<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1995
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BERNARD CHAUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 2331, 2339 13-2807386
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
</TABLE>
1410 BROADWAY
NEW YORK, NY 10018
(212) 354-1280
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WAYNE S. MILLER
EXECUTIVE VICE PRESIDENT -- FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND SECRETARY
BERNARD CHAUS, INC.
1410 BROADWAY
NEW YORK, NY 10018
(212) 354-1280
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
Richard A. Goldberg, Esq. Andre Weiss, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP Schulte Roth & Zabel
919 Third Avenue 900 Third Avenue
New York, New York 10022 New York, New York 10022
(212) 758-9500 (212) 758-0404
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CAPITAL PRINTING SYSTEMS]
<PAGE>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED
CLASS OF PROPOSED MAXIMUM MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED SECURITY (1) OFFERING PRICE REGISTRATION FEE
- ---------------------------- --------------- ---------------------- -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 5,750,000 (2) $5.00 $28,750,000.00 $9,914.00
- ---------------------------- --------------- ---------------------- -------------- ----------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, on
the basis of the average of the high and low prices of the
Registrant's Common Stock as reported on the New York Stock Exchange
composite tape on October 4, 1995.
(2) Includes 750,000 shares of Common Stock which the Underwriters have
an option to purchase to cover over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
BERNARD CHAUS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
---------------------------------------------- ------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting
Price Range of Common Stock and Dividend Policy;
Description of Capital Stock; Shares Eligible
9. Description of Securities to be Registered for Future Sale
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front Cover Page; Prospectus Summary;
Risk Factors; Price Range of Common Stock and
Dividend Policy; Selected Consolidated Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Principal Stockholders; Certain
Transactions; Available Information;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1995
PROSPECTUS
5,000,000 SHARES
[CHAUS LOGO]
COMMON STOCK
All of the shares of common stock, par value $.01 per share ("Common
Stock"), being offered hereby are being sold by Bernard Chaus, Inc. (the
"Company"). The Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "CHS." On October , 1995, the last reported sale
price of the Common Stock on the NYSE composite tape was $ per share. See
"Price Range of Common Stock and Dividend Policy."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING AT PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share .... $ $ $
Total(3) ..... $ $ $
- -----------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 750,000 additional shares of Common Stock, on the same
terms and conditions set forth above, solely to cover overallotments,
if any. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by
the Underwriters, and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1995.
LEHMAN BROTHERS
November , 1995
<PAGE>
[photographs to be inserted]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto)
appearing elsewhere in or incorporated by reference into this Prospectus.
Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to Bernard Chaus, Inc. and its subsidiaries. The information
in this Prospectus, unless otherwise indicated, does not give effect to the
exercise of the over-allotment option described under "Underwriting."
References in this Prospectus to a fiscal year refer to the Company's fiscal
year ending on June 30th of each year (for example, "fiscal 1995" refers to
the Company's fiscal year ended June 30, 1995).
THE COMPANY
GENERAL
The Company designs, arranges for the manufacture of and markets an
extensive range of women's career and casual sportswear and dresses which are
marketed principally under the CHAUS(Registered Trademark) and CHAUS
SPORT(Registered Trademark) trademarks. The Company's products are sold
nationwide through department store chains, specialty retailers and other
retail outlets. The Company recently entered into an exclusive license
agreement with Nautica Apparel Inc. ("Nautica"), a leading name in men's
apparel, under which the Company will design, arrange for the manufacture of
and market a new women's career and casual sportswear line in the United
States and Puerto Rico under the Nautica(Registered Trademark) brand name.
CORPORATE STRATEGY/REPOSITIONING
In late fiscal 1994 the Company initiated a corporate restructuring
program characterized by a strengthened management team, reduced selling,
general and administrative expenses and, in an effort to capitalize on the
Company's well-recognized brand name, a return to its historic product
positioning. The following summarizes the major aspects of the Company's
restructuring and its new corporate strategy.
Strengthen Management Team. At the core of the restructuring effort has
been the recruitment of seasoned industry professionals, led by the hiring in
September 1994 of Andrew Grossman, the then President of Jones Apparel Group
Inc., as the Company's new Chief Executive Officer. The Company believes that
Mr. Grossman's extensive experience in the women's apparel industry brings
new leadership and innovation to the Company.
