Chris Han
Principal Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
Page No.
--------
3.1 Restated Certificate of Incorporation of registrant.
Incorporated by reference to Exhibit 3.1 of registrant's
Annual Report on Form 10-K for the year ended May 31, 1995
("Registrant's 1995 10-K").
3.2 Bylaws of registrant, as amended. Incorporated by reference to
Exhibit 3.2 of Registrant's 1995 10-K.
10.1 Stock Purchase Agreement dated October 16, 1997, among
Registrant, Vasiliki Della Pasvantidou Rounick ("Della
Rounick"), Nah Nah Collection, Inc.("Nah Nah"), and Hong J.
Han. Incorporated by reference to Exhibit 2.1 of registrant's
Current Report on Form 8-K dated December 31, 1997.
10.2 Debt Purchase and Intercreditor Agreement dated December 24,
1997, among Hong J. Han, Della Rounick and The He-Ro Group,
Inc. Incorporated by reference to Exhibit C of Form 13-D of
Hong H. Han filed January 13, 1998.
*10.3 Guaranty by registant and its subsidiaries in favor of Hong J.
Han and Della Rounick as Executrix of the Estate of Herbert
Rounick dated December 24, 1997.
*10.4 Registration Rights Agreement dated December 24, 1997,
between registrant and Hong J. Han.
*10.5 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and Katherine Wong.
*10.6 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and David Minka.
*10.7 Agreement dated July 30, 1997, among Nah Nah, C.A.S. Designs,
Inc. and Constance Saunders.
*10.8 Employment Agreement dated January 1, 1997, between Nah Nah,
and Victor Costa.
<PAGE> 21
10.9 Sublease dated March 6, 1997, between The He-Ro Group, Inc.
(as sublessor) and Harve Benard (as sublessee) relating to
premises located at One American Way, Secaucus, New Jersey.
Incorporated by reference to Exhibit 10.2 to registrant's
Annual Report on Form 10-K for the year ended May 31, 1997.
10.10.1 License Agreement dated June 1, 1990, between The He-Ro Group,
Inc., and Oleg Cassini, Inc. ("Cassini License"). Incor-
porated by reference to Exhibit 10.8 of Registrant's 1995
10-K.
10.10.2 Letter Agreement dated December 15, 1995, from Oleg Cassini,
Inc. to The He-Ro Group, Inc., amending the Cassini License.
Incorporated by reference to Exhibit 10.8.1 of registrant's
Annual Report on Form 10-K for the year ended May 31, 1996
("Registrant's 1996 10-K").
*10.10.3 Agreement dated December 30, 1997, between The He-Ro Group,
Inc., and Oleg Cassini, Inc., amending the Cassini License.
*10.11 Licensing Agreement dated as of December 24, 1997, between
N.N.C.S., Inc. and Nah Nah.
10.12 1991 Stock Option Plan. Incorporated by reference to Exhibit
10.12 of Registrant's 1995 10-K.
10.13 1992 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.13 of Registrant's 1995 10-K.
10.14 1993 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.14 of Registrant's 1995 10-K.
10.15 Amended and Restated 1994 Outside Director Stock Option Plan.
Incorporated by reference to Exhibit 10.15 of Registrant's
1996 10-K.
*11 Computation of Per Share Earnings Statement
*27 Financial Data Schedule
<PAGE> 22
99.1 Irrevocable Proxy granted by Della Rounick in favor of Hong J.
Han. Incorporated by reference to to Exhibit B of Form 13-D of
Hong H. Han filed January 13, 1998.
99.2 Factoring Agreement dated December 24, 1997 among Heller
Financial, Inc., The He- Ro Group, Inc., HRNL, Inc., Nah Nah,
registrant and certain other subsidiaries. Incorporated by
reference to Exhibit 99.1 to the Registrant's Current Report
on Form 8-K dated December 31, 1997.
*99.3 Subordination Agreement dated December 24, 1997, among Hong J.
Han, Nah Nah, and Heller Financial Inc. subordinating in-
debtedness owed by Nah Nah to Hong H. Han.
*99.4 Subordination Agreement dated December 24, 1997, among Della
Rounick, Hong J. Han, The He-Ro Group, Inc., and Heller Finan-
cial Inc. subordinating indebtedness owed by The He-Ro Group,
Inc. to Della Rounick and Hong J. Han.
- -------------------------
* Exhibit filed herewith
<PAGE> 1
Exhibit 10.3
GUARANTY
GUARANTY, dated December 24, 1997, made by each of the undersigned
entities (jointly and severally, the "Guarantors"), in favor of Hong J. Han and
Vasiliki Della Pasvantidou Rounick as Executrix of the Estate of Herbert Rounick
(the "Guaranteed Parties").
PRELIMINARY STATEMENT. (a) The Guarantors are affiliates of The HeRo
Group, Inc., a New York corporation (the "Obligor"), and, other than Nah Nah
Collection Inc., NNCS-NJ LLC and N.N.C.S. LLC, previously guaranteed all of the
obligations of the Obligor to Vasiliki Della Pasvantidou Rounick as Executrix of
the Estate of Herbert Rounick pursuant to a three notes dated May 31, 1995, in
the aggregate original principal amount of $5,296,000 which notes represented
the consolidated indebtedness of the Obligor to Vasiliki Della Pasvantidou
Rounick as Executrix of the Estate of Herbert Rounick and indebtedness of
various affiliates of the Obligor to Vasiliki Della Pasvantidou Rounick as
Executrix of the Estate of Herbert Rounick which the Obligor assumed (the
"Original Notes");
(b) Vasiliki Della Pasvantidou Rounick as Executrix of the
Estate of Herbert Rounick sold part of the Original Notes to Hong J. Han and
accordingly two notes in similar form were issued in substitution for the
Original Notes representing the outstanding principal balance due pursuant to
the Original Notes and a pro-rata portion of the accrued and outstanding
interest with respect thereto as of November 30, 1997, the Note to Hong J. Han
being in the original principal amount of $5,403,125 and the Note to Della
Rounick as Executrix of the Estate of Herbert Rounick being in the original
principal amount of $1,257,676 (said Notes, as now or hereafter amended,
restated or replaced are hereinafter referred to as the "Notes");
(c) It is a condition precedent to the Guaranteed Parties
accepting the Notes that the original Guarantors confirm the continuation of
their existing guaranty by executing and delivering this Guaranty and that Nah
Nah Collection Inc., NNCS-NJ LLC and N.N.C.S. LLC as new subsidiaries of The
He-Ro Group, Ltd. (parent to Obligor) and affiliates of Obligor as of the date
hereof, also guaranty the obligations of the Obligor pursuant to said Notes.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Guaranteed Parties to accept the Notes, the Guarantors hereby agree
as follows:
SECTION 1. Guaranty. The Guarantors hereby unconditionally guarantee
the punctual payment and performance when due, of all amounts due and to become
due from the Obligor under the Notes, whether at stated maturity, by
acceleration, or otherwise including principal, interest, late charges, fees and
expenses (such obligations being the "Obligations"), and agree to pay any and
all expenses incurred by the Guaranteed Parties in enforcing any rights under
this Guaranty.
SECTION 2. Guaranty Absolute. The Obligations will be paid and
performed strictly in accordance with their terms, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Guaranteed
<PAGE> 2
Parties with respect thereto. The liability of the Guarantors under this
Guaranty shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Obligations;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to departure thereof;
(iii) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Obligor in respect of the
Obligations or the Guarantors in respect of this Guaranty.
This Guaranty shall continue to be effective or be reinstated, as
the case may be,
This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Guaranteed Parties upon the
insolvency, bankruptcy or reorganization of the Obligor or otherwise, all as
though such payment had not been made.
SECTION 3. Waiver. The Guarantors hereby waive promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Guaranteed Parties
exhaust any right or take any action against the Obligor or any other person or
entity or any collateral.
SECTION 4. Subrogation. The Guarantors will not exercise any rights
which they may acquire by way of subrogation under this Guaranty, by any payment
made hereunder or otherwise until all the Obligations shall have been paid in
full. If any amount shall be paid to the Guarantors on account of such
subrogation rights at any time when all the Obligations shall not have been paid
in full, such amount shall be held in trust for the benefit of the Guaranteed
Parties and shall forthwith be paid to the Guaranteed Parties to be credited and
applied upon the Obligations, whether matured or unmatured, in accordance with
the terms of the Note in any order which the Guaranteed Parties may, in their
discretion, elect. If (i) the Guarantors shall make payment to the Guaranteed
Parties of all or any part of the Obligations and (ii) all the Obligations shall
be paid in full, the Guaranteed Parties will, at the Guarantors' request,
execute and deliver to the Guarantors appropriate documents, without recourse
and without representation or warranty, necessary to evidence the transfer by
subrogation to the Guarantors of an interest in the Obligations resulting from
such payment by the Guarantors.
SECTION 5. Consent to Jurisdiction. (a) The Guarantors hereby
irrevocably submit to the jurisdiction of any New York State or Federal court
sitting in New York City in any action or proceeding arising out of or relating
to this Guaranty, and the
2
<PAGE> 3
Guarantors hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The Guarantors irrevocably consent to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Guarantors at their address specified in Section 7. The Guarantors agree that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Nothing in this Section shall affect the right of the Guaranteed
Parties to serve legal process in any other manner permitted by law or affect
the right of the Guaranteed Parties to bring any action or proceeding against
the Guarantors or their property in the courts of any other jurisdictions.
SECTION 6. Amendments, Etc. No amendment or waiver of any provision
of this Guaranty nor consent to any departure by the Guarantors therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Guaranteed Parties and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and, if to any of the Guarantors mailed or delivered to them,
addressed to 550 Seventh Avenue, New York, New York, 10018, Attention President,
if to the Guaranteed Parties, mailed or delivered to Hong J. Han at 12
Timberline Drive, Alpine, New Jersey 07620 and to Vasiliki Della Pasvantidou
Rounick at 15 West 53rd Street, New York, New York, 10019 or as to each party at
such other address as shall be designated by such party in a written notice to
the other party sent in accordance with the terms hereof. All such notices and
other communications shall be sent by a nationally recognized overnight delivery
service, by hand or by certified mail return receipt requested and shall be
deemed delivered upon receipt or refusal. Any notice sent by any party pursuant
to this Guaranty can be sent by a representative of such party including
counsel.
SECTION 8. No Waiver; Remedies. No failure on the part of the
Guaranteed Parties to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9. Continuing Guaranty; Transfer of Note. This Guaranty is a
continuing guaranty and shall (i) remain in full force and effect until payment
in full of the Obligations and all other amounts payable under this Guaranty,
(ii) be binding upon the Guarantors, their successors and assigns, and (iii)
inure to the benefit of and be enforceable by the Guaranteed Parties and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (iii), the Guaranteed Parties may assign or otherwise
transfer all or any party of their respective Notes to any other person, and
such subsequent holder thereof shall thereupon become vested with all the powers
and rights in respect thereof granted to the Guaranteed Parties herein or
otherwise.
3
<PAGE> 4
SECTION 10. Joint and Several Liability. The Guarantors shall be
jointly and severally liable hereunder, and the word "Guarantors" wherever used
herein shall be construed to refer to the undersigned or any one or more of
them. This Guaranty shall not be revoked or impaired as to any one or more of
such parties by the dissolution, bankruptcy or insolvency (however defined) of
any of the others or by the release of any liabilities hereunder of any one or
more of such parties.
SECTION 11. Subordination. The indebtedness evidenced by the Notes
and the obligations of the Guarantors pursuant to this Guaranty have been
subordinated to indebtedness owed by the Obligor and certain affiliates to (a)
Heller Financial Inc. pursuant to a Factoring and Revolving Inventory Loan and
Security Agreement of even date herewith and all present and future related
agreements as now or hereafter amended or supplemented and (b) Hong J. Han as
the assignee and successor of Marine Midland Bank, N.A., as agent for itself and
certain other banks as more fully set forth in agreements with such lenders as
in effect from time to time.
SECTION 12. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to the principles of conflict of laws.
SECTION 13. Rights of Guaranteed Parties. The Guarantors acknowledge
that the rights of the Guarantied Parties pursuant to this Guaranty are subject
to the terms and provisions of the Debt Purchase and Intercreditor Agreement
among the Guaranteed Parties and the Obligor of even date herewith as now or
hereafter amended.
[balance of page intentionally left blank]
4
<PAGE> 5
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be
duly executed and delivered by an authorized officer as of the date first above
written.
The He-Ro Group, Ltd.
Nah Nah Collections, Inc.
HRNL, Inc.
European Collections of Silverthorne, Inc.
European Collections of Queenstown, Inc.
European Collections of Williamsburg Inc.
European Collections Outlet, Inc.
European Collections of Chattanooga, Inc.
European Collections of Gilroy Inc.
European Collections of Harriman Inc.
European Collections of Reading Station, Inc.
NNCS-NJ LLC
N.N.C.S. LLC
Colorado Textile, Inc.
H.R.I., Inc.
H.R.M.E. Inc.
HRI Palmer Corporation
HRSB, Inc.
N.R.T. Company, Inc.
Nouvelle Sportive, Inc.
Silhoutte, Inc.
Designer Collections of Pocono, Inc.
European Collections of Birch Run, Inc.
European Collections of Kenosha, Inc.
L'Estelle Fashion Corporation
Group Apparel He Ro Far East Limited (Hong Kong)
HE RO (Europe) Limited
Gruppo Italiano Limited
Klaxon Bay Limited
Dunard Limited
By: /s/ Sam Kaplan
-----------------------------------------
Sam Kaplan, Vice President of each
5
<PAGE> 1
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 24, 1997 by and
between The He-Ro Group, Ltd., a Delaware corporation with offices at 550
Seventh Avenue, New York, New York 10016 (the "Company"), and Hong J. Han (the
"Holder"), an individual residing at 12 Timberline Drive, Alpine, New Jersey
07620.
WHEREAS, pursuant to the Stock Purchase Agreement dated as of October 16,
1997 (which, together with the exhibits thereto or referred to therein and any
amendment or supplement thereto, is referred to herein as the "Purchase
Agreement"), the Company issued to the Holder 5,277,905 shares of common stock
of the Company, par value $0.01 per share (the "Shares"); and
WHEREAS, as inducement for the Holder to accept the Shares from the
Company, the Company desires to undertake at a future time to register the
Shares under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively, the "Securities Act"), in accordance with,
and subject to, the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and in the Purchase Agreement, the Company and the Holder
hereby agree as follows:
1. Registration Rights
(a) Piggyback Registration. Subject to Section 1(d) hereof, if the
Company at any time proposes to register any of its securities under the
Securities Act on its own behalf or for the benefit of any securityholder (other
than in connection with a merger, consolidation, acquisition of stock or assets
of another corporation, securities to be offered to directors or employees of
the Company, or pursuant to Form S-8 or other comparable form), the Company
shall give prompt written notice to the Holder of its intention to effect such
registration and of such Holder's rights under such proposed registration, and
upon the request of the Holder delivered to the Company within twenty (20) days
after giving such notice (which request shall specify the number of Shares
intended to be disposed of by the Holder and the intended method of disposition
thereof), the Company shall direct the managing underwriter (if any) of such
underwritten offering to include the specified number of Shares in such
registration, or, if there is no underwriter, the Company shall include such
Shares held by the Holder requested to be included in such registration;
provided, however, that:
(i) If, at any time after the Company has given any such
written notice and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay the registration, at its sole election, the
Company may give written notice of such
<PAGE> 2
determination to the Holder and thereupon shall be relieved of its obligation to
register any Shares issued or issuable in connection with such registration (but
not from its obligation to pay registration expenses in connection therewith or
to register the Shares in a subsequent registration); and in the case of a
determination to delay a registration shall thereupon be permitted to delay
registering any Shares for the same period as the delay in respect of securities
being registered for the Company's own account or other securityholders, as the
case may be.
(ii) If the managing underwriter in such underwritten offering
reasonably believes and advises the Company that it cannot include a portion or
all of the Shares requested by the Holder to be included in the registration
statement because too many shares are covered by the registration statement, the
Company shall give the Holder prompt notice of such advice. Holder may then
direct the Company to direct the underwriter to, at Holder's option, either
include the Shares in the registration statement subject to a lock-up agreement
(or other appropriate arrangement) with respect to the excess number of Shares
to which the underwriter objects, or, exclude a specified portion of the Shares
from such registration statement provided that a pro rata portion of the other
shares covered thereby, whether being included therein on account of the Company
or any other securityholder, are also excluded from the registration statement.
