CHAUS BERNARD INC, S-2/A, 1995-10-31

CHAUS BERNARD INC
S-2/A, 1995-10-31
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1995
REGISTRATION NO. 33-63317

===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BERNARD CHAUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C> <C>
NEW YORK 2331, 2339 13-2807386
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
</TABLE>

1410 BROADWAY
NEW YORK, NY 10018
(212) 354-1280

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------

WAYNE S. MILLER
EXECUTIVE VICE PRESIDENT -- FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND SECRETARY
BERNARD CHAUS, INC.
1410 BROADWAY
NEW YORK, NY 10018
(212) 354-1280

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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<CAPTION>
<S> <C>
Richard A. Goldberg, Esq. Andre Weiss, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP Schulte Roth & Zabel
919 Third Avenue 900 Third Avenue
New York, New York 10022 New York, New York 10022
(212) 758-9500 (212) 758-0404

</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement

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for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

==============================================================================

<PAGE>

BERNARD CHAUS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-2

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REGISTRATION STATEMENT ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
---------------------------------------------- ------------------------------------------------
FOREPART OF THE REGISTRATION STATEMENT AND
<S> <C> <C>
1. Outside Front Cover Page of Prospectus Outside Front Cover Page
Inside Front and Outside Back Cover Pages of
2. Prospectus Inside Front and Outside Back Cover Pages
Summary Information, Risk Factors and Ratio of
3. Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting
Price Range of Common Stock and Dividend Policy;
Description of Capital Stock; Shares Eligible
9. Description of Securities to be Registered for Future Sale
10. Interests of Named Experts and Counsel Not Applicable
Outside Front Cover Page; Prospectus Summary;
Risk Factors; Price Range of Common Stock and
Dividend Policy; Selected Consolidated Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Principal Stockholders; Certain
Transactions; Available Information;
11. Information with Respect to the Registrant Consolidated Financial Statements
Incorporation of Certain Information by
12. Reference Incorporation of Certain Documents by Reference
Disclosure of Commission Position on
13. Indemnification for Securities Act Liabilities Not Applicable
</TABLE>

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

SUBJECT TO COMPLETION, DATED OCTOBER 31, 1995

PROSPECTUS

5,000,000 SHARES

[CHAUS LOGO]

COMMON STOCK

All of the shares of common stock, par value $.01 per share ("Common
Stock"), being offered hereby are being sold by Bernard Chaus, Inc. (the
"Company"). The Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "CHS." On October 30, 1995, the last reported sale
price of the Common Stock on the NYSE composite tape was $3.25 per share. See
"Price Range of Common Stock and Dividend Policy."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING AT PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- -----------------------------------------------------------------------------

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<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- ------------- ------------- -------------------------- ---------------
<S> <C> <C> <C>
Per Share .... $ $ $
Total(3) ..... $ $ $

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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."

(2) Before deducting estimated expenses of $550,000 payable by the
Company.

(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 750,000 additional shares of Common Stock, on the same
terms and conditions set forth above, solely to cover overallotments,
if any. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Commissions, and Proceeds to
Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by
the Underwriters, and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1995.

LEHMAN BROTHERS

, 1995

<PAGE>

[photographs to be inserted]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto)
appearing elsewhere in or incorporated by reference into this Prospectus.
Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to Bernard Chaus, Inc. and its subsidiaries. The information
in this Prospectus, unless otherwise indicated, does not give effect to the
exercise of the over-allotment option described under "Underwriting."
References in this Prospectus to a fiscal year refer to the Company's fiscal
year ending on June 30th of each year (for example, "fiscal 1995" refers to
the Company's fiscal year ended June 30, 1995).

THE COMPANY

GENERAL

The Company designs, arranges for the manufacture of and markets an
extensive range of women's career and casual sportswear and dresses which are
marketed principally under the CHAUS(Registered Trademark) and CHAUS
SPORT(Registered Trademark) trademarks. The Company's products are sold
nationwide through department store chains, specialty retailers and other
retail outlets. The Company recently entered into an exclusive license
agreement with Nautica Apparel Inc. ("Nautica"), a leading name in men's
apparel, under which the Company will design, arrange for the manufacture of
and market a new women's career and casual sportswear line in the United
States and Puerto Rico under the Nautica(Registered Trademark) brand name.

CORPORATE STRATEGY/REPOSITIONING

In late fiscal 1994, the Company initiated a corporate restructuring
program characterized by a strengthened management team, reduced selling,
general and administrative expenses and, in an effort to capitalize on the
Company's well-recognized brand name, a return to its historic product
positioning. The following summarizes the major aspects of the Company's
restructuring and its new corporate strategy.

Increase Operating Leverage. The Company began implementing an aggressive
expense reduction program in late fiscal 1994 which was primarily responsible
for a $10.6 million reduction in selling, general and administrative expenses
in fiscal 1995. In addition, the Company realized a $2.4 million reduction in
selling, general and administrative expenses in the first quarter of fiscal
1996 as compared to the first quarter of fiscal 1995. Key initiatives behind
the cost savings include a headcount reduction, the centralization of certain
operating and administrative functions, the closing of office locations, the
consolidation of distribution facilities and the closing of selected Company
outlet stores. The Company anticipates that, if its sales volume increases,
it will benefit from increased operating leverage.

Strategic Product Positioning. The Company is refocusing its product lines
to offer higher quality merchandise positioned at the high end of the "upper
moderate" through the opening price points of the "better" categories. The
Company believes that its product quality in terms of fabric choice, trimming
and fit is comparable to, yet priced below, its competitors' "better"
offerings. As a result, the Company believes that it has identified a
strategic niche in which it can offer a product line with a superior
perceived value by the consumer.

<PAGE>

commodity pricing for single, fashion-driven items and to reduce the levels
of goods sold at off-price. The Company believes that there is a general
shift in the industry back to ensemble dressing, and the Company's collection
approach allows it to take advantage of such trend.

Door Penetration; Door Expansion. The Company believes that it is
currently underpenetrated within its customers compared to other major
women's apparel manufacturers. The Company will seek to increase the number
of individual stores ("doors") within store groups owned by its major
customers in which its products are distributed and to increase the amount of
retail floor space allocated to its products.

Capitalize on Capabilities through Nautica Relationship. The Company
believes that its recent license agreement with Nautica (the "Nautica License
Agreement") represents an opportunity for growth. This relationship with
Nautica will provide the Company with access to "better" to "bridge"
departments while creating an alliance with a leading company in the apparel
industry.

The Company was organized as a New York corporation in 1975 and has its
principal executive offices located at 1410 Broadway, New York, New York
10018, and its telephone number is (212) 354-1280.

THE OFFERING

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<S> <C>
Common Stock offered hereby ...........................5,000,000 shares
Common Stock to be outstanding after the offering .... 26,133,641 shares (1)
Use of Proceeds ....................................... Approximately $7.0 million to develop and
market the Company's licensed Nautica
product line; the remainder to provide
working capital to support the growth of
the Company's existing product lines.
NYSE Symbol ........................................... CHS
<FN>

- ------------
(1) Excludes (a) an aggregate of 5,302,109 shares of Common Stock
reserved for issuance under the Company's employee and director stock
option plans of which options to purchase an aggregate of 4,338,878
shares have been issued at exercise prices ranging from $1.875 to
$6.50 per share, and (b) an aggregate of 2,946,500 shares of Common
Stock reserved for issuance upon the exercise of certain additional
options and warrants at exercise prices ranging from $2.25 to $6.75
per share. See "Business -- License Agreement with Nautica,"
"Management," "Principal Stockholders" and "Certain Transactions."
</TABLE>

<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated financial information has been derived
from the consolidated financial statements of the Company. The financial
information below should be read in conjunction with the other financial data
of the Company and the consolidated financial statements of the Company and
notes thereto included in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

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<CAPTION>
FISCAL YEAR ENDED JUNE 30,
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1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales ..................... $232,444 $254,190 $235,819 $206,332 $181,697
Gross profit .................. 40,075 57,775 48,396 19,738 32,600
Selling, general and
administrative expenses ..... 51,600 50,016 57,410 55,400 44,794
Restructuring expenses (1) ... -- -- -- 5,300 1,200
Unusual expenses (2) .......... -- -- -- 1,900 8,333
Interest expense .............. 1,968 2,474 2,322 3,439 5,976
Net (loss) income ............. (12,004) 5,469 (10,989) (46,755) (27,913)
Net (loss) income per share
(3) .......................... $ (0.66) $ 0.30 $ (0.60) $ (2.55) $ (1.40)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
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<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1994 1995
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<S> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales ..................... $65,391 $48,885
Gross profit .................. 13,689 10,744
Selling, general and
administrative expenses ..... 12,200 9,764
Restructuring expenses (1) ... 1,200 --
Unusual expenses (2) .......... 7,833 --
Interest expense .............. 1,350 1,419
Net (loss) income ............. (8,935) (407)
Net (loss) income per share
(3) .......................... $ (0.48) $ (0.02)
</TABLE>

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<CAPTION>
AS OF SEPTEMBER 30, 1995
---------------------------
AS ADJUSTED
ACTUAL (4)
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(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital (deficiency) .. $(13,663) $ 981
Total assets ................... 54,022 54,022
Short-term debt ................ 36,307 21,663
Long-term debt ................. 21,678 21,678
Stockholders' deficiency ...... (32,660) (18,016)
<FN>

- -----------
(1) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.7 million for employee severance, and, in fiscal 1995, $1.2
million for employee severance, which was recorded in the quarter
ended September 30, 1994.
(2) Includes, in fiscal 1994, expenses relating primarily to abandonment
of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture, and in fiscal 1995, $7.8 million,
which was recorded in the quarter ended September 30, 1994, primarily
relating to the costs associated with the signing of the Company's
new Chief Executive Officer, and $0.5 million related to certain
legal matters.

(3) Computed by dividing net (loss) income by the weighted average number
of Common and Common Equivalent Shares outstanding during each of the
periods. For the fiscal years ended 1991, 1993, 1994 and 1995 and for
the quarters ended September 30, 1994 and 1995, Common Equivalent
Shares were not included in the calculations as their inclusion would
have been antidilutive.
(4) Adjusted to give effect to the consummation of this offering and the
application of the net proceeds therefrom at an assumed offering
price of $3.25 per share.
</TABLE>

<PAGE>

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered hereby.

HISTORY OF LOSSES; DECLINING REVENUE BASE

The Company sustained net losses of $11.0 million, $46.8 million and $27.9
million in fiscal 1993, 1994 and 1995, respectively, and a net loss of $0.4
million in the first quarter of fiscal 1996. In addition, during such period
the Company's revenues declined from $235.8 million in fiscal 1993 to $206.3
million in fiscal 1994 to $181.7 million in fiscal 1995, and from $65.4
million in the first quarter of fiscal 1995 to $48.9 million in the first
quarter of fiscal 1996. The Company also experienced a reduction in the
number of individual stores within its major customer groups in which its
products were sold during this period. The Company believes it has taken
substantial steps to reduce its selling, general and administrative expenses
and reposition its product and pricing strategy. The Company anticipates that
these changes will take some time to benefit the Company's operating results,
and it is likely that losses will continue. No assurance can be given that
revenues will eventually increase or that the number of stores within which
the Company's products are sold will eventually increase. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

WORKING CAPITAL DEFICIENCY; FUTURE FINANCING REQUIREMENTS

At September 30, 1995, the Company had a working capital deficiency of
$13.7 million. The Company's business plan requires the availability of
sufficient cash flow and borrowing capacity to finance its existing product
lines and to develop and market its licensed Nautica product lines. The
Company expects to satisfy such requirements through cash flow from
operations, its line of credit under an amended and restated financing
agreement with BNY Financial Corporation ("BNYF"), originally entered into in
July 1991, amended and restated effective as of February 21, 1995, and
further amended effective as of September 28, 1995 (the "Amended Financing
Agreement"), the proceeds of this offering, and, in the near term, continued
credit support from Josephine Chaus, Chairwoman of the Board and principal
stockholder of the Company. The September 28, 1995 amendment to the Amended
Financing Agreement is sometimes referred to separately herein as the
"September Amendment."

Ms. Chaus has provided the Company with various forms of financial and
credit support for several years. At September 30, 1995 the Company had
outstanding $21.7 million of subordinated promissory notes payable to Ms.
Chaus, certain of which were originally issued on June 30, 1986 and the
remainder of which were issued in February and March 1991 (the "Subordinated
Notes"). In connection with this offering, Josephine Chaus agreed to extend
the maturity date of the Subordinated Notes from July 1, 1996 to July 1,
1998, subject to the consummation of this offering. The Company has been
unable to pay principal or interest, with certain exceptions, under the
Subordinated Notes as a result of covenants in the Amended Financing
Agreement. Ms. Chaus is prohibited from accelerating the maturity of the
Subordinated Notes on account of such inability to pay interest through the
maturity thereof. Ms. Chaus also has provided the Company with a $10.0
million letter of credit (the "Letter of Credit") in return for which BNYF
has increased the availability under the Amended Financing Agreement by $10.0
million. The Letter of Credit expires on January 31, 1996, but Ms. Chaus has
granted the Company an option, exercisable by a special committee consisting
of disinterested directors of the Company (the "Special Committee"), to
extend the Letter of Credit until July 31, 1996 (the "July Option"). Ms.
Chaus also has provided a $5.0 million personal guarantee (the "Guarantee")
to support the Amended Financing Agreement. See "Certain Transactions" for
information concerning consideration to Josephine Chaus for the credit
support provided by her.

The Company will seek to satisfy its operating requirements without
utilizing continued credit support from Ms. Chaus, although there can be no
assurance that it will be successful in doing so. The Company has no
understanding with Ms. Chaus pursuant to which Ms. Chaus would extend the
Letter of Credit beyond July 31, 1996. If the Letter of Credit is not renewed
beyond July 31, 1996, the Company may experience shortfalls in its borrowing
availability, unless BNYF permits overadvances under the

<PAGE>

Amended Financing Agreement consistent with historical levels. During recent
fiscal periods, including the fourth quarter of fiscal 1995, the Company was
not in compliance with its covenants concerning working capital and net worth
under the Amended Financing Agreement. As of September 30, 1995, the Company
had an overadvance position of approximately $5.9 million under the Amended
Financing Agreement, with the Amended Financing Agreement permitting
overadvances up to $6.0 million. Although BNYF historically has waived
compliance with certain covenants and permitted such overadvances and has,
pursuant to the September Amendment, agreed to relax such covenants and
permit specified levels of overadvances through June 30, 1996, there can be
no assurance that it will continue to do so in the future. Moreover, growth
of the Company's existing product lines and the development of the Company's
licensed Nautica product line could increase the amount of the potential
shortfall in borrowing availability after the current fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

CORPORATE REPOSITIONING PROGRAM

The Company is pursuing a new strategy entailing the repositioning of its
product line at higher quality levels and price points. See
"Business--General." There can be no assurance that the Company's new
strategy will be successful and, even if successful, it is anticipated that
the effects of the strategy will take some time to benefit the Company's
operating results.

NAUTICA LICENSE AGREEMENT

The Company's obligations under the Nautica License Agreement include
devoting at least $7.0 million to the fulfillment of the Company's
obligations thereunder, meeting minimum sales targets, making minimum royalty
and advertising payments, constructing a separate showroom for the display of
licensed products and the requirement that Andrew Grossman continue in his
position as Chief Executive Officer during the Nautica License Agreement's
term. There can be no assurance that the conditions to the continuance of the
Nautica License Agreement will be met or that the Company's licensed Nautica
product line will be successful. The Company does not expect to make the
first sales of its licensed Nautica products until the first quarter of
fiscal 1997. See "Business--License Agreement with Nautica."

APPAREL RETAILING

The apparel industry is a cyclical industry, with purchases of apparel and
related goods tending to decline during periods when disposable income is
low. Recently, the apparel industry generally, and the Company in particular,
have experienced a difficult retail environment. During fiscal 1994 and 1995,
and during the first quarter of fiscal 1996, the continuing difficult retail
environment resulted in high levels of promotional sales, thereby reducing
the Company's gross profit margins. There can be no assurance that this
difficult retail environment will not continue throughout fiscal 1996 and
adversely affect the Company's margins.

The Company, like many of its competitors, sells to major retailers, some
of whom have engaged in leveraged buyouts or transactions in which such
retailers incurred significant amounts of debt, and some of whom have
recently emerged from the protection of the federal bankruptcy laws. It is
not clear to what extent, if any, the current financial condition of such
retailers will affect the financial condition of the Company. To date,
developments within these companies, including restructurings and, in some
instances, the closing of certain stores operated by such retailers, have not
had a material adverse effect on the Company's financial position or results
of operations. However, in light of the significant portion of the Company's
sales which are made to these customers and the related accounts receivable,
any material financial difficulties encountered by such accounts could have
an adverse effect on the Company's financial position or results of
operations.

FASHION TRENDS

The Company believes that its success depends in substantial part on its
ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. There can be no

<PAGE>

assurance, however, that the Company will be successful in this regard. The
Company attempts to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of garments during a particular
selling season and by closely monitoring retail sales of its products.
However, if the Company misjudges the market for a number of products or
product groups, it may be faced with a significant amount of unsold finished
goods inventory, which could have an adverse effect on the Company's results
of operations.

DEPENDENCE ON MAJOR CUSTOMERS

During fiscal 1995, approximately 76% of the Company's net sales were made
to its nine largest customers, as compared to 75% during fiscal 1994 and 74%
during fiscal 1993. Except for Dillard's Department Stores, which accounted
for 23% of net sales in 1995, 16% of net sales in 1994 and 13% of net sales
in 1993, no single customer accounted for more than 10% of the Company's net
sales during such fiscal years; however, certain of the Company's customers
are under common ownership. When considered together as a group under common
ownership, sales to nine department store customers owned by The May
Department Stores Company ("May") accounted for approximately 13% of net
sales in fiscal 1995, 14% of net sales in fiscal 1994 and 17% of net sales in
fiscal 1993. Additionally, sales to nine department store companies owned by
Federated Department Stores ("Federated") accounted for approximately 11% of
the Company's net sales in fiscal 1995 and would have accounted for 12% of
net sales in fiscal 1994 and 10% of net sales in fiscal 1993 had the
Federated/Macy's merger been completed at the beginning of such periods. As a
result of the Company's dependence on these customers, such customers may
have the ability to influence the Company's business decisions. The loss of
or significant decrease in business from any of its major customers would
have a material adverse effect on the Company's financial position and
results of operations. See "Business--Customers" and "Business--Sales and
Marketing."

FOREIGN SOURCING

During fiscal 1995, the Company's products were manufactured through third
party foreign contractors, principally in South Korea, Hong Kong, Taiwan, Sri
Lanka, China and Indonesia. As a result, the Company may be adversely
affected by political instability resulting in the disruption of trade from
foreign countries in which the Company's manufacturers and suppliers are
located, the imposition of additional regulations relating to imports or
duties, taxes and other charges on imports, any significant decreases in the
value of the dollar against foreign currencies and restrictions on the
transfer of funds. In addition, the Company's import operations are subject
to constraints imposed by bilateral textile agreements between the United
States and a number of foreign countries. These agreements impose quotas on
the amount and type of goods which can be imported into the United States
from these countries. Furthermore, because the Company's foreign
manufacturers are located at significant geographic distances from the
Company, the Company is generally required to allow greater lead time for
foreign orders. This reduces the Company's manufacturing flexibility which
increases the risks associated with changes in fashion trends or consumer
preferences. See "Business--Imports and Import Restrictions."

SEASONALITY AND QUARTERLY FLUCTUATIONS

Historically, the Company's sales and operating results fluctuate by
quarter, with the greatest sales occurring in the Company's first and third
fiscal quarters. It is in these quarters that the Company's Fall and Spring
product lines, which traditionally have had the highest volume of net sales,
are shipped to customers, with revenues generally being recognized at the
time of shipment. As a result, the Company experiences significant
variability in its quarterly results and working capital requirements.
Moreover, delays in shipping can cause revenues to be recognized in a later
quarter, resulting in further variability in such quarterly results.

COMPETITION

There is intense competition in the sectors of the apparel industry in
which the Company participates. The Company competes with many other apparel
companies, some of which are larger and have better

<PAGE>

established brand names and greater resources than the Company. In some
cases, the Company also competes with private-label brands of its department
store customers. The Company believes that in order to be successful in its
industry, it must be able to evaluate and respond to changing consumer demand
and taste and to remain competitive in the areas of style, quality and price
while operating within the significant production and delivery constraints of
the industry. Furthermore, the Company's traditional department store
customers, which account for a substantial portion of the Company's business,
encounter intense competition from so-called "off-price" and discount
retailers, mass merchandisers and specialty stores. The Company believes that
its ability to increase its present levels of sales will depend on such
customers' ability to maintain their competitive position. See
"Business--Competition."

DEPENDENCE UPON KEY PERSONNEL

The success of the Company is dependent upon the personal efforts and
abilities of Josephine Chaus, its Chairwoman of the Board, and Andrew
Grossman, its Chief Executive Officer. See "Business-- License Agreement with
Nautica." The Company believes that the loss of the services of either Ms.
Chaus or Mr. Grossman would likely have an adverse effect on the Company. The
Company maintains key man life insurance on the lives of Ms. Chaus and Mr.
Grossman in the amounts of $35.0 million and $25.0 million, respectively.
Furthermore, the Nautica License Agreement is conditioned upon Mr. Grossman
continuing as Chief Executive Officer.

In addition, the Company believes that its future success depends in part
upon its ability to attract and retain qualified personnel. Although the
Company has made additions to its core management team, competition to
attract and retain such personnel is intense. There can be no assurance that
the Company will be successful in attracting and retaining such personnel in
the future. See "Management."

CONTROL BY PRINCIPAL STOCKHOLDER

Following the completion of this offering, Josephine Chaus will
beneficially own approximately 51.6% of the outstanding Common Stock
excluding the shares of Common Stock underlying warrants held by her and
56.3% including such shares. Such warrants consist of warrants to purchase
1,216,500 shares of Common Stock issued in 1994 (the "1994 Warrants") and
warrants to purchase 1,580,000 shares of Common Stock proposed to be issued
in 1995 (the "1995 Warrants"). See "Principal Stockholders" and "Certain
Transactions." As a result of her stock ownership, Ms. Chaus has sufficient
voting power to determine the direction and policies of the Company, the
election of the directors of the Company, the outcome of any other matter
submitted to a vote of stockholders, and to prevent or cause a change in
control of the Company.

POTENTIAL CONFLICTS OF INTEREST; RELATED PARTY TRANSACTIONS

Certain conflicts of interest may arise as a result of Ms. Chaus's
position as a director, member of the Office of the Chairman and majority
stockholder of the Company and holder of the Company's subordinated
indebtedness. There have been a number of related party transactions between
Ms. Chaus and the Company, principally involving her provision of credit
support to the Company. Such transactions are negotiated with the Special
Committee which, where appropriate, seeks the advice of an independent
investment banking firm in connection with the approval of any such
transaction. When stockholder approval is sought, Ms. Chaus, as majority
stockholder, has the ability to approve any such matter without the
affirmative vote of any other stockholder of the Company. See "Principal
Stockholders" and "Certain Transactions."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock is highly volatile. Factors
such as quarterly variations in the Company's results of operations and
changes in general market conditions could cause the market price of the
Company's Common Stock to fluctuate significantly. See "Price Range of Common
Stock and Dividend Policy."

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The Company currently has 21,133,641 shares of Common Stock outstanding
and, upon the completion of this offering, will have 26,133,641 shares of
Common Stock outstanding. Of such shares, the shares sold in this offering
(other than shares which may be purchased by "affiliates" of the Company)
will be freely tradeable without restriction or further registration under
the Securities Act. Of the remaining outstanding shares, 13,490,050 shares of
Common Stock beneficially owned by Josephine Chaus are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144"), and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144
thereunder. The Company's executive officers and directors (including Ms.
Chaus and Mr. Grossman) have agreed not to offer, sell, or otherwise dispose
of their shares for a period of 120 days after the date of this offering
without the prior written consent of Lehman Brothers Inc. ("Lehman Brothers")
as Representative of the Underwriters. Subject to the expiration of such
120-day lockup period, the 13,490,050 shares beneficially owned by Ms. Chaus
will be eligible for sale pursuant to Rule 144. In addition, the Company has
outstanding warrants and options exercisable for an aggregate of 7,285,378
shares of Common Stock. Josephine Chaus has registration rights with respect
to the shares underlying the 1994 Warrants and (assuming approval of the
issuance thereof at the 1995 Annual Meeting of Stockholders) the 1995
Warrants. In addition, Mr. Grossman has registration rights that require the
filing of a Registration Statement on Form S-8 with respect to the shares
underlying his options. Such registration rights will permit Ms. Chaus and
Mr. Grossman to sell such shares from time to time notwithstanding the
limitations imposed by Rule 144. No predictions can be made as to the effect,
if any, that market sales of shares by existing stockholders (including
shares issuable upon the exercise of such warrants and options) or the
availability of such shares for future sale will have on the market price of
shares of Common Stock prevailing from time to time. The prevailing market
price of the Common Stock after the offering could be adversely affected by
future sales of substantial amounts of Common Stock by existing stockholders.
See "Principal Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."

DILUTION

Investors will experience immediate and substantial dilution in the net
tangible book value of the Common Stock offered hereby. See "Dilution."

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered
hereby, after deducting underwriting discounts and commissions and the
estimated expenses of the offering, are estimated to be $14,643,750
($16,922,813 if the Underwriters' over-allotment option is exercised in
full), assuming an offering price of $3.25 per share.

Of such net proceeds, the Company anticipates that it will use
approximately $7.0 million to develop and market the Company's licensed
Nautica product line. See "Business--License Agreement with Nautica." The
Company expects to use the remaining proceeds to provide working capital to
support the growth of the Company's existing product lines. Pending such
uses, the proceeds of this offering will be used to reduce the outstanding
balance under the Amended Financing Agreement. Since it is a revolving credit
facility, any amounts repaid will be available to be reborrowed, subject to
the borrowing formula in the Amended Financing Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources." The
remaining portion of the proceeds, if any, are expected to be invested in
investment grade, interest- bearing securities.

<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the NYSE under the symbol "CHS." The
following table sets forth for each of the Company's fiscal periods indicated
the high and low sales prices for the Common Stock as reported on the NYSE.

<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
FISCAL 1994
First Quarter ......................... $3.750 $2.625
Second Quarter ........................ 3.125 1.750
Third Quarter ......................... 2.625 1.625
Fourth Quarter ........................ 3.750 1.750
FISCAL 1995
First Quarter ......................... 4.375 1.750
Second Quarter ........................ 6.125 3.625
Third Quarter ......................... 5.000 3.625
Fourth Quarter ........................ 5.750 2.875
FISCAL 1996
First Quarter ......................... 6.625 4.750
Second Quarter through October 30,
1995 .................................. 5.625 3.000
</TABLE>

On October 30, 1995, the last reported sale price of the Common Stock was
$3.25 per share. As of October 27, 1995, the Company had approximately 1,156
stockholders of record.

The Company has not declared or paid cash dividends or made other
distributions on its Common Stock since prior to its initial public offering
of Common Stock in 1986 (the "1986 Offering"). The payment of dividends, if
any, in the future is within the discretion of the Board of Directors and
will depend on the Company's earnings, its capital requirements and financial
condition. It is the present intention of the Board of Directors to retain
all earnings, if any, for use in the Company's business operations and,
accordingly, the Board of Directors does not expect to declare or pay any
dividends in the foreseeable future. In addition, pursuant to the Amended
Financing Agreement, the Company currently is prohibited from declaring
dividends or making other distributions on its capital stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources."

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1995 and as adjusted to give effect to the consummation of this
offering and the application of the net proceeds therefrom at an assumed
offering price of $3.25 per share. This information should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS, EXCEPT
SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Short-term debt ................................................ $ 36,307 $ 21,663

Long-term debt ................................................. 21,678 21,678
Stockholders' deficiency:
Preferred Stock, par value $.01 per share; 1,000,000 shares
authorized; no shares issued and outstanding ................. -- --
Common Stock, par value $.01 per share; 50,000,000 shares
authorized; 21,108,641 shares issued and outstanding;
26,108,641 shares issued and outstanding as adjusted (1) .... 211 261
Additional paid-in capital ..................................... 49,479 64,073
Deficit ........................................................ (80,870) (80,870)
Less: Treasury stock, at cost--622,700 shares .................. (1,480) (1,480)
---------- -------------
Total stockholders' deficiency ............................. (32,660) (18,016)
---------- -------------
Total capitalization ....................................... $ 25,325 $ 25,325
========== =============
</TABLE>

- --------------
(1) Excludes (a) an aggregate of 4,363,878 shares of Common Stock
reserved for issuance upon the exercise of options outstanding under
the Company's employee and director stock option plans, and (b) an
aggregate of 2,946,500 shares of Common Stock reserved for issuance
upon the exercise of certain other outstanding warrants. See
"Business--License Agreement with Nautica," "Management," "Principal
Stockholders" and "Certain Transactions."

<PAGE>

DILUTION

As of September 30, 1995, the net deficit in tangible book value of the
Company was approximately $32.7 million or $1.55 per share of Common Stock
outstanding. Net deficit in tangible book value per share is determined by
dividing the net deficit of the Company (the excess of liabilities over
tangible assets) by the number of shares of Common Stock outstanding. After
giving effect to the completion of this offering at an assumed offering price
of $3.25 per share (after deducting underwriting discounts and commissions
and the estimated expenses of the offering), the pro forma net deficit in
tangible book value of the Company as of September 30, 1995 would have been
approximately $18.0 million or approximately $0.69 per share. This represents an
immediate decrease in pro forma net deficit in tangible book value of $0.86
per share to current stockholders and an immediate dilution of $3.94 per
share to new investors purchasing shares of Common Stock. The decrease in the
net deficit in tangible book value per share of Common Stock held by the
current stockholders would be solely attributable to the cash paid by
purchasers of the shares of Common Stock offered by the Company."

The following table summarizes the per share dilutive effect of this
offering:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed offering price (1) .......................................... $3.25
Net deficit in tangible book value per share before offering ...... $1.55
Decrease in pro forma net deficit in tangible book value per share
attributable to shares offered hereby (2).......................... 0.86
Pro forma net deficit in tangible book value per share after
offering ........................................................... 0.69
Dilution to new investors (3) ....................................... $3.94
</TABLE>
- ----------
(1) Before deduction of underwriting discounts and commissions and the
estimated expenses of this offering.

(2) After deduction of underwriting discounts and commissions and the
estimated expenses of this offering.

(3) Dilution represents the difference between the offering price per
share and the pro forma net deficit in tangible book value per share
after giving effect to this offering.

CAPITAL PRINTING SYSTEMS]
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data as of June 30, 1994 and 1995 and
for the years then ended have been derived from the Company's consolidated
financial statements included elsewhere in this Prospectus which have been
audited by Deloitte & Touche LLP, independent auditors, whose report thereon
is also included elsewhere in this Prospectus. The selected consolidated
statement of operations data for the year ended June 30, 1993 has been
derived from the Company's consolidated statement of operations included
elsewhere in this Prospectus which has been audited by Ernst & Young LLP,
independent auditors, whose report thereon is also included elsewhere in this
Prospectus. The selected consolidated balance sheet data as of June 30, 1993
and consolidated balance sheet and statement of operations data as of June
30, 1991 and 1992 and for the years then ended have been derived from audited
consolidated financial statements of the Company which are not included in
this Prospectus. The selected consolidated financial data for the quarters
ended September 30, 1994 and 1995 have been derived from the Company's
unaudited consolidated financial statements and include, in the opinion of
management, all normal recurring adjustments necessary to present fairly the
data for such periods. The results for the quarter ended September 30, 1995
are not necessarily indicative of the results to be expected for the full
fiscal 1996 year. The selected consolidated financial data below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto, for the three most recent fiscal years and for the
quarters ended September 30, 1994 and 1995, included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------------
1991 1992 1993 1994 1995 1994 1995
----------- ---------- ----------- ----------- ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ............................. $232,444 $254,190 $235,819 $206,332 $181,697 $ 65,391 $ 48,885
Cost of goods sold .................... 192,369 196,415 187,423 186,594 149,097 51,702 38,141
----------- ---------- ----------- ----------- ----------- ---------- ---------
Gross profit .......................... 40,075 57,775 48,396 19,738 32,600 13,689 10,744
Selling, general and administrative
expenses ............................. 51,600 50,016 57,410 55,400 44,794 12,200 9,764
Restructuring expenses (1) ............ -- -- -- 5,300 1,200 1,200 --
Unusual expenses (2) .................. -- -- -- 1,900 8,333 7,833 --
Interest expense ...................... 1,968 2,474 2,322 3,439 5,976 1,350 1,419
Other (income) expense, net ........... (654) (479) (449) 190 (91) (35) (108)
----------- ---------- ----------- ----------- ----------- ---------- ---------
(Loss) income before income tax
(benefit) provision and extraordinary
item ................................. (12,839) 5,757 (10,887) (46,491) (27,612) (8,859) (331)
Income tax (benefit) provision ....... (835) 2,245 102 264 301 76 76
----------- ---------- ----------- ----------- ----------- ---------- ---------
(Loss) income before extraordinary
item ................................. (12,004) 3,512 (10,989) (46,755) (27,913) (8,935) (407)
Extraordinary item .................... -- 1,957(3) -- -- -- -- --
----------- ---------- ----------- ----------- ----------- ---------- ---------
Net (loss) income ..................... $(12,004) $ 5,469 $(10,989) $(46,755) $(27,913) $ (8,935) $ (407)
=========== ========== =========== =========== =========== ========== =========
Net (loss) income per share (4) ...... $ (0.66) $ 0.30 $ (0.60) $ (2.55) $ (1.40) $ (0.48) $ (0.02)
=========== ========== =========== =========== =========== ========== =========
Weighted average number of common and
common equivalent shares outstanding 18,234 18,363 18,272 18,352 19,910 18,718 20,461
=========== ========== =========== =========== =========== ========== =========
</TABLE>

CONSOLIDATED BALANCE SHEET DATA:

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
------------------------------------------------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) ..... $57,397 $51,964 $40,923 $ 3,342 $ (13,914) $ 2,470 $(13,663)
Total assets ...................... 82,571 86,489 90,208 51,619 28,660 65,289 54,022
Short-term debt, including current
portion of long-term debt ........ -- 9,910 17,504 21,365 18,698 29,958 36,307
Long-term debt .................... 24,730 14,820 14,730 18,789 21,066 19,354 21,678
Stockholders' equity (deficiency) 37,683 43,328 33,147 (13,614) (32,379) (15,124) (32,660)
</TABLE>

- ------------
(1) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.7 million for employee severance, and, in fiscal 1995, $1.2
million for employee severance, which was recorded in the quarter
ended September 30, 1994.

(2) Includes, in fiscal 1994, expenses relating primarily to abandonment
of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture, and in fiscal 1995, $7.8 million,
which was recorded in the quarter ended September 30, 1994, primarily
relating to the costs associated with the signing of the Company's
new Chief Executive Officer, and $0.5 million related to certain
legal matters.

(3) Represents a benefit from the utilization of a net operating loss
carryforward.

(4) Computed by dividing net (loss) income by the weighted average number
of Common and Common Equivalent Shares outstanding during each of the
periods. For the fiscal years ended 1991, 1993, 1994 and 1995 and for
the quarters ended September 30, 1994 and 1995, Common Equivalent
Shares were not included in the calculation as their inclusion would
have been antidilutive.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

In 1992, the Company perceived a shift in demand in the women's retail
apparel industry toward lower price points. In order to sustain sales in a
difficult retail environment, the Company introduced new products at lower
prices to meet this perceived demand, thus altering its historic corporate
strategy of aiming toward the high end of "upper moderate" price points. As a
result of intense competition in this lower priced segment of the market,
where the Company had a limited operating history, sales of the Company's
products slowed, inventory levels increased and the Company was forced to
sell a larger portion of its products through off-price channels.

Toward the end of fiscal 1994, the Company initiated a major restructuring
of its operations in order to return to its historic product positioning and
regain profitability. The focus of the Company's restructuring has been to
strengthen its management team, reduce selling, general and administrative
expenses and reposition its product line. Andrew Grossman joined the Company
in September 1994 and implemented a product and pricing repositioning
strategy, most of the financial benefits of which the Company expects to be
realized in future periods. In anticipation of the repositioned product lines
and as a result of continued weak product demand, the Company has limited the
production of its product lines pending the return of adequate demand. The
Company has realized an increase in its gross margin to 17.9% in fiscal 1995
from 9.6% in fiscal 1994, primarily resulting from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued high levels of
promotional allowances. Gross margins further improved to 22.0% in the first
quarter of fiscal 1996 as compared to 20.9% in the first quarter of fiscal
1995. The impact of the restructuring on the Company's selling, general and
administrative expenses has been more immediate: selling, general and
administrative expenses decreased from $55.4 million in fiscal 1994 to $44.8
million in fiscal 1995. Nearly half of this decrease resulted from staff
reductions throughout the Company from a high point of 1,009 in fiscal 1993
to 595 at the end of fiscal 1995. In addition, the Company decided to close a
number of its unprofitable outlet stores and does not intend to open any new
stores in the foreseeable future. Because certain of the cost reductions were
not in effect for the full fiscal 1995 year, the Company believes that
selling, general and administrative expenses will be lower in fiscal 1996
than in fiscal 1995. Selling, general and administrative expenses decreased
by $2.4 million, from $12.2 million in the first quarter of fiscal 1995 to
$9.8 million in the first quarter of fiscal 1996. In order to support the
development and growth of the Company's licensed Nautica product line,
however, selling, general and administrative expenses are expected to
increase in subsequent years.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
expressed as a percentage of net sales.

<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales .......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit ....................... 20.5 9.6 17.9 20.9 22.0
Selling, general and administrative
expenses .......................... 24.3 26.9 24.7 18.7 20.0
Restructuring expenses ............. -- 2.6 0.7 1.8 --
Unusual expenses ................... -- 0.9 4.6 12.0 --
Interest expense ................... 1.0 1.7 3.3 2.1 2.9
Net loss ........................... (4.7) (22.7) (15.4) (13.7) (0.8)
</TABLE>

<PAGE>

Quarter Ended September 30, 1995 Compared to Quarter Ended September 30,
1994

In the quarter ended September 30, 1995, net sales decreased by $16.5
million or 25.2% compared to the quarter ended September 30, 1994. This sales
decrease was primarily due to a reduction in the number of units sold and
higher sales incentive discounts, partially offset by higher standard selling
prices, lower promotional allowances, lower term discounts and lower returns.

In the quarter ended September 30, 1995, gross profit as a percentage of
net sales increased to 22.0% from 20.9% for the quarter ended September 30,
1994. The increase in gross profit, as a percentage of net sales, was
attributable to a decrease in promotional allowances and higher standard
selling prices, partially offset by higher sales incentive discounts.

Selling, general and administrative expenses decreased by $2.4 million in
the quarter ended September 30, 1995 as compared to the quarter ended
September 30, 1994, which was primarily attributable to the implementation of
cost reduction programs under the restructuring. As a percentage of net
sales, selling, general and administrative expenses increased to 20.0% in the
quarter ended September 30, 1995 from 18.7% in the quarter ended September
30, 1994.

During the first quarter of fiscal 1995, the Company recorded unusual
expenses of $7.8 million primarily related to costs associated with the
signing of the Company's new Chief Executive Officer and $1.2 million in
restructuring expenses related to employee severance.

Interest expense in the quarter ended September 30, 1995 increased as
compared with the comparable quarter of the prior fiscal year, primarily due
to higher average bank borrowings at higher rates.

Fiscal 1995 Compared to Fiscal 1994

In fiscal 1995, net sales decreased by $24.6 million, or 11.9%, compared
to the prior year. The decrease was primarily due to a general reduction in
production levels in most of the Company's product lines, in addition to the
elimination of its jeans line and curtailed international operations. Net
sales for fiscal 1995 included sales to off-price channels of $40.4 million,
compared to $91.3 million in fiscal 1994. Off-price sales as a percentage of
net sales declined from 44.3% in fiscal 1994 to 22.2% in fiscal 1995.

Sales by the Company's outlet stores increased by $1.1 million compared to
the prior year. The increase was primarily due to the impact of full year
sales by four outlet stores opened in fiscal 1994 and the incremental impact
of one store opened early in fiscal 1995, partially offset by the closing of
four outlet stores in fiscal 1995 and a 2.0% decline in same store sales.

Gross profit as a percentage of net sales increased to 17.9% from 9.6% as
compared to the prior fiscal year. As discussed above, the increase, as a
percentage of net sales, resulted primarily from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued higher levels of
promotional allowances.

Selling, general and administrative expenses decreased by $10.6 million,
from 26.9% of net sales in fiscal 1994 to 24.7% of net sales in fiscal 1995.
This decrease was primarily attributable to the implementation of cost
reduction programs throughout the organization. Payroll and related costs
accounted for almost half of the decrease. Other areas with significant
decreases included freight, rent, cooperative advertising, professional fees,
and travel and entertainment.

In connection with the corporate restructuring program discussed above,
during the first quarter of fiscal 1995 the Company recorded restructuring
expenses of $1.2 million. These costs primarily related to employee severance
as the Company continued to reduce overhead costs. In January 1995, the
Company signed favorable early termination agreements with the landlords of
certain retail outlet stores, for which the Company had taken a reserve as
part of its restructuring expenses at June 30, 1994. As a result, the Company
was able to reduce the restructuring reserve, accrued in 1994, by
approximately $1.3 million. The benefit of this reduction was offset by
certain additional expenses provided for by the Company relating to
prospective continued restructuring of its retail and overseas operations.

<PAGE>

During the first quarter of fiscal 1995, the Company recorded unusual
expenses of $7.8 million primarily related to the costs associated with the
signing of the Company's new Chief Executive Officer. During the fourth
quarter of fiscal 1995, the Company recorded $0.5 million in unusual expenses
related to certain legal matters.

Interest expense increased compared with the prior year, primarily due to
higher average bank borrowings at higher rates. In addition, in the third and
fourth quarters of fiscal 1995, the Company recorded non-cash charges of $0.5
and $0.7 million, respectively, for the warrants issued for credit support
received from its principal stockholder. See "-- Financial Condition,
Liquidity and Capital Resources."

Fiscal 1994 Compared to Fiscal 1993

In fiscal 1994, net sales decreased (principally in the Chaus and Chaus
Sport product lines) by $29.5 million, or 12.5%, compared to the prior fiscal
year . The sales decrease primarily resulted from lower average unit selling
prices, particularly through off-price channels, and higher promotional
allowances to accelerate sell-through at the retail level. The Company
reduced domestic standard selling prices and anticipated a more favorable
business trend which would have enabled it to increase sales; however, the
unanticipated continuation of reduced consumer spending in the women's
apparel industry resulted in a lower volume of purchasing of the Company's
products. As a result, the Company sold fewer units at regular price,
liquidated excess inventory at reduced prices and had higher promotional
allowances to accelerate and increase sell-through at the retail level.

Sales by the Company's outlet stores increased by $2.6 million compared to
the prior year. The increase was primarily due to three new outlet stores
opened, partially offset by the closing of one outlet store and a 3.5%
decline in same store sales.

Gross profit as a percentage of net sales decreased to 9.6% from 20.5% as
compared to the prior year. The decrease was primarily attributable to the
disposal of excess inventories at higher discounts to off-price channels, as
well as to an increase in promotional allowances.

Selling, general and administrative expenses, as a percentage of net
sales, increased to 26.9% from 24.3% as compared to the prior year, primarily
due to lower sales volume. The actual dollar expense decrease of $2.0 million
resulted from a $3.0 million savings in headcount reductions, offset by a
$1.0 million increase in Company outlet store expenses.

In the fourth quarter of fiscal 1994, the Company recorded restructuring
expenses of approximately $5.3 million. The restructuring expenses included
approximately $2.1 million for the closing of selected outlet stores,
approximately $2.5 million for the consolidation and closing of office and
warehouse space and approximately $0.7 million for employee severance.

In addition, in the fourth quarter of fiscal 1994, the Company recorded
unusual expenses of $1.9 million, consisting primarily of expenses arising
from the abandonment of fixed assets, certain legal matters, and the winding
down of the Company's Canadian joint venture.

Interest expense increased compared with the prior fiscal year, primarily
due to a higher level of bank borrowings as well as the impact of higher
interest rates and increased balances on the subordinated debt.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

General

Net cash used in operating activities was $17.8 million for the quarter
ended September 30, 1995 as compared to $15.5 million for the quarter ended
September 30, 1994. The net cash used in operating activities during the
quarter ended September 30, 1995 resulted primarily from increases in
accounts receivable ($20.4 million), increases in inventory ($5.9 million),
and decreases in accrued restructuring expenses ($1.1 million), offset
partially by increases in accounts payable ($8.5 million).