Increase Operating Leverage. The Company began implementing an aggressive
expense reduction program in late fiscal 1994 which was primarily responsible
for a $10.6 million reduction in selling, general and administrative expenses
in fiscal 1995. Key initiatives behind the cost savings include a headcount
reduction, the centralization of certain operating and administrative
functions, the closing of office locations, the consolidation of distribution
facilities and the closing of selected Company outlet stores. The Company
anticipates that, if its sales volume increases, it will benefit from
increased operating leverage.
Strategic Product Positioning. The Company is refocusing its product lines
to offer higher quality merchandise positioned at the high end of the "upper
moderate" through the opening price points of the "better" categories. The
Company believes that its product quality in terms of fabric choice, trimming
and fit is comparable to, yet priced below, its competitors' "better"
offerings. As a result, the Company believes that it has identified a
strategic niche in which it can offer a product line with a superior
perceived value by the consumer.
Collections Merchandising Strategy. As part of the Company's product
repositioning strategy, the Company has shifted its attention from single,
fashion-driven items to collections with an emphasis on updated traditional
styling. This shift to collections has enabled the Company to move away from
commodity pricing for single, fashion-driven items and to reduce the levels
of goods sold at off-price. The Company believes that there is a general
shift in the industry back to ensemble dressing, and the Company's collection
approach allows it to take advantage of such trend.
3
<PAGE>
Door Penetration; Door Expansion. The Company believes that it is
currently underpenetrated within its customers compared to other major
women's apparel manufacturers. The Company will seek to increase the number
of individual stores ("doors") within store groups owned by its major
customers in which its products are distributed and to increase the amount of
retail floor space allocated to its products.
Capitalize on Capabilities through Nautica Relationship. The Company
believes that its license agreement with Nautica (the "Nautica License
Agreement") represents an opportunity for growth. This relationship with
Nautica will provide the Company with access to "better" to "bridge"
departments while creating an alliance with a leading company in the apparel
industry.
The Company was organized as a New York corporation in 1975 and has its
principal executive offices located at 1410 Broadway, New York, New York
10018, and its telephone number is (212) 354-1280.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered hereby ........................... 5,000,000 shares
Common Stock to be outstanding after the offering .... 26,108,641 shares (1)
Use of Proceeds ....................................... Approximately $7.0 million to develop and
market the Company's licensed Nautica
product line; the remainder to provide
working capital to support the growth of
the Company's existing product lines.
NYSE Symbol ........................................... CHS
<FN>
- ---------------
(1) Excludes (a) an aggregate of 5,327,109 shares of Common Stock
reserved for issuance under the Company's employee and director stock
option plans of which options to purchase an aggregate of 4,363,878
shares have been issued at exercise prices ranging from $1.875 to
$5.875 per share, and (b) an aggregate of 2,946,500 shares of Common
Stock reserved for issuance upon the exercise of certain additional
options and warrants at exercise prices ranging from $2.25 to $6.75
per share. See "Business -- License Agreement with Nautica,"
"Management," "Principal Stockholders" and "Certain Transactions."
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information has been derived
from the consolidated financial statements of the Company. The financial
information below should be read in conjunction with the other financial data
of the Company and the consolidated financial statements of the Company and
notes thereto included in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ....................... $232,444 $254,190 $235,819 $206,332 $181,697
Gross profit .................... 40,075 57,775 48,396 19,738 32,600
Selling, general and
administrative expenses ........ 51,600 50,016 57,410 55,400 44,794
Restructuring expenses .......... -- -- -- 5,300 (3) 1,200 (3)
Unusual expenses ................ -- -- -- 1,900 (4) 8,333 (4)
Interest expense ................ 1,968 2,474 2,322 3,439 5,976
Net (loss) income ............... (12,004) 5,469 (10,989) (46,755) (27,913)
Net (loss) income per share (1) $ (0.66) $ 0.30 $ (0.60) $ (2.55) $ (1.40)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------------
ACTUAL AS ADJUSTED (2)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital deficiency $(13,914)
Total assets .............. 28,660
Short-term debt ........... 18,698
Long-term debt ............ 21,066
Stockholders' deficiency . (32,379)
<FN>
- ---------------
(1) Computed by dividing net (loss) income by the weighted average number
of Common and Common Equivalent Shares outstanding during the years.
For the fiscal years ended 1991, 1993, 1994 and 1995, Common
Equivalent Shares were not included in the calculations as their
inclusion would have been antidilutive.
(2) Adjusted to give effect to the consummation of this offering and the
application of the net proceeds therefrom at an assumed offering
price of $ per share.
(3) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.9 million for employee severance, and, in fiscal 1995, $1.2
million for employee severance.