(b) Demand Registration. In addition, subject to Section 1(d)
hereof, at any time after the date hereof, the Holder (or his assignee) shall
have the right, on not more than three occasions, exercisable by written notice
to the Company from the Holder (or his assignee) to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1, S-3, or other appropriate form, and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Holder, in order to comply with
the provisions of the Securities Act, so as to permit a public offering and
sale, for a period of nine (9) months, of all or a portion of the Shares.
Notwithstanding the foregoing, if the Company shall furnish to the Holder a
certificate signed by the president of the Company stating that in the good
faith judgment of the Board of Directors of the Company, and after consulting
with professionals including accountants and underwriters, it would be
materially detrimental to the Company and its shareholders for such registration
statement to be filed at that time, and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
the commencement of such a filing for a period of not more than 180 days after
receipt of the request of Holder.
(c) Cooperation with Company. The Holder hereby agrees to cooperate
with the Company in all respects in connection with this Agreement, including,
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Shares.
-2-
<PAGE> 3
(d) Restrictions on Registration. The Holder hereby acknowledges
that, in accordance with a certain letter dated October 17, 1997 from counsel
for the Company to the Commission, as supplemented by a letter dated November
18, 1997, and the Commission's response thereto dated November 20, 1997, the
Company may not file any registration statement (for the benefit of selling
shareholders or otherwise) until such time as the Company has filed with
Commission consolidated audited financial statements for the requisite periods.
2. Registration Procedures. In connection with the registration of any of
the Shares under the Securities Act in accordance with this Agreement, the
Company shall (except as otherwise provided in this Agreement), as expeditiously
as possible:
(a) prepare and file with the Commission a registration statement
and shall use its best efforts to cause such registration statement to become
effective and remain effective until all the Shares are sold;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415 of
the Commission);
(c) furnish to the Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by the Holder;
(d) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holder shall request, and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by the Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(e) use its best efforts to list such securities on any securities
exchange on which any securities of the Company is then listed, if the listing
of such securities is then permitted under the rules of such exchange;
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<PAGE> 4
(f) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering; and
(g) notify the Holder at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge 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 in light of the circumstances then existing.
3. Expenses. All expenses incurred in any registration of the Holder's
Shares under this Agreement shall be paid by the Company, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration; provided, however, the
Company shall not be liable for any discounts or commissions to any broker or
underwriter, any stock transfer taxes incurred with respect to Shares sold in
the offering, or the fees and expenses of counsel for the Holder, provided that
the Company will pay the costs and expenses of Company counsel when the
Company's counsel is representing the Holder.
4. Indemnification. In the event any Shares are included in a registration
statement pursuant to this Agreement:
(a) Company Indemnity. Without limiting any other indemnity provided
to the Holder, either in connection with the offering or otherwise, to the
extent permitted by law, the Company shall indemnify and hold harmless the
Holder, his assigns and executors, the affiliates of the Holder, any underwriter
(as defined in the Securities Act) for the Holder (within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statements including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, or any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law, and the Company shall reimburse each such Holder, assign,
executor, affiliate or underwriter for any legal or other expenses incurred by
them in connection with
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<PAGE> 5
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable to the Holder in any
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by the Holder or any affiliate, assign,
executor or underwriter thereof.
(b) Holder Indemnity. The Holder shall indemnify and hold harmless
the Company, its affiliates, its counsel, officers, directors, any underwriter
(as defined in the Securities Act) and each person, if any, who controls the
Company or the underwriter (within the meaning of the Securities Act or the
Exchange Act), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or any state securities law, and the Holder shall reimburse the Company, its
affiliates, its counsel, officers, directors, any underwriter (as defined in the
Securities Act) and each person, if any, who controls the Company or the
underwriter (within the meaning of the Securities Act or the Exchange Act), for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action insofar as such
losses, claims, damages or liabilities (or actions and respect thereof) arise
out of or are based upon any statements or information provided by the Holder to
the Company in connection with the offer or sale of Shares.
(c) Notice, Right to Defend. Promptly after receipt by an
indemnified party under this Section 4 of notice of the commencement of any
action (including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 4, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in and if the indemnifying party agrees in writing that it will be
responsible for any costs, expenses, judgments, damages and losses incurred by
the indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if the indemnified party reasonably
believes that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the indemnified party under this Agreement unless such failure is prejudicial to
its ability to defend such action, and the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Agreement.
(d) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified
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<PAGE> 6
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount the Holder shall be obligated to
contribute pursuant to the Agreement shall be limited to an amount equal to the
proceeds to the Holder from the sale of the Shares pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which the Holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Shares).
(e) Survival of Indemnity. The indemnification provided by this
Agreement shall be a continuing right to indemnification and shall survive the
registration and sale of any Shares by any person entitled to indemnification
hereunder and the expiration or termination of this Agreement.
5. Assignment of Registration Rights. The rights of the Holder under this
Agreement may be assigned to transferees or assignees of the Shares without the
prior written consent of the Company provided that the transferees or assignees
are family members or affiliates of the Holder and may be assigned to other
transferees or assignees of the Shares with the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed. Except as
otherwise expressly provided herein, this Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the Company and
of the Holder.
6. Limitations on Other Registration Rights. Except as otherwise set forth
in this Agreement, the Company shall not, without the prior written consent of
the Holder, cause any registration statement filed on behalf of any person
(including the Company) other than the Holder to become effective during any
period when the Company is not in compliance with this Agreement, nor grant any
other rights to registration (demand or piggyback) without Holder's consent not
to be unreasonably withheld.
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7. Remedies.
(a) Time is of Essence. The Company agrees that time is of the
essence of each of the covenants contained herein and that, in the event of a
dispute hereunder, this Agreement is to be interpreted and construed in a manner
that will enable the Holder to sell his Shares as quickly as possible after such
Holder has indicated to the Company that he desires his Shares to be registered.
Any delay on the part of the Company not expressly permitted under this
Agreement, whether material or not, shall be deemed a material breach of this
Agreement.
(b) Remedies Upon Default or Delay. The Company acknowledges the
breach of any part of this Agreement may cause irreparable harm to the Holder
and that monetary damages alone may be inadequate. The Company therefore agrees
that the Holder shall be entitled to injunctive relief or such other applicable
remedy as a court of competent jurisdiction may provide. Nothing contained
herein will be construed to limit the Holder's right to any remedies at law,
including recovery of damages for breach of any part of this Agreement.
8. Notices.
(a) All communications under this Agreement shall be in writing and
shall be mailed by registered or certified mail, postage prepaid, or telegraphed
or telexed with confirmation of receipt or delivered by hand or by overnight
delivery service to the addresses set forth above or to such other address as a
party shall set forth in a notice to the other. Any notice to be given hereunder
may be given by a party's counsel.
(b) Any notice so addressed, when mailed by registered or certified
mail shall be deemed to be given three days after so mailed, when telegraphed or
telexed shall be deemed to be given when transmitted, or when delivered by hand
or overnight shall be deemed to be given when delivered.
9. Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Holder; provided, however, that no such amendment or
waiver shall take away any registration right of the Holder or reduce the amount
of reimbursable costs to the Holder in connection with any registration
hereunder without the consent of the Holder. No delay on the part of any party
in the exercise of any right, power or remedy shall operate as a waiver thereof,
nor shall any single or partial exercise by any party of any right, power or
remedy preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy.
10. Counterparts. One or more counterparts of this Agreement may be signed
by the parties, each of which shall be an original but all of which together
shall constitute one and same instrument.
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11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and each of the parties hereto
consents to the jurisdiction of the state and federal courts residing in New
York county.
12. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
13. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
IN WITNESS HEREOF, the undersigned have executed this Registration Rights
Agreement as of the 24th day of December, 1997.
THE HE-RO GROUP, LTD.
By: /s/ Sam Kaplan
--------------------------------
Name: Sam Kaplan
Title:
/s/ Hong J. Han
-----------------------------------
Hong J. Han
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<PAGE> 1
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of November, 1997,
by and among THE HE-RO GROUP, INC., a New York corporation with offices at 550
Seventh Avenue, New York, New York 10018 (the "Company"), on the one hand, and
KATHERINE WONG, who resides at 102-45 67th Road, #6S, Forest Hills, New York
11375, (the "Executive"), on the other hand.
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Executive as an
employee of the Company; and
WHEREAS, the Executive is desirous of being an employee of the Company on
the conditions hereinafter provided;
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment
The Company hereby agrees to employ the Executive during the
Employment Period, as that term is defined in Section 2, and the Executive
agrees to accept such employment on the terms and conditions hereinafter set
forth.
2. Employment Period
The term of the Executive's employment hereunder (the "Employment
Period") shall commence on the date hereof and shall continue until the earlier
to occur of October 31, 1998 or the Termination Date (as defined).
3. Duties and Responsibilities During the Employment Period
(a) During the Employment Period the Executive shall serve as a Vice
President in charge of Manufacturing and Production. The Executive shall report
to the Chief Executive Officer or Chief Operating Officer as determined by the
Company.
(b) Throughout the term of Executive's employment hereunder,
Executive will devote her full time, attention and energies to the business and
affairs of the Company as appropriate to her responsibilities and duties
hereunder except for reasonable vacations and except for illness and incapacity,
and, subject to the last two sentences of this
<PAGE> 2
Paragraph 3, Executive will not engage in any other business activity whether or
not for profit or other pecuniary advantage. Without limiting the generality of
the foregoing, during the term of Executive's employment hereunder, Executive
will not, directly or indirectly, as an officer, director, stockholder, partner,
consultant, owner, employee, agent, creditor or otherwise, be or become
interested in or associated with any person, firm or business which firm or
business is a Competitor (as defined in Paragraph 10 hereof) or is owned, in
whole or part, by, or which person, firm or business employs or has hired as an
independent consultant or otherwise, any person Executive would be unable to
solicit, induce or attempt to influence as provided in Paragraph 9 hereof.
Notwithstanding the foregoing, Executive may engage in the activities identified
in clauses (i) and (ii) of this sentence so long as such activities (separately
or in the aggregate) do not materially interfere with the performance of
Executive's duties and responsibilities hereunder: (i) Executive or any person
or entity with which Executive is associated may own, directly or indirectly, up
to one (1%) percent of the issued and outstanding stock of a corporation that is
a Competitor if such stock is regularly traded on a national securities exchange
or in the over-the-counter market; and (ii) Executive may (A) make and manage
Executive's personal financial investments so long as such investments do not
require Executive's active participation in any person, firm or business; (B)
engage in charitable and non-profit community activities.
4. Compensation During the Employment Period
As compensation for services to be rendered by the Executive
hereunder during the Employment Period, the Company hereby agrees to pay or
cause to be paid to the Executive, and the Executive agrees to accept as
compensation hereunder, a base fixed salary ("Basic Salary") at the rate of
$115,000 per annum payable in substantially equal bi-weekly installments in
arrears on the day regular payroll is paid to the employees of the Company.
5. Benefits
The Basic Salary shall be exclusive of and in addition to any
benefits which become available to the Executive along with other employees of
the Company according to her' and their respective positions under any
profit-sharing plan, disability insurance plan, medical insurance plan, and any
other employee benefit plan now or hereafter provided by the Company to any of
its employees during the Employment Period (the "Benefits"). The Executive shall
be entitled to three (3) weeks paid vacation per year. During the Employment
Period, the Executive may participate in all Benefits in effect from time to
time as may be made available to the employees of the Company, whether currently
in effect or adopted hereafter during the Employment Period, to the extent the
Executive meets the eligibility requirements specified in any plan of or
relating to a Benefit.
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6. Expenses and Accommodations
During the Employment Period the Company shall pay the Executive for
any reasonable, approved and documented travel and other expenses incurred by
her in connection with her rendering of services hereunder.
7. Definitions Relating to Termination
7.1 Disability
The term "Disability" shall mean any physical or mental
condition of the Executive which, in the reasonable discretion of the Board of
Directors, after consultation with the Executive's physician, materially impairs
the Executive's ability to render the services to be performed by her hereunder
if during the Employment Period, for a period of 60 consecutive days or for at
least 90 days in any consecutive 180-day period (the "Disability Period"). The
Company shall have the right to terminate the employment of Executive for
Disability at and as of the end of the Disability Period. During the Disability
Period, Company shall continue to pay Executive the Basic Salary; provided,
however, that Basic Salary shall be reduced by the amount of any disability
income payments Executive may receive during the Disability Period under any
policy or plan carried or maintained by or on behalf of Company of which
Executive is a beneficiary or participant. The Company shall give the Executive
at least seven (7) days' advanced written notice of the termination of her
employment hereunder for Disability.
7.2 Cause
(a) The term "Cause" shall mean the existence of any one of
the following during the Employment Period:
(i) The Executive's willful and continuous failure to
perform (A) her duties hereunder or (B) the services reasonably required by the
Chief Executive Officer or Chief Operating Officer, as the case may be, to whom
she reports;
(ii) Excessive use of alcohol or illegal drugs,
interfering with performance of the Executive's obligations under this
Agreement;
(iii) Conviction of a felony or of any crime involving
moral turpitude or fraud; or
(iv) Any material breach (not covered by any of the
clauses (i) through (iii) hereof) of any of the provisions of Paragraphs 3 or 9
of this Agreement.
The Company shall notify the Executive in writing of its decision to
terminate her employment for Cause which notice shall set forth the Termination
Date.
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(b) If the Executive leaves the employ of the Company for any
reason, the cessation of employment will be treated as a termination for Cause.
The Executive shall give the Company at least thirty (30) days advanced written
notice of her decision to leave the employ with the Company.
7.3 Without Cause
The term "Without Cause" shall mean a determination of the
Board of Directors to terminate the Executive for any reason other than
Disability or Cause. The Company shall give the Executive a written notice of
the termination of her employment hereunder Without Cause which notice shall set
forth the Termination Date.
7.4 Termination Date. The term "Termination Date" shall mean:
(a) in the case of the termination of the Executive's
employment by the Company for Disability, the date specified in the notice
delivered by the Company pursuant to Section 7.1 hereof which date shall be at
least seven (7) days after the date of such notice;
(b) in the case of the termination of the Executive's
employment by the Company for Cause, the date specified by the Company in a
written notice required by Section 7.2(a);
(c) in the case of the Executive's terminating her employment
for any reason, the date specified in the notice delivered by the Executive
pursuant to paragraph 7.2(b) hereof which date shall be at least thirty (30)
days after the date of such notice unless such minimum 30-day period is waived
by the Company;
(d) in the case of the termination of the Executive's
employment by the Company Without Cause, the date specified in the notice
delivered by the Company pursuant to Section 7.3 hereof; and
(e) in the case of Executive's death, the day on which the
Executive dies.
8. Effect of Termination on Compensation
(a) If the Executive's employment with the Company is terminated on
account of death, Disability or for Cause, the Executive shall be paid her Basic
Salary through the Termination Date.
(b) If Executive's employment is terminated Without Cause, she shall
be entitled to an amount equal to the Basic Salary that would have been paid to
the Executive had the Employment Period ended on October 31, 1998. The amount
due under this
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<PAGE> 5
Section 8(b) shall be paid in equal bi-weekly installments on the day regular
payroll is paid to the employees of the Company through October 31, 1998.
(c) Upon the termination of her employment with the Company the
Executive shall be entitled to Benefits under any Benefit plan in accordance
with the terms of such plan relating to employees who have ceased to be employed
by the Company
9. Confidential Information and Restrictive Covenants
(a) Confidentiality. Executive acknowledges that her relationship
with the Company brings her into close contact with the confidential affairs of
the Company, its subsidiaries and affiliates. Executive acknowledges that the
covenants set forth in this Paragraph 9(a) are specific inducements made by
Executive to the Company in connection with the execution of this Agreement.
(i) Obligation to Keep Information Confidential. During the
term hereof and thereafter, Executive shall preserve the confidential nature of,
and will not disclose or make accessible to anyone other than the Company's
officers, directors, employees, consultants or agents, and otherwise than within
the scope of her employment duties and responsibilities hereunder, any and all
information, knowledge or data of or pertaining to the Company, its subsidiaries
or affiliates or their respective businesses which information, knowledge or
data is not in the public domain, including trade secrets, names and lists of
manufacturers, suppliers and customers, manufacturing and production methods,
processes, and techniques, pricing policies, marketing strategies, design
sketches and specifications, color and fabric samples and swatches, or any other
similar matters acquired by Executive in connection with her relationship with
the Company at any time prior to and after the date hereof (hereinafter referred
to as "Confidential Information") by the Company. In addition, during the term
hereof and thereafter Executive will not make use of Confidential Information
for her own personal gain. The restrictions on the disclosure of Confidential
Information imposed by this subparagraph (i) shall not apply to any Confidential
Information that was part of the public domain at the time of its receipt by
Executive or becomes part of the public domain in any manner and for any reason
other than an act by Executive, unless she is legally compelled (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process) to disclose such Confidential Information, in which event
Executive shall provide the Company with prompt notice of such requirement so
that the Company may seek a.protective order or other appropriate remedy.
