<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO
FILED PURSUANT TO 13d-2(a)
(AMENDMENT NO.______)(1)
THE HE-RO GROUP, LTD.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
422047100
(CUSIP Number)
Hong J. Han Jeffrey M. Cole, Esq.
Nah Nah Collection, Inc. Baer Marks & Upham LLP
213 West 35th Street 805 Third Avenue
New York, New York 10001 New York, New York 10022
(212) 947-9000 (212) 702-5700
(Name, Address and Telephone Number of Person(s) Authorized to Receive Notices
and Communications)
December 24, 1997
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box
/ /.
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
(Continued on following pages)
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(1) The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP No. 422047100 Page 2 of 7 Pages
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
HONG J. HAN
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
3. SEC USE ONLY
4. SOURCE OF FUNDS* 00
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7. SOLE VOTING POWER 9,708,653
NUMBER OF
SHARES
BENEFICIALLY 8. SHARED VOTING POWER 0
OWNED BY
EACH
REPORTING 9. SOLE DISPOSITIVE POWER 5,277,905
PERSON WITH
10. SHARED DISPOSITIVE POWER 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,708,653*
* Includes 4,430,748 shares subject to an Irrevocable Proxy
granted to Mr. Han with respect to which shares Mr. Han
has no pecuniary interest.
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* / /
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 81.0%
14. TYPE OF REPORTING PERSON* IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 422047100 Page 3 of 7 Pages
ITEM 1. SECURITY AND ISSUER
The class of equity securities to which this Statement on
Schedule 13D (the "Statement") relates is the Common Stock, par value
$.01 per share (the "Common Stock"), of The He-Ro Group, Ltd. ("He-Ro"
or the "Issuer"). The principal executive offices of the Issuer are
located at 530 Seventh Avenue, New York, New York 10018.
ITEM 2. IDENTITY AND BACKGROUND
Hong J. Han's business address is c/o Nah Nah Collection,
Inc., 213 West 35th Street, New York, New York 10001. Mr. Han's
principal occupation is President of Nah Nah Collection, Inc. ("Nah
Nah") and President and Chief Executive Officer of the Issuer.
During the last five years, Mr. Han has not (i) been convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, United States federal or state securities laws or finding
any violation with respect to such laws.
Mr. Han is a citizen of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
In consideration of the issuance by the Issuer to Mr. Han of
5,277,905 shares of Common Stock of the Issuer, Mr. Han transferred to
the Issuer all of the outstanding capital stock of Nah Nah.
ITEM 4. PURPOSE OF TRANSACTION
Mr. Han acquired the shares of the Common Stock of
the Issuer in accordance with a Stock Purchase Agreement dated October
16, 1997 (the "Agreement"), among Mr. Han, Nah Nah, the Issuer and
Della Rounick. Pursuant to the Agreement, on December 24, 1997
(the"Closing Date"), Mr. Han acquired 5,277,905 shares of Common Stock
of the Issuer, or 44% of the Issuer's issued and outstanding capital
stock, and the Issuer acquired from Mr. Han all of the issued and
outstanding capital stock of Nah Nah, whereby Nah Nah became a
wholly-owned subsidiary of the Issuer.
In addition, Ms. Rounick delivered to Mr. Han an irrevocable
proxy (the "Irrevocable Proxy") granting to Mr. Han, or his designee,
the right to vote the 4,430,748 shares of Common Stock owned by her.
The Irrevocable Proxy has an initial term of three years, subject to
extension upon the occurrence of certain conditions. Ms. Rounick agreed
not to sell, transfer or dispose of any securities of the Issuer for a
period of three years. After the expiration of the initial three year
term of the Irrevocable Proxy, Rounick may sell shares covered by the
Irrevocable Proxy free and clear of the Irrevocable Proxy, subject to
Mr. Han's right of first
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CUSIP No. 422047100 Page 4 of 7 Pages
refusal with respect to any such sale, and provided that Mr. Han owns a
certain percentage of securities of the Issuer.
In addition, pursuant to the Agreement, on the Closing Date
Martin C. Bring resigned from the Issuer's Board of Directors and Mr.
Han was elected as a member of the Issuer's Board of Directors and as
president of the Issuer. Ms. Rounick, the other member of the Board of
Directors, has agreed to fill remaining vacancies on the board with
three designees of Mr. Han.
As of the Closing Date, the Issuer and its subsidiaries
commenced doing business under the name The Nahdree Group. The Issuer
intends to amend its certificate of incorporation to change its name to
The Nahdree Group.
In addition, on the Closing Date, Mr. Han acquired all of the
outstanding indebtedness of the Issuer to its junior bank group and
approximately 82% of the outstanding indebtedness of The He-Ro Group,
Inc., one of the Issuer's principal subsidiaries, to Della Rounick. For
a description of these transactions, see Item 6.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Mr. Han has acquired 5,277,905 shares of Common
Stock of the Issuer and an Irrevocable Proxy (described above in Item 4
and attached hereto as Exhibit B) to vote 4,430,748 shares of Common
Stock. Accordingly, Mr. Han beneficially owns 9,708,653 shares of
Common Stock, or approximately 81% of the 11,995,238 issued and
outstanding shares of Common Stock of the Issuer as of the date hereof.
(b) Mr. Han has sole voting power with respect to
9,708,653 shares of Common Stock, shared voting power with respect to
zero shares of Common Stock, sole dispositive power with respect to
5,277,905 shares of Common Stock, and shared dispositive power with
respect to zero shares of Common Stock
(c) Not applicable.
(d) Della Rounick is the record owner of the
4,430,748 shares of Common Stock subject to the Irrevocable Proxy
granted to Mr. Han (as described in Item 4). Ms. Rounick is entitled to
receive dividends (if any) with respect to such shares. In addition, as
explained above in Item 4, Ms. Rounick may sell shares covered by the
Irrevocable Proxy subject to certain restrictions, including a right of
first refusal granted to Mr. Han. Ms. Rounick is entitled to receive
the entire proceeds from any such sale of shares covered by the
Irrevocable Proxy.
Other than Mr. Han and as explained herein, no other person
has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the shares.
(e) Not applicable.
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CUSIP No. 422047100 Page 5 of 7 Pages
ITEM 6. CONTRACT, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
Pursuant to certain conditions set forth in the Agreement, on
the Closing Date, Mr. Han purchased from Ms. Rounick subordinated
indebtedness of The He-Ro Group, Inc., a wholly-owned subsidiary of the
Issuer ("HGI"), to the Estate of Herbert Rounick (of which Ms. Rounick
is executrix) in the amount of $4,296,000, plus accrued interest. Ms.
Rounick retained $1,000,000, plus accrued interest, of subordinated
indebtedness. The aggregate indebtedness (in the principal amount of
$6,660,801, which includes the accrued interest) is evidenced by
subordinated notes of the Issuer in favor of each of Mr. Han and Ms.
Rounick bearing interest at 9.278% per annum. The principal is due and
payable on demand and the interest is due on the first of each month
commencing January 1, 1998, or otherwise on demand. The Issuer and all
of its subsidiaries (except HGI) have guaranteed payment and
performance of the notes. According to the terms of a certain Debt
Purchase and Intercreditor Agreement dated the Closing Date among Han,
Rounick and HGI (the "Intercreditor Agreement"), which governs the
notes, the payments on, and any conversion of, the notes, as well as
other provisions of the notes, will be on a pari passu basis, subject
to certain restrictions. The Intercreditor Agreement also provides that
Ms. Rounick may not take any action to collect, enforce, convert or
otherwise deal with her note unless Mr. Han has taken such action (in
which event Ms. Rounick may take such action but only to the same
extent and on the same terms as Mr. Han) or unless she has received Mr.
Han's prior written consent.
On the Closing Date, Mr. Han also acquired all of the
obligations due and owing by the Issuer to a junior bank group (for
whom Marine Midland Bank N.A. was agent), and all the collateral
therefor, under the fourth amended and restated revolving credit
agreement dated as of May 15, 1995 between the Issuer and the junior
bank group (the "Credit Agreement"), in the aggregate principal amount
of $2,750,000. The obligations are evidenced by a term note to each
bank in the junior bank group with interest at 2% above the prime rate.
Mr. Han has none of the lending obligations under the Credit Agreement.
The Issuer's indebtedness to Mr. Han, as successor to the junior bank
group, is (i) subordinated to the Issuer's indebtedness to its new
senior lender, Heller Financial, Inc., 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. Under the terms of a subordination and intercreditor agreement
between Mr. Han and Heller Financial, Inc., all interest payments to
Mr. Han are subject to certain conditions. The junior bank group also
surrendered to the Issuer for cancellation warrants to purchase 250,000
shares of common stock of the Issuer.
Other than as described above and in Item 4, there are no
contracts, arrangements, understandings or relationships (legal or
otherwise) among Mr. Han and any other person with respect to any
securities of the Issuer, including but not limited to transfer or
voting of any securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits
or loss or the giving or withholding of proxies.
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CUSIP No. 422047100 Page 6 of 7 Pages
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit A - Stock Purchase Agreement dated as of October 16,
1997 among the Issuer, Nah Nah, Mr. Han and Ms. Rounick.
Exhibit B - Irrevocable Proxy granted by Ms. Rounick in favor
of Mr. Han.
Exhibit C - Debt Purchase and Intercreditor Agreement among
Mr. Han, Della Rounick and The He-Ro Group, Inc.
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CUSIP No. 422047100 Page 7 of 7 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify the information set forth in this Statement is true,
complete and correct.
Dated: January 2, 1998
/s/ Hong J. Han
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Hong J. Han
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Exhibit A
STOCK PURCHASE AGREEMENT, dated as of October 16, 1997, by and
among THE HE-RO GROUP, LTD., a Delaware corporation ("He-Ro"), VASILIKI DELLA
PASVANTIDOU ROUNICK an individual residing at 15 West 53rd Street, New York, New
York 10019 ("Rounick") (to the limited extent provided herein), NAH-NAH
COLLECTION, INC., a New York corporation ("Nah-Nah"), and HONG J. HAN an
individual residing at 12 Timberline Drive, Alpine, New Jersey 07620 ("Han") (to
the limited extent provided herein).
RECITALS
WHEREAS, Han is the sole stockholder of Nah-Nah;
WHEREAS, Han desires to sell all of the outstanding shares of
common stock of Nah-Nah, no par value (the "Nah-Nah Common Stock") to He-Ro upon
the terms and conditions set forth herein;
WHEREAS, as consideration, He-Ro will issue to Han that number
of shares of common stock of He-Ro, par value $.01 (the "He-Ro Common Stock"),
such that after the consummation of the transactions contemplated by this
Agreement, Han will own directly or indirectly 44% of the issued and outstanding
common stock of He-Ro inclusive of all outstanding options and warrants to
purchase common stock of He-Ro exercisable as of the Closing Date (as such term
is defined herein);
WHEREAS, Rounick as executrix of the estate of Herbert Rounick
(the "Estate"), desires to sell to Han and Han desires to purchase from the
Estate, all of the obligations due and owing from He-Ro to the Estate (the
"Rounick Debt"), except for $1,000,000 in principal of such obligations, which
Rounick desires to retain (the "Retained Rounick Debt"), all on the terms and
conditions set forth in an agreement to close contemporaneously with the Closing
hereunder among Rounick, He-Ro and Han (the "Rounick Debt Agreement");
WHEREAS, contemporaneously with the Closing hereunder, Han
will acquire all of the obligations due and owing from He-Ro to the Junior Bank
Group (as such term is defined herein) and all collateral therefor (the "Junior
Debt") under the Fourth Amended and Restated Revolving Credit Agreement dated as
of May 15, 1995, by and among He-Ro and the Junior Bank Group (the "Junior Debt
Agreement" which term includes any and all present and future amendments
thereto) on the terms and conditions set forth in an agreement to close
contemporaneously with the Closing hereunder between Han, He-Ro and the members
of the Junior Bank Group (the "Junior Bank Group Debt Purchase Agreement:
WHEREAS, contemporaneously with the Closing hereunder, He-Ro
and Nah-Nah will obtain the consent to enter into this Agreement from Foothill
Capital Corporation (the "Senior Lender") as required under the Loan and
Security Agreement dated as of May 12, 1995, by and between He-Ro and the Senior
Lender (the "Senior Debt Agreement" which term includes any and all present and
future amendments thereto), or
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secure alternative financing to refinance the principal and accrued interest
then due and owing to the Senior Lender (the "Senior Debt") under the Senior
Debt Agreement;
NOW THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
SALE AND PURCHASE; SCHEDULES
SECTION 1.1 SALE AND PURCHASE OF NAH-NAH COMMON STOCK. Upon
the terms and subject to the conditions hereof, at the closing provided for in
Section 1.3 (the "Closing"), He-Ro shall purchase and acquire from Han and Han
shall sell, assign, transfer, convey and deliver to He-Ro free and clear of all
Liens, the Nah-Nah Common Stock.
SECTION 1.2 CONSIDERATION. Upon the terms and subject to the
conditions hereof, at the Closing He-Ro shall issue and deliver to Han the He-Ro
Common Stock free and clear of all Liens.
SECTION 1.3 CLOSING. Subject to the terms and conditions of
this Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall take place at 10:00 a.m., local time, at the offices of Baer
Marks & Upham LLP, 805 Third Avenue, New York, New York 10022 or at the offices
of the Senior Lender or the substitute senior lender, or at another mutually
acceptable location, no later than the fifth business day following the
satisfaction or waiver of the conditions specified in Article V (the "Closing
Date").
SECTION 1.4 FINAL SCHEDULES; EXHIBITS; FINANCING LETTER. (a)
The validity of this Agreement is subject to the delivery by the parties hereto
on or before October 31, 1997 (the "Schedule Delivery Date") of: (i) the
Schedules required to be delivered pursuant to this Agreement, in each instance
in form and substance satisfactory to the party to whom the Schedule is being
delivered, and (ii) the Exhibits to this Agreement, each in form and substance
mutually satisfactory to the parties hereto.
(b) If the conditions set forth in Section 1.4(a) are
fulfilled, this Agreement may nevertheless be terminated, at the option of
Nah-Nah, if by the Schedule Delivery Date, Nah-Nah does not deliver an executed
letter from the Senior Lender or an alternative senior lender setting forth the
principal terms and conditions, satisfactory to Nah-Nah in its sole discretion,
of such lender's proposed senior financing for He-Ro (the "Financing Letter").
(c) There shall be no liability or expense to any
party hereunder in the event that this Agreement is terminated under Sections
1.4(a) or (b) hereof.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HE-RO
He-Ro represents and warrants to Nah-Nah and Han as follows:
SECTION 2.1 AUTHORITY RELATIVE TO THIS AGREEMENT; VALID AND
BINDING AGREEMENT. He-Ro has full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which it is or, at
the Closing, will be a party and to consummate the transactions contemplated
hereby and thereby (the "Contemplated Transactions"). The execution and delivery
of this Agreement and the consummation of the Contemplated Transactions to which
He-Ro is or, at the Closing, will be a party have been duly and validly
authorized by He-Ro, and no other corporate proceedings on the part of He-Ro are
necessary to authorize the execution and delivery by He-Ro of this Agreement or
the consummation of the Contemplated Transactions to which He-Ro is or, at the
Closing, will be a party. This Agreement has been and, at the Closing, the other
Transaction Documents to which He-Ro is a party will have been, duly and validly
executed and delivered by He-Ro, and (assuming the valid execution and delivery
thereof by the other parties thereto) constitute or will at the Closing
constitute, as the case may be, the legal, valid and binding agreements of He-Ro
enforceable against He-Ro in accordance with their respective terms except as
such obligations and their enforceability may be limited by applicable
bankruptcy and other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is subject to
the discretion of the court before which any proceeding therefor may be brought
(whether at law or in equity).
SECTION 2.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by He-Ro of this Agreement and each other Transaction Document
to which it is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) violate any provision of the Certificate
of Incorporation or By-laws (or comparable instruments) of He-Ro; (ii) require
He-Ro, or any Affiliate of He-Ro to obtain any consent, approval or action of or
waiver from, or make any filing with, or give any notice to, any Governmental
Body or any other person, except as set forth on Schedule 2.2 (the "He-Ro
Required Consents"); (iii) if He-Ro Required Consents are obtained prior to
Closing, violate, conflict with or result in a breach or default under (after
the giving of notice or the passage of time or both), or permit the termination
of, any Contract to which He-Ro or any Subsidiary is a party or by which any of
them or any of their respective assets may be bound or subject, or result in the
creation of any Lien upon any assets of He-Ro or any Subsidiary pursuant to the
terms of any such Contract; (iv) if He-Ro Required Consents are obtained prior
to Closing, violate any Law or Order of any Governmental Body against, or
binding upon, He-Ro or any Subsidiary; or (v) if He-Ro Required Consents are
obtained prior to Closing, violate or result in the revocation or suspension of
any Permit of He-Ro or any Subsidiary.
SECTION 2.3 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES;
OFFICERS AND DIRECTORS. He-Ro is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware. Except for those
Subsidiaries listed on Schedule 2.3(a) hereof (the "Inactive Subsidiaries"),
each Subsidiary is duly organized and validly
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existing under the laws of the state or other jurisdiction of its organization
(which Subsidiaries and their respective state of organization are set forth on
Schedule 2.3(b) hereto). Except as set forth on Schedule 2(a), the Inactive
Subsidiaries do not carry on any activities and do not own or lease any assets
of any kind. Each of He-Ro and each Subsidiary has all requisite power and
authority to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business are presently conducted. Except as set forth on
Schedule 2.3(c) hereto, each of He-Ro and each Subsidiary is duly qualified and
in good standing to do business in each jurisdiction in which the nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary, except where the absence of such qualifications,
individually or in the aggregate, would not have a material adverse effect on
the business, assets, condition (financial or otherwise), prospects or results
of operations of He-Ro and the Subsidiaries, taken as a whole. A list of the
jurisdictions in which He-Ro and the Subsidiaries are so qualified is set forth
on Schedule 2.3(c). Except for the Subsidiaries listed on Schedules 2.3(a) and
(b) hereto, He-Ro does not directly or indirectly own any capital stock of or
other equity interests in any corporation, partnership or other entity or have
any direct or indirect equity interest in any business. Schedule 2.3(d) sets
forth a true and complete list of each director and officer of He-Ro and its
Subsidiaries.
SECTION 2.4 CHARTER DOCUMENTS AND CORPORATE RECORDS. (a) He-Ro
has previously delivered or made available to Nah-Nah true and complete copies
of the Certificate of Incorporation, as amended to date, and By-laws, as amended
to date, or comparable organizational documents, as in effect on the date
hereof, of He-Ro and each Subsidiary. The stock certificate and transfer books
of He-Ro and each Subsidiary (all of which have been made available for
inspection by Nah-Nah) are true and complete. The minute books of He-Ro and each
Subsidiary (all of which have been made available for inspection by Nah-Nah) are
true and complete in all material respects (it being understood that such
materiality limitation shall not apply to items relating to capitalization which
are covered by subsection 2.6 below).
(b) Except as set forth in Schedule 2.4, He-Ro owns,
directly or indirectly, of record and beneficially, free and clear of all Liens,
all of the issued and outstanding capital stock of each of its Subsidiaries.
Except as provided in this Agreement or under the Senior Debt Agreement or
Junior Debt Agreement, there are no restrictions (whether by agreement, statute
(other than the corporate laws of the applicable state incorporation), rule,
regulation, order or otherwise) that may affect or limit the ability of (i) any
Subsidiary to pay dividends or make distributions to He-Ro or (ii) to pay
dividends or make distributions to holders of its capital stock.
(c) All financial, business and accounting books,
ledgers, accounts and official and other records relating to He-Ro have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies contained or reflected therein.
SECTION 2.5 THE HE-RO COMMON STOCK. Upon delivery to Han at
the Closing of certificates representing the He-Ro Common Stock, such stock will
be validly issued, fully paid and non-assessable and good and valid title to the
He-Ro Common Stock
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will pass to Han, free and clear of all Liens. The He-Ro Common Stock to be
issued will not have been registered under the Securities Act and the
certificate representing such stock shall contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION
IS NOT REQUIRED BY SAID ACT OR STATE LAWS.
SECTION 2.6 AUTHORIZED AND OUTSTANDING STOCK. (a) The
authorized capital stock of He-Ro consists of (i) 25,000,000 shares of Common
Stock of which 6,717,333 shares are validly issued and outstanding and, based on
He-Ro's transfer agent list, as of a date not more than thirty (30) days prior
to this Agreement attached hereto as Schedule 2.6(a), held of record by the
shareholders set forth thereon; and all shareholders known to He-Ro who own of
record in excess of 5% of the Common Stock of He-Ro are set forth on Schedule
2.6(b) (setting forth such person's name, amount of shares of Common Stock owned
by such person and the percentage of outstanding Common Stock owned by such
person, as calculated in accordance with the proxy rules of the Exchange Act),
and (ii) 1,000,000 shares of preferred stock, $.01 par value, none of which are
currently outstanding. Except as set forth on Schedule 2.6(c), there are no
treasury shares held by He-Ro. All issued and outstanding shares of capital
stock of each Subsidiary are duly and validly authorized, validly issued and
fully paid and non-assessable. All issued and outstanding shares of capital
stock of He-Ro and its Subsidiaries are free from any restrictions on transfer,
except for restrictions imposed by federal or state securities or "blue-sky"
laws. A sufficient number of authorized but unissued shares of Common Stock has
been reserved for issuance in accordance with the terms of this Agreement.
Except as otherwise set forth in Schedule 2.6(c), there are no outstanding
warrants, options (including, but not limited to, options granted under the
He-Ro's stock option plans), commitments, preemptive rights, rights to acquire
or purchase, conversion rights or demands or any character relating to the
capital stock or other securities of He-Ro (collectively the "Stock Rights").