(4) Includes, in fiscal 1994, expenses relating primarily to abandonment
of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture, and in fiscal 1995, $7.8 million,
primarily relating to the costs associated with the signing of the
Company's new Chief Executive Officer, and $0.5 million related to
certain legal matters.
</TABLE>
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered hereby.
HISTORY OF LOSSES; DECLINING REVENUE BASE
The Company sustained net losses of $11.0 million, $46.8 million and $27.9
million in fiscal 1993, 1994 and 1995, respectively. In addition, during such
period the Company's revenues declined from $235.8 million in fiscal 1993 to
$206.3 million in fiscal 1994 to $181.7 million in fiscal 1995. The Company
also experienced a reduction in the number of individual stores within its
major customer groups in which its products were sold during this period. The
Company believes it has taken substantial steps to reduce its selling,
general and administrative expenses and reposition its product and pricing
strategy. The Company anticipates that these changes will take some time to
benefit the Company's operating results, and it is likely that losses will
continue. No assurance can be given that revenues will eventually increase or
that the number of stores within which the Company's products are sold will
eventually increase. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WORKING CAPITAL DEFICIENCY; FUTURE FINANCING REQUIREMENTS
At June 30, 1995, the Company had a working capital deficiency of $13.9
million. The Company's business plan requires the availability of sufficient
cash flow and borrowing capacity to finance its existing product lines and to
develop and market its licensed Nautica product lines. The Company expects to
satisfy such requirements through cash flow from operations, its line of
credit under an amended and restated financing agreement with BNY Financial
Corporation ("BNYF"), originally entered into in July 1991, amended and
restated effective as of February 21, 1995, and further amended effective as
of September 28, 1995 (the "Amended Financing Agreement"), the proceeds of
this offering, and, in the near term, continued credit support from Josephine
Chaus, Chairwoman of the Board and principal stockholder of the Company. The
September 28, 1995 amendment to the Amended Financing Agreement is sometimes
referred to separately herein as the "September Amendment."
Ms. Chaus has provided the Company with various forms of financial and
credit support for several years. At June 30, 1995 the Company had
outstanding $21.1 million of subordinated promissory notes payable to Ms.
Chaus, certain of which were originally issued on June 30, 1986 and the
remainder of which were issued in February and March 1991 (the "Subordinated
Notes"). In connection with this offering, Josephine Chaus agreed to extend
the maturity date of the Subordinated Notes from July 1, 1996 to July 1,
1998. The Company has been unable to pay interest under the Subordinated
Notes as a result of covenants in the Amended Financing Agreement. Ms. Chaus
is prohibited from accelerating the Subordinated Notes on account of such
inability to pay interest through the maturity thereof. Ms. Chaus also has
provided the Company with a $10.0 million letter of credit (the "Letter of
Credit") in return for which BNYF has increased the availability under the
Amended Financing Agreement by $10.0 million. The Letter of Credit expires on
January 31, 1996, but Ms. Chaus has granted the Company an option,
exercisable by a special committee consisting of disinterested directors of
the Company (the "Special Committee"), to extend the Letter of Credit until
July 31, 1996 (the "July Option"). Ms. Chaus also has provided a $5.0 million
personal guarantee (the "Guarantee") to support the Amended Financing
Agreement. See "Certain Transactions" for information concerning
consideration to Josephine Chaus for the credit support provided by her.
The Company will seek to satisfy its operating requirements without
utilizing continued credit support from Ms. Chaus, although there can be no
assurance that it will be successful in doing so. The Company has no
understanding with Ms. Chaus pursuant to which Ms. Chaus would extend the
Letter of Credit beyond July 31, 1996. If the Letter of Credit is not renewed
beyond July 31, 1996, the Company may experience shortfalls in its borrowing
availability, unless BNYF permits overadvances under the Amended Financing
Agreement consistent with historical levels. During recent fiscal periods,
including the fourth quarter of fiscal 1995, the Company was not in
compliance with its covenants concerning working capital and net worth under
the Amended Financing Agreement. As of September 30, 1995, the
6
<PAGE>
Company had an overadvance position of approximately $5.9 million under the
Amended Financing Agreement. Although BNYF historically has waived compliance
with certain covenants and permitted such overadvances and has, pursuant to
the September Amendment, agreed to relax such covenants and permit specified
levels of overadvances through June 30, 1996, there can be no assurance that
it will continue to do so in the future. Moreover, growth of the Company's
existing product lines and the development of the Company's licensed Nautica
product line could increase the amount of the potential shortfall in
borrowing availability after the current fiscal year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CORPORATE REPOSITIONING PROGRAM
The Company is pursuing a new strategy entailing the repositioning of its
product line at higher quality levels and price points. See
"Business--General." There can be no assurance that the Company's new
strategy will be successful and, even if successful, it is anticipated that
the effects of the strategy will take some time to benefit the Company's
operating results.