(ii) Return of Confidential Information and Other Data. Upon
the termination of Executive's employment hereunder or at any time the Company
may reasonably request, Executive promptly will deliver to the Company all
Confidential Information and any other memoranda, notes, records, reports,
sketches, specifications, designs, and other documents (and all copies thereof)
relating to the Company's business, which she may then possess or have under her
control.
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(b) Agreement Not to Solicit
(i) General. Executive covenants and agrees not to, directly
or indirectly, during the term hereof and during the Restrictive Period (as
defined in Paragraph 10), (A) induce or attempt to influence any employee of the
Company or any of its subsidiaries or affiliates to leave its employ, or (B) aid
any person, business, or firm, including a supplier to, a Competitor, Licensor,
Licensee or customer of or a manufacturer for the Company, in any attempt to
hire any person who shall have been an employee of the Company or any of its
subsidiaries or affiliates at any time during Executive's employ with the
Company prior to or after the date hereof. If the restrictions contained in this
Paragraph 9(b)(i) shall be found to be unenforceable by reason of the extent,
duration or scope thereof, or otherwise, then the court or arbitrator, as the
case may be, making such determination shall have the right to reduce such
extent, duration, scope or other provisions hereof, and in their reduced form,
such restrictions shall then be enforceable in the manner contemplated hereby.
(ii) Agreement Not to Compete. Because (A) the Company depends
in large measure upon Executive for the operation, development and growth of the
Company, (B) Executive has developed and shall continue to develop personal
relationships with significant Licensors, customers, manufacturers and suppliers
of the Company, its subsidiaries and affiliates and (C) Executive shall have
access to and control of Confidential Information, and in consideration of the
benefits provided to Executive hereunder, Executive covenants and agrees that if
the Company terminates her employment hereunder "for Cause", or if Executive
terminates her employment hereunder, then during the Restrictive Period (as
defined in Paragraph 10), Executive will not, directly or indirectly, as an
officer, director, stockholder, partner, consultant, owner, employee, agent,
creditor or otherwise, be or become interested in or associated with any person,
firm or business which is a Competitor (as defined in Paragraph 10 hereof) or is
owned, in whole or part, by or which employs or has hired as an independent
consultant or otherwise any person who Executive would be unable to solicit,
induce or attempt to influence as provided in Paragraph 9(b)(i) hereof.
Notwithstanding the foregoing, it is agreed that Executive or any person or
entity with which Executive is associated may own, directly or indirectly, up to
one (1%) percent of the issued and outstanding stock of a corporation the shares
of which are regularly traded on a national securities exchange or in the
over-the-counter market. If the restrictions contained in this Paragraph
9(b)(ii) shall be found to be unenforceable by reason of the extent, duration or
scope thereof, or otherwise, then the court or arbitrator, as the case may be,
making such determination shall have the right to reduce such extent, duration,
scope or other provisions hereof, and in their reduced form, such restrictions
shall then be enforceable in the manner contemplated hereby.
(iii) Breach of Agreement. (A) Notwithstanding the provisions
of Paragraph 9(c) below and Paragraph 19 hereof, Executive acknowledges and
agrees that in the event of a violation or threatened violation of any of the
foregoing provisions of this Paragraph 9, the Company shall have no adequate
remedy at law and shall therefore be entitled to enforce each such provision of
this Paragraph 9 by temporary or permanent injunctive or mandatory relief
obtained in any court of competent jurisdiction without the necessity of proving
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<PAGE> 7
damage, posting any bond or other security, and without prejudice to any other
remedies which may be available at law or in equity. Executive and the Company
agree that the Supreme Court of the State of New York in and for the County of
New York is a court of competent jurisdiction, and Executive and the Company
each consents to the personal jurisdiction of that Court for purposes of such an
action or proceeding instituted to obtain equitable relief relating to the
provisions of this Paragraph 9; and in connection therewith Executive agrees
that process in any action may be served upon her and shall be deemed to be
complete when the same is delivered to Executive's residence address as set
forth in Paragraph 17. Each of the parties hereto waives any objection based
upon forum non conveniens and any objection to venue of any action instituted
hereunder.
(c) Forfeiture. If Executive shall wilfully breach any of the
provisions of this Paragraph 9, Executive shall not be entitled to any payments
or Benefits following the termination of Executive's employment with the Company
under Paragraphs 4 and 5 hereof other than Basic Salary through the Termination
Date.
10. Certain Definitions
(a) Competitor. For purposes of this Agreement the term "Competitor"
shall mean any individual, firm, corporation, business, organization, entity or
other person primarily engaged in the business of manufacturing, selling,
marketing, or consulting with respect to women's eveningwear or special-occasion
wear. A Competitor shall include only those individuals, firms, corporations,
businesses, organizations, entities or other persons that produce such apparel
that are sold or plan to be sold in the retail market in the United States and
any other geographical territories in which the eveningwear products of the
Company or any of its affiliates and subsidiaries are sold.
(b) Licensee. For purposes of this Agreement the term "Licensee"
shall mean those individuals, firms, corporations, businesses, organizations,
entities or other persons that license one or more tradenames or trademarks from
the Company or any of its subsidiaries and affiliates for use on any products
designed, manufactured or sold by such person or any of its subsidiaries or
affiliates.
(c) Licensor. For purposes of this Agreement the term "Licensor"
shall mean those individuals, firms, corporations, businesses, organizations,
entities or other persons that license one or more tradenames or trademarks to
the Company or any of its subsidiaries and affiliates for use on any products
designed, manufactured or sold by the Company or any of its subsidiaries and/or
affiliates.
(d) Restrictive Period. (i) For purposes of Paragraph 9(b)(i) of
this Agreement (Non-Solicitation) the term "Restrictive Period" shall mean the
period commencing on the Termination Date and ending on the later to occur of
October 31, 1998 or last day of the eighteenth month following the Termination
Date.
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(ii) For purposes of Paragraph 9(b)(ii) of this Agreement
(Non-Compete) the term "Restrictive Period" shall mean the period commencing on
the Termination Date and ending on October 31, 1998.
11. Entire Agreement
This Agreement constitutes the entire agreement of the parties
hereto with respect to the Executive's employment by and severance agreement
with the Company, and all prior agreements and arrangements are hereby
superseded and terminated with effect from and after the date hereof. The clause
headings used herein are for convenience of reference only, and shall not define
or limit the provisions of this Agreement.
12. Exercise of Rights
No failure by either party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder by either party preclude any
other or future exercise of that right or any other right hereunder by that
party.
13. Validity of Provisions
In case any one or more of the provisions of this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
14. No Assignment
This Agreement shall not be assignable, in whole or in part, by
either party, except that the Company may assign this Agreement to and it shall
be binding upon any person, firm or company with which the Company may be merged
or consolidated, or which may acquire all or substantially all of the assets of
the Company. In the event of the merger or liquidation of the Company into
another corporate entity, whether foreign or domestic, the obligations of the
Company hereunder to the Executive shall remain in full force as to such
successor entity and no waiver on the Executive's part shall be deemed made in
any respect.
15. Amendment
This Agreement may not be amended, terminated or superseded except
by an agreement in writing between the Company and the Executive.
16. Execution of Agreement
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original hereof, and all of which together shall
constitute one and the
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<PAGE> 9
same document. This document may be executed and thereafter transmitted by
facsimile and the return facsimile shall constitute an original.
17. Notices
All notices hereunder shall be given in writing by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
parties at the following respective addresses, or at such other address as may
from time to time be designated by either party to the other hereunder:
To the Executive: Ms. Katherine Wong
102-45 67th Road, #6S
Forest Hills, New York 11375
to the Company: The He-Ro Group, Inc.
550 Seventh Avenue
New York, New York 10118
Attention: Chief Executive Officer
Telecopier: (212) 869-6942
with a copy to: Baer Marks & Upham, LLP
Attn: Jeffrey Cole, Esq.
805 Third Avenue
New York, New York 10022-7513
Telecopier: (212) 702-5941
18. Governing Law
This Agreement shall be governed by, and construed in accordance
with the substantive laws of the State of New York and the precedents applicable
thereto, exclusive, however, of any provision thereof as to choice of law.
19. Arbitration
Subject to Paragraph 9(b)(iii) hereof, any dispute or controversy
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement, or any breach of this Agreement or any such document or instrument
shall be settled by arbitration to be held in the City of New York in accordance
with the rules then in effect of the American Arbitration Association or any
successor thereto. The arbitrator may grant injunction or other relief in such
dispute or controversy and may, if requested by either of the parties, determine
which or both of the parties shall bear the costs of the arbitration (other than
the costs of each party's legal fees which costs shall be borne by the party
incurring same) and, if both parties shall bear the costs, then the allocation
of such costs between them. The decision of the arbitrator shall be f@,
conclusive,
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<PAGE> 10
and binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction, and the parties
irrevocably consent to the jurisdiction of the New York State courts for this
purpose. In any such arbitration, the parties waive personal service of any
process or other papers and agree that service thereof may be served upon her
and shall be deemed to be complete when the same is delivered to Executive's
residence address as set forth in Paragraph 17.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on authority of the Board of Directors and Katherine Wong has hereunto
set her hand the day and year first above written.
/s/ Katherine Wong
-----------------------------------
Katherine Wong
THE HE-RO GROUP, INC.
By: /s/ Sam Kaplan
--------------------------------
Sam Kaplan
Chief Financial Officer
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Exhibit 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of November, 1997,
by and among THE HE-RO GROUP, INC., a New York corporation with offices at 550
Seventh Avenue, New York, New York 10118 (the "Company"), on the one hand, and
DAVID MINKA, who resides at 350 West 14th Street, No. 3A, New York, New York
10014 (the "Executive"), on the other hand.
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Executive as an
employee of the Company; and
WHEREAS, the Executive is desirous of being an employee of the Company on
the conditions hereinafter provided;
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment
The Company hereby agrees to employ the Executive during the
Employment Period, as that term is defined in Section 2, and the Executive
agrees to accept such employment on the terms and conditions hereinafter set
forth.
2. Employment Period
The term of the Executive's employment hereunder (the "Employment
Period") shall commence on the date hereof and shall continue until the earlier
to occur of October 31, 1998 or the Termination Date (as defined).
3. Duties and Responsibilities During the Employment Period
(a) During the Employment Period the Executive shall serve as a
designer of the eveningwear sold under the Company's "Black Tie" label.
(b) Throughout the term of Executive's employment hereunder,
Executive will devote his full time, attention and energies to the business and
affairs of the Company as appropriate to his responsibilities and duties
hereunder except for reasonable vacations and except for illness and incapacity,
and, subject to the last two sentences of this Paragraph 3, Executive will not
engage in any other business activity whether or not for profit
<PAGE> 2
or other pecuniary advantage. Without limiting the generality of the foregoing,
during the term of Executive's employment hereunder, Executive will not,
directly or indirectly, as an officer, director, stockholder, partner,
consultant, owner, employee, agent, creditor or otherwise, be or become
interested in or associated with any person, firm or business which firm or
business is a Competitor (as defined in Paragraph 11 hereof) or is owned, in
whole or part, by, or which person, firm or business employs or has hired as an
independent consultant or otherwise, any person Executive would be unable to
solicit, induce or attempt to influence as provided in Paragraph 10 hereof.
Notwithstanding the foregoing, Executive may engage in the activities identified
in clauses (i) and (ii) of this sentence so long as such activities (separately
or in the aggregate) do not materially interfere with the performance of
Executive's duties and responsibilities hereunder: (i) Executive or any person
or entity with which Executive is associated may own, directly or indirectly, up
to one (1%) percent of the issued and outstanding stock of a corporation that is
a Competitor if such stock is regularly traded on a national securities exchange
or in the over-the-counter market; and (ii) Executive may (A) make and manage
Executive's personal financial investments so long as such investments do not
require Executive's active participation in any person, firm or business; (B)
engage in charitable and non-profit community activities.
4. Compensation During the Employment Period
As compensation for services to be rendered by the Executive
hereunder during the Employment Period, the Company hereby agrees to pay or
cause to be paid to the Executive, and the Executive agrees to accept as
compensation hereunder, a base fixed salary ("Basic Salary") at the rate of
$225,000 per annum payable in substantially equal bi-weekly installments in
arrears on the day regular payroll is paid to the employees of the Company.
5. Benefits
The Basic Salary shall be exclusive of and in addition to any
benefits which become available to the Executive along with other employees of
the Company according to his and their respective positions under any
profit-sharing plan, disability insurance plan, medical insurance plan, and any
other employee benefit plan now or hereafter provided by the Company to any of
its employees during the Employment Period (the "Benefits"). The Executive shall
be entitled to four (4) weeks paid vacation per year. During the Employment
Period, the Executive may participate in all Benefits in effect from time to
time as may be made available to the employees of the Company, whether currently
in effect or adopted hereafter during the Employment Period, to the extent the
Executive meets the eligibility requirements specified in any plan of or
relating to a Benefit.
6. Expenses and Accommodations
During the Employment Period the Company shall pay the Executive for
any reasonable, approved and documented travel and other expenses incurred by
him in connection with his rendering of services hereunder.
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7. Definitions Relating to Termination
7.1 Disability
The term "Disability" shall mean any physical or mental
condition of the Executive which, in the reasonable discretion of the Board of
Directors, after consultation with the Executive's physician, materially impairs
the Executive's ability to render the services to be performed by him hereunder
if during the Employment Period, for a period of 60 consecutive days or for at
least 90 days in any consecutive 180-day period (the "Disability Period"). The
Company shall have the right to terminate the employment of Executive for
Disability at and as of the end of the Disability Period. During the Disability
Period, Company shall continue to pay Executive the Basic Salary; provided,
however, that Basic Salary shall be reduced by the amount of any disability
income payments Executive may receive during the Disability Period under any
policy or plan carried or maintained by or on behalf of Company of which
Executive is a beneficiary or participant. The Company shall give the Executive
at least seven (7) days' advanced written notice of the termination of his
employment hereunder for Disability.
7.2 Cause
(a) The term "Cause" shall mean the existence of any one of
the following during the Employment Period:
(i) The Executive's willful and continuous failure to
perform (A) his duties hereunder (but not mere dissatisfaction with any of the
designs created by Executive, assuming such designs created by Executive were
not created by Executive in contravention of instructions given to him by the
Chairman of the Board of Directors and the Chief Designer) or (B) the services
reasonably requested by the Chairman of the Board and Chief Designer of the
Company;
(ii) Excessive use of alcohol or illegal drugs,
interfering with performance of the Executive's obligations under this
Agreement;
(iii) Conviction of a felony or of any crime involving
moral turpitude or fraud; or
(iv) Any material breach (not covered by any of the
clauses (i) through (iii) hereof) of any of the provisions of Paragraphs 3, 9 or
10 of this Agreement;
The Company shall notify the Executive in writing of its decision to
terminate his employment for Cause which notice shall set forth the Termination
Date.
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<PAGE> 4
(b) If the Executive leaves the employ of the Company for any
reason, the cessation of employment will be treated as a termination for Cause.
The Executive shall give the Company at least thirty (30) days' advanced written
notice of his decision to leave the employ with the Company.
7.3 Without Cause
The term "Without Cause" shall mean a determination of the
Board of Directors to terminate the Executive for any reason other than
Disability or Cause. The Company shall give the Executive a written notice of
the termination of his employment hereunder Without Cause which notice shall set
forth the Termination Date.
For purposes of Paragraph 8 hereof, Executive will be entitled to elect
that the Company has terminated his employment Without Cause if Executive is
directed without his consent to relocate Executive's principal place of
employment within the Company away from New York City, New York. Executive shall
evidence such election by notice in writing to the Company within 30 days after
Executive receives notification from the Company of the aforesaid event.
7.4 Termination Date. The term "Termination Date" shall mean:
(a) in the case of the termination of the Executive's
employment by the Company for Disability, the date specified in the notice
delivered by the Company pursuant to Section 7.1 hereof which date shall be at
least seven (7) days after the date of such notice;
(b) in the case of the termination of the Executive's
employment by the Company for Cause, the date specified by the Company in a
written notice required by Section 7.2(a);
(c) in the case of the Executive's terminating his employment
for any reason, the date specified in the notice delivered by the Executive
pursuant to paragraph 7.2(b) hereof which date shall be at least thirty (30)
days after the date of such notice unless such minimum 30-day period is waived
by the Company;
(d) in the case of the termination of the Executive's
employment by the Company Without Cause, the date specified in the notice
delivered by the Company pursuant to Section 7.3 hereof; and
(e) in the case of Executive's death, the day on which the
Executive dies.