Schedule 2.6(c) sets forth a detailed listing of the following items with
respect to the Stock Rights: (i) the name of each holder of the Stock Rights,
(ii) the number of shares subject to such Stock Rights, (iii) the exercise price
for the shares to be issued pursuant to such Stock Rights, (iv) the vesting
schedule for such Stock Rights, and (v) any other material information with
respect to the Stock Rights. All issued and outstanding shares of Common Stock
of He-Ro were issued (i) in transactions duly registered under the Securities
Act, or in transactions exempt from the registration provisions of the
Securities Act, and (ii) in compliance with or in transactions exempt from the
registration provisions of applicable state securities or "blue-sky" laws.
(b) Durnard Limited (Hong Kong) ("Durnard") is a
wholly-owned subsidiary of He-Ro. In March 1994, He-Ro issued to Durnard
1,343,462 shares of Common Stock of He-Ro (the "Durnard Shares"). Durnard owns
the Durnard Shares free and clear of all Liens (the lien thereon having been
released in October 1995) and no party
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<PAGE> 6
other than Durnard has any interest in or claim to all or any portion of the
Durnard Shares. The Durnard Shares are not registered under the Securities Act.
The Durnard Shares are validly issued, fully paid and non-assessable,
SECTION 2.7 SEC REPORTS; FINANCIAL INFORMATION. (a) He-Ro has
furnished to Nah-Nah true, correct and complete copies of its Annual Report on
Form 10-K for the fiscal years ended May 31, 1996 and 1997 (and will furnish to
Nah-Nah promptly after the filing thereof, true, correct and complete copies of
all other filings made by He-Ro with the Securities and Exchange Commission (the
"SEC") after the date hereof through and including the Closing Date, (the
"Subsequent SEC Filings"; all such documents, including the Subsequent SEC
Filings, being collectively called the "SEC Documents"), each as filed with the
SEC. The SEC Documents include all of the documents that the Company was
required to file with the SEC since May 31, 1996 through the date hereof and the
Subsequent SEC Filings will include all of the documents that the Company is
required to file with the SEC from the date hereof through and including the
Closing Date. Each of the SEC Documents has been duly filed (other than the
Subsequent SEC Filings which will be duly filed) and when filed was or will be
in the case of the Subsequent SEC Filings, in compliance in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC thereunder applicable to such SEC Document. Each of SEC Documents
(including the financial statements included therein) was or will be in the case
of the Subsequent SEC Filings, complete and correct in all material respects as
of its date and, as of its date, did not or will not, in the case of the
Subsequent SEC Filings, contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements included within the SEC
Documents have been or will be, in the case of the Subsequent SEC Filings,
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and present
fairly or will present fairly, in the case of the Subsequent SEC Filings,
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments) the consolidated financial position of He-Ro and the Subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
(b) He-Ro has previously delivered or made available
to Nah-Nah monthly flash sales and gross profit reports and monthly financial
information consistent with GAAP of He-Ro and its Subsidiaries for the periods
subsequent to the He-Ro Latest Balance Sheet Date. The flash sales and gross
profit reports and monthly financial information previously delivered or made
available to Nah-Nah are true, correct and complete in all material respects.
(c) As of May 31, 1996, for federal income Tax
purposes, He-Ro had net operating loss ("NOL") carryovers incurred in prior
years of $29,630,686 and NOL carryovers for the fiscal year ended May 31, 1997
of approximately $8,600,000, which expire as set forth on Schedule 2.7(c). As of
the date hereof, prior to giving effect to the transactions contemplated herein
(or the Closing Date after giving effect to the transactions contemplated
herein), the use of the full amount of those NOL carryovers by any U.S.
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member of the affiliated group of which He-Ro is the common parent, is not
limited by Sections, 269, 381, 382, 384 or any other provision of the Code,
including, without limitation, the Treasury regulations governing the filing of
consolidated returns by affiliated groups or by any comparable provision of any
state or local income or franchise Tax.
(d) Schedule 2.7(d) attached hereto sets forth (i)
the amount of indebtedness (including accrued expenses, bank debt and accounts
payable) of He-Ro and its Subsidiaries outstanding, on a consolidated basis, as
of August 31, 1997, (ii) any Lien with respect to such indebtedness, and (iii) a
list of each instrument or agreement governing such indebtedness (true and
correct copies of which have been provided to Nah-Nah). Schedule 2.7(d) also
sets forth the total amount outstanding as of September 30, 1997, of each of the
Rounick Debt, the Junior Debt and the Senior Debt. Except as set forth on
Schedule 2.7(d), no default exists with respect to or under any such
indebtedness or any instrument or agreement relating thereto, which has not been
waived in writing by the holder thereof.
SECTION 2.8 LIABILITIES. (a) Except as and to the extent
reflected in the audited balance sheet of He-Ro, including the footnotes thereto
(the "He-Ro Latest Balance Sheet") at May 31, 1997 (the "He-Ro Latest Balance
Sheet Date"), He-Ro did not have, as of the He-Ro Latest Balance Sheet Date, any
Liabilities or obligations (other than obligations of continued performance
under Contracts and other commitments and arrangements entered into in the
ordinary course of business) which GAAP would require He-Ro to reflect on the
He-Ro Latest Balance Sheet, and except as described in Schedule 2.8(a) hereto,
He-Ro has not incurred any Liabilities since the He-Ro Latest Balance Sheet Date
except (i) current Liabilities for trade or business obligations incurred in
connection with the purchase of goods or services in the ordinary course of the
business and consistent with past practice and (ii) Liabilities reflected on the
balance sheet included in any most recent He-Ro Interim Statement (as defined
herein) delivered to Nah-Nah prior to the date hereof.
(b) Except as set forth in Schedule 2.8(b) or in the
He-Ro Latest Balance Sheet, there are no Liabilities of He-Ro or any Subsidiary
which have been guaranteed by, or secured by collateral provided by, any party
other than He-Ro or a Subsidiary.
SECTION 2.9 INVENTORY. Schedule 2.9 sets forth a true and
complete Inventory aging of He-Ro and its Subsidiaries as of September 30, 1997.
All Inventory consists of items which are good and merchantable and of a
quantity and quality usable or saleable in the ordinary course of business
consistent with past practices. All Inventory, whether reflected in Schedule 2.9
or the He-Ro Latest Balance Sheet, is valued at the lower of cost or market at
FIFO (first-in, first-out) and has been determined in accordance with GAAP
consistently applied.
SECTION 2.10 ABSENCE OF CERTAIN CHANGES. Since the He-Ro
Latest Balance Sheet Date, except as disclosed in the profit and loss
projections set forth at Schedule 2.10 (the "Projections") or in any He-Ro
Interim Statement delivered to Nah-Nah prior to the date hereof, He-Ro has
conducted its business in the ordinary course consistent with past practices and
there has not been:
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(a) Any material adverse change in the assets or any
material adverse change in the condition (financial or otherwise), results of
operations or prospects of He-Ro, any Subsidiary or the business of He-Ro or any
Subsidiary (collectively, the "Condition of the Business") or any event,
occurrence or circumstance that could reasonably be expected to cause such a
material adverse change. Without limiting the generality of the foregoing, the
parties agree that any change in the financial condition of He-Ro and its
Subsidiaries that varies more than 15% from the Projections on a cumulative
basis from June 1, 1997, except for those specific changes made in anticipation
of the Contemplated Transactions and consented to by Nah-Nah in writing, is
material.
(b) Any transaction or Contract in the amount of
$25,000 or more on an annual basis with respect to the purchase, acquisition,
lease, disposition or transfer of all or any part of any assets or to any
capital expenditure relating to the business of He-Ro or any Subsidiary (in each
case other than transactions or Contracts entered into in the ordinary course of
business consistent with past practice).
(c) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the assets or business of He-Ro or any Subsidiary, to the extent material to
their businesses;
(d) Any material change in any method of accounting
or accounting practice by He-Ro;
(e) Any material increase in the compensation payable
or to become payable to any officer, stockholder, director, consultant, agent or
employee of He-Ro or any Subsidiary, or any alteration in the benefits payable
to any such person;
(f) Any material adverse change in the relationships
of He-Ro or any Subsidiary with its customers, suppliers and vendors, except as
to the cash flow deficiencies set forth in the Projections;
(g) Except for any changes made in the ordinary
course of business, any material change in any of He-Ro's or any Subsidiary's
business policies, including advertising, marketing, pricing, purchasing,
personnel, returns or budget policies; or
(h) Any action that has impaired, restricted or
limited, or could, to He-Ro's knowledge, cause in the future the impairment,
restriction or limitation of, the use or availability of the NOL carry forward.
SECTION 2.11 REAL PROPERTY. (a) Neither He-Ro nor any
Subsidiary owns any real property. Schedule 2.11(a) sets forth the addresses and
uses of all real property that He-Ro or any Subsidiary leases or subleases (the
"He-Ro Real Property"), and any Lien on any such leasehold interest therein,
specifying in the case of each such He-Ro Lease or sublease, the name of the
lessor or sublessor, as the case may be, the lease term and rent obligations of
the lessee thereunder. Except as set forth on Schedule 2.11(a), He-Ro or its
Subsidiary, as the case may be, has a valid leasehold interest in all real
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property leased by either of them and good and marketable title to the
improvements and fixtures constructed thereon ("Improvements"), in each case
free and clear of all Liens. The He-Ro Leases for the Key Stores and, except as
set forth on Schedule 2.11(a), all the other He-Ro Leases listed on Schedule
2.11(a), are valid and enforceable and are in full force and effect, and there
are no material defaults by He-Ro or any Subsidiary under any of such Leases or,
to the knowledge of He-Ro, by any other party thereto, and neither He-Ro, or any
Subsidiary, as the case may be, nor to He-Ro's knowledge, any lessor, has any
existing rights of offset or abatement. The performance by He-Ro of this
Agreement and any Transaction Document will not result in the breach or
termination of, or in any increase or acceleration of any amounts payable under,
any He-Ro Lease listed on Schedule 2.11(a).
(b) Schedule 2.11(b) sets forth with respect to the
He-Ro Real Property a list of all title insurance policies, appraisal reports,
surveys and engineering and environmental reports held or controlled by He-Ro,
copies of which have been provided to Nah-Nah. All Improvements located on the
He-Ro Real Property are in good operating condition (subject to normal wear and
tear) with no structural or other defects known to He-Ro that could interfere in
any material respect with the operation of He-Ro's business, are located within
applicable boundary lines and are suitable for the purposes for which they are
currently used. Neither He-Ro nor any Subsidiary is in violation in any material
respect of any building, zoning, anti-pollution, health, occupational safety or
other Law, Order, Permit or non-transferable license in respect of the He-Ro
Real Property. Except as disclosed on Schedule 2.11(b), no person, other than
He-Ro or a Subsidiary, as the case may be, has any right to occupy or possess
any of the real property.
(c) Except as set forth in Schedule 2.11(c):
(i) all work, repairs and improvements
(including capital improvements) required to have been done on or prior to the
Closing under the He-Ro Leases by He-Ro has been completed in accordance
therewith, and He-Ro has waived any and all rights to terminate the He-Ro Leases
with respect thereto;
(ii) there are no rights of first refusal,
options to purchase, "buy-out" rights, or currently exercisable termination
rights by either party to each of the He-Ro Leases other than as set forth in
such Leases, and there are no other termination rights which have been
exercised;
(iii) all rent and other amounts (including
contingent rent, utilities, taxes and any other escalations) payable by He-Ro
under the He-Ro Leases have been paid to the date hereof, and shall be paid to
the date of Closing.
(d) Parking, Easements and Related Agreements. Except
as set forth in the He-Ro Leases and except for those items which would not have
a material adverse effect on the business, assets, condition (financial or
otherwise), prospects or results of operations of He-Ro, there are no written or
oral parking leases, easements, agreements, grants, licenses, options or any
other agreement pursuant to which He-Ro is granted, for use in connection with
the He-Ro Stores, parking privileges or rights, current or
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prospective, and/or rights of access of any kind or nature in and to the leased
real property.
SECTION 2.12 PERSONAL PROPERTY. He-Ro or a Subsidiary has
good, marketable and valid title to all assets reflected on the He-Ro Latest
Balance Sheet, or thereafter acquired, except those since sold or otherwise
disposed of in the ordinary course of business consistent with past practice and
not in violation of this Agreement, in each case free and clear of all Liens,
except as are disclosed on Schedule 2.12 hereto or Liens, which secure debt that
is reflected as a liability on the He-Ro Latest Balance Sheet and the existence
of which is indicated in the notes thereto. The equipment (whether owned or
leased) have been well-maintained in accordance with industry standards, are in
good condition and repair (subject to normal wear and tear) and are, in the
aggregate, adequate in quantity and quality for the operation of He-Ro's
business as presently conducted.
SECTION 2.13 CONTRACTS. (a) Schedule 2.13 sets forth an
accurate and complete list of all Contracts to which He-Ro or any Subsidiary is
a party or by which it or its assets are bound or subject, relating to the
business of He-Ro and any Subsidiary, except for those Contracts with persons
who are not Affiliates of He-Ro or Rounick which require He-Ro to make or
receive payments not in excess of $50,000 on an annual basis. True and correct
copies of all written Contracts listed on Schedule 2.13 and summaries of the
material provisions of all oral Contracts so listed have been delivered to
Nah-Nah.
(b) All Contracts listed on Schedule 2.13 are valid,
subsisting, in full force and effect and binding upon He-Ro or a Subsidiary, as
the case may be, and, to the knowledge of He-Ro, the other parties thereto in
accordance with their terms, except as set forth on Schedule 2.13. Except as set
forth in Schedule 2.13, neither He-Ro nor any Subsidiary is in default (or
alleged default) under any such material Contract in any material respect, or in
default with respect to any payment obligations, nor, to the knowledge of He-Ro,
is any other party thereto in default thereunder in any material respect, and,
to He-Ro's knowledge, there is no condition that with notice or the lapse of
time or both would constitute a material default (or give rise to a termination
right) under any such Contract. Except as set forth on Schedule 2.13, the
Contemplated Transactions will not give rise to a right of termination under any
material Contract or to any material penalty provision under any Contract. To
the knowledge of He-Ro, none of the other parties to any Contract intends to
terminate or materially alter the provisions thereof by reason of the
Contemplated Transactions or otherwise. Since the He-Ro Latest Balance Sheet
Date, He-Ro has not waived any material right under any Contract, materially
amended or extended any such Contract or terminated or failed to renew (or
received notice of termination or failure to renew with respect to) any such
Contract.
SECTION 2.14 INTANGIBLE PROPERTY. Schedule 2.14 sets forth all
of He-Ro's Intellectual Property Rights, including a copy of all registrations
or, to the extent not available, registration numbers and applications pending
with respect thereto filed with or issued by any Governmental Body. The
Contemplated Transactions will not have a material adverse effect on the right,
title and interest of He-Ro as of the Closing Date in and to the Intellectual
Property Rights. Except as set forth on Schedule 2.14, (i) He-Ro or any
Subsidiary has not received any written notice of invalidity, infringement or
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misappropriation from any third party with respect to any Intellectual Property
Rights; (ii) to the knowledge of He-Ro or any Subsidiary, neither He-Ro nor any
Subsidiary has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights of any third parties;
and (iii) to the knowledge of He-Ro, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property Rights of He-Ro or any Subsidiary.
SECTION 2.15 CLAIMS AND PROCEEDINGS. Except as set forth on
Schedule 2.15(a), there are no outstanding Orders of any Governmental Body
against or involving He-Ro or any Subsidiary, their assets or their businesses.
Except as set forth on Schedule 2.15(b), there are no actions, suits, claims or
counterclaims or legal, administrative, governmental, arbitral or other
proceedings or investigations (collectively, "Claims") (whether or not the
defense thereof or Liabilities in respect thereof are covered by insurance),
pending or to the knowledge of He-Ro threatened on the date hereof, against or
involving He-Ro, any Subsidiary or their businesses. Except as set forth on
Schedule 2.15(c), at the Closing there will be no such Claims pending or, to the
knowledge of He-Ro, threatened, other than Claims that, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
the Condition of the Business. Except as set forth on Schedule 2.15(d), to the
knowledge of He-Ro, on the date hereof, there is no fact, event or circumstances
that would give rise to any Claim.
SECTION 2.16 TAX MATTERS. Except as disclosed on Schedule
2.16, all Tax Returns required to be filed by He-Ro and any Subsidiary (or
predecessors) on or before the Closing Date have been or shall be timely filed
or He-Ro has or will have obtained a valid extension for any such filing, and
all Taxes which are due have been or shall be paid. All Taxes of He-Ro and any
Subsidiary attributable to periods ending on or before the Closing Date which
are not yet due have been adequately provided for. As of the time of filing, the
Tax Returns correctly reflected (and, as to any Tax Returns not filed as of the
date thereof will correctly reflect) the facts regarding the income, business,
assets, operations, activities and status of He-Ro and its Subsidiaries. There
are no Tax Liens upon any assets of He-Ro or any Subsidiary except for Liens for
current Taxes not yet due and payable. All amounts required to be withheld by
He-Ro or any Subsidiary from employees for income Taxes, social security and
other payroll Taxes have been collected and withheld, and either paid to the
respective Governmental Bodies (as defined below), set aside in accounts for
such purpose, or have been or will be accrued, reserved against and entered upon
the books and records of He-Ro or any Subsidiary. All Taxes which are due and
payable by He-Ro or any Subsidiary under any He-Ro Lease for the period prior to
and including the Closing Date have been or shall be paid prior to Closing.
Except for sales Taxes which result from the consummation of the Contemplated
Transactions, if any, He-Ro and each Subsidiary has collected and remitted to
the appropriate Tax Authority all sales and use or similar Taxes required to
have been collected on or prior to the Closing Date and have been furnished
properly completed exemption certificates for all exempt transactions. He-Ro has
maintained and has in its possession all records, supporting documents and
exemption certificates required by applicable sales Tax statutes and regulations
to be retained in connection with the collection and remittance of sales and use
Taxes for all periods up to and including the Closing Date. Neither He-Ro nor
any Subsidiary (or any predecessors) is a party to or has received any notice
with respect to any
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proposed or pending examination, investigation, audit, action or Claim by any
Tax Authority relating to Taxes, nor is either a party to any dispute or, to
He-Ro's knowledge, threatened dispute with respect thereto and no Claim for
assessment or collection of Taxes has been made upon He-Ro or any Subsidiary.
Schedule 2.16 includes a description of all such past examinations,
investigations, audits, actions or Claims within the past three years. He-Ro is
not a "foreign person" within the meaning of section 1445 of the Code, and He-Ro
will furnish Nah-Nah with an affidavit that satisfies the requirements of
section 1445(b)(2) of the Code. He-Ro is not and has never been a member of or
included in any consolidated, combined or unitary group for purposes of filing
Tax Returns or paying Taxes at any time, except for the existing group of which
He-Ro is the common parent. He-Ro has no Liability for Taxes of any other person
under Treasury Regulation section 1.1502-6 (or any similar provision of state or
foreign law), or as a transferee of such person, or under any other provision of
Law or Tax sharing, Tax indemnity or similar Contract.
SECTION 2.17 INSURANCE. Schedule 2.17 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability policies
(the "He-Ro Insurance Policies") covering the assets, the business, operations,
employees, officers and directors of He-Ro and/or its Subsidiaries and true and
complete copies of all such He-Ro Insurance Policies have been delivered to
Nah-Nah. Schedule 2.17 also sets forth a true and complete list of Claims made
in respect of He-Ro Insurance Policies during the year prior to the date hereof.
True and correct copies of all loss runs with respect to such period have been
delivered to Nah-Nah. Except as set forth on Schedule 2.17, there is no Claim by
He-Ro pending under any of such He-Ro Insurance Policies, as to which coverage
has been questioned, denied or disputed by the underwriters of such He-Ro
Insurance Policies or any requirement by any insurer to perform work which has
not been satisfied. All premiums payable on or before the Closing Date under all
He-Ro Insurance Policies have been paid and He-Ro is otherwise in compliance in
all material respects with the terms and conditions of all such He-Ro Insurance
Policies. All He-Ro Insurance Policies are in full force and effect. The He-Ro
Insurance policies are sufficient so that He-Ro or its Subsidiaries, as
applicable, comply with the provisions of all of the He-Ro Leases. The HeRo
Latest Balance Sheet has adequate reserves with respect to insurance coverage,
including but not limited to audit adjustments and policy renewals.
SECTION 2.18 COMPLIANCE WITH LAWS. Neither He-Ro nor any
Subsidiary is in violation in any material respect of any order, judgment,
injunction, award, citation, decree, consent decree or writ (collectively,
"Orders"), or any material law, statute, code, ordinance, rule, regulation or
other requirement (collectively, "Laws"), of any government or political
subdivision thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court or
arbitrator (collectively, "Governmental Bodies") affecting its assets or
business. Notwithstanding the generality of the previous sentence, to the best
of He-Ro's knowledge, neither He-Ro nor any Subsidiary is in violation of any
Laws of any Governmental Bodies regarding importing, quotas or labelling, or any
similar Laws.
SECTION 2.19 PERMITS. He-Ro has obtained all Permits and has
made all required registrations and filings with, any Governmental Body that are
material to the use and occupancy of the He-Ro Real Property or the conduct of
its business, including the
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importing of goods. All material Permits are listed on Schedule 2.19 and are in
full force and effect; no material violations are or have been recorded in
respect of any Permit within the three years prior to the Closing Date; and no
proceeding is pending or, to the knowledge of He-Ro, threatened to revoke or
limit any Permit. Except as listed on Schedule 2.19, no Permit will terminate by
reason of the Contemplated Transactions.