NAUTICA LICENSE AGREEMENT
The Company's obligations under the Nautica License Agreement include
devoting at least $7.0 million to the fulfillment of the Company's
obligations thereunder, meeting minimum sales targets, making minimum royalty
and advertising payments, constructing a separate showroom for the display of
licensed products and the requirement that Andrew Grossman continue in his
position as Chief Executive Officer during the Nautica License Agreement's
term. There can be no assurance that the conditions to the continuance of the
Nautica License Agreement will be met or that the Company's licensed Nautica
product line will be successful. The Company does not expect to make the
first sales of its licensed Nautica products until the first quarter of
fiscal 1997. See "Business--License Agreement with Nautica."
APPAREL RETAILING
The apparel industry is a cyclical industry, with purchases of apparel and
related goods tending to decline during periods when disposable income is
low. Recently, the apparel industry generally, and the Company in particular,
have experienced a difficult retail environment. During fiscal 1994 and 1995,
the continuing difficult retail environment resulted in high levels of
promotional sales, thereby reducing the Company's gross profit margins. There
can be no assurance that this difficult retail environment will not continue
throughout fiscal 1996 and adversely affect the Company's margins.
The Company, like many of its competitors, sells to major retailers, some
of whom have engaged in leveraged buyouts or transactions in which such
retailers incurred significant amounts of debt, and some of whom have
recently emerged from the protection of the federal bankruptcy laws. It is
not clear to what extent, if any, the current financial condition of such
retailers will affect the financial condition of the Company. To date,
developments within these companies, including restructurings and, in some
instances, the closing of certain stores operated by such retailers, have not
had a material adverse effect on the Company's financial position or results
of operations. However, in light of the significant portion of the Company's
sales which are made to these customers and the related accounts receivable,
any material financial difficulties encountered by such accounts could have
an adverse effect on the Company's financial position or results of
operations.
FASHION TRENDS
The Company believes that its success depends in substantial part on its
ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. There can be no assurance, however, that
the Company will be successful in this regard. The Company attempts to
minimize the risk of changing fashion trends and product acceptance by
producing a wide selection of garments during a particular selling season and
by closely monitoring retail sales of its products. However, if the Company
misjudges the market for a number of products or product groups, it may be
faced with a significant amount of unsold finished goods inventory, which
could have an adverse effect on the Company's results of operations.
7
<PAGE>
DEPENDENCE ON MAJOR CUSTOMERS
During fiscal 1995, approximately 76% of the Company's net sales were made
to its nine largest customers, as compared to 75% in fiscal 1994 and 74% in
fiscal 1993. Except for Dillard's Department Stores, which accounted for 23%
of net sales in 1995, 16% of net sales in 1994 and 13% of net sales in 1993,
no single customer accounted for more than 10% of the Company's net sales
during such fiscal years; however, certain of the Company's customers are
under common ownership. When considered together as a group under common
ownership, sales to nine department store customers owned by The May
Department Stores Company ("May") accounted for approximately 13% of net
sales in fiscal 1995, 14% of net sales in fiscal 1994 and 17% of net sales in
fiscal 1993. Additionally, sales to nine department store companies owned by
Federated Department Stores ("Federated") accounted for approximately 11% of
the Company's net sales in fiscal 1995 and would have accounted for 12% of
net sales in fiscal 1994 and 10% in fiscal 1993 had the Federated/Macy's
merger been completed at the beginning of such periods. As a result of the
Company's dependence on these customers, they may have the ability to
influence the Company's business decisions. The loss of or significant
decrease in business from any of its major customers would have a material
adverse effect on the Company's financial position and results of operations.
See "Business--Customers" and "Business--Sales and Marketing."
FOREIGN SOURCING
During fiscal 1995, the Company's products were manufactured through third
party foreign contractors, principally in South Korea, Hong Kong, Taiwan, Sri
Lanka, China and Indonesia. As a result, the Company's operations may be
adversely affected by political instability resulting in the disruption of
trade from foreign countries in which the Company's manufacturers and
suppliers are located, the imposition of additional regulations relating to
imports or duties, taxes and other charges on imports, any significant
decreases in the value of the dollar against foreign currencies and
restrictions on the transfer of funds. In addition, the Company's import
operations are subject to constraints imposed by bilateral textile agreements
between the United States and a number of foreign countries. These agreements
impose quotas on the amount and type of goods which can be imported into the
United States from these countries. Furthermore, because the Company's
foreign manufacturers are located at significant geographic distances from
the Company, the Company is generally required to allow greater lead time for
foreign orders. This reduces the Company's manufacturing flexibility which
increases the risks associated with changes in fashion trends or consumer
preferences. See "Business--Imports and Import Restrictions."