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<PAGE> 5
8. Effect of Termination on Compensation
(a) If the Executive's employment with the Company is terminated on
account of death, Disability or for Cause, the Executive shall be paid his Basic
Salary through the Termination Date.
(b) If Executive's employment is terminated Without Cause, he shall
be entitled to an amount equal to the Basic Salary that would have been paid to
the Executive had the Employment Period ended on October 31, 1998. The amount
due under this Section 8(b) shall be paid in equal bi-weekly installments on the
day regular payroll is paid to the employees of the Company through October 31,
1998.
(c) Upon the termination of his employment with the Company the
Executive shall be entitled to benefits under any Benefit plan in accordance
with the terms of such plan relating to employees who have ceased to be employed
by the Company.
9. Options
(a) The Company has granted to the Executive, pursuant to an
incentive stock option agreement dated November 4, 1996 (the "Option
Agreement"), ("Options") to acquire 50,000 shares of Common Stock, par value
$.01 per share, of the Company ("Common Stock") under the Company's 1991 Stock
Option Plan, such Options to vest as follows: sixty percent (60%) on the Third
Anniversary (as defined in the Option Agreement) and twenty percent (20%) on
each of the fourth and fifth anniversaries of the closing of the Transaction or
of the Transaction Termination Date (each as defined in the Option Agreement).
The Options shall have an exercise price (the "Exercise Price") of $0.81 per
share. The Options shall be exercisable through the earlier of November, 2003 or
the 90th day after the Termination Date.
(b) The exercise price of the options to purchase Common Stock
granted to Executive by the Company under and pursuant to the Company's 1991
Stock Option Plan and evidenced by those certain option agreements dated as of
June 29, 1993 and April 12, 1994, as amended by a letter agreement dated March
11, 1996, for 7,500 shares of Common Stock and that certain option agreement
dated as of January 19, 1996 for 2,500 shares of Common Stock (individually an
"Option Agreement and collectively the "Option Agreement(s) has been reduced
from $1.00 per share to $0.81 per share, effective November 4, 1996.
10. Confidential Information and Restrictive Covenants
(a) Confidentiality. Executive acknowledges that his relationship
with the Company brings him into close contact with the confidential affairs of
the Company, its subsidiaries and affiliates. Executive acknowledges that the
covenants set forth in this Paragraph 10(a) are specific inducements made by
Executive to the Company in connection with the execution of this Agreement.
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<PAGE> 6
(i) Obligation to Keep Information Confidential. During the
term hereof and thereafter, Executive shall preserve the confidential nature of,
and will not disclose or make accessible to anyone other than the Company's
officers, directors, employees, consultants or agents, and otherwise than within
the scope of his employment duties and responsibilities hereunder, any and all
information, knowledge or data of or pertaining to the Company, its subsidiaries
or affiliates or their respective businesses which information, knowledge or
data is not in the public domain, including trade secrets, names and lists of
manufacturers, suppliers and customers, manufacturing and production methods,
processes, and techniques, pricing policies, marketing strategies, design
sketches and specifications, color and fabric samples and swatches, or any other
similar matters acquired by Executive in connection with his relationship with
the Company at any time prior to and after the date hereof (hereinafter referred
to as "Confidential Information") by the Company. In addition, during the term
hereof and thereafter Executive will not make use of Confidential Information
for his own personal gain. The restrictions on the disclosure of Confidential
Information imposed by this subparagraph (i) shall not apply to any Confidential
Information that was part of the public domain at the time of its receipt by
Executive or becomes part of the public domain in any manner and for any reason
other than an act by Executive, unless he is legally compelled (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process) to disclose such Confidential Information, in which event
Executive shall provide the Company with prompt notice of such requirement so
that the Company may seek a protective order or other appropriate remedy.
(ii) Return of Confidential Information and Other Data. Upon
the termination of Executive's employment hereunder or at any time the Company
may reasonably request, Executive promptly will deliver to the Company all
Confidential Information and any other memoranda, notes, records, reports,
sketches, specifications, designs, and other documents (and all copies thereof)
relating to the Company's business, which he may then possess or have under his
control.
(b) Agreement Not to Solicit
(i) General. Executive covenants and agrees not to, directly
or indirectly, during the term hereof and during the Restrictive Period (as
defined in Paragraph 10), (A) induce or attempt to influence any employee of the
Company or any of its subsidiaries or affiliates to leave its employ, or (B) aid
any person, business, or firm, including a supplier to, a Competitor, Licensor,
Licensee or customer of or a manufacturer for the Company, in any attempt to
hire any person who shall have been an employee of the Company or any of its
subsidiaries or affiliates at any time during Executive's employ with the
Company prior to or after the date hereof, provided, however, that this
provision shall not prohibit Executive from so aiding employees of the Company
who have left the employ of the Company prior to the date hereof. If the
restrictions contained in this Paragraph 10(b)(i) shall be found to be
unenforceable by reason of the extent, duration or scope thereof, or otherwise,
then the court or arbitrator, as the case may be, making such determination
shall have the right to reduce
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such extent, duration, scope or other provisions hereof, and in their reduced
form, such restrictions shall then be enforceable in the manner contemplated
hereby.
(ii) Agreement Not to Compete. Because (A) the Company depends
in large measure upon Executive for the operation, development and growth of the
Company, (B) Executive has developed and shall continue to develop personal
relationships with significant Licensors, customers, manufacturers and suppliers
of the Company, its subsidiaries and affiliates and (C) Executive shall have
access to and control of Confidential Information, and in consideration of the
benefits provided to Executive hereunder, Executive covenants and agrees that if
the Company terminates his employment hereunder "for Cause", or if Executive
terminates his employment hereunder, then during the Restrictive Period (as
defined in Paragraph 11), Executive will not, directly or indirectly, as an
officer, director, stockholder, partner, consultant, owner, employee, agent,
creditor or otherwise, be or become interested in or associated with any person,
firm or business which is a Competitor (as defined in Paragraph 11 hereof) or is
owned, in whole or part, by or which employs or has hired as an independent
consultant or otherwise any person who Executive would be unable to solicit,
induce or attempt to influence as provided in Paragraph 10(b)(i) hereof.
Notwithstanding the foregoing, it is agreed that Executive or any person or
entity with which Executive is associated may own, directly or indirectly, up to
one (1%) percent of the issued and outstanding stock of a corporation the shares
of which are regularly traded on a national securities exchange or in the
over-the-counter market. If the restrictions contained in this Paragraph
10(b)(ii) shall be found to be unenforceable by reason of the extent, duration
or scope thereof, or otherwise, then the court or arbitrator, as the case may
be, making such determination shall have the right to reduce such extent,
duration, scope or other provisions hereof, and in their reduced form, such
restrictions shall then be enforceable in the manner contemplated hereby.
(iii) Breach of Agreement. (A) Notwithstanding the provisions
of Paragraph 10(c) below and Paragraph 20 hereof, Executive acknowledges and
agrees that in the event of a violation or threatened violation of any of the
foregoing provisions of this Paragraph 10, the Company shall have no adequate
remedy at law and shall therefore be entitled to enforce each such provision of
this Paragraph 10 by temporary or permanent injunctive or mandatory relief
obtained in any court of competent jurisdiction without the necessity of proving
damage, posting any bond or other security, and without prejudice to any other
remedies which may be available at law or in equity. Executive and the Company
agree that the Supreme Court of the State of New York in and for the County of
New York is a court of competent jurisdiction, and Executive and the Company
each consents to the personal jurisdiction of that Court for purposes of such an
action or proceeding instituted to obtain equitable relief relating to the
provisions of this Paragraph 10; and in connection therewith Executive agrees
that process in any action may be served upon him and shall be deemed to be
complete when the same is delivered to Executive's residence address as set
forth in Paragraph 18. Each of the parties hereto waives any objection based
upon forum non conveniens and any objection to venue of any action instituted
hereunder.
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(c) Forfeiture. If Executive shall wilfully breach any of the
provisions of this Paragraph 10, Executive shall not be entitled to any payments
or benefits following the termination of Executive's employment with the Company
under Paragraphs 4 and 5 hereof other than Basic Salary through the Termination
Date.
11. Certain Definitions
(a) Competitor. For purposes of this Agreement the term "Competitor"
shall mean any individual, firm, corporation, business, organization, entity or
other person primarily engaged in the business of manufacturing, selling,
marketing, or consulting with respect to women's eveningwear or special occasion
wear. A Competitor shall include only those individuals, firms, corporations,
businesses, organizations, entities or other persons that produce such apparel
that are sold or plan to be sold in the retail market in the United States and
any other geographical territories in which the eveningwear products of the
Company or any of its affiliates and subsidiaries are sold.
(b) Fiscal Year. For purposes of this Agreement, the term "fiscal
year" shall mean the 12-month period ending November 4th.
(c) Licensee. For purposes of this Agreement, the term "Licensee"
shall mean those individuals, firms, corporations, businesses, organizations,
entities or other persons that license one or more tradenames or trademarks from
the Company or any of its subsidiaries and affiliates for use on any products
designed, manufactured or sold by such person or any of its subsidiaries or
affiliates.
(d) Licensor. For purposes of this Agreement, the term "Licensor"
shall mean those individuals, firms, corporations, businesses, organizations,
entities or other persons that license one or more tradenames or trademarks to
the Company or any of its subsidiaries and affiliates for use on any products
designed, manufactured or sold by the Company or any of its subsidiaries and/or
affiliates.
(e) Restrictive Period. (i) For purposes of Paragraph 10(b)(i) of
this Agreement (Non-Solicitation) the term "Restrictive Period" shall mean the
period commencing on the Termination Date and ending on the later to occur of
October 31, 1998 or last day of the eighteenth month following the Termination
Date.
(ii) For purposes of Paragraph 10(b)(ii) of this Agreement
(Non-Compete) the term "Restrictive Period" shall mean the period commencing on
the Termination Date and ending on October 31, 1998.
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12. Entire Agreement
This Agreement constitutes the entire agreement of the parties
hereto with respect to the Executive's employment by and severance agreement
with the Company, and all prior agreements and arrangements are hereby
superseded and terminated with effect from and after the date hereof. In
furtherance of the foregoing, Executive does hereby irrevocably and
unconditionally release and forever discharge, and by these presents does for
himself, his heirs, executors, issue, administrators, release and forever
discharge The He-Ro Group, Ltd., its successors, assigns, representatives and
its present and former shareholders, officers, agents, directors, attorneys,
employees, affiliates, and subsidiaries (including without limitation, the
Company) and each and any one of them and its heirs, executors, administrators,
successors and assigns, and all persons acting by, through under or in concert
with it from all suits, claims and demands arising out of or in connection with
payment of any bonus that may otherwise have been due and payable pursuant to
previous agreements. The clause headings used herein are for convenience of
reference only, and shall not define or limit the provisions of this Agreement.
13. Exercise of Rights
No failure by either party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder by either party preclude any
other or future exercise of that right or any other right hereunder by that
party.
14. Validity of Provisions
In case any one or more of the provisions of this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
15. No Assignment
This Agreement shall not be assignable, in whole or in part, by
either party, except that the Company may assign this Agreement to and it shall
be binding upon any person, firm or company with which the Company may be merged
or consolidated, or which may acquire all or substantially all of the assets of
the Company. In the event of the merger or liquidation of the Company into
another corporate entity, whether foreign or domestic, the obligations of the
Company hereunder to the Executive shall remain in full force as to such
successor entity and no waiver on the Executive's part shall be deemed made in
any respect.
16. Amendment
This Agreement may not be amended, terminated or superseded except
by an agreement in writing between the Company and the Executive.
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17. Execution of Agreement
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original hereof, and all of which together shall
constitute one and the same document. This document may be executed and
thereafter transmitted by facsimile and the return facsimile shall constitute an
original.
18. Notices
All notices hereunder shall be given in writing by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
parties at the following respective addresses, or at such other address as may
from time to time be designated by either party to the other hereunder:
to the Executive: David Minka
350 West 14th Street
No. 3A
New York, New York 10014
Telecopier:
to the Company: The He-Ro Group, Inc.
550 Seventh Avenue
New York, New York 10118
Attention: Chief Executive Officer
Telecopier: (212) 869-6942
with a copy to: Baer Marks & Upham, LLP
Attn: Jeffrey Cole, Esq.
805 Third Avenue
New York, New York 10022-7513
Telecopier: (212) 702-5941
19. Governing Law
This Agreement shall be governed by, and construed in accordance
with the substantive laws of the State of New York and the precedents applicable
thereto, exclusive, however, of any provision thereof as to choice of law.
20. Arbitration
Subject to Paragraph 10(b)(iii) hereof, any dispute or controversy
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement, or any breach of this Agreement or any such document or instrument
shall be settled by arbitration to be held in the City of New York
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<PAGE> 11
in accordance with the rules then in effect of the American Arbitration
Association or any successor thereto. The arbitrator may grant injunction or
other relief in such dispute or controversy and may, if requested by either of
the parties, determine which or both of the parties shall bear the costs of the
arbitration (other than the costs of each party's legal fees which costs shall
be borne by the party incurring same) and, if both parties shall bear the costs,
then the allocation of such costs between them. The decision of the arbitrator
shall be final, conclusive, and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction, and the parties irrevocably consent to the jurisdiction of the New
York State courts for this purpose. In any such arbitration, the parties waive
personal service of any process or other papers and agree that service thereof
may be served upon him and shall be deemed to be complete when the same is
delivered to Executive's residence address as set forth in Paragraph 18.
21. Disclosure of Agreement
At all times after the execution hereof, Executive shall keep the
economic terms of his employment arrangement with the Company strictly
confidential and will not disclose any of such terms to any person other than
Executive's legal counsel, certified public accountant and spouse, if any, and
Executive shall direct such persons to keep such information strictly
confidential. Executive shall not be deemed to have breached this Section 21 if
he discloses such terms either upon the valid subpoena of this Agreement by a
court of competent jurisdiction or upon the written request of the Internal
Revenue Service or after the contents of this Agreement have become widely known
to the public other than by reason of Executive's actions or in any event after
November 4, 1998.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on authority of the Board of Directors and David Minka has hereunto set his hand
the day and year first above written.
/s/ David Minka
-------------------------------
David Minka
THE HE-RO GROUP, INC.
By: /s/ Sam Kaplan
-----------------------------
Sam D. Kaplan
Chief Financial Officer
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Exhibit 10.7
execution copy printed 7/30/97
AGREEMENT
AGREEMENT dated as of July 30, 1997 between NAH NAH COLLECTIONS,
INC., also known as "Nahdree," a New York corporation (the "Producer"), C.A.S.
DESIGNS, INC., a New York corporation (the "Design Company"), and CONSTANCE
SAUNDERS ("Saunders," the Design Company and Saunders being herein sometimes
collectively referred to as the "Designers").
WHEREAS, the Producer wishes to retain the Design Company to design
bridge lines for women's dresses and women's suits by the Designers ("Apparel")
for the Producer, the designing provided by the Designers to be performed
exclusively by Saunders; and
WHEREAS, the Producer may, due to market conditions, wish to add
another line or lines in the future, the parties hereto agree to discuss the
substitution of a line or lines for the bridge lines, the consent thereto not to
be unreasonably withheld by the Designers; and
WHEREAS, the parties hereto agree to discuss other design categories
as may be mutually agreeable to the parties; and
WHEREAS, the Producer wishes to use the tradenames "Constance
Saunders," "Constance", "Saunders," and derivatives thereof (the "Trademarks");
and
WHEREAS, the Designers are willing to provide the services, and to
grant the rights to the Trademarks, on the terms and conditions herein set
forth;
NOW THEREFORE, the parties hereto, in consideration of the premises
hereof and other good and valuable consideration, hereby agree as follows:
1. Term of Agreement. The Producer retains the Design Company, and
the Design Company hereby agrees, to provide the services herein during the
period (the "term hereof") commencing on July 30, 1997, and ending on July 29,
2002. Saunders hereby agrees for the benefit of the Producer to provide the
services required to be performed by her herein during the term hereof and, in
the event that the Design Company shall for any reason, except upon Saunders or
the Design Company's termination of this Agreement for cause pursuant to Section
14 of this Agreement, cease to provide the services required hereby, Saunders
agrees to become an employee of the Producer, if Producer so requests, providing
substantially the same services required to be provided by Saunders hereby
through the Design Company, on the same terms as those set forth herein.
2. Duties of Designers. During the term hereof, the Design Company
shall be responsible for producing designs for Apparel (designs produced after
the date hereof herein called "Designs"), and Saunders shall serve as design
director for the Design Company and shall be personally responsible for the
performance by the Design Company of its obligations to the
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Producer hereunder. During the term of this Agreement, the Designers shall not
design any other Apparel in any category whatsoever without the prior written
consent of the Producer.