SECTION 2.20 ENVIRONMENTAL MATTERS. (a) Neither He-Ro nor any
Subsidiary has received any written notice of (i) any alleged violation with
respect to any environmental Law; or (ii) any prior, pending or threatened
Regulatory Action or other Claim involving He-Ro, any Subsidiary or any present
or former owner, lessee or operator of the He-Ro Real Property.
(b) Except as referenced in Schedule 2.20, to He-Ro's
knowledge: (i) there has been, directly or indirectly, no use, manufacture,
generation, refining, storage, transport, disposal or treatment of Hazardous
Substances by He-Ro (or, to the knowledge of He-Ro, any predecessor in interest)
or any Subsidiary, or any Release at, on or under any He-Ro Real Property by
He-Ro or any Subsidiary, or, to the knowledge of He-Ro, by any other person, in
violation of any environmental Law or which would require remedial action under
any environmental Law; to He-Ro's knowledge, neither He-Ro nor any Subsidiary
has contaminated the soil, ground water or surface water, and to the knowledge
of He-Ro, none of the soil, ground water or surface water of such He-Ro Real
Property is or has been contaminated by any Release, (ii) to He-Ro's knowledge
without independent investigation, there are no incinerators, underground or
aboveground tanks or cesspools, pipes or pipelines for the storage or
transportation of Hazardous Materials located, or, to He-Ro's knowledge without
independent investigation, which have been located, on, at or under the He-Ro
Real Property, (iii) and without independent investigation, all sewage from the
He-Ro Real Property is discharged into a public sanitary sewer system, and (iv)
there has been no Release by He-Ro or any Subsidiary, or to He-Ro's knowledge
without independent investigation, by any other party, into the atmosphere, any
adjoining or adjacent body of water, or adjoining or adjacent property in
violation of any environmental Law.
(c) Neither He-Ro nor any Affiliate constructed any
of the buildings comprising the He-Ro Real Property.
SECTION 2.21 FINDERS; FEES. Except as set forth on Schedule
2.21, there is no investment banker, broker, finder or other intermediary which
has been retained by or is authorized to act on behalf of He-Ro who might be
entitled to any fee or commission from He-Ro upon consummation of the
Contemplated Transactions.
SECTION 2.22 SUPPLIER AND CUSTOMERS. (a) He-Ro and each
Subsidiary have adequate sources of supply for their businesses as currently
conducted. Schedule 2.23(a)(i) sets forth the top suppliers of He-Ro (on a
consolidated basis) during the 12-month period ended August 31, 1997, together
with the dollar amount purchased from such supplier during such period. He-Ro
has no knowledge that any supplier will cease doing business with He-Ro or will
threaten to do so as a result of the Contemplated Transactions. Except as set
forth on Schedule 2.23(a)(ii), there is no commitment or
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agreement between He-Ro and any supplier with a term of six months or more,
unless such agreement or commitment is terminable at will by He-Ro.
(b) Schedule 2.23(b) sets forth the top 20 customers
of He-Ro (on a consolidated basis) during the 12-month period ended August 31,
1997, together with the dollar amount of goods purchased by such customers
during such period. He-Ro has no knowledge that any customer will cease doing
business with He-Ro or will threaten to do so as a result of the Contemplated
Transactions.
SECTION 2.23 INVESTMENT INTENTION. He-Ro is acquiring the
Nah-Nah Common Stock for He-Ro's own account and not with a present intention to
make any sale, disposition, distribution or other transfer of the Nah-Nah Common
Stock in a manner that would be in violation of any applicable securities Laws.
He-Ro acknowledges and understands that the Nah-Nah Common Stock has not been
registered under the Securities Act, is subject to restrictions on
transferability imposed by the Securities Act and applicable state securities
laws and that the certificate evidencing the Nah-Nah Common Stock will contain a
legend with respect thereto.
SECTION 2.24 HE-RO RECEIVABLES. All the accounts receivable of
He-Ro reflected in the He-Ro Latest Balance Sheet delivered hereunder and all
receivables that have arisen since the He-Ro Latest Balance Sheet delivered
hereunder (except such receivables as have been collected since such date) are
valid and enforceable claims, and constitute bona fide receivables resulting
from the sale of goods and services in the ordinary course of business in
conformity with applicable purchase orders, agreements and specifications.
Except as set forth on Schedule 2.25, the receivables are subject to no valid
defense, offsets, returns, allowances or credits of any kind other than
merchandise disputes in the ordinary course of business and are fully
collectible within 90 days from the date they are invoiced except to the extent
of the amount of the reserve for doubtful accounts reflected in the He-Ro Latest
Balance Sheet. He-Ro has heretofore delivered to Nah-Nah a schedule as at
September 30, 1997 setting forth the total amount of He-Ro's receivables and a
schedule of the aging of such receivables based on 0-30 days, 31-60 days, 61-90
days and over 90 days. This schedule is true, correct and complete in all
material respects. Except as set forth on Schedule 2.25, He-Ro is not a party to
any buy-sell arrangements with respect to piece goods or other Inventory and no
customer of He-Ro is also a supplier to He-Ro, or would otherwise be able to
offset all or any portion of He-Ro's receivables.
SECTION 2.25 RELATED PARTY TRANSACTIONS. Except as set forth
on Schedule 2.26 or in the SEC Documents, neither He-Ro or Rounick is a party to
any Contract that gives rise to current or future obligations thereunder
(whether or not in writing), or any other transaction between He-Ro or Rounick,
on the one hand, and any officer, director, shareholder or former shareholder of
He-Ro or any Affiliate of any of them, on the other hand, that gives rise to
current or future obligations thereunder.
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ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF ROUNICK
Rounick represents and warrants to Nah-Nah and Han as follows:
SECTION 2A.1 VALID AND BINDING AGREEMENT. Rounick has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document to which she is or, at the Closing, will be a party
and to consummate the Contemplated Transactions. This Agreement has been and, at
the Closing, the other Transaction Documents to which Rounick is a party will
have been, duly and validly executed and delivered by Rounick, and (assuming the
valid execution and delivery thereof by the other parties thereto) constitute or
will at the Closing constitute, as the case may be, the legal, valid and binding
agreements of Rounick enforceable against Rounick in accordance with their
respective terms except as such obligations and their enforceability may be
limited by applicable bankruptcy and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought (whether at law or in equity).
SECTION 2A.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Rounick of this Agreement and each other Transaction Document
to which she is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) require Rounick, the Estate, or any
Affiliate of Rounick (excluding He-Ro and its Subsidiaries, whose
representations and warranties are set forth in Section 2.2 hereof) to obtain
any consent, approval or action of or waiver from, or make any filing with, or
give any notice to, any Governmental Body or any other person, except as set
forth on Schedule 2A.2 (the "Rounick Required Consents"); (ii) if Rounick
Required Consents are obtained prior to Closing, violate, conflict with or
result in a breach or default under (after the giving of notice or the passage
of time or both), or permit the termination of, any Contract regarding He-Ro or
any Subsidiary to which Rounick is a party or by which her or any of their
respective assets may be bound or subject, or result in the creation of any Lien
upon any assets of He-Ro or any Subsidiary pursuant to the terms of any such
Contract; or (iii) if Rounick Required Consents are obtained prior to Closing,
violate any Law or Order of any Governmental Body against, or binding upon,
Rounick regarding He-Ro or any Subsidiary.
SECTION 2A.3 STOCK OWNERSHIP. Since the death of Herbert
Rounick in September 1993, the Estate has owned 4,409,066 shares of the common
stock of He-Ro and since such date there have been no changes in the amount of
shares of common stock so owned by the Estate, except that the Estate owned
4,573,333 shares of common stock immediately after the death of Herbert Rounick,
and Maria Ng, a former officer of He-Ro, purchased (by exercise of an option)
from the Estate 164,267 shares of common stock on or about April 1995. The
Estate does not own (beneficially or of record) any other shares of common stock
of He-Ro or any Stock Rights that will not be cancelled prior to the Closing
pursuant to Section 4A.1(b) hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF NAH-NAH
Nah-Nah represents and warrants to He-Ro as follows:
SECTION 3.1 AUTHORITY RELATIVE TO THIS AGREEMENT; VALID AND
BINDING AGREEMENT. Nah-Nah has full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which it is or, at
the Closing, will be a party and to consummate the Contemplated Transactions.
The execution and delivery of this Agreement and the consummation of the
Contemplated Transactions to which Nah-Nah is or, at the Closing, will be a
party have been duly and validly authorized by Nah-Nah, and no other corporate
proceedings on the part of Nah-Nah are necessary to authorize the execution and
delivery by Nah-Nah of this Agreement or the consummation of the Contemplated
Transactions to which Nah-Nah is or, at the Closing, will be a party. This
Agreement has been and, at the Closing, the other Transaction Documents to which
Nah-Nah is a party will have been, duly and validly executed and delivered by
Nah-Nah, and (assuming the valid execution and delivery thereof by the other
parties thereto) constitute or will at the Closing constitute, as the case may
be, the legal, valid and binding agreements of Nah-Nah enforceable against
Nah-Nah in accordance with their respective terms except as such obligations and
their enforceability may be limited by applicable bankruptcy and other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 3.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Nah-Nah of this Agreement and each other Transaction Document
to which it is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) violate any provision of the Certificate
of Incorporation or By-laws (or comparable instruments) of Nah-Nah; (ii) require
Nah-Nah, or any Affiliate of Nah-Nah to obtain any consent, approval or action
of or waiver from, or make any filing with, or give any notice to, any
Governmental Body or any other person, except as set forth on Schedule 3.2 (the
"Nah-Nah Required Consents"); (iii) if Nah-Nah Required Consents are obtained
prior to Closing, violate, conflict with or result in a breach or default under
(after the giving of notice or the passage of time or both), or permit the
termination of, any Contract to which Nah-Nah or any Subsidiary is a party or by
which it or any of their respective assets may be bound or subject, or result in
the creation of any Lien upon the Nah-Nah Common Stock or any assets of Nah-Nah
or any Subsidiary pursuant to the terms of any such Contract; (iv) if Nah-Nah
Required Consents are obtained prior to Closing, violate any Law or Order of any
Governmental Body against, or binding upon, Nah-Nah or any Subsidiary; or (v) if
Nah-Nah Required Consents are obtained prior to Closing, violate or result in
the revocation or suspension of any Permit of Nah-Nah or any Subsidiary.
SECTION 3.3 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES.
Nah-Nah is a corporation duly organized, validly existing and in good standing
under the laws of the state of New York. Each Subsidiary is duly organized and
validly existing under the laws
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of the state or other jurisdiction of its organization (which Subsidiaries and
their states or other jurisdictions are set forth on Schedule 3.3(a) hereto).
Each of Nah-Nah and each Subsidiary has all requisite power and authority to
enable it to own, lease or otherwise hold its properties and assets and to carry
on its business are presently conducted. Each of Nah-Nah and each Subsidiary is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except where the absence of such
qualifications, individually or in the aggregate, would not have a material
adverse effect on the business, assets, condition (financial or otherwise),
prospects or results of operations of Nah-Nah and the Subsidiaries, taken as a
whole. A list of the jurisdictions in which Nah-Nah and the Subsidiaries are so
qualified is set forth on Schedule 3.3(b). Except for the Subsidiaries listed on
Schedule 3.3(a) hereto, Nah-Nah does not directly or indirectly own any capital
stock of or other equity interests in any corporation, partnership or other
entity or have any direct or indirect equity interest in any business.
SECTION 3.4 CHARTER DOCUMENTS AND CORPORATE RECORDS. (a)
Nah-Nah has previously delivered or made available to He-Ro true and complete
copies of the Certificate of Incorporation, as amended to date, and By-laws, as
amended to date, or comparable organizational documents, as in effect on the
date hereof, of Nah-Nah and each Subsidiary. The stock certificate and transfer
books of Nah-Nah and each Subsidiary (all of which have been made available for
inspection by He-Ro) are true and complete. The minute books of Nah-Nah and each
Subsidiary (all of which have been made available for inspection by He-Ro) are
true and complete in all material respects (it being understood that such
materiality limitation shall not apply to items relating to capitalization which
are covered by subsection 3.6 below).
(b) Except as set forth in Schedule 3.4, Nah-Nah
owns, directly or indirectly, of record and beneficially, free and clear of all
Liens, all of the issued and outstanding capital stock of each of its
Subsidiaries. Except as described in this Agreement, there are no restrictions
(whether by agreement, statute (other than the corporate laws of the applicable
state incorporation), rule, regulation, order or otherwise) that may affect or
limit the ability of (i) any Subsidiary to pay dividends or make distributions
to Nah-Nah or (ii) to pay dividends or make distributions to holders of its
capital stock.
(c) All financial, business and accounting books,
ledgers, accounts and official and other records relating to Nah-Nah have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies contained or reflected therein.
SECTION 3.5 THE NAH-NAH COMMON STOCK. The Nah-Nah Common Stock
is validly issued, fully paid and non-assessable. The Nah-Nah Common Stock has
not been registered under the Securities Act and is free from any restrictions
on transfer, except for restrictions imposed by federal or state securities or
"blue-sky" laws.
SECTION 3.6 AUTHORIZED AND OUTSTANDING STOCK. The authorized
capital stock of Nah-Nah consists of 200 shares of Common Stock of which 200
shares are validly issued and outstanding and beneficially owned by Han. There
are no shares of
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capital stock held in treasury. Except as otherwise set forth in Schedule 3.6,
there are no outstanding Stock Rights to purchase securities of Nah-Nah.
Schedule 3.6 sets forth a detailed listing of the following items with respect
to the Stock Rights: (i) the name of each holder of the Stock Rights, (ii) the
number of shares subject to such Stock Rights, (iii) the exercise price for the
shares to be issued pursuant to such Stock Rights, (iv) the vesting schedule for
such Stock Rights, and (v) any other material information with respect to the
Stock Rights.
SECTION 3.7 FINANCIAL INFORMATION. (a) Nah-Nah has furnished
to He-Ro copies of the unaudited balance sheets of Nah-Nah as of April 30, 1996
and 1997, and the related statements of income and retained earnings and cash
flows for the fiscal years ended April 30, 1996 and 1997 (the "Nah-Nah Financial
Statements"). The Nah-Nah Financial Statements are true, complete and correct in
all material respects and fairly present the financial condition of Nah-Nah as
of such date and its results of operations for the periods then ended.
(b) Nah-Nah has previously delivered or made
available to He-Ro monthly financial information of Nah-Nah and its Subsidiaries
by division for the periods subsequent to the Nah-Nah Latest Balance Sheet Date
consistent with GAAP. The monthly financial information previously delivered or
made available to He-Ro are true, correct and complete in all material respects.
(c) Schedule 3.7(c) attached hereto sets forth (i)
the amount of indebtedness of Nah-Nah and its Subsidiaries outstanding, on a
consolidated basis, as of the most recent month end closing, (ii) any Lien with
respect to such indebtedness, and (iii) a list of each instrument or agreement
governing such indebtedness (true and correct copies of which have been provided
to He-Ro). Except as set forth on Schedule 3.7(c), no default exists with
respect to or under any such indebtedness or any instrument or agreement
relating thereto, which has not been waived in writing by the holder thereof.
SECTION 3.8 LIABILITIES. (a) Except as and to the extent
reflected in the unaudited balance sheet of Nah-Nah, including the footnotes
thereto (the "Nah-Nah Latest Balance Sheet") at April 30, 1997 (the "Nah-Nah
Latest Balance Sheet Date"), Nah-Nah did not have, as of the Nah-Nah Latest
Balance Sheet Date, any Liabilities or obligations (other than obligations of
continued performance under Contracts and other commitments and arrangements
entered into in the ordinary course of business) which GAAP would require
Nah-Nah to reflect on the Nah-Nah Latest Balance Sheet, and except as described
in Schedule 3.8 hereto, Nah-Nah has not incurred any Liabilities since the
Nah-Nah Latest Balance Sheet Date except current Liabilities for trade or
business obligations incurred in connection with the purchase of goods or
services in the ordinary course of the business and consistent with past
practice.
(b) Except as set forth on Schedule 3.8(a) or in the
Nah-Nah Latest Balance Sheet, there are no Liabilities of Nah-Nah or any
Subsidiary which have been guaranteed by, or secured by collateral provided by,
any party other than Nah-Nah or a Subsidiary.
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<PAGE> 19
SECTION 3.9 INVENTORY. Schedule 3.9 sets forth a true and
complete Inventory aging for Nah-Nah and its Subsidiaries as of September 30,
1997. All inventory consists of items which are good and merchantable and of a
quantity and quality usable or saleable in the ordinary course of business
consistent with past practices.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Since the Nah-Nah
Latest Balance Sheet Date, except as disclosed in Schedule 3.10 or in any
Nah-Nah Interim Statement delivered to He-Ro prior to the date hereof, Nah-Nah
has conducted its business in the ordinary course consistent with past practices
and there has not been:
(a) Any material adverse change in the Condition of
the Business or any event, occurrence or circumstance that could reasonably be
expected to cause such a material adverse change.
(b) Any transaction or Contract in the amount of
$25,000 or more on an annual basis with respect to the purchase, acquisition,
lease, disposition or transfer of all or any part of any assets or to any
capital expenditure relating to the business of Nah-Nah or any Subsidiary (in
each case other than transactions or Contracts entered into in the ordinary
course of business consistent with past practice).
(c) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the assets or business of He-Ro or any Subsidiary, to the extent material to
their businesses;
(d) Any material change in any method of accounting
or accounting practice by Nah-Nah;
(e) Any material increase in the compensation payable
or to become payable to any officer, stockholder, director, consultant, agent or
employee of Nah-Nah or any Subsidiary, or any alteration in the benefits payable
to any such person;
(f) Any material adverse change in the relationships
of Nah-Nah or any Subsidiary with its customers, suppliers and vendors; or
(g) Except for any changes made in the ordinary
course of business, any material change in any of Nah-Nah's or any Subsidiary's
business policies, including advertising, marketing, pricing, purchasing,
personnel, returns or budget policies.
SECTION 3.11 REAL PROPERTY. (a) Schedule 3.11(a) sets forth
the addresses and uses of all real property that Nah-Nah or any Subsidiary owns,
leases or subleases (the "Nah-Nah Real Property"), and any Lien on any such
owned real property or on Nah-Nah's or a Subsidiary's leasehold interest
therein, specifying in the case of each such Nah-Nah Lease or sublease, the name
of the lessor or sublessor, as the case may be, the lease term and rent
obligations of the lessee thereunder. Except as set forth on Schedule 3.11(a),
Nah-Nah or its Subsidiary, as the case may be, has a valid leasehold interest in
all real property leased by either of them and good and marketable title to the
Improvements on the Nah-Nah Real Property and has good and marketable title to,
and owns all real
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property listed on such schedule as owned by Nah-Nah or any Subsidiary, in each
case free and clear of all Liens. All the Nah-Nah Leases listed on Schedule
3.11(a) are valid and enforceable and are in full force and effect, and there
are no material defaults by Nah-Nah or any Subsidiary under any of such Leases
or, to the knowledge of Nah-Nah, by any other party thereto, and neither
Nah-Nah, or any Subsidiary, as the case may be, nor to Nah-Nah's knowledge, any
lessor, has any existing rights of offset or abatement. The performance by
Nah-Nah of this Agreement and any Transaction Document will not result in the
breach or termination of, or in any increase or acceleration of any amounts
payable under, any Nah-Nah Lease listed on Schedule 3.11(a).
(b) Schedule 3.11(b) sets forth with respect to the
Nah-Nah Real Property a list of all title insurance policies, appraisal reports,
surveys and engineering and environmental reports held or controlled by Nah-Nah,
copies of which have been provided to He-Ro. All Improvements located on the
Nah-Nah Real Property are in good operating condition (subject to normal wear
and tear) with no structural or other defects known to Nah-Nah that could
interfere in any material respect with the operation of Nah-Nah's business, are
located within applicable boundary lines and are suitable for the purposes for
which they are currently used. Neither Nah-Nah nor any Subsidiary is in
violation in any material respect of any building, zoning, anti-pollution,
health, occupational safety or other Law, Order, Permit or non-transferable
license in respect of the Nah-Nah Real Property. Except as disclosed on Schedule
3.11(b), no person, other than Nah-Nah or a Subsidiary, as the case may be, has
any right to occupy or possess any of the real property.
(c) Except as set forth in Schedule 3.11(c):
(i) all work, repairs and improvements
(including capital improvements) required to have been done on or prior to the
Closing under the Nah-Nah Leases by Nah-Nah has been completed in accordance
therewith, and Nah-Nah has waived any and all rights to terminate the Nah-Nah
Leases with respect thereto;
(ii) the Nah-Nah Leases are superior to any
and all mortgages now or hereafter constituting a Lien on the real property
and/or the interest of either party to each of the Nah-Nah Leases therein;
(iii) there are no rights of first refusal,
options to purchase, "buy-out" rights, or other termination rights which have
been exercised, or are currently exercisable, by either party to each of the
Nah-Nah Leases; and
(iv) all rent and other amounts payable by
Nah-Nah under the Nah-Nah Leases have been paid to the date hereof, and shall be
paid to the date of Closing.
(d) Parking, Easements and Related Agreements. Except
as set forth in the Nah-Nah Leases and except for those items which would not
have a material adverse effect on the business, assets, condition (financial or
otherwise), prospects or results of operations of Nah-Nah, there are no written
or oral parking leases, easements, agreements, grants, licenses, options or any
other agreement pursuant to which Nah-Nah is
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<PAGE> 21
granted, for use in connection with the Nah-Nah Stores, parking privileges or
rights, current or prospective, and/or rights of access of any kind or nature in
and to the leased real property.
SECTION 3.12 PERSONAL PROPERTY. Nah-Nah or a Subsidiary has
good, marketable and valid title to all assets reflected on the Nah-Nah Latest
Balance Sheet, or thereafter acquired, except those since sold or otherwise
disposed of in the ordinary course of business consistent with past practice and
not in violation of this Agreement, in each case free and clear of all Liens,
except as are disclosed on Schedule 3.12 hereto or Liens, which secure debt that
is reflected as a liability on the Nah-Nah Latest Balance Sheet and the
existence of which is indicated in the notes thereto. The equipment (whether
owned or leased) has been well-maintained in accordance with industry standards,
is in good condition and repair (subject to normal wear and tear) and is, in the
aggregate, adequate in quantity and quality for the operation of Nah-Nah's
business as presently conducted.
SECTION 3.13 CONTRACTS. (a) Schedule 3.13 sets forth an
accurate and complete list of all Contracts to which Nah-Nah or any Subsidiary
is a party or by which it or its assets are bound or subject, relating to the
business of Nah-Nah and any Subsidiary, except for those Contracts with persons
who are not Affiliates of Nah-Nah or Han which require Nah-Nah to make or
receive payments not in excess of $50,000 on an annual basis. True and correct
copies of all written Contracts listed on Schedule 3.13 and summaries of the
material provisions of all oral Contracts so listed have been delivered to
He-Ro.
(b) All Contracts listed on Schedule 3.13 are valid,
subsisting, in full force and effect and binding upon Nah-Nah or a Subsidiary,
as the case may be, and, to the knowledge of Nah-Nah, the other parties thereto
in accordance with their terms, except as set forth on Schedule 3.13. Neither
Nah-Nah nor any Subsidiary is in default (or alleged default) under any such
material Contract in any material respect, nor, to the knowledge of Nah-Nah, is
any other party thereto in default thereunder in any material respect, and, to
Nah-Nah's knowledge, there is no condition that with notice or the lapse of time
or both would constitute a material default (or give rise to a termination
right) under any such Contract. The Contemplated Transactions would not give
rise to a right of termination under any material Contract or to any material
penalty provision under any Contract. To the knowledge of Nah-Nah, none of the
other parties to any Contract intends to terminate or materially alter the
provisions thereof by reason of the Contemplated Transactions or otherwise.
Since the Nah-Nah Latest Balance Sheet Date, Nah-Nah has not waived any material
right under any Contract, materially amended or extended any such Contract or
terminated or failed to renew (or received notice of termination or failure to
renew with respect to) any such Contract.
SECTION 3.14 INTANGIBLE PROPERTY. Schedule 3.14 sets forth all
of Nah-Nah's Intellectual Property Rights, including a copy of all registrations
and applications pending with respect thereto filed with or issued by any
Governmental Body. The Contemplated Transactions will not have a material
adverse effect on the right, title and interest of Nah-Nah as of the Closing
Date in and to the Intellectual Property Rights. Except as set forth on Schedule
3.14, (i) Nah-Nah or any Subsidiary has not received any
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written notice of invalidity, infringement or misappropriation from any third
party with respect to any Intellectual Property Rights; (ii) to the knowledge of
Nah-Nah, Nah-Nah or any Subsidiary has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights of any third parties; and (iii) to the knowledge of Nah-Nah, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property Rights of Nah-Nah or any
Subsidiary.
SECTION 3.15 CLAIMS AND PROCEEDINGS. Except as set forth on
Schedule 3.15(a), there are no outstanding Orders of any Governmental Body
against or involving Nah-Nah or any Subsidiary, their assets or their
businesses. Except as set forth on Schedule 3.15(b), there are no Claims
(whether or not the defense thereof or Liabilities in respect thereof are
covered by insurance), pending or to the knowledge of Nah-Nah threatened on the
date hereof, against or involving Nah-Nah, any Subsidiary or their businesses.
Except as set forth on Schedule 3.15(c), at the Closing there will be no such
Claims pending or, to the knowledge of Nah-Nah, threatened, other than Claims
that, individually or in the aggregate, could not reasonably be expected to have
a material adverse effect on the Condition of the Business. Except as set forth
on Schedule 3.15(d), to the knowledge of Nah-Nah, on the date hereof, there is
no fact, event or circumstances that would give rise to any Claim.
SECTION 3.16 TAX MATTERS. Except as disclosed on Schedule
3.16, all Tax Returns required to be filed by Nah-Nah and any Subsidiary (or
predecessors) on or before the Closing Date have been or shall be timely filed
and all Taxes which are due have been or shall be paid. All Taxes of Nah-Nah and
any Subsidiary attributable to periods ending on or before the Closing Date
which are not yet due have been adequately provided for. As of the time of
filing, the Tax Returns correctly reflected (and, as to any Tax Returns not
filed as of the date thereof will correctly reflect) the facts regarding the
income, business, assets, operations, activities and status of Nah-Nah and its
Subsidiaries. There are no Tax Liens upon any assets of Nah-Nah or any
Subsidiary except for Liens for current Taxes not yet due and payable. All
amounts required to be withheld by Nah-Nah or any Subsidiary from employees for
income Taxes, social security and other payroll Taxes have been collected and
withheld, and either paid to the respective Governmental Bodies, set aside in
accounts for such purpose, or have been or will be accrued, reserved against and
entered upon the books and records of Nah-Nah or any Subsidiary. All Taxes which
are due and payable by Nah-Nah or any Subsidiary under any Nah-Nah Lease for the
period prior to and including the Closing Date have been or shall be paid prior
to Closing. Except for sales Taxes which result from the consummation of the
Contemplated Transactions, if any, Nah-Nah and each Subsidiary has collected and
remitted to the appropriate Tax Authority all sales and use or similar Taxes
required to have been collected on or prior to the Closing Date and have been
furnished properly completed exemption certificates for all exempt transactions.
Nah-Nah has maintained and has in its possession all records, supporting
documents and exemption certificates required by applicable sales Tax statutes
and regulations to be retained in connection with the collection and remittance
of sales and use Taxes for all periods up to and including the Closing Date.
Neither Nah-Nah nor any Subsidiary (or any predecessors) is a party to or has
received any notice with respect to any proposed or pending examination,
investigation, audit, action or Claim
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by any Tax Authority relating to Taxes, nor is either a party to any dispute or,
to Nah-Nah's knowledge, threatened dispute with respect thereto and no Claim for
assessment or collection of Taxes has been made upon Nah-Nah or any Subsidiary.
Schedule 3.16 includes a description of all such past examinations,
investigations, audits, actions or Claims within the past three years. Nah-Nah
is not a "foreign person" within the meaning of section 1445 of the Code, and
Nah-Nah will furnish He-Ro with an affidavit that satisfies the requirements of
section 1445 (b) (2) of the Code. Nah-Nah is not and has never been a member of
or included in any consolidated, combined or unitary group for purposes of
filing Tax Returns or paying Taxes at any time. Nah-Nah has no Liability for
Taxes of any other person under Treasury Regulation section 1.1502-6 (or any
similar provision of state or foreign law), or as a transferee of such person,
or under any other provision of Law or Tax sharing, Tax indemnity or similar
Contract.
SECTION 3.17 INSURANCE. Schedule 3.17 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability policies
(the "Nah-Nah Insurance Policies") covering the assets, the business,
operations, employees, officers and directors of Nah-Nah and/or its Subsidiaries
and true and complete copies of all such Nah-Nah Insurance Policies have been
delivered to He-Ro. Schedule 3.17 also sets forth a true and complete list of
Claims made in respect of Nah-Nah Insurance Policies during the year prior to
the date hereof. True and correct copies of all loss runs with respect to such
period have been delivered to He-Ro. There is no Claim by Nah-Nah pending under
any of such Nah-Nah Insurance Policies, as to which coverage has been
questioned, denied or disputed by the underwriters of such Nah-Nah Insurance
Policies or any requirement by any insurer to perform work which has not been
satisfied. All premiums payable on or before the Closing Date under all Nah-Nah
Insurance Policies have been paid and Nah-Nah is otherwise in compliance in all
material respects with the terms and conditions of all such Nah-Nah Insurance
Policies. All Nah-Nah Insurance Policies are in full force and effect. The
Nah-Nah Insurance Policies are sufficient so that Nah-Nah or its Subsidiaries,
as applicable, comply with the provisions of the Nah-Nah Leases.
SECTION 3.18 COMPLIANCE WITH LAWS. Neither Nah-Nah nor any
Subsidiary is in violation in any material respect of any Order or any material
Law of any Governmental Bodies affecting its assets or business. Notwithstanding
the generality of the previous sentence, to the best of Nah-Nah's knowledge,
neither Nah-Nah nor any Subsidiary is in violation of any Laws of any
Governmental Bodies regarding importing, quotas or labelling, or any similar
Laws.
SECTION 3.19 PERMITS. Nah-Nah has obtained all Permits and has
made all required registrations and filings with, any Governmental Body that are
material to the use and occupancy of the Nah-Nah Real Property or the conduct of
its business. All material Permits are listed on Schedule 3.19 and are in full
force and effect; no material violations are or have been recorded in respect of
any Permit within the three years prior to the Closing Date; and no proceeding
is pending or, to the knowledge of Nah-Nah, threatened to revoke or limit any
Permit. Except as listed on Schedule 3.19, no Permit will terminate by reason of
the Contemplated Transactions.
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SECTION 3.20 ENVIRONMENTAL MATTERS. (a) Neither Nah-Nah nor
any Subsidiary has received any written notice of (i) any alleged violation with
respect to any environmental Law; or (ii) any prior, pending or threatened
Regulatory Action or other Claim involving Nah-Nah, any Subsidiary or any
present or former owner, lessee or operator of the Nah-Nah Real Property.
(b) Except as referenced in Schedule 3.20, to
Nah-Nah's knowledge: (i) there has been, directly or indirectly, no use,
manufacture, generation, refining, storage, transport, disposal or treatment of
Hazardous Substances by Nah-Nah (or, to the knowledge of Nah-Nah, any
predecessor in interest) or any Subsidiary, or any Release at, on or under any
Nah-Nah Real Property by Nah-Nah or any Subsidiary, or, to the knowledge of
Nah-Nah, by any other person, in violation of any environmental Law or which
would require remedial action under any environmental Law; to Nah-Nah's
knowledge, neither Nah-Nah nor any Subsidiary has contaminated the soil, ground
water or surface water, and to the knowledge of Nah-Nah or any Subsidiary, none
of the soil, ground water or surface water of such Nah-Nah Real Property is or
has been contaminated by any Release, (ii) to Nah-Nah's knowledge without
independent investigation, there are no incinerators, underground or aboveground
tanks or cesspools, pipes or pipelines for the storage or transportation of
Hazardous Materials located, or, to Nah-Nah's knowledge without independent
investigation, which have been located, on, at or under the Nah-Nah Real
Property, (iii) and without independent investigation, all sewage from the
Nah-Nah Real Property is discharged into a public sanitary sewer system, and
(iv) there has been no Release by Nah-Nah or any Subsidiary, or to Nah-Nah's
knowledge without independent investigation, by any other party, into the
atmosphere, any adjoining or adjacent body of water, or adjoining or adjacent
property in violation of any environmental Law.
SECTION 3.21 FINDERS; FEES. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Nah-Nah who might be entitled to any fee or commission from
Nah-Nah upon consummation of the Contemplated Transactions.
SECTION 3.22 SUPPLIER AND CUSTOMERS. (a) Nah-Nah and each
Subsidiary have adequate sources of supply for their businesses as currently
conducted. Schedule 3.23(a) sets forth the top suppliers of Nah-Nah (on a
consolidated basis) during the 12-month period ended August 31, 1997, together
with the dollar amount purchased from such supplier during such period. Nah-Nah
has no knowledge that any supplier will cease doing business with Nah-Nah or
will threaten to do so as a result of the Contemplated Transactions.
(b) Schedule 3.23(b) sets forth the top 20 customers
of Nah-Nah (on a consolidated basis) during the 12-month period ended August 31,
1997, together with the dollar amount of goods purchased by such customers
during such period. Nah-Nah has no knowledge that any customer will cease doing
business with Nah-Nah or will threaten to do so as a result of the Contemplated
Transactions.
SECTION 3.23 INTENTIONALLY OMITTED.
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SECTION 3.24 NAH-NAH RECEIVABLES. All the accounts receivable
of Nah-Nah reflected in the Nah-Nah Latest Balance Sheet delivered hereunder and
all receivables that have arisen since the Nah-Nah Latest Balance Sheet
delivered hereunder (except such receivables as have been collected since such
date) are valid and enforceable claims, and constitute bona fide receivables
resulting from the sale of goods and services in the ordinary course of business
in conformity with applicable purchase orders, agreements and specifications.
Except as set forth Schedule 3.25 the receivables are subject to no valid
defense, offsets, returns, allowances or credits of any kind other than in the
ordinary course of business and are fully collectible within 90 days from the
date they are invoiced except to the extent of the amount of the reserve for
doubtful accounts reflected in the Nah-Nah Latest Balance Sheet. Nah-Nah has
heretofore delivered to He-Ro a schedule as at September 30, 1997 setting forth
the total amount of Nah-Nah's receivables and a schedule of the aging of such
receivables based on 0-30 days, 31-60 days, 61-90 days and over 90 days. This
schedule is true, correct and complete in all material respects. Nah-Nah has
advised He-Ro and He-Ro hereby acknowledges that Nah-Nah factors substantially
all of its receivables with Heller Financial Corp. pursuant to a factoring
agreement, a true and complete copy of which has been delivered to He-Ro.
SECTION 3.25 RELATED PARTY TRANSACTIONS. Except for the
license of the Nahdree trademark, and all of the rights related thereto, from a
company wholly-owned (directly or indirectly) by Han to Nah-Nah, neither Nah-Nah
or Han is a party to any Contract that gives rise to current or future
obligations thereunder (whether or not in writing), or any other transaction
between Nah-Nah or Han, on the one hand, and any officer, director, shareholder
or former shareholder of Nah-Nah or any Affiliate of any of them, on the other
hand, that gives rise to current or future obligations thereunder.
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES
OF HAN
Han represents and warrants to He-Ro as follows:
SECTION 3A.1 VALID AND BINDING AGREEMENT. Han has full
capacity to execute and deliver this Agreement and each other Transaction
Document to which he is or, at the Closing, will be a party and to consummate
the Contemplated Transactions. This Agreement has been and, at the Closing, the
other Transaction Documents to which Han is a party will have been, duly and
validly executed and delivered by Han and (assuming the valid execution and
delivery thereof by the other parties thereto) constitute or will at the Closing
constitute, as the case may be, the legal, valid and binding agreements of Han
enforceable against Han in accordance with their respective terms except as such
obligations and their enforceability may be limited by applicable bankruptcy and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought (whether at law
or in equity).
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SECTION 3A.2 NO CONFLICTS; CONSENTS. The execution, delivery
and performance by Han of this Agreement and each other Transaction Document to
which he is or will be a party or the consummation of the Contemplated
Transactions does not and will not (i) require Han or any Affiliate of Han to
obtain any consent, approval or action of or waiver from, or make any filing
with, or give any notice to, any Governmental Body or any other person, except
as set forth on Schedule 2A.2 (the "Han Required Consents"); (ii) if Han
Required Consents are obtained prior to Closing, violate, conflict with or
result in a breach or default under (after the giving of notice or the passage
of time or both), or permit the termination of, any Contract regarding Nah-Nah
or any Subsidiary to which Han is a party or by which his or any of their
respective assets may be bound or subject, or result in the creation of any Lien
upon the Nah-Nah Common Stock or any assets of Nah-Nah or any Subsidiary
pursuant to the terms of any such Contract; (iii) if Han Required Consents are
obtained prior to Closing, violate any Law or Order of any Governmental Body
against, or binding upon, Han regarding Nah-Nah or any Subsidiary; or (iv) if
Han Required Consents are obtained prior to Closing, violate or result in the
revocation or suspension of any Permit required for Nah-Nah or any Subsidiary to
operate their businesses.
SECTION 3A.3 OWNERSHIP OF NAH-NAH COMMON STOCK. Han owns the
Nah-Nah Common Stock free and clear of all Liens and upon delivery to He-Ro at
the Closing of certificates representing the Nah-Nah Common Stock, good and
valid title to the Nah-Nah Common Stock will pass to He-Ro, free and clear of
all Liens.
SECTION 3A.4 INVESTMENT INTENTION. Han is acquiring the He-Ro
Common Stock for Han's own account and not with a present intention to make any
sale, disposition, distribution or other transfer of the He-Ro Common Stock in a
manner that would be in violation of any applicable securities laws. Han
acknowledges and understands that the He-Ro Common Stock has not been registered
under the Securities Act, is subject to restrictions on transferability imposed
by the Securities Act and applicable state securities laws and that the
certificate evidencing the He-Ro Common Stock will contain a legend with respect
thereto as set forth in Section 2.5 above.
ARTICLE IV
COMPANY COVENANTS AND AGREEMENTS
SECTION 4.1 COVENANTS AND AGREEMENTS OF HE-RO.
(a) Conduct of Business of He-Ro. (i) From the date
hereof through the Closing Date, He-Ro agrees:
(A) To conduct its operations according to
the ordinary and usual course of the business consistent with past practice, to
preserve intact its present business organization and structure, to use
reasonable efforts to keep available the services of its officers, agents and
full-time employees (except as otherwise provided herein), to use reasonable
efforts to preserve and maintain the good will of the business and to use
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reasonable efforts to preserve its relationships with customers and suppliers,
and others having business dealings with He-Ro;
(B) Not take or permit to be taken any
action that could impair or in any way restrict or limit the use or availability
of the NOL;
(C) To maintain in the ordinary course of
business, consistent with past practice and in accordance with all Contracts,
the He-Ro Real Property (except as required by Section 4.1(j) hereof), all
equipment, the Inventory and other tangible property in their present repair,
order and condition, subject to ordinary wear and tear and to the requirements
of such Contracts;
(D) Not to incur any Liability (other than
Liabilities incurred in the ordinary course of business, consistent with past
practice, which are not in the aggregate material and those relating to the
Contemplated Transactions), nor enter into any material Contract in the amount
of $25,000 or more on an annual basis;
(E) Not to undertake (nor permit to be
undertaken) any of the actions specified in Section 2.10;
(F) Except as otherwise provided for herein,
not to pay, discharge or satisfy any material Claim or Liability, other than the
payment, discharge or satisfaction in the ordinary course of business of Claims
or Liabilities incurred in the ordinary course of business, consistent with past
practice;
(G) to fully comply with the He-Ro Leases
and immediately deliver to Nah-Nah copies of all notices regarding renewals,
default and rental and other material obligations delivered or received
thereunder or in connection therewith;
(H) Not declare or pay any dividend or make
any other distribution to its stockholders;
(I) Not amend its certificate of
incorporation or by- laws or comparable governing instruments; and
(J) Not permit any He-Ro Insurance Policies
to be cancelled or terminated or any of the coverage thereunder to lapse unless
replaced with substantially similar coverage.
(ii) From the date hereof through the Closing Date,
He-Ro agrees that it will use reasonable efforts to conduct its business in such
a manner so that the representations and warranties of He-Ro and Rounick
contained herein shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date.
(iii) From the date hereof through the Closing Date,
He-Ro agrees that it will consult with Nah-Nah prior to any renewal, amendment,
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extension (except extensions to the Senior Debt Agreement so long as any such
extensions do not otherwise materially and adversely change any other terms of
the Senior Debt Agreement or result in additional fees or expenses) or
termination of, waiver of any material right under, or any failure to renew, any
material Contract and will not take any such action if Nah-Nah objects thereto
in writing. He-Ro understands and acknowledges that if Nah-Nah reasonably
objects to any such actions and He-Ro nonetheless performs or permits the
performance of any such action, Nah-Nah shall be entitled to terminate this
Agreement at no expense to Nah-Nah or Han.
(b) Interim Financial Statements. From the date
hereof until the Closing Date, beginning with the month ended August 31, 1997,
He-Ro will deliver to Nah-Nah within 15 days after the end of each month, a
true, correct and complete flash sales and gross profit report and, within 45
days after the end of each month, true, correct and complete monthly financial
information of He-Ro and its Subsidiaries, consistent with GAAP (which, together
with the financial statements included in any of the Subsequent SEC Filings and
the financial information delivered in accordance with Section 2.7(b), shall be
referred to herein as the "He-Ro Interim Statements".) In addition, He-Ro shall
provide Nah-Nah with such additional information reasonably requested by
Nah-Nah.
(c) Filings and Authorizations. After the execution
and delivery of this Agreement, He-Ro shall timely file or supply, or cause to
be filed or supplied, all notifications, reports and other information required
to be filed or supplied pursuant to the Exchange Act and the rules and
regulations of any exchange or bulletin board on which the He-Ro Common Stock is
listed or traded in connection with the Contemplated Transactions, and shall
make all such filings and notices which are required by Law to effectuate the
consummation of the Contemplated Transactions. He-Ro shall cooperate with
Nah-Nah in connection with such filings and furnish Nah-Nah with copies of such
filings and any correspondence received from any Governmental Body in connection
therewith. He-Ro, as promptly as practicable, shall make, or cause to be made,
all filings and submissions under such Laws as are applicable to it or to its
Affiliates, as may be required for them to consummate the Contemplated
Transactions in accordance with the terms of this Agreement and shall furnish
copies thereof prior to such filing and shall not make any such filing or
submission to which Nah-Nah, reasonably objects in writing. All such filings
shall comply in form and content in all material respects with applicable Law.
(d) Waiver. He-Ro shall file a request for the waiver
of the requirement to file in any report or other filing under the Exchange Act,
the audited financial statements of Nah-Nah for each of the last two fiscal
years, and use its best efforts to obtain such written waiver from the SEC, in
form and substance reasonably satisfactory to Nah-Nah and He-Ro. Nah-Nah hereby
agrees that the waiver requested in the letter from He-Ro's counsel to the SEC
dated the date hereof, and the restrictions on registration set forth therein,
are acceptable.
(e) Information Statement. Notwithstanding the
requirements of Section 4.1(c), He-Ro shall, as soon as practicable (and in any
event prior to the Closing Date) in accordance with the rules and regulations
under the Exchange Act, file with the SEC and transmit to all holders of record
of Common Stock of He-Ro an information
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statement with respect to the Contemplated Transactions ("Information
Statement"). Prior to filing or transmitting the Information Statement, He-Ro
shall consult with Nah-Nah and afford Nah-Nah an opportunity to comment thereon
and suggest changes thereto.
(f) Lock-Up Agreements with 5% and Certain Other
Holders; List. Prior to the Closing Date, He-Ro shall use its best efforts
(without requiring the expenditure of substantial funds) to obtain an agreement
similar in form and substance to the Rounick Lock-Up from each beneficial owner
of 5% or more of the outstanding Common Stock of He-Ro (other than Rounick, who
will be providing the Rounick LockUp pursuant to the provisions of Section 4A.1
below). Within five (5) days after the date hereof, He-Ro shall initiate the
search for and diligently pursue obtaining a true and complete list of the
beneficial owners of all of the Common Stock of He-Ro, including those shares
held in street name by brokers, and the amount of stock held by such persons,
and, to the extent so obtained, shall deliver such list to Nah-Nah prior to the
Closing Date. Nah-Nah will cooperate and assist He-Ro in such efforts.
(g) Mesirow Report. He-Ro will have, prior to the
Schedule Delivery Date, obtained a preliminary oral report satisfactory to He-Ro
and Nah-Nah, from Mesirow Financial Corp. ("Mesirow") with respect to an opinion
regarding the fairness of the transactions contemplated herein among Han,
Nah-Nah and He-Ro from a financial standpoint to the existing holders of He-Ro
common stock, excluding Rounick as executrix of the Estate and individually,
which opinion will be issued to He-Ro by Mesirow and delivered by He-Ro to
Nah-Nah at the Closing.
(h) Estoppel Certificates. Prior to Closing, He-Ro
shall obtain estoppel certificates from the lessors and sublessors, as the case
may be, of the He-Ro Leases with respect to those He-Ro Stores (the "Key
Stores") for those locations set forth on Schedule 4.1(h), in each case in form
and substance reasonably satisfactory to Nah-Nah (the "Lease Documents").
(i) Negotiations With Others. From and after the date
hereof unless and until this Agreement shall have terminated in accordance with
its terms, He-Ro agrees that neither He-Ro, nor any of its Affiliates or any
officer, director, employee, shareholder or other Representative of He-Ro or its
Affiliates, will directly or indirectly (i) solicit, engage in discussions or
engage in negotiations with any person (other than Nah-Nah or any of its
Affiliates) with respect to an Acquisition Proposal; (ii) provide non-public
information to any person (other than Nah-Nah or any of its Representatives) in
connection with an Acquisition Proposal; or (iii) enter into any transaction
with any person (other than Nah-Nah or any of its Affiliates) with respect to an
Acquisition Proposal. Notwithstanding the foregoing, He-Ro's Board of Directors
may, to the extent required in the exercise of the fiduciary duties of its Board
of Directors under applicable law as advised by counsel, engage in or
participate in negotiations concerning, and, in connection therewith, provide
nonpublic information or data to and have any discussions relating to, an
Acquisition Proposal. If He-Ro, any Affiliate or shareholder or Representative
thereof receives any Acquisition Proposal, or any offer relating to an
Acquisition Proposal, He-Ro will immediately notify Nah-Nah in writing as to the
identity of the offeror or the party making any such proposal and the specific
terms of such offer or
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proposal, and shall provide Nah-Nah with seven (7) business days from the date
of Nah-Nah's receipt of such notification to match such Acquisition Proposal
prior to any acceptance by He-Ro of an Acquisition Proposal. If this Agreement
is not terminated as of or prior to the Schedule Delivery Date pursuant to
Section 1.4 hereof or otherwise, then, if He-Ro accepts any Acquisition Proposal
on or after the Schedule Delivery Date, He-Ro shall immediately upon demand from
Nah-Nah, pay to Nah-Nah an amount equal to Nah-Nah's and Han's fees and expenses
incurred in connection with this Agreement and the Contemplated Transactions
(including without limitation attorneys and accountants fees and expenses) and
shall also pay to Nah-Nah upon the closing of such other transaction, 10% of the
gross proceeds thereof or $300,000, whichever is less. The parties hereby
acknowledge and agree that He-Ro and Rounick shall be jointly and severally
liable for any amounts payable under this Section 4.1(i) and Section 4A.1(e)
hereof and that any amounts paid under this Section 4.1(i) will be offset by any
amounts paid under Section 4A.1(e) hereof.
(j) Lease Negotiations. From the date hereof, He-Ro
hereby agrees to use its best efforts, and to cause its officers and employees
to use their best efforts, to enter into agreements on or before the Closing
with the landlords for those He-Ro leases listed on Schedule 4.1(j) to reduce
the rental obligations by the percentage set forth on said Schedule or to
terminate such leases, as indicated on said Schedule, without penalties that are
reasonably unacceptable to Nah-Nah and He-Ro. Nah-Nah shall cooperate and assist
in such efforts.
(k) Structuring. He-Ro acknowledges that Nah-Nah may
prior to Closing propose an alternative structure for the Contemplated
Transactions and agrees that, unless in the reasonable opinion of He-Ro such
alternative adversely affects the rights and obligations of He-Ro or Rounick or
such alternative structure results in a net expense to He-Ro, the parties at or
prior to Closing shall enter into such amendments hereto or other instruments
and documents as shall be required to effect such alternative structure.
SECTION 4.2 MUTUAL COVENANTS AND AGREEMENTS OF THE PARTIES.
(a) Notices of Certain Events. Prior to the Closing
Date, He-Ro and Nah-Nah shall promptly notify the other of:
(i) any notice or other communication from
any person alleging that the consent of such person is or may be required in
connection with the Contemplated Transactions;
(ii) any notice or other communication from
any Governmental Body in connection with the Contemplated Transactions; and
(iii) any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
violation or breach of or make untrue or incorrect any representation or
warranty, whether made as of the date hereof or as of the Closing Date, or that
would constitute a violation or breach of any covenant of any party contained in
this Agreement.
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(b) Corporate Examinations and Investigations. Prior
to the Closing Date, each of He-Ro and Nah-Nah agree that the other shall be
entitled, through its directors, officers, Affiliates, employees, attorneys,
accountants, representatives, lenders, consultants and other agents
(collectively, "Representatives") to make such investigation of the business and
operations of each other and each of their Subsidiaries, and such examination of
the books, records and financial condition of each other and each of their
Subsidiaries, as the other reasonably deems necessary. Any such investigation
and examination shall be conducted at reasonable times, under reasonable
circumstances and upon reasonable notice, and each party shall cooperate fully
with the investigation of the other. In that connection, each party shall make
available to the Representatives of the other, without however causing any
unreasonable interruption in business operations, all such information and
copies of such documents and records concerning the affairs of He-Ro, Nah-Nah or
any Subsidiary, as the case may be, as such Representatives may reasonably
request, shall permit the Representatives of each party access to the assets of
the other and their respective Subsidiaries and all parts thereof and to the
employees, customers, suppliers, and contractors of the other, and shall cause
their respective Representatives to cooperate fully in connection with such
review and examination. No investigation by a party shall diminish or obviate
any of the representations, warranties, covenants or agreements of the other
parties contained in this Agreement. This paragraph shall not be construed to
permit any party to terminate this Agreement as a result of unsatisfactory due
diligence in its discretion, unless such termination is expressly permitted
elsewhere herein.
(c) Public Announcements. Prior to the Closing Date,
He-Ro and Nah-Nah will consult with each other before issuing any press release
or otherwise making any public statement with respect to the Contemplated
Transactions, and neither will issue any such press release or make any such
public statement without the prior approval of the other, except as may be
required by applicable Law in which event the other party shall have the right
to review and comment upon (but not approve) any such press release or public
statement prior to its issuance.
(d) Expenses. Except as otherwise specifically
provided in this Agreement, Nah-Nah and He-Ro shall bear their respective
expenses, in each case, incurred in connection with the preparation, execution
and performance of this Agreement and the Contemplated Transactions, including,
without limitation, all fees and expenses of their respective Representatives.
(e) Certain Renewals. With respect to each Permit
which may expire prior to the Closing Date or within sixty days thereafter, each
of He-Ro and Nah-Nah shall (i) timely file with the appropriate Governmental
Bodies applications for renewal of each such Permit (the "Applications"), (ii)
deliver to the other party true and complete copies of such Applications, (iii)
diligently prosecute such Applications prior to Closing, and (iv) cooperate
fully with all Governmental Bodies in the processing of such Applications.
(f) Efforts to Consummate. Subject to the terms and
conditions herein, each of He-Ro and Nah-Nah, without payment or further
consideration, shall use
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its good faith efforts to take or cause to be taken all action and to do or
cause to be done all things necessary, proper or advisable under applicable
Laws, Permits and Orders to consummate and make effective, as soon as reasonably
practicable, the Contemplated Transactions, including, but not limited to, the
obtaining of all He-Ro Required Consents and Nah-Nah Required Consents and
Permits or consents of any third party, whether private or governmental,
required in connection with such party's performance of such transactions and
each party hereto shall cooperate with the other in all of the foregoing.
(g) Rounick Debt Agreement. Han and Rounick shall
enter into the Rounick Debt Agreement, to close contemporaneously with the
closing under this Agreement, pursuant to which Han will acquire the Rounick
Debt for a purchase price of $500,000 cash payable at Closing, and Rounick shall
retain the $1,000,000 Retained Rounick Debt on an unsecured basis to be
restructured on terms acceptable to Rounick, Han and the Senior Lender or the
replacement senior lender(s), as the case may be, pari passu with the Rounick
Debt.
(h) Junior Bank Group Debt Purchase Agreement. Han
shall enter into the Junior Bank Group Debt Purchase Agreement with Marine
Midland Bank, N.A., The Chase Manhattan Bank, the Hong Kong and Shanghai Banking
Corporation Limited and ABN Amro Bank N.V. (collectively, the "Junior Bank
Group"), subject to the approval of the Senior Lender (or alternative senior
lender), to close contemporaneously with this Agreement, pursuant to which Han,
or his designee, will acquire the Junior Debt for $1,125,000 cash paid at
Closing and the surrender by the Junior Bank Group of their existing warrants to
purchase Common Stock of He-Ro, as agreed to by Nah-Nah and the Junior Bank
Group, in either case on terms acceptable to Han. He-Ro will cooperate and sign
documents reasonably requested with respect thereto including a confirmation, a
waiver of claims and UCC-3s and other documents to transfer the security
interests.
(i) Intercreditor Agreement. He-Ro, Han and the
Senior Lender (or alternative senior lender) will enter into an intercreditor
agreement to close contemporaneously with this Agreement (the "Intercreditor
Agreement").
(j) Access After Closing. After the Closing and from
time to time, each party hereto shall permit the other parties and their
Representatives to have access during regular business hours and upon reasonable
notice, to inspect and copy agreements, records, books and other documents that
are included in or relate to the assets or business of the other and identified
with reasonable particularity, wherever located, for the purposes of (i)
preparing Tax Returns and financial statements and responding to Tax audits, and
(ii) prosecuting or defending any Claim. Each party shall cooperate fully with
the other party in connection with the foregoing. If, after the Closing, any
party determines to destroy any agreements, records, books or documents referred
to above, it will give to the other party at least two months' prior written
notice thereof, and such other party shall have the right during such two-month
period upon reasonable notice and during regular business hours to take
possession of any such agreements, records, books or documents.
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(k) Rounick Medical Coverage. He-Ro agrees that for a
period of three years after the Closing Date, He-Ro will continue Rounick's
medical coverage, at He-Ro's expense, under whatever medical insurance He-Ro
provides, from time to time, to its senior executives, provided that He-Ro shall
be released from said obligation if Rounick breaches any of her representations,
warranties, covenants or agreements in this Agreement or any Transaction
Document in any material respect.
SECTION 4.3 COVENANTS AND AGREEMENTS OF NAH-NAH.
(a) Conduct of Business of Nah-Nah. (i) From the date
hereof through the Closing Date, Nah-Nah agrees:
(A) To conduct its operations according to
the ordinary and usual course of the business consistent with past practice, to
preserve intact its present business organization and structure, to use
reasonable efforts to keep available the services of its officers, agents and
full-time employees, to use reasonable efforts to preserve and maintain the good
will of the business and to use reasonable efforts to preserve its relationships
with customers and suppliers, and others having business dealings with Nah-Nah.
(B) To maintain in the ordinary course of
business, consistent with past practice and in accordance with all Contracts,
the Nah-Nah Real Property, all equipment, the Inventory and other tangible
property in their present repair, order and condition, subject to ordinary wear
and tear and to the requirements of such Contracts.
(C) Not to incur any Liability (other than
Liabilities incurred in the ordinary course of business, consistent with past
practice, which are not in the aggregate material and those relating to the
Contemplated Transactions), nor enter into any material Contract, except that
Nah-Nah or an Affiliate may consummate the lease for an outlet store in
Secaucus, New Jersey currently under negotiation. Nah-Nah agrees to deliver a
copy of said lease to He-Ro promptly after execution and delivery thereof.
(D) Not to undertake (nor permit to be
undertaken) any of the actions specified in Section 3.10.
(E) Except as otherwise provided for herein,
not to pay, discharge or satisfy any material Claim or Liability, other than the
payment, discharge or satisfaction in the ordinary course of business of Claims
or Liabilities incurred in the ordinary course of business, consistent with past
practice.
(F) To fully comply with the Nah-Nah Leases
and immediately deliver to He-Ro copies of all notices regarding renewals,
default and rental and other obligations delivered or received thereunder or in
connection therewith.
(G) Not declare or pay any dividend or make
any other distribution to its stockholders.
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(H) Not amend its certificate of
incorporation or by-laws or comparable governing instruments.
(I) Not permit any Nah-Nah Insurance
Policies to be cancelled or terminated or any of the coverage thereunder to
lapse unless replaced with substantially similar coverage.
(ii) From the date hereof through the Closing Date,
Nah-Nah agrees that it will use reasonable efforts to conduct its business in
such a manner so that the representations and warranties of Nah-Nah and Han
contained herein shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date.
(iii) From the date hereof through the Closing Date,
Nah-Nah agrees that it will consult with He-Ro prior to any renewal, amendment,
extension or termination of, waiver of any material right under, or any failure
to renew, any material Contract and will not take any such action if He-Ro
objects thereto in writing. Nah-Nah understands and acknowledges that if He-Ro
reasonably objects to any such actions and Nah-Nah nonetheless performs or
permits the performance of any such action, He-Ro shall be entitled to terminate
this Agreement at no expense to He-Ro or Rounick.
ARTICLE IVA
INDIVIDUAL COVENANTS AND AGREEMENTS
SECTION 4A.1 COVENANTS AND AGREEMENTS OF ROUNICK.
(a) Irrevocable Proxy. Contemporaneously with the Closing,
Rounick and any persons other than Rounick, if any, having control over the
voting or disposition of the Rounick Family Stock (as defined below) shall
execute and deliver to Nah-Nah irrevocable proxies ("Irrevocable Proxies"), in
the form set forth at Exhibit D hereto, granting to Han, or his designee, the
right to vote the Rounick Family Stock in connection with all matters submitted
to a vote of the stockholders of He-Ro, and shall contain such other terms and
conditions as shall be reasonable and acceptable to Nah-Nah. The Irrevocable
Proxies shall each have an initial term of three years from the Closing Date,
provided that, if at the end of such initial three year period, Han does not own
stock of He-Ro representing at least 55% of the issued and outstanding common
stock of He-Ro, inclusive of all outstanding options and warrants to purchase
common stock of He-Ro exercisable at the end of the initial three-year period,
the Irrevocable Proxies shall continue for an additional three year period or
until such time as Han owns of record common stock of He-Ro representing at
least 55% of the issued and outstanding common stock of He-Ro, inclusive of all
outstanding options and warrants to purchase common stock of He-Ro then
currently exercisable, whichever is earlier (this period, together with the
initial three-year period, shall be referred to herein as the "Voting Control
Period"). After the expiration of the initial three years of the Voting Control
Period (and subject to the restrictions set forth in this paragraph), Rounick
may sell shares of the Rounick Family
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Stock subject to Rule 144 of the Securities Act or in a privately negotiated,
bona fide arms length transaction free and clear of the Irrevocable Proxy,
provided that she first give written notice of any such proposed sale to Han;
upon receipt of such notice, Han shall have five (5) business days to elect in
writing to purchase the shares at Fair Market Value (or, in the event of a
proposed privately negotiated bonafide arms length sale, at such other price as
set forth in the offer received by Rounick (the "Offer Price")). If Han so
elects to purchase, Han shall have an additional five (5) business days to
consummate such purchase. If Han elects not to purchase or does not timely elect
to purchase such shares, Rounick may during the next 60 day period sell such
shares free and clear of the Irrevocable Proxy at Fair Market Value or at the
Offer Price, as the case may be, and all remaining shares of Rounick Family
Stock shall remain subject to the Irrevocable Proxy for the remainder of the
Voting Control Period. If Rounick desires to make such sale after the expiration
of the 60 days, she shall repeat the above process. Notwithstanding anything
previously provided in this Section 4A.1(a), Rounick must retain during the
Voting Control Period and subject to the Irrevocable Proxy that number of shares
of Rounick Family Stock which, when added to the number of shares of common
stock of He-Ro owned of record by Han, represents 55% of the issued and
outstanding common stock of He-Ro, inclusive of all outstanding options and
warrants to purchase common stock of He-Ro then currently exercisable.
(b) Rounick Lock-Up Agreement. Rounick hereby agrees
not to sell, transfer or dispose of any securities of He-Ro now or hereafter
owned or controlled by her, (including stock of which she is voting trustee),
her Affiliates and family members (including step family) (the "Rounick Family
Stock") for a period of the lesser (i) three years after the Closing or (ii)
until He-Ro's NOL carry forward has been utilized or lost in its entirety (the
"Rounick Lock-Up"). Rounick further agrees to cancel, effective as of the
Closing, any outstanding Stock Rights for securities of He-Ro which she may
have. Prior to the Closing, Rounick shall submit to He-Ro's transfer agent the
certificates representing the Rounick Family Stock with instructions directing
the transfer agent to cancel such certificates and reissue certificates
representing the Rounick Family Stock, each with a legend indicating that such
shares are subject to an irrevocable proxy and a lock-up agreement restricting
the transfer thereof, so that the new certificates with the appropriate legends
are available for inspection at the Closing.
(c) Covenant Not to Compete. (i) Rounick hereby
agrees that from the date of the Closing and for a period of three (3) years
from the date of the Closing, Rounick shall not directly or indirectly on her
own behalf or on behalf of any other person: (A) own, manage, operate, control,
be employed by, participate in, design for, license her name for, provide
consulting services to, or be connected or associated in any manner with the
ownership, management, operation, or control of any business or enterprise
involved in the design, manufacture, sales or marketing of women's evening and
special occasion wear (excluding advertising or marketing firms that perform
advertising or marketing services for women's apparel); or (B) persuade or seek
to persuade any supplier, customer, contractor, employee, agent or consultant or
other person having business relations with He-Ro to cease such relationship.
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(ii) Rounick acknowledges and agrees that,
upon the Closing and her receipt of $500,000 for the purchase of the Rounick
Debt and a promissory note evidencing the Retained Rounick Debt, as well her
rights herein to continued medical coverage and a seat for herself or a designee
on He-Ro's board of directors, she will have received adequate consideration in
connection with the Contemplated Transactions in exchange for her agreement to
the restrictive covenants set forth in this Section 4A.1(c) (the "Restrictive
Covenants") and that the Restrictive Covenants are reasonable and valid in all
respects. If any court of competent jurisdiction determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect, without regard to the invalid or unenforceable
parts. Rounick acknowledges that in the event of a breach of the Restrictive
Covenants, monetary damages may not be sufficient and that He-Ro and Nah-Nah
shall be entitled to injunctive or such other relief as a court of competent
jurisdiction may deem appropriate.
(d) NOL. Without limiting any other covenants and
provisions hereof, Rounick covenants and agrees that (i) until the earlier of
(x) the tenth day following the third anniversary of the Closing, (y) the
utilization of the entire amount of the NOL, or (z) the termination of this
Agreement pursuant to Article VII hereof, neither she nor her Affiliates
(including but not limited to the Estate) will acquire, dispose of or transfer
any shares of He-Ro Common Stock (or any Stock Rights to acquire, dispose of or
transfer any shares of He-Ro Common Stock) that would result in any restriction
or impairment of the use or availability of the NOL, including, but not limited
to, a distribution by the Estate to its beneficiaries, unless such beneficiaries
agree in writing to be bound by the provisions of this Section 4A.1(d) and such
distribution does not restrict or impair the use or availability of the NOL, and
(ii) prior to the Closing, neither she nor her Affiliates will sell, pledge or
otherwise dispose of shares of He-Ro Common Stock beneficially owned by Rounick
(as defined in Rule 13d-3 promulgated under the Exchange Act) to any third
person, enter into any proxy or voting arrangement with respect to any of such
shares or vote such shares in any manner inconsistent with this Agreement or
enter into any agreement with respect to any of the foregoing.
(e) Negotiations With Others. From and after the date
hereof unless and until this Agreement shall have terminated in accordance with
its terms, Rounick agrees that neither Rounick, nor any of her Affiliates, will
directly or indirectly (i) solicit, engage in discussions or engage in
negotiations with any person (other than Nah-Nah or any of its Affiliates) with
respect to an Acquisition Proposal; (ii) provide non-public information to any
person (other than Nah-Nah or any of its Representatives) in connection with an
Acquisition Proposal; or (iii) enter into any transaction with any person (other
than Nah-Nah or any of its Affiliates) with respect to an Acquisition Proposal.
Notwithstanding the foregoing, Rounick may, as a director of He-Ro, to the
extent required in the exercise of her fiduciary duty under applicable law as
advised by counsel, engage in or participate in negotiations concerning, and, in
connection therewith, provide nonpublic information or data to and have any
discussions relating to, an Acquisition Proposal. If Rounick or any of her
Affiliates receives any Acquisition Proposal or any offer relating to an
Acquisition Proposal, Rounick will immediately notify Nah-Nah in writing as to
the identity of the offeror or the party making any such proposal and the
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specific terms of such offer or proposal, and shall provide Nah-Nah with seven
(7) business days from the date of Nah-Nah's receipt of such notification to
match such Acquisition Proposal prior to any acceptance by Rounick of an
Acquisition Proposal. If this Agreement is not terminated as of or prior to the
Schedule Delivery Date pursuant to Section 1.4 hereof or otherwise, then, if
Rounick accepts any Acquisition Proposal on or after the Schedule Delivery Date,
Rounick shall immediately upon demand from Nah-Nah, pay to Nah-Nah an amount
equal to Nah-Nah's and Han's fees and expenses incurred in connection with this
Agreement and the Contemplated Transactions (including without limitation
attorneys and accountants fees and expenses) and shall also pay to Nah-Nah upon
the closing of such other transaction, 10% of the gross proceeds thereof or
$300,000, whichever is less. The parties hereby acknowledge and agree that He-Ro
and Rounick shall be jointly and severally liable for any amounts payable under
this Section 4A.1(e) and Section 4.1(i) hereof, and that any amounts paid under
this Section 4A.1(e) will be offset by any amounts paid under Section 4.1(i)
hereof.
(f) Rounick Resignation. Rounick hereby resigns as
Chief Executive Officer and Chairman of the Board of He-Ro (provided that
Rounick will retain her seat on He-Ro's Board of Directors).
SECTION 4A.2 COVENANTS AND AGREEMENTS OF HAN
(a) Deposit. Prior to or contemporaneously with the
Schedule Delivery Date, Han has delivered or will deliver a good faith deposit
in the amount of $100,000 to an escrow account pursuant to an escrow agreement
dated the date hereof, attached hereto as Exhibit A, among He-Ro, Han and Baer
Marks & Upham, LLP as escrow agent (the "Escrow Agreement"). The Escrow
Agreement shall provide that upon the Closing, the escrow deposit shall be
applied to the purchase price of the Rounick Debt and delivered to Rounick in
accordance with the Rounick Debt Agreement. If this Agreement is terminated
prior to Closing, the escrow deposit will be returned to Han, or pursuant to
Section 7.3(iv) or (v) hereof, to He-Ro, as the case may be.
(b) Voting. From and after the Closing Date and until
the expiration of the Voting Control Period (or, if sooner, until Rounick dies
or otherwise terminates this provision), Han hereby agrees to vote the He-Ro
Common Stock and the Rounick Family Stock subject to the Irrevocable Proxies to
retain Rounick (or her designee) as a director of He-Ro.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. The
obligations of He-Ro and Nah-Nah to consummate the Contemplated Transactions are
subject to the satisfaction of the following conditions:
(a) No Injunction. No provision of any applicable Law
and no Order shall prohibit the consummation of the Contemplated Transactions.
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(b) No Proceeding or Litigation. No Claim instituted
by any person (other than Nah-Nah, He-Ro, Han or Rounick or their respective
Affiliates) shall have been commenced or pending against Nah-Nah, He-Ro or any
of their respective Affiliates, officers or directors which Claim seeks to
restrain, prevent, change or delay in any material respect the Contemplated
Transactions or seeks to challenge any of the material terms or provisions of
this Agreement or seeks material damages in connection with any of such
transactions.
(c) Fairness Opinion. He-Ro shall have delivered to
Nah-Nah at Closing a fairness opinion addressed to He-Ro from Mesirow regarding
the Contemplated transactions contemplated hereby among Han, Nah-Nah and He-Ro
satisfactory to Nah-Nah and He-Ro.
(d) Senior Debt. Nah-Nah shall have arranged for
He-Ro to have either (i) restructured the Senior Debt with the Senior Lender, on
terms acceptable to Nah-Nah in its sole discretion, and delivered to Nah-Nah
written evidence thereof, or (ii) entered into a financing agreement, with an
alternative senior lender on terms acceptable to Nah-Nah in its sole discretion,
and paid to the Senior Lender all amounts owing under the Senior Debt Agreement
without penalty therefor and the Senior Lender shall have waived all notice
requirements and released all collateral securing the payment of the Senior
Debt, in either case on the terms and conditions set forth in the Financing
Letter.
(e) Intercreditor Agreement. He-Ro, Han and the
Senior Lender (or alternative senior lender) shall have delivered the
Intercreditor Agreement.
(f) SEC Waiver. He-Ro shall have obtained from the
SEC the written waiver described in Section 4.1(d) hereof. If the waiver has not
been obtained or the waiver as obtained is not reasonably acceptable to Nah-Nah,
the parties hereby agree to enter into good faith negotiations with respect to
either complying with the SEC response to the waiver request or restructuring
this Agreement and the Contemplated Transactions consistent with Section 4.1(k)
above. Nah-Nah hereby agrees that the waiver requested in the letter from
He-Ro's counsel to the SEC dated the date hereof, and the restrictions on
registration set forth therein, are acceptable.
SECTION 5.2 CONDITIONS TO THE OBLIGATIONS OF HE-RO. All
obligations of He-Ro hereunder are subject, at the option of He-Ro, to the
fulfillment prior to or at the Closing of each of the following further
conditions:
(a) Performance. Nah-Nah and Han shall have performed
and complied with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it or him, as the case may be, at
or prior to the Closing Date.
(b) Representations and Warranties. The respective
representations and warranties of Nah-Nah and Han contained in this Agreement,
in any Schedule or Exhibit to this Agreement and in any certificate or other
writing delivered by Nah-Nah pursuant hereto shall be true at and as of the
Closing Date (except as to those
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representations and warranties that, by their terms, speak only as of a specific
date) as if made at and as of such time.
(c) Required Consents. All Nah-Nah and Han Required
Consents shall have been obtained.
(d) Nah-Nah Common Stock. Han shall have delivered to
He-Ro one or more stock certificates representing the Nah-Nah Common Stock,
together with duly executed stock powers in proper form to effect the transfer
thereof.
(e) Purchase Price for Junior Debt. Han shall have
paid to the Junior Bank Group by wire transfer of immediately available funds an
amount equal to $1,125,000 in full satisfaction of the purchase price for the
Junior Debt in accordance with the Junior Bank Group Debt Purchase Agreement.
(f) Claims. There shall be no Claims threatened
against Nah-Nah or any Subsidiary as of the Closing Date that could reasonably
be expected to have a material adverse effect on the Condition of the Business.
(g) Transfer to Nah-Nah of Certain Leasehold
Interests. Han shall transfer to Nah-Nah free and clear of all Liens his
ownership interests in the entities controlled by Han that are the tenants of
the Nah-Nah outlet stores including the store in the Riverhead, New York outlet
center and the store currently under negotiation at the Secaucus, New Jersey
outlet center.
(h) Closing Documentation. There shall have been
delivered to He-Ro the following:
(i) A certificate, dated the Closing Date,
of the Chairman of the Board, the President or Chief Financial Officer of
Nah-Nah confirming the matters set forth in Section 5.2(a) and (b) hereof;
(ii) A certificate, dated the Closing Date,
of the Secretary or Assistant Secretary of Nah-Nah certifying, among other
things, that attached or appended to such certificate (A) is a true and correct
copy of the Certificate of Incorporation and all amendments if any thereto as of
the date thereof of Nah-Nah and each Subsidiary; (B) is a true and correct copy
of the By-laws, as amended, as of the date thereof of Nah-Nah and each
Subsidiary; (C) is a true copy of all corporate actions taken by it, including
resolutions of its board of directors authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by such party pursuant hereto; and (D) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith;
(iii) Evidence of the good standing and
corporate existence of Nah-Nah reasonably requested by He-Ro;
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(iv) A signed opinion of Nah-Nah's counsel,
dated the Closing Date and addressed to He-Ro, substantially in the form of
opinion annexed as Exhibit B hereto; and
(v) Copies of all Nah-Nah and Han Required
Consents.
(i) Junior Bank Agreements. There shall have been
delivered to He-Ro executed copies of the Junior Bank Group Debt Purchase
Agreements.
(j) Rounick. Rounick shall have received from Han
$500,000 in consideration for the Rounick Debt and there shall have been
delivered to Rounick a new promissory note for the Retained Rounick Debt
pursuant to the Rounick Debt Agreement.
SECTION 5.3 CONDITIONS TO THE OBLIGATIONS OF NAH-NAH. All
obligations of Nah-Nah hereunder are subject, at the option of Nah-Nah, to the
fulfillment prior to or at the Closing of each of the following further
conditions:
(a) Performance. He-Ro and Rounick shall have
performed and complied with all agreements, obligations and covenants required
by this Agreement to be performed or complied with by it or her, as the case may
be, at or prior to the Closing Date.
(b) Representations and Warranties. The respective
representations and warranties of He-Ro and Rounick contained in this Agreement,
in any Schedule or Exhibit to this Agreement and in any certificate or other
writing delivered by He-Ro pursuant hereto shall be true at and as of the
Closing Date (except as to those representations and warranties that, by their
terms, speak only as of a specific date) as if made at and as of such time.
(c) Required Consents. All He-Ro and Rounick Required
Consents shall have been obtained.
(d) He-Ro Common Stock. He-Ro shall have delivered to
Han a stock certificate representing the He-Ro Common Stock.
(e) Director and Officer Resignations. Unless
otherwise agreed to or requested by Nah-Nah, all current directors and officers
of He-Ro and the Subsidiaries shall have resigned (other than Rounick or her
designee as a director of He-Ro). All qualifying capital stock of any Subsidiary
issued to any officers, directors or other parties shall be surrendered (with
appropriate transfer documentation), to He-Ro and Rounick shall have agreed to
elect persons designated by Nah-Nah to fill the resulting vacancies.
(f) Stockholder Approval. The Board of Directors and,
to the extent necessary, the stockholders of He-Ro, shall have approved and
adopted, by the requisite vote and in accordance with applicable Law, this
Agreement, the Transaction Documents and the Contemplated Transactions.
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(g) Claims. There shall be no Claims threatened
against He-Ro or any Subsidiary as of the Closing Date that could reasonably be
expected to have a material adverse effect on the Condition of the Business.
(h) SEC Reports; Information Statement. He-Ro shall
have filed with the SEC its quarterly report on Form 10-Q for the quarter ended
August 31, 1997, and all other reports required to be filed with the SEC in
connection with the Contemplated Transactions, including the Information
Statement, and delivered the Information Statement to all holders of record of
the Common Stock of He-Ro in accordance with the rules and regulations under the
Exchange Act.
(i) Treasury Stock. All Common Stock of He-Ro held in
treasury shall have been cancelled and He-Ro shall have delivered to Nah-Nah
evidence thereof.
(j) Durnard Shares. The Durnard Shares shall have
been cancelled via a corporate method reasonably acceptable to He-Ro and Nah-Nah
and in accordance with applicable law.
(k) Closing Documentation. There shall have been
delivered to Nah-Nah the following:
(i) A certificate dated the Closing Date, of
the Chairman of the Board, President or Chief Financial Officer of He-Ro
confirming the matters set forth in Sections 5.3(a) and (b);
(ii) A certificate, dated the Closing Date,
of the Secretary or Assistant Secretary of He-Ro certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy of
the Certificate of Incorporation and all amendments if any thereto as of the
date thereof of He-Ro and each Subsidiary; (B) is a true and correct copy of the
By-laws, as amended, as of the date thereof of He-Ro and each Subsidiary; (C) is
a true copy of all corporate actions taken by it, including resolutions of its
board of directors and shareholders authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by such party pursuant hereto; and (D) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith;
(iii) Evidence of the good standing and
corporate existence of He-Ro and each Subsidiary reasonably requested by
Nah-Nah;
(iv) A signed opinion of He-Ro's counsel,
dated the Closing Date, addressed to Nah-Nah, substantially in the form of
opinion annexed as Exhibit C hereto; and
(v) Copies of all He-Ro and Rounick Required
Consents and all Permits.
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(l) Leases; Lease Documents. There shall have been
delivered to Nah-Nah certified, true and complete copies of the He-Ro Leases and
all amendments and modifications thereof, and the Lease Documents for the Key
Stores.
(m) Trademarks. There shall have been delivered to
Nah-Nah a true, complete and accurate schedule of all filings (domestic and
foreign) that He-Ro or any Subsidiary will be required to perform within six
months after the Closing in order to maintain He-Ro's Intellectual Property
Rights.
(n) Compliance With Financing Agreement. He-Ro shall
be in compliance with or satisfy all reasonable customary and usual terms and
conditions (not inconsistent with the terms of this Agreement) set forth in the
Senior Debt financing agreement required to be delivered under Section
5.3(o)(vii).
(o) Agreements. There shall have been delivered to
Nah-Nah executed copies of the following agreements, in form and substance
satisfactory to Nah-Nah:
(i) All existing promissory notes evidencing
the Rounick Debt and all documents relating thereto;
(ii) The Rounick Debt Agreement and the new
note issued to Han pursuant thereto;
(iii) The Junior Bank Group Debt Purchase
Agreement and all documents to be delivered in connection therewith;
(iv) The Irrevocable Proxies;
(v) Lock-Up Agreements from the 5% and
certain other holders of the Common Stock of He-Ro if obtained under Section
4.1(h);
(vi) A Registration Rights Agreement dated
the Closing Date, pursuant to which He-Ro shall agree to register the He-Ro
Common Stock under the Securities Act on terms acceptable to Han (it being
understood that the restrictions on registration as set forth in the letter from
He-Ro's counsel to the SEC dated the date hereof are acceptable to Han); and
(vii) Either, the agreement with the Senior
Lender consenting to the Contemplated Transactions and, if applicable,
restructuring the Senior Debt, or the financing agreement with the alternative
senior lender, in either case acceptable to Nah-Nah in its sole discretion.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of Nah-Nah and He-Ro to fully investigate the affairs
of each other and notwithstanding any knowledge of facts determined or
determinable by either of them pursuant to such investigation or right of
investigation, each has the right to rely fully upon the representations,
warranties, covenants and agreements of the other contained in this Agreement,
or listed or disclosed on any Schedule hereto or in any instrument delivered in
connection with or pursuant to any of the foregoing. All such representations
and warranties contained in this Agreement, on any Schedule hereto or in any
instrument delivered in connection with or pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing hereunder
for a period of 18 months after the Closing Date, (other than the
representations and warranties in Sections 2.5, 2.7, 2.11, 2.12, 2.16, 2.18,
2.20, 2A.1, 2A.2, 3.5, 3.7, 3.11, 3.12, 3.16, 3.18, 3.20, 3A.1, 3A.2, 3A.3, and
3A.4, which shall terminate and expire upon expiration of the applicable statute
of limitations).
SECTION 6.2 OBLIGATION OF HE-RO AND ROUNICK TO INDEMNIFY. (a)
He-Ro agrees to indemnify, defend and hold harmless Nah-Nah and Han (and its
respective directors, officers, employees, Affiliates, successors and assigns)
from and against all Claims, losses, Liabilities, damages, deficiencies,
judgments, settlements, costs of investigation or other expenses (including
interest, penalties and reasonable attorneys' fees and disbursements and
expenses incurred in enforcing this indemnification) (collectively, the
"Losses") suffered or incurred by Nah-Nah or any of the foregoing persons or
He-Ro arising out of (i) any breach of the representations and warranties of
He-Ro contained in this Agreement or in the Schedules or any Transaction
Document, (ii) any breach of the covenants and agreements of He-Ro contained in
this Agreement or in the Schedules or any Transaction Document, (iii) any
undisclosed Liabilities of He-Ro or any Subsidiary, or (iv) the Losses described
on Schedule 6.2(a) hereto (collectively, the "JV Liabilities").
(b) Rounick agrees indemnify and hold harmless
Nah-Nah (and its directors, officers, employees, Affiliates or successors and
assigns) and Han from and against any Losses suffered or incurred by any of the
foregoing persons arising out of any breach of the representations or warranties
of Rounick contained in this Agreement, the Schedule or any of the Transaction
Documents.
SECTION 6.3 OBLIGATIONS OF NAH-NAH AND HAN TO INDEMNIFY. (a)
Nah-Nah agrees to indemnify, defend and hold harmless He-Ro (and its respective
directors, officers, employees, Affiliates or successors and assigns) from and
against any Losses suffered or incurred by He-Ro or any of the foregoing persons
arising out of (i) any breach of the representations and warranties of Nah-Nah
contained in this Agreement or in the Schedules or any Transaction Document,
(ii) any breach of the covenants and agreements of Nah-Nah contained in this
Agreement or in the Schedules of any Transaction Document, or (iii) any
undisclosed Liabilities of Nah-Nah or any Subsidiary.
(b) Han agrees to indemnify, defend and hold harmless
He-Ro (and its directors, officers, employees, Affiliates or successors and
assigns) from and against
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any Losses suffered or incurred by any of the foregoing persons arising out of
any breach of the representations and warranties of Han contained in this
Agreement, the Schedules or any of the Transaction Documents.
SECTION 6.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY
CLAIMS. (a) Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim or circumstance which would or might give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give prompt notice thereof (the "Claims Notice") to the party
or parties obligated to provide indemnification pursuant to Section 6.2 or 6.3
(collectively, the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at
its own expense and with its own counsel, any Asserted Liability unless (i) the
Asserted Liability seeks an Order, injunction or other equitable or declaratory
relief against the Indemnitee or (ii) the Indemnitee shall have reasonably
concluded that (x) there is a conflict of interest between the Indemnitee and
the Indemnifying Party in the conduct of such defense or (y) the Indemnitee
shall have one or more defenses not available to the Indemnifying Party. If the
Indemnifying Party elects to defend such Asserted Liability, it shall within 30
days (or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the defense of such Asserted Liability. If
the Indemnifying Party elects not to defend the Asserted Liability, is not
permitted to defend the Asserted Liability by reason of the first sentence of
this Section 6.4(b), fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement with
respect to such Asserted Liability, the Indemnitee may pay, compromise or defend
such Asserted Liability at the sole cost and expense of the Indemnifying Party.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the reasonable written objection of the
other, provided that the Indemnitee may settle or compromise any claim as to
which the Indemnifying Party has failed to notify the Indemnitee of its election
under this Section 6.4(b) or as to which the Indemnifying Party is contesting
its indemnification obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of any
Asserted Liability. If the Indemnifying Party chooses to defend any Asserted
Liability, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. Any Losses of any Indemnitee for which
indemnification is available hereunder shall be paid upon written demand
therefor.
SECTION 6.5 LIMITS ON INDEMNIFICATION. (a) He-Ro shall not be
liable to Nah-Nah (and its respective directors, officers, employees,
Affiliates, successors and assigns) for any Losses arising under Section 6.2
above unless and until one or more Losses amounts to or exceeds $50,000 in the
aggregate, in which case He-Ro, shall be liable for the full amount of such
Losses in excess of said amount (the "He-Ro Stipulated Amount").
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Notwithstanding the foregoing, any Losses in respect of the JV Liabilities shall
be fully indemnifiable without regard to the provisions hereof relating to the
He-Ro Stipulated Amount and, in the event He-Ro indemnifies Nah-Nah with respect
to such Losses, the amount of such Losses shall not be included in the
calculation of the He-Ro Stipulated Amount.
(b) Nah-Nah shall not be liable to He-Ro (and its
respective directors, officers, employees, Affiliates, successors and assigns)
for any Losses arising under Section 6.3 above unless and until one or more
Losses amounts to or exceeds $100,000 in the aggregate, in which case Nah-Nah
shall be liable for the full amount of such Losses in excess of said amount.
SECTION 6.6 REMEDIES CUMULATIVE. Except as otherwise provided
in this Agreement, the remedies provided herein shall be cumulative and shall
not preclude the assertion by any party hereto of any other rights or the
seeking of any other remedies against the other party hereto, including
rescission.
ARTICLE VII
SPECIFIC PERFORMANCE; TERMINATION
SECTION 7.1 SPECIFIC PERFORMANCE. (a) He-Ro acknowledges and
agrees that, if He-Ro fails to proceed with the Closing in any circumstance
other than those described in clauses (a), (b), (d) (e) or (f) of Section 7.2
below, Nah-Nah will not have adequate remedies at law with respect to such
breach and that, in such event, Nah-Nah shall be entitled, without the necessity
or obligation of posting a bond or other security, to commence a suit in equity
to obtain specific performance of He-Ro's obligations under this Agreement.
He-Ro specifically affirms the appropriateness of such injunctive or other
equitable relief in any such action.
(b) Nah-Nah acknowledges and agrees that, if Nah-Nah
fails to proceed with the Closing in any circumstance other than those described
in clauses (a), (c), (d) or (e) of Section 7.2 below, He-Ro will not have
adequate remedies at law with respect to such breach and that, in such event,
He-Ro shall be entitled, without the necessity or obligation of posting a bond
or other security, to commence a suit in equity to obtain specific performance
of Nah-Nah's obligations under this Agreement. Nah-Nah specifically affirms the
appropriateness of such injunctive or other equitable relief in any such action.
SECTION 7.2 TERMINATION. Except as otherwise set forth in
Section 1.4, this Agreement may be terminated and the Contemplated Transactions
may be abandoned at any time prior to the Closing:
(a) By mutual written consent of He-Ro and Nah-Nah;
(b) By He-Ro if (i) there has been a material
misrepresentation or breach of warranty on the part of Nah-Nah or Han in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is
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not cured within 10 days after written notice thereof from He-Ro; (ii) Nah-Nah
or Han has committed a material breach of any covenant imposed upon it or him
hereunder and fails to cure such breach within 10 days after written notice
thereof from He-Ro; or (iii) any condition to He-Ro's obligations hereunder
becomes incapable of fulfillment through no fault of He-Ro or Rounick and is not
waived by He-Ro, provided that, on the date of termination, the conditions to
Nah-Nah's obligations hereunder specified in Section 5.3 hereof shall have been
satisfied and He-Ro shall be otherwise ready, willing and able to proceed with
the Closing hereunder;
(c) By Nah-Nah, if (i) there has been a material
misrepresentation or breach of warranty on the part of He-Ro or Rounick in the
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within 10 days
after written notice thereof from Nah-Nah; (ii) He-Ro or Rounick has committed a
material breach of any covenant imposed upon it or her hereunder and fails to
cure such breach within 10 days after written notice thereof from Nah-Nah; or
(iii) any condition to Nah-Nah's obligations hereunder becomes incapable of
fulfillment through no fault of Nah-Nah or Han and is not waived by Nah-Nah,
provided that, on the date of termination, the conditions to He-Ro's obligations
hereunder specified in Section 5.2 hereof shall have been satisfied, and Nah-Nah
shall be otherwise ready, willing and able to proceed with the Closing
hereunder;
(d) By He-Ro or by Nah-Nah, if there shall be any Law
that makes consummation of the Contemplated Transactions illegal or otherwise
prohibited, or if any Order enjoining He-Ro or Nah-Nah from consummating the
Contemplated Transactions is entered and such Order shall have become final and
nonappealable;
(e) By either He-Ro or Nah-Nah if the Closing shall
not have occurred on or prior to December 20, 1997, provided that (i) if so
terminated by He-Ro, the conditions specified in the proviso of Section 7.2(b)
shall have been satisfied on the date of termination and He-Ro shall be then
otherwise ready, willing and able to proceed with the Closing, or (ii) if so
terminated by Nah-Nah, the conditions specified in the proviso of Section 7.2(c)
shall have been satisfied on the date of termination and Nah-Nah shall be then
otherwise ready, willing and able to proceed with the Closing; and
(f) By He-Ro pursuant to the provisions of said
Section 4.1(i) above.
(g) By Nah-Nah if any of the JV Liabilities are
asserted by a third party prior to Closing.
SECTION 7.3 EFFECT OF TERMINATION; RIGHT TO PROCEED. Subject
to the provisions of Section 7.1 hereof, in the event that this Agreement shall
be terminated pursuant to Section 7.2, all further obligations of the parties
under the Agreement shall terminate without further liability of any party
hereunder except (i) to the extent that a party has made a material
misrepresentation hereunder or committed a breach of any material covenant and
agreement imposed upon it hereunder; (ii) to the extent that any condition to a
party's obligations hereunder became incapable of fulfillment because of the
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breach by a party of its obligations hereunder; (iii) that the agreements
contained in Sections 4.1(i), 4.2(c) and 4.2(d) shall survive the termination
hereof; (iv) He-Ro shall be entitled to receive the $100,000 good faith deposit
as liquidated damages if Nah-Nah terminates the agreement other than in
accordance with Section 7.2 hereof; and (v) if on the Schedule Delivery Date
Nah-Nah elected under Section 1.4(b) hereof not to terminate this Agreement,
He-Ro shall be entitled to receive the $100,000 good faith deposit as liquidated
damages if Nah-Nah has not obtained a financing agreement with respect to the
Senior Debt by the time the parties are otherwise ready to close and all other
conditions to closing have either been satisfied or waived by Nah-Nah, provided
no other grounds for termination by Nah-Nah are applicable under this Agreement,
unless the basis for the failure to obtain such financing is that He-Ro is
unable to satisfy any reasonable, customary and usual terms or conditions (not
inconsistent with the terms of this Agreement) of the financing agreement. In
the event that a condition precedent to its obligation is not met, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Contemplated Transactions.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 NOTICES. (a) Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally by hand or by recognized overnight courier, telecopied or mailed (by
registered or certified mail, postage prepaid) as follows:
(i) If to Han or Nah-Nah, one copy to:
Nah-Nah Collection, Inc.
213 West 35th Street
New York, New York 10001
Telecopier: (212) 947-3195
Attn: Hong J. Han
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
Attn: Jeffrey M. Cole, Esq.
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(ii) If to He-Ro, one copy to: or, if to Rounick, one copy to
The He-Ro Group, Ltd. Della Rounick
550 Seventh Avenue 15 West 53rd Street
New York, NY 10016 New York, NY 10019
Telecopier: (212) 757-9879
Attn: Della Rounick
in either case, with a copy to:
Lowenthal, Landau, Fischer
& Bring, P.C.
250 Park Avenue
New York, NY 10177
Telecopier: (212) 986-0604
Attn: Martin R. Bring, Esq.
(b) Each such notice or other communication shall be
effective upon receipt or refusal. Any party by notice given in accordance with
this Section 8.1 to the other party may designate another address (or telecopier
number) or person for receipt of notices hereunder. Notices by a party may be
given by counsel to such party.
SECTION 8.2 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits hereto) and the collateral agreements executed in
connection with the consummation of the Contemplated Transactions contain the
entire agreement among the parties with respect to the subject matter hereof and
related transactions and supersede all prior agreements, written or oral, with
respect thereto, except the confidentiality provisions set forth in the letter
of intent between the parties dated August 27, 1997.
SECTION 8.3 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, cancelled,
renewed or extended only by a written instrument signed by He-Ro, Nah-Nah,
Rounick and Han. The provisions hereof may be waived in writing by the party to
be charged therewith. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. Except as otherwise provided herein, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
SECTION 8.4 GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.
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SECTION 8.5 BINDING EFFECT; NO ASSIGNMENT. This Agreement and
all of its provisions, rights and obligations shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
heirs and legal representatives. This Agreement may not be assigned (including
by operation of Law) by a party without the express written consent of Nah-Nah
(in the case of assignment by He-Ro or Rounick) or He-Ro (in the case of
assignment by Nah-Nah or Han) and any purported assignment, unless so consented
to, shall be void and without effect.
SECTION 8.6 SEVERABILITY. If any provision of this Agreement
for any reason shall be held to be illegal, invalid or unenforceable, such
illegality shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such illegal, invalid or unenforceable
provision had never been included herein.
SECTION 8.7 COUNTERPARTS. The Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories, including faxed signatures.
SECTION 8.8 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein express or implied is intended or shall be
construed to confer upon or give to any person other than the parties hereto and
their permitted successors or assigns, any rights or remedies under or by reason
of this Agreement or the Contemplated Transactions.
SECTION 8.9 FURTHER ASSURANCES. At any time and from time to
time after the Closing Date, upon the request of either party, the other party
will do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged or delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney or assurances as may be reasonably requested for
the better effecting of the Contemplated Transactions. He-Ro and Nah-Nah will
each, respectively, bear their own costs and expenses incurred in compliance
with its obligations under this Section 8.9.
ARTICLE IX
DEFINITIONS
SECTION 9.1 DEFINITIONS. (a) The following terms, as used
herein (including any Schedules or Exhibits hereto), have the following
meanings:
"Acquisition Proposal" shall mean any proposal for the
acquisition of, or merger or other business combination involving He-Ro or the
sale of any equity interest in, or the business or any assets of, He-Ro (except
in the ordinary course), other than the transactions contemplated by this
Agreement.
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"Affiliate" of any person means any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words
"herein", "hereof" and "hereunder" and words of similar import shall refer to,
this agreement as it from time to time may be amended.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Certificate of Incorporation" shall mean, in the case of any
corporation, the certificate of incorporation, articles of incorporation or
charter of a corporation, howsoever denominated under the laws of the
jurisdiction of its incorporation.
"Contract" shall mean any contract, agreement, indenture,
note, bond, lease, conditional sale contract, mortgage, license, franchise,
instrument, commitment or other binding arrangement, whether written or oral,
and all modifications and amendments thereto and substitutions thereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
The term "control," with respect to any person, shall mean the
power to direct the management and policies of such person, directly or
indirectly, by or through stock ownership, agency or otherwise, or pursuant to
or in connection with an agreement, arrangement or understanding (written or
oral) with one or more other persons by or through stock ownership, agency or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean, with respect to common stock
of He-Ro quoted on the OTC Electronic Bulletin Board, the average of the bid and
asked prices for the 20 consecutive trading days prior to the date of the notice
of sale, and with respect to common stock of He-Ro traded on a national exchange
or quoted on Nasdaq, the average closing sale price for the 20 consecutive
trading days prior to the date of the notice of sale.
"GAAP" shall mean generally accepted accounting principles in
effect on the date hereof as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States.
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"Hazardous Substances" shall mean any dangerous, toxic,
radioactive, caustic or otherwise hazardous material, pollutant, contaminant,
chemical, waste or substance defined, listed or described as any of such in or
governed by any Environmental Law, including but not limited to
urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos-containing
materials, radon, explosives, known carcinogens, petroleum and its derivatives,
petroleum products, flammable materials, radioactive materials, controlled or
toxic substances, any pollutant or contaminant, or any substance which might
cause any injury to human health or safety or to the environment or might
subject the owner or operator of the Real Property to any Regulatory Actions or
Claims.
"He-Ro Leases" shall mean the lease agreements for the He-Ro
Stores set forth on Schedule 2.11(a) as well as any other premises leased by
He-Ro.
"He-Ro Stores" shall mean all of the retail outlets owned or
operated by He-Ro.
"Intellectual Property Rights" shall mean all patents,
trademarks (registered or unregistered), trade names, service marks, copyrights
and applications therefor owned, used or filed by or licensed to He-Ro or
Nah-Nah, as the case may be, or either of their Subsidiaries.
"Inventory" shall mean, as of any date, collectively, all
inventories of women's apparel, merchandise, and other products owned by He-Ro
or Nah-Nah, as the case may be, and held for resale or for distribution,
together with packaging and samples thereof, owned by He-Ro or Nah-Nah, as the
case may be, as of such date.
"IRS" shall mean the Internal Revenue Service.
"Liability" shall mean any direct or indirect indebtedness,
liability, assessment, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, actual or potential,
contingent or otherwise (including any liability under any guaranties, letters
of credit, performance credits or with respect to insurance loss accruals).
"Lien" shall mean any mortgage, lien (including mechanics,
warehousemen, laborers and landlords liens), claim, pledge, charge, security
interest, preemptive right, right of first refusal, option, judgment, title
defect, or encumbrance of any kind.
"Nah-Nah Leases" shall mean the lease agreements for the
Nah-Nah Stores set forth on Schedule 3.11(a)_, as well as any other premises
leased by Nah-Nah.
"Nah-Nah Stores" shall mean all of the retail outlets owned or
operated by Nah-Nah.
"Permit" shall mean all of He-Ro's or Nah-Nah's, as the case
may be, rights under all governmental licenses, certificates, permits and
approvals relating to or necessary to the conduct of its business as of the
Closing Date.
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The term "person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity, including a government or political subdivision or an agency or
instrumentality thereof.
"Regulatory Actions" shall mean any Claim, demand, action,
suit, summons, citation, directive, investigation, litigation, inquiry,
enforcement action, Lien, encumbrance, restriction, settlement, remediation,
response, clean-up or closure arrangement or other remedial obligation or
proceeding brought or instigated by any Governmental Body in connection with any
environmental Law, including, without limitation, the listing of the Real
Property on any list of contaminated or potentially contaminated sites or
potential or verified Hazardous Waste sites under any environmental Law, civil,
criminal and/or administrative proceedings, whether or not seeking costs,
damages, penalties or expenses.
"Release" shall mean the intentional or unintentional,
spilling, leaking, disposing, discharging or disturbance of, or emitting,
depositing, injecting, leaching, escaping, or any other release or threatened
release to or from, however defined, any Hazardous Substance in violation of any
environmental Law.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Subsidiary" of He-Ro or Nah-Nah shall mean any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are owned directly or indirectly, by He-Ro or Nah-Nah, as the case may
be.
"Tax" (including, with correlative meaning, the terms "Taxes"
and "Taxable") shall mean (i) any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax,
with respect to either He-Ro or Nah-Nah, as the case may be, and Seller, the
business or the assets (or the transfer thereof) of each of them; (ii) any
liability for the payment of any amount of the type described in the immediately
preceding clause as a result of either He-Ro or Nah-Nah, as the case may be,
being a member of an affiliated or combined group with any other corporation at
any time on or prior to the Closing Date and (iii) any liability of either He-Ro
or Nah-Nah, as the case may be, for the payment of any amounts of the type
described in clause (i) above as a result of a contractual obligation to
indemnify any other person.
"Tax Return" shall mean any return or report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to any Tax Authority.
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"Transaction Documents" shall mean, collectively, this
Agreement, and each of the other agreements and instruments to be executed and
delivered by all or some of the parties hereto in connection with the
consummation of the transactions contemplated hereby.
(b) The following terms are defined in the following
sections of this Agreement or Schedule:
Term Section
---- -------
Applications 4.2(e)
Claims 2.15
Claims Notice 6.4(a)
Closing 1.1
Closing Date 1.3
Condition of the Business 2.10(a)
Contemplated Transactions 2.1
Durnard 2.6(b)
Durnard Shares 2.6(b)
Escrow Agreement 4.3
Estate Recitals
Financing Letter 1.4
Governmental Bodies 2.18
GPL Schedule 6.2(a)
Han Required Consents 3A.2
He-Ro Common Stock Recital
He-Ro Insurance Policies 2.17
He-Ro Interim Statements 4.1(b)
He-Ro Latest Balance Sheet 2.8
He-Ro Latest Balance Sheet Date 2.8
He-Ro Real Property 2.11
He-Ro Required Consents 2.2
Improvements 2.11(a)
Inactive Subsidiaries 2.3
Indemnifying Party 6.4(a)
Indemnitee 6.4(a)
Information Statement 4.1(e)
Intercreditor Agreement 4.2(i)
Irrevocable Proxy 4A.1(a)
Junior Bank Group 4.2(h)
Junior Bank Group Debt Purchase Agreement Recital
Junior Debt Recital
Junior Debt Agreement Recital
JV Liabilities 6.2(a)
Key Stores 4.1(h)
Laws 2.18
Lease Documents 4.1(i)
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Losses 6.2
Nah-Nah Common Stock Recital
Nah-Nah Financial Statements 3.7
Nah-Nah Insurance Policies 2.17
Nah-Nah Latest Balance Sheet 3.8
Nah-Nah Latest Balance Sheet Date 3.8
Nah-Nah Real Property 3.11
Nah-Nah Required Consents 3.2
NOL 2.7
Offer Price 4A.1(a)
Orders 2.18
Projections 2.10
Representatives 4.2
Restrictive Covenants 4A.1(c)
Retained Rounick Debt Recital
Rounick Debt Recital
Rounick Debt Agreement Recital
Rounick Lock-Up 4A.1(b)
Rounick Family Stock 4A.1(b)
Rounick Required Consents 2A.2
Schedule Delivery Date 1.4
SEC 2.7
SEC Documents 2.7
Senior Debt Recital
Senior Debt Agreement Recital
Senior Lender Recital
Subsequent SEC Filings 2.7
Stock Rights 2.6
Voting Control Period 4A.1(a)
SECTION 9.2 INTERPRETATION. Unless the context otherwise requires, the
terms defined in Section 9.1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. All accounting terms defined in Section 9.1,
and those accounting terms used in this Agreement not defined in Section 9.1,
except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
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IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date set forth above.
THE HE-RO GROUP, LTD.
By: /s/ Sam Kaplan
----------------------------------------
Name/Title: Chief Financial Officer
/s/ Vasiliki Della Pasvantidou Rounick
--------------------------------------------
VASILIKI DELLA PASVANTIDOU ROUNICK
(FOR THE LIMITED PURPOSES SET FORTH HEREIN)
NAH-NAH COLLECTION, INC.
By: /s/ Hong J. Han
----------------------------------------
Name/Title: President
/s/ Hong J. Han
--------------------------------------------
HONG J. HAN
(FOR THE LIMITED PURPOSES SET FORTH HEREIN)
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SALE AND PURCHASE; SCHEDULES........................................................... 2
SECTION 1.1 Sale and Purchase of Nah-Nah Common Stock.................................................. 2
SECTION 1.2 Consideration.............................................................................. 2
SECTION 1.3 Closing.................................................................................... 2
SECTION 1.4 Final Schedules; Exhibits; Financing Letter................................................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF HERO................................................. 3
SECTION 2.1 Authority Relative to this Agreement;
Valid and Binding Agreement................................................... 3
SECTION 2.2 No Conflicts; Consents..................................................................... 3
SECTION 2.3 Corporate Existence and Power;
Subsidiaries Officers and Directors........................................... 3
SECTION 2.4 Charter Documents and Corporate Records.................................................... 4
SECTION 2.5 The HeRo Common Stock...................................................................... 4
SECTION 2.6 Authorized and Outstanding Stock........................................................... 5
SECTION 2.7 SEC Reports; Financial Information......................................................... 6
SECTION 2.8 Liabilities................................................................................ 7
SECTION 2.9 Inventory.................................................................................. 7
SECTION 2.10 Absence of Certain Changes................................................................ 7
SECTION 2.11 Real Property............................................................................. 8
SECTION 2.12 Personal Property......................................................................... 10
SECTION 2.13 Contracts................................................................................. 10
SECTION 2.14 Intangible Property....................................................................... 10
SECTION 2.15 Claims and Proceedings.................................................................... 11
SECTION 2.16 Tax Matters............................................................................... 11
SECTION 2.17 Insurance................................................................................. 12
SECTION 2.18 Compliance with Laws...................................................................... 12
SECTION 2.19 Permits................................................................................... 12
SECTION 2.20 Environmental Matters..................................................................... 13
SECTION 2.21 Finders; Fees............................................................................. 13
SECTION 2.22 Supplier and Customers.................................................................... 13
SECTION 2.23 Investment Intention...................................................................... 14
SECTION 2.24 HeRo Receivables.......................................................................... 14
SECTION 2.25 Related Party Transactions................................................................ 14
ARTICLE IIA REPRESENTATIONS AND WARRANTIES OF ROUNICK.............................................. 15
SECTION 2A.1 Valid and Binding Agreement............................................................... 15
SECTION 2A.2 No Conflicts; Consents.................................................................... 15
SECTION 2A.3 Stock Ownership........................................................................... 15
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NAH-NAH..................................... 15
SECTION 3.1 Authority Relative to this Agreement;
Valid and Binding Agreement................................................... 15
SECTION 3.2 No Conflicts; Consents..................................................................... 16
SECTION 3.3 Corporate Existence and Power; Subsidiaries................................................ 16
SECTION 3.4 Charter Documents and Corporate Records.................................................... 17
SECTION 3.5 The Nah-Nah Common Stock................................................................... 17
SECTION 3.6 Authorized and Outstanding Stock........................................................... 17
SECTION 3.7 Financial Information...................................................................... 17
SECTION 3.8 Liabilities................................................................................ 18
SECTION 3.9 Inventory.................................................................................. 18
SECTION 3.10 Absence of Certain Changes................................................................ 18
SECTION 3.11 Real Property............................................................................. 19
SECTION 3.12 Personal Property......................................................................... 20
SECTION 3.13 Contracts................................................................................. 21
SECTION 3.14 Intangible Property....................................................................... 21
SECTION 3.15 Claims and Proceedings.................................................................... 21
SECTION 3.16 Tax Matters............................................................................... 22
SECTION 3.17 Insurance................................................................................. 23
SECTION 3.18 Compliance with Laws...................................................................... 23
SECTION 3.19 Permits................................................................................... 23
SECTION 3.20 Environmental Matters..................................................................... 23
SECTION 3.21 Finders; Fees............................................................................. 24
SECTION 3.22 Supplier and Customers.................................................................... 24
SECTION 3.23 Intentionally Omitted..................................................................... 24
SECTION 3.24 Nah-Nah Receivables....................................................................... 24
SECTION 3.25 Related Party Transactions................................................................ 25
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF HAN.................................................. 25
SECTION 3A.1 Valid and Binding Agreement............................................................... 25
SECTION 3A.2 No Conflicts; Consents.................................................................... 25
SECTION 3A.3 Ownership of Nah-Nah Common Stock......................................................... 26
SECTION 3A.4 Investment Intention...................................................................... 26
SECTION 3A.5 Contracts; Leases......................................................................... 26
ARTICLE IV COMPANY COVENANTS AND AGREEMENTS....................................................... 26
SECTION 4.1 Covenants and Agreements of HeRo................................................. 26
SECTION 4.2 Mutual Covenants and Agreements of the Parties................................... 30
SECTION 4.3 Covenants and Agreements of Nah-Nah.............................................. 33
ARTICLE IVA INDIVIDUAL COVENANTS AND AGREEMENTS.................................................... 34
SECTION 4A.1 Covenants and Agreements of Rounick....................................................... 34
SECTION 4A.2 Covenants and Agreements of Han........................................................... 37
</TABLE>
ii
<PAGE> 58
<TABLE>
<S> <C>
ARTICLE V CONDITIONS TO CLOSING.................................................................. 37
SECTION 5.1 Conditions to the Obligations of the Parties............................................... 37
SECTION 5.2 Conditions to the Obligations of HeRo...................................................... 38
SECTION 5.3 Conditions to the Obligations of Nah-Nah................................................... 39
ARTICLE VI INDEMNIFICATION........................................................................ 42
SECTION 6.1 Survival of Representations and Warranties................................................. 42
SECTION 6.2 Obligation of HeRo and Rounick to Indemnify................................................ 42
SECTION 6.3 Obligations of Nah-Nah and Han to Indemnify................................................ 43
SECTION 6.4 Notice and Opportunity to Defend Third Party Claims........................................ 43
SECTION 6.5 Limits on Indemnification.................................................................. 44
SECTION 6.6 Remedies Cumulative........................................................................ 44
ARTICLE VII SPECIFIC PERFORMANCE; TERMINATION...................................................... 44
SECTION 7.1 Specific Performance....................................................................... 44
SECTION 7.2 Termination................................................................................ 45
SECTION 7.3 Effect of Termination; Right to Proceed.................................................... 46
ARTICLE VIII MISCELLANEOUS.......................................................................... 46
SECTION 8.1 Notices.................................................................................... 46
SECTION 8.2 Entire Agreement........................................................................... 47
SECTION 8.3 Waivers and Amendments; NonContractual Remedies;
Preservation of Remedies...................................................... 47
SECTION 8.4 Governing Law.............................................................................. 48
SECTION 8.5 Binding Effect; No Assignment.............................................................. 48
SECTION 8.6 Severability............................................................................... 48
SECTION 8.7 Counterparts............................................................................... 48
SECTION 8.8 Third Parties.............................................................................. 48
SECTION 8.9 Further Assurances......................................................................... 48
ARTICLE IX DEFINITIONS................................................................................... 49
SECTION 9.1 Definitions................................................................................ 49
SECTION 9.2 Interpretation............................................................................. 53
</TABLE>
EXHIBITS:
Exhibit A Escrow Agreement
Exhibit B Form of Opinion of Nah-Nah's counsel
Exhibit C Form of Opinion of He-Ro's counsel
Exhibit D Irrevocable Proxy
iii
<PAGE> 59
Execution Copy
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE HE-RO GROUP, LTD.
VASILIKI DELLA PASVANTIDOU ROUNICK,
NAH-NAH COLLECTION, INC.
AND
HONG J. HAN
OCTOBER 16, 1997
<PAGE> 1
EXHIBIT B
IRREVOCABLE PROXY
Subject to the terms and conditions set forth herein, the
undersigned VASILIKI DELLA PASVANTIDOU ROUNICK (the "Stockholder"), with respect
to all of the shares of common stock of The He-Ro Group, Ltd., a Delaware
corporation (the "Corporation"), now or hereafter "beneficially owned" (as such
term is defined herein) by the Stockholder, including, but not limited to shares
held by the Estate of Herbert Rounick (for which Stockholder is executrix) and
shares held by affiliates and family members (including step family) of
Stockholder over which Stockholder has control (the "Shares"), hereby revokes
all previous proxies, if any, and appoints and grants HONG J. HAN, a resident of
the State of New Jersey, and his heirs, executors and designees (the "Proxy
Holder"), an irrevocable proxy to vote the Shares and to attend any meeting of
the stockholders of the Corporation, and any adjournments thereof, held on or
after the date of giving of this Proxy and prior to the termination of this
Proxy, and to execute any and all written consents of stockholders of the
Corporation (or to express dissent to any corporate action proposed in such
written consents) executed on or after the date of the giving of this Proxy and
prior to the termination of this Proxy, necessary to vote the Shares, with the
same effect as if the Stockholder voted the Shares or had signed the written
consent and with the same effect as the Stockholder might or could do under any
applicable laws or regulations governing the rights and powers of stockholders
of a Delaware corporation in connection with stockholder voting.
For purposes of this Proxy, "beneficial ownership,"
"beneficially owned," "beneficially owns" or any derivation thereof, shall have
the same meaning as set forth in Rule 13d-3 under the Securities Exchange Act of
1934, as amended, provided, however, that when determining Proxy Holder's
beneficial ownership, the Shares subject to this Proxy shall be excluded from
such beneficial ownership.
The Stockholder authorizes and directs Proxy Holder to file
this Proxy appointment with the secretary of the Corporation and authorizes
Proxy Holder to substitute another person as proxy holder and to file the
substitution instrument with the Secretary of the Corporation.
This Proxy is irrevocable pursuant to Section 212 of the
General Corporation Law of the State of Delaware. Proxy Holder has received this
Proxy in connection with the exchange of consideration with Stockholder and as
such the Proxy is coupled with an interest and is irrevocable.
This Proxy shall have an initial term of three years from the
date hereof, provided that, if at the end of such initial three-year period,
Proxy Holder does not beneficially own stock of the Corporation representing at
least 55% of the issued and outstanding common stock of the Corporation,
inclusive of all outstanding options and warrants to purchase common stock of
the Corporation exercisable at the end of the initial three-year period, this
Proxy shall continue for an additional three-year period or until such time as
Proxy Holder beneficially owns common stock of the Corporation representing at
least 55% of the issued and outstanding common stock of the Corporation,
inclusive of all outstanding options and warrants to purchase common stock of
the Corporation then
<PAGE> 2
currently exercisable, whichever is earlier (this period, together with the
initial three-year period, shall be referred to herein as the "Voting Control
Period").
This Proxy shall remain in full force and effect and be
enforceable against any donee, transferee or assignee of the Shares, subject to
Stockholder's limited right, after the expiration of the initial three years of
the Voting Control Period, to sell Shares subject to Rule 144 under the
Securities Act of 1933, as amended, or in a privately negotiated, bona fide arms
length transaction, free and clear of this Proxy, provided that she first give
written notice of any such proposed sale to Proxy Holder; upon receipt of such
notice, Proxy Holder shall have five (5) business days to elect in writing to
purchase the shares at Fair Market Value, as such term is defined in the Stock
Purchase Agreement dated October 16, 1997 (the "Purchase Agreement") among
Stockholder, Proxy Holder, the Corporation and Nah-Nah Collection Inc. (or, in
the event of a proposed privately negotiated bona fide arms length sale, at such
other price as set forth in the offer received by Stockholder (the "Offer
Price")). If Proxy Holder so elects to purchase, Proxy Holder shall have an
additional five (5) business days to consummate such purchase. If Proxy Holder
elects not to purchase or does not timely elect to purchase such shares or fails
to timely consummate the purchase, Stockholder may, during the next 60 day
period, sell such shares free and clear of this Proxy at Fair Market Value or at
the Offer Price, as the case may be, and all of the remaining Shares shall
remain subject to this Proxy for the remainder of the Voting Control Period. If
Stockholder desires to make such sale after the expiration of the 60 days, she
shall repeat the above process. Notwithstanding anything previously provided
herein, Stockholder must retain during the Voting Control Period and subject to
this Proxy that number of Shares which, when added to the number of shares of
common stock of the Corporation beneficially owned by Proxy Holder, represents
55% of the issued and outstanding common stock of the Corporation, inclusive of
all outstanding options and warrants to purchase common stock of the Corporation
then currently exercisable.
In the event of a discrepancy between the language contained
in this Proxy and the relevant language in Section 4A.1(a) of the Purchase
Agreement, the language contained in this Proxy shall prevail.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has executed this
Irrevocable Proxy, as of the 24th day of December, 1997.
/s/ Vasiliki Della Pasvantidou Rounick
---------------------------------------
Vasiliki Della Pasvantidou Rounick,
individually and as executrix of
the Estate of Herbert Rounick
Witness:
/s/ Sari Dweck
- --------------------------------
Name: Sari Dweck
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 17 day of December, 1997, before me, a notary public,
personally came Vasiliki Della Pasvantidou Rounick, to me known, who, by me duly
sworn, did depose and say that deponent resides in New York and that deponent is
the executrix of the Estate of Herbert Rounick and that deponent signed her name
to the foregoing Irrevocable Proxy in her individual capacity and as executrix
of the Estate of Herbert Rounick.
/s/ Stuart Shorestein
------------------------------
Notary Public
-3-
<PAGE> 1
EXHIBIT C
DEBT PURCHASE AND INTERCREDITOR AGREEMENT
AGREEMENT dated as of the 24 day of December, 1997 by and
among HONG J. HAN ("Han") an individual residing at 12 Timber Line Drive,
Alpine, New Jersey 07620, VASILIKI DELLA PASVANTIDOU ROUNICK, as Executrix of
the Estate of Herbert Rounick ("Rounick") an individual residing at 15 West 53rd
Street, New York, New York 10019 and THE HE-RO GROUP, INC. ("HE-RO") a New York
Corporation having its chief executive office and principal place of business at
550 Seventh Avenue, New York, New York 10016.
PREAMBLES
WHEREAS, He-Ro is a wholly owned subsidiary of The He-Ro
Group, Ltd. ("He-Ro Ltd.").
WHEREAS, He-Ro and certain of its affiliates were indebted to
Herbert Rounick;
WHEREAS, Herbert Rounick is now deceased and Rounick, as the
executrix of the estate of Herbert Rounick, became the holder and owner of the
indebtedness of He-Ro and its affiliates to Herbert Rounick;
WHEREAS, He-Ro and certain of its affiliates are further
indebted to Rounick for death benefits upon the death of Herbert Rounick and for
additional sums loaned to He-Ro by the Estate of Herbert Rounick pursuant to
various agreements, documents, notes and other instruments;
WHEREAS, all indebtedness to Rounick described above has been
assumed by He-Ro to the extent He-Ro was not otherwise already liable therefor;
WHEREAS, said indebtedness is now evidenced by three notes all
dated May 31, 1995 in the aggregate principal amount of $5,296,000 copies of
which are annexed hereto collectively as Exhibit A (collectively the "Original
Notes"); and
WHEREAS, each of said Original Notes has been guaranteed by
HeRo Ltd. and all of He-Ro Ltd.'s subsidiaries (except He-Ro) (collectively, the
"Original Guarantors") pursuant to a guaranty, a copy of which is annexed hereto
as Exhibit B (the "Guaranty");
WHEREAS, Han has made an offer to buy a portion of the
indebtedness evidenced by the Original Notes and Rounick is willing to sell said
indebtedness to Han on the terms and conditions set forth herein;
<PAGE> 2
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE. (a) Rounick hereby sells, transfers,
conveys and assigns to Han all of the indebtedness evidenced by the Original
Notes, except for indebtedness in the principal amount of $1,000,000 which will
be retained by Rounick, in consideration of a purchase price of $500,000. Said
purchase price is being paid by Han by wire transfer contemporaneously with the
execution and delivery hereof and Rounick hereby acknowledges receipt thereof.
Said Purchase price is allocated $1.00 to the Original Note in the principal
amount of $1,000,000, $1.00 to the Original Note in the principal amount of
$1,500,000 and the balance to the third Original Note in the principal amount of
$2,796,000.
(b) To effectuate said sale, contemporaneously herewith,
(i) Rounick is surrendering the Notes to He-Ro with
instructions to issue two new notes in the form of Exhibit C annexed hereto,
which is substantially the same as the form of the Original Notes. The
replacement note issued to Rounick shall be in the original principal amount of
$1,000,000 plus a pro rata portion of the accrued interest outstanding as of the
date hereof as set forth in Section 2 below while the replacement note issued to
Han shall be in the original principal amount of $4,296,000 plus a pro rata
portion of the accrued interest outstanding as of the date hereof as set forth
in Section 2 below (collectively, the "Replacement Notes"). Said Replacement
Notes shall bear interest at a per annum rate of 9.278% which the parties agree
represents a blended rate of the varying interest rates applicable to the three
Original Notes; and
(ii) He-Ro is issuing the Replacement Notes and is causing
each of the Original Guarantors to confirm the continued effectiveness of their
existing Guaranty of the Original Notes by executing and delivering to Han and
Rounick a new guaranty in the form of Exhibit D annexed hereto which is in
substantially the same form as the existing Guaranty. In addition, He-Ro Ltd. is
causing each of its new subsidiaries as of the date hereof (Nah-Nah Collection
Inc., N.N.C.S. LLC and NNCS-NJ LLC) to join the new guaranty (all of which,
together with the Original Guarantors, are referred to as the "Current
Guarantors").
2. CERTAIN REPRESENTATIONS AND COVENANTS. He-Ro and Rounick
hereby represent and warrant to Han that the entire principal amount of the
Original Notes remains outstanding as of date hereof, that $1,364,801 in
interest has accrued and is outstanding as of November 30, 1997 with respect to
the Original Notes and that none of He-Ro nor any of the Original Guarantors has
any offsets, defenses or counterclaims of any kind, nature or description with
respect to the outstanding obligations pursuant to the Original Notes which are
being evidenced by the Replacement Notes.
2
<PAGE> 3
3. PARI PASSU TREATMENT. (a) Han and Rounick agree that their
respective Replacement Notes shall be pari passu and that neither shall have any
priority over or be subject to or subordinate to the other except to the extent
otherwise specifically provided for herein. In furtherance of and without
limiting the generality of the foregoing, Han and Rounick hereby agree that:
(i) in the event either receives a payment with respect to
his/her Replacement Note, whether with respect to interest or principal, the
holder of the other Replacement Note shall be entitled to a pro rata share
thereof to the extent that such other holder did not receive a pro rata payment.
Each of Han and Rounick shall notify the other within ten days of their receipt
of any payment on their respective Replacement Notes unless such payment is
accompanied by evidence that a pro rata payment has been sent to the other
holder. The recipient shall pay a pro rata portion of the payment received to
the other holder within ten days of any demand from the other holder which
demand shall certify that the other holder did not receive its pro rata share
from He-Ro.
(ii) if either holder is requested or required to disgorge all
or any portion of any payment which he or she may have received from He-Ro or
any Current Guarantor regarding their Replacement Note, whether pursuant to or
in connection with a bankruptcy or insolvency proceeding of He-Ro or any Current
Guarantor or otherwise, the other holder shall be liable for his/her pro rata
share of such disgorged payment and shall make such payment within ten days of
demand therefore which demand shall include evidence of the disgorged payment.
(iii) neither Han nor Rounick shall demand or accept any
collateral for their respective Replacement Note unless such collateral is
granted to both Han and Rounick on the same terms and conditions.
(b) Notwithstanding the foregoing, Rounick agrees not to take
any action to collect, enforce, convert or otherwise deal with her Replacement
Note unless either (i) Han has taken such action (in which event, Rounick may
take such action but only to the same extent and on the same terms as Han) or
(ii) Han otherwise consents in writing, except that Rounick may take any action
against Han, He-Ro or any Current Guarantor necessary to enforce her rights to
pari passu treatment hereunder without complying with the foregoing. Further,
Rounick agrees that if Han agrees to an amendment to, supplement of or
restatement of any of the terms or provisions of his Replacement Note, Rounick's
Replacement Note shall automatically be amended or supplemented on the same
terms and conditions without the necessity of Rounick's consent thereto,
provided, however, that Han shall not reduce the interest rate or change the
pari passu provisions set forth herein or in Rounick's Replacement Note. Rounick
hereby agrees to cooperate with Han and He-Ro to effectuate any such amendment
or supplement and further appoints Han as her attorney in fact (which
appointment, being coupled with an interest, is irrevocable) in
3
<PAGE> 4
order to execute and deliver any and all documents, agreements or instruments
and/or to take any other action reasonably necessary or desirable in order to
more fully give effect thereto.
(c) If He-Ro Ltd. either (i) is no longer a Reporting Company
under Sections 13 or 15(d) of the Securities and Exchange Act of 1934, as
amended, or (ii) has failed to timely file any of its quarterly or annual
reports to the Securities and Exchange Commission, then commencing thirty (30)
days thereafter, Rounick and her duly authorized representatives may, at
Rounick's expense, during regular business hours and on reasonable advance
notice during the term of this Agreement, audit He-Ro's and its parent's and
affiliates' books of account, financial statements and records and examine such
other documents and materials relating to the subject matter and terms of this
Agreement. Such rights shall cease at such time, if any, as He-Ro Ltd. once
again becomes a Reporting Company or becomes current in the filing of its
quarterly or annual reports. Rounick and her representatives shall use best
efforts to keep strictly confidential all proprietary and confidential
information of He-Ro, its affiliates and parent, which is furnished to Rounick
or obtained by Rounick or her agents in connection with her examination and her
audit. If any such audit discloses that He-Ro's payments to Rounick hereunder
were less than the amount which should have been paid to her, He-Ro promptly
shall reimburse Rounick for the expense of the audit and pay to her the amount
of the shortfall or, as the case may be, Han shall promptly pay Rounick her pro
rata portion, each with interest in accordance with the terms of the Replacement
Note, if not already paid, accruing from the time payment should have been
received under the terms of this Agreement to the date payment is received by
Rounick, and each in accordance with Section 3 of this Agreement.
(d) Han and Rounick acknowledge that the Replacement Notes are
subordinated to the obligations of He-Ro and certain of its affiliates to Heller
Financial, Inc. ("Heller") (which is providing a new senior loan facility to
He-Ro and certain affiliates) as more particularly set forth in the
Subordination Agreement of even date among the parties hereto and Heller. Upon
written request of either Han or Rounick, He-Ro shall promptly advise both Han
and Rounick, in writing, as to the availability and outstanding balance of loans
under the Heller facility, (with a break down of advances and availability for
accounts, for inventory and for the "supplemental" advances) and whether a
payment of interest on the Replacement Notes could be made as of the date set
forth in the written request without violating the terms of the Subordination
Agreement as in effect from time to time.
(e) Notwithstanding anything to the contrary set forth herein
or in the Replacement Notes, no payment of accrued interest shall be made during
the "clean up" period relating to the "supplemental" advances set forth in the
documents evidencing the Heller facility.
4
<PAGE> 5
4. CERTAIN INDEMNIFICATION MATTERS. Reference is hereby made
to that certain Indemnification Agreement dated as of October 16, 1997, by and
between Han and Rounick (the "Indemnification Agreement"). Notwithstanding any
other provision contained herein, Rounick hereby acknowledges that her
Replacement Note may not be reduced below the principal amount of $500,000 until
the expiration (the "Expiration Date") of the applicable statute(s) of
limitations (including any extensions as a result of tolling or otherwise)
relating to the claims that are subject to Rounick's indemnification obligation
under the Indemnification Agreement, or until such time as all pending claims
(as described in the Indemnification Agreement) that are asserted in actions
commenced prior to the Expiration Date are settled and fully and indefeasibly
paid. During any period in which any such claims are pending, if Han converts a
portion of his Replacement Note into common stock of He-Ro Ltd., Rounick may
convert a pro rata portion of her Replacement Note, provided that, if as a
result of such pro rata conversion, the amount of her Replacement Note falls
below $500,000, then that amount of common stock of He-Ro Ltd. issued upon the
conversion equal in value to the difference between $500,000 and the dollar
amount of her Replacement Note after such conversion, shall be substituted for
the converted debt as recourse under the Indemnification Agreement.
5. NOTICES. Any notice or demand to be given hereunder shall
be sent to a party at its/his/her address set forth above or to such other
address as such party may designate by notice given in accordance with the
provisions hereof. Each notice must be in writing and must be sent by hand
delivery, by nationally recognized overnight courier or by certified mail,
return receipt requested. Notices shall be effective upon receipt or refusal.
Any notice to be given by a party hereto may be given by any representative of
such party including its/his/her counsel.
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall be for the benefit of the parties hereto and any subsequent
transferees or holders of the Replacement Notes except that Rounick may not
sell, transfer or assign all or any part of her Replacement Note without first
offering the same to Han on the same terms and conditions (Han shall respond
within ten days of receipt of any notice from Rounick setting forth a proposed
transfer and the terms and conditions thereof) provided however that all or a
part of Rounick's Replacement Note may be transferred without consideration to a
member of Rounick's immediate family, to a company entirely owned or controlled
by Rounick or pursuant to the terms of her last will and testament (a "Rounick
Affiliate"). Han's right to acquire any part of Rounick's Replacement Note as
set forth above shall apply to the proposed further sale, transfer or assignment
of any part of the Rounick Replacement Note by a Rounick Affiliate.
7. MISCELLANEOUS. This Agreement 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 law. The parties hereby submit to the jurisdiction
of any
5
<PAGE> 6
State or Federal Court in New York County with respect to any dispute arising
out of relating hereto and waive any right they may have to a trial by jury in
connection with any dispute arising out of or in connection herewith. The
parties shall be entitled to collect attorneys fees and other costs and expenses
incurred in enforcing their rights and remedies hereunder. This Agreement sets
forth the entire understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior agreements, written or oral, with
respect thereto. This Agreement cannot be amended nor can any of the terms or
provisions hereof be waived, except in a writing signed by the party effected
thereto.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, this Debt Purchase and Intercreditor
Agreement has been executed and delivered as of the date first above written.
/s/ HONG J. HAN
----------------------------------------
HONG J. HAN
/s/ VASILIKI DELLA PASVANTIDOU ROUNICK
------------------------------------------
VASILIKI DELLA PASVANTIDOU ROUNICK,
AS EXECUTRIX OF THE ESTATE OF HERBERT ROUNICK
THE HE-RO GROUP INC.
By: /s/ SAM KAPLAN
-----------------------------------
Sam Kaplan
Title: Vice President
Exhibits
Exhibit A: Existing Consolidated Note
Exhibit B: Existing Guaranty
Exhibit C: Form of Replacement Notes
Exhibit D: Form of (Replacement) Guaranty
7