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's sales and operating results fluctuate by
quarter, with the greatest sales occurring in the Company's first and third
fiscal quarters. It is in these quarters that the Company's Fall and Spring
product lines, which traditionally have had the highest volume of net sales,
are shipped to customers, with revenues generally being recognized at the
time of shipment. As a result, the Company experiences significant
variability in its quarterly results and working capital requirements.
Moreover, delays in shipping can cause revenues to be recognized in a later
quarter, resulting in further variability in such quarterly results.
COMPETITION
There is intense competition in the sectors of the apparel industry in
which the Company participates. The Company competes with many other apparel
companies, some of which are larger and have better established brand names
and greater resources than the Company. In some cases, the Company also
competes with private-label brands of its department store customers. The
Company believes that in order to be successful in its industry, it must be
able to evaluate and respond to changing consumer demand and taste and to
remain competitive in the areas of style, quality and price while operating
within the significant production and delivery constraints of the industry.
Furthermore, the Company's traditional department store customers, which
account for a substantial portion of the Company's
8
<PAGE>
business, encounter intense competition from so-called "off-price" and
discount retailers, mass merchandisers and specialty stores. The Company
believes that its ability to increase its present levels of sales will depend
on such customers' ability to maintain their competitive position. See
"Business--Competition."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent upon the personal efforts and
abilities of Josephine Chaus, its Chairwoman of the Board, and Andrew
Grossman, its Chief Executive Officer. See "Business-- License Agreement with
Nautica." The Company believes that the loss of the services of either Ms.
Chaus or Mr. Grossman would likely have an adverse effect on the Company. The
Company maintains key man life insurance on the lives of Ms. Chaus and Mr.
Grossman in the amounts of $35.0 million and $25.0 million, respectively.
Furthermore, the Nautica License Agreement is conditioned upon Mr. Grossman
continuing as Chief Executive Officer.
In addition, the Company believes that its future success depends in part
upon its ability to attract and retain qualified personnel. Although the
Company has made additions to its core management team, competition to
attract and retain such personnel is intense. There can be no assurance that
the Company will be successful in attracting and retaining such personnel in
the future. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDER
Following the completion of this offering, Josephine Chaus will
beneficially own approximately 51.7% of the outstanding Common Stock
excluding the shares of Common Stock underlying warrants held by her and
56.3% including such shares. Such warrants consist of warrants to purchase
1,216,500 shares of Common Stock issued in 1994 (the "1994 Warrants") and
warrants to purchase 1,580,000 shares of Common Stock proposed to be issued
in 1995 (the "1995 Warrants"). See "Principal Stockholders" and "Certain
Transactions." As a result of her stock ownership, Ms. Chaus has sufficient
voting power to determine the direction and policies of the Company, the
election of the directors of the Company, the outcome of any other matter
submitted to a vote of stockholders, and to prevent or cause a change in
control of the Company.
POTENTIAL CONFLICTS OF INTEREST; RELATED PARTY TRANSACTIONS
Certain conflicts of interest may arise as a result of Ms. Chaus's
position as a director, member of the Office of the Chairman and majority
stockholder of the Company and holder of the Company's subordinated
indebtedness. There have been a number of related party transactions between
Ms. Chaus and the Company, principally involving her provision of credit
support to the Company. Such transactions are negotiated with the Special
Committee which, where appropriate, seeks the advice of an independent
investment banking firm in connection with the approval of any such
transaction. When stockholder approval is sought, Ms. Chaus, as majority
stockholder, has the ability to approve any such matter without the
affirmative vote of any other stockholder of the Company. See "Principal
Stockholders" and "Certain Transactions."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is highly volatile. Factors
such as quarterly variations in the Company's results of operations and
changes in general market conditions could cause the market price of the
Company's Common Stock to fluctuate significantly. See "Price Range of Common
Stock and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 21,108,641 shares of Common Stock outstanding
and, upon the completion of this offering, will have 26,108,641 shares of
Common Stock outstanding. Of such shares, the shares sold in this offering
(other than shares which may be purchased by "affiliates" of the Company)
will be freely tradeable without restriction or further registration under
the Securities Act. Of the remaining outstanding shares, 13,490,050 shares of
Common Stock beneficially owned by Josephine Chaus are
9
<PAGE>
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act ("Rule 144"), and may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption
from the registration requirements of the Securities Act, including Rule 144
thereunder. Certain of the Company's executive officers and directors
(including Ms. Chaus and Mr. Grossman) have agreed not to offer, sell, or
otherwise dispose of their shares for a period of 120 days after the date of
this offering without the prior written consent of Lehman Brothers Inc.