3. Duties of Producer. At a reasonable time under the facts and
circumstances herein, the Producer shall provide Saunders a separate showroom
within the Producer's showroom all aspects of which shall be determined by the
Producer. Producer agrees to provide, as employees of Producer at Producer's
expense, a draper and an assistant exclusively for use by the Designers solely
for work performed by the Designers for the Producer. The hiring of the draper
and assistant shall be mutually agreed upon by the parties herein.
4. Ownership of Designs. Each of the Designers represents that (i)
in the first instance, Saunders shall own all the Designs free of all liens and
encumbrances and hereby assigns any and all right, title and interest therein to
the Producer, (ii) that Saunders shall produce the Designs as a work-for-hire
for the Design Company solely for the benefit of the Producer, and (iii) the
Design Company shall produce the Designs as a work-for-hire for the Producer,
thereby assigning any and all its right, title and interest in the Designs to
the Producer. Except as otherwise provided herein, during the development of the
Designs and at all times thereafter, as among the Producer, the Design Company
and Saunders, the Producer shall be the sole and exclusive owner of all right,
title and interest in the Designs and all proprietary and other rights
pertaining thereto. The Designers hereby assign and transfer to the Producer
irrevocably and absolutely and in perpetuity, all rights, title and interest in
the Designs and all proprietary rights and other rights pertaining thereto which
the Designers may now or hereafter acquire in and to the Designs. Without
limiting the generality of the foregoing, the Producer shall have the sole and
exclusive right to distribute, use, display, exhibit, advertise, publicize or
otherwise exploit the Designs by any and all means, whether now known or
hereafter devised, in perpetuity and in such a manner and to such extent, if at
all, as the Producer, in its sole discretion shall determine. The Design Company
and Saunders shall, at the request of the Producer, at any time and from time to
time, promptly execute and deliver, or cause to be executed and delivered, to
the Producer, all documents and instruments and promptly take all such action as
may be reasonably necessary or appropriate to protect the Producers rights to
the Designs and to carry out the purpose and intent of this Section 4. The
Designers hereby warrant and represent that the Designs have not previously been
sold by either of them and are being transferred to the Producer hereunder free
and clear of all liens, claims and encumbrances whatsoever. The Designers,
jointly and severally, agree to indemnify and hold harmless the Producer against
all claims, liabilities, demands, expenses and costs (including legal fees and
expenses) relating to or in connection with any third party claim or action
arising out of the infringement or copying of such third party's designs by any
Designs of the Designers. Upon the termination of this Agreement for any reason,
the Designers shall not utilize any designs identical to the Designs owned by
the Producer, but may utilize designs which are similar to, modifications of or
derivatives of the Designs or portions thereof. If the parties hereto enter into
a separate licensing agreement for matters not contained herein, the Producer
may utilize the designs under that licensing agreement which are similar to,
modifications of or derivatives of the new designs or portions thereof under the
such licensing agreement.
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5. Use of Designs and Trademarks by the Producer. The Producer shall
determine in its sole discretion whether to use a Design, whether to use an
entire Design or a portion thereof, when to use a Design and in connection with
which Apparel to use a Design. The Designers specifically acknowledge herewith
that permission to use the Trademarks in the following manner has been granted:
"Constance Saunders for Nahdree," "Constance Saunders by Nahdree, "Constance
Saunders Suit by Nahdree," "Constance Saunders Dress by Nahdree" and "Constance
Saunders" "by" or "for" combined with the name or names of a division and/or
corporate name of the Producer. Permission to use the Trademarks in any other
combination shall not be unreasonably withheld by the Designers. Any item sold
by the Producer using all or a portion of a Design shall bear one of the
Trademarks, although it may also bear, together with one of the Trademarks, a
trademark, tradename or style owned by the Producer. As a material inducement on
the part of Saunders granting the exclusive right to Producer to use the
Trademark in accordance with this Agreement, Producer agrees that:
(a) It will cause to appear on the Apparel and on all
packaging, hang tags and advertising and other printed materials on which
the Trademarks appear, all legends, markings and notices as may be
required by law or regulation;
(b) It shall not at any time intentionally do or suffer to be
done a anything which may, in any way, adversely affect any rights of
Saunders or the Design Company in and to the Trademarks which may reduce
the value of the Trademarks;
(c) All right, title and interest in and to the Trademarks
shall, at all times, be the sole and exclusive property of Saunders except
as provided for herein;
(d) The Trademarks shall not be used by the Producer in
connection with any merchandise other than as provided for in this
Agreement;
(e) The Producer agrees that it will never challenge Saunders'
ownership rights and the rights of Design Company therein or the validity
of the Trademarks; and
(f) Producer's right to use the Trademarks shall, at all
times, inure to the benefit of Saunders and the Design Company as provided
for herein.
6. Compensation for Designs. The Producer agrees to pay to the
Design Company, as compensation ("Compensation") for its services hereunder, a
base amount ("Base Amount") and, beginning with the Contract Year ending July
29, 1999, a contingent amount ("Contingent Amount"), as set forth below. For the
purposes hereof, a Contract Year means a 12-month period (except in the case of
early termination of this Agreement) beginning on a July 30 nd ending on the
next succeeding July 30 or earlier termination hereof:
(a) The Base Amount shall be $210,000 for each Contract Year
during the term hereof, payable in accordance with the Producer's regular
pay intervals for its employees. The Producer, in its sole discretion, may
from time to time increase the Base Amount or pay additional compensation
to the Design Company.;
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(b) The Contingent Amount shall be 2% of the excess, if any,
of the amount actually collected by the Producer with respect to Net Sales
in each of the second through fifth Contract Years during the term hereof
over $7,000,000. (No Contingent Amount shall be payable with respect to
the first Contract Year.) For purposes hereof, "Net Sales" shall mean (i)
the total of the gross invoice prices of all Apparel designed by the
Designers and marketed by the Producer under any of the Trademarks, after
deducting customary trade discounts, allowances and returns; provided,
however, that the Producer shall not be obligated to pay any Contingent
Amount hereunder with respect to sales made through factory outlets or
other retail stores owned, leased or controlled by the Producer, its
subsidiaries and affiliates. The Contingent Amount shall be payable (x)
within 30 days after the end of each Contract Year for which a Contingent
Amount is payable with respect to amounts actually collected during such
Contract Year relating to Net Sales occurring therein, and (y) within 30
days following the collection of amounts which are collected after the end
of the Contract Year to which they relate. Written statements as normally
rendered by the Producer to other designers shall accompany payments of
the Contingent Amount; and
(c) The Design Company shall be an independent contractor and
the Producer shall not be required to withhold any federal, state, local
and other taxes from amounts paid to the Design Company hereunder, but
shall report the amounts so paid to the Design Company on federal tax form
1099, or other tax form which the Producer determines to be appropriate.
Each of the Designers agrees to pay all federal, state, local and other
taxes due with respect to the amounts paid to the Design Company by the
Producer.
(d) Producer will maintain appropriate books of account
concerning all transactions within the scope of this Agreement. Designers'
representatives shall have the right, at reasonable times upon reasonable
notice to Producer to inspect such records to verify the accuracy of
Producer's reports to it. If upon audit it is revealed that there is owing
the Designers Contingent Amounts in excess of 7% or more than that
reported, the cost of the audit shall be borne by the Producer.
7. Expenses. The Producer shall pay the reasonable travel expenses
incurred by Design Company or Saunders in connection with Saunders' two trips to
Europe during each 12 month period hereunder.
8. Ownership of Trademarks. Saunders hereby warrants and represents
that the Trademarks are owned throughout the World by her free and clear of all
liens, claims and encumbrances whatsoever arising through her action or
acquiescence. Saunders hereby grants the Producer the exclusive right to use the
Trademarks in connection with the Designs anywhere in the World during the term
hereof and as otherwise provided herein. Without limiting the generality of the
foregoing, the Producer shall have the sole and exclusive right to use the
Trademarks in connection with the distribution, use, display, exhibiting,
advertising and/or publication of the Designs in such a manner and to such
extent as the Producer, in its sole discretion shall determine. The Producer
acknowledges that the Designers have previously granted a non-exclusive license
to certain third party to use the Trademarks in connection with (i) the
manufacture of a certain previously designed Fall collection through September
30, 1997
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and (ii) the marketing, distribution and sale of such previously designed Fall
collection through December 31, 1997. Each of the Designers shall, at the
request of the Producer, at any time and from time to time, promptly execute and
deliver, or cause to be executed and delivered, to the Producer, all documents
and instruments and promptly take all such action as may be reasonably necessary
or appropriate to protect the Producer's rights to the Trademarks as above
provided and to carry out the purpose and intent of this Section 8. Each of the
Designers agrees to indemnify and hold harmless the Producer against all claims,
liabilities, demands, expenses and costs (including legal fees and expenses)
relating to or in connection with any third party claim or action arising out of
the infringement or copying of such third party's trademarks by any Trademarks.
9. Indemnification. The Producer hereby indemnifies and agrees to
defend and hold Design Company and Saunders harmless from and against any
claims, suits, losses, damages, demands, injuries and expenses (including
reasonable attorneys, fees and expenses of attorneys as provided herein) arising
out of any alleged defects in the material or workmanship of any Apparel in
connection with the labeling, distribution or advertisement of any Apparel by
the Producer in violation of any national, state or local law or regulation,
whether or not the Apparel was approved by the Design Company pursuant to this
Agreement. The Producer shall designate the attorneys to defend the Designers
pursuant to this Section 9.
10. Insurance. The Producer shall procure and maintain at all times
during which Apparel is being sold in full force and effect at its own expense
with responsible insurance carrier (s), at least $1,000,000 per occurrence of
products liability insurance coverage with respect to the Apparel. Such
insurance shall name the Design Company and Saunders as additional insureds and
shall provide for at least ten days prior written notice to the Design Company
and Saunders of the cancellation or substantial modification thereof. Such
insurance may be obtained by the Producer in conjunction with a policy of
product liability insurance which. covers products other than the Apparel. If
requested, the Producer shall furnish or cause to be furnished to Design Company
evidence of the maintenance of the insurance.
11. Right of First Refusal. In the event that the Designers, or
either of them, shall receive a bona fide offer to license any of the Trademarks
for use on products other than women's ready-to-wear apparel, the Producer shall
have the right, at its sole election exercised during a period of 30 days
following receipt of notice thereof, either (i) to match such offer and produce
such product under a license which is substantially similar to the license
contemplated by such offer, or (ii) to consent to such license in consideration
of the right to receive from such Designer an amount equal to 20% of all amounts
received by such Designer as a result of such use of the Trademarks. In the
latter case, such Designer shall pay to the Producer the amounts due under
clause (ii) above within 15 days of the receipt by such Designer of any amount
received by such Designer as a result of such use of the Trademarks.
12. Death. In the event of Saunders death, (i) the Compensation
shall be paid to the Design Company through the end of the month in which her
death occurs, and (ii) the Contingent Amount shall be paid to the Design Company
for a period of six months following the month in which such death occurs.
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13. Disability. If, during the term hereof, Saunders shall, because
of physical or mental illness or incapacity, become unable adequately to perform
the duties and services required of her pursuant to this Agreement for a period
of 20 consecutive days or for a period of 60 days in any 180-day period, the
Producer may, upon prior written notice given at any time after the expiration
of such 20-day period or 60-day period, as the case may be, to the Design
Company of its intention to do so, terminate its obligation to pay Compensation
hereunder, in which case the Design Company shall be entitled to receive (i) the
Compensation through the end of the month in which such termination occurs, and
(ii) the Contingent Amount for a period of six months following the month in
which such termination occurs.
14. Termination for cause. The Producer may terminate this Agreement
"for cause", without liability other than for payment of accrued but unpaid
Compensation through the date of termination, in the event of (i) any act of
Saunders which has the effect of materially injuring the reputation, business or
business relationships of the Producer; (ii) conviction of Saunders (including a
conviction on a nolo contenders plea) for any crime or offense which involves
property or money of the Producer; (iii) conviction of Saunders for a felony; or
Saunders, incarceration following any conviction which restricts or limits her
ability to perform her duties hereunder, (iv) Saunders, failure, neglect or
refusal to perform her duties as set forth herein, or (v) a material breach of
any representation, warranty or covenant contained in this Agreement by either
of the Designers. The Designers may terminate this Agreement "for cause",
without liability, in the event of a material breach of any representation,
warranty or covenant contained in this Agreement by the Producer. The Producer's
failure to pay the Designers under any of the obligations of the Producer herein
shall constitute a material breach under this Agreement. In either case, the
party whose act shall have given rise to the right to terminate this Agreement
shall have 20 days after receipt of written notice by the party seeking to
terminate to cure the breach or nullify the act which is the cause of such
termination, if such cure or nullification is possible.
15. Rights of Producer on Termination. Upon termination of this
Agreement for any reason, including the expiration hereof, the Producer shall
have the right to use the Trademarks and Designers shall not take any action
which may impede the orderly sale of Apparel in connection herewith for the
periods set forth below:
(a) upon the expiration hereof, the Producer shall have the
non-exclusive right to use the Trademarks for six months after such
expiration to sell, in the ordinary course of business, Apparel utilizing
Designs of the Designers under any of the Trademarks;
(b) upon the termination hereof by the Designers for cause,
the Producer shall have the non-exclusive right to use the Trademarks for
six months after such termination to sell, in the ordinary course of
business, Apparel utilizing Designs of the Designers under any of the
Trademarks; and
(c) upon the termination hereof by the Producer for cause, the
Producer shall have the exclusive right to use the Trademarks to sell
Apparel utilizing Designs under any of the Trademarks for the shorter of
(i) one year after such termination, or (ii) the period between such
terminate and July 29, 2002; and
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(d) upon the failure of Saunders to continue to serve as the
design director for the Design Company and, thereafter refuses to act as
design director for the Producer, as set forth in this Agreement, the
Producer shall have the exclusive right to use the Trademarks to sell
Apparel utilizing Designs under any of the Trademarks for the shorter of
(i) two years after such termination, or (ii) the period between such
termination and July 29, 2002.
16. Confidentiality. Each of the Designers acknowledges that each of
them, by virtue hereof, shall have a confidential relationship with the Producer
with access to confidential information and trade secrets of the Producer
(collectively, the "Confidential Information"), including customer and client
lists, financial information, price lists, marketing and sales strategies and
procedures, computer programs, databases and software, supplier, vendor and
service information, personnel information, operating procedures and techniques,
business plans and systems, and all other records, files, and information in
respect of the Producer. Information with regard to customers, clients and
vendors which Designers have had business dealings with prior to the
commencement of this Agreement shall be excluded from the provisions of this
Section. For the term of this Agreement and for a period of one year thereafter,
each of the Designers shall maintain the strictest confidentiality of all
Confidential Information and shall not use or permit the use of, or disclose,
discuss, communicate or transmit or permit the disclosure, discussion,
communication or transmission of, any Confidential Information, provided that
this Section shall not apply to information (i) that, by means other than either
of the Designers, deliberate or inadvertent disclosure, becomes generally known
to the public, or ii) the disclosure of which is compelled by law (including
judicial or administrative proceedings and legal process), provided in the
latter case that the Producer shall have promptly been given written notice of
any request or requirement for any such Confidential Information.
17. Injunctive Relief of Producer. Each of the Designers
acknowledges that in the event of a breach or threatened breach of any of the
provisions herein by either of the Designers, the Producer may suffer
irreparable damage and will not have an adequate remedy at law. Accordingly, in
the event of such a breach or threatened breach, the Producer shall be entitled,
in addition to any other remedies which it may have at law or in equity, to an
injunction issued by a court or tribunal or competent jurisdiction to restrain
the Designers from committing or continuing any such breach. This Section shall
be construed as an agreement independent of the balance of this Agreement and
shall survive the termination of this Agreement.
18. Injunctive Relief of Designers. Producer acknowledges that in
the event of a breach or threatened breach of any of the provisions herein by
the Producer, each of the Designers may suffer irreparable damage and will not
have an adequate remedy at law. Accordingly, in the event of such breach or
threatened breach, either or the Designers shall be entitled, in addition to any
other remedies which it may have at law or in equity, to an injunction issued by
a court or tribunal or competent jurisdiction to restrain the Producer from
committing or continuing any such breach. This Section shall be construed as an
agreement independent of the balance of this Agreement and shall survive the
termination of this Agreement.