Net cash used in operating activities was $29.1 million in fiscal 1993,
$5.0 million in fiscal 1994, and $4.8 million in fiscal 1995. The net cash
used in operating activities in fiscal 1995 resulted primarily from

<PAGE>

the net loss of $27.9 million, inclusive of non-cash charges of $5.3 million,
reductions in accounts payable of $1.4 million and accrued expenses of $1.2
million, offset somewhat by decreases in accounts receivable of $9.9 million
and inventories of $9.3 million.

Historically, the Company has not required major capital expenditures. In
fiscal 1994 and 1995, purchases of fixed assets were $1.4 million and $0.4
million, respectively, consisting primarily of improvements in the Company's
New Jersey warehouse facilities, New York design and showroom facilities, and
additional computer and telecommunications equipment. In fiscal 1996, the
Company anticipates capital expenditures of approximately $0.5 million,
consisting primarily of expenditures for its warehouses and design facilities
and the purchase of additional computer software systems.

Amended Financing Agreement

The Amended Financing Agreement provides the Company with a $60 million
credit facility for letters of credit and direct borrowings, with a sublimit
for loans and advances of $40 million ($47 million for the period from
October 1, 1995 to November 30, 1995). The amount of financing available is
based upon a formula incorporating eligible receivables and inventory, cash
balances, other collateral, and permitted overadvances, all as defined in the
Amended Financing Agreement. At September 30, 1995, the Company had an
overadvance position of approximately $5.9 million under the Amended
Financing Agreement, with the Amended Financing Agreement permitting
overadvances up to $6.0 million. The Amended Financing Agreement is
collateralized by substantially all of the Company's assets, including
accounts receivable and inventory. During the first, second and fourth
quarters of fiscal 1995, the Company was not in compliance with its covenants
concerning working capital and net worth under the Amended Financing
Agreement. BNYF has waived such noncompliance, however, and, pursuant to the
September Amendment, has relaxed such covenants. The Amended Financing
Agreement currently contains certain financial covenants, including a
covenant permitting a tangible net worth deficit of not more than $11.5
million as of September 30, 1995, $12.5 million as of December 31, 1995,
$13.5 million as of March 31, 1996 and $14.5 million as of June 30, 1996. In
addition, the Company is required to maintain a working capital deficiency of
not more than $14.0 million as of September 30, 1995, $14.5 million as of
December 31, 1995, $15.0 million as of March 31, 1996 and $15.5 million as of
June 30, 1996. In the event of an equity infusion, such covenants are to
increase by 50% of the amount of such infusion. Such covenants for periods
after June 30, 1996 are to be modified based upon the Company's business plan
each year during the term.

Interest on direct borrowings is payable monthly at an annual rate equal
to the higher of (i) The Bank of New York's prime rate (8.75% at September
30, 1995) plus a margin between 0.5% and 1.5%, depending on the level of
overadvances, and (ii) the Federal Funds Rate in effect (5.75% at September
30, 1995) plus a margin between 1.0% and 2.0%, depending on the level of
overadvances. The annual default interest rate is 2.5% over prime. The
Amended Financing Agreement requires the payment of a due diligence and
facility fee aggregating $0.6 million. In addition, there is an annual
commitment fee of 0.375% on the unused portion of the line, payable monthly,
and letter of credit fees equal to 0.125% of the outstanding letter of credit
balance, payable monthly. The Amended Financing Agreement also provides for
the payment of minimum annual service charges of $0.6 million. The Company
may terminate the Amended Financing Agreement upon 90 days' prior written
notice at any time, subject to termination fees. BNYF may terminate the
Amended Financing Agreement after February 21, 1998, upon 60 days' written
notice to the Company.

Credit Support

As part of the negotiations with BNYF in connection with the Amended
Financing Agreement, in February 1995 Josephine Chaus increased the Letter of
Credit (originally provided by Ms. Chaus as credit support in the form of a
$3.0 million letter of credit in April 1994, and subsequently increased over
time to $7.2 million) to $10.0 million and extended its term until October
31, 1995 (the "February Increase/Extension"). In September 1995, Ms. Chaus
further extended the term of the Letter of Credit to January 31, 1996 (the
"September Extension"). Subsequently, in connection with the September
Amendment, Ms. Chaus provided the Company with the July Option to further
extend the Letter of

<PAGE>

Credit to July 31, 1996. In addition, in February 1995, Ms. Chaus provided
the Guarantee, to be in effect during the Amended Financing Agreement's
three-year term. See "Certain Transactions."

In consideration of the February Increase/Extension, the Guarantee and the
September Extension, the Special Committee authorized the issuance, subject
to stockholder approval, of the 1995 Warrants to purchase an aggregate of
1,580,000 shares of Common Stock. Because Ms. Chaus possesses the power to
vote more than 50% of the outstanding shares of Common Stock, Ms. Chaus's
affirmative vote in favor of the issuance of the 1995 Warrants to her is
sufficient to approve such issuance without the vote of any other
stockholders. Ms. Chaus has advised the Company that she intends to vote all
of her shares in favor of such issuance. As a result, the Company has
reflected the issuance of the warrants for the February Increase/Extension
and the Guarantee at June 30, 1995. The value of such warrants ($0.7 million)
was included as a charge to interest expense with a corresponding increase to
additional paid in capital. The charge for the issuance of the warrants for
the September Extension ($0.2 million) will be recorded in the second quarter
of fiscal 1996.

Issuance of Stock in Exchange for Debt

Subordinated Debt

The Company had outstanding at September 30, 1995, $21.7 million of
Subordinated Notes payable to Josephine Chaus. In September 1995, Josephine
Chaus extended the maturity date on all of the Subordinated Notes (which were
to mature on April 1, 1996) to July 1, 1996. In connection with this
offering, Ms. Chaus has agreed to extend the maturity date of the
Subordinated Notes to July 1, 1998, subject to the consummation of this
offering, and to October 1, 1996 in the event that this offering is not
consummated. See "Certain Transactions."

Letter of Credit Financing

In June 1995, the Company and a major trading company entered into a sales
and letter of credit financing agreement (the "S&F Agreement") providing the
Company with up to $2.0 million in short-term financing (subject to various
terms and conditions as defined in the S&F Agreement) for the production of
its products overseas and secured by such products and related intangible
assets. Either party may terminate the S&F Agreement upon 30 days' written
notice to the other party.

Nautica License Agreement

In September 1995, the Company entered into the Nautica License Agreement
pursuant to which the Company will arrange for the manufacture of, market,
distribute and sell a new women's career and casual sportswear line under the
Nautica name. The Nautica License Agreement runs through December 31, 1999
and is contingent upon the Company raising a minimum of $10.0 million in
equity capital by December 31, 1995. Additionally, the Company is required to
devote at least $7.0 million to the fulfillment of the Company's obligations
under the Nautica License Agreement, including related capital expenditures.
The Company's obligations also include minimum royalty and advertising
payments and the construction of a separate showroom for the display of the
Company's licensed Nautica products.

The Company intends to use approximately $7.0 million of the net proceeds
from this offering to develop and market the Company's licensed Nautica
product line, and the remaining net proceeds to support the growth of the
Company's existing product lines. See "Risk Factors--Working Capital
Deficiency; Future Financing Requirements" and "Use of Proceeds."

<PAGE>

INFLATION

The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States, where it
competes, have had a significant effect on its net sales or profitability.

SEASONALITY

<PAGE>

BUSINESS

GENERAL

The Company designs, arranges for the manufacture of and markets an
extensive range of women's career and casual sportswear and dresses which are
marketed principally under the CHAUS(Registered Trademark) and CHAUS SPORT
(Registered Trademark) trademarks. In late fiscal 1994, the Company initiated
a corporate restructuring program characterized by a strengthened management
team, reduced selling, general and administrative expenses and, in an effort
to capitalize on the Company's well-recognized brand name, a return to its
historic product positioning. The Company's enhanced product line is being
repositioned at the high end of the "upper moderate" through the opening
price points of the "better" categories. The Company recently entered into
the Nautica License Agreement with Nautica, a leading name in men's apparel,
under which the Company will design, contract for the manufacture of and
market a new women's apparel line under the Nautica brand name.

CORPORATE STRATEGY/REPOSITIONING

The following summarizes the major aspects of the Company's restructuring
and its new corporate strategy.

Strengthen Management Team. At the core of the restructuring effort has
been the recruitment of seasoned industry professionals, led by the hiring in
September 1994 of Andrew Grossman, the then President of Jones Apparel Group
Inc., as the Company's new Chief Executive Officer. The Company believes that
Mr. Grossman's extensive experience in the women's apparel industry brings
new leadership and innovation to the Company. In connection with the hiring
of Mr. Grossman, the Company created a new Office of the Chairman, consisting
of Ms. Chaus and Mr. Grossman, to direct its new strategy and its operations.
Other additions to the core management team include Wayne Miller, the
Company's Executive Vice President and Chief Financial Officer, Judith Leech,
the Company's Vice President- Design, and Donna Poach, the Company's Vice
President-Production.

Increase Operating Leverage. The Company began implementing an aggressive
expense reduction program in late fiscal 1994 which was primarily responsible
for a $10.6 million reduction in selling, general and administrative expenses
in fiscal 1995. Key initiatives behind the cost savings include a headcount
reduction, the centralization of certain operating and administrative
functions, the closing of office locations, the consolidation of distribution
facilities and the closing of selected Company outlet stores. Because certain
of the cost reductions were not in effect for the full fiscal 1995 year, the
Company believes that selling, general and administrative expenses will be
lower in fiscal 1996 than in fiscal 1995. Selling, general and administrative
expenses decreased by $2.4 million from $12.2 million in the first quarter of
fiscal 1995 to $9.8 million in the first quarter of fiscal 1996. The Company
anticipates that if its sales volume increases it will benefit from increased
operating leverage.

Collections Merchandising Strategy. As part of the Company's product
repositioning strategy, the Company has shifted its attention from single,
fashion-driven items to collections with an emphasis on updated traditional
styling. This shift to collections has enabled the Company to move away from
commodity pricing for single, fashion-driven items and to reduce the levels
of goods sold at off-price. The Company believes that there is a general
shift in the industry back to ensemble dressing, and the Company's collection
approach allows it to take advantage of such trend.

Door Penetration; Door Expansion. The Company believes that it is
currently underpenetrated within its customers compared to other major
women's apparel manufacturers. The Company will seek to

<PAGE>

increase the number of individual stores ("doors") within store groups owned
by its major customers in which its products are distributed and to increase
the amount of retail floor space allocated to its products.

Capitalize on Capabilities through Nautica Relationship. The Company
believes that the Nautica License Agreement represents an opportunity for
growth. This relationship with Nautica will provide the Company with access
to "better" to "bridge" departments while creating an alliance with a leading
company in the apparel industry.

PRODUCTS

The Company's products are divided into three principal product
categories: (i) career sportswear; (ii) weekend casual sportswear; and (iii)
dresses. As part of its restructuring/repositioning strategy, the Company has
shifted its product focus from single, fashion-driven items to full
collections with an emphasis on traditional styling. With this repositioning,
the Company also has enhanced its design and quality with, in certain cases,
an increase in price points to the high end of the "upper moderate" through
the opening price points of the "better" categories. The Company's career and
weekend casual sportswear are marketed as coordinated groups of jackets,
skirts, pants, blouses, sweaters and related accessories which, while sold as
separates, are coordinated by styles, color schemes and fabrics and are
designed to be merchandised and worn together. The Company believes that the
target consumers for its products are women aged 25 to 55.

The Company produces collections of each of these product lines for each
of its six principal selling seasons: Spring I, Spring II, Summer, Fall I,
Fall II and Holiday. Spring and Fall traditionally have been the Company's
major selling seasons. Beginning in the first quarter of fiscal 1996, the
Company combined the Spring I and Spring II seasons into one Spring season,
thus reducing the selling seasons to five.

The Company's major product categories and associated brand names are
summarized in the following table:

<TABLE>
<CAPTION>
CAREER SPORTSWEAR WEEKEND CASUAL SPORTSWEAR DRESSES
---------------------------- ---------------------------- ------------------------
<S> <C> <C> <C>
BRAND NAMES Chaus Chaus Woman Chaus Chaus Sport Chaus Dresses Chaus
Petite Woman
Chaus Petite Dresses
PRODUCT OFFERINGS Jackets, Skirts, Pants, Casual Jackets, Sweaters, One-Piece Dresses,
Shorts, Blouses, Shirts, Skirts, Pants, Shirts, Knit Two-Piece Dresses,
Knit Tops, Sweaters Tops Pantsuits, Social
Dresses
INDUSTRY CATEGORIES Upper Moderate and Lower Upper Moderate and Lower Upper Moderate and Lower
Better Better Better
</TABLE>

During fiscal 1995, the suggested retail prices of the Company's products
ranged between $15.00 and $108.00. The Company's jackets ranged in price
between $40.00 and $108.00, its dresses ranged in price between $48.00 and
$106.00, its blouses and sweaters ranged in price between $32.00 and $76.00,
its skirts and pants ranged in price between $25.00 and $56.00, and its knit
tops and bottoms ranged in price between $15.00 and $60.00. As the Company
repositions its price points at the high end of the "upper moderate" through
the opening price points of the "better" categories, it has already realized
an increase in its suggested retail price range during the first quarter of
fiscal 1996, and it anticipates that the suggested retail price range of its
products will continue to increase during the balance of fiscal 1996.

<PAGE>

The following table sets forth a breakdown by percentage of the Company's
net sales by product category for fiscal 1993 through fiscal 1995:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Career Sportswear
Chaus 31% 29% 31%
Chaus Woman 12 12 13
Chaus Petite 8 6 4
-------- -------- --------
Total 51 47 48
Weekend Casual 30 28 35
Sportswear
Dresses 12 13 12
Other (1) 7 12 5
======== ======== ========
Total 100% 100% 100%
======== ======== ========
</TABLE>

- ----------
(1) Includes sales by outlet stores, offset by intercompany profit
eliminations. Also includes, for fiscal 1993 and fiscal 1994, (a) the
Company's JOSEPHINE and JEANSWEAR labels, which produced blouses and
jeans, respectively, until the beginning of fiscal 1995 when the
Company ceased producing garments using these labels and (b) a
Canadian joint venture that the Company terminated in June 1994.

Career Sportswear. The Company markets an extensive line of career
sportswear under the CHAUS label for misses sizes, the CHAUS WOMAN label for
larger sizes and the CHAUS PETITE label for smaller sizes. This product line
offers a full collection of sportswear geared primarily for the working
woman. Each sportswear collection typically includes a broad selection of
jackets, skirts, pants, blouses and sweaters, as well as more casual apparel
such as shorts, shirts and knit tops.

Weekend Casual Sportswear. The CHAUS SPORT label offers casual jackets,
sweaters, skirts, pants, shirts and knit tops. This product line offers soft
career, weekend and leisure sportswear intended for an informal working
environment as well as for casual wear.

Dresses. The Company produces dresses under the CHAUS DRESSES, CHAUS WOMAN
DRESSES and CHAUS PETITE DRESSES labels. The Company offers an extensive line
of dresses from daytime to evening wear, as well as dresses for the working
woman.

LICENSE AGREEMENT WITH NAUTICA

In September 1995, the Company entered into the Nautica License Agreement
under which the Company will have an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto
Rico. The Company's licensed Nautica product line will be distributed in
major department and specialty stores, at "better" to "bridge" price points
in Nautica designed in-store shops. Nautica has developed significant
brand-name recognition with its men's apparel lines. This relationship will
provide the Company with exposure to "better" to "bridge" departments, while
creating an alliance with a leading company in the apparel industry. The
Company expects to make the first sales of its licensed Nautica products
during the first quarter of fiscal 1997. The Company's license from Nautica
is limited to women's sportswear collections including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets, and outerwear and
sportswear dresses bearing the Nautica brand names and marks. The Company's
license from Nautica excludes business dresses, suits, coats and raincoats
that are not part of a sportswear collection. The license also excludes
shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.

<PAGE>

The initial term of the Nautica License Agreement runs through December
31, 1999, and is thereafter renewable for up to two periods of three years
each, provided that certain conditions are met (including the successful
attainment of certain sales targets and the requirement that Andrew Grossman
continue in his position as Chief Executive Officer during the term of the
Nautica License Agreement). Under the Nautica License Agreement, the Company
is obligated to raise at least $10.0 million in equity capital by December
31, 1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. The Company's obligations
also include minimum royalty and advertising payments and the construction of
a separate showroom for the display of the Company's licensed Nautica
products. Under the Nautica License Agreement, the Company intends to
dedicate a full operational merchandising and retail development group to its
licensed Nautica product line.

Pursuant to the terms of the Nautica License Agreement, the Company has
granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).

CUSTOMERS

The Company's products are sold nationwide in an estimated 2,500
individual stores operated by approximately 100 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.

The following table sets forth approximate percentages of the Company's
net sales to its five largest customers for the last two fiscal years:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
------------------
NAME 1994 1995
- ---- -------- --------
<S> <C> <C>
Dillard's Department Stores ........................ 16% 23%
May Department Stores Company(1) ................... 14 13
Federated Department Stores Inc.(2) ................ 12 11
Marshall's, a division of Melville Corporation .... 9 5
Dayton Hudson Department Stores .................... 5 5
-------- --------
Total .............................................. 56% 57%
======== ========
</TABLE>
- ----------
(1) Included in the May Company group are Hechts, Foley's, Robinsons-May,
Kaufmann's, Filene's, Famous Barr Company, Meier & Frank and Lord &
Taylor.

(2) Included in the Federated group are Macy's, A&S, Rich's, Burdines,
Lazarus, Bon Marche, Jordan Marsh and Stern's.

SALES AND MARKETING

The Company's selling operation is highly centralized. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms. The Company has an in-house sales
force of 24, all of whom are located in the New York City showrooms. Senior
management, principally Josephine Chaus and Richard Baker (the Company's
President), actively participate in the planning of the Company's marketing
and selling efforts. The Company does not employ independent sales
representatives or operate regional sales offices, but it does participate in
various regional merchandise marts. This sales structure enables management
to control the Company's selling operation more effectively, to limit travel
expenses, as well as to deal directly with, and be readily accessible to,
major customers.

Products are marketed to department and specialty store customers during
"market weeks," generally four to five months in advance of each of the
Company's selling seasons. The Company assists its customers in allocating
their purchasing budgets among the items in the various product lines to
enable consumers to view the full range of the Company's offerings in each
collection. During the course of the retail selling seasons, the Company
monitors its product sell-through at retail in order to directly assess
consumer response to its products.

<PAGE>

The Company emphasizes the development of long-term customer relationships
by consulting with its customers concerning the style and coordination of
clothing purchased by the store, optimal delivery schedules, floor
presentation, pricing and other merchandising considerations. Frequent
communications between the Company's senior management and other sales
personnel and their counterparts at various levels in the buying
organizations of the Company's customers is an essential element of the
Company's marketing and sales efforts. These contacts allow the Company to
closely monitor retail sales volume to maximize sales at acceptable profit
margins for both the Company and its customers. The Company's marketing
efforts attempt to build upon the success of prior selling seasons to
encourage existing customers to devote greater selling space to the Company's
product lines and to penetrate additional individual stores within the
Company's existing customers. The Company's largest customers discuss with
the Company retail trends and their plans regarding their anticipated levels
of total purchases of Company products for future seasons. These discussions
are intended to assist the Company in planning the production and timely
delivery of its products.

The Company maintains a limited cooperative advertising program under
which it reimburses, in certain circumstances, a portion of a customer's
advertising expenditures promoting the Company's products up to a maximum
percentage of the customer's purchases. Except for this cooperative
advertising program, the Company has not engaged in any direct advertising to
the public. Cooperative advertising expenditures were approximately $1.9
million, $1.6 million and $0.8 million in fiscal 1993, 1994 and 1995,
respectively.

DESIGN

The Company's products and certain of the fabrics from which they are made
are designed by an in-house staff of fashion designers. The 11-person design
staff, headed by Judith Leech, monitors current fashion trends and changes in
consumer preferences. Josephine Chaus and Andrew Grossman, who are
instrumental in the design function, meet regularly with the design staff to
create, develop and coordinate the seasonal collections. The Company believes
that its design staff is known for its distinctive styling and its ability to
contemporize fashion classics. Emphasis is placed on the coordination of
outfits and quality of fabrics to encourage the purchase of more than one
garment.

MANUFACTURING AND DISTRIBUTION

The Company believes that outsourcing its manufacturing maximizes its
flexibility while avoiding significant capital expenditures, work-in-process
buildup and the costs of a large workforce. The Company does not own any
manufacturing facilities; all of its products are manufactured in accordance
with its design specifications and production schedules through arrangements
with independent manufacturers. Approximately 90% of the Company's products
are manufactured by approximately 35 key independent suppliers located
primarily in South Korea, Hong Kong, Taiwan, Sri Lanka, China, Indonesia and
elsewhere in the Far East, and approximately 10% of its products are
manufactured in Israel, India and the Caribbean Basin. No contractual
obligations exist between the Company and its manufacturers except on an
order-by-order basis. During fiscal 1995, the Company purchased approximately
57% of its finished goods from its ten largest manufacturers, including
approximately 11% of its purchases from its largest manufacturer. Contracting
with foreign manufacturers enables the Company to take advantage of
prevailing lower labor rates and to use a skilled labor force to produce high
quality products.

Generally, each manufacturer agrees to produce finished garments on the
basis of purchase orders from the Company, specifying the price and quantity
of items to be produced and supported by a letter of credit naming the
manufacturer as beneficiary to secure payment for the finished garments.

The Company's technical production support staff located in New York City
produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design staff, and marks and grades
the patterns in anticipation of production. While the factories have the
capability to perform these services, the Company believes that its personnel
can best express its design concepts and efficiently supervise production to
better ensure that a quality product is produced. Once production fabric is
shipped to them, the manufacturers produce finished garments in accordance
with the production samples and obtain necessary quota allocations and other
requisite customs clearances. Branch offices of the Company's subsidiaries in
Korea and Hong Kong monitor production at each

<PAGE>

manufacturing facility to control quality, compliance with the Company's
specifications and timely delivery of finished garments, and arrange for the
shipment of finished products to the Company's New Jersey distribution
center. Almost all finished goods are shipped to the Company's New Jersey
distribution center for final inspection, assembly into collections,
allocation and shipment to customers.

The Company believes that the number and geographical diversity of its
manufacturing sources minimize the risk of adverse consequences that would
result from termination of its relationship with any of its larger
manufacturers. The Company also believes that it would have the ability to
develop, over a reasonable period of time, adequate alternate manufacturing
sources should any of its existing arrangements terminate. However, should
any substantial number of such manufacturers become unable or unwilling to
continue to produce apparel for the Company or to meet their delivery
schedules, or if the Company's present relationships with such manufacturers
were otherwise materially adversely affected, there can be no assurance that
the Company would find alternate manufacturers of finished goods on
satisfactory terms to permit the Company to meet its commitments to its
customers on a timely basis. In such event, the Company's operations could be
materially disrupted, especially over the short-term. The Company believes
that relationships with its major manufacturers are satisfactory.

The Company uses a broad range of fabrics in the production of its
clothing, consisting of synthetic fibers (including polyester and acrylic),
natural fibers (including cotton and wool), and blends of natural and
synthetic fibers. The Company does not have any formal, long-term
arrangements with any fabric or other raw material supplier. During fiscal
1995, the Company ordered virtually all of the fabrics used in its products
from its five largest suppliers, which are located in Japan, Taiwan and
Korea. The Company selects the fabrics to be purchased, which are generally
produced for it in accordance with its own specifications. To date, the
Company has not experienced any significant difficulty in obtaining fabrics
or other raw materials and considers its sources of supply to be adequate.

The Company operates under substantial time constraints in producing each
of its collections. Orders from the Company's customers generally precede the
related shipping period by up to five months. However, proposed production
budgets are prepared substantially in advance of the Company's initial
commitments for each collection. In order to make timely delivery of
merchandise which reflects current style trends and tastes, the Company
attempts to schedule a substantial portion of its fabric and manufacturing
commitments relatively late in a production cycle. However, in order to
secure adequate amounts of quality raw materials, especially greige (i.e.,
"undyed") goods, the Company must make substantial advance commitments to
suppliers of such goods, often as many as seven months prior to the receipt
of firm orders from customers for the related merchandise. Many of these
early commitments are made subject to changes in colors, assortments and/or
delivery dates.

IMPORTS AND IMPORT RESTRICTIONS

The Company's arrangements with its manufacturers and suppliers are
subject to the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances, the imposition
of export duties, political and social instability, currency revaluations and
restrictions on the transfer of funds. Bilateral agreements between exporting
countries, including those from which the Company imports substantially all
of its products, and the United States' imposition of quotas limits the
amount of certain categories of merchandise, including substantially all
categories of merchandise manufactured for the Company, that may be imported
into the United States. Furthermore, the majority of such agreements contain
"consultation clauses" which allow the United States to impose at any time
restraints on the importation of categories of merchandise which, under the
terms of the agreements, are not subject to specified limits. The bilateral
agreements through which quotas are imposed have been negotiated under the
framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Arrangement ("MFA") which has been in
effect since 1974. The United States has recently concluded international
negotiations known as the "Uruguay Round" in which a variety of trade matters
were reviewed and modified. Quotas established under the MFA will be
gradually phased out over a ten-year transition period, after which the
textile and clothing trade will be fully integrated into the General
Agreement on Trade and Tariffs (the "GATT") and will be subject to the same
disciplines as other sections. The GATT provides for expanded trade, improved
market access, lower tariffs and improved safeguard mechanisms.

<PAGE>

The United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, with the result that the Company's operations and its ability
to continue to import products at current or increased levels could be
adversely affected. The Company cannot now predict the likelihood or
frequency of any such events occurring. The Company monitors duty, tariff and
quota-related developments, and seeks continually to minimize its potential
exposure to quota-related risks through, among other measures, geographical
diversification of its manufacturing sources, allocation of production of
merchandise categories where more quota is available and shifts of production
among countries and manufacturers. The expansion in the past few years of the
Company's varied manufacturing sources and the variety of countries in which
it has potential manufacturing arrangements, although not the result of
specific import restrictions, have had the result of reducing the potential
adverse effect of any increase in such restrictions.

Substantially all of the Company's products are subject to United States
customs duties. In the ordinary course of business, the Company, from time to
time, is subject to claims by the United States Customs Service ("Customs")
for duties and other charges, is entitled to refunds from Customs due to
overpayment of duties by the Company and may be required to pay penalties
with respect to underpayment of duties. The Company conducted an internal
review, on its own initiative, with respect to the declared price of certain
of its imported finished goods to determine whether such price had been
understated because of a failure to include the cost of raw materials
provided by the Company to certain of its manufacturers, as well as the cost
of shipping such raw materials by air freight to such manufacturers. During
fiscal 1987, the Company made a voluntary tender to Customs of duties and
other charges believed to be due with regard to such finished goods and as a
result, in accordance with routine administrative procedure in voluntary
disclosure and tender situations, Customs initiated an audit to verify the
accuracy of the Company's submission and records. The Company tendered $0.5
million to Customs in December 1991 as an offer-in-compromise in order to
settle this matter. In November 1994, the Company received a letter from
Customs notifying it that the offered amount of $0.5 million had been
accepted in full settlement of any and all claims against the Company. Such
liability had been provided for in a prior year.

OUTLET STORES

At June 30, 1995, the Company had 31 outlet stores as compared to 34
stores at June 30, 1994. The outlet stores operate throughout the country in
traditional factory outlet centers in locations intended to minimize conflict
with the Company's major retail department store customers. As part of the
Company's continued restructuring, four outlet stores were closed during
fiscal 1995. An additional four outlet stores were closed during the first
quarter of fiscal 1996, and the Company plans to close five more outlet
stores during the remainder of fiscal 1996 and does not intend to open any
new stores in the near future. The Company also has realigned its outlet
store business to reflect the changes it has made in its pricing and product
strategy. As the Company has reduced its inventory levels, it will seek to
utilize its outlet stores as more of a sale point for current merchandise
without negatively impacting its department store sales.

BACKLOG

At September 14, 1995, the Company's order book reflected unfilled
customer orders for approximately $48.0 million of merchandise (compared to a
backlog of $62.6 million at September 20, 1994), all of which is scheduled
for delivery during fiscal 1996. Starting in the first quarter of fiscal
1996, the Company eliminated one selling season by combining Spring I and
Spring II, partially accounting for the decrease in backlog. At September 20,
1994, Spring I season bookings accounted for approximately $7.5 million of
the backlog; at September 14, 1995, there were no Spring I season bookings.
The September 1994 backlog included $2.4 million of Holiday season bookings
of the Company's Dress division; no such bookings are included in backlog for
the later period due to timing differences in the selling season. In
addition, during fiscal 1995 many customers cut back their orders for the
Company's products to see what the retail demand would be for the Company's
repositioned, higher-quality/higher-priced product line. A portion of the
decline in backlog was attributable to this cutback.

Order book data at any date are materially affected by the timing of the
initial showing of collections to the trade, as well as by the timing of
recording of orders and of shipments. Accordingly, the Company

<PAGE>

believes that order book data do not provide meaningful period-to-period
comparisons as of specific dates, and comparisons of backlog information with
such information as of specific dates for prior periods are not necessarily
indicative of future results. The Company does not believe that
cancellations, rejections or returns will materially reduce the amount of
sales realized from such backlog.

TRADEMARKS

CHAUS(Registered Trademark), CHAUS ESSENTIAL(Registered Trademark), CHAUS
SPORT(Registered Trademark), CHAUS WOMAN(Registered Trademark) and MS.
CHAUS(Registered Trademark) are registered trademarks of the Company in the
United States for use on ladies' garments. These trademarks are renewable in
the years 2004, 2008, 2002, 2004 and 2005, respectively. JOSEPHINE(Registered
Trademark) also is a registered trademark of the Company in the United
States, renewable in the year 2001, for use on ladies' blouses and sweaters.
The Company considers its trademarks to have significant value in the
marketing of its products.

The Company also has registered its CHAUS, CHAUS SPORT, CHAUS WOMAN, and
JOSEPHINE marks for women's apparel in certain foreign countries and has
legal trademarks in certain foreign countries for selected women's
accessories including handbags, small leather goods and footwear.

COMPETITION

The women's apparel industry is highly competitive, both within the United
States and abroad. The Company competes with many apparel companies, some of
which are larger and have better established brand names and greater
resources than the Company. In some cases the Company also competes with
private-label brands of its department store customers.

The Company believes that an ability to effectively anticipate, gauge and
respond to changing consumer demand and taste relatively far in advance, as
well as an ability to operate within substantial production and delivery
constraints (including obtaining necessary quota allocations), is necessary
to compete successfully in the women's apparel industry. Consumer and
customer acceptance and support, which depend primarily upon styling,
pricing, quality (both in material and production), and product identity, are
also important aspects of competition in this industry. The Company believes
that its success will depend upon its ability to remain competitive in these
areas.

Furthermore, the Company's traditional department store customers, which
account for a substantial portion of the Company's business, encounter
intense competition from so-called "off-price" and discount retailers, mass
merchandisers and specialty stores. The Company believes that its ability to
increase its present levels of sales will depend on such customers' ability
to maintain their competitive position and the Company's ability to increase
its market share of sales to department stores.

EMPLOYEES

At September 30, 1995, the Company employed 574 full-time employees as
compared with 777 full-time employees at September 30, 1994. This total
includes 82 in managerial and administrative positions, approximately 117 in
production, production administration and design, 235 in marketing,
merchandising and sales (including 211 employees in the retail outlet store
operation) and 66 in distribution. Of the Company's total employees, 74 were
located in the Far East. The Company is a party to a collective bargaining
agreement with the Amalgamated Workers Union, Local 88, covering 103
full-time employees. This agreement expires in August 1996.

PROPERTIES

The Company's principal executive offices are located at 1410 Broadway in
New York City, where the Company leases approximately 41,000 square feet, of
which approximately 10,000 square feet have been vacated as part of the
Company's restructuring plan. These facilities also house the Company's
showrooms and its sales, design, production and merchandising staffs. This
space is occupied under several leases expiring through July 1996. Net base
rental expense aggregated approximately $1.4 million, $2.1 million and $2.2
million in fiscal 1993, 1994 and 1995, respectively, and is expected to
aggregate approximately $2.3 million in fiscal 1996. Chaus also leases
approximately 19,000 square feet of space at 520 Eighth Avenue in New York
City, which houses its technical production support facilities (including its
sample

<PAGE>

and pattern makers). Net base rental expense for this space aggregated
approximately $0.4 million in fiscal 1993 and fiscal 1994 and $0.3 million in
fiscal 1995. The lease for this facility expires in January 1997 and the
Company expects the aggregate base rental expense to be approximately $0.2
million in fiscal 1996.

During fiscal 1995, the Company consolidated its warehouse and
distribution centers into one building, reducing the leased square footage
from approximately 390,000 square feet to approximately 275,000 square feet.
This facility houses the Company administrative and finance personnel, its
computer operations, one retail outlet store and its warehouse and
distribution center. The leases for the Secaucus facilities expire in 1996.
Base rental expense for the Secaucus facilities aggregated approximately $1.8
million in fiscal 1993, $2.4 million in fiscal 1994 and $1.5 million in
fiscal 1995. The base rental expense is expected to aggregate approximately
$1.5 million in fiscal 1996.

Office locations are also leased in Hong Kong, Korea and Taiwan, with
annual aggregate rental expense of approximately $0.5 million for fiscal
1995. In prior years, the Company also leased foreign office locations in the
Philippines and Italy. The aggregate rental payments including these
locations approximated $0.7 million in both fiscal 1993 and fiscal 1994. In
July 1995, the Company closed its Taiwan office and anticipates that
aggregate annual rental expense in fiscal 1996 will approximate $0.3 million.

The Company also leases space for its outlet stores operation. The annual
aggregate base rental expense for such facilities, with the average store
utilizing approximately 3,000 square feet in fiscal 1995, was approximately
$1.9 million in fiscal 1995 and is expected to be approximately $1.5 million
for fiscal 1996. For fiscal 1993 and fiscal 1994 the base rental expense for
the outlet stores' operations was $1.6 million and $1.9 million,
respectively.

LEGAL PROCEEDINGS

In 1992, Federal Judge Shirley Wohl Kram dismissed with prejudice as
time-barred the Amended Complaint against the Company and others in
consolidated class actions entitled Phifer v. Chaus et al., Goldschlack v.
Chaus et al., Susman v. Chaus et al., and I. Bibcoff Inc. Pension Trust Fund
v. Chaus et al, (which claims had alleged misstatements and omissions in the
Company's July 1986 prospectus delivered in connection with the 1986 Offering
and its 1986 and 1987 annual reports). On April 19, 1993, a Class Action
Complaint was filed in the Superior Court of New Jersey, Hudson County,
against the Company and others, including the Company's lead underwriter in
the 1986 Offering. Allegations in such complaint were common law fraud and
negligent misrepresentation in the sale of the Company's stock in the 1986
Offering, which allegations were substantially similar to the claims that
were dismissed with prejudice in the federal court. One of the plaintiffs
from the federal action was originally a party in this action in state court.

On June 18, 1993, the Company received by mail a copy of Jury Demand Class
Action in the Superior Court of New Jersey, Hudson County entitled Theodore
M. Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The Complaint
was amended in September 1993 to delete Lisa Phifer as a plaintiff. On May
27, 1994, the Company moved to dismiss the Complaint and/or to deny or limit
class status. In a decision rendered in November 1994, the Superior Court
denied the plaintiff's motion for the class certification and dismissed all
claims against the director defendants (Josephine Chaus and the Estate of
Bernard Chaus) and all claims not based upon actual reliance. With the denial
of class certification, absent a successful appeal, the plaintiff's claims
would not have a material adverse affect on the Company. In any event,
management believes that such action is without merit.

There are no other material pending legal proceedings to which the Company
is a party or to which any of its properties is subject.

<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL

The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ ----- -------------------------------------------
<S> <C> <C>
Josephine Chaus ......... 44 Chairwoman of the Board and Office of the
Chairman
Andrew Grossman ......... 36 Chief Executive Officer and Office of the
Chairman
Richard Baker ........... 49 President
S. Lee Kling (1)(2) .... 66 Director
John W. Burden III (2) . 58 Director
Harvey M. Krueger (1)(2) 66 Director
Philip G. Barach (1) ... 65 Director
Wayne S. Miller ......... 38 Executive Vice President -- Finance and
Administration, Chief Financial Officer
and Secretary
Michael Bakert .......... 47 President -- Retail Division
Karen A. Maloney ........ 38 Vice President -- Corporate Controller
Judith Leech ............ 34 Vice President -- Design
Donna Poach ............. 40 Vice President -- Production
Scott Hyatt ............. 37 Vice President --Manufacturing
</TABLE>

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

Josephine Chaus has been an employee of the Company in various capacities
since its inception. She has been a director of the Company since 1977,
President from 1980 to February 1993, Chief Executive Officer from 1991
through September 1994, Chairwoman of the Board since 1991 and member of the
Office of the Chairman since September 1994. Both members of the Office of
the Chairman preside at all meetings of stockholders and the Board of
Directors of the Company, make such reports concerning the Company as the
Board of Directors shall direct, and have such other powers and perform such
other duties as are from time to time assigned to them by the Board of
Directors. In addition, the Chief Executive Officer reports to the
Chairwoman.

Andrew Grossman was appointed a director of the Company on September 13,
1994. He has been employed by the Company as its Chief Executive Officer and
member of the Office of the Chairman (for a description of the role and
responsibilities of the Office of the Chairman, see "--Josephine Chaus"
above), since September 28, 1994. Prior to September 1994, Mr. Grossman was
President from 1991 to 1994 and Executive Vice President from 1990 to 1991 of
Jones Apparel Group, a manufacturer of women's apparel, and Vice President of
Merchandising for Jones New York from 1987 through 1990. Prior to joining
Jones, Mr. Grossman was employed by Willi Wear Ltd., Herbert Grossman
Enterprises, the Ralph Lauren Womens Wear division of Bidermann Industries,
Inc. and the Evan Picone division of Palm Beach Inc.

Richard A. Baker has served as President of the Company since February 15,
1993, and served as a director of the Company from February 1993 to September
1994. From 1986 to 1992, Mr. Baker was employed by Esprit de Corp., a firm
engaged in the apparel business, first as president of Esprit Sport and then
for five years as president of Esprit de Corp. Women's Wear.

S. Lee Kling was elected a director of the Company on February 22, 1989.
He has served since 1991 as Chairman of the Board of Kling Rechter & Company,
a merchant banking company which operates in

<PAGE>

partnership with Barclays Bank PLC, and serves as Vice Chairman of Willis
Corroon Corp. of Missouri. See "Certain Transactions." Mr. Kling served as
Chairman of the Board of Landmark Bancshares Corporation, a bank holding
company in St. Louis, Missouri until December 1991 when the company merged
with Magna Group, Inc. He had served in such capacity with Landmark since
1974 and had also served as Chief Executive Officer of Landmark from 1974
through October 1990 except for the period from May 1978 to January 1979 when
he served as Assistant Special Counselor on Inflation for the White House and
Deputy for Ambassador Robert S. Strauss. Mr. Kling serves on the Boards of
Directors of Magna Group, Inc., a multi-bank holding company; Lewis Galoob
Toys, Inc., a toy manufacturer; E-Systems, Inc., an electronic equipment
manufacturer; Falcon Products, Co., a furniture and fixtures manufacturer;
National Beverage Corp., a beverage manufacturer; Hanover Direct, Inc., a
catalog and mail order company; and Top Air Manufacturing Co., Inc., an
agricultural product manufacturer.

John W. Burden III was elected a director of the Company on November 14,
1991. He was, from 1985 until his retirement in January 1990, Chairman of
Federated Department Stores, Inc., a major operator of department stores in
the United States. Mr. Burden has been a director of Jan Bell Marketing Inc.,
which is engaged in the jewelry business, since August 1994 and Carson Pirie
Scott Incorporated, which owns department stores, since August 1993. Mr.
Burden has advised the Company that, due to personal time constraints, he
will not stand for reelection at the Company's November 1995 Annual Meeting
of Stockholders.

Harvey M. Krueger was appointed a director of the Company on January 2,
1992. He has been a Senior Managing Director of Lehman Brothers, an
investment banking firm, since May 1984. See "Certain Transactions." From
December 1977 to May 1984, he was Managing Director of Lehman Brothers Kuhn
Loeb, Inc. From 1965 to 1977, he was a Partner of Kuhn Loeb & Co. and in
1977, he served as President and Chief Executive Officer of Kuhn Loeb & Co.

Philip G. Barach was appointed a director of the Company on November 26,
1993. He was, from July 1968 to March 1990 the Chief Executive Officer of
U.S. Shoe Corp., a shoe manufacturer. In addition, Mr. Barach served as
Chairman of the board of directors of U.S. Shoe Corp. from March 1990 to
March 1993. Mr. Barach currently serves as a director of Union Central Life
Insurance Company, an insurance carrier, and serves as a director of Glimcher
Real Estate Investment Trust, a real estate developer, and R. G. Barry, a
manufacturer of thermal comfort products, both of which are public companies.

Wayne S. Miller joined the Company as Executive Vice President--Finance
and Administration and Chief Financial Officer in June 1994, and was
appointed Secretary of the Company in November 1994. From April 1994 to June
1994, Mr. Miller served as Crisis Manager at USA Classic, Inc., an apparel
company. From February 1994 to March 1994 he was a consultant to various
apparel companies. From October 1990 to January 1994 he was President and
Chief Executive Officer of Publix Group, L.P., an apparel company, which
filed a petition for reorganization under Chapter 11 of the federal
bankruptcy laws ("Chapter 11") in June 1993. Prior to that Mr. Miller was
Chief Financial Officer at Basco All-American Sportswear Corp.

Michael Bakert has been President of the Company's Retail Division from
1994 to the present. From 1990 to 1994, he was Vice President Director of
Retail for Carole Little, a women's apparel company. From 1985 to 1990, he
was Vice President Director of Stores of Phillip Van Heusen, an apparel and
accessory manufacturer. From 1983 to 1985, he was regional director for
National Shirt Shops, an apparel retailer. From 1978 to 1983, he was district
manager for Chess King, a subsidiary of The Melville Corporation, an apparel
and accessory retailer.

Karen A. Maloney has been Vice President - Corporate Controller since July
1995. From December 1990 through July 1995, she was employed by Bidermann
Industries Corp., an apparel company that filed a petition for reorganization
under Chapter 11 in July 1995, as Assistant Controller Financial Reporting
(December 1990 through May 1992) and as Vice President, Controller (June 1992
to July 1995). From March 1986 through May 1990 she was employed by Federal
Paper Board Company, a paper and forest products company, in various
management positions.

Judith Leech joined the Company as Vice President --Design in January
1995. From 1994 to 1995, Ms. Leech served as Design Director for Adrienne
Vittadini, and from 1993 to 1994 she served as Vice

<PAGE>

President Design for Clifford and Wills/J. Crew Group, both apparel
companies. From 1990 to 1993, Ms. Leech served as Design Director for the A
Line Anne Klein division of Anne Klein, an apparel company, and from 1987 to
1990 she served as Vice President Design for Liz Claiborne, an apparel
company.

Donna Poach joined the Company as Vice President --Production in August
1995. From 1989 to 1995, Ms. Poach served in various capacities for August
Silk, an apparel company, including serving in Paris from 1992 to 1994 as the
developer of August Silk's license business in Europe. From 1985 to 1989, Ms.
Poach served as Vice President -- Product Planning of Jones New York.

Scott Hyatt has served as Vice President --Manufacturing since prior to
July 1990. Mr. Hyatt is the son-in-law of the late Bernard Chaus, founder of
the Company.

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all cash compensation paid or accrued by
the Company during fiscal 1995 with respect to (a) Josephine Chaus, who
served as the Company's Chief Executive Officer until Andrew Grossman was
hired in September 1994, and who has served thereafter as a member of the
Office of the Chairman, (b) Andrew Grossman, who has been the Company's Chief
Executive Officer since September 1994, (c) each of the four other most
highly compensated executive officers of the Company and (d) a former
executive officer (collectively, the "Named Executive Officers"), for
services rendered by such persons in all capacities to the Company.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------ --------------------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL POSITION RESTRICTED UNDERLYING ALL OTHER
HELD DURING FISCAL YEAR 1995 YEAR SALARY BONUS STOCK AWARDS OPTIONS COMPENSATION
- ------------------------------- ------ ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman
Chief Executive Officer and 1995 $790,178 $6,200,000(2) -- 1,500,000 --
Member, Office of the Chairman 1994 --(1) -- -- -- --
1993 --(1) -- -- -- --

Josephine Chaus -- -- -- --
Chief Executive Officer (until 1995 $392,000 -- -- -- --
September 1994), Chairwoman of 1994 392,000 -- -- -- --
the Board and Member, Office 1993 392,000 -- -- -- --
of the Chairman

Richard Baker
President 1995 $506,000 -- -- -- --
1994 480,000 -- -- 480,000 $35,367(4)
1993 178,000(3) -- -- --

Wayne S. Miller
Executive Vice President-- 1995 $250,000 $25,000 -- 200,000 --
Finance and Administration, 1994 -- (5) -- -- 100,000 --
Chief Financial Officer and 1993 -- (5) -- -- -- --
Secretary

Michael Root (6)
Vice-President--Sales 1995 $237,000 -- -- 50,000 $24,563(7)
1994 223,000 -- -- 50,000 --
1993 -- (6) -- -- -- --

Marc A. Zuckerman (8)
Treasurer 1995 $158,000 -- -- -- $4,693(9)
1994 130,000 -- -- -- 4,670(9)
1993 121,000 -- -- -- 4,181(9)

Michael Fieman (10)
Executive Vice 1995 $364,033 -- -- -- --
President--Production 1994 358,000 -- -- -- --
1993 358,000 $115,000 -- -- --

</TABLE>

(1) Mr. Grossman's employment with the Company commenced in September
1994.