("Lehman Brothers") as Representative of the Underwriters. Subject to the
expiration of such 120-day lockup period, the 13,490,050 shares beneficially
owned by Ms. Chaus will be eligible for sale pursuant to Rule 144. In
addition, the Company has outstanding warrants and options exercisable for an
aggregate of 7,310,378 shares of Common Stock. Mr. Grossman has registration
rights that require the filing of a Registration Statement on Form S-8 with
respect to the shares underlying his options. Such Registration Statement
will permit Mr. Grossman to sell such shares from time to time
notwithstanding the limitations imposed by Rule 144. No predictions can be
made as to the effect, if any, that market sales of shares by existing
stockholders (including shares issuable upon the exercise of such warrants
and options) or the availability of such shares for future sale will have on
the market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock after the offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing stockholders. See "Principal Stockholders," "Shares Eligible for
Future Sale" and "Underwriting."
DILUTION
Investors will experience immediate and substantial dilution in the net
tangible book value of the Common Stock offered hereby. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after deducting underwriting discounts and commissions and the
estimated expenses of the offering, are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full), assuming an
offering price of $ per share.
Of such net proceeds, the Company anticipates that it will use
approximately $7.0 million to develop and market the Company's licensed
Nautica product line. See "Business--License Agreement with Nautica." The
Company expects to use the remaining proceeds to provide working capital to
support the growth of the Company's existing product lines. Pending such
uses, the proceeds of this offering will be used to reduce the outstanding
balance under the Amended Financing Agreement. Since it is a revolving credit
facility, any amounts repaid will be available to be reborrowed, subject to
the borrowing formula in the Amended Financing Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources." The
remaining portion of the proceeds, if any, are expected to be invested in
investment grade, interest- bearing securities.
10
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the NYSE under the symbol "CHS." The
following table sets forth for each of the Company's fiscal periods indicated
the high and low sales prices for the Common Stock as reported on the NYSE.
<TABLE>
<CAPTION>
<S> <C> <C>
HIGH LOW
-------- --------
FISCAL 1994
First Quarter ......................... $3.750 $2.625
Second Quarter ........................ 3.125 1.750
Third Quarter ......................... 2.625 1.625
Fourth Quarter ........................ 3.750 1.750
FISCAL 1995
First Quarter ......................... 4.375 1.750
Second Quarter ........................ 6.125 3.625
Third Quarter ......................... 5.000 3.625
Fourth Quarter ........................ 5.750 2.875
FISCAL 1996
First Quarter ......................... 6.625 4.750
-------- --------
Second Quarter through October , 1995
-------- --------
</TABLE>
On October , 1995, the last reported sale price of the Common Stock was
$ per share. As of October 3, 1995, the Company had approximately 1,166
stockholders of record.
The Company has not declared or paid cash dividends or made other
distributions on its Common Stock since prior to its initial public offering
of Common Stock in 1986 (the "1986 Offering"). The payment of dividends, if
any, in the future is within the discretion of the Board of Directors and
will depend on the Company's earnings, its capital requirements and financial
condition. It is the present intention of the Board of Directors to retain
all earnings, if any, for use in the Company's business operations and,
accordingly, the Board of Directors does not expect to declare or pay any
dividends in the foreseeable future. In addition, pursuant to the Amended
Financing Agreement, the Company currently is prohibited from declaring
dividends or making other distributions on its capital stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1995 and as adjusted to give effect to the consummation of this
offering and the application of the net proceeds therefrom at an assumed
offering price of $ per share. This information should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt ................................................. $ 18,698
----------
Long-term debt .................................................. $ 21,066
Stockholders' deficiency:
Preferred Stock, par value. $01 per share; 1,000,000 shares
authorized; no shares issued and outstanding .................. --
Common Stock, par value $.01 per share; 50,000,000 shares
authorized; 21,073,081 shares issued and outstanding;
26,073,081 shares issued and outstanding as adjusted (1) ..... 211
Additional paid-in capital ...................................... 49,353
Deficit ......................................................... (80,463)
Less: Treasury stock, at cost--622,700 shares ................... (1,480)
----------
Total stockholders' deficiency .............................. (32,379)
----------
Total capitalization ........................................ $ 7,385
==========
</TABLE>
- ---------------
(1) Excludes (a) an aggregate of 4,366,858 shares of Common Stock
reserved for issuance upon the exercise of options outstanding under
the Company's employee and director stock option plans, and (b) an
aggregate of 2,566,500 shares of Common Stock reserved for issuance
upon the exercise of certain other outstanding warrants. See
"Management," "Principal Stockholders" and "Certain Transactions."