19. Good Faith. Notwithstanding anything contained in this Agreement
to the contrary, each of the parties hereto covenants and agrees that in all
dealings between the parties,
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including, without limitation, the granting or withholding of any approval or
consent in connection with any transactions contemplated hereunder, each such
party shall act at all times in good faith and in a commercially reasonable
manner.
20. Notices. Any notice to be given hereunder shall be in writing
and may be delivered personally or sent by overnight courier (such a Federal
Express), all costs and fees prepaid, facsimile transmission, with a
confirmation copy to be sent by mail the day of transmission, or certified or
registered mail postage prepaid, return receipt requested. Any such notice shall
be deemed to have been given (i) when delivered personally, (ii) the day after
having been sent by overnight courier, (iii) upon facsimile transmission, or
(iv) five days after the date of mailing, if sent by certified or registered,
addressed as follows:
If to the Producer, addressed to:
Nah Nah Collections, Inc.
213 West 35th Street
New York, New York 10001
Attention: Mr. Hong J. Han, President
With a copy to:
Ballon Stoll Bader & Nadler, P.C.
1450 Broadway
New York, New York 10018
Attention: Howard D. Bader, Esq.
And if to either of the Designers, addressed to:
C.A.S. Designs, Inc.
25 East 9th Street, #5B
New York, new York 10003
Attention: Ms. Constance Saunders
With a copy to:
Levy Sonet & Siegel
630 Third Avenue
New York, New York 10017
Attention: Alan M. Siegel, Esq.
or to such other address as any party hereto shall designate in writing to the
other such parties.
21. Prior Agreements. This Agreement shall constitute the entire
agreement among the parties concerning the subject matter hereof and shall
supersede any prior agreements, documents or other instruments with respect to
the matters covered hereby.
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22. Amendments. This Agreement may be amended, or its terms waived,
only by a writing executed by each of the parties hereto or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right hereunder shall operate as a waiver of such right. A waiver
of any right will not preclude any further exercise of such right or of any
other right.
23. Assignment. This Agreement, and each party's rights and
obligations hereunder, may not be assigned, except as otherwise specifically
provided herein.
24. Successors. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective legal
representatives, successors and permitted assigns.
25. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable, or if the scope of any such provision
shall be held to be overly broad, such holding shall not invalidate or render
unenforceable any other provision hereof or such provision in any other
circumstances or jurisdiction, and any such provision held to be overly broad in
scope shall be deemed to have been automatically revised to narrow its scope to
give it the greatest effect consistent with such holding, and such holding shall
not invalidate or render unenforceable any other provision hereof, the same
provision in any other instance or jurisdiction, or the same provision as so
deemed amended in the current instance or jurisdiction.
26. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed wholly within such state.
27. Litigation Expenses. In the event that either the Producer or
the Designers (or either of them) seeks to resolve a dispute regarding whether
cause to terminate this Agreement has occurred, as contemplated by Section 14
hereof, the losing such party in such litigation shall be responsible for paying
the costs of such litigation (including attorney's fees) incurred by both such
parties.
28. Headings. All headings used in this Agreement are for reference
purposes only and shall not be deemed to have any substantive effect.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement or caused this Agreement to be executed in its corporate name and
under its corporate seal by one of its officers thereunto duly authorized, as of
the day and year set forth above.
NAH NAH COLLECTIONS, INC.
By: /s/ Hong J. Han
-------------------------------------
Hong Han, President
C.A.S. DESIGNS, INC.
By: /s/ Constance Saunders
-------------------------------------
Constance Saunders, President
/s/ Constance Saunders
----------------------------------------
Constance Saunders, Individually
1994B
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Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 1, 1997 between NAH NAH COLLECTIONS, INC., a
corporation with an address at 213 West 35th Street, New York, New York 10001
(the "Corporation"), and VICTOR COSTA, residing at 3 Quaker Ridge Road, Sherman,
Connecticut 06784 ("Costa").
W I T N E S S E T H :
WHEREAS, the Corporation wishes to retain the services of Costa as Design
Director for Women's Ready-To-Wear apparel manufactured, promoted, distributed
and sold by the Corporation, or any subsidiary or affiliate of the Corporation
(the "Women's Wear") upon the terms and subject to the conditions hereinafter
set forth, and Costa is willing to serve as Designer Director for the Women's
Wear upon such terms and subject to such conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Corporation and Costa hereby agree as follows:
1. Employment and Term. The Corporation hereby employs Costa, and Costa
hereby accepts employment by the Corporation, on the terms and conditions herein
contained, to perform the duties described in Section 2 for a term (the
"Employment Term") commencing on January 1, 1997 (the "Commencement Date") and,
subject to the remaining provisions of this Agreement, ending on December 31,
1999.
2. Duties. During the Employment Term, Costa shall serve as Design
Director for the Corporation. In the course of his employment, Costa's duties as
Design Director shall include producing designs for Women's Wear (the "Design")
as requested by the Corporation. In addition, Costa agrees to the best of his
ability and experience to devote his full working time and efforts to promote
the business of the Corporation and to perform all of his duties and obligations
required of him by the terms of this Agreement and as may be reasonably assigned
to him from time to time by, and subject to the control and direction of, the
Board of Directors of the Corporation.
3. Ownership of Designs. Costa shall produce the Designs as a
work-for-hire for the Corporation. Accordingly, except as otherwise provided
herein, throughout the development of the Designs and at all times thereafter,
as between the Corporation and Costa, the Corporation shall be the sole and
exclusive owner of all rights, title and interest in the Designs and all
proprietary and other rights pertaining thereto. Costa hereby assigns and
transfers to the Corporation irrevocably and absolutely and in perpetuity, all
rights, title and interest in the Designs and all proprietary rights and other
rights pertaining thereto which Costa may now or hereafter acquire in and to the
Designs. Without limiting the generality of the foregoing, the Corporation shall
have the sole and exclusive right to distribute, use, display, exhibit license,
advertise, publicize or otherwise exploit the Designs by any and all means,
whether now known or hereafter devised, in perpetuity and in such a manner and
to such extent if at all, as the Corporation, in its sole discretion shall
determine. All such rights, title and interest in the
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Designs and all proprietary and other rights pertaining thereto immediately
shall vest in the Corporation, its successors and assigns. Costa shall, at the
request of the Corporation at any time and from time to time, promptly execute
and deliver, or cause to be executed and delivered, to the Corporation, all
documents and instruments and promptly take all such action as may be reasonably
necessary or appropriate to carry out the purpose and intent of this Section 3.
Costa hereby warrants and represents that the Designs have not been previously
sold by Costa and are transferred to the Corporation hereunder free and clear of
all liens, claims and encumbrances whatsoever. Costa agrees to indemnify and
hold harmless the Corporation against all claims, liabilities, demands, expenses
and costs (including legal fees and expenses) relating to and in connection with
any third party allegation, claim, or action relating to alleged or actual
infringement or copying of such third party's designs by any of Costa's Designs.
4. Use of Designs by the Corporation and other Designer. The Corporation
shall determine in its sole discretion whether to use a Design, whether to use
an entire Design or a portion thereof, when to use a Design and in connection
with which Women's Wear to use a Design. Other designers' lines manufactured by
the Corporation shall not use Costa's own designs.
5. Base Compensation. In consideration of Costa's performance of his
services hereunder, the Corporation agrees to pay Costa a salary ("Base Sale")
at the rate of $150,000 per year during the Employment Term, payable in
accordance with the Corporation's regular pay intervals for its employees or in
such other manner as shall be mutually agreeable to Costa and the Corporation.
The Corporation's Board of Directors may, in its discretion, at any time and
from time to time, increase the Base Salary for Costa and grant Costa other
compensation in addition to that provided for hereby.
6. Incentive Compensation.
(a) In addition to the Base Compensation referred to in Section 5
above, the Corporation shall pay Costa incentive compensation in the amount of
three percent (3%) of any Net Sales (as defined below) above four million
dollars ($4,000,000) in any Payment Year (as defined below) (the "Incentive
Compensation"). To the extent the Corporation does not generate Net Sales above
$4,000,000, Costa shall not be entitled to any Incentive Compensation.
(b) For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Net Sales" shall mean the total gross sales price of all
Women's Wear designed by Costa pursuant to this Agreement under the "Victor
Costa" name and which are shipped by the Corporation after dilution (including
deductions for customary trade discounts, allowances and returns actually
received); provided, however, that the Corporation shall not be obligated to pay
any Incentive Compensation to Costa with respect to sales made through factory
outlets or other retail stores owned, leased or controlled by the Corporation,
its subsidiaries and affiliates.
(ii) "Payment Year" shall mean the twelve month period from
January 1 to December 31 (or to the date this Agreement is earlier terminated).
-2-
<PAGE> 3
(c) With respect to the first six months from the date of this
Agreement, the Corporation shall pay Costa a monthly advance on his Incentive
Compensation in the amount of $10,000 per month based on estimated Net Sales by
the Corporation in the amount of $8 million for the year to end December 31,
1997 (the "Monthly Advance"). The Monthly Advance shall be payable by the
Corporation to Costa on the last day of each month commencing January 31, 1997
and ending June 30, 1997. By July 31, 1997, the Corporation shall adjust its
estimate of Net Sales for the year to end December 31, 1997 and based on its new
estimate of Net Sales for January 1997 through June 1997, if any, adjust the
amount of the Monthly Advance payable to Costa from July 31, 1997 to November
30, 1997 in accordance with its revised estimate. The Corporation shall not be
required to pay a Monthly Advance for December 1997. Instead, by January 31,
1998, the Corporation shall calculate actual Net Sales for the year ended
December 31, 1997, and make a final adjustment to the Incentive Compensation
owed to Costa pursuant to this Agreement. In the event the Incentive
Compensation owed to Costa exceeds the total amount of the Monthly Advances paid
to Costa from January to November 1997, then the Corporation shall pay the
balance of the Incentive Compensation owed to Costa by January 31, 1998. In the
event the Incentive Compensation owed to Costa is less than the total amount of
Monthly Advances paid to Costa from January to November 1997, then the surplus
amount paid to Costa shall be applied to future amounts owed to Costa under this
Agreement, or in the event this Agreement is earlier terminated for whatever
reason, Costa shall, upon ten (10) days written notice by the Corporation,
reimburse the Corporation for such surplus amount.
(d) With respect to the payment of Incentive Compensation for the
year commencing January 1, 1998 and all other years of the Employment Term, the
Corporation shall, following the same procedures described with respect to the
year to end December 31, 1997 in Section 6(c) above, estimate by December 31 of
each year of the Employment Term Net Sales for the following year based on Net
Sales for that year, and based on its estimates determine the Monthly Advance
payable to Costa for the first six months of the following year. The Corporation
shall be entitled to adjust such Monthly Advance by July 31 of each year based
on Net Sales for January through June of that year. Such adjusted Monthly
Advance shall be payable by the Corporation from July to November of that year.
A final calculation of Net Sales and concomitant adjustment shall be made by the
Corporation by January 31 of the following year based on actual Net Sales made
during the year.
(e) The Corporation shall withhold from all Base and Incentive
Compensation payable to Costa all federal, state, local and other taxes, and
amounts as shall be required to be withheld pursuant to applicable law, rule or
regulation.
7. Benefits.
(a) During the Employment Term, Costa shall be entitled to
participate in any medical payment, disability, health or life insurance and
similar benefit plans and arrangements which may be or become available to
employees of the Corporation in general; provided, that Costa shall be required
to comply with the conditions attendant to coverage by such plans and
arrangements and shall comply with, and be entitled to benefits only in
accordance with, the terms and conditions of such plans and arrangements.
-3-
<PAGE> 4
(b) Costa shall be entitled to vacation in each year during the
Employment Term in accordance with the vacation policy applicable to the
Corporation's employees. Such vacation shall be taken at such time or times as
may be mutually agreed upon by the Corporation and Costa.
8. Termination upon Death: Death Benefit. The Employment Term shall
terminate on the date of Costa's death, except that Costa's Base Salary shall be
paid to his estate through the end of the month in which his death occurs. In
addition upon Costa's death, the Corporation shall pay to Costa's estate the
Incentive Compensation payable to Costa pursuant to Section 6 of this Agreement,
if any, for a period of six months following the termination of this Agreement.
For purposes of payment of the Incentive Compensation pursuant to this Section
8, the Corporation shall pay to Costa's estate for the first five months
following Costa's death a Monthly Advance based on the Corporation's previous
December 31 estimate of Net Sales for that year. With respect to the Incentive
Compensation to be paid by the Corporation for the sixth month, the Corporation
shall be entitled to withhold such payment until the following January 31, at
which time the Corporation shall make a final calculation of Net Sales for that
year and any concomitant adjustment. If as a result of the final calculation of
Net Sales for that year, any amounts are owing to Costa's estate, the
Corporation shall make such final payment by such following January 31.
9. Termination for Disability. (a) If, during the Employment Term, Costa
shall, because of physical or mental illness or incapacity, become unable
adequately to perform the duties and services required of him pursuant to this
Agreement for a period of 30 consecutive days or for a period of 60 days in any
180-day period, the Corporation may, upon prior written notice given at any time
after the expiration of such 30-day period or 60-day period, as the case may be,
to Costa of its intention to do so, terminate the Employment Term to such date
as may be set forth in such notice. In case of such termination, Costa shall be
entitled to receive his Base Salary through the end of the month in which the
Employment Term shall be terminated.
(b) The Corporation shall maintain a disability insurance policy for
Costa's benefit in accordance with disability plans available to employees of
the Corporation in general, and the Corporation shall be responsible for the
payment of the insurance premium under such policy In the event of termination
of this Agreement for disability, any payments received by Costa under such
disability insurance policy shall reduce on a dollar-for-dollar basis the
Corporation's obligations to make payments to Costa under this Section 9.
10. Termination by Corporation.
(a) The Corporation may terminate this Agreement "for cause",
without liability other than for payment of accrued but unpaid compensation
through the date the Employment Term ends, in the event of one or more of the
following:
(i) Any act of Costa which has the effect of materially
injuring the reputation, business or business relationships of the Corporation.
(ii) Conviction (including a conviction on a nolo contenders
plea) of any crime or offense which involves property or money of the
Corporation, conviction of a felony;
-4-
<PAGE> 5
or Costa's incarceration following any conviction which restricts or limits
Costa's ability to perform his duties hereunder.
(iii) Costa's failure, neglect or refusal to perform his
duties as set forth herein.
(iv) The breach of any representation or warranty contained in
this Agreement by Costa.
(b) Upon termination of this Agreement, for any reason, the
Corporation shall have the right to dispose in the ordinary course of business
Women's Wear manufactured, promoted or distributed under the "Victor Costa" name
for a period of six months after the effective date of termination.
11. Certain Covenants and Agreements.
(a) In consideration of Costa's employment hereunder, Costa agrees
that during the Employment Term and for a period of six months after termination
of this Agreement for any reason (except for termination upon death or
disability), Costa will not directly or indirectly (i) solicit or accept any
business from any customer to whom the Corporation has sold Women's Wear during
the six month period immediately preceding the termination of this Agreement;
(ii) use the name "Victor Costa" or any variation thereof in connection with any
apparel activity including Women's Wear; (iii) sell designs or apparel,
including apparel similar to the Women's Wear, or (iv) engage in any activity
intended to terminate, disrupt or interfere with the Corporation's relationship
with a customer, supplier or other person.
(b) In the event of termination of this Agreement upon expiration of
the Employment Term, the Corporation shall pay to Costa in consideration of the
covenants set forth in Section 11(a) for the six-month period referred to in
Section 11(a) the higher of (i) the Base Salary pursuant to Section 5 of this
Agreement, or (ii) the Incentive Compensation pursuant to Section 6 of this
Agreement. In the event the Corporation shall be required to pay Costa the
Incentive Compensation pursuant to this Section 11(b). then the Corporation
shall for purposes of paying such Incentive Compensation follow a procedure
similar to that set forth in Section 8.
(c) Costa acknowledges that by his employment he will be in a
confidential relationship with the Corporation and will have access to
confidential Information and trade secrets of the Corporation (collectively, the
"Confidential Information"). Confidential Information includes, but is not
limited to, customer and client lists of the Corporation other than names of
customers and clients furnished by Costa to the Corporation during the term of
this Agreement, financial information, price lists, marketing and sales
strategies and procedures, computer programs, databases and software, supplier,
vendor and service information, personnel information, operating procedures and
techniques, business plans and systems, and all other records, files, and
information in respect of the Corporation. During the Employment Term and
thereafter, Costa shall maintain the strictest confidentiality of all
Confidential Information and shall not use or permit the use of, or disclose,
discuss, communicate or transmit or permit the disclosure, discussion,
communication or transmission of, any Confidential Information. This
-5-
<PAGE> 6
Section 11(c) shall not apply to (i) information that, by means other than
Costa's deliberate or inadvertent disclosure, becomes generally known to the
public or (ii) information the disclosure of which is compelled by law
(including judicial or administrative proceedings and legal process). In that
connection, in the event that Costa is requested or required (by oral question,
interrogatories, requests for information or documents, subpoenas, civil
investigative demand or other legal process) to disclose any Confidential
Information, Costa agrees to provide the Corporation with prompt written notice
of such request or requirement so that the Corporation may seek an appropriate
protective order or relief therefrom or may waive the requirements or this
Section 11(c). If, failing the entry of a protective order or the receipt of a
waiver hereunder, Costa is, in the opinion of counsel, compelled to disclose
Confidential Information under pain of liability for contempt or other censure
or penalty, Costa may disclose such Confidential Information to the extent so
required.