(2) The Company paid Mr. Grossman a sign-on bonus of $6,200,000, portions
of which must be paid back to the Company if Mr. Grossman's
employment agreement is terminated for cause (as defined in his
employment agreement) or if he leaves the Company without Good Reason
(as defined in his employment agreement). See "--Employment
Arrangements" below.

(3) Mr. Baker's employment with the Company commenced in February 1993.

(4) Includes payments made by the Company of (a) $29,517 toward the
payment of relocation expenses, and (b) $5,850 in life insurance
premiums.

(5) Mr. Miller's employment with the Company commenced in June 1994.

(6) Mr. Root's employment with the Company commenced in July 1993 and
terminated in October 1995.

(7) Includes (a) $23,438 in above-market earnings on the exercise of
options to purchase 12,500 shares of Common Stock and (b) $1,125 in
401(k) matching contributions.

(8) Mr. Zuckerman's employment with the Company terminated in August
1995.

(9) Includes contributions made by the Company pursuant to its 401(k)
Plan for the benefit of Mr. Zuckerman.

(10) Mr. Fieman's employment with the Company terminated in June 1995.

<PAGE>

OPTION GRANTS TABLE

The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options during fiscal 1995.
The Company did not have during such fiscal year, and currently does not
have, any plans providing for the grant of stock appreciation rights.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM(2)
----------------------------------------------------- --------------------------
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN OR BASE EXPIRATION
NAME (#)(1) FISCAL YEAR PRICE DATE 5% 10%
- ------------------ ------------ ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman .. 1,500,000 68.6% $2.25 9/1/04 $2,122,500 $5,378,900
Josephine Chaus .. -- -- -- -- -- --
Richard Baker ..... -- -- -- -- -- --
Wayne Miller ...... 200,000 9.1% $ 4.75 11/23/04 $ 597,500 $1,514,100
Michael Root ...... 50,000 2.3% $3.38 7/19/04 $ 105,900 $ 268,700
Marc A. Zuckerman -- -- -- -- -- --
--
Michael Fieman ... -- -- -- -- --
</TABLE>

(1) All options were granted under the Company's 1986 Stock Option Plan,
as amended (the "Stock Option Plan"), except for those granted to Mr.
Grossman who received his options pursuant to an employment agreement
and a stock option agreement with the Company. See "--Employment
Arrangements" below.

(2) Potential pre-tax realizable value is based on the assumption that
the stock appreciates from the market value on the date of grant at
the annual rates of appreciation shown on the table over the option
term (ten years). This is a theoretical value. The actual realized
value depends upon the market value of the Company's stock at the
exercise date.

<PAGE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table provides information with respect to the exercise of
stock options during fiscal 1995 by the Named Executive Officer and the value
of unexercised options at fiscal year end.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED IN- UNEXERCISED IN-
UNEXERCISED UNEXERCISED THE-MONEY THE-MONEY
SHARES OPTIONS AT JUNE OPTIONS AT JUNE OPTIONS AT JUNE OPTIONS AT JUNE
ACQUIRED ON VALUE 30, 1995 30, 1995 30, 1995(1) 30, 1995(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ------------- ---------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman .. -- -- -- 1,500,000 -- $4,125,000
Josephine Chaus .. -- -- -- -- -- --
Richard Baker ..... -- -- 240,000 240,000 $60,000 $ 60,000
Wayne Miller ...... -- -- 25,000 275,000 $76,563 $ 229,688
Michael Root ...... 12,500 $23,438 -- 87,500 -- 142,188
Marc A. Zuckerman -- -- 3,035 -- 5,571 --
Michael Fieman ... 135,000 $151,875 -- -- -- --

</TABLE>

(1) The value is based on the excess of the market price of the Company's
Common Stock at the end of fiscal 1995 over the option price of the
unexercised options.

EMPLOYMENT ARRANGEMENTS

Andrew Grossman. On September 1, 1994, the Company entered into a
five-year employment agreement with Andrew Grossman, Chief Executive Officer
and Member of the Office of the Chairman of the Company, with an option to
extend the term of Mr. Grossman's agreement for an additional five years. On
September 14, 1995, the Company exercised the option to extend his employment
agreement. The Company paid Mr. Grossman a sign-on bonus of $6.2 million,
portions of which must be paid back to the Company if Mr. Grossman's
employment is terminated for cause (as defined in the employment agreement)
or if he leaves the Company without Good Reason (as defined in the
agreement). The sign-on bonus was nondeductible by the Company for tax
purposes. In addition, in connection with the initial term of Mr. Grossman's
employment agreement, Mr. Grossman was granted options (the "Initial
Options") to purchase an aggregate of 1,500,000 shares of Common Stock; and
in connection with the extension of Mr. Grossman's employment agreement, Mr.
Grossman was granted options (the "Additional Options") to purchase an
additional 1,500,000 shares of Common Stock. Each of the Initial Options and
the Additional Options were granted pursuant to his employment agreement and
a stock option agreement (the "Grossman Option Plan").

Under the employment agreement, Mr. Grossman receives an annual salary of
$1.0 million and is entitled to an annual bonus (the "Bonus Plan") consisting
of 5% of the Company's "Annual Net Profits" (such amount, the "Net Profit
Participation"). Mr. Grossman is the sole participant in the Bonus Plan.
"Annual Net Profits" are defined in the agreement as net income of the
Company for any fiscal year as reflected on the audited financial statements
of the Company for such fiscal year prepared in accordance with generally
accepted accounting principles applied consistent with past practices and
certified by the Company's independent public accountants. No bonus was
payable for fiscal 1995. The terms of the Bonus Plan were adopted by a
committee of three "outside directors" as such term is used for purposes of
Section 162(m) of the Internal Revenue Code (the "Code") and approved by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders.

If the employment agreement is terminated by the Company other than for
cause or the death or disability of Mr. Grossman (or by Mr. Grossman if the
Company shall be in material breach of its

<PAGE>

obligations), the Company is required to pay Mr. Grossman his annual salary
and the Net Profit Participation that he would have received had the
agreement not been terminated, less any compensation and bonuses received by
Mr. Grossman from other employers. If Mr. Grossman terminates the employment
agreement prior to its second anniversary for other than the Company's
material breach, then the Company is required to pay Mr. Grossman an annual
salary for a two-year period provided he, among other things, adheres to
certain non-solicitation, non-compete and confidentiality provisions in the
employment agreement.

The employment agreement also provides that if Mr. Grossman's employment
is terminated (with certain exceptions) after a change in control (as
described below), Mr. Grossman is to receive a lump sum payment equal to the
aggregate annual salary (discounted to present value) that he would have
received had his employment agreement not been terminated. A "change in
control" is defined to include certain mergers or asset sales; the failure to
stand for re-election of a majority of the existing Board of Directors; and
the acquisition by any person or group of stock resulting in beneficial
ownership of at least the number of shares collectively owned at such time by
Josephine Chaus and/or members of her immediate family, affiliates or certain
other related parties. In the event of such change in control or the
termination of Mr. Grossman's employment for certain specified reasons, any
unvested portion of the options shall vest immediately and shall remain
exercisable for a period of six months after such date, unless the options
are earlier terminated pursuant to the terms of the employment agreement.

Upon the execution of the employment agreement on September 1, 1994, Mr.
Grossman received the Initial Options at an exercise price of $2.25 per
share, the closing price of the Common Stock on the date of grant of such
options. The Initial Options vest at a rate of 20% per year commencing on
September 1, 1995. On September 14, 1995, upon the exercise by the Company of
its option to extend the employment agreement for an additional five-year
period, Mr. Grossman received the Additional Options at an exercise price of
$5.625, the closing price of the Common Stock on the date of grant of such
options. The Additional Options vest at a rate of 20% per year commencing on
September 1, 1998. The maximum number of shares of Common Stock which may be
granted to Mr. Grossman pursuant to the Grossman Option Plan, which was
approved by the stockholders of the Company at the 1994 Annual Meeting of
Stockholders, is 3,000,000.

In connection with the employment agreement with Mr. Grossman, on
September 1, 1994 Josephine Chaus agreed, among other things, to vote all of
her shares of Common Stock in favor of Mr. Grossman's re-election to the
Board of Directors of the Company during the term of the employment
agreement.

Josephine Chaus. The Company's employment agreement with Josephine Chaus,
Chairwoman of the Board, commenced on July 1, 1992 and expired on June 30,
1994. Since such date, she has been employed on the same terms, although
without a written agreement. The annual base salary under such agreement is
$390,000 or such larger amount as the Compensation Committee of the Board of
Directors shall from time to time determine. As of the date hereof, no such
larger amounts have been authorized or paid.

Richard Baker. The Company has an employment agreement with Richard Baker,
President of the Company, dated as of February 15, 1993 which terminates on
February 14, 1997. Mr. Baker's salary during the first year of the agreement
was $450,000 and will increase by $25,000 annually until the agreement
terminates. The agreement provides for the provision of a cash bonus if the
Company achieves certain financial targets during each fiscal year of the
term of the agreement. No such bonus was payable in fiscal 1995. If during
each of fiscal 1994, 1995 and 1996, while Mr. Baker is employed by the
Company, certain financial objectives are met by the Company, then Mr. Baker
will have the right, pursuant to the Company's Restricted Stock Purchase
Plan, to purchase 25,000 shares of the Company's Common Stock at the price of
$1.00 per share. The target was not met for fiscal 1995. In addition, Mr.
Baker was granted, pursuant to the terms and conditions of the Stock Option
Plan, ten-year incentive stock options to purchase 480,000 shares of Common
Stock at an exercise price of $4.75 per share, the closing price of the
Company's Common Stock on the date of grant of such options. Ten thousand
incentive options vested on February 14, 1993, 110,000 vested on February 14,
1994, 120,000 vested on February 14, 1995, and 120,000 will vest on each of
the next two anniversaries thereof provided he is employed by the Company.

<PAGE>

If the Company terminates Mr. Baker's employment without cause, the Company
shall pay him his base salary for the year of termination plus any cash bonus
earned for the year immediately preceding the termination. In addition, all
incentive stock options which would have vested at the anniversary of the
agreement immediately following such termination shall vest on such
termination date. If Mr. Baker's employment is terminated by him for "Good
Reason" or by the Company in connection with a "change in control" (as such
terms are defined in the agreement), then the Company shall pay Mr. Baker a
severance and non-competition payment equal to two times the sum of his base
salary for the year of termination plus the annual cash bonus earned in the
year immediately preceding the year of termination. In addition, all options
would vest immediately upon such termination referred to in the preceding
sentence.

Wayne S. Miller. The Company has a two-year employment agreement with
Wayne S. Miller, Executive Vice President--Finance and Administration, Chief
Financial Officer and Secretary, dated as of June 3, 1994, which
automatically shall be extended for additional one year periods unless either
party thereto specifies otherwise. During the term of the agreement, Mr.
Miller's salary will be $250,000 per annum. Pursuant to the terms of the
agreement, Mr. Miller was paid an initial bonus of $25,000. In addition, Mr.
Miller was granted, pursuant to the terms and conditions of his employment
agreement, ten-year incentive stock options to purchase an aggregate of
50,000 shares of the Company's Common Stock at an exercise price of $1.88 per
share, representing the closing price of the underlying shares of Common
Stock on the grant date. If the agreement is terminated by the Company
without cause, the Company shall pay Mr. Miller a severance and
non-competition payment equal to his base salary for a twelve month period.
If the agreement is terminated by the Company or by Mr. Miller for "Good
Reason" in connection with or following a "change in control" (as such terms
are defined in the agreement), the Company shall pay Mr. Miller a severance
and noncompetition payment equal to the sum of (x) two times his base salary
in effect at the time of termination plus (y) an amount equal to two times
the annual cash bonus award earned by Mr. Miller. In addition, all stock
options which have not yet vested shall vest on the date of such termination
referred to in the preceding sentence.

DIRECTORS' COMPENSATION

During fiscal 1995 directors who were not employees of the Company
received an annual fee of $8,000 plus $1,000 for each Board of Directors or
Committee meeting attended. In addition to annual fees, pursuant to a
non-employee directors' Formula Plan contained in the Stock Option Plan,
non-employee directors are granted a one time option to acquire 10,000 shares
of Common Stock, exercisable up to 50% one year after the grant and 50% two
years after the grant, provided that the director has been duly elected (or
re-elected, as the case may be) in the interim. The per share exercise price
of any non-incentive stock option may not be less than 85% of the fair market
value of the Common Stock on the date of the grant. The Company has purchased
and will maintain a $50,000 term life insurance policy on behalf of each
director with the benefits to be paid to each director's designated
beneficiary.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of October 24, 1995
with respect to the beneficial ownership of the Common Stock, before and
after giving effect to the offering, by (a) each person known by the Company
to be the beneficial owner of more than five percent of the outstanding
shares of Common Stock, (b) the current directors of the Company and the
Named Executive Officers, and (c) all executive officers and directors of the
Company as a group. Except as otherwise indicated below, the persons
referenced below (x) have advised the Company that they have sole voting and
investment power with respect to the securities listed as owned by them and
(y) have principal business addresses at the Company's principal executive
offices.

<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF CLASS
NAME OWNED
-----------------------------------------------------------------------------------------------------------------
BEFORE
OFFERING AFTER OFFERING
- --------------------------------------------------- --------------
<S> <C> <C> <C>
Josephine Chaus .................................... 14,706,550 65.8%(1) 56.3%(1)(2)
FMR Corp. (3)
82 Devonshire Street
Boston, MA 02109 .................................. 1,359,000 6.4% 5.2%
Philip G. Barach (4) ............................... 59,300 * *
Andrew Grossman (5) ................................ 300,000 1.4% 1.1%
S. Lee Kling (6) ................................... 35,000 * *
Harvey M. Krueger (7) .............................. 60,000 * *
John W. Burden (8) ................................. 60,000 * *
Richard A. Baker (9) ............................... 240,000 1.1% *
Wayne Miller (10) .................................. 92,500 * *
Marc A. Zuckerman .................................. 0 * *
Michael Root ....................................... 0 * *
Michael Fieman ..................................... 80,000 * *
All directors and executive officers as a group (13
persons)(11) ...................................... 15,633,350 67.8%(1) 58.0%(1)(2)
</TABLE>

* Less than one percent.

(1)Includes (a) 1,216,500 shares of Common Stock purchasable upon the
exercise of the 1994 Warrants, and (b) 118,000 shares of Common Stock
which are held by Ms. Chaus and Daniel Rosenbloom as co-trustees for
Ms. Chaus's children, as to which shares Ms. Chaus shares voting and
disposal power with Mr. Rosenbloom.

(2)Includes 1,580,000 shares of Common Stock purchasable upon the
exercise of the 1995 Warrants, granted to Ms. Chaus in May 1995 and
September 1995, respectively, for certain credit support provided by
her to the Company, the issuance of which is subject to stockholder
approval at the November 1995 Annual Meeting of Stockholders. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Financial Condition, Liquidity and Capital
Resources" and "Certain Transactions." If the Company's stockholders
approve the issuance of the 1995 Warrants, Ms. Chaus will
beneficially own 16,286,550 shares of Common Stock after the
offering.

(3)FMR Corp. ("FMR") beneficially owns such shares through Fidelity
Management & Research Company ("FMRC"), a wholly-owned subsidiary of
FMR and an investment adviser (registered under Section 203 of the
Investment Advisers Act 1940) to Fidelity Contrafund, an investment
company registered under Section 8 of the Investment Company Act of
1940 (the "Fidelity Fund"). FMR has sole dispositive power with
respect to such shares, but has no voting power with respect to such
shares. Such shares are voted pursuant to guidelines established by
the Fidelity Fund. The information set forth in the table with
respect to FMR and in the foregoing text of this footnote was based
upon information provided to the Company by FMR.

(4)Includes options to purchase 10,000 shares of Common Stock under the
Stock Option Plan.

(5)Includes options to purchase 300,000 shares of Common Stock under the
Grossman Option Plan. See "--Employment Arrangements" above.

(6)Includes options to purchase 20,000 shares of Common Stock under the
Stock Option Plan.

(7)Includes options to purchase 50,000 shares of Common Stock under the
Stock Option Plan.

(8)Includes options to purchase 50,000 shares of Common Stock under the
Stock Option Plan.

(9)Includes options to purchase 240,000 shares of Common Stock under the
Stock Option Plan.

(10)Includes (a) 17,500 shares of Common Stock held by Mr. Miller's
spouse, with respect to which he may be deemed a beneficial owner,
and (b) options to purchase 75,000 shares of Common Stock under the
Stock Option Plan.

(11)Includes options to purchase 745,000 shares of Common Stock under the
employee and director stock option plans.

<PAGE>

CERTAIN TRANSACTIONS

JOSEPHINE CHAUS

Subordinated Debt. The Company had outstanding at September 30, 1995,
$21.7 million of Subordinated Notes payable to Josephine Chaus certain of
which were originally issued on June 30, 1986 and the remainder of which were
issued in February and March 1991. In connection with this offering,
Josephine Chaus agreed to extend the maturity date of the Subordinated Notes
(which were to mature on July 1, 1996) to July 1, 1998, subject to the
consummation of this offering, and to October 1, 1996 in the event that this
offering is not consummated. The blended annual interest rate on the
Subordinated Notes is 11.36%, and payments of interest under the Subordinated
Notes are not currently permitted as a result of bank covenant requirements.
Ms. Chaus is prohibited from accelerating the maturity of the Subordinated
Notes on account of such inability to pay interest through the maturity
thereof.

1994 Warrants. Because during fiscal 1994, the Company required
availability under its working capital credit line with BNYF in excess of the
amount available under its borrowing base formula, Josephine Chaus agreed to
provide credit support in the form of the Letter of Credit. BNYF increased
the Company's borrowing availability by various amounts as the amount and
expiration date of the Letter of Credit were increased and extended,
respectively. In return for such credit support, the Company issued to Ms.
Chaus, upon stockholder approval, the 1994 Warrants to purchase an aggregate
of 1,216,500 shares of Common Stock of the Company, exercisable through
November 22, 1999, at prices ranging between $2.25 and $4.62 per share.

1995 Warrants. As part of the negotiations with BNYF, in February 1995
Josephine Chaus provided the February Increase/Extension and the Guarantee,
the latter to be in effect during the Amended Financing Agreement's
three-year term (unless the term is earlier terminated), and in September
1995 provided the September Extension. In addition, in connection with this
offering, Ms. Chaus has provided the Company with the July Option to further
extend the Letter of Credit to July 31, 1996. If the Company (upon a
determination by the Special Committee) exercises the July Option, Ms. Chaus
will be entitled to certain additional warrants (the number of such
additional warrants shall be determined by the Special Committee in a manner
consistent with past practices, and shall be subject to receipt of a letter
of a nationally recognized investment banking firm as to the commercial
reasonableness thereof). In consideration of the February Increase/Extension,
the Guarantee and the September Extension, the Special Committee authorized
the issuance, subject to approval of the Company's stockholders at the
November 15, 1995 Annual Meeting of Stockholders, of the 1995 Warrants
consisting of (a) warrants (the "February Increase Warrants") to purchase
815,000 shares of the Company's Common Stock at an exercise price of $4.05
per share, (b) warrants (the "Guarantee Warrants") to purchase 535,000 shares
of the Company's Stock at an exercise price of $4.05 per share and (c)
warrants (the "September Extension Warrants") to purchase 230,000 shares of
the Company's Common Stock at an exercise price of $6.75 per share. The
exercise prices of the February Increase Warrants and the Guarantee Warrants
are equal to 120% of the closing price of the Company's Common Stock on the
NYSE on May 17, 1995, the day immediately preceding the date when the Special
Committee approved the issuance of such warrants; and the exercise price of
the September Extension Warrants is equal to 120% of the closing price of the
Company's Common Stock on the NYSE on September 14, 1995, the date when the
Special Committee approved the issuance of the September Extension Warrants.
The 1995 Warrants will be exercisable for five years from the date of
issuance and will be (in the case of the February Increase Warrants and the
Guarantee Warrants but not the September Extension Warrants) fully
transferable. Ms. Chaus has received warrant compensation for her provision
of the Guarantee only through October 31, 1995. Thereafter, for each three
month period of the Guarantee, Ms. Chaus will receive cash compensation of
$50,000.

Equity In Exchange for Debt. In September 1994, Josephine Chaus loaned the
Company $7.2 million in exchange for which she received subordinated
promissory notes bearing interest at 12% per annum. At the request of the
Special Committee, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate BNYF, Josephine Chaus
subsequently agreed to exchange such subordinated promissory notes for shares
of Common Stock of the Company on

<PAGE>

terms determined by the Special Committee. In November 1994, following
stockholder approval, Josephine Chaus exchanged such subordinated promissory
notes, including accrued interest thereon, for 1,914,500 shares of Common
Stock (based upon a purchase price of $3.85 per share).

JEFFREY CHAUS

Jeffrey Chaus (son of the late Bernard Chaus, founder of the Company) and
his spouse own a company which operates one retail clothing store located in
Fort Lee, New Jersey. During fiscal 1995, the Company sold its products to
this store at the same prices and on terms similar to the terms applicable to
sales by the Company of its products to its other retail customers during
fiscal 1995. The Company's gross sales to the store owned by Jeffrey Chaus
aggregated approximately $72,000 during fiscal 1995. At June 30, 1995, the
store owned by Jeffrey Chaus owed the Company approximately $8,000 for
merchandise sold by the Company to his store through such date.