12
<PAGE>
DILUTION
As of June 30, 1995, the net deficit in tangible book value of the Company
was approximately $32.4 million or $1.54 per share of Common Stock
outstanding. Net deficit in tangible book value per share is determined by
dividing the net deficit of the Company (the excess of liabilities over
tangible assets) by the number of shares of Common Stock outstanding. After
giving effect to the completion of this offering at an assumed offering price
of $ per share (after deducting underwriting discounts and commissions and
the estimated expenses of the offering), the pro forma net deficit in
tangible book value of the Company as of June 30, 1995 would have been
approximately $ or approximately $ per share. This represents an
immediate decrease in pro forma net deficit in tangible book value of $ per
share to current stockholders and an immediate dilution of $ per share to
new investors purchasing shares of Common Stock. The decrease in the net
deficit in tangible book value per share of Common Stock held by the current
stockholders would be solely attributable to the cash paid by purchasers of
the shares of Common Stock offered by the Company."
The following table summarizes the per share dilutive effect of this
offering:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed offering price (1) .......................................... $
Net deficit in tangible book value per share before offering ...... $
Increase attributable to shares offered hereby (2)
Pro forma net deficit in tangible book value per share after
offering ...........................................................
Dilution to new investors (3) ....................................... $
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and the
estimated expenses of this offering.
(2) After deduction of underwriting discounts and commissions and the
estimated expenses of this offering.
(3) Dilution represents the difference between the offering price per
share and the pro forma net deficit in tangible book value per share
after giving effect to this offering.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data were derived from the
consolidated financial statements of the Company. The selected consolidated
financial data as of June 30, 1994 and June 30, 1995 and for the years then
ended have been derived from the Company's consolidated financial statements
included elsewhere in this Prospectus which have been audited by Deloitte &
Touche LLP, independent auditors whose report thereon is also included
elsewhere in this Prospectus. The selected consolidated statement of
operations data for the year ended June 30, 1993 has been derived from the
Company's consolidated statement of operations included elsewhere in this
Prospectus which has been audited by Ernst & Young LLP, independent auditors,
whose report thereon is also included elsewhere in this Prospectus. The
selected consolidated balance sheet data as of June 30, 1993 and consolidated
balance sheet and statement of operations data as of June 30, 1991 and 1992
and for the years then ended have been derived from audited consolidated
financial statements of the Company which are not included in this
Prospectus. The selected consolidated financial data below should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto, for the three most recent fiscal years, included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales .......................................... $232,444 $254,190 $235,819 $ 206,332 $ 181,697
Cost of goods sold ................................. 192,369 196,415 187,423 186,594 149,097
----------- ---------- ----------- ----------- -----------
Gross profit ....................................... 40,075 57,775 48,396 19,738 32,600
Selling, general and administrative expenses ...... 51,600 50,016 57,410 55,400 44,794
Restructuring expenses ............................. -- -- -- 5,300(3) 1,200(3)
Unusual expenses ................................... -- -- -- 1,900(4) 8,333(4)
Interest expense ................................... 1,968 2,474 2,322 3,439 5,976
Other income (expense), net ........................ 654 479 449 (190) 91
----------- ---------- ----------- ----------- -----------
(Loss) income before income tax (benefit) provision
and extraordinary item ............................ (12,839) 5,757 (10,887) (46,491) (27,612)
Income tax (benefit) provision ..................... (835) 2,245 102 264 301
----------- ---------- ----------- ----------- -----------
(Loss) income before extraordinary item ............ (12,004) 3,512 (10,989) (46,755) (27,913)
Extraordinary item ................................. -- 1,957(1) -- -- --
----------- ---------- ----------- ----------- -----------
Net (loss) income .................................. $(12,004) $ 5,469 $(10,989) $(46,755) $(27,913)
=========== ========== =========== =========== ===========
Net (loss) income per share (2) .................... $ (0.66) $ 0.30 $ (0.60) $ (2.55) $ (1.40)
=========== ========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding ..................... 18,234 18,363 18,272 18,352 19,910
=========== ========== =========== =========== ===========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) ................. $57,397 $51,964 $40,923 $ 3,342 $(13,914)
Total assets ................................. 82,571 86,489 90,208 51,619 28,660
Short-term debt, including current portion of
long-term debt .............................. -- 9,910 17,504 21,365 18,698
Long-term debt ............................... 24,730 14,820 14,730 18,789 21,066
Stockholders' equity (deficiency) ............ 37,683 43,328 33,147 (13,614) (32,379)
</TABLE>
- ---------------
(1) Represents a benefit from the utilization of a net operating loss
carryforward.