(d) In the event of a breach or threatened breach by Costa of any of
the provisions of this Section 11 the Corporation shall be entitled to an
injunction to be issued by any court or tribunal of competent jurisdiction to
restrain Costa from committing or continuing any such violation. In any
proceeding for an injunction, Costa agrees that his ability to answer in damages
shall not be a bar or be interposed as a defense to the granting of a temporary
or permanent injunction against him. Costa acknowledges that the Corporation
will not have an adequate remedy at law in the event of any breach by him as
aforesaid and that the Corporation may suffer irreparable damage and injury in
the event of such a breach by him. Nothing contained herein shall be construed
as prohibiting the Corporation from pursuing any other remedy or remedies
available to the Corporation in respect of such breach or threatened breach.
(e) If any term or provision of this Section 11 shall be held
invalid or unenforceable because of its duration, geographic scope, or for any
other reason, the Corporation and Costa agree that the court making such
determination shall have the power to modify such provision, whether by limiting
the geographic scope, reducing the duration, or otherwise, to the minimum extent
necessary to make such term or provision valid and enforceable, and such term or
provision shall be enforceable in such modified form.
(f) The provisions of this Section 11 shall survive the termination
of the Employment Term.
12. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been given (a) when
delivered personally, (b) five days after the date of mailing, if sent by
certified or registered mail, return receipt requested, postage prepaid, (c) the
day after having been sent by overnight air courier service (such as Federal
Express), all costs and fees prepaid, or (d) upon facsimile transmission, with a
confirmation copy to be sent by mail the day of transmission, in each case
addressed as follows, or to such other address as any party shall have
designated by notice to the other given pursuant hereto:
-6-
<PAGE> 7
To the Corporation:
Mr. Hong J. Han President
Nah Nah Collections, Inc.
213 West 35th Street
New York, New York 10001
Telephone No.: (212) 947-9000
Fax No.: (212) 947-3195
With a copy to:
James Alterbaum, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Telephone No.: (212) 704-6272
Fax No.: (212) 704-6288
To Costa:
Mr. Victor Costa
3 Quaker Ridge Road
Sherman, Connecticut 06784
Telephone No.: (212) 586-2519
With a copy to:
Stanley Lesser, Esq.
2 West 45th Street, Suite 908
New York, New York 10036
Telephone No.: (212) 840-3288
Fax No.: (212) 398-9708
13. Law Governing. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without regard to
principles of conflicts of law. The parties hereby agree that a proper forum for
suits brought hereunder or relating hereto shall be in a New York State or
Federal Court located in New York City and that each will submit to the
jurisdiction of such courts with respect to any such suits and that service of
process with respect to any such suits may be made by mail to the parties at
their respective addresses as set forth in Section 12 hereof.
14. Severability of Provisions. In the event that any provision or
paragraph of this Agreement shall be found to be illegal or a violation of
public policy or, for any other reason, unenforceable in law, such find shall in
no way invalidate any other provisions or sections of this Agreement.
-7-
<PAGE> 8
15. Waiver. No omission or delay of either party hereto in requiring due
and punctual performance by the other party of the obligations of such other
party hereunder shall be deemed to constitute a waiver of its right to require
such due and punctual performance thereafter or a waiver of any of its remedies
hereunder.
16. Assignment. Neither party may assign any or all of its rights or
delegate any or all of its duties under this Agreement without the prior written
consent of the other party. Any attempted assignment in violation of this
provision or by virtue of the operation of law shall be void. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns.
17. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties hereto with respect to the subject matter hereof and this
Agreement may not be amended, modified or terminated except by a writing signed
by each of the parties hereto.
18. Headings. All headings used in this Agreement are for reference
purposes only and shall not be deemed to have any substantive effect.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have signed this Agreement on the
date set forth on the first page of this Agreement.
NAH NAH COLLECTIONS, INC.
By: /s/ Hong Han
---------------------------------
Hong Han, President
/s/ Victor Costa
------------------------------------
Victor Costa
-9-
<PAGE> 1
Exhibit 10.10.3
THE HE-RO GROUP, LTD.
AGREEMENT DATED AS OF DECEMBER 30, 1997
The undersigned agree to the following payment terms and amendments with
respect to the Licensing Agreement between Oleg Cassini, Inc, ("OCI") and The
He-Ro Group, Ltd. ("He-Ro").
1. Subject to full and timely payment of the amounts set forth below and
full and, timely payment of future payments required under the licensing
agreement, OCI agrees to settle the amount of arrearages for unpaid royalties as
follows:
<TABLE>
<S> <C>
Balance of Minimum Royalties with respect to the Second
Quarter ending August 31, 1997 $29,166.67
Percentage Royalties for First and Second Quarter 1997 $72,694.00
Minimum Royalties for the Third Quarter beginning
December 1, 1997 $87,500.00
-----------
$189,360.67
</TABLE>
2. Simultaneously herewith, He-Ro will deliver to OCI a certified check in
the amount of $87,500.00 together with three (3) post-dated checks as follows:
<TABLE>
<S> <C>
2/15/98 $33,953.56
3/15/98 $33,953.56
4/15/98 $33,953.56
</TABLE>
3. All current and future payments (including those set forth above and
Minimum Royalties due February 1, 1998 and Percentage Royalties due on March 1,
1998) will be paid in a timely manner.
4. Omitted.
5. Subject to He-Ro's compliance with the terms of this letter and the
Licensing Agreement, OCI agrees (i) to waive its claims with respect to interest
on arrears for the period preceding December 31, 1997, (ii) to waive its claim
for increased Minimum Royalties arising out of He-Ro's failure to make an "A
Line", (iii) that Minimum Royalties for the balance of the term shall be
$350,000.00 per Annual Period.
<PAGE> 2
THE HE-RO GROUP, LTD.
6. He-Ro waives its claim against OCI in the amount of $2,417.95 for
merchandise previously purchased.
7. Except as amended hereby or previously, the Licensing Agreement is
hereby ratified and confirmed.
Agreed and Accepted By: Agreed and Accepted By:
Oleg Cassini, Inc. The He-Ro Group, Inc.
By: /s/ Oleg Cassini By: /s/ Hong J. Han
-------------------------- --------------------------
Oleg Cassini Mr. Hong J. Han
President President & CEO
Date: December 30, 1997 Date: December 30, 1997
-2-
<PAGE> 1
Exhibit 10.11
LICENSING AGREEMENT
LICENSING AGREEMENT dated as of December 24, 1997, between
N.N.C.S., INC., a New York corporation ("Licensor"), and NAH
NAH COLLECTION, INC., a New York corporation ("Licensee").
WHEREAS, Licensor owns the trademark "Nahdree" ("Trademark"),
which it desires to license to Licensee for its own use and for sublicensing to
affiliates of Licensee to identify apparel and other items compatible with
similar items currently being marketed under the Trademark; and
WHEREAS, Licensee desires to license the Trademark for
the purpose of sublicensing its use in such territories as it may
elect; and
WHEREAS, Licensor is willing to license the Trademark to
Licensee for the purpose of enabling Licensee to use the Trademark or to
sublicense its use;
NOW, THEREFORE, the parties hereto, in consideration of the
premises hereof and other good and valuable consideration, receipt of which is
hereby acknowledged, hereby agree as follows:
0.1. GRANT OF LICENSE. Effective as of December 24, 1997,
Licensor hereby confirms the grant to Licensee of the exclusive right and
license during the term hereof to sublicense the Trademark for use anywhere in
the World (the "Licensed Territory") or in any part thereof.
<PAGE> 2
0.2. LICENSOR'S REPRESENTATION AND AGREEMENT. Licensor
represents that it is the sole owner of the Trademark and agrees that it shall
not, during the term hereof, grant a sublicense of the Trademark to any person,
firm, or corporation for use in any portion of the Licensed Territory; provided,
however, that Licensor reserves the right to assign the Trademark to an
affiliated company which shall assume all the obligations of Licensor to
Licensee under this Agreement.
0.3. QUALITY STANDARD OF THE LICENSED PRODUCTS. Licensee shall
use its best efforts to ensure that all products on which the Trademark is used
as contemplated hereby are compatible in quality with similar items currently
being marketed under such Trademark.
0.4. APPROVALS. Licensor shall exercise itself, or designate
an agent to exercise, all approval rights given to Licensee by any sublicensee
of the Trademark.
0.5. ROYALTIES. In consideration of this License and all other
rights granted to Licensee by Licensor under this Agreement, Licensee agrees to
reimburse Licensor for any expenses incurred by Licensor in connection with this
License and, in addition, to pay to Licensor annually royalties of 3% of the net
revenues (after discounts and allowances) received in each month by Licensee, or
any affiliate of Licensee, from sales to unaffiliated third parties of products
bearing the Trademark. Notwithstanding the foregoing, Licensor agrees that
during the initial term hereof (but not any renewal or extended term), it will
waive two-thirds of the
- 2 -
<PAGE> 3
royalties provided for above (i.e., receive only 1% of the aforesaid net
revenues.
0.6. TERM. The License granted to Licensee hereunder shall
expire at midnight on May 31, 1998; provided, however, that no such termination
shall affect Licensee's right to honor its obligations under any sublicensee
then in effect, including any extensions thereof).
0.7. BOOKS AND RECORDS. Licensee shall keep true and correct
records of all royalties received from sublicensees under any outstanding
sublicenses. Such records shall be open for reasonable inspection by Licensor or
its duly authorized representatives at convenient times agreed upon by Licensor
and Licensee.
0.8. ASSIGNMENT. Except as contemplated by Section 2 hereof,
this Agreement may not be assigned by either party hereto without prior written
consent from the other such party.
0.9. PRIOR AGREEMENTS. This Agreement shall constitute the
entire agreement between the parties concerning the subject matter hereof and
shall supersede any prior agreements, documents or other instruments with
respect to the matters covered hereby.
0.10. AMENDMENTS. This Agreement may be amended only by a
writing duly executed by both parties hereto.
0.11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such state.
- 3 -
<PAGE> 4
0.12. NOT PARTNERS. Nothing herein contained shall be
construed to create the relationship of partners, joint venturers or principal
and agent between Licensor and Licensee.
0.13. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of each of Licensor and Licensee and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its respective name and under its respective
corporate seal by one of its officers thereunto duly authorized, as of the day
and year set forth above.
N.N.C.S., INC.
By /s/ HONG J. HAN
------------------------
Hong J. Han, President
NAH NAH COLLECTION, INC.
By /s/ HYEUN KIM
------------------------
Sue Kim, Vice President
- 4 -
<PAGE> 1
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
February 28, January 31, February 28, January 31,
1998 1997 1998 1997
---- ---- ---- ----
(Condensed from (Condensed from
unaudited finan- unaudited finan-
cial statements cial statements
of Nah Nah of Nah Nah
Collections, Inc.) Collections, Inc.)
<S> <C> <C> <C> <C>
EARNINGS
Net (loss) income
applicable to common
stock $ (556) $ 62 $ (590) $ 85
SHARES
Shares issued in
connection with
reverse acquisition 5,278 5,278 5,278 5,278
Weighted average shares
for the period December
24, 1997 to February
28, 1998 5,001 -- 1,648 --
-------- -------- -------- --------
10,279 5,278 6,926 5,278
======== ======== ======== --------
Basic and diluted (loss)
income per share $ (0.05) $ 0.01 $ (0.09) $ 0.02
======== ======== ======== ========
</TABLE>
15
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited Consolidated Balance Sheet as of February 28, 1998 and
Consolidated Statement of Income for the three and nine month periods ending
February 28, and January 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 121,000
<SECURITIES> 0
<RECEIVABLES> 4,155,000
<ALLOWANCES> 0
<INVENTORY> 14,144,000
<CURRENT-ASSETS> 18,845,000
<PP&E> 7,555,000
<DEPRECIATION> 6,440,000
<TOTAL-ASSETS> 32,233,000
<CURRENT-LIABILITIES> 19,478,000
<BONDS> 0
0
0
<COMMON> 11,995,238
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,233,000
<SALES> 21,339,000
<TOTAL-REVENUES> 21,339,000
<CGS> 15,767,000
<TOTAL-COSTS> 15,767,000
<OTHER-EXPENSES> 5,514,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642,000
<INCOME-PRETAX> (584,000)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (590,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590,000)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
<PAGE> 1
Exhibit 99.3
SUBORDINATION AGREEMENT
Nah Nah Collection, Inc., a New York corporation having offices located at
213 West 25th Street, New York, New York 10001 (hereinafter referred to as "the
Company"), is indebted to the undersigned creditor (the "Creditor") in the
following amount evidenced as follows:
The Subordinated Note of even date herewith, as hereafter further
amended, supplemented or restated (subject to the last paragraph
hereof) made by the Company in favor of Hong J. Han in the original
principal amount of $250,000 (the "Subordinated Indebtedness").
The Company has requested Heller to extend financial accommodations to the
Company and certain of its affiliates pursuant to the Factoring and Revolving
Inventory Loan and Security Agreement among Heller, the Company, HRNL, Inc., The
Hero Group, Inc., N.N.C.S. LLC, NNCS-NJ LLC, The He-Ro Group, Ltd., H.R.I. Inc.,
European Collections Of Reading Station, Inc., European Collections Of Harriman,
Inc., European Collections of Gilroy, Inc., European Collections of Chattanooga,
Inc., European Collections of Silverthorne, Inc., European Collections of
Queenstown, Inc., European Collections of Williamsburg, Inc. and European
Collections Outlet, Inc. (as amended, modified and supplemented, from time to
time, the "Factoring Agreement"), and Heller is unwilling to do so unless the
Company and the Creditor shall join in this Subordination Agreement pursuant to
which the Creditor shall subordinate, to the extent and in the manner
hereinafter set forth, the Subordinated Indebtedness owing by the Company to the
Creditor, to all indebtedness, now existing or hereafter arising, of the Company
and each other Loan Party to and as defined under the Factoring Agreement (the
"Loan Parties") to Heller.
Accordingly, in order to induce Heller to enter into the Factoring
Agreement, and in consideration of Heller's entering in to the Factoring
Agreement, the Creditor and the Company warrant to and covenant with Heller as
follows:
1. The Creditor agrees to and does hereby subordinate all of the Subordinated
Indebtedness, together with all collateral security and evidence, if any,
of such Subordinated Indebtedness for the payment of any such Subordinated
Indebtedness, to any and all debts, demands, claims, liabilities or causes
of action for which the Company may now or at any time hereafter in any
way be liable to Heller.
2. The Company and the Creditor agree that until all indebtedness owing by
the Company, and each other Loan Party to Heller has been paid in full,
the Company shall not make, directly or indirectly, any payment on account
of principal or interest of any such Subordinated Indebtedness or transfer
any evidence of such Subordinated Indebtedness or any collateral therefor,
and the Creditor will not accept payment of or assert or seek to enforce
against the Company any Subordinated Indebtedness or any collateral or
security relating thereto, unless and until Heller shall have been paid in
full for all indebtedness, obligations and liabilities or causes of action
now or hereafter owing to Heller by the Company and each other Loan Party;
provided,
<PAGE> 2
however, so long as (a) the undersigned have not received notice from
Heller of Heller's declaration of an Event of Default (as defined in the
Factoring Agreement) under the Factoring Agreement and (b) after giving
effect to any such payment outstanding Client Advances (as defined under
the Factoring Agreement) shall not exceed Advance Availability (as defined
in the Factoring Agreement) (without giving effect to the Supplemental
Amount), then the Creditor may receive and the Company may pay regular
monthly installments of interest on the Subordinated Indebtedness as in
effect on the date hereof so long as such payments are not made during a
Clean Up Period (as defined in the Factoring Agreement). To the extent
interest is not permitted to be paid in accordance with the terms hereof,
such interest is permitted to accrue during such non-payment period. So
long as an Event (as herewith defined) shall not have occurred, nothing
contained in this Section 2 shall be deemed to prohibit conversion of the
Subordinated Debt to capital stock of the Company (the "Converted Capital
Stock") so long as the Creditor grants to Heller a first priority
perfected security interest in the Converted Capital Stock and executes
all such documentation as shall be required by Heller to evidence such
pledge. For the purposes of this Section 2, the term "Event" shall mean
any insolvency or bankruptcy proceedings relative to the Company or its
property, or any receivership, liquidation, reorganization or other
similar proceeding in connection therewith, or, in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of
the Company or distribution or marshalling of its assets or any
composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, or if the Company shall cease its operations,
call a meeting of its creditors or no longer do business as a going
concern.
3. The Creditor hereby assigns, transfers and sets over to Heller all of the
Subordinated Indebtedness, whether evidenced by negotiable or
nonnegotiable instruments, debentures, bonds, securities or other
writings, book entries or otherwise, together with any collateral
therefor. The Company and the Creditor shall make appropriate notations in
their books to show the subordinated character of all such Subordinated
Indebtedness which may now or hereafter be carried on open account.
4. At any meeting of creditors of the Company or in the event of any
proceedings, voluntary or involuntary, for the distribution, division or
application of all or part of the assets of the Company or the proceeds
thereof whether such proceedings be for the liquidation, dissolution or
winding up of the Company or its business, receivership, insolvency or
bankruptcy or reorganization (regardless of whether required under any
bankruptcy or insolvency law or any law relating to the relief of
debtors), readjustment of indebtedness, reorganization, arrangement,
composition or otherwise, if all of the indebtedness owing to Heller has
not been paid in full at the time of any such meeting or proceeding,
Heller is hereby irrevocably authorized at any such meeting or in any such
proceeding:
(a) To enforce claims comprising any such Subordinated Indebtedness
either in its own name or the name of the Creditor, by proof of debt,
proof of claim, suit or otherwise;
-2-
<PAGE> 3
(b) To collect any assets of the Company distributed, divided or
applied by way of dividend or payment, or any securities issued, on
account of any of the Subordinated Indebtedness and apply the same, or the
proceeds of any realization upon the same, that Heller in its discretion
elects to effect, to any indebtedness of the Company to Heller until all
such indebtedness of the Company to Heller shall have been paid in full
rendering any surplus to the Creditor;
(c) To vote claims comprising any of the Subordinated Indebtedness
to accept or reject any plan for partial or complete liquidation,
reorganization, arrangement or composition of the Company or for any
extension of payment of the Subordinated Indebtedness; and
(d) To take generally any action in connection with any such meeting
or proceeding which the Creditor might otherwise be entitled to take.
5. The Creditor represents and warrants to Heller that the Creditor has not
assigned or transferred any of the Subordinated Indebtedness or any
interest therein or any collateral or security relating thereto to any
other person, and the Creditor covenants that he shall make no assignment
or transfer thereof other than to Heller. The Creditor further warrants
that no part of the Subordinated Indebtedness is evidenced by any
instrument, security or other writing which has not previously been or is
not concurrently being deposited with Heller or appropriately legended to
reflect this Subordination Agreement.
6. Should any payment on account of or any collateral for any part of the
Subordinated Indebtedness subordinated hereby be received by the Creditor
in violation of this Agreement, such payment or collateral shall be
delivered forthwith to Heller for application to the indebtedness owing by
the Company to Heller, in the form received by the Creditor except for the
addition of any endorsement or assignment necessary to effect the transfer
thereof to Heller. Heller is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted.
7. The Creditor and the Company waive notice of acceptance hereof by Heller,
notice of the creation of any indebtedness or liability of the Company to
Heller, any extension granted or other action taken by Heller in reliance
hereon, the giving or extension of credit by Heller to the Company, the
taking or releasing of security or other obligors by Heller for the
payment of any indebtedness or liability of the Company to Heller. The
Creditor and the Company also waive presentment, demand, protest, notice
of protest or default and any and all other notices to which the Creditor
might otherwise be entitled except as expressly provided for herein. The
Company and the Creditor agree to execute and deliver to Heller such
additional documents and take such further action as Heller may hereafter
reasonably require in order to effect the provisions and intent of this
Subordination Agreement.
8. This Subordination Agreement is intended to take effect as a sealed
instrument and shall be continuing, irrevocable and binding on the Company
and the Creditor, jointly and severally, and their respective heirs,
executors, representatives, successors and
-3-
<PAGE> 4
assigns, and shall inure to the benefit of Heller and its successors and
assigns. This Subordination Agreement shall be construed in accordance
with the laws of the State of New York.
9. Any notice to any party hereto shall be delivered to such party, as
applicable, as follows: if to (a) Hong Han at 12 Timberline Drive, Alpine,
New Jersey 07620 and (b) Heller at 150 East 42nd Street, New York, New
York 10017, Attention: The He-Ro Group Account Executive, in each case by
a nationally recognized overnight delivery service, by hand or by
certified mail, return receipt requested.
So long as the Factoring Agreement remains in effect, neither the Company
nor the Creditor shall enter into any amendment to or modification of any
agreements, documents or instruments evidencing the Subordinated
Indebtedness which affect the principal amount, interest rate, payment
terms or any other material covenant or agreement of the Company
thereunder or in respect thereof, without the prior written consent of
Heller.
[SIGNATURE LINES ON FOLLOWING PAGE]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Subordination
Agreement to be duly executed this 24th day of December, 1997.
/s/ Hong J. Han
-------------------------------
Mr. Hong Han
NAH NAH COLLECTION, INC.
By: /s/ Hyeun Kim
----------------------------
Name: Sue Kim
Title: Vice President
HELLER FINANCIAL INC.
By: /s/ Michael Raynor
----------------------------
Name: Michael Raynor
Title: Vice-President
-5-
<PAGE> 6
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 24th day of December, 1997, before me personally came Hong
J. Han to me known, who being by me duly sworn, did depose and say that he is
the individual described in and who executed the foregoing instrument, and
acknowledges that he executed the same.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came Sue
Kim, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of The He-Ro Group Inc., the corporation described in and which
executed the above instrument; and that she signed her name thereto by like
order of the board of directors of said corporation.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came Michael
Raynor, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of Heller Financial, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
<PAGE> 1
Exhibit 99.4
SUBORDINATION AGREEMENT
The He-Ro Group, Inc., a New York corporation having offices located at
530 Seventh Avenue, New York, New York (hereinafter referred to as "the
Company"), is indebted to each undersigned creditor (each hereinafter referred
to as "the Creditor" and, collectively, the "Creditors") in the following
amounts evidenced as follows:
The following Amended and Restated Subordinated Notes of even
date herewith, as hereafter further amended, supplemented or
restated (subject to the last paragraph hereof): (a) the Amended and
Restated Subordinated Note made by the Company in favor of Hong J.
Han in the original principal amount of $4,269,000 and the Amended
and Restated Subordinated Note made by the Company in favor of Della
Rounick in the original principal amount of $1,257,676 which Notes
are pari passu to each other in terms of priority of payment and are
guarantied on a subordinated basis by The He-Ro Group, Ltd. and all
of its subsidiaries (collectively, the "Subordinated Indebtedness").
The Company has requested Heller to extend financial accommodations to the
Company and certain of its affiliates pursuant to the Factoring and Revolving
Inventory Loan and Security Agreement among Heller, the Company, HRNL Inc. Nah
Nah Collection, Inc., N.N.C.S. LLC, NNCS-NJ LLC, The He-Ro Group, Ltd., H.R.I.
Inc., European Collections Of Reading Station, Inc., European Collections Of
Harriman, Inc., European Collections of Gilroy, Inc., European Collections of
Chattanooga, Inc., European Collections of Silverthorne, Inc., European
Collections of Queenstown, Inc., European Collections of Williamsburg, Inc. and
European Collections Outlet, Inc. (as amended, modified and supplemented, from
time to time, the "Factoring Agreement"), and Heller is unwilling to do so
unless the Company and each Creditor shall join in this Subordination Agreement
pursuant to which each Creditor shall subordinate, to the extent and in the
manner hereinafter set forth, the Subordinated Indebtedness owing by the Company
to such Creditor, to all indebtedness, now existing or hereafter arising, of the
Company and each other Loan Party to and as defined under the Factoring
Agreement (the "Loan Parties") to Heller.
Accordingly, in order to induce Heller to enter into the Factoring
Agreement, and in consideration of Heller's entering in to the Factoring
Agreement, each Creditor and the Company warrant to and covenant with Heller as
follows:
1. Each Creditor agrees to and does hereby subordinate all of the
Subordinated Indebtedness, together with all collateral, security and
evidence, if any, of such Subordinated Indebtedness for the payment of any
such Subordinated Indebtedness, to any and all debts, demands, claims,
liabilities or causes of action for which the Company may now or at any
time hereafter in any way be liable to Heller.
<PAGE> 2
2. The Company and each Creditor agree that until all indebtedness owing by
the Company, and each other Loan Party to Heller has been paid in full,
the Company shall not make, directly or indirectly, any payment on account
of principal or interest of any such Subordinated Indebtedness or transfer
any evidence of such Subordinated Indebtedness or any collateral therefor,
and the Creditor will not accept payment of or assert or seek to enforce
against the Company any Subordinated Indebtedness or any collateral or
security relating thereto, unless and until Heller shall have been paid in
full for all indebtedness, obligations and liabilities or causes of action
now or hereafter owing to Heller by the Company and each other Loan Party;
provided, however, so long as (a) the undersigned have not received notice
from Heller of Heller's declaration of an Event of Default (as defined in
the Factoring Agreement) under the Factoring Agreement and (b) after
giving effect to any such payment outstanding Client Advances (as defined
under the Factoring Agreement) shall not exceed Advance Availability (as
defined in the Factoring Agreement) (without giving effect to the
Supplemental Amount), then each Creditor may receive and the Company may
pay regular monthly installments of interest on the Subordinated
Indebtedness as in effect on the date hereof. To the extent interest is
not permitted to be paid in accordance with the terms hereof, such
interest is permitted to accrue during such non-payment period. So long as
an Event (as herewith defined) shall not have occurred, nothing contained
in this Section 2 shall be deemed to prohibit conversion of the
Subordinated Debt to capital stock of the Company (the "Converted Capital
Stock") so long as such Creditor grants to Heller a first priority
perfected security interest in the Converted Capital Stock and executes
all such documentation as shall be required by Heller to evidence such
pledge. For the purposes of this Section 2, the term "Event" shall mean
any insolvency or bankruptcy proceedings relative to the Company or its
property, or any receivership, liquidation, reorganization or other
similar proceeding in connection therewith, or, in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of
the Company or distribution or marshalling of its assets or any
composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, or if the Company shall cease its operations,
call a meeting of its creditors or no longer do business as a going
concern.
3. Each Creditor hereby assigns, transfers and sets over to Heller all of the
Subordinated Indebtedness, whether evidenced by negotiable or
nonnegotiable instruments, debentures, bonds, securities or other
writings, book entries or otherwise, together with any collateral
therefor. The Company and each Creditor shall make appropriate notations
in their books to show the subordinated character of all such Subordinated
Indebtedness which may now or hereafter be carried on open account.
4. At any meeting of creditors of the Company or in the event of any
proceedings, voluntary or involuntary, for the distribution, division or
application of all or part of the assets of the Company or the proceeds
thereof, whether such proceedings be for the liquidation, dissolution or
winding up of the Company or its business, receivership, insolvency or
bankruptcy or reorganization (regardless of whether required under any
bankruptcy or insolvency law or any law relating to the relief of
debtors), readjustment of indebtedness, reorganization, arrangement,
composition or otherwise, if all of the indebtedness owing to Heller has
not been paid in full at the
-2-
<PAGE> 3
time of any such meeting or proceeding, Heller is hereby irrevocably
authorized at any such meeting or in any such proceeding:
(a) To enforce claims comprising any such Subordinated Indebtedness
either in its own name or the name of any Creditor, by proof of debt,
proof of claim, suit or otherwise;
(b) To collect any assets of the Company distributed, divided or
applied by way of dividend or payment or any securities issued, on account
of any of the Subordinated Indebtedness and apply the same, or the
proceeds of any realization upon the same, that Heller in its discretion
elects to effect, to any indebtedness of the Company to Heller until all
such indebtedness of the Company to Heller shall have been paid in full
rendering any surplus to the applicable Creditor;
(c) To vote claims comprising any of the Subordinated Indebtedness
to accept or reject any plan for partial or complete liquidation,
reorganization, arrangement or composition of the Company or for any
extension of payment of the Subordinated Indebtedness; and
(d) To take generally any action in connection with any such meeting
or proceeding which any Creditor might otherwise be entitled to take.
5. Each Creditor represents and warrants to Heller that such Creditor has not
assigned or transferred any of the Subordinated Indebtedness or any
interest therein or any collateral or security relating thereto to any
other person, and such Creditor covenants that such Creditor shall make no
assignment or transfer thereof other than to Heller or to the other
Creditor (any such assignment or transfer shall remain subject to the
terms and provisions of this Agreement). Each Creditor further warrants
that no part of the Subordinated Indebtedness is evidenced by any
instrument, security or other writing which has not previously been or is
not concurrently being deposited with Heller or appropriately legended to
reflect this Subordination Agreement.
6. Should any payment on account of or any collateral for any part of the
Subordinated Indebtedness subordinated hereby be received by any Creditor
in violation of this Agreement such payment or collateral shall be
delivered forthwith to Heller for application to the indebtedness owing by
the Company to Heller, in the form received by such Creditor except for
the addition of any endorsement or assignment necessary to effect the
transfer thereof to Heller. Heller is irrevocably authorized to supply any
required endorsement or assignment which may have been omitted.
7. Each Creditor and the Company waive notice of acceptance hereof by Heller,
notice of the creation of any indebtedness or liability of the Company to
Heller, any extension granted or other action taken by Heller in reliance
hereon, the giving or extension of credit by Heller to the Company, the
taking or releasing of security or other obligors by Heller for the
payment of any indebtedness or liability of the Company to Heller. Each
Creditor and the Company also waive presentment, demand, protest, notice
of protest or default and any and all other notices to which
-3-
<PAGE> 4
such Creditor might otherwise be entitled except as expressly provided for
herein. The Company and each Creditor agree to execute and deliver to
Heller such additional documents and take such further action as Heller
may hereafter reasonably require in order to effect the provisions and
intent of this Subordination Agreement.
8. This Subordination Agreement is intended to take effect as a sealed
instrument and shall be continuing, irrevocable and binding on the Company
and each Creditor, jointly and severally, and their respective heirs,
executors, representatives, successors and assigns, and shall inure to the
benefit of Heller and its successors and assigns. This Subordination
Agreement shall be construed in accordance with the laws of the State of
New York.
9. Any notice to any party hereto shall be delivered to such party, as
applicable, as follows: if to (a) Hong Han at 12 Timberline Drive, Alpine,
New Jersey 07620, (b) Della Rounick at 15 West 53rd Street, New York, New
York 10019, and (e) Heller at 150 East 42nd Street, New York, New York
10017, Attention: The He-Ro Group Account Executive, in each case by a
nationally recognized overnight delivery service, by hand or by certified
mail return receipt requested.
So long as the Factoring Agreement remains in effect, neither the Company
nor any Creditor shall enter into any amendment to or modification of any
agreements, documents or instruments evidencing the Subordinated
Indebtedness which affect the principal amount, interest rate, payment
terms or any other material covenant or agreement of the Company
thereunder or in respect thereof without the prior written consent of
Heller.
[SIGNATURE LINES ON FOLLOWING PAGE]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed this 24th day of December, 1997.
/s/ Vasiliki Della Pasvantidou Rounick
--------------------------------------
Vasiliki Della Pasvantidou Rounick
/s/ Hong J. Han
--------------------------------------
Hong J. Han
THE HE-RO GROUP, INC.
By: /s/ Sam Kaplan
-----------------------------------
Name:
Title: Vice President
HELLER FINANCIAL INC.
By: /s/ Michael Raynor
----------------------------
Name:
Title:
-5-
<PAGE> 6
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 24th day of December, 1997, before me personally came Hong
J. Han to me known, who being by me duly sworn, did depose and say that he is
the individual described in and who executed the foregoing instrument, and
acknowledges that he executed the same.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of December, 1997, before me personally came Della
Rounick, to me known, who being by me duly sworn, did depose and say that she is
the individual described in and which executed the foregoing instrument, and
acknowledges that she executed the same.
/s/ Stuart Shorestein
----------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came Sam
Kaplan, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of the He-Ro Group, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
<PAGE> 7
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came Michael
Raynor, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of Heller Financial, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.
/s/ Judith D. Mitchell
----------------------------------
Notary Public