RICHARD A. BAKER

In 1993, in connection with the Company's hiring of Richard A. Baker as
the President of the Company, the Company loaned an aggregate of $432,500 to
Mr. Baker in two installments to help him finance his relocation, including
the purchase of a home. Mr. Baker also was a director of the Company at that
time. The loan is evidenced by a promissory note dated July 9, 1993 (the
"Note") bearing interest at an annual rate of 7%. Pursuant to the terms of
the Note, Mr. Baker must repay principal and interest on a monthly basis over
a 60-month period commencing October 15, 1994. At September 30, 1995, the
remaining principal amount outstanding under the Note was $117,000.

HARVEY KRUEGER

Harvey Krueger, a director of the Company and member of its Audit and
Compensation Committees, is a Senior Managing Director of Lehman Brothers,
which provided certain advisory services to the Company during fiscal 1995
and the first quarter of fiscal 1996 for which it received fees of $175,000.
See "Underwriting."

S. LEE KLING

S. Lee Kling, a director of the Company and member of its Audit and
Compensation Committees, serves as Vice Chairman of an insurance broker,
Willis Corroon Corp. of Missouri ("Willis Corroon"), from which the Company
obtains various insurance policies (i.e., travel, directors and officers
liability, and life insurance). In addition, a son of Mr. Kling is employed
by Willis Corroon. The total aggregate premium payments paid to Willis
Corroon in respect of such insurance during fiscal 1995 was approximately
$327,000.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares of Common Stock. As
of October 27, 1995, 21,133,641 shares of Common Stock were outstanding. In
addition, 7,285,378 shares of Common Stock were reserved for issuance upon
the exercise of outstanding warrants and options.

COMMON STOCK

Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of stockholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of
the voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect
any directors.

Subject to the rights of holders of any series of preferred stock that may
be issued in the future, the holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available thereof. See "Price Range of Common Stock and
Dividend

<PAGE>

Policy." In the event of a voluntary or involuntary liquidation of the
Company, all stockholders are entitled to a pro rata distribution of the
assets of the Company remaining after payment of claims of creditors and
liquidation preferences of any preferred stock. Holders of the Common Stock
have no conversion, redemption or sinking fund rights.

Holders of the Common Stock currently have preemptive rights, subject to
certain exceptions prescribed by the New York Business Corporation Law. In
the opinion of Shereff, Friedman, Hoffman & Goodman, LLP, counsel to the
Company, all issuances of Common Stock subsequent to the 1986 Offering, as
well as issuances of warrants and options to purchase Common Stock, fell
within one of such exceptions. On September 27, 1995, the Board of Directors
approved, subject to approval of the Company's stockholders at the November
15, 1995 Annual Meeting of Stockholders, an amendment to the Certificate of
Incorporation (the "Amendment") to eliminate such preemptive rights. Holders
of Common Stock who do not vote in favor of the Amendment to eliminate such
preemptive rights will have the right to dissent and to receive payment for
their shares of Common Stock provided they comply with the provisions of
Section 623 of the New York Business Corporation Law. Josephine Chaus
possesses the power to vote more than 50% of the outstanding shares of the
Common Stock; accordingly, the affirmative vote of Josephine Chaus, who has
advised the Company that she intends to vote all of her shares in favor of
the Amendment, is sufficient to approve the Amendment.

TRANSFER AGENT

The transfer agent for the Common Stock is Chemical Bank, New York, New
York 10005.

PREFERRED STOCK

The Company is authorized to issue 1,000,000 shares of preferred stock
(the "Preferred Stock"). The Board of Directors is authorized to fix the
relative rights and preferences of the shares of Preferred Stock, including
voting powers, dividend rights, liquidation preferences, redemption rights
and conversion privileges. As of the date of this Prospectus, the Board of
Directors has not authorized any series of Preferred Stock, and there are no
agreements or understandings for the issuance of any shares of Preferred
Stock. Because of its broad discretion with respect to the creation and
issuance of Preferred Stock without stockholder approval, the Board of
Directors could adversely affect the voting power of the holders of Common
Stock and, by issuing shares of Preferred Stock with certain voting,
conversion and/or redemption rights, could discourage any attempt to obtain
control of the Company.

SHARES ELIGIBLE FOR FUTURE SALE

The Company currently has 21,133,641 shares of Common Stock outstanding
and, upon the completion of this offering will have 26,133,641 shares of
Common Stock outstanding. Of such shares, the shares sold in the offering
(other than shares which may be purchased by "affiliates" of the Company)
will be freely tradeable without restriction or further registration under
the Securities Act. Of the remaining outstanding shares, 13,490,050 shares of
Common Stock beneficially owned by Josephine Chaus are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144"), and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144. The
Company's executive officers and directors (including Ms. Chaus and Mr.
Grossman) have agreed not to offer, sell, or otherwise dispose of their
shares, with certain limited exceptions, for a period of 120 days after the
date of this offering without the prior written consent of Lehman Brothers,
as representative of the Underwriters. Subject to the expiration of such
120-day Underwriter's lockup period, the 13,490,050 shares beneficially owned
by Ms. Chaus will be eligible for sale pursuant to Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least two years from the later of the date
such restricted shares were acquired from the Company and (if applicable) the
date they were acquired from an affiliate, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock (261,336 shares based on

<PAGE>

the number of shares to be outstanding immediately after this offering) or
the average weekly trading volume in the public market during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain requirements
as to the manner and notice of sale and the availability of public
information concerning the Company. Ms. Chaus has satisfied the two-year
holding period with respect to 11,575,550 of such shares.

Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other restrictions, but
without regard to the two-year holding period. Restricted shares held by
affiliates of the Company eligible for sale in the public market under Rule
144 are subject to the foregoing volume limitations and other restrictions.

Further, under Rule 144(k), if a period of at least three years has
elapsed between the later of the date restricted shares were acquired from
the Company and the date they were acquired from an affiliate of the Company,
and the person was not an affiliate for at least three months prior to the
sale, such person would be entitled to sell the shares immediately without
regard to volume limitations and the other conditions described above.

Josephine Chaus has registration rights with respect to the shares
underlying the 1994 Warrants and (assuming approval of the issuance thereof
at the 1995 Annual Meeting of Stockholders) the 1995 Warrants. In addition,
Mr. Grossman has registration rights which require the filing of a
Registration Statement on Form S-8 under the Securities Act with respect to
the shares underlying his options. Such registration rights will permit Ms.
Chaus and Mr. Grossman to sell such shares from time to time without the
limitations imposed by Rule 144.

No predictions can be made as to the effect, if any, that market sales of
shares of existing stockholders or the availability of such shares for future
sale will have on the market price of shares of Common Stock prevailing from
time to time. The prevailing market price of Common Stock after the offering
could be adversely affected by future sales of substantial amounts of Common
Stock by existing stockholders.

UNDERWRITING

The Underwriters named below, for whom Lehman Brothers Inc. is acting as
representative (the "Representative"), have severally agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of
each such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Lehman Brothers Inc.

-----------
Total ............... 5,000,000
===========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase and pay for all shares if any shares are purchased.

The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page hereof, and to certain dealers
(who may include the Underwriters) at such public offering price, less a
selling concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share, to certain other Underwriters or to certain other brokers or dealers
(who may include the Underwriters). After this offering to the public, the
offering price and selling terms may be changed by the Representative.

<PAGE>

The Company has granted to the Underwriters an option to purchase up to an
additional 750,000 shares of Common Stock, exercisable solely to cover
overallotments, at the public offering price, less the underwriting discounts
and commissions shown on the cover page of this Prospectus. Such option may
be exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will
be committed to purchase a number of the additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.

The Company and the executive officers and directors of the Company have
agreed that they will not, without the prior written consent of Lehman
Brothers Inc., directly or indirectly, offer, sell, or otherwise dispose of
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for, shares of Common Stock), or, as to the Company, sell or
grant options, rights or warrants with respect to shares of Common Stock,
other than (i) pursuant to existing benefit plans of the Company or any of
its subsidiaries and (ii) in accordance with the terms of the Underwriting
Agreement, for a period of 120 days after the date of this offering.

The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

During 1994 and 1995, Lehman Brothers Inc. provided to the Special
Committee its view as to the commercial reasonableness of the transactions
involving the issuance by the Company to Josephine Chaus of Common Stock and
of warrants to purchase Common Stock, in exchange for promissory notes and in
consideration for her provision of credit support to the Company,
respectively. See "Certain Transactions." In consideration of such services,
Lehman Brothers Inc. received advisory fees in the aggregate amount of
$175,000.

Harvey M. Krueger, a Senior Managing Director of Lehman Brothers Inc., is
a director of the Company, a member of its Audit and Compensation Committees
and a beneficial owner of 60,000 shares of Common Stock. See "Management",
"Principal Stockholders" and "Certain Transactions."

LEGAL MATTERS

Certain legal matters in connection with this offering will be passed on
for the Company by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New
York and for the Underwriters by Schulte Roth & Zabel, New York, New York.

EXPERTS

The financial statements as of June 30, 1994 and 1995 and for the years
then ended and the related financial statement schedule for the years then
ended, included and incorporated by reference in this Prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are included and incorporated by reference herein and have
been so included and incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

The consolidated statements of operations, stockholders' equity and cash
flows of Bernard Chaus, Inc. for the year ended June 30, 1993, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files periodic
reports, proxy statements, and other information with the Commission. Such
reports, proxy statements, and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its regional offices located at Suite 1300,

<PAGE>

Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W.,Washington, D.C. 20549.

The Company has filed with the Commission a Registration Statement on Form
S-2 and schedules and exhibits thereto under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth
in Registration Statement and schedules and exhibits thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety
by such reference. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits filed as part thereof.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents are incorporated in this Prospectus by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995; and

(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies, supersedes, or replaces such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of this Prospectus. Any person receiving a
copy of this Prospectus may obtain without charge, upon written or oral
request, a copy of any of the documents incorporated by reference herein,
except for exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the documents which this Prospectus
incorporates). Requests should be directed to: Corporate Secretary, 1410
Broadway, New York, New York 10018, telephone number (212) 354-1280.

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Reports of Independent Auditors F-2
Consolidated Balance Sheets--June 30, 1994 and 1995 and
September 30, 1995 F-4
Consolidated Statements of Operations--Years Ended June 30, 1993, 1994 and 1995
and Quarters Ended September 30, 1994 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficiency)--Years Ended June 30,
1993, 1994 and 1995 and Quarter Ended September 30, 1995 F-6
Consolidated Statements of Cash Flows--Years Ended June 30, 1993, 1994 and 1995
and Quarters Ended September 30, 1994 and 1995 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Bernard Chaus, Inc.

We have audited the accompanying consolidated balance sheets of Bernard
Chaus, Inc. and subsidiaries as of June 30, 1994 and June 30, 1995 and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Bernard Chaus, Inc. and
subsidiaries at June 30, 1994 and June 30, 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP
New York, New York
October 6, 1995
(October 31, 1995 as to Note 10.c.)

F-2

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Bernard Chaus, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Bernard Chaus, Inc. and subsidiaries
for the year ended June 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations, cash flows and changes in stockholders' equity of Bernard Chaus,
Inc. and subsidiaries for the year ended June 30, 1993, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
August 18, 1993

F-3

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1994 1995 1995
---------- ---------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ..................................... $ 468 $ 418 $ 217
Accounts receivable, less allowances of $6,340, $4,226 and
$4,977 ....................................................... 17,757 7,646 28,025
Inventories ................................................... 25,503 16,203 22,083
Prepaid expenses .............................................. 3,743 1,523 908
---------- ---------- ---------------
Total current assets ........................................ 47,471 25,790 51,233
Fixed assets -- net ............................................ 3,612 2,392 2,246
Other assets ................................................... 536 478 543
---------- ---------- ---------------
$ 51,619 $ 28,660 $ 54,022
========== ========== ===============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable -- banks ........................................ $ 21,115 $ 18,698 $ 36,307
Subordinated promissory notes -- current ...................... 250 -- --
Accounts payable .............................................. 14,290 12,922 21,427
Accrued expenses .............................................. 6,710 5,549 5,568
Accrued restructuring expenses ................................ 1,764 2,535 1,594
---------- ---------- ---------------
Total current liabilities ................................... 44,129 39,704 64,896
Subordinated promissory notes .................................. 18,789 21,066 21,678
Accrued restructuring expenses ................................. 2,315 269 108
---------- ---------- ---------------
65,233 61,039 86,682
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, authorized shares
--1,000,000;
outstanding shares -- none -- -- --
Common stock, $.01 par value; authorized shares --
50,000,000; issued shares -- 18,975,031 at June 30, 1994,
21,073,081 at June 30, 1995 and 21,108,641 at
September 30, 1995 ........................................... 190 211 211
Additional paid-in capital .................................... 40,226 49,353 49,479
Deficit ....................................................... (52,550) (80,463) (80,870)
Less: Treasury stock, at cost -- 622,700 shares ............... (1,480) (1,480) (1,480)
---------- ---------- ---------------
Total stockholders' deficiency .............................. (13,614) (32,379) (32,660)
---------- ---------- ---------------
$ 51,619 $ 28,660 $ 54,022
========== ========== ===============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- -------------------------
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ 235,819 $ 206,332 $ 181,697 $ 65,391 $ 48,885
Cost of goods sold .................... 187,423 186,594 149,097 51,702 38,141
------------ ------------ ------------ ------------ -----------
Gross profit .......................... 48,396 19,738 32,600 13,689 10,744
Selling, general and administrative
expenses ............................. 57,410 55,400 44,794 12,200 9,764
Restructuring expenses ................ -- 5,300 1,200 1,200 --
Unusual expenses ...................... -- 1,900 8,333 7,833 --
------------ ------------ ------------ ------------ -----------
(9,014) (42,862) (21,727) (7,544) 980
Interest expense ...................... (2,322) (3,439) (5,976) (1,350) (1,419)
Other income (expense), net ........... 449 (190) 91 35 108
------------ ------------ ------------ ------------ -----------

Loss before provision for income taxes (10,887) (46,491) (27,612) (8,859) (331)
Provision for income taxes ............ 102 264 301 76 76
------------ ------------ ------------ ------------ -----------
Net loss .............................. $ (10,989) $ (46,755) $ (27,913) $ (8,935) $ (407)
============ ============ ============ ============ ===========
Net loss per share .................... $ (0.60) $ (2.55) $ (1.40) $ (0.48) $ (0.02)
============ ============ ============ ============ ===========
Weighted average number of common
shares outstanding ................... 18,272,000 18,352,000 19,910,000 18,718,000 20,461,000
============ ============ ============ ============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
---------------------- CAPITAL
NUMBER OF
SHARES AMOUNT
------------ --------
<S> <C> <C> <C>
Balance at July 1, 1992 . 18,735,508 $187 $39,427
Net loss ................. -- -- --
Exercise of stock options 239,523 3 805
------------ -------- ------------
Balance at June 30, 1993 18,975,031 190 40,232
Net loss ................. -- -- --
Restricted stock purchase
and retirement -- net .. -- -- (6)
------------ -------- ------------

Balance at June 30, 1994 18,975,031 190 40,226
Net loss ................. -- -- --
Exchange of notes for
common stock ............ 1,914,500 19 7,352
Issuance of warrants .... -- -- 1,136
Exercise of stock options 183,550 2 639
------------ -------- ------------
Balance at June 30, 1995 21,073,081 211 49,353
Net loss (unaudited) .... -- -- --
Exercise of stock options
(unaudited) ............. 35,560 -- 126
Balance at
September 30, 1995
(unaudited) ............ 21,108,641 $211 $49,479
============ ======== ============
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
RETAINED
EARNINGS TREASURY STOCK
(DEFICIT) ----------------------
NUMBER OF
SHARES AMOUNT TOTAL
----------- --------- ----------
<S> <C> <C> <C> <C>
Balance at July 1, 1992 . $ 5,194 622,700 $(1,480) $ 43,328
Net loss ................. (10,989) -- -- (10,989)
Exercise of stock options -- -- -- 808
----------- --------- ---------- ----------
Balance at June 30, 1993 (5,795) 622,700 (1,480) 33,147
Net loss ................. (46,755) -- -- (46,755)
Restricted stock purchase
and retirement -- net .. -- -- -- (6)
----------- --------- ---------- ----------

Balance at June 30, 1994 (52,550) 622,700 (1,480) (13,614)
Net loss ................. (27,913) -- -- (27,913)
Exchange of notes for
common stock ............ -- -- -- 7,371
Issuance of warrants .... -- -- -- 1,136
Exercise of stock options -- -- -- 641
----------- --------- ---------- ----------
Balance at June 30, 1995 (80,463) 622,700 (1,480) (32,379)
Net loss (unaudited) .... (407) -- -- (407)
Exercise of stock options
(unaudited) ............. -- -- -- 126
Balance at
September 30, 1995
(unaudited) ............ $(80,870) 622,700 $(1,480) $(32,660)
=========== ========= ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss .............................. $(10,989) $(46,755) $(27,913) $ (8,935) $ (407)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization ....... 1,553 2,485 1,305 158 284
Loss on disposal of fixed assets .... -- 1,192 358 -- --
(Recovery of) provision for losses
on accounts receivable .............. (25) 117 225 45 45
Non-cash interest expense ............ -- 2,436 3,584 736 612
Changes in operating assets and
liabilities:
Accounts receivable .................. 2,764 12,688 9,886 (16,654) (20,424)
Inventories .......................... (26,097) 20,471 9,300 1,599 (5,880)
Prepaid expenses and other assets ... (2,655) 2,094 2,278 1,503 550
Accounts payable ..................... 4,588 (5,199) (1,368) 5,029 8,505
Accrued expenses ..................... 1,808 1,372 (1,161) 281 19
Accrued restructuring expenses ...... -- 4,079 (1,275) 712 (1,102)
----------- ----------- ----------- ----------- -----------
Net Cash Used In Operating Activities . (29,053) (5,020) (4,781) (15,526) (17,798)
Investing Activities
Purchases of fixed assets, net ....... (2,275) (1,357) (443) 9 (138)
----------- ----------- ----------- ----------- -----------
Net Cash Used In Investing Activities . (2,275) (1,357) (443) 9 (138)
Financing Activities
Net proceeds (repayments) from
short-term bank borrowings ........... 14,881 6,234 (2,417) 8,843 17,609
Principal payments on subordinated
promissory notes ..................... (7,377) (750) (250) (250) --
Proceeds from issuance of
subordinated promissory notes ........ -- -- 7,200 7,200 --
Purchase and retirement of restricted
stock ................................ -- (6) -- -- --
Net proceeds from exercise of options 808 -- 641 54 126
----------- ----------- ----------- ----------- -----------
Net Cash Provided By Financing
Activities ............................ 8,312 5,478 5,174 15,847 17,735
----------- ----------- ----------- ----------- -----------

(Decrease) Increase In Cash And Cash
Equivalents ........................... (23,016) (899) (50) 330 (201)
Cash and Cash Equivalents, Beginning of
Period ................................ 24,383 1,367 468 468 418
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, End of
Period ................................ $ 1,367 $ 468 $ 418 $ 798 $ 217
=========== =========== =========== =========== ===========
Cash paid for:
Taxes ................................. 308 61 7 5 11
Interest .............................. 1,896 1,413 2,283 575 888
Supplemental schedule of non-cash
financing activities:
Exchange of subordinated promissory
notes for common stock .............. -- -- 7,200 7,200 --
Issuance of warrants for credit
support by principal stockholder ... -- -- 1,136 -- --
</TABLE>

See accompanying notes to consolidated financial statements.

F-7

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

1. BUSINESS

Bernard Chaus, Inc. (the Company), designs, arranges for the manufacture of
and markets an extensive range of women's career and casual sportswear and
dresses which are marketed principally under the CHAUS(Registered Trademark)
and CHAUS SPORT(Registered Trademark) trademarks. The Company's products are
sold nationwide through department store chains, specialty retailers and
other retail outlets.

In the latter part of fiscal 1994, the Company initiated a restructuring plan
which entailed several initiatives to improve its financial position. These
initiatives included, among other things, a $7.2 million cash infusion from
Josephine Chaus to fund the costs associated with hiring Andrew Grossman as
its new Chief Executive Officer, negotiation of a new three year bank
financing agreement (the Amended Financing Agreement--see Note 6) with BNY
Financial Corporation (BNYF), a wholly owned subsidiary of The Bank of New
York, expiring in February 1998, overhead reductions, centralization of
certain functions, closing of selected outlet stores, and a reduction in
inventory levels.

In conjunction with the Amended Financing Agreement, Josephine Chaus provided
BNYF with collateral in the form of a $10 million letter of credit (the
Letter of Credit) which expires on January 31, 1996, and a $5 million
personal guarantee (the Guarantee) for the duration of the Amended Financing
Agreement. In September 1995, Ms. Chaus also provided the Company with an
option to extend the Letter of Credit until July 31, 1996 (see Note 6).

During fiscal 1995, operating expenses were reduced by $10.6 million and
inventories were reduced by $9.3 million. The Company closed four outlet
stores in the first quarter of fiscal 1996, and plans to close five
additional outlet stores during the remainder of fiscal 1996. Additionally,
the Company has announced its intentions to raise equity capital, a portion
of which will be used to finance the working capital needs of its Nautica
product line (see Note 11).

The Company's business plan requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and the
development and marketing of its new licensed Nautica lines. The Company
expects to satisfy such requirements through cash flow from operations, its
line of credit under the Amended Financing Agreement, the proceeds of the
proposed equity offering (see Note 11), and, in the near term, continued
credit support from Josephine Chaus. The Company will seek to satisfy its
operating requirements without utilizing credit support from Ms. Chaus,
although there can be no assurance that it will be successful in doing so.
The Company has no understanding with Ms. Chaus pursuant to which she would
extend the Letter of Credit beyond July 31, 1996.

Although there can be no assurance that the plans set forth above will
provide the Company with adequate resources, the Company believes that these
initiatives will have a positive impact on future operating results.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and
its subsidiaries. Material intercompany accounts and transactions have been
eliminated.

Interim Financial Information:

The unaudited consolidated financial statements as of September 30, 1995 and
for the quarters ended September 30, 1994 and 1995 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for an interim period are
not necessarily indicative of the results that may be expected for an entire
fiscal year or any other period.

F-8

<PAGE>

BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net Loss Per Share:

Net loss per share has been computed by dividing the applicable net loss by
the weighted average number of common shares outstanding during the period.
Common equivalent shares were not included as their inclusion would have been
antidilutive.

Revenue Recognition:

Revenues are recorded at the time merchandise is shipped, and with regard to
the outlet stores, at the time when goods are sold to the customer.