(2) Computed by dividing net (loss) income by the weighted average number
of Common and Common Equivalent Shares outstanding during the years.
For the fiscal years ended 1991, 1993, 1994 and 1995, Common
Equivalent Shares were not included in the calculation as their
inclusion would have been antidilutive.
(3) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.9 million for employee severances, and, in fiscal 1995, $1.2
million of employee severance.
(4) Includes, in fiscal 1994, expenses relating primarily to abandonment
of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture, and in fiscal 1995, $7.8 million
primarily relating to the costs associated with the signing of the
Company's new Chief Executive Officer and $0.5 million related to
certain legal matters.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In 1992, the Company perceived a shift in demand in the women's retail
apparel industry toward lower price points. In order to sustain sales in a
difficult retail environment, the Company introduced new products at lower
prices to meet this perceived demand, thus altering its historic corporate
strategy of aiming toward the high end of "upper moderate" price points. As a
result of intense competition in this lower priced segment of the market,
where the Company had a limited operating history, sales of the Company's
products slowed, inventory levels increased and the Company was forced to
sell a larger portion of its products through off-price channels.
Toward the end of fiscal 1994, the Company initiated a major restructuring
of its operations in order to return to its historic product positioning and
regain profitability. The focus of the Company's restructuring has been to
strengthen its management team, reduce selling, general and administrative
expenses and reposition its product line. Andrew Grossman joined the Company
in September 1994 and implemented a product and pricing repositioning
strategy, most of the financial benefits of which the Company expects to be
realized in future periods. In anticipation of the repositioned product lines
and as a result of continued weak product demand, the Company has limited the
production of its product lines pending the return of adequate demand. The
Company has realized an increase in its gross margin in fiscal 1995 to 17.9%
up from 9.6% in fiscal 1994, primarily resulting from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued high levels of
promotional allowances. The impact of the restructuring on the Company's
selling, general and administrative expenses has been more immediate:
selling, general and administrative expenses decreased from $55.4 million in
fiscal 1994 to $44.8 in fiscal 1995. Nearly half of this decrease resulted
from staff reductions throughout the Company from a high point of 1,009 in
fiscal 1993 to 595 at the end of fiscal 1995. In addition, the Company
decided to close a number of its unprofitable outlet stores and does not
intend to open any new stores in the foreseeable future. Because certain of
the cost reductions were not in effect for the full fiscal 1995 year, the
Company believes that selling, general and administrative expenses will be
lower in fiscal 1996 than in fiscal 1995. In order to support the development
and growth of the Company's licensed Nautica product line, however, selling,
general and administrative expenses are expected to increase in subsequent
years.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales ................................... 100.0% 100.0% 100.0%
Gross profit ................................ 20.5 9.6 17.9
Selling, general and administrative expenses 24.3 26.9 24.7
Restructuring expenses ...................... -- 2.6 0.7
Unusual expenses ............................ -- 0.9 4.6
Interest expense ............................ 1.0 1.7 3.3
Net loss .................................... (4.7) (22.7) (15.4)
</TABLE>
Fiscal 1995 Compared to Fiscal 1994
In fiscal 1995, net sales decreased by $24.6 million, or 11.9%, compared
to the prior year. The decrease was primarily due to a general reduction in
production levels in most of the Company's product lines, in addition to the
elimination of its jeans line and curtailed international operations. Net
sales for fiscal 1995 included sales to off-price channels of $40.4 million,
compared to $91.3 million in fiscal 1994. Off-price sales as a percentage of
net sales declined from 44.3% in fiscal 1994 to 22.2% in fiscal 1995.
15
<PAGE>
Sales by the Company's outlet stores increased by $1.1 million compared to
the prior year. The increase was primarