SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________________to __________________.
Commission file number 1-9169
BERNARD CHAUS, INC.
(Exact name of registrant as specified in its charter)
New York 13-2807386
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
1410 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X
No ____.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
Date Class Shares Outstanding
May 1, 1995 Common Stock, $0.01 par value 20,311,831
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): PAGE
Condensed Consolidated Balance Sheets as
of March 31, 1995, June 30, 1994
and March 31, 1994 ......................... 3
Condensed Consolidated Statements of
Operations for the Nine Months and Quarters
ended March 31, 1995 and 1994 .............. 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended March 31, 1995
and 1994....................................... 5
Notes to Condensed Consolidated Financial
Statements .................................... 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 8 - 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 12
SIGNATURES .............................................. 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
BERNARD CHAUS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
<CAPTION>
MARCH 31, JUNE 30, MARCH 31,
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 823 $ 468 $ 568
Accounts receivable - net ............................................... 20,977 17,757 33,823
Inventories ............................................................. 15,394 25,503 27,839
Prepaid expenses and other current assets ............................... 1,295 3,608 4,366
Refundable and prepaid income taxes ..................................... 135 593
Total Current Assets .................................................. 38,489 47,471 67,189
Fixed Assets .............................................................. 2,924 3,612 5,483
Other Assets .............................................................. 499 536 478
$41,912 $51,619 $73,150
======= ======= =======
LIABILITIES AND STOCKHOLDERS'(DEFICIT) EQUITY
Current Liabilities
Notes payable - bank .................................................... $22,208 $21,115 $20,682
Subordinated Promissory Notes - current ................................. 250 250
Accounts payable ........................................................ 15,216 14,290 12,730
Accrued expenses ........................................................ 5,289 6,710 5,165
Accrued restructuring expenses .......................................... 1,819 1,764
Income taxes payable .................................................... 129
Total Current Liabilities ............................................ 44,661 44,129 38,827
Accrued Restructuring Expenses ............................................ 1,706 2,315
Subordinated Promissory Notes ............................................. 20,476 18,789 18,244
66,843 65,233 57,071
Stockholders' (Deficit) Equity
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 -- 20,934,531 at March 31, 1995,
18,975,031 at June 30, 1994 and
March 31, 1994 ......................................................... 209 190 190
Additional paid-in capital .............................................. 48,190 40,226 40,226
(Deficit) ............................................................... (71,850) (52,550) (22,857)
Less: Treasury stock, at cost --
622,700 shares .................................................... (1,480) (1,480) (1,480)
Total Stockholders' (Deficit) Equity ................................. (24,931) (13,614) 16,079
$41,912 $51,619 $73,150
======= ======= =======
</TABLE>
Note: The balance sheet at June 30, 1994 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
<PAGE>
<TABLE>
BERNARD CHAUS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
(In Thousands, Except Per Share Data)
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales ......................................................... $153,009 $170,240 $ 41,071 $ 49,931
Cost of goods sold ................................................ 124,917 144,050 33,974 42,925
Gross profit ................................................... 28,092 26,190 7,097 7,006
Selling, general and
administrative expenses .......................................... 34,073 40,437 10,926 12,855
Restructuring expenses ............................................ 1,200
Unusual expenses .................................................. 7,833
(15,014) (14,247) (3,829) (5,849)
Interest and other income (expense), net .......................... 20 (141) 12 (133)
Interest expense .................................................. (4,080) (2,485) (1,552) (787)
Loss before provision for income taxes ............................ (19,074) (16,873) (5,369) (6,769)
Provision for income taxes ........................................ 226 189 75 76
Net loss ......................................................... ($19,300) ($17,062) ($5,444) ($6,845)
======== ======= ====== ======
Net loss per common share ........................................ ($0.98) ($0.93) ($0.27) ($0.37)
======== ======= ====== ======
Weighted average number of common and
common equivalent shares outstanding ........................... 19,773 18,352 20,312 18,352
======== ======= ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<PAGE>
<TABLE>
BERNARD CHAUS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
(In Thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ........................................................................................... ($19,300) ($17,062)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................................................... 990 1,456
Provision for losses (recovery) on accounts receivable ........................................... 195 (70)
Deferred interest on subordinated promissory notes ............................................... 1,687 1,891
Non-cash interest expense ........................................................................ 456
Changes in operating assets and liabilities:
Accounts receivable ............................................................................ (3,415) (3,191)
Inventories .................................................................................... 10,109 18,135
Prepaid expenses and other assets .............................................................. 2,350 807
Income taxes receivable ........................................................................ 135 129
Accounts payable ............................................................................... 926 (6,759)
Accrued restructuring expenses ................................................................. (554)
Accrued expenses ............................................................................... (1,421) (173)
Income taxes payable ........................................................................... 129
NET CASH USED IN OPERATING ACTIVITIES ................................................................ (7,713) (4,837)
INVESTING ACTIVITIES
Purchases of fixed assets ......................................................................... (302) (1,007)
FINANCING ACTIVITIES
Net proceeds from short term bank borrowings ...................................................... 1,093 5,801
Principal payments on subordinated promissory notes ............................................... (250) (750)
Net proceeds from sale of stock ................................................................... 7,527 (6)
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................................................ 8,370 5,045
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................................. 355 (799)
Cash and cash equivalents at beginning of period ..................................................... 468 1,367
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................................... $ 823 $ 568
======= =======
Supplemental cash information Cash paid for:
Taxes ........................................................................................ $ 6 $ 61
Interest ..................................................................................... $ 1,689 $ 1,012
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and nine months ended March
31, 1995 are not necessarily indicative of the results that may be expected for
the fiscal year 1995. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended June 30, 1994.
Net Loss Per Share: Net loss per share for the three and nine months ended
March 31 has been computed by dividing the applicable net loss by the weighted
average number of common shares outstanding. Common equivalent shares were not
considered as the inclusion of such would have been antidilutive.
NOTE 2. INVENTORIES
Inventories (principally finished goods) are stated at the lower of cost, using
the first-in first-out (FIFO) method, or market.
Inventories included merchandise in transit of approximately $4,877,000 at March
31, 1995, $11,176,000 at June 30, 1994 and $ 7,521,000 at March 31, 1994.
NOTE 3. FINANCIAL AGREEMENTS
During the quarter ended March 31, 1995, the Company and BNY Financial
Corporation ("BNYF" or the "Bank"), a wholly owned subsidiary of The Bank of New
York, completed negotiations for a new three-year Restated and Amended Financing
Agreement (the "New Agreement"). The New Agreement was effective as of February
21, 1995, and terminates on February 21, 1998. The New 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. The amount
of financing available is based upon a formula incorporating eligible
receivables and inventory, cash balances, other collateral, and permitted over
advances, all as defined in the New Agreement.
6
<PAGE>
The New Agreement is collateralized by substantially all of the Company's
assets, including accounts receivable and inventory.
Interest on direct borrowings is payable monthly at an annual rate equal to the
higher of (i) 1/2 of 1% above the prime rate of the Bank of New York (prime was
9.0% at March 31, 1995) and (ii) the Federal Funds Rate in effect on such day
plus 1%. The default interest rate is 2.5% over prime. The New Agreement
requires the payment of a 1% due diligence and facility fee. In addition, the
agreement provides for the payment of minimum service charges and/or interest
which for the fiscal year ending June 30, 1995, will be approximately $900,000.
The Company may terminate the New 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.
As part of the renegotiation of financial covenants and the borrowing base
formula in the New Agreement, Josephine Chaus increased the $7.2 million letter
of credit formally provided by her which was to have expired on April 15, 1995
to $10.0 million, and extended its term until October 31, 1995. In addition,
Ms. Chaus provided BNYF with a $5.0 million personal guarantee of the Company's
obligations under the New Agreement. The consideration to be paid to Josephine
Chaus for such additional credit support is being considered by a Special
Committee comprised of the Company's outside Board of Directors (the "Special
Committee").
In September 1994, Josephine Chaus loaned $7.2 million to the Company in
exchange for 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,
following approval by the Company's shareholders, Josephine Chaus exchanged such
notes, including accrued interest thereon, for 1,914,500 shares of the Company's
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 shareholders at the November 22, 1994 Annual Meeting of
Shareholders. In approving the sale of the shares of Common Stock and issuance
of the warrants to Josephine Chaus, the Special Committee sought the advice of
Lehman Brothers, which provided its view as to the commercial reasonableness of
the transaction.
In consideration for credit support provided to the Company in connection with
the prior bank agreement, Josephine Chaus was granted 1,216,500 warrants
exercisable through November 22, 1999 at prices ranging between $2.25 to $4.62
per share. The value of such warrants has been included as a charge to interest
expense during the quarter ended March 31, 1995 with a corresponding increase to
paid in capital.
NOTE 4. SUBORDINATED PROMISSORY NOTES
The Company has outstanding at March 31, 1995 $20,476,000 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 unable to make
payments of principal or interest on the Subordinated Notes since 1993 (with the
exception of principal payments of $500,000, $250,000 and $250,000 in November
1993, February 1994 and August 1994, respectively) as a result of restrictive
covenants under the prior Financing Agreement and the New
7
<PAGE>
Agreement. In April 1995, Josephine Chaus extended the maturity date on all of
the Subordinated Notes (which were to mature on January 1, 1996) to April 1,
1996.
NOTE 5. RESTRUCTURING AND UNUSUAL EXPENSES
During the nine months ended March 31, 1995, the Company initiated a number of
actions to strengthen its financial position, including a cash infusion of $7.2
million from its principal shareholder, cost reductions largely related to
additional layoffs in the Company's U.S. and overseas offices, and the hiring of
the Company's new Chief Executive Officer. The Company believes these actions
will have a positive impact on future operating results.
Relative to the aforementioned programs, during the first fiscal quarter of 1995
the Company recorded restructuring expenses of $1.2 million. These costs
primarily relate to employee severance as the Company continues to reduce
overhead costs.
In addition, for the first fiscal quarter the Company recorded unusual expenses
of $7.8 million primarily related to the signing of the Company's new Chief
Executive Officer.
In January 1995, the Company signed favorable early termination agreements with
the landlords of certain retail outlet stores, for which the Company had
previously taken 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Operating results for the periods ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the fiscal year 1995.
For the nine months ended March 31, 1995, net sales decreased by $17.2 million
or 10.1% compared to the corresponding period ended March 31, 1994. The sales
decrease is primarily due to a reduction in the number of units sold, lower
standard selling prices, higher discounts and promotional allowances, partially
offset by lower returns, and lower discounts from standard selling prices. The
promotional allowances were provided to accelerate and increase sell-through at
the retail level. For the first nine months of fiscal 1995, promotional
allowances remained high. As a result, significant reserves continue to be
maintained by the Company as a reduction to accounts receivable.
For the quarter ended March 31, 1995, net sales decreased by $8.9 million, or
17.7%, compared to the corresponding period in the preceding year. The sales
decrease is primarily due to a reduction in the number of units sold, lower
standard selling prices, higher discounts and promotional allowances, partially
offset by lower returns and lower discounts from standard selling prices.
8
<PAGE>
For the nine months ended March 31, 1995, cost of goods sold as a percentage of
net sales decreased to 81.6% from 84.6% for the same period of fiscal 1994.
For the three months ended March 31, 1995, the cost of goods sold as a
percentage of net sales decreased to 82.7%, from 86.0% for the same period of
fiscal 1994. For both periods, the decrease in costs, as a percentage of net
sales, came from an increase in the proportion of net sales made either at
standard selling price or at a lower discount from standard selling price.
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 22.3% for the nine months ended March 31, 1995 from 23.8% for the
comparable period last year. Selling, general and administrative expenses, as a
percent of net sales, increased to 26.6% for the third quarter ended March 31,
1995 from 25.8% for the comparable period last year. For both the nine month
period and quarter ended March 31, 1995, the actual dollar expense decrease of
$6.4 million and $1.9 million, respectively, was attributable to the
implementation of cost reduction programs. The percentage increase in the
quarter results from a reduction in net sales.
For the nine months ended March 31, 1995, the Company initiated a number of
actions to strengthen its financial position, including a cash infusion of $7.2
million from its principal shareholder, cost reductions largely related to
additional layoffs in the Company's U.S. and overseas offices, and the hiring of
the Company's new Chief Executive Officer. The Company believes these actions
will have a positive impact on future operating results.
Relative to the aforementioned programs, during the first fiscal quarter of 1995
the Company recorded restructuring expenses of $1.2 million. These costs
primarily relate to employee severance as the Company continues to reduce
overhead costs.
In addition, for the first fiscal quarter the Company recorded unusual expenses
of $7.8 million primarily related to the signing of the Company's new Chief
Executive Officer.
In January 1995, the Company signed favorable early termination agreements with
the landlords of certain retail outlet stores, for which the Company had
previously taken 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.
Interest expense increased for the nine month period compared with last year,
primarily due to higher average bank borrowings at higher rates and interest on
the $7.2 million of promissory notes issued in September 1994 that were
exchanged for common stock in November 1994. In addition, in the third quarter,
the Company recorded a charge for the warrants issued for credit support
received from its principal shareholder. For the quarter ended March 31, 1995,
interest expense increased over the comparable prior year period as a result of
higher average bank borrowings at higher rates.
Financial Position, Liquidity and Capital Resources
Net cash used in operating activities was $7.7 million for the nine months ended
March 31, 1995 as compared to $4.8 million for the nine months ended
9
<PAGE>
March 31, 1994. Net cash used in operating activities resulted primarily from
the net loss after non-cash charges ($16.0 million), increased accounts
receivable ($3.4 million) and decreased accrued expenses ($1.4 million), offset
somewhat by decreases in inventories ($10.1 million), prepaid expenses and other
assets ($2.4 million) and increases in accounts payable ($.9 million).
The Company's anticipated capital expenditures for the balance of fiscal 1995
are approximately $.3 million, consisting primarily of expenditures for its
warehouses, design facilities and the purchase of additional computer software
systems.
The Company's operations over the past several years have been financed
primarily through the use of internally generated funds, subordinated debt,
lines of credit and the aforementioned equity infusion from Josephine Chaus.
The Company anticipates that its future operations will be financed in the same
manner, but is also exploring additional sources of financing.
During the quarter ended March 31, 1995, the Company and BNY Financial
Corporation ("BNYF" or the "Bank"), a wholly owned subsidiary of The Bank of New
York, completed negotiations for a new three-year Restated and Amended Financing
Agreement (the "New Agreement"). The New Agreement was effective as of February
21, 1995, and terminates on February 21, 1998. The New 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. The amount
of financing available is based upon a formula incorporating eligible
receivables and inventory, cash balances, other collateral, and permitted over
advances, all as defined in the New Agreement. The New Agreement is
collateralized by substantially all of the Company's assets, including accounts
receivable and inventory.
Interest on direct borrowings is payable monthly at an annual rate equal to the
higher of (i) 1/2 of 1% above the prime rate of the Bank of New York (prime was
9.0% at March 31, 1995) and (ii) the Federal Funds Rate in effect on such day
plus 1%. The default interest rate is 2.5% over prime. The New Agreement
requires the payment of a 1% due diligence and facility fee. In addition, the
agreement provides for the payment of minimum service charges and/or interest
which for the fiscal year ending June 30, 1995, will be approximately $900,000.
The Company may terminate the New 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.
As part of the renegotiation of financial covenants and the borrowing base
formula in the New Agreement, Josephine Chaus increased the $7.2 million letter
of credit formally provided by her which was to have expired on April 15, 1995
to $10.0 million, and extended its term until October 31, 1995. In addition,
Ms. Chaus provided BNYF with a $5.0 million personal guarantee of the Company's
obligations under the New Agreement. The consideration to be paid to Josephine
Chaus for such additional credit support is being considered by a Special
Committee comprised of the Company's outside Board of Directors (the "Special
Committee").
In September 1994, Josephine Chaus loaned $7.2 million to the Company in
exchange for promissory notes bearing interest at 12% per annum. Proceeds of
such cash infusion were used for costs and associated expenses related to the
10
<PAGE>
signing of the Company's new chief executive officer. In November 1994,
following approval by the Company's shareholders, Josephine Chaus exchanged such
notes, including accrued interest thereon, for 1,914,500 shares of the Company's
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 shareholders at the November 22, 1994 Annual Meeting of
Shareholders. In approving the sale of the shares of Common Stock and issuance
of the warrants to Josephine Chaus, the Special Committee sought the advice of
Lehman Brothers, which provided its view as to the commercial reasonableness of
the transaction.
The Company has outstanding at March 31, 1995 $20,476,000 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 unable to make
payments of principal or interest on the Subordinated Notes since 1993 (with the
exception of principal payments of $500,000, $250,000 and $250,000 in November
1993, February 1994 and August 1994, respectively) as a result of restrictive
covenants under the prior Financing Agreement and the New Agreement. In April
1995, Josephine Chaus extended the maturity date on all of the Subordinated
Notes (which were to mature on January 1, 1996) to April 1, 1996.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Attached hereto as Exhibits are the following:
10.112 Agreement dated November 22, 1994 between the Company
and Josephine Chaus issuing 32,500 warrants to purchase Common Stock of the
Company.
10.113 Agreement dated November 22, 1994 between the Company
and Josephine Chaus issuing 206,000 warrants to purchase Common Stock of the
Company.
10.114 Agreement dated November 22, 1994 between the Company
and Josephine Chaus issuing 338,000 warrants to purchase Common Stock of the
Company.
10.115 Agreement dated November 22, 1994 between the Company
and Josephine Chaus issuing 640,000 warrants to purchase Common Stock of the
Company.
10.116 Agreement effective February 21, 1995 between the
Company and BNY Financial Corporation restating and amending the Financing
Agreement.
10.117 Agreement dated April 28, 1995 between the Company and
Josephine Chaus extending the due dates on Subordinated Promissory Notes.
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter
ended March 31, 1995.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERNARD CHAUS, INC.
(Registrant)
Date: May 10, 1995 By: /s/Josephine Chaus
------------------------------
JOSEPHINE CHAUS
Chairwoman of the Board and
Office of the Chairman
Date: May 10, 1995 By: /s/Andrew Grossman
------------------------------
ANDREW GROSSMAN
Chief Executive Officer and
Office of the Chairman
Date: May 10, 1995 By: /s/Wayne S. Miller
------------------------------
WAYNE S. MILLER
Executive Vice President
Finance & Administration and
Chief Financial Officer
(Principal Financial Officer)
13
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THIS WARRANT AGREEMENT AND PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 22, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
BERNARD CHAUS, INC.
WARRANT dated and effective as of November 22, 1994, by and
between BERNARD CHAUS, INC. (the "Company"), a New York corporation with offices
at 1410 Broadway, New York, New York 10018 and JOSEPHINE CHAUS (the
"Warrantholder"), an individual residing at 128 East 73rd Street, New York, New
York 10021.
FOR VALUE RECEIVED, the Company hereby certifies that the
Warrantholder is entitled to purchase from the Company, at any time or from time
to time commencing November 22, 1994, and prior to 5:00 P.M., Eastern Standard
Time, on November 22, 1999, 32,500 fully paid and nonassessable shares of Common
Stock, par value $0.01 per share, of the Company, at $4.62 per share for an
aggregate purchase price of $150,150.00. Hereinafter, (i) said Common Stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder are referred
to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder
for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price," and (v) this Warrant, and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrant." The number of Warrant Shares for which this Warrant is exercisable
is subject to adjustment as hereinafter provided.
1. This Warrant may be exercised, in whole at any time or in part
from time to time, commencing November 22, 1994, and prior to 5:00 P.M., Eastern
Standard Time, on November 22, 1999, by the Warrantholder by the surrender of
this Warrant (with the subscription form at the end hereof duly executed) at the
address of the Company set forth on the first page hereof, evidencing proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part.
<PAGE>
2. (a) The issuance of this Warrant was approved by,
and the Per Share Warrant Price of $4.62 was determined by, the Special
Committee of the Company's Board of Directors on September 27, 1994 (the
"Committee Approval Date"), subject to approval of the Company's shareholders.
The Company's shareholders approved the issuance of this Warrant on November 22,
1994. The Per Share Warrant Price represents a 20% premium over the average
closing price of the Common Stock on the New York Stock Exchange over the five
trading day period commencing September 27, 1994.
3. In no event shall this Warrant be converted, and this Warrant
shall no longer be exercisable, at any time after five years from the date
hereof. Any conversion of this Warrant may be either in whole at any time or in
part at any time or from time to time.
4. Neither the Warrantholder nor the Warrantholder's legal
representatives, legatees or distributees shall be or be deemed to be the holder
of any shares of the Common Stock covered by this Warrant unless and until
certificates for such shares have been issued. Upon payment of the purchase
price thereof, shares issued upon conversion of this Warrant shall be validly
issued, fully paid and nonassessable.
5. In order to exercise this Warrant, the Warrantholder shall give
a signed written notice of intent to exercise this Warrant to the Treasurer of
the Company specifying the number of shares of the Common Stock with respect to
which this Warrant is being exercised, and accompanied by payment to the Company
of the full amount of the Aggregate Warrant Price for the number of shares of
Common Stock so specified. If permitted under applicable securities laws, all
or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as hereinafter determined) on the
date of delivery equal to the portion of the Aggregate Warrant Price so paid;
provided, that in connection therewith, the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder ("Section 16").
For the purposes hereof, the fair market value of a share of the
Common Stock on any date shall be equal to the closing sale price of a share of
the Common Stock as published by the national securities exchange on which the
shares of the Common Stock are primarily traded on such date or, if there is no
such sale of the Common Stock on such date, the average of the bid and asked
price on such exchange at the close of trading on such date or, if the shares of
the Common Stock are not listed on a national securities exchange on such date,
the average of the bid and asked prices in the over the counter market on such
date or, if the Common Stock is not traded on a national securities exchange or
the over the counter market, the fair market value of a share of the Common
Stock on such date as shall be determined in good faith by the Company.
6. (a) Unless the shares to be issued upon the exercise of the
Warrant shall be registered under the Securities Act of 1933, as amended (the
"Act"), prior to the issuance thereof (which the Company shall use its best
efforts to do at its expense at the Warrantholder's request), the Warrantholder
shall, as a condition to the Company's obligation to issue such
<PAGE>
shares, give a representation in writing that she is acquiring such shares for
her own account as an investment and not with a view to, or for sale in
connection with, the distribution of such shares.
(b) In the event of the death of the Warrantholder, an
additional condition of exercising the Warrant shall be the delivery to the
Company of such tax waivers and other documents as the Company shall reasonably
determine. The executors, administrators, legal representatives, distributees
and legatees of the Warrantholder are, after the death of the Warrantholder,
referred to as the Warrantholder with respect to this Warrant.
(c) The Warrantholder shall, as an additional condition of
converting this Warrant, make appropriate arrangements with the Company for the
payment of all federal, state or local withholding taxes applicable as a result
of the exercise of this Warrant. If permitted under applicable securities laws,
all or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as determined pursuant to paragraph
5 hereof) on the date of delivery equal to the portion of such taxes so paid;
provided, that in connection therewith the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16.
The Company covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar taxes
that may be payable in respect of the issue of any Warrant Shares or
certificates therefor.
7. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
8. In the event that a dividend shall be declared upon the Common
Stock payable in shares of the Common Stock, the Warrant Shares shall be
adjusted by adding to each such share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock dividend. In the
event that the outstanding shares of the Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock and/or other
securities of the Company or of another corporation or cash or other property,
whether through reorganization, recapitalization, extraordinary dividend, stock
split-up, combination of shares, sale of assets, spin off or merger or
consolidation in which the Company is the surviving corporation, then, there
shall be substituted for each Warrant Share the number and kind of shares of
stock and/or other securities, cash or other property into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged. In the event that there shall be any change, other
than as specified in this paragraph 8, in the number or kind of outstanding
shares of the Common Stock, or of any stock or other securities into which the
Common Stock shall have been changed, or for which it shall have been exchanged,
then, the Board of Directors of Company shall, in its reasonable discretion,
equitably adjust this Warrant with respect to the number or kind of Warrant
Shares and the Warrant Price, such adjustment to be
<PAGE>
made by the Company and notice thereof shall be delivered to the Warrantholder
within 30 calendar days thereafter, accompanied by a certificate of the Chief
Financial Officer of the Company setting forth such adjustment, the method of
calculation of such adjustment and the facts upon which such adjustment was
based, all in reasonable detail. In the case of any such substitution or
adjustment as provided for in this paragraph 8, the Warrant Price for each
Warrant Share shall be the Warrant Price for all shares of stock or other
securities which shall have been substituted for such Warrant Share or to which
such shares shall have been adjusted in accordance with the provisions in this
paragraph 8. No adjustment or substitution provided for in this paragraph 8
shall require the Company to sell a fractional share hereunder.
9. The existence of this Warrant shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.
10. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of New York.
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant if mutilated, the Company shall
execute and deliver to the Warrantholder a new Warrant of like date, tenor and
denomination.
12. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Warrant (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this paragraph 12). Notice to the estate
of the Warrantholder shall be sufficient if addressed to the Warrantholder as
provided in this paragraph 12. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
13. Except as may be permitted by Rule 16b-3 promulgated under the
Exchange Act for transfers to a trust or similar estate planning vehicle, this
Warrant is not transferable otherwise than by will or the laws of descent and
distribution and may be exercised, during the lifetime of the Warrantholder,
only by her or, in the event of her disability, her duly appointed guardian or
conservator. The Warrantholder's rights shall not be subject to commutation,
encumbrance, or the claims of the Warrantholder's creditors, and any attempt to
do any of the foregoing shall be void. The provisions of this Warrant shall be
binding upon and inure to the benefit of
<PAGE>
the Warrantholder and her heirs and personal representatives under this Warrant.
14. This Warrant does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Warrant
(except as expressly provided in this Warrant).
IN WITNESS WHEREOF, BERNARD CHAUS, INC. has caused this Warrant
to be signed by a duly authorized officer the day and year first above written.
ATTEST: BERNARD CHAUS, INC.
/s/ Marc A. Zuckerman By: /s/ Wayne Miller
- ----------------------------------- ---------------------------
Marc A. Zuckerman Name: Wayne Miller
Treasurer and Assistant Secretary Title: Chief Financial Officer
<PAGE>
SUBSCRIPTION
The undersigned, , pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of shares of the Common Stock of BERNARD CHAUS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated Signature
Address
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THIS WARRANT AGREEMENT AND PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 22, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
BERNARD CHAUS, INC.
WARRANT dated and effective as of November 22, 1994, by and
between BERNARD CHAUS, INC. (the "Company"), a New York corporation with offices
at 1410 Broadway, New York, New York 10018 and JOSEPHINE CHAUS (the
"Warrantholder"), an individual residing at 128 East 73rd Street, New York, New
York 10021.
FOR VALUE RECEIVED, the Company hereby certifies that the
Warrantholder is entitled to purchase from the Company, at any time or from time
to time commencing November 22, 1994, and prior to 5:00 P.M., Eastern Standard
Time, on November 22, 1999, 206,000 fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, of the Company, at $2.25 per share for
an aggregate purchase price of $463,500. Hereinafter, (i) said Common Stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder are referred
to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder
for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price," and (v) this Warrant, and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrant." The number of Warrant Shares for which this Warrant is exercisable
is subject to adjustment as hereinafter provided.
1. This Warrant may be exercised, in whole at any time or in part
from time to time, commencing November 22, 1994, and prior to 5:00 P.M., Eastern
Standard Time, on November 22, 1999, by the Warrantholder by the surrender of
this Warrant (with the subscription form at the end hereof duly executed) at the
address of the Company set forth on the first page hereof, evidencing proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part.
<PAGE>
2. (a) The issuance of this Warrant was approved by, and the
Per Share Warrant Price of $2.25 was determined by, the Special Committee of the
Company's Board of Directors on June 23, 1994 (the "Committee Approval Date"),
subject to approval of the Company's shareholders. The Company's shareholders
approved the issuance of this Warrant on November
22, 1994. The Per Share Warrant Price represents a 20% premium over the closing
price of the Common Stock on the New York Stock Exchange on the Committee
Approval Date.
3. In no event shall this Warrant be converted, and this Warrant
shall no longer be exercisable, at any time after five years from the date
hereof. Any conversion of this Warrant may be either in whole at any time or in
part at any time or from time to time.
4. Neither the Warrantholder nor the Warrantholder's legal
representatives, legatees or distributees shall be or be deemed to be the holder
of any shares of the Common Stock covered by this Warrant unless and until
certificates for such shares have been issued. Upon payment of the purchase
price thereof, shares issued upon conversion of this Warrant shall be validly
issued, fully paid and nonassessable.
5. In order to exercise this Warrant, the Warrantholder shall give
a signed written notice of intent to exercise this Warrant to the Treasurer of
the Company specifying the number of shares of the Common Stock with respect to
which this Warrant is being exercised, and accompanied by payment to the Company
of the full amount of the Aggregate Warrant Price for the number of shares of
Common Stock so specified. If permitted under applicable securities laws, all
or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as hereinafter determined) on the
date of delivery equal to the portion of the Aggregate Warrant Price so paid;
provided, that in connection therewith, the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder ("Section 16").
For the purposes hereof, the fair market value of a
share of the Common Stock on any date shall be equal to the closing sale price
of a share of the Common Stock as published by the national securities exchange
on which the shares of the Common Stock are primarily traded on such date or, if
there is no such sale of the Common Stock on such date, the average of the bid
and asked price on such exchange at the close of trading on such date or, if the
shares of the Common Stock are not listed on a national securities exchange on
such date, the average of the bid and asked prices in the over the counter
market on such date or, if the Common Stock is not traded on a national
securities exchange or the over the counter market, the fair market value of a
share of the Common Stock on such date as shall be determined in good faith by
the Company.
6. (a) Unless the shares to be issued upon the exercise of the
Warrant shall be registered under the Securities Act of 1933, as amended (the
"Act"), prior to the issuance thereof (which the Company shall use its best
efforts to do at its expense at the Warrantholder's request), the Warrantholder
shall, as a condition to the Company's obligation to issue such
<PAGE>
shares, give a representation in writing that she is acquiring such shares for
her own account as an investment and not with a view to, or for sale in
connection with, the distribution of such shares.
(b) In the event of the death of the Warrantholder, an
additional condition of exercising the Warrant shall be the delivery to the
Company of such tax waivers and other documents as the Company shall reasonably
determine. The executors, administrators, legal representatives, distributees
and legatees of the Warrantholder are, after the death of the Warrantholder,
referred to as the Warrantholder with respect to this Warrant.
(c) The Warrantholder shall, as an additional condition of
converting this Warrant, make appropriate arrangements with the Company for the
payment of all federal, state or local withholding taxes applicable as a result
of the exercise of this Warrant. If permitted under applicable securities laws,
all or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as determined pursuant to paragraph
5 hereof) on the date of delivery equal to the portion of such taxes so paid;
provided, that in connection therewith the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16.
The Company covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar taxes
that may be payable in respect of the issue of any Warrant Shares or
certificates therefor.
7. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
8. In the event that a dividend shall be declared upon the Common
Stock payable in shares of the Common Stock, the Warrant Shares shall be
adjusted by adding to each such share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock dividend. In the
event that the outstanding shares of the Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock and/or other
securities of the Company or of another corporation or cash or other property,
whether through reorganization, recapitalization, extraordinary dividend, stock
split-up, combination of shares, sale of assets, spin off or merger or
consolidation in which the Company is the surviving corporation, then, there
shall be substituted for each Warrant Share the number and kind of shares of
stock and/or other securities, cash or other property into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged. In the event that there shall be any change, other
than as specified in this paragraph 8, in the number or kind of outstanding
shares of the Common Stock, or of any stock or other securities into which the
Common Stock shall have been changed, or for which it shall have been exchanged,
then, the Board of Directors of Company shall, in its reasonable discretion,
equitably adjust this Warrant with respect to the number or kind of Warrant
Shares and the Warrant Price, such adjustment to be
<PAGE>
made by the Company and notice thereof shall be delivered to the Warrantholder
within 30 calendar days thereafter, accompanied by a certificate of the Chief
Financial Officer of the Company setting forth such adjustment, the method of
calculation of such adjustment and the facts upon which such adjustment was
based, all in reasonable detail. In the case of any such substitution or
adjustment as provided for in this paragraph 8, the Warrant Price for each
Warrant Share shall be the Warrant Price for all shares of stock or other
securities which shall have been substituted for such Warrant Share or to which
such shares shall have been adjusted in accordance with the provisions in this
paragraph 8. No adjustment or substitution provided for in this paragraph 8
shall require the Company to sell a fractional share hereunder.
9. The existence of this Warrant shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.
10. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of New York.
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant if mutilated, the Company shall
execute and deliver to the Warrantholder a new Warrant of like date, tenor and
denomination.
12. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Warrant (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this paragraph 12). Notice to the estate
of the Warrantholder shall be sufficient if addressed to the Warrantholder as
provided in this paragraph 12. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
13. Except as may be permitted by Rule 16b-3 promulgated under the
Exchange Act for transfers to a trust or similar estate planning vehicle, this
Warrant is not transferable otherwise than by will or the laws of descent and
distribution and may be exercised, during the lifetime of the Warrantholder,
only by her or, in the event of her disability, her duly appointed guardian or
conservator. The Warrantholder's rights shall not be subject to commutation,
encumbrance, or the claims of the Warrantholder's creditors, and any attempt to
do any of the foregoing shall be void. The provisions of this Warrant shall be
binding upon and inure to the benefit of
<PAGE>
the Warrantholder and her heirs and personal representatives under this Warrant.
14. This Warrant does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Warrant
(except as expressly provided in this Warrant).
IN WITNESS WHEREOF, BERNARD CHAUS, INC. has caused this Warrant
to be signed by a duly authorized officer the day and year first above written.
ATTEST: BERNARD CHAUS, INC.
/s/ Marc A. Zuckerman By: /s/ Wayne Miller
- ------------------------------------- -------------------------
Marc A. Zuckerman Name: Wayne Miller
Treasurer and Assistant Secretary Title: Chief Financial Officer
<PAGE>
SUBSCRIPTION
The undersigned, , pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of shares of the Common Stock of BERNARD CHAUS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated Signature
Address
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THIS WARRANT AGREEMENT AND PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 22, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
BERNARD CHAUS, INC.
WARRANT dated and effective as of November 22, 1994, by and
between BERNARD CHAUS, INC. (the "Company"), a New York corporation with offices
at 1410 Broadway, New York, New York 10018 and JOSEPHINE CHAUS (the
"Warrantholder"), an individual residing at 128 East 73rd Street, New York, New
York 10021.
FOR VALUE RECEIVED, the Company hereby certifies that the
Warrantholder is entitled to purchase from the Company, at any time or from time
to time commencing November 22, 1994, and prior to 5:00 P.M., Eastern Standard
Time, on November 22, 1999, 338,000 fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, of the Company, at $3.00 per share for
an aggregate purchase price of $1,014,000.00. Hereinafter, (i) said Common
Stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares," (iii) the aggregate purchase price payable
hereunder for the Warrant Shares is referred to as the "Aggregate Warrant
Price," (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Per Share Warrant Price," and (v) this Warrant, and all
warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant." The number of Warrant Shares for which this
Warrant is exercisable is subject to adjustment as hereinafter provided.
1. This Warrant may be exercised, in whole at any time or in part
from time to time, commencing November 22, 1994, and prior to 5:00 P.M., Eastern
Standard Time, on November 22, 1999, by the Warrantholder by the surrender of
this Warrant (with the subscription form at the end hereof duly executed) at the
address of the Company set forth on the first page hereof, evidencing proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part.
<PAGE>
2. (a) The issuance of this Warrant was approved by, and the
Per Share Warrant Price of $3.00 was determined by, the Special Committee of the
Company's Board of Directors on April 15, 1994 (the "Committee Approval Date"),
subject to approval of the Company's shareholders. The Company's shareholders
approved the issuance of this Warrant on November 22, 1994. The Per Share
Warrant Price represents a 20% premium over the closing price of the Common
Stock on the New York Stock Exchange on the Committee Approval Date.
3. In no event shall this Warrant be converted, and this Warrant
shall no longer be exercisable, at any time after five years from the date
hereof. Any conversion of this Warrant may be either in whole at any time or in
part at any time or from time to time.
4. Neither the Warrantholder nor the Warrantholder's legal
representatives, legatees or distributees shall be or be deemed to be the holder
of any shares of the Common Stock covered by this Warrant unless and until
certificates for such shares have been issued. Upon payment of the purchase
price thereof, shares issued upon conversion of this Warrant shall be validly
issued, fully paid and nonassessable.
5. In order to exercise this Warrant, the Warrantholder shall give
a signed written notice of intent to exercise this Warrant to the Treasurer of
the Company specifying the number of shares of the Common Stock with respect to
which this Warrant is being exercised, and accompanied by payment to the Company
of the full amount of the Aggregate Warrant Price for the number of shares of
Common Stock so specified. If permitted under applicable securities laws, all
or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as hereinafter determined) on the
date of delivery equal to the portion of the Aggregate Warrant Price so paid;
provided, that in connection therewith, the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder ("Section 16").
For the purposes hereof, the fair market value of a
share of the Common Stock on any date shall be equal to the closing sale price
of a share of the Common Stock as published by the national securities exchange
on which the shares of the Common Stock are primarily traded on such date or, if
there is no such sale of the Common Stock on such date, the average of the bid
and asked price on such exchange at the close of trading on such date or, if the
shares of the Common Stock are not listed on a national securities exchange on
such date, the average of the bid and asked prices in the over the counter
market on such date or, if the Common Stock is not traded on a national
securities exchange or the over the counter market, the fair market value of a
share of the Common Stock on such date as shall be determined in good faith by
the Company.
6. (a) Unless the shares to be issued upon the exercise of the
Warrant shall be registered under the Securities Act of 1933, as amended (the
"Act"), prior to the issuance thereof (which the Company shall use its best
efforts to do at its expense at the Warrantholder's request), the Warrantholder
shall, as a condition to the Company's obligation to issue such
<PAGE>
shares, give a representation in writing that she is acquiring such shares for
her own account as an investment and not with a view to, or for sale in
connection with, the distribution of such shares.
(b) In the event of the death of the Warrantholder, an
additional condition of exercising the Warrant shall be the delivery to the
Company of such tax waivers and other documents as the Company shall reasonably
determine. The executors, administrators, legal representatives, distributees
and legatees of the Warrantholder are, after the death of the Warrantholder,
referred to as the Warrantholder with respect to this Warrant.
(c) The Warrantholder shall, as an additional condition of
converting this Warrant, make appropriate arrangements with the Company for the
payment of all federal, state or local withholding taxes applicable as a result
of the exercise of this Warrant. If permitted under applicable securities laws,
all or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as determined pursuant to paragraph
5 hereof) on the date of delivery equal to the portion of such taxes so paid;
provided, that in connection therewith the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16.
The Company covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar taxes
that may be payable in respect of the issue of any Warrant Shares or
certificates therefor.
7. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
8. In the event that a dividend shall be declared upon the Common
Stock payable in shares of the Common Stock, the Warrant Shares shall be
adjusted by adding to each such share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock dividend. In the
event that the outstanding shares of the Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock and/or other
securities of the Company or of another corporation or cash or other property,
whether through reorganization, recapitalization, extraordinary dividend, stock
split-up, combination of shares, sale of assets, spin off or merger or
consolidation in which the Company is the surviving corporation, then, there
shall be substituted for each Warrant Share the number and kind of shares of
stock and/or other securities, cash or other property into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged. In the event that there shall be any change, other
than as specified in this paragraph 8, in the number or kind of outstanding
shares of the Common Stock, or of any stock or other securities into which the
Common Stock shall have been changed, or for which it shall have been exchanged,
then, the Board of Directors of Company shall, in its reasonable discretion,
equitably adjust this Warrant with respect to the number or kind of Warrant
Shares and the Warrant Price, such adjustment to be
<PAGE>
made by the Company and notice thereof shall be delivered to the Warrantholder
within 30 calendar days thereafter, accompanied by a certificate of the Chief
Financial Officer of the Company setting forth such adjustment, the method of
calculation of such adjustment and the facts upon which such adjustment was
based, all in reasonable detail. In the case of any such substitution or
adjustment as provided for in this paragraph 8, the Warrant Price for each
Warrant Share shall be the Warrant Price for all shares of stock or other
securities which shall have been substituted for such Warrant Share or to which
such shares shall have been adjusted in accordance with the provisions in this
paragraph 8. No adjustment or substitution provided for in this paragraph 8
shall require the Company to sell a fractional share hereunder.
9. The existence of this Warrant shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.
10. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of New York.
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant if mutilated, the Company shall
execute and deliver to the Warrantholder a new Warrant of like date, tenor and
denomination.
12. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Warrant (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this paragraph 12). Notice to the estate
of the Warrantholder shall be sufficient if addressed to the Warrantholder as
provided in this paragraph 12. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
13. Except as may be permitted by Rule 16b-3 promulgated under the
Exchange Act for transfers to a trust or similar estate planning vehicle, this
Warrant is not transferable otherwise than by will or the laws of descent and
distribution and may be exercised, during the lifetime of the Warrantholder,
only by her or, in the event of her disability, her duly appointed guardian or
conservator. The Warrantholder's rights shall not be subject to commutation,
encumbrance, or the claims of the Warrantholder's creditors, and any attempt to
do any of the foregoing shall be void. The provisions of this Warrant shall be
binding upon and inure to the benefit of
<PAGE>
the Warrantholder and her heirs and personal representatives under this Warrant.
14. This Warrant does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Warrant
(except as expressly provided in this Warrant).
IN WITNESS WHEREOF, BERNARD CHAUS, INC. has caused this Warrant
to be signed by a duly authorized officer the day and year first above written.
ATTEST: BERNARD CHAUS, INC.
/s/ Marc A. Zuckerman By: /s/ Wayne Miller
- ------------------------------------- -------------------------
Marc A. Zuckerman Name: Wayne Miller
Treasurer and Assistant Secretary Title: Chief Financial Officer
<PAGE>
SUBSCRIPTION
The undersigned, , pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of shares of the Common Stock of BERNARD CHAUS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated Signature
Address
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THIS WARRANT AGREEMENT AND PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on November 22, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
BERNARD CHAUS, INC.
WARRANT dated and effective as of November 22, 1994, by and
between BERNARD CHAUS, INC. (the "Company"), a New York corporation with offices
at 1410 Broadway, New York, New York 10018 and JOSEPHINE CHAUS (the
"Warrantholder"), an individual residing at 128 East 73rd Street, New York, New
York 10021.
FOR VALUE RECEIVED, the Company hereby certifies that the
Warrantholder is entitled to purchase from the Company, at any time or from time
to time commencing November 22, 1994, and prior to 5:00 P.M., Eastern Standard
Time, on November 22, 1999, 640,000 fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, of the Company, at $4.62 per share for
an aggregate purchase price of $2,956,800.00. Hereinafter, (i) said Common
Stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares," (iii) the aggregate purchase price payable
hereunder for the Warrant Shares is referred to as the "Aggregate Warrant
Price," (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Per Share Warrant Price," and (v) this Warrant, and all
warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant." The number of Warrant Shares for which this
Warrant is exercisable is subject to adjustment as hereinafter provided.
1. This Warrant may be exercised, in whole at any time or in part
from time to time, commencing November 22, 1994, and prior to 5:00 P.M., Eastern
Standard Time, on November 22, 1999, by the Warrantholder by the surrender of
this Warrant (with the subscription form at the end hereof duly executed) at the
address of the Company set forth on the first page hereof, evidencing proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part.
2. (a) The issuance of this Warrant was approved by, and the
Per Share Warrant Price of $4.62 was determined by, the Special Committee of the
<PAGE>
Company's Board of Directors on September 27, 1994 (the "Committee Approval
Date"), subject to approval of the Company's shareholders. The Company's
shareholders approved the issuance of this Warrant on November 22, 1994. The
Per Share Warrant Price represents a 20% premium over the average closing price
of the Common Stock on the New York Stock Exchange over the five trading day
period commencing September 27, 1994.
(b) To assist the Company increase the availability under
its working capital credit line with its bank in excess of the amount available
under the Company's borrowing base formula, the Warrantholder agreed to provide
credit support to the Company in 1994 in the form of a letter of credit (the
"Letter of Credit"). The Warrantholder initially provided the Letter of Credit
in the amount of $3,000,000 on April 15, 1994 which was increased to $5,000,000
on June 14, 1994 and further increased on September 13, 1994 to $7,200,000. The
expiration date of the Letter of Credit, initially in effect through October 15,
1994, was extended to April 15, 1995 (the "Extension"). In consideration for
the Extension, the Special Committee of the Company's Board of Directors
authorized, and the Company's shareholders approved, the issuance of these
Warrants to the Warrantholder. The Warrantholder has agreed to forfeit a pro
rata portion of this Warrant if the Letter of Credit is terminated before April
15, 1995, i.e. for each full thirty day period prior to April 15, 1995 that the
Letter of Credit is not outstanding, the Warrantholder shall forfeit one sixth
of the Warrant Shares.
3. In no event shall this Warrant be converted, and this Warrant
shall no longer be exercisable, at any time after five years from the date
hereof. Any conversion of this Warrant may be either in whole at any time or in
part at any time or from time to time.
4. Neither the Warrantholder nor the Warrantholder's legal
representatives, legatees or distributees shall be or be deemed to be the holder
of any shares of the Common Stock covered by this Warrant unless and until
certificates for such shares have been issued. Upon payment of the purchase
price thereof, shares issued upon conversion of this Warrant shall be validly
issued, fully paid and nonassessable.
5. In order to exercise this Warrant, the Warrantholder shall give
a signed written notice of intent to exercise this Warrant to the Treasurer of
the Company specifying the number of shares of the Common Stock with respect to
which this Warrant is being exercised, and accompanied by payment to the Company
of the full amount of the Aggregate Warrant Price for the number of shares of
Common Stock so specified. If permitted under applicable securities laws, all
or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as hereinafter determined) on the
date of delivery equal to the portion of the Aggregate Warrant Price so paid;
provided, that in connection therewith, the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder ("Section 16").
For the purposes hereof, the fair market value of a share of the
Common Stock on any date shall be equal to the closing sale price of a share of
the Common Stock as published by the national securities exchange on which
<PAGE>
the shares of the Common Stock are primarily traded on such date or, if there is
no such sale of the Common Stock on such date, the average of the bid and asked
price on such exchange at the close of trading on such date or, if the shares of
the Common Stock are not listed on a national securities exchange on such date,
the average of the bid and asked prices in the over the counter market on such
date or, if the Common Stock is not traded on a national securities exchange or
the over the counter market, the fair market value of a share of the Common
Stock on such date as shall be determined in good faith by the Company.
6. (a) Unless the shares to be issued upon the exercise of the
Warrant shall be registered under the Securities Act of 1933, as amended (the
"Act"), prior to the issuance thereof (which the Company shall use its best
efforts to do at its expense at the Warrantholder's request), the Warrantholder
shall, as a condition to the Company's obligation to issue such shares, give a
representation in writing that she is acquiring such shares for her own account
as an investment and not with a view to, or for sale in connection with, the
distribution of such shares.
(b) In the event of the death of the Warrantholder, an
additional condition of exercising the Warrant shall be the delivery to the
Company of such tax waivers and other documents as the Company shall reasonably
determine. The executors, administrators, legal representatives, distributees
and legatees of the Warrantholder are, after the death of the Warrantholder,
referred to as the Warrantholder with respect to this Warrant.
(c) The Warrantholder shall, as an additional condition of
converting this Warrant, make appropriate arrangements with the Company for the
payment of all federal, state or local withholding taxes applicable as a result
of the exercise of this Warrant. If permitted under applicable securities laws,
all or any portion of such payment may be made through a "cashless exercise"
arrangement with a broker designated by the Warrantholder by delivery of shares
of Common Stock having a fair market value (as determined pursuant to paragraph
5 hereof) on the date of delivery equal to the portion of such taxes so paid;
provided, that in connection therewith the Warrantholder shall certify to the
Company that such delivery will not result in "short-swing" profit to her under
Section 16.
The Company covenants and agrees that it will pay, when
due and payable, any and all Federal and state stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Shares or
certificates therefor.
7. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
8. In the event that a dividend shall be declared upon the Common
Stock payable in shares of the Common Stock, the Warrant Shares shall be
adjusted by adding to each such share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed
<PAGE>
for determining the shareholders entitled to receive such stock dividend. In
the event that the outstanding shares of the Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock and/or other
securities of the Company or of another corporation or cash or other property,
whether through reorganization, recapitalization, extraordinary dividend, stock
split-up, combination of shares, sale of assets, spin off or merger or
consolidation in which the Company is the surviving corporation, then, there
shall be substituted for each Warrant Share the number and kind of shares of
stock and/or other securities, cash or other property into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged. In the event that there shall be any change, other
than as specified in this paragraph 8, in the number or kind of outstanding
shares of the Common Stock, or of any stock or other securities into which the
Common Stock shall have been changed, or for which it shall have been exchanged,
then, the Board of Directors of Company shall, in its reasonable discretion,
equitably adjust this Warrant with respect to the number or kind of Warrant
Shares and the Warrant Price, such adjustment to be made by the Company and
notice thereof shall be delivered to the Warrantholder within 30 calendar days
thereafter, accompanied by a certificate of the Chief Financial Officer of the
Company setting forth such adjustment, the method of calculation of such
adjustment and the facts upon which such adjustment was based, all in reasonable
detail. In the case of any such substitution or adjustment as provided for in
this paragraph 8, the Warrant Price for each Warrant Share shall be the Warrant
Price for all shares of stock or other securities which shall have been
substituted for such Warrant Share or to which such shares shall have been
adjusted in accordance with the provisions in this paragraph 8. No adjustment
or substitution provided for in this paragraph 8 shall require the Company to
sell a fractional share hereunder.
9. The existence of this Warrant shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.
10. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of New York.
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant if mutilated, the Company shall
execute and deliver to the Warrantholder a new Warrant of like date, tenor and
denomination.
12. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Warrant (or to such other address as the party shall have furnished in
<PAGE>
writing in accordance with the provisions of this paragraph 12). Notice to the
estate of the Warrantholder shall be sufficient if addressed to the
Warrantholder as provided in this paragraph 12. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
13. Except as may be permitted by Rule 16b-3 promulgated under the
Exchange Act for transfers to a trust or similar estate planning vehicle, this
Warrant is not transferable otherwise than by will or the laws of descent and
distribution and may be exercised, during the lifetime of the Warrantholder,
only by her or, in the event of her disability, her duly appointed guardian or
conservator. The Warrantholder's rights shall not be subject to commutation,
encumbrance, or the claims of the Warrantholder's creditors, and any attempt to
do any of the foregoing shall be void. The provisions of this Warrant shall be
binding upon and inure to the benefit of the Warrantholder and her heirs and
personal representatives under this Warrant.
14. This Warrant does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Warrant
(except as expressly provided in this Warrant).
IN WITNESS WHEREOF, BERNARD CHAUS, INC. has caused this Warrant
to be signed by a duly authorized officer the day and year first above written.
ATTEST: BERNARD CHAUS, INC.
/s/ Marc A. Zuckerman By: /s/ Wayne Miller
- ------------------------------------- -------------------------
Marc A. Zuckerman Name: Wayne Miller
Treasurer and Assistant Secretary Title: Chief Financial Officer
<PAGE>
SUBSCRIPTION
The undersigned, , pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of shares of the Common Stock of BERNARD CHAUS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated Signature
Address
BNY FINANCIAL CORPORATION
RESTATED AND AMENDED FINANCING AGREEMENT
BERNARD CHAUS, INC.
1410 Broadway
New York, NY 10018
Gentlemen/Ladies:
Effective as of February 21, 1995 ("Effective Date"), this agreement
restates and amends in its entirety, without a break in continuity, that certain
Factoring/Financing Agreement dated July 11, 1991 between us, as Restated and
Amended as of July 1, 1992.
In consideration of the mutual covenants and undertakings herein
contained, we hereby agree as follows.
1. COVERED SALES; SECURITY INTEREST
You hereby grant to us a continuing security interest in all
"Collateral" (as hereinafter defined), as security for all "Obligations" (as
hereinafter defined).
2. ADVANCES; LOANS; L/CS; INTEREST; COMMISSIONS; LATE PAYMENT
CHARGES
(a) If you so request, we shall, subject to the other
provisions of this Agreement including but not limited to our rights to withhold
"Reserves" (as hereinafter defined), make loans ("Loans") and issue sight,
trade Letters of Credit ("L/Cs"). All outstanding Loans and payments related to
L/Cs shall be Obligations and shall be charged to your account when made. The
outstanding amount of all L/Cs shall be chargeable to your account. In no
event, however, shall the aggregate amount of all then outstanding Obligations
(including but not limited to Loans and L/Cs and all other amounts then charged
or chargeable to your account) exceed at any time the then lower of (A)
$60,000,000 or (B) the "Formula Amount" (as hereinafter defined). Furthermore,
at no time will the outstanding amount of Loans in the aggregate exceed
$40,000,000. The lower of (A) or (B) above, as the same may change from time to
time, is hereinafter called the "Borrowing Base." At no time will you request
or incur or permit there to be outstanding Obligations which, or request Loans
or the issuance of L/Cs which would cause the then outstanding Obligations to
exceed the then Borrowing Base, or request Loans which, if made, would cause
the aggregate amount of Loans then outstanding to exceed the lesser of (x)
$40,000,000 or (y) the Formula Amount (the "Credit Limit"). Furthermore, and
without limiting your Obligations or our other rights, you shall forthwith pay
us (I) the amount, if any, by which the then outstanding Obligations at any time
and from time to time exceed the then Borrowing Base, (II) the amount by which
the then aggregate amount of outstanding Loans exceeds the Credit Limit and
(III) the Amount of any outstanding Applicable Permitted Overadvance upon the
occurrence and continuance of an Event of Default. The "Formula Amount" at any
time means up to the sum of (i) 85% of the net face amount of "Eligible
Receivables" (as hereinafter defined) plus (ii) 40% of Eligible Wholesale
Inventory; plus (iii) the lesser of (A) $5,000,000 or (B) the sum of (I) the
lesser of (x) $2,500,000 or (y) 50% of Eligible Retail Inventory plus (II) 10%
of Eligible Wholesale Inventory; plus (iv) 100% of Eligible Letters of Credit;
plus (v) the amount of any Applicable Permitted Overadvance; less Reserves.
However, we may at any time and from time to time, in our sole discretion,
increase or decrease any of the percentages referred to in the preceding
sentence. "Eligible Receivables" means each Receivable arising in the ordinary
course of your business and which we, in our sole credit judgment, shall deem to
be an Eligible Receivable, based on such considerations as we may from time to
time deem appropriate. In general, a Receivable shall not be deemed eligible
unless such Receivable is subject to our perfected security interest and no
other lien and is evidenced by an invoice or other documentary evidence
satisfactory to us. In addition, no Receivable shall be an Eligible Receivable
if:
(A) it arises out of a sale made by you to an affiliate of
yours or to an entity controlled by an affiliate of yours;
<PAGE>
(B) it is unpaid more than 60 days (30 days in the case of
"Dated Invoices") after the original due date, or due more than 150 days after
the invoice date; (a Dated Invoice is any invoice issued on terms exceeding net
45 days);
(C) twenty-five percent (25%) or more of the Receivables
from the account debtor are not deemed Eligible Receivables hereunder. Such
percentage may, in our sole discretion, be increased or decreased from time to
time;
(D) any covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(E) the account debtor is also your creditor or supplier, or
the account debtor has disputed liability, or the account debtor has made any
claim with respect to any other Receivable due from such account debtor to you,
or the Receivable otherwise is or may become subject to any right of setoff by
the account debtor;
(F) the account debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
account debtor in an involuntary case under any state or federal bankruptcy
laws, as now constituted or hereafter amended, or if any other petition or other
application for relief under any state or federal bankruptcy law has been filed
against the account debtor, or if the account debtor has failed, suspended
business, ceased to be solvent, called a meeting of its creditors, or consented
to or suffered a receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; except with
respect to Receivables arising from sales to account debtors for which you have
obtained our prior written consent.
(G) Intentionally Omitted.
(H) the sale to the account debtor is on a bill-and-hold,
guaranteed sale, sale-and return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(I) we believe, in our sole judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by reason of
the account debtor's financial inability to pay;
(J) the account debtor is the United States of America, any
state or any department, agency or instrumentality or any of them, unless you
assign your right to payment of such Receivable to us pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. sub-Section 203 et seq.) or have
otherwise complied with other applicable statutes or ordnances;
(K) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the account debtor or the services
giving rise to such receivable have not been performed by you and accepted by
the account debtor or the Receivable otherwise does not represent a final sale;
(L) the Receivables of the account debtor exceed a credit
limit determined by us in our sole discretion, to the extent such Receivable
exceeds such limit;
(M) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim or if the Receivable is contingent in any
respect or for any reason;
(N) you have made any agreement with any account debtor for
any deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto;
(O) shipment of the merchandise or the rendition of services
has not been completed;
(P) any return, rejection or repossession of the merchandise
has occurred;
(Q) such Receivable is not payable to you; or
(R) such Receivable is not otherwise satisfactory to us as
determined in good faith by us in the exercise of our discretion in a reasonable
manner.
<PAGE>
"Eligible Wholesale Inventory" means finished goods inventory (other than
inventory in your retail outlets) located in the U.S.A., and finished goods
inventory located outside of the U.S.A. to be imported by you under outstanding
L/C's for which payment has not yet been made, all valued at the lower of cost
or market value, determined on a first-in first-out basis, which is not, in our
opinion, obsolete, slow moving in unacceptable condition or unmerchantable or
merchantable only at a price less than cost and which we, in our sole
discretion, shall not deem ineligible inventory, based on such considerations as
we may from time to time deem appropriate including, without limitation, whether
the inventory is subject to a perfected, first priority security interest in
favor of us (other than inventory in transit from suppliers in the ordinary
course of your business) and whether the inventory conforms to all standards
imposed by any governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof.
"Eligible Retail Inventory" means finished goods inventory in the United States
located in your retail outlets which is in good condition and is readily
saleable at prices not less than cost and which we, in our sole discretion,
shall not deem ineligible inventory, based on such considerations as we may from
time to time deem appropriate including, without limitation, whether the
inventory is subject to a perfected, first priority security interest in favor
of us (other than inventory in transit from suppliers in the ordinary course of
your business) and whether the inventory conforms to all standards imposed by
any governmental agency, division or department thereof which has regulatory
authority over such goods or the use or sale thereof.
Without limiting the foregoing, so long as you are in default under any
licensing agreement relating to any inventory, or so long as the licensor
thereunder shall not have entered into an agreement in form and substance
acceptable to us relating to such inventory and our rights therein, the
respective inventory shall be ineligible. Our making loans to you related to
the value of such inventory despite its ineligibility shall not be deemed a
waiver of any of our rights to deem such inventory ineligible at any time or
times, or your obligation hereunder to pay us forthwith the amount by which then
outstanding Obligations shall exceed the then Borrowing Base as a result of such
ineligibility.
"Eligible Letters of Credit" shall mean standby letters of credit under which we
are the beneficiary and which we deem acceptable in all respects.
( b ) For our services, we shall charge to your account
( i ) monthly, as of the last day of each month,
interest on the average daily balance of all Obligations which are outstanding
during such month (but in the case of L/Cs , only those which have been charged
to your account) at a rate per annum which exceeds the average "Alternate Base
Rate" (as hereinafter defined) in effect during such month by the then
"Applicable Margin" (as hereinafter defined); provided, however, that said
interest rate shall not be less than six percent (6%) per annum and shall in no
event be higher than the highest rate permitted by New York law. "Alternate
Base Rate" shall mean, for any day, a rate per annum equal to the higher of (i)
the Prime Rate in effect on such day and (ii) the Federal Funds Rate in effect
on such day plus 1/2 of 1%. Interest shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days. "Applicable Margin"
shall mean one half of one percent (1/2%); provided, however, that if the
Interest Bearing Obligations outstanding on each of five or more days in any
month exceed the Formula Amount less the amount of any outstanding Applicable
Permitted Overadvances on such days, the Applicable Margin in that month shall
mean one percent (1%); provided, further, that the Applicable Margin shall mean
two and one half percent (2 1/2%) with respect to all Obligations not paid when
due hereunder so long as they remain unpaid.
(ii) all bank charges for wire transfers.
(iii) an unused line fee at the rate of three eighths
of one percent (3/8%) per annum (based on a 360 day year), calculated and
payable monthly, on the difference between $60,000,000 and the average amount of
outstanding Obligations during such month.
(iv) a fee at the rate of 1/8% of 1% per month (the
"L/C Fee") on the average daily balance of L/Cs outstanding during such month,
but in no event less than $25,000 per month, provided however, that the L/C fee
with respect to time drafts shall be 1/4% per month, provided further, that if
the Interest Bearing Obligations outstanding on each of five or more days in any
month exceed the Formula Amount on such days, the L/C Fee shall be increased by
1/12 of one percent for such month. Additional amounts, at our standard rates
for letters of credit and those of the issuing banks shall be charged for
letters of credit issued on your behalf which are not negotiated by the
beneficiaries at (A) an overseas branch of the Bank of New York or (B) another
bank, if any, chosen by us.
(v) monthly, as of the 15th day of each month, a
commission at the rate of twenty five one
<PAGE>
hundredths of one percent (.25%) of the gross face amount of each invoice
evidencing a Receivable assigned to us under this Agreement during such month,
which commission is in consideration of the accounts receivable management and
bookkeeping services to be provided by us hereunder. However, for all purposes
hereof, the minimum commission that you shall pay with respect to each "Contract
Quarter" (the three month period beginning on February , May , August ,
and November of each year) shall not be less than $125,000 ("Minimum
Commission"). If the actual commission paid in any Contract Quarter or part
thereof is less than the Minimum Commission, we shall charge to your account the
difference ("Minimum Commission Charge") between the Minimum Commission and the
commission actually paid for the Contract Quarter or portion thereof during
which this Agreement is in effect. For each Contract Quarter we shall compute
the Minimum Commission Charge, if any, and charge your account therefor for each
such quarter in the month following the end of such quarter or in the month
following the effective date of termination of this Agreement in the case of the
last Contract Quarter or partial Contract Quarter.
(vi) a due diligence fee in the amount of $75,000 to
be charged to your account in quarterly installments commencing on July 1, 1995.
(vii) a facility fee in the amount of $525,000 to be
charged to your account in quarterly installments commencing on July 1, 1995.
3. MATURED FUNDS
On the last day of each month, we shall credit your account with
interest at a rate per annum equal to three percent (3%) less than the average
Alternate Base Rate in effect during such month on the average daily balance of
any amounts payable by us to you hereunder with respect to Receivables (as
confirmed by us by appropriate credit to your account with us) which are not
drawn by you on the Maturity Date, while held by us after the Maturity Date.
4. CHARGES; BALANCES; RESERVES
We may charge to your account all Obligations. Recourse to security
will not be required at any time. All credit balances or other sums at any time
standing to your credit and all Reserves on our books, and all of your property
in our possession at any time or in the possession of any parent, affiliate or
subsidiary of ours or on or in which we or any of them have a lien or security
interest, may be held and reserved by us as security for all Obligations. We
will account to you monthly and each monthly accounting statement will be fully
binding on you and will constitute an account stated, unless, within thirty (30)
days after such statement is mailed to you or within thirty (30) days after the
mailing of any adjustment thereof we may make, you give us specific written
notice of exceptions.
<PAGE>
5. CERTAIN REPRESENTATIONS AND WARRANTIES; DISPUTES; RETURNS;
CHARGEBACKS
( a ) You warrant and represent that you have good title to
the Receivables free of any encumbrance except in our favor; each Receivable
purchased hereunder is a bona fide, enforceable obligation created by the
absolute sale and delivery of goods or the rendition of services in the ordinary
course of business; when you assign each Receivable to us your customer is
unconditionally obligated to pay at maturity the full amount of each Receivable
purchased hereunder without defense, counterclaim or offset, real or alleged;
all documents in connection therewith are genuine; and when you assign each
Receivable to us the customer will accept the goods or services without alleging
any defense, counterclaim, offset, dispute or other claim whether arising from
or relating to the sale of such goods or services or arising from or relating to
any other transaction or occurrence (a "Dispute").
( b ) You further represent and warrant that (i) your address
set forth above is that of your chief place of business and chief executive
office and the location of all Collateral and of your books and records relating
to the Receivables; (ii) you have disclosed to us the locations of all of your
other places of business as well as all trade names or styles, trademarks,
divisions or other names under which you conduct business (hereinafter
collectively defined as the "Trade Names") and that you in the ordinary course
of your business and we in the exercise of our rights with respect to the
Collateral have and will have the right to use the Trade Names; and (iii) except
after 30 days prior written notice to us of your intention to do so, you will
not make any change in your name or corporate structure (whether by merger,
reorganization or otherwise) or sell or acquire any assets except in the
ordinary course of your business, nor make any change which would have the
effect of rendering inaccurate or incomplete the representations contained in
this subparagraph (b). If you take or propose to take any action referred to in
the immediately preceding subdivision (iii), we may, at any time before or after
such action is taken, terminate this Agreement effective immediately by giving
you written notice of such termination.
Upon an "Event of Default" (as hereafter defined) we may at any time in our
discretion (i) withdraw your authority to issue credits to your customers
without our prior written consent; (ii) litigate Disputes or settle them
directly with the customers on terms acceptable to us; or (iii) direct you to
set aside, identify as our property and procure insurance satisfactory to us on
any returned or repossessed merchandise or other goods which by sale resulted in
Receivables theretofore assigned to us ("Retained Goods"). All Retained Goods
(and the proceeds thereof) shall be (A) held by you in trust for us as our
property; and (B) subject to a security interest in our favor as security for
the Obligations; and (C) disposed of only in accordance with our express written
instructions.
( d ) YOU WARRANT THAT YOU WILL NOT GRANT A SECURITY INTEREST,
LIEN OR OTHER ENCUMBRANCES IN, TO OR ON ANY OF YOUR RECEIVABLES OR INVENTORY TO
ANYONE EXCEPT US WITHOUT OUR PRIOR WRITTEN CONSENT EXCEPT FOR THE FOLLOWING
"PERMITTED LIENS":
(i) Liens for taxes or assessments or other
government charges or levies if not yet due and payable or if due and payable if
they are being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(ii) Liens imposed by law, such as mechanic's
materialmen's landlord's warehouseman's and carrier's Liens, and other similar
liens, securing obligations incurred in the ordinary course of business which
are not past due for more than thirty (30) days, or which are being contested in
good faith by appropriate proceedings and for which appropriate reserves have
been established;
(iii) Liens under workmen's compensation, unemployment
insurance, social security or similar legislation (other than ERISA);
(iv) other liens incidental to the conduct of your
business or the ownership of your property and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit,
and which do not in the aggregate materially detract from our rights in and to
your property which is subject to our security interest or which do not
materially impair the use thereof in the operation of your business;
(v) judgment and other similar liens arising in
connection with court proceedings; provided that the execution or other
enforcement of such liens is effectively stayed and the claims secured thereby
are being actively contested in good faith and by appropriate proceedings and
for which appropriate reserves are maintained.
<PAGE>
(vi) purchase money liens on any equipment hereafter
acquired or the assumption of any lien on equipment existing at the time of such
acquisition; provided that:
(A) any property subject to any of the
foregoing is acquired by the Borrower in the ordinary course of its business and
the lien on any such property is created contemporaneously with such
acquisition;
(B) the obligation secured by any lien so
created, assumed or existing shall not exceed on hundred percent (100%) of the
lesser of cost or fair market valued as of the time of acquisition of the
property covered thereby;
(C) each such lien shall attach only to the
property so acquired and fixed improvements thereon; and
(vii) Liens securing obligations arising out of the
extension or refinancing of an obligation permitted to be secured by a lien
pursuant to the provisions of paragraph 5(e) hereof.
(viii) Liens existing on the date hereof and listed on
Exhibit A hereto
( e ) You warrant and represent that except with respect to
minor infractions, the consequences of which would not have a material adverse
affect on your business, you are now, and you hereby covenant and agree that you
will at all times hereafter be and remain in compliance with all laws, rules,
regulations and orders of all federal, state and local governmental agencies
having jurisdiction, including but not limited to those relating to
environmental protection (including CERCLA, RCRA and EPA) and employees
(including OSHA, ERISA and PBGC). You will promptly advise us of any action,
threatened action or claim against you relating to your failure or alleged
failure to comply with such laws, rules regulations, or orders and give us
copies of all documents received or sent by you relating thereto. You will at
your sole cost and expense take appropriate steps to defend against any such
actions and claims and you will keep us apprized of the status thereof. If, in
our opinion, you fail to take such steps, or fail to comply with such laws,
rules, regulations or orders, we may, but shall not be obligated to, take such
steps, at your cost and expense (for which you will promptly reimburse us), as
we deem appropriate for such defense and/or to ensure such compliance. You
will, at your sole cost and expense, furnish us with such audits, assessment and
evaluations (including but not to those related to environmental protection)
concerning your compliance or failure to comply with such laws, rules,
regulations and orders, as we request. You will indemnify, defend and hold us
harmless from and against all losses, damages, liabilities, costs and expenses
arising out of your failure or alleged failure to comply with such laws, rules,
regulations or orders. Without limiting any of the foregoing, you warrant and
represent that there are no visible signs of releases, spills, discharges, leaks
or disposal of hazardous substances at, upon, under or within any of your realty
or any premises leased by you; there are no underground storage tanks or
polychlorinated biphenyls on your realty or any premises leased by you; neither
your realty nor any premises leased by you has ever been used as a treatment,
storage or disposal facility of hazardous waste; and no hazardous substances are
present on the realty or any premises leased by you, excepting such quantities
as are handled in accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of your business.
( f ) You warrant and represent that (x) you are not a party
to any litigation or administrative or other proceeding the adverse outcome of
which could have a material adverse effect on your business except for the
shareholder derivative action entitled Pfifer et al V. Chaus, and the
administrative claim by U.S. Customs, more particularly described in the opinion
delivered to us with respect thereto, and (y) the only material litigation and
administrative and other proceedings to which you are party and claims made
against you are set forth on Exhibit B hereto.
<PAGE>
6. INVOICING; PAYMENTS; RETURNS; L/C's
( a ) You recognize that the amount evidenced by checks,
notes, drafts or any other forms of payment relating to and/or proceeds of
Receivables may not be collectible by us on the date received. Accordingly, all
items of payment of Receivables shall be credited to your account two (2)
business days after confirmation to us by that such items of payment have been
collected in good funds and finally credited to our account. We are not,
however, required to credit your account for the amount of any item of payment
which is unsatisfactory to us and may charge your account for the amount of any
item of payment which is returned unpaid.
( b ) You shall pay principal, interest, fees, commissions and
expenses and all other amounts payable hereunder, or under any related
agreement, without any deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.
( c ) In connection with each L/C you shall execute and
deliver to us such applications, agreements, certificates and other documents as
we may reasonably request.
( d ) Each L/C shall, among other things, call for sight
drafts or time drafts up to 60 days from sight and have an expiry date not later
than six (6) months from date of issuance.
( e ) You shall hold in trust for us and deliver to us in
original form and on the date of receipt thereof, all checks, drafts, notes,
money orders, acceptances, cash and other payments received by you, if any, in
payment of the Receivables.
( f ) We shall have the right at any time to send notice of
the assignment of, and our security interest in, the Receivables to any and all
of your customers or any third party. Thereafter, we shall have the sole right
to collect the Receivables. Our actual collection expenses, including, but not
limited to stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to your account.
( g ) We shall have the right to receive, endorse, assign
and/or deliver in our name or yours any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and you hereby
waive notice of presentment, protest and non-payment of any instrument so
endorsed. You hereby constitute us or our designee as your attorney with power
(i) to endorse your name upon any notes, acceptances, checks, drafts, money
orders or other evidences of payment; (ii) to sign your name on any invoice or
bill of lading relating to any of the Receivables, drafts against your
customers, assignments and verifications of Receivables; (iii) to send
verification of Receivables to any customer; (iv) to sign your name on all
financing statements or any other documents or instruments deemed necessary or
appropriate by us to preserve, protect, or perfect our interest in the
Collateral and to file same; (v) upon an Event of Default to demand payment of
the Receivables; (vi) upon an Event of Default to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) upon an Event of Default to
exercise all of your rights and remedies with respect to the collection of the
Receivables and any other Collateral; (viii) upon an Event of Default to settle,
adjust, compromise, extend or renew the Receivables; (ix) upon an Event of
Default to settle, adjust or compromise any legal proceedings brought to collect
Receivables; (x) to prepare, file and sign your name on a proof of claim in
bankruptcy or similar document against any customer; (xi) to prepare, file and
sign your name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Receivables; and (xii) to do all other
acts and things necessary to carry out this Agreement. All acts of said
attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with
gross negligence; this power being coupled with an interest is irrevocable while
any of the Obligations remain unpaid. We shall have the right at any time to
change the address for delivery of mail addressed to you to such address as we
may designate.
( h ) We shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Receivables or
any instrument received in payment thereof, or for any damage resulting
therefrom.
( i ) Until we instruct otherwise, all proceeds of all
Receivables shall be deposited by your customers into a lockbox account.
Arrangements relating to the lockbox account shall be pursuant to agreements
among you, us and banks acceptable to us, in form and substance acceptable to
us, and must include, inter alia, a provision prohibiting the
<PAGE>
bank from exercising any set off or similar right and must give us sole and
exclusive dominion and control. All funds deposited in such lockbox account
shall immediately become our property. We assume no responsibility for such
lockbox account arrangement, including, without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder. Until we instruct otherwise, you shall legend all invoices in such
manner as we direct in order to instruct your customers to remit payment through
the lockbox account.
7. TERMINATION
( a ) This agreement shall remain in full force and effect
until terminated as follows:
( i ) Subject to the terms of Paragraph 7(c) below,
you may terminate this agreement at any time by given us written notice of
termination at least ninety (90) days prior to the effective date of
termination. We may terminate this Agreement effective as of February , 19984
or at any time thereafter by giving you written notice of termination at least
sixty (60) days prior to the effective date of termination. You and we each
acknowledge and agree that you or we may exercise the right to terminate under
this subdivision (i) even if the other party is not in breach of or in default
under this Agreement and no matter what the financial condition or prospects of
the other party may be.
( ii ) If you shall suspend business, sell all or a
significant portion of your assets, become insolvent or unable to pay debts as
they mature, make an assignment for the benefit of creditors, or apply for an
extension from creditors; or if a meeting of your creditors is called; or if a
Receiver or Trustee shall be appointed for you or your property; or if your
property shall become subject to any material lien or attachment other than
Permitted Liens; or if a petition under the Federal Bankruptcy Code shall be
filed by or against you; or if you shall seek relief under any insolvency
statute, federal, state or other; or if a custodian shall be appointed for all
or substantially all of your property; or if you shall breach this agreement or
any other agreement between us except if such breach is unintentional and
immaterial; or if you are or go into default under this Agreement; or if any
warranty, or representation hereunder or any portion of the contents of any
document heretofore or hereafter furnished in connection with this Agreement is
or becomes untrue or misleading except if such false or misleading warranty or
representation is immaterial and has been made unintentionally; or if you shall
fail to pay any Obligation when due; or if any guaranty of the Obligations shall
be terminated; or if there occurs any change in your condition or prospects
which in our opinion impairs the Collateral or our rights or your ability to
perform the Obligations; or if our security interest in the Collateral ceases to
be a perfected first security interest; then in any of such events, a default
shall be deemed to have occurred under this Agreement, we may terminate this
Agreement at any time without notice, and this Agreement shall automatically
terminate in the event of a filing of a petition under the Federal Bankruptcy
Code by or against you; or
( iii ) Pursuant to paragraph 5 (b) above
( b ) On the effective date of termination all Obligations
shall become immediately due and payable in full without further notice or
demand and we shall have no further obligation to provide any Loans or issue any
L/Cs . Our rights with respect to Obligations owing to us, or chargeable to
your account, arising out of transactions having their inception prior to the
effective date of termination, will not be affected by termination. Without
limiting the foregoing, all of our security interests and other rights in and to
all Collateral shall continue to be operative until such Obligations have been
fully and finally satisfied or you have furnished us an indemnity and from an
indemnitor satisfactory to us.
( c ) If you terminate this Agreement pursuant to paragraph 7
(a)(i), or if we terminate the Agreement pursuant to paragraph 7(a)(ii) or
(iii), in any such case, in addition to your other Obligations, you will pay us
on or before the effective date of termination an early termination fee as
follows:
(i) If termination occurs during the first
year in which this Agreement is in effect, you shall pay us $3,000,000;
(ii) If termination occurs during the second
year in which this Agreement is in effect, you shall pay us $2,000,000;
(iii) If termination occurs during the third year in
which this Agreement is in effect, you shall pay us $1,000,000.
Our rights under this paragraph 7(c) are in addition to our
other rights under this agreement.
( d ) Upon an Event of Default, we may, if we so elect, at any
time thereafter, in addition to our other rights,
<PAGE>
suspend indefinitely the making of any additional Loans and/or the issuance of
additional L/Cs and/or reduce the Borrowing Base in a manner and in amounts in
our sole discretion, without at the same time terminating this Agreement.
However, such suspension shall not be a waiver of or otherwise deprive us of any
of our other rights, including but not limited to the right at any time to
terminate this Agreement because of the occurrence of such event or any other
event, or the right to terminate this Agreement pursuant to paragraph 7 (a)(i)
or 7 (a)(iii) hereof, all of which rights are now hereby, and then shall be
automatically, reserved without any other action on our part.
8. DEFINITIONS
As used herein
"Alternate Base Rate" shall have the meaning set forth
in Section 2(b)(i) hereof.
"Applicable Margin" shall have the meaning set forth in
Section 2(b)(i) hereof.
"Applicable Permitted Overadvances" shall mean solely
with respect to the period commencing on the Effective Date and ending on
September 4, 1995, provided that no Event of Default has occurred or is
continuing (in which event the overadvance shall be immediately repaid in its
entirety), the amounts set forth below:
$4,000,000 Effective Date - 2/20/95
2,000,000 2/21/95 - 3/4/95
4,000,000 3/5/95 - 3/20/95
2,000,000 3/21/95 - 4/4/95
4,000,000 4/6/95 - 4/20/95
2,000,000 4/21/95 - 5/4/95
4,000,000 5/5/95 - 5/20/95
2,000,000 5/21/95 - 6/4/95
5,000,000 6/5/95 - 6/20/95
3,000,000 6/21/95 - 7/4/95
7,000,000 7/5/95 - 7/20/95
5,000,000 7/21/95 - 8/4/95
7,000,000 8/5/95 - 8/20/95
3,000,000 8/21/95 - 9/4/95
4,000,000 9/5/95 - 9/20/95
"Bank" shall mean The Bank of New York, New York, New
York.
"Borrowing Base" shall have the meaning set forth in
Section 2(a) hereof.
"Collateral" shall mean all of your Receivables and
Inventory and any other property in our possession or any other security for the
Obligations whether coming into existence or into our possession before, on or
after the effective date of termination and all proceeds thereof.
"Contract Quarter" shall have the meaning set forth in
Section 2(b)(v) hereof.
"Credit Limit" shall have the meaning set forth in
Section 2(a) hereof.
"Dispute" shall have the meaning set forth in paragraph
5(a) hereof.
"Effective Date" shall have the meaning set forth in the
introductory paragraph hereof.
"Eligible Letters of Credit" shall have the meaning set
forth in Section 2(a) hereof.
"Eligible Receivables" shall have the meaning set forth
in paragraph 2(a) hereof.
"Eligible Retail Inventory" shall have the meaning set
forth in Section 2(a) hereof.
<PAGE>
"Eligible Wholesale Inventory" shall have the meaning
set forth in Section 2(a) hereof.
"Event of Default" shall mean any of the events set
forth in paragraph 7(a)(ii) hereof.
"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or if such day is not a business day, for the next
preceding business day) by the Federal Reserve Bank of New York, or if such rate
is not so published for any day which is a business day, the average of
quotations for such day on such transactions received by the Bank from three
Federal funds brokers of recognized standing selected by the Bank.
"Formula Amount" shall have the meaning set forth in
Section 2(a) hereof.
"Infusion Event" shall mean a cash infusion of either
equity or subordinated debt in form satisfactory to us.
"Inventory" shall mean all of your now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in your business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them and all proceeds of the foregoing.
"L/C's" shall have the meaning set forth in paragraph
2(a) hereof.
"Letter of Credit Fee" shall have the meaning set forth
in Section 2(b)(iv) hereof.
"Loans" shall have the meaning set forth in paragraph
2(a) hereof.
"Minimum Commission" shall have the meaning set forth in
Section 2(b)(v) hereof.
"Minimum Commission Charge" shall have the meaning set
forth in Section 2(b)(v) hereof.
"Obligations" means all amounts of any nature
whatsoever, direct or indirect, absolute or contingent, due or to become due,
arising or incurred heretofore or hereafter, arising under this or any other
agreement or by operation of law, now or hereafter owing by you to us or to any
parent, subsidiary or affiliate of ours. Said amounts include, but are not
limited to, loans, debts and liabilities heretofore or hereafter acquired by
purchase or assignment from other present or future clients of ours, or through
participation. Without limiting the foregoing, Obligations shall include Loans,
L/Cs, interest, commissions, bank (including those of L/C issuing confirming and
negotiating banks) related charges, costs, fees, expenses, taxes and all
Receivables and other amounts charged or chargeable to your account hereunder.
"Other Documents" shall have the meaning set forth in
Section 9(r)(i) hereof.
"Permitted Liens" shall have the meaning set forth in
Section 5(d) hereof.
"Prime Rate" shall mean the prime commercial lending
rate of the Bank as publicly announced to be in effect from time to time, such
rate to be adjusted automatically, without notice, on the effective date of any
change in such rate.
"Receivables" means all amounts and all forms of
obligations now or hereafter owing to you (including but not limited to
accounts, instruments, contract rights, documents and chattel paper) and general
intangibles; all security therefor and guaranties thereof; all of your rights as
an unpaid seller of goods and your rights to goods sold which may be represented
thereby (including but not limited to your rights of replevin and stoppage in
transit); all of your books of account, records, files, and documents relating
thereto and the equipment containing said books, records, files and documents;
all of your rights under insurance policies relating to the foregoing; the right
to use the Trade Names in connection with our rights with respect to the goods;
and all proceeds of the foregoing.
"Reserves" means reserves for all Obligations chargeable
to your account and Obligations which, in our sole judgment, may be chargeable
to your account in the future, including but not limited to all ineligible
inventory and Receivables, disputed items, deductions, allowances, credits, bill
and hold and consignment sales, steamship
<PAGE>
guarantees, airway releases and such additional amounts as we in our sole
discretion deem appropriate.
9. COVENANTS
You covenant and agree that, until the later of the termination of this
Agreement or the satisfaction in full of all of the Obligations
( a ) you will not
(i) permit any of your property (including
but not limited to Receivables, inventory, machinery, equipment, furniture,
fixtures, plant, and real estate) to be encumbered by any security interest,
lien, mortgage, or other encumbrance of any nature whatsoever except in favor of
us or with respect to Permitted Liens.
(ii) Intentionally Omitted.
(iii) incur any indebtedness, or guaranty the
obligations of any other entity, except that you may incur (i) unsecured debt to
your trade suppliers in the ordinary course of your business, (ii) debt to your
subsidiaries, as permitted hereunder, (iii) indebtedness in connection with
purchase money liens in accordance with paragraph 5(d)(vi) hereof and (iv) debt
subordinated to the Obligations in amounts and on terms acceptable to us
("Subordinated Debt").
(iv) Intentionally Omitted.
( v ) make any principal payments on Subordinated Debt
without our prior written consent which after due consideration of your
financial condition, results of operations, our collateral coverage and the
projected needs of your business will not be unreasonably withheld.
( vi ) permit your Tangible Net Worth (equity plus
subordinated debt minus goodwill and intangible assets) to be less than the
following amounts as of the following dates:
($5,000,000) As of March 31, 1995
($9,000,000) As of June 30, 1995
($9,000,000) As of September 30, 1995
($9,000,000) As of December 31, 1995
Intangible assets include write ups, unamortized
debt discount and expense, unamortized deferred charges, patents, licenses, R&D
expenses, and other intangible items.
( vii ) permit your Working Capital (the amount
by which your current assets exceed your current liabilities) to be less than
the following amounts on the following dates:
($7,000,000) As of March 31, 1995
($11,000,000) As of June 30, 1995
($11,000,000) As of September 30, 1995
($11,000,000) As of December 31, 1995
The amounts set forth in the above subsections (vi) and (vii) shall be amended
for the calendar years 1996, 1997 and 1998 upon receipt by us at least 30 days
prior to December 31st of each year of your business plan. If you fail to
deliver such business plan or after receipt of same you and we cannot agree on
amended financial covenants, then you agree that your net loss for any fiscal
quarter during which these covenants are not in effect shall not be more than
$1,000,000.
In addition, to the extent that an Infusion Event has occurred, the amounts set
forth in the above subsections (vi) and (vii) shall be increased by an amount
equal to the product of (A) the net proceeds received by you and (B) 50%.
<PAGE>
( viii ) purchase or acquire obligations or stock
of, or any other interest in, any entity, except (A) obligations issued or
guaranteed by the United States of America of any agency thereof, (B) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (C) certificates of time
deposit and bankers' acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (x) such bank has a combined capital and surplus of at lease
$500,000,000, or (y) its debt obligations, or those of a holding company of
which it is a subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency and (D) U.S. money market
funds that invest solely in obligations issued or guaranteed by the United
States of America or an agency thereof, and (E) Eurodollar time deposits with
financial institutions with a published rating of not less than A-1 or P-1 (or
the equivalent rating).
( ix ) make advances, loans or extensions of credit to
any entity, including, without limitation, any parent, subsidiary or affiliate
except for loans to your subsidiaries not to exceed $4,000,000.00 in aggregate
amount at any time.
( x ) declare, pay or make any dividend or
distribution on any shares of common stock or preferred stock (other than
dividends or distributions payable in your stock, or split-ups or
reclassifications of your stock) or apply any of your funds, property or assets
to the purchase, redemption or other retirement of any common or preferred
stock, or of any options to purchase or acquire any such shares of your common
or preferred stock, except for purchases of your common stock made on behalf of
your employees pursuant to your 401(K) plan and except that if an Infusion Event
occurs, son long as (A) no Event of Default has occurred or is continuing and
(B) the Obligations hereunder do not exceed the Formula Amount less the
Applicable Permitted Overadvances, then you may make a dividend or distribution
not to exceed 20% of the net proceeds of such infusion.
( xi ) substantially change the nature of the business
in which you are presently engaged, nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the ordinary course of business for assets or property which are useful in,
necessary for and are to be used in your business as presently conducted.
( xii ) Directly or indirectly, purchase, acquire or
lease any property from, or sell, transfer or lease any property to, or
otherwise deal with, any affiliate, except disclosed transactions in the
ordinary course of business, on an arm's-length basis on terms no less favorable
than terms which would have been obtainable from a person other than an
affiliate.
<PAGE>
( xiii ) enter as lessee into any lease
arrangement for real or personal property other than a renewal or extension of
existing real property leases listed on Exhibit D or replacements thereof
(unless capitalized and otherwise permitted hereunder) except for leases entered
into with respect to equipment so long as rentals under such leases do not
exceed the aggregate amount of $1,500,000.00 per year.
( xiv ) Enter into any partnership, joint venture or
similar arrangement without our prior written consent, which consent will not be
unreasonably withheld.
( xvi ) Change your fiscal year for financial reporting
purposes from June 30 or make any change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law without our prior written consent, which
shall not be unreasonably withheld.
( b ) you will
( i ) pay to us on demand all usual and customary fees
and expenses which we incur in connection with (a) the forwarding of Loan
proceeds and (b) the establishment and maintenance of any lockbox account as
provided for in paragraph 6(i). We may, without making demand, charge your
account for all such fees and expenses.
( ii ) conduct continuously and operate actively your
business according to good business practices and maintain all of your
properties useful or necessary in your business in good working order and
condition (reasonable wear and tear excepted) including, without limitation, all
licenses, patents, copyrights, Tradenames, trade secrets and trademarks; (b)
keep in full force and effect your existence and comply in all material respects
with the laws and regulations governing the conduct of your business and (c)
make all such reports and pay all such franchise and other taxes and license
fees and do all such other acts and things as may be lawfully required to
maintain your rights, licenses, leases, powers and franchises under the laws of
the United States or any political subdivision thereof.
( iii ) promptly discharge all of your obligations of
any nature whatsoever, whether now existing or hereafter arising, owing to any
person, firm, corporation or governmental agency.
( c ) you will give us
(i) once in each calendar year (but not more than
twelve months shall elapse between the first and second report in each calendar
year) a physical count of your inventory observed by an independent public
accountant acceptable to us in a manner consistent with procedures followed in
connection with the certification of your annual financial statements unless
waived in writing by us.
(ii) not later than ten business days after the end
of each month, inventory designations certified by your Treasurer to be
reasonably accurate, all in form and substance satisfactory to us. Exhibit C
attached hereto is satisfactory to us.
(iii) from time to time at our request financial
projections in form and substance satisfactory to us;
(iv) prompt written notice of any breach or default,
or the occurrence of an event which with notice or lapse of time would
constitute a breach or default, under this Agreement or your Obligations to us,
or any other agreement material to your business (including but not limited to
all license agreements relating to inventory), your violation of any law, rule,
order or regulation of any governmental agency applicable to your or the
Collateral, and the commencement or assertion by or against you of any claim,
suit, action or proceeding of a civil, criminal or an administrative nature or
the occurrence of any events adversely affecting the value of the Collateral or
our rights or your condition or prospects. We may, but shall not be obligated
to, cure any such breach, default or violation and, if we elect to do so, you
will on demand reimburse us for the cost and expenses incurred by us in
connection therewith.
<PAGE>
(v) Within 45 days after the close of each of the
first three quarters in each of your fiscal years consolidated balance sheets of
you and your subsidiaries as at the end of such quarter, and the related
consolidated statements of income, retained earnings and changes in financial
position of you and your subsidiaries for the elapsed portion of the fiscal year
ended with the last day of such quarter setting forth in each case in
comparative form the figures for the corresponding periods of the previous
fiscal year, each of which shall be accompanied by a certificate of your chief
financial officer in form and substance satisfactory to us.
(vi) within 90 days after the end of each of your
fiscal years, consolidated balance sheets of you and your subsidiaries as at the
end of such fiscal year and the related consolidated statements of income,
retained earnings and changes in financial position of you and your subsidiaries
for such fiscal year, setting forth in comparative form the figures as at the
end of and for the previous fiscal year, in each case certified by independent
certified public accountants of recognized standing satisfactory to us, whose
certificates shall be in scope and substance satisfactory to us. Together with
such financial statements you shall deliver a certificate of your chief
financial officer in form and substance satisfactory to us and a certificate of
such accountants addressed to us (x) stating that you are authorized to deliver
such financial statements and their certifications thereof to us pursuant to
this Agreement and that they have caused this Agreement to be reviewed and that,
in making the examination necessary for the certification of such financial
statements, as a result of the output of the audit work, nothing has come to
their attention to lead them to believe that any default hereunder or breach
hereof exists, or, if such is not the case, specifying such default or breach
and its nature, when it occurred and whether it is continuing and (y) having
attached the calculations required to establish whether or not you and your
subsidiaries were in compliance with the covenants contained in paragraph
9(a)(ii) through 9(a)(viii).
(vii) such other reports and documents as and when we
reasonably request including but not limited to your reports to stockholders and
any documents filed with any governmental agency or stock exchange.
(viii) With respect to Receivables, on or before the
fifteenth (15th) day of each month as and for the prior month accounts
receivable ageings. In addition, you will deliver to us with respect to
Receivables at such intervals as we may require: (i) confirmatory assignment
schedules, (ii) copies of customer's invoices, (iii) evidence of shipment or
delivery and (iv) such further schedules, documents and/or information regarding
the Receivables as we may request, including, without limitation, trial balances
and test verifications. We shall have the right to confirm and verify all
Receivables by any manner and through any medium we consider advisable and do
whatever we may deem reasonably necessary to protect our interests hereunder.
The items to be provided under this subdivision are to be in form satisfactory
to us and executed by you and delivered to us from time to time solely for our
convenience in maintaining records of the Collateral, and your failure to
deliver any of such items shall not affect, terminate, modify or otherwise limit
our lien on or security interest in the Collateral.
(ix) quarterly, your certificate signed by your Chief
Financial Officer stating, to the best of his/her knowledge, that you are in
compliance in all material respects with all federal, state and local laws
including but not limited those relating to environmental protection and control
and employees.
<PAGE>
10. PLACE OF PAYMENT; NEW YORK LAW AND COURT
( a ) All Obligations shall be paid at our office in New York,
New York.
( b ) This agreement shall be governed by and construed
according to the laws of the State of New York. All terms used herein, unless
otherwise defined herein, shall have the meanings given in the New York Uniform
Commercial Code.
( c ) Each of us expressly submits and consents to the
exclusive jurisdiction of the Supreme Court of the State of New York, and the
United States District Court for the Southern District of New York, with respect
to any controversy arising out of or relating to this agreement or any
supplement hereto or to any transactions in connection therewith and hereby
waives personal service of the summons, complaint or other process or papers to
be issued therein and hereby agrees that service of such summons, complaint,
process or papers may be made by registered or certified mail addressed to the
other party at the address appearing herein, but nothing herein shall bar us
from commencing any action against you in any court in any jurisdiction in
addition to those specified above.
11. REPORTS; RECORDS; ASSURANCES; WAIVERS; REMEDIES; ADDITIONAL
WARRANTIES AND REPRESENTATIONS; CONDITIONS; MISCELLANEOUS
( a ) We may at all times during business hours have access
to, and inspect, audit, and make extracts from, all of your records, files and
books of account, and we may charge your account with the costs, fees or
expenses incurred in connection therewith and our then standard charges for each
examiner or auditor.
( b ) You shall perform all acts and execute all documents
under this agreement requested by us to perfect and maintain our security
interest and other rights in the Collateral and under this Agreement.
( c ) Failure by us to exercise any right, remedy or option
under this Agreement or delay by us in exercising the same will not operate as a
waiver; no waiver by us will be effective unless we confirm it in writing and
then only to the extent specifically stated.
( d ) We may charge to your account, when incurred by us, the
amount of legal fees (including fees, expenses and costs payable or allocable to
attorneys retained or employed by us) and other costs, fees and expenses
incurred by us in negotiating or preparing this agreement and any legal
documentation required by us or requested by you in connection with this
agreement or any amendments, waivers or supplements thereof, or in enforcing,
evaluating, or analyzing our rights hereunder or in connection with litigation
arbitration or administrative proceedings relating to any controversy arising
out of this agreement, or in enforcing, protecting, preserving or perfecting our
interest in, any Collateral, including without limitation all taxes assessed or
payable with respect to any Collateral, and the costs of all public record
filings, appraisals, reports and searches relating to you or any Collateral. We
may file Financing Statements under the Uniform Commercial Code without your
signature or, if we so elect, sign and file them as your agent.
( e ) Our rights and remedies under this agreement will be
cumulative and not exclusive of any other right or remedy we may have hereunder
or under the Uniform Commercial Code or otherwise. Without limiting the
foregoing, if we exercise our rights as a secured party we may, at any time or
times, without demand, advertisement or notice, all of which you hereby waive,
sell the Collateral, or any part of it, at public or private sale, for cash,
upon credit, or otherwise, at our sole option and discretion, and we may bid or
become purchaser at any such sale, free of any right of redemption which you
hereby waive. After application of all Collateral to your Obligations (in such
order and manner as we in our sole discretion shall determine), you shall remain
liable to us for any deficiency.
(f) We shall have no liability hereunder (i) for any losses
or damages (including indirect, special or consequential damages) resulting from
our refusal to assume, or delay in assuming, the Credit Risk, or any
malfunction, failure or interruption of communication facilities, or labor
difficulties, or other causes beyond our control; or (ii) for indirect, special
or consequential damages arising from accounting errors with respect to your
account with us. Our liability for any default by us hereunder shall not exceed
a refund to you of any commission paid by you during the period starting on the
occurrence of the default and ending when it is cured or waived, or when this
agreement is terminated, whichever is earlier.
(g) This agreement cannot be changed or terminated orally
and is for the benefit of and binding upon
<PAGE>
the parties and their respective successors and assigns. We may assign or sell
participations in this Agreement to others. However, you may not assign any of
your rights or delegate any of your duties hereunder without our prior written
consent. This agreement, and any concurrent or subsequent written supplements
thereto or amendments thereof signed by both of us, represent our entire
understanding and supersede all inconsistent agreements and communications,
written or oral, between your and our officers, employees, agents and other
representatives.
(h) This agreement shall not be effective unless signed by
you below, and signed by us at the place for our acceptance.
(i) TO THE EXTENT LEGALLY PERMISSIBLE, BOTH YOU AND WE WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS
AGREEMENT OR THE OTHER DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
(j) Intentionally omitted.
(k) You shall keep proper books of record and account in which
full, true, correct and appropriate entries will be made of all dealings or
transactions of or in relation to your business and affairs, including, but not
limited to, appropriate accruals and allowances. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant
acceptable to us as shall then be regularly engaged by you.
(l) You hereby irrevocably authorize and direct all accountants
and auditors employed by you at any time during the term of this Agreement to
exhibit and deliver to us copies of any of your financial statements, trial
balances or other accounting records of any sort, and to disclose to us any
information they may have concerning your financial status and business
operations. You hereby authorize all federal, state and municipal authorities
to furnish to us copies of reports or examinations relating to you, whether made
by you or otherwise.
(m) You shall comply with all acts, rules, regulations, laws and
orders of any legislative, administrative or judicial body or official
applicable to you, the Collateral or any part thereof, or to the operation of
your business.
(n) At your own cost and expense in amounts and with carriers
acceptable to us, you shall (i) keep all properties in which you have an
interest insured against such hazards and for such amounts, as is customary for
companies engaged in businesses similar to yours; (ii) maintain a bond in such
amounts as is customary for companies engaged in businesses similar to yours,
insuring against criminal misappropriation of your employees; (iii) maintain
public and product liability insurance against claims for personal injury, death
or property damage suffered by others; (iv) maintain all such workmen's
compensation or similar insurance as may be required under the laws of any
jurisdiction in which you are engaged in business; (v) maintain a life insurance
policy covering the life of Josephine Chaus in the face amount of at least
$10,000,000.00; (vi) furnish us with (A) copies of all policies and evidence of
the maintenance of such policies, and (B) appropriate loss payable endorsements
in form and substance satisfactory to us, naming us as loss payee as our
interest may appear with respect to all insurance coverage referred to in
clauses (i) with respect to inventory, (ii) with respect to Receivables and
proceeds thereof, and (v) above. In the event of any loss thereunder, the
carriers named therein hereby are directed by you and us to make payment for
such loss to us and not to you and us jointly. If any insurance losses are paid
by check, draft or other instrument payable to you or to you and us jointly, we
may endorse your name thereon and do such other things as we may deem advisable
to reduce the same to cash. We are hereby authorized to adjust and compromise
claims under insurance coverage referred to in clauses (i), (ii) and (v) above.
All loss recoveries received by us upon such insurance may be applied to the
Obligations, in such order as we in our sole discretion shall determine. In the
event that the amount of the loss exceeds the amount of the recovery, such
deficiency shall be paid by you to us, on demand.
(o) If you fail to obtain insurance as hereinabove provided, or
to keep it in force, we, if we so elect, may obtain such insurance and pay the
premium therefor for your account, and charge your account therefor.
(p) You will pay, when due, all taxes, assessments and other
charges or claims lawfully levied or assessed upon you or any of the Collateral.
If any tax by any governmental authority is or may be imposed on or as a result
of any transaction between you and us which we may be required to withhold or
pay or if any taxes, assessments, or other charges remain unpaid after the date
fixed for their payment, or if any claim shall be made which, in your opinion,
may possibly create a valid lien, charge or claim on the Collateral, we may
without notice to you pay the taxes, assessments, liens, charges or claims and
you hereby indemnify and hold us harmless in respect thereof. The amount
<PAGE>
of any payment by us under this section shall be charged to your account.
(q) You shall at all times pay, when and as due, rental
obligations under all leases, and shall otherwise comply, in all material
respects, with all other terms of such leases and keep them in full force and
effect and, at our request, will provide evidence of having done so.
(r) The Borrower represents and warrants as follows:
(1) Authority. The Borrower has full power, authority
and legal right to enter into this Agreement and all related documents,
supplements and agreements ("Other Documents") and perform all obligations
hereunder and thereunder. The execution, delivery and performance hereof and of
the Other Documents are within the Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of the Borrower's by-
laws, certificate of incorporation or other applicable documents relating to the
Borrower's formation or to the conduct of the Borrower's business or of any
agreement or undertaking to which the Borrower is a party or by which the
Borrower is bound, and will not conflict with nor result in any breach any of
the provisions of or constitute a default thereunder or result in the creation
of any lien upon any asset of the Borrower.
(2) Formation and Qualification. The Borrower is duly
incorporated and in good standing under the laws of the State of New York and is
qualified to do business and is in good standing in all states in which
qualification and good standing are necessary for the Borrower to conduct its
business and own its property. Borrower has delivered to Lender true and
complete copies of its certificate of incorporation and by-laws and will
promptly notify Lender of any amendment or changes thereto.
(3) Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this Agreement and the
Other Documents shall be true at the time of Borrower's execution of this
Agreement and the Other Documents, and shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
(4) Tax Returns. Borrower has filed all federal, state
and local tax returns and other reports it is required by law to file and has
paid all taxes, assessments, fees and other governmental charges that are due
and payable. The provision for taxes on the books of Borrower are adequate for
all years not closed by applicable statutes, and for its current fiscal year,
and Borrower has no knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books.
(5) Financial Statements. All financial statements
furnished by Borrower to Lender are accurate, complete and correct and fairly
reflect the financial condition of Borrower and have been prepared in accordance
with GAAP, consistently applied. The cash flow projections of the Borrower and
its projected balance sheets are based on underlying assumptions which provide a
reasonable basis for the projections contained therein and reflect Borrower's
judgment baed on present circumstances of the most likely set of conditions and
course of action for the project period. Since the end of the period covered by
the most recent financial statement furnished by Borrower, there has been no
change in the condition, financial or otherwise, of the Borrower or any of its
subsidiaries and no change in the aggregate value of the assets of Borrower and
its subsidiaries, except changes in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse.
(6) Solvency. Before and after giving effect to the
transactions contemplated by this Agreement, the Borrower is and will be
solvent, able to pay its debts as they mature, has and will have capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (A) as of the Effective Date, the fair present saleable value of its
assets, calculated on a going concern basis, is in excess of the amount of its
liabilities and (B) subsequent to the Effective Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities.
(7) Patents, Trademarks, Tradenames, Copyrights and
Licenses. All patents, patent applications, trademarks, trademark applications,
Tradenames, copyrights, copyright applications, trade secrets and licenses owned
or utilized by Borrower in the United States of America are valid and have been
duly registered or filed with all appropriate governmental authorities; there is
no objection or pending challenge to the validity of any such patent, trademark,
copyright, Tradename, trade secret or license and Borrower is not aware of any
grounds for any challenge.
(8) Licenses and Permits. Borrower (i) is in
compliance with and (ii) has procured and is now in
<PAGE>
possession of, all material licenses or permits required by any applicable
federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective of the Borrower.
(9) Default of Indebtedness. Borrower is not in
default in the payment of the principal of or interest on any Indebtedness due
to any one party, which at any time exceeds an aggregate amount of $200,000 or
under any instrument or agreement under or subject to which any indebtedness has
been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving of
notice, or both, constitutes or would constitute an event of default thereunder.
(10) No Default. Borrower is not in default in the
payment or performance of any of its contractual obligations and no event has
occurred which with the giving of notice or passage of time, would constitute a
default under this Agreement or any Other Document.
(11) No Burdensome Restrictions. Borrower is not party
to any contract or agreement the performance of which would adversely affect the
business, assets, operations, condition or prospects (financial or otherwise) of
the Borrower. Borrower has not agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a lien or encumbrance
of any kind.
(12) No Labor Disputes. Borrower is not involved in
any labor dispute; there are no strikes or walkouts or union organization of any
of Borrower's employees threatened or in existence and no labor contract is
scheduled to expire before August 31, 1993.
(13) Margin Regulations. No part of the proceeds of
any Advance or Loan will be used for "purchasing" or "carrying" "margin stock"
as defined in Regulation U of such Board of Governors.
(14) Disclosure. No representation or warranty made by
the Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection herewith contains any
untrue statement or omits to state any fact necessary to make the statements
herein or therein not misleading. There is no fact known to the Borrower or
which reasonably should be known to the Borrower which the Borrower has not
disclosed to Lender in writing with respect to the transactions contemplated by
this Agreement which adversely affects the condition (financial or otherwise),
results of operations, business, or assets of the Borrower.
(s) Conditions to Initial Advances The agreement of
Lender to make the initial Advances or Loans or issue the L/C requested to be
made or issued on the Effective Date is subject to the satisfaction, or waiver
by Lender, immediately prior to or concurrently with the making of such Advances
or Loans or issuance of such L/Cs of the following conditions precedent:
(i) Filings Registrations and Recordings Each
document (including, without limitation, any Uniform Commercial Code financing
statement) required by this Agreement, any related agreement or under law or
reasonably requested by the Lender to be filed, registered or recorded in order
to create, in favor of the Lender, a perfected security interest in or lien upon
the Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lender shall have received an acknowledgment
copy, or other evidence satisfactory to it, or each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(ii) Corporate Proceedings of the Borrower The
Lender shall have received a copy of the resolutions in form and substance
reasonably satisfactory to Lender, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of this Agreement, and
the Other Documents, and (ii) the granting by Borrower of the security interests
in and liens upon the Collateral in each case certified by the Secretary or an
Assistant Secretary of the Borrower as of the Effective Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(iii) Incumbency Certificates of the Borrower
The Lender shall have received a certificate of the Secretary or any Assistant
Secretary of the Borrower, dated the Effective Date, as to the incumbency and
signature of the officers of the Borrower executing this Agreement, any
certificate or other documents to be delivered
<PAGE>
by it pursuant hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary;
(iv) Guaranty The Lender shall have received
the executed personal guaranty of Josephine Chaus, limited in amount to
$5,000,000..
(v) No Litigation No litigation, investigation
or proceeding before or by any arbitrator or governmental authority shall be
continuing or threatened against the Borrower or against the officers or
directors of the Borrower except as set forth in Section 5(f) above (A) in
connection with this Agreement, the Other Documents, or any of the transactions
contemplated thereby ("Transactions") or (B) which if adversely determined,
would, in the reasonable opinion of the Lender, have a material adverse effect
on the business, assets, operations or condition (financial or otherwise) of the
Borrower; and (ii) no injunction, writ, restraining order or other order of any
nature materially adverse to the Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any governmental authority;
(vi) Financial Condition Opinions The Lender
shall have received executed Officers Certificates of the Borrower satisfactory
in form and substance to it, certifying the solvency of the Borrower after
giving effect to the Transactions and the indebtedness contemplated thereby and
as to the Borrower's financial resources and its ability to meet its obligations
and liabilities as they become due, to the effect that as of the Effective Date
and after giving effect to the Transactions:
(A) the assets of Borrower, at a fair
valuation, exceed the total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) of Borrower;
(B) current projections which are based on
underlying assumptions which provide a reasonable basis for the projections and
which reflect Borrower's judgment based on present circumstances, the most
likely set of conditions and Borrower's most likely course of action for the
period projected, demonstrate that Borrower will have sufficient cash flow to
enable it to pay its debts as they mature; and
(C) Borrower has adequate capital to continue
as a going concern.
For purposes of subsection (A) above, the "fair valuation" of the assets of
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, whether through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
(vii) Collateral Examination The Lender shall
have completed Collateral examinations and received appraisals and reports, the
results of which shall be satisfactory in form and substance to the Lender, of
the assets of the Borrower and all books and records in connection therewith;
(viii) Fees The Lender shall have received all
fees payable to the Lender on or prior to the Effective Date;
(ix) Pro Forma Financial Statements Lender
shall have received a copy of pro forma financial statements which shall be
satisfactory in all respects to Lender;
(x) Standby Letter of Credit Lender shall have
received Eligible Letters of Credit in the aggregate amount of $10,000,000;
(xi) Subordination Agreement Lender shall have
entered into a Subordination Agreement with Borrower and holders of the
Subordinated Debt which shall set forth the basis upon which said holders may
receive, and Borrower may make, payments under the Subordinated Debt, which
basis shall be satisfactory in form and substance to Lender in its sole
discretion;
(xii) Other Documents Lender shall have
received the Other Documents executed in form and substance satisfactory to
Lender;
(xiii) Other All corporate and other
proceedings, and all documents, instruments and other
<PAGE>
legal matters in connection with the Transactions shall be satisfactory in form
and substance to the Lender and its counsel.
(t) Conditions to Each Advance The agreement of Lender
to make any Loan or issue any L/C requested to be made or issued on any date
(including, without limitation, those first made or issued), is subject to the
satisfaction of the following conditions precedent as of the date such Loan is
made:
(i) Representations and Warranties Each of the
representations and warranties made by the Borrower in or pursuant to this
Agreement, and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such day as if made on and as of such date;
(ii) No Default No default or event which with
the giving of notice or passage of time would constitute a default herein shall
have occurred and be continuing on such date, or would exist after giving effect
to the Loans requested to be made, or L/Cs requested to be issued on such date,
provided, however, that Lender in its sole discretion, may continue to make
Loans notwithstanding the existence of such default or event; and
(iii) Maximum Amount In the case of any Loans,
Letters of Credit or indemnity for L/Cs requested to be made or issued on such
date, after giving effect thereto, the aggregate Obligations shall not exceed
the Borrowing Base and the aggregate Loans shall not exceed $40,000,000.00.
Each request for a Loan, or L/C , by you hereunder shall constitute a
representation and warranty by you as of the date of the making or issuance
thereof that the conditions contained in this subsection shall have been
satisfied.
12. APPLICATION OF PAYMENTS
We shall have the continuing and exclusive right to apply or
reverse and reapply any and all proceeds of Collateral to any portion of the
Obligations. To the extent that you make a payment or we receive any payment or
proceeds of the Collateral for your benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by us.
13. INDEMNITY
Borrower shall indemnify Lender from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against Lender in any litigation, proceeding or
investigation instituted or conducted by any governmental agency or
instrumentality or any other entity with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement, whether or not the Lender is a party thereto, except to the extent
that any of the foregoing arises out of the gross negligence or willful
misconduct of Lender.
14. NOTICE
Any notice or request hereunder may be given to Borrower or to
Lender at their respective addresses set forth below or at such other address as
may hereafter be specified in a notice designated as a notice of change of
address under this Section. Any notice or request hereunder shall be given by
(a) hand delivery, (b) registered or certified mail, return receipt requested,
(c) telex or telegram, subsequently confirmed by registered or certified mail,
or (d) telefax to the number set out below (or such other number as may
hereafter be specified in a notice designated as a notice of change of address)
with telephone communication to a duly authorized officer of the recipient
confirming its receipt as subsequently confirmed by registered or certified
mail. Notices and requests shall, in the case of those by mail or telegram be
deemed to have been given when deposited in the mail, or delivered to the
telegraph office addressed as provided in this section.
(A) If to Lender, at: BNY Financial Corporation
<PAGE>
1290 Avenue of the Americas
New York, NY 10104
Attention: Andrew Rogow, VP
Telephone: 212-408-7290
FAX: 212-408-4384
(B) If to Borrower, at: Bernard Chaus, Inc.
1410 Broadway
New York, NY 10018
Attn: Josephine Chaus, Chief Executive Officer
Telephone: 212-354-1280
FAX: (212) 921-4619
and Bernard Chaus, Inc.
800 Secuacus Road
Secaucus, NJ 07094
Attn: Wayne Miller, Chief Financial Officer
Telephone: 201-863-4646
FAX: 201-863-4269
with a copy to:
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, NY 10022
Attention: Richard A. Goldberg, Esq.
Telephone: (212) 891-9221
FAX: (212) 891-9442
15. SURVIVABILITY
If any or part of this Agreement is contrary to, prohibited by,
or deemed invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
<PAGE>
16. INJUNCTIVE RELIEF
Borrower recognizes that, in the event Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy at law may prove to be inadequate relief to Lender;
therefore, Lender if Lender so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Very truly yours,
BNY FINANCIAL CORPORATION
AGREED TO ON THIS 17th DAY OF February , 1995
ATTEST: BERNARD CHAUS, INC.
\S\ Wayne Miller By: \S\ Marc A. Zuckerman
- ------------------- -------------------------------
Secretary Treasurer Assistant Secretary
ACCEPTED AT NEW YORK, NEW YORK,
AS OF THE ABOVE DATE
ATTEST: BNY FINANCIAL CORPORATION
\S\ Frank Imperato By: \S\ Joseph Grimaldi
- ------------------- -------------------------------
Secretary President
1290 Avenue of the Americas
New York, New York 10104
JOSEPHINE CHAUS
April 26, 1995
Board of Directors
Bernard Chaus, Inc.
1410 Broadway
New York, New York 10018
RE: EXTENSION OF DUE DATE ON SUBORDINATED NOTES
OF BERNARD CHAUS, INC. (THE "COMPANY")
Gentlemen:
Reference is made to the Subordinated Notes payable to me by the Company
which are set forth on Schedule A (the "Notes"), each of which become due and
payable on October 1, 1995. In view of the covenants under the Company's credit
facility with BNY Financial Corp. which continue to prohibit payments of
interest or principal under the Notes, I have agreed to extend the maturity date
of the Notes. This letter shall constitute an amendment to each of the Notes to
extend the due date thereof until April 1, 1996. Except as expressly modified
herein, all of the provisions, terms and conditions contained in the Notes, as
they may have been previously amended, shall remain in full force and effect.
Very truly yours,
\S\ Josephine Chaus
------------------------
Josephine Chaus
Accepted and agreed to:
BERNARD CHAUS, INC.
BY: \S\ Marc A. Zuckerman
-------------------------------
Marc A. Zuckerman, CCE, CCM, Treasurer & Assistant Secretary
Date: April 28, 1995
001subor.doc
<PAGE>
<TABLE>
SCHEDULE A
SUBORDINATED NOTES
Payor: Bernard Chaus, Inc.
Payee: Josephine Chaus
<CAPTION>
PRINCIPAL AND ACCRUED INTEREST AT MARCH 31, 1995
ACCRUED TOTAL PRINCIPAL AND
PRINCIPAL INTEREST ACCRUED INTEREST DATE
<S> <C> <C> <C>
$ 7,365,000 $1,173,304 $ 8,538,304 6/30/86 as amended by letters, dated 6/15/88,
5/17/90, 2/21/91, 7/31/91, 10/30/92, 9/9/93,
10/18/93 and 12/31/93
1,311,500 275,311 1,586,811 8/1/93 as amended by letters dated 10/18/93 and
12/31/93
181,056 23,876 204,932 12/31/93
412,950 54,455 467,405 12/31/93
7,365,000 1,173,304 8,538,304 6/30/86 as amended by letters dated 6/15/88,
5/17/90, 2/21/91, 7/31/91, 10/30/92, 9/9/93,
10/18/93 and 12/31/93
311,500 156,056 467,556 8/1/93 as amended by letters dated 10/18/93 and
12/31/93
181,056 23,876 204,932 12/31/93
412,950 54,455 467,405 12/31/93
$17,541,012 $2,934,637 $20,475,649
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 9-MOS
<CASH> 823
<SECURITIES> 0
<RECEIVABLES> 20,977
<ALLOWANCES> 0
<INVENTORY> 15,394
<CURRENT-ASSETS> 38,489
<PP&E> 2,924
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,912
<CURRENT-LIABILITIES> 44,661
<BONDS> 0
0
0
<COMMON> 209
<OTHER-SE> (25,140)
<TOTAL-LIABILITY-AND-EQUITY> 41,912
<SALES> 41,071
<TOTAL-REVENUES> 41,071
<CGS> 33,974
<TOTAL-COSTS> 33,974
<OTHER-EXPENSES> 10,926
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 1,552
<INCOME-PRETAX> (5,369)
<INCOME-TAX> 75
<INCOME-CONTINUING> (5,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,444)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