Credit Terms:

The Company extends credit to its customers based upon an evaluation of the
customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1994 and 1995, approximately 41.5% and 44.7%,
respectively, of the Company's accounts receivable balances were due from
department store customers owned by three single corporate entities. Sales to
these three entities comprised approximately 13%, 17%, and 9%, respectively,
of the Company's net sales for fiscal 1993, approximately 16%, 14% and 9%,
respectively, of the Company's net sales for fiscal 1994, and approximately
23%, 13% and 7%, respectively, of the Company's net sales for fiscal 1995.

Cash Equivalents:

Cash equivalents are short-term, highly liquid investments purchased with an
original maturity of three months or less.

Inventories:

Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.

Fixed Assets:

Furniture and equipment are depreciated principally using the straight-line
method over eight years. Leasehold improvements are amortized using the
straight-line method over either the term of the lease or the estimated
useful life of the improvement, whichever period is shorter. Computer
software is depreciated using the straight-line method over three years.

Foreign Currency Transactions:

The Company negotiates substantially all of its purchase orders with foreign
manufacturers in United States dollars. The Company considers the United
States dollar to be the functional currency of its overseas subsidiaries. All
foreign currency gains and losses are recorded in the Consolidated Statement
of Operations.

Employee Benefits:

The Company does not typically provide post-employment benefits to its
employees. Accordingly, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" has no material effect on
the Company's financial statements.

Income Taxes:

Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (Statement 109). Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based

F-9

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss). Prior to the adoption of Statement 109, income tax
expense was determined using the deferred method. Deferred tax expense was
based on items of income and expenses that were reported in different years
in the financial statements and tax returns and were measured at the tax rate
in effect in the year the difference originated. As permitted by Statement
109, the Company has elected not to restate the financial statements of any
prior years. There was no effect of adopting this change.

Reclassifications:

Certain reclassifications were made to the prior periods' financial
statements to conform to the current periods' presentation.

3. INVENTORIES

Inventories consist of:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods . $25,075 $13,248
Work-in-process 124 2,034
Raw materials .. 304 921
---------- ----------
$25,503 $16,203
========== ==========
</TABLE>

Inventories include merchandise in transit (principally finished goods) of
approximately $11.2 million at June 30, 1994 and $4.8 million at June 30,
1995, and $8.4 million at September 30, 1995.

4. FIXED ASSETS

Fixed assets at cost, net of accumulated depreciation and amortization,
consist of:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Furniture and equipment ..... $12,121 $11,878
Leasehold improvements ....... 9,303 8,251
---------- ----------
21,424 20,129
Less accumulated depreciation
and amortization ............ 17,812 17,737
---------- ----------
$ 3,612 $ 2,392
========== ==========
</TABLE>

F-10

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

5. INCOME TAXES

Significant components of the Company's net deferred tax assets are as
follows:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .................. $ 17,800 $ 25,700
Costs capitalized to inventory for tax purposes .. 1,300 1,200
Accrued interest, subordinated debt/warrants ..... 1,000 2,400
Book over tax depreciation ........................ 1,600 2,100
Sales allowances not currently deductible ........ 2,600 2,200
Reserves and other items not currently deductible 700 600
---------- ----------
25,000 34,200
Valuation allowance for deferred tax assets ...... (25,000) (34,200)
---------- ----------
Net deferred tax asset ............................ $ 0 $ 0
========== ==========
</TABLE>

There was a change in the valuation allowance for the year ended June 30,
1995 of $9.2 million.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------
1993 1994 1995
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit for federal income taxes
at the statutory rate of 34.5% in
1993
and 35.0% in 1994 and 1995 ........... ($3,756) ($16,272) ($9,665)
State and local income taxes ..........
net of federal tax benefit ........... 102 264 301
Executive compensation in excess of
amount deductible for tax purposes .. -- -- 2,100
Other ................................. -- -- 35
Effect of unrecognized tax loss
carryforwards ........................ 3,756 16,272 7,530
---------- ----------- ----------
Provision for income taxes ............ $ 102 $ 264 $ 301
========== =========== ==========

</TABLE>

At June 30, 1995, the Company has a federal net operating loss carryforward
for income tax purposes of approximately $60 million, which will expire
between 2006 and 2010.

6. FINANCIAL AGREEMENTS

An amended and restated financing agreement with BNYF, originally entered
into in July, 1991, amended and restated effective as of February 21, 1995,
and further amended effective as of September 28, 1995 (the "Amended
Financing Agreement") provides the Company with a $60 million credit facility
for letters of credit and direct borrowings, with a sublimit for loans and
advances of $40 million ($47 million for the period from October 1, 1995
through November 30, 1995). At June 30, 1995 and September 30, 1995, the
Company was in an overadvance position of approximately $5.3 million and $5.9
million, respectively, with the Amended Financing Agreement permitting
overadvances up to $6.0 million at each date. The amount of financing
available is based upon a formula incorporating eligible receivables and
inventory, cash balances, other collateral, and permitted overadvances, all
as defined in the Amended Financing Agreement. The Amended Financing
Agreement is collateralized by substantially all of the Company's assets,
including accounts receivable and inventory.

F-11

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

6. FINANCIAL AGREEMENTS (CONTINUED)

Interest on direct borrowings is payable monthly at an annual rate equal to
the higher of (i) The Bank of New York's prime rate (9.0% at June 30, 1995
and 8.75% at September 30, 1995) plus 0.5% (The Bank of New York prime rate
plus 1.5% in the event the Company's overadvance position exceeds the
allowable overadvances) or (ii) the Federal Funds Rate in effect plus 1%
(Federal Funds Rate plus 2% in the event the Company's overadvance position
exceeds the allowable overadvances). There is a commitment fee of 0.375% of
the unused portion of the line, payable monthly, and letter of credit fees
equal to 0.125% of the outstanding letter of credit balance, payable monthly.
The Amended Financing Agreement requires the payment of a due diligence and
facility fee aggregating $0.6 million. In addition, the Amended Financing
Agreement provides for the payment of minimum service charges of $0.5 million
per annum. The Company may terminate the Amended Financing Agreement upon 90
days' prior written notice at any time, subject to termination fees. BNYF may
terminate after February 21, 1998, upon 60 days' written notice to the
Company. The weighted average interest rate was 6.5%, 6.7% and 8.9% for the
years ended June 30, 1993, 1994 and 1995, respectively.

The Amended Financing Agreement contains covenants relative to minimum levels
of working capital and net worth and a cap on personal property leases. The
Company is also prohibited from declaring or paying dividends, or making
other distributions on its capital stock, with certain exceptions. During the
first, second and fourth quarters of fiscal year 1995, the Company was not in
compliance with certain financial covenants. BNYF has waived such
noncompliance.

As part of the renegotiation (see Note 7), in February 1995 Josephine Chaus
increased the Letter of Credit from $7.2 million to $10 million and extended
its term from April 15, 1995 to October 31, 1995 (the February
Increase/Extension) and has, in September 1995, further extended its term to
January 31, 1996 (the September Extension) and, in October 1995, provided the
Company with an option to further extend the Letter of Credit to July 31,
1996. Additionally, Ms. Chaus provided BNYF with the Guarantee. In
consideration for these actions, a Special Committee of the Company's Board
of Directors (the Special Committee) has authorized the issuance of warrants
(the 1995 Warrants) consisting of (a) warrants to purchase 815,000 shares of
the Company's Common Stock (the February Increase Warrants) at an exercise
price of $4.05 per share, (b) warrants to purchase 535,000 shares of the
Company's common stock (the Guarantee Warrants) at an exercise price of $4.05
per share and (c) warrants to purchase 230,000 shares of the Company's common
stock (the September Extension Warrants) at an exercise price of $6.75 per
share. The exercise prices of the February Increase Warrants and the
Guarantee Warrants are equal to 120% of the closing price of the Company's
Common Stock on the New York Stock Exchange (the NYSE) on May 17, 1995, the
day immediately preceding the date when the Special Committee approved the
issuance of such warrants; and the exercise price of the September Extension
Warrants is equal to 120% of the closing price of the Company's Common Stock
on the NYSE on September 14, 1995, the date when the Special Committee
approved the September Extension Warrants. The 1995 Warrants are subject to
stockholder approval and receipt of an opinion from a nationally recognized
investment banking firm that the terms of the 1995 Warrants are commercially
reasonable. The Guarantee Warrants reflect compensation for the provision of
the Guarantee only through October 31, 1995; thereafter, for each three month
period of the Guarantee, Ms. Chaus will receive cash compensation of $50,000.

The 1995 Warrants will be exercisable for five years from the date of
issuance and will be (in the case of the February Increase Warrants and the
Guarantee Warrants, but not the September Extension Warrants) fully
transferable. In addition, the Company has borne all out-of-pocket expenses
incurred by Josephine Chaus in providing the credit support, which thereby
reduced the number of warrants received by her accordingly. Josephine Chaus
will forfeit a pro rata portion of the February Increase Warrants and/or
Guarantee Warrants if the Letter of Credit and/or the Guarantee, as
applicable, is terminated before

F-12

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

6. FINANCIAL AGREEMENTS (CONTINUED)

October 31, 1995; and will forfeit a pro rata portion of the September
Extension Warrants if the Letter of Credit is terminated before January 31,
1996.

Josephine Chaus possesses the power to vote more than 50% of the outstanding
shares of Common Stock. Consequently, the affirmative vote of Josephine Chaus
for the issuance of the 1995 Warrants to her is sufficient to approve such
issuance without the vote of any other stockholders. Josephine Chaus has
advised the Company that she intends to vote all of her shares in favor of
such issuance. As a result, the Company has recorded a charge to interest
expense with a corresponding increase to additional paid-in capital of $0.5
million for the issuance of the February Increase Warrants and the Guarantee
Warrants during the fourth quarter of fiscal 1995 and will reflect a charge
for the issuance of the September Extension Warrants during fiscal 1996.
Additionally, in consideration for credit support provided to the Company in
connection with the prior financing agreement with the BNYF, Josephine Chaus
was granted 1,216,500 warrants (the 1994 Warrants) exercisable through
November 22, 1999 at prices ranging between $2.25 to $4.62 per share. The
value of the 1994 Warrants has been included as a charge to interest expense
($0.7 million) during fiscal 1995 with a corresponding increase to paid-in
capital.

In June 1995, the Company and a major trading company entered into a sales
and financing agreement (the S&F Agreement) which provided the Company with
additional financing to purchase its products. Either party may terminate the
S&F Agreement upon 30 days' written notice to the other party.

7. SUBORDINATED PROMISSORY NOTES

The Company has outstanding at June 30, 1995, $21.1 million of subordinated
promissory notes payable to Josephine Chaus certain of which were originally
issued on June 30, 1986 and the remainder of which were issued in February
and March 1991 (the "Subordinated Notes"). The Company has been prohibited
from making payments of principal or interest on the Subordinated Notes since
1993 (with the exception of principal payments of approximately $0.5 million,
$0.3 million and $0.3 million in November 1993, February 1994 and August
1994, respectively) as a result of restrictive covenants under the prior
financing agreement and the Amended Financing Agreement. In September 1995,
Josephine Chaus extended the maturity date on all of the Subordinated Notes
(which were to mature on April 1, 1996) to July 1, 1996. In connection with
the proposed equity offering (see Note 11), Ms. Chaus subsequently agreed (on
October 9, 1995) to extend the maturity date of the Subordinated Notes to
July 1, 1998, subject to the consummation of such offering, and agreed (on
October 27, 1995) to extend the maturity date of the Subordinated Notes to
October 1, 1996 if such offering is not consummated.

In September 1994, Josephine Chaus loaned $7.2 million to the Company in
exchange for subordinated promissory notes bearing interest at 12% per annum.
Proceeds of such cash infusion were used for costs and associated expenses
related to the signing of the Company's new chief executive officer. In
November 1994, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate BNYF, subject to
stockholder approval Josephine Chaus agreed, at the request of the Special
Committee, to exchange such notes for shares of Common Stock of the Company
on terms determined by a Special Committee of the Board of Directors. In
November 1994, following stockholder approval, Josephine Chaus exchanged such
notes, including accrued interest thereon ($0.2 million), for 1,914,500
shares of Common Stock (based upon a purchase price of $3.85 per share). The
purchase price was determined by the Special Committee and the purchase was
approved by the Company's stockholders at the November 22, 1994 Annual
Meeting of Stockholders.

F-13

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

8. EMPLOYEE BENEFIT PLANS

Pension Plan:

Pursuant to a collective bargaining agreement, all of the Company's union
employees are covered by a defined benefit pension plan. Pension expense
amounted to approximately $28,000, $61,000 and $53,000 in fiscal 1993, 1994
and 1995, respectively. As of December 31, 1994, the actuarial present value
of the accumulated vested and non-vested plan benefits amounted to $0.4
million and net assets available for benefits amounted to $0.3 million.
Actuarial assumptions related to weighted average interest rate and weighted
average rate of return were 8.25% and 8.5%, respectively, for fiscal 1993,
and 8.0% and 8.5%, respectively, for both fiscal 1994 and 1995.

Savings Plan:

The Company has a savings plan (the Savings Plan) under which eligible
employees may contribute a percentage of their compensation and the Company
(subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and
are subject to vesting provisions of the Savings Plan. Expense under the
Savings Plan was approximately $0.3 million, $0.3 million and $0.2 million in
fiscal 1993, 1994, and 1995, respectively. An aggregate of 100,000 shares of
Common Stock has been reserved for issuance under the Savings Plan.

Incentive Award Plan:

The Company maintains an incentive award plan (the Award Plan) pursuant to
which eligible participants may be awarded bonuses if net earnings of the
Company reach a predetermined level. No compensation has been awarded under
the Award Plan in the fiscal years ended June 30, 1993, 1994 and 1995.

Restricted Stock Plan:

In November 1987, the Company's stockholders approved the adoption of a
restricted stock plan (the Restricted Plan). Pursuant to the Restricted Plan,
250,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25 percent of such shares on each anniversary of their date
of allocation. As of June 30, 1995, no restricted shares have been granted
under this plan.

Stock Option Plan:

Pursuant to the Stock Option Plan (the Stock Option Plan), the Company may
grant to eligible individuals incentive stock options, as defined in the
Internal Revenue Code, and non-incentive stock options. At the annual meeting
of stockholders in November 1993, the stockholders approved the increase in
the number of shares of Common Stock with respect to which options may be
granted from 1,500,000 shares to 2,500,000 shares. No stock options may be
granted subsequent to 1996 and the exercise price may not be less than 100%
of the fair market value on the date of grant for incentive stock options and
85% of the fair market value on the date of grant for non-incentive stock
options.

Grossman Option Plan:

At the annual stockholders meeting in November 1994, the stockholders
approved the issuance of options for the Company's new Chief Executive
Officer (the Grossman Option Plan) to purchase 3,000,000 shares of common
stock. Of this amount, 1,500,000 options were granted in September 1994 (and
included in the following table), and the balance were granted in September
1995 in connection with the extension of the term of his employment
agreement.

F-14

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

8. EMPLOYEE BENEFIT PLANS (CONTINUED)

<TABLE>
<CAPTION>
NON-INCENTIVE
STOCK OPTIONS
----------------------------
NUMBER OF EXERCISE PRICE
SHARES RANGE
----------- ---------------

<S> <C> <C>
Outstanding at June 30, 1992 .. 1,286,108 $2.375--$6.500

Options granted in fiscal 1993 86,906 $2.875--$9.375

Options canceled ............... (21,027) $4.250--$5.375

Options exercised .............. (239,523) $2.375--$6.500
-----------

Outstanding at June 30, 1993 .. 1,112,464 $2.375--$9.375

Options granted in fiscal 1994 630,000 $1.875--$4.750

Options canceled ............... (323,316) $2.875--$6.500
-----------

Outstanding at June 30, 1994 .. 1,419,148 $1.875--$9.375
Options granted in fiscal 1995 2,186,688 $2.250--$4.750

Options canceled ............... (555,428) $2.000--$9.375

Options exercised .............. (183,550) $2.000--$4.750
-----------
Outstanding at June 30, 1995 .. 2,866,858 $1.875--$4.875
=========== ===============

</TABLE>

The stock options become exercisable in annual 20% to 25% increments
commencing one year after issuance. As of June 30, 1995 options to purchase
approximately 573,000 shares were exercisable.

At June 30, 1995, a total of approximately 5,363,000 shares of Common Stock
were reserved for issuance under the Stock Option, Savings and Grossman
Option Plans.

9. RESTRUCTURING AND UNUSUAL EXPENSES

Relative to the restructuring program discussed in Note 1, during the first
fiscal quarter of 1995 the Company recorded restructuring expenses of $1.2
million. These costs primarily related to employee severance as the Company
continued to reduce overhead costs.

In January 1995, the Company signed favorable early termination agreements
with the landlords of certain outlet stores, for which the Company had
previously provided a reserve as part of its restructuring expenses at June
30, 1994. As a result, the Company was able to reduce its restructuring
expenses by approximately $1.3 million. The benefit of this reduction was
offset, however, by certain additional expenses provided by the Company
related to its retail and overseas operations.

In fiscal 1994, the Company recorded restructuring expenses of $5.3 million.
These expenses included $2.1 million for closing selected outlet stores, $2.5
million for the consolidation and closing of office and warehouse space and
$0.7 million for employee severance.

During the first fiscal quarter of 1995, the Company recorded unusual
expenses of $7.8 million primarily related to costs associated with the
signing of the Company's new Chief Executive Officer. In the fourth quarter
of fiscal 1995, the Company recorded an additional $0.5 million related to
certain legal matters. During the fourth quarter of fiscal 1994, the Company
recorded $1.9 million of unusual expense consisting primarily of expenses
arising from the abandonment of fixed assets, certain legal matters and the
winding down of the Company's Canadian joint venture.

F-15

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

a. Lease Obligations:

The Company leases showroom, distribution and office facilities, retail
outlet facilities and equipment under various noncancellable operating lease
agreements which expire through 2005. Rental expense for the years ended June
30, 1993, 1994 and 1995 was approximately $8.1 million, $11.2 million
(approximately $3.7 million of which is included in restructuring expenses)
and $7.0 million, respectively.

The minimum aggregate rental commitments at June 30, 1995 are as follows (in
thousands):

<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending:
1996 .............. $ 5,512
1997 .............. 2,644
1998 .............. 1,362
1999 .............. 1,116
2000 .............. 870
Subsequent to 2000 1,558
--------
$13,062
========
</TABLE>

b. Letters of Credit:

The Company is contingently liable under letters of credit issued by banks to
cover contractual commitments for merchandise purchases of approximately
$11.0 million at June 30, 1995.

c. Litigation:

By order dated September 1, 1992, Federal Judge Shirley Wohl Kram dismissed
with prejudice as time-barred the Amended Complaint against the Company and
others, in the previously reported consolidated class actions entitled Phifer
v. Chaus et al., Goldschlack v. Chaus et al., Susman v. Chaus et al. and I.
Bibcoff Inc. Pension Trust Fund v. Chaus et al. In such actions, claims were
asserted against the Company and others, including the Company's lead
underwriters, for alleged misstatements and omissions contained in the
Company's July 1986 Prospectus delivered in connection with the Company's
initial public offering (the 1986 Offering) and its 1986 and 1987 Annual
Reports. Plaintiffs's attorneys filed a notice of appeal, which they
subsequently withdrew subject to the right to restore the appeal by January
8, 1993. No such appeal was made and the action was automatically deemed
dismissed with prejudice.

On April 19, 1993, a Class Action Complaint was filed in the Superior Court
of New Jersey, Hudson County, against the Company and others, including the
lead underwriter of the 1986 Offering, alleging common law fraud and
negligent misrepresentation in the sale of the Company's stock in the 1986
Offering, allegations that are substantially similar to the claims that were
dismissed with prejudice in the federal court. One of the plaintiffs from the
federal action was originally a party in this action in state court. On June
18, 1993, the Company received by mail, a copy of Jury Demand Class Action in
the Superior Court of New Jersey, Hudson County, entitled Theodore M.
Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The complaint was
amended in September 1993 to delete Lisa Phifer as a plaintiff. On May 27,
1994, the Company moved to dismiss the complaint and/or to deny or limit
class status. In a decision rendered in November, 1994, the Superior Court
denied the plaintiff's motion for the class certification and dismissed all
claims against the director defendants (Josephine Chaus and the Estate of
Bernard Chaus) and all claims not based upon actual reliance.

With the denial of class certification, absent a successful appeal, the
plaintiff's claims would not have a material adverse affect on the Company.
In any event, management believes, based on the advice of counsel, that such
action is without merit.

F-16

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)

A claim for indemnification was asserted by the Company's former
underwriters against the Company in connection with the 1986 Offering. The
indemnification claim demanded repayment of legal fees and expenses incurred
by such underwriters in connection with the consolidated class actions
entitled Phifer v. Chaus, et al. On October 31, 1995, an agreement in
principle was reached to settle this claim, with no material effect on the
Company's financial condition or results of operations.

The Company is also involved in various other legal proceedings arising out
of the conduct of its business. The Company believes that the eventual
outcome of the proceedings referred to above will not have a material adverse
effect on the Company's financial condition or results of operations.

d. Employment Agreement:

The Company has entered into a number of employment agreements with various
senior executives, certain of which include termination payment provisions.
In addition to his $1 million salary, Mr. Grossman is entitled to a bonus
equal to 5% of the Company's annual net profits, as defined, for the duration
of his agreement, which expires in 2004. In the event that Mr. Grossman's
employment is terminated following a change in control, Mr. Grossman is to
receive a lump sum payment equal to the aggregate annual salary (discounted
to present value) that he would have received had his employment agreement
not been terminated.

11. SUBSEQUENT EVENTS

The initial term of the Nautica License Agreement runs through December 31,
1999, and is thereafter renewable for up to two periods of three years each,
provided that certain conditions are met (including the successful attainment
of certain sales targets and the requirement that Andrew Grossman continue in
his position as Chief Executive Officer during the term of the Nautica
License Agreement). Under the Nautica License Agreement, the Company is
obligated to raise at least $10.0 million in equity capital by December 31,
1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. The Company's obligations
also include minimum royalty and advertising payments and the construction of
a separate showroom for the display of the Company's licensed Nautica
products. Under the Nautica License Agreement, the Company intends to
dedicate a full operational merchandising and retail development group to its
licensed Nautica product line.

F-17

<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)

11. SUBSEQUENT EVENTS (CONTINUED)

The Company filed a Registration Statement with the Securities and Exchange
Commission on October 10, 1995 with respect to an equity offering of
5,000,000 shares of Common Stock. Proceeds of the offering will be used to
satisfy the Nautica License Agreement's requirements and to support the
growth of the Company's existing Chaus product lines.

F-18

[FIVE COLOR PHOTOGRAPHS OF CLOTHING]

<PAGE>

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Common Stock offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person in any jurisdiction
in which it is unlawful to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 6
Use of Proceeds ............................... 10
Price Range of Common Stock
and Dividend Policy .......................... 11
Capitalization ................................ 12
Dilution ...................................... 13
Selected Consolidated Financial Data ......... 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Business ...................................... 21
Management .................................... 30
Principal Stockholders ........................ 38
Certain Transactions .......................... 39
Description of Capital Stock .................. 40
Shares Eligible for Future Sale ............... 41
Underwriting .................................. 42
Legal Matters ................................. 43
Experts ....................................... 43
Available Information ......................... 43
Incorporation of Certain Documents by
Reference .................................... 44
Index to Consolidated Financial Statements ... F-1
</TABLE>

5,000,000 SHARES

COMMON STOCK

[CHAUS LOGO]

PROSPECTUS
, 1995

LEHMAN BROTHERS

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses incurred by the Company in connection with this offering are:

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .........$ 9,914
NASD filing fees ............. 3,375
Accounting fees and expenses* 190,000
Legal fees and expenses* .... 170,000
Printing costs* .............. 125,000
Blue sky fees and expenses* . 25,000
Transfer agent's fees* ....... 5,000
Miscellaneous* ............... 21,711
---------
$550,000
=========
<FN>

* Estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 722 and 726 of the New York Business Corporation Law (the "BCL")
grant the Company broad powers to indemnify and insure its directors and
officers against liabilities they may incur in such capacities. In accordance
therewith, the Company's Certificate of Incorporation (the "Charter") and
by-laws provide for the fullest indemnification of an officer or director of
the Company under the BCL. The Charter also eliminates liability for monetary
damages for any breach of directors' duty to the Company and its
stockholders, provided that such breach does not result from (a) (i) an act
or omission in bad faith, (ii) intentional misconduct or (iii) a knowing
violation of law, (b) a transaction from which a director derived a personal
benefit or financial gain to which the director was not entitled, or (c) the
approval of dividends, stock repurchases, asset distributions or loans to
directors in violation of the BCL.

The Company has entered into agreements with its directors and certain of
its officers that require the Company to indemnify such persons against
expenses, including attorneys' fees, judgments, fines, settlements and other
amounts incurred directly or indirectly in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person served as a director or officer of the
Company or any of its affiliated enterprises, provided that such
indemnification is consistent with the BCL. The agreements also require the
Company to carry directors' and officers' liability insurance for as long as
such person serves in a capacity that exposes such person to liability unless
and until the Company's Board of Directors decides that the cost of the
insurance does not justify the benefit. The Company has purchased such
directors' and officers' liability insurance covering certain liabilities
which may be incurred by its directors and officers in the performance of
their services for the Company.

16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

</TABLE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
***1 Form of Underwriting Agreement.
Restated Certificate of Incorporation (the "Restated Certificate") of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration Statement
3.1 on Form S-1, Registration No. 33-5954 (the "1986 Registration Statement").
*3.11 Amendment dated November 18, 1987 to the Restated Certificate.

II-1
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>

**3.12 Form of Amendment to be dated November 15, 1995 to the Restated Certificate.
By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.1 of
3.2 the Company's Form 10-Q for the quarter ended December 31, 1987).
Amendment dated September 13, 1994 to By-Laws (incorporated by reference to
Exhibit 10.105 of the Company's Form 10-Q for the quarter ended September 30,
3.3 1994).
Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, with respect to legality of
**5 shares being issued.
Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the
10.1 Company's Form 10-K for the year ended June 30, 1987 (the "1987 Form 10-K")).
1986 Stock Option Plan, as amended and restated as of January 1, 1987 (the "1986
Stock Option Plan") (incorporated by reference to Exhibit 10.2 of the Company's
10.2 Form 10-K for the year ended July 1, 1989 (the "1989 Form 10-K")).
Amendment No. 1 to the 1986 Stock Option Plan (incorporated by reference to
10.3 Exhibit 10.3 of the 1989 Form 10-K).
Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the 1986
10.4 Registration Statement).
Agreement, dated August 28, 1987, between Amalgamated Workers Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.3 of
10.5 the 1987 Form 10-K).
Agreement, dated September 1, 1990, between Amalgamated Workers . Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.16 of
10.6 the Company's Form 10-K for the year ended June 30, 1990).
Lease, dated January 29, 1987, between L.H. Charney Associates and the Company,
of space at the Company's facility at 1410 Broadway, New York, New York
10.7 (incorporated by reference to Exhibit 10.19 of the 1987 Form 10-K).
Lease, dated July 27, 1987, between L. H. Charney Associates and the Company, of
space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the
10.8 year ended July 2, 1988 (the "1988 Form 10-K")).
Agreement dated December 3, 1990 among Bernard Chaus, Inc., Bernard Chaus,
Josephine Chaus and National Union Fire Insurance Company of Pittsburgh, Pa., the
Company's directors and officers liability carrier ((incorporated by reference to
Exhibit 10.31 of the Company's Form 10-Q for the quarter ended December 31,
10.9 1990).
Employment Agreement, dated July 1, 1991, between the Company and Josephine Chaus
(incorporated by reference to Exhibit 10.39 of the Company's Form 10-K for the
10.10 year ended June 30, 1991).
</TABLE>

II-2

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Employment Agreement, dated November 4, 1991 between Michael Fieman and the
Company (incorporated by reference to Exhibit 10.60 of the Company's Form 10-K
10.11 for the year ended June 30, 1992 (the "1992 Form 10-K")).
Employment Agreement, dated February 15, 1993 between Richard A. Baker and the
Company (incorporated by reference to Exhibit 10.71 of the Company's Form 10-K
10.12 for the year ended June 30, 1993 (the "1993 Form 10-K")).
Employment Agreement, dated July 1, 1993 between Michael Root and the Company
10.13 (incorporated by reference to Exhibit 10.72 of the 1993 Form 10-K).
Employment Agreement dated June 3, 1994 between the Company and Wayne Miller
(incorporated by reference to Exhibit 10.89 of the Company's Form 10-K for the
10.14 year ended June 30, 1994 (the "1994 Form 10-K")).
Employment Agreement dated September 1, 1994 between the Company and Andrew
Grossman with Stock Option Agreement dated as of September 1, 1994 by and between
the Company and Andrew Grossman (incorporated by reference to Exhibit 10.90 of
10.15 the 1994 Form 10-K).
Settlement Agreement dated as of September 1994 among Nicole Eskenazi, the
Company and certain others (incorporated by reference to Exhibit 10.91 of the
10.16 1994 Form 10-K).
Severance agreement dated as of June 16, 1994 between the Company and Anthony M.
10.17 Pisano (incorporated by reference to Exhibit 10.92 of the 1994 Form 10-K).
Waiver dated September 23, 1993 to the Restated and Amended Financing Agreement
between the Company and BNY Financial Corporation (the "Financing Agreement")
effective July 1, 1992 (incorporated by reference to Exhibit 10.82 of the 1993
10.18 Form 10-K).
Waiver dated November 5, 1993 to the Financing Agreement (incorporated by
reference to Exhibit 10.83 of the Company's Form 10-Q for the quarter ended
10.19 September 30, 1993).
Amendment, effective October 1, 1993, to the Financing Agreement (incorporated by
reference to Exhibit 10-84 of the Company's Form 10-Q for the quarter ended
10.20 December 31, 1993 (the "December 1993 Form 10-Q")).
Waiver dated January 13, 1994 to the Financing Agreement (incorporated by
10.21 reference to Exhibit 10.85 of the December 1993 Form 10-Q).
Waiver dated February 10, 1994 to the Financing Agreement (incorporated by
10.22 reference to Exhibit 10.86 of the December 1993 Form 10-Q).
Waiver dated May 4, 1994 to the Financing Agreement (incorporated by reference to
10.23 Exhibit 10.87 of the Company's Form 10-Q for the quarter ended March 31, 1994).
Waiver dated September 20, 1994 to the Financing Agreement (incorporated by
10.24 reference to Exhibit 10.93 of the 1994 Form 10-K).
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Agreement, dated June 15, 1988, between the Company and Bernard Chaus and
Josephine Chaus, amending the terms of the Company's subordinated promissory
notes to each of them, each in the principal amount of $7,365,000, the form of
which was filed as Exhibit 10.13 of the 1986 Registration Statement (incorporated
10.25 by reference to Exhibit 10.11 of the 1988 Form 10-K).
Agreement, dated May 17, 1990 between the Company and Bernard Chaus and Josephine
Chaus amending the terms of the Company's subordinated promissory notes to each
of them, each in the principal amount of $7,365,000, the form of which was filed
10.26 as Exhibit 10.13 of the 1986 Registration Statement.
Agreement, dated February 21, 1991 between the Company and Bernard Chaus and
Josephine Chaus amending the terms of the Company's subordinated promissory notes
to each of them, each in the principal amount of $7,365,000 (incorporated by
10.27 reference to Exhibit 10.74 of the 1993 Form 10-K).
Subordinated promissory notes dated March 12, 1991, between the Company and
Bernard Chaus and Josephine Chaus, separately, each in the amount of $5,000,000
10.28 (incorporated by reference to Exhibit 10.75 of the 1993 Form 10-K).
Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
10.29 (incorporated by reference to Exhibit 10.76 of the 1993 Form 10-K).
Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
10.30 (incorporated by reference to Exhibit 10.77 of the 1993 Form 10-K).
Agreement, dated July 15, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
10.31 (incorporated by reference to Exhibit 10.78 of the 1993 Form 10-K).
Agreement, dated October 30, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
10.32 (incorporated by reference to Exhibit 10.79 of the 1993 Form 10-K).
Demand Notes, dated June 30, 1993, between the Company and the Estate of Bernard
Chaus and Josephine Chaus, each in the principal amount of $1,520,216
10.33 (incorporated by reference to Exhibit 10.80 of the 1993 Form 10-K).
</TABLE>

II-4

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Agreement, dated September 21, 1993, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal amount of
10.34 $7,365,000 (incorporated by reference to Exhibit 10.81 of the 1993 Form 10-K).
Subordinated promissory notes dated August 1, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
10.35 of $208,716 (incorporated by reference to Exhibit 10.94 of the 1994 Form 10-K).
Subordinated promissory note dated August 1, 1993, between the Company and
Josephine Chaus in the amount of $1,311,500 (incorporated by reference to Exhibit
10.36 10.95 of the 1994 Form 10-K.)
Subordinated Promissory Note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus in the amount of $1,000,000 (incorporated by reference to
10.37 Exhibit 10.96 of the 1994 Form 10-K).
Subordinated promissory note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus, in the amount of $311,500 (incorporated by reference to
10.38 Exhibit 10.97 of the 1994 Form 10-K).
Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
10.39 of $181,056 (incorporated by reference to Exhibit 10.98 of the 1994 Form 10-K).
Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
10.40 of $412,950 (incorporated by reference to Exhibit 10.99 of the 1994 Form 10-K).
Agreements dated September 9, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $5,000,000 (incorporated by
10.41 reference to Exhibit 10.100 of the 1994 Form 10-K).
Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $1,520,216 (incorporated by
10.42 reference to Exhibit 10.101 of the 1994 Form 10-K).
Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $7,365,000 (incorporated by
10.43 reference to Exhibit 10.102 of the 1994 Form 10-K).
Agreement dated December 31, 1993, between the Company and Josephine Chaus
reflecting amendments to a subordinated promissory note in the principal amount
of $1,311,500 (incorporated by reference to Exhibit 10.103 of the 1994 Form
10.44 10-K).
Agreement dated December 31, 1993, between the Company and the Estate of Bernard
Chaus, reflecting amendments to subordinated promissory notes, in the principal
amounts of $1,000,000 and $311,500 (incorporated by reference to Exhibit 10.104
10.45 of the 1994 Form 10-K).
</TABLE>

II-5

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Agreement dated November 9, 1994, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.107 of the Company's Form 10-Q for the quarter ended
10.46 September 30, 1994 (the "September 1994 Form 10-Q")).
Agreement dated November 9, 1994, between the Company and the Estate of Bernard
Chaus extending the due dates on subordinated promissory notes (incorporated by
10.47 reference to Exhibit 10.108 of the September 1994 Form 10-Q).
Agreement dated December 19, 1994, assigning the subordinated notes from the
Estate of Bernard Chaus to Josephine Chaus (incorporated by reference to Exhibit
10.110 of the Company's Form 10-Q for the quarter ended December 30, 1994 (the
10.48 "December 1994 Form 10-Q").
Agreement dated January 11, 1995, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
10.49 reference to Exhibit 10.111 of the December 1994 Form 10-Q).
Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
32,500 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.112 of the Company's Form 10-Q for the quarter ended
10.50 March 31, 1995 (the "March 1995 Form 10-Q")).
Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
206,000 warrants to purchase Common Stock of the Company (incorporated by
10.51 reference to Exhibit 10.113 of the March 1995 Form 10-Q).
Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
338,000 warrants to purchase Common Stock of the Company (incorporated by
10.52 reference to Exhibit 10.114 of the March 1995 Form 10-Q).
Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
640,000 warrants to purchase Common Stock of the Company (incorporated by
10.53 reference to Exhibit 10.115 of the March 1995 Form 10-Q).
Waiver dated November 7, 1994, to the Financing Agreement (incorporated by
10.54 reference to Exhibit 10.106 of the September 1994 Form 10-Q).
Waiver dated February 10, 1995 to the Financing Agreement (incorporated by
10.55 reference to Exhibit 10.109 of the December 1994 Form 10-Q).
Agreement effective February 21, 1995 (the "Amended Financing Agreement") between
the Company and BNY Financial Corporation restating and amending the Financing
Agreement (incorporated by reference to Exhibit 10.116 of the March 1995 Form
10.56 10-Q).
*10.57 Waiver dated September 14, 1995 to the Amended Financing Agreement.
Agreement effective as of September 28, 1995 relating to the Amended Financing
*10.58 Agreement.
Agreement dated April 28, 1995 between the Company and Josephine Chaus extending
the due dates on subordinated promissory notes (incorporated by reference to
10.59 Exhibit 10.117 of the March 1995 Form 10-Q).
Agreement dated September 8, 1995 between the Company and Josephine Chaus
*10.60 extending the due dates on subordinated promissory notes.
</TABLE>

II-6

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- --------------------------------------------------------------------------------- ----------------
<S> <C> <C>
License Agreement dated as of September 6, 1995 between the Company and Nautica
Apparel Inc. (confidential portions of which have been omitted and filed
separately with the Commission subject to an order granting confidential
*10.61 treatment).
Amendment No. 2 to the 1986 Stock Option Plan (incorporated by reference to the
10.62 Company's Proxy Statement for its 1990 Annual Meeting of Stockholders).
Amendment No. 3 to the 1986 Stock Option Plan (incorporated by reference to the
10.63 Company's Proxy Statement for its 1991 Annual Meeting of Stockholders).
Amendment No. 4 to the 1986 Stock Option Plan (incorporated by reference to the
10.64 Company's Proxy Statement for its 1993 Annual Meeting of Stockholders).
Agreement dated October 9, 1995, between the Company and Josephine Chaus,
extending the due dates on subordinated promissory notes and clarifying the
*10.65 subordination provision.
Agreement dated October 9, 1995, between the Company and Josephine Chaus,
providing the Company with an option to extend a Letter of Credit to July 31,
*10.66 1996.
Agreement dated October 27, 1995 between the Company and Josephine Chaus
extending the due dates on the subordinated promissory notes (incorporated by
reference to Exhibit 10.67 of the Company's Form 10-Q for the quarter ended
10.67 September 30, 1995 (the "September 1995 Form 10-Q")).
List of Subsidiaries of the Company (incorporated by reference to Exhibit 21 of
the Company's Report on Form 10-K for the year ended June 30, 1995 (the "1995
21 Form 10-K")).
Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in opinion at
**23.1 Exhibit 5 above).
**23.2 Consent of Deloitte & Touche LLP.
**23.3 Consent of Ernst & Young LLP.
Financial Data Schedule (incorporated by reference to the 1995 Form 10-K and the
27 September 1995 Form 10-Q).
<FN>

* Previously filed.

** Filed herewith.

*** To be filed by amendment.
</TABLE>

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

II-7

<PAGE>

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1
to the Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 31st day of October, 1995.

BERNARD CHAUS, INC.

By:
/s/ Josephine Chaus
---------------------------------
Josephine Chaus
Chairwoman of the Board
and Office of the Chairman

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
- --------------------------- ----------------------------------------- -------------------
<S> <C> <C>

* PRESIDENT OCTOBER 31, 1995
- ----------------------------
RICHARD A. BAKER
/s/ Josephine Chaus Chairwoman of the Board and Office of the October 31, 1995
- ---------------------------- Chairman
Josephine Chaus
/s/ Andrew Grossman Chief Executive Officer and Office of the October 31, 1995
- ---------------------------- Chairman, Director (Principal
Andrew Grossman Executive Officer)
* Vice President -- Corporate Controller October 31, 1995
- ----------------------------
Karen A. Maloney
/s/ Wayne S. Miller Executive Vice President -- Finance and October 31, 1995
- ---------------------------- Administration, Chief Financial
Wayne S. Miller Officer and Secretary (Principal
Financial and Accounting Officer)
* Director October 31, 1995
- ----------------------------
Philip Barach
* Director October 31, 1995
- ----------------------------
S. Lee Kling
* Director October 31, 1995
- ----------------------------
Harvey M. Krueger
*By: /s/ Wayne S. Miller
- ----------------------------
Wayne S. Miller
Attorney-in-Fact

</TABLE>

II-9

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------ --------
<S> <C> <C>
FORM OF AMENDMENT TO BE DATED NOVEMBER 15, 1995 TO THE RESTATED
3.12 Certificate of Incorporation of the Company.
Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, with respect to
5 legality of shares being issued.
Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in
23.1 opinion at Exhibit 5 above).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
</TABLE>

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BERNARD CHAUS, INC.

Under Section 805 of the Business Corporation Law

Pursuant to the provisions of Section 805 of the Business
Corporation Law, the undersigned, being the President and
Secretary of the corporation, hereby certify:

FIRST: The name of the corporation is BERNARD CHAUS, INC.

SECOND: That the Certificate of Incorporation was filed by
the Secretary of State of the State of New York on the 16th day
of April, 1975.

THIRD: That the amendment to the Certificate of
Incorporation effected by this Certificate is as follows:

1. A new Article TENTH is added to the Corporation's
Certificate of Incorporation to read in its entirety as
follows:

"TENTH: No holder of any common stock or preferred
stock of the Corporation shall be entitled to any preemptive
rights to purchase any capital stock of the Corporation or
to acquire any option, warrant, right or other instrument
(including debt instruments) entitling the holder thereof to
acquire any capital stock of this Corporation upon the
exercise, conversion or exchange thereof or otherwise."

FOURTH: That the amendment to the Certificate of
Incorporation has been authorized by the affirmative vote of the
Board of Directors of the Corporation and by a vote of the
holders of a majority of all outstanding shares entitled to vote
on an amendment to the Certificate of Incorporation at a meeting
of shareholders.

IN WITNESS WHEREOF, we hereunto sign our names and affirm
that the statements made herein are true under the penalties of
perjury, this 15th day of November, 1995.

____________________________
Richard Baker, President

____________________________
Wayne S. Miller,
Vice President - Finance and
Administration

[Shereff, Friedman, Hoffman & Goodman, LLP]

October 31, 1995

Bernard Chaus, Inc.
1410 Broadway
New York, New York 10018

Gentlemen:

On the date hereof, Bernard Chaus, Inc., a New York corporation (the
"Company"), intends to transmit for filing with the Securities and Exchange
Commission, Amendment No. 1 to a Registration Statement on Form S-2 (the
"Registration Statement"), relating to the sale of up to 5,750,000 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company (including 750,000 shares subject to the underwriters' over-allotment
option). This opinion is an exhibit to the Registration Statement.

We note that we are members of the Bar of the State of New York and do
not represent ourselves to be expert in the laws of any other state or
jurisdiction. We have acted as special counsel to the Company with respect to
certain corporate and securities matters, and in such capacity we have
participated in various corporate and other proceedings taken by or on behalf of
the Company in connection with the proposed offer and sale by the Company of the
Shares as contemplated by the Registration Statement. We have examined copies
(in each case signed, certified or otherwise proven to our satisfaction to be
genuine) of the Company's Certificate of Incorporation and all amendments
thereto, its By-Laws as presently in effect, minutes and other instruments
evidencing actions taken by its directors and stockholders, the Registration
Statement and exhibits thereto and such other documents and instruments relating
to the Company and the proposed offering as we have deemed necessary under the
circumstances.

Based on the foregoing, it is our opinion that:

1. The Company has been duly incorporated and is validly existing
under the laws of the State of New York and has authorized capital stock
consisting of 50,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share.

2. The maximum of 5,750,000 shares of Common Stock to be sold by the
Company have been duly authorized and, subject to the effectiveness of the
Registration Statement and compliance with applicable securities or other laws
of various states of the United States in which the Shares will be offered
and/or sold in the proposed public offering, when issued and delivered against
payment therefor in accordance with the terms set forth in the Registration
Statement, will be legally issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any application under the securities
or other laws of any state of the United States, which relate to the offering
which is the subject of this opinion, and to the reference to this firm
appearing under the headings "Description of Capital Stock" and "Legal Matters"
in the prospectus which is contained in the Registration Statement.

This opinion is as of the date hereof and is limited to the laws in
effect as of the date hereof, and we undertake no obligation to advise you of
any change, whether legal or factual, in any matter set forth herein. This
opinion is furnished to you in connection with the filing of the Registration
Statement, and is not to be used, circulated, quoted or otherwise relied upon
for any other purpose, except as expressly provided in the preceding paragraph.

Very truly yours,

/s/ Shereff, Friedman, Hoffman &
Goodman, LLP
--------------------------------
SHEREFF, FRIEDMAN, HOFFMAN &
GOODMAN, LLP

RAG:SMZ:JRS:dk

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use and incorporation by reference in this Amendment No. 1
to the Registration Statement of Bernard Chaus, Inc. on Form S-2 of our
report dated October 6, 1995 (October 31, 1995 as to Note 10.c.) included in
the Annual Report on Form 10-K of Bernard Chaus, Inc. for the year ended June
30, 1995, and to the use of our report dated October 6, 1995 (October 31,
1995 as to Note 10.c.) appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP
New York, New York
October 31, 1995

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
August 18, 1993, in Amendment No. 1 to the Registration Statement (Form S-2)
and the related Prospectus of Bernard Chaus, Inc. and Subsidiaries for the
registration of 5,000,000 shares of its common stock.

ERNST & YOUNG LLP
New York, New York
October 30, 1995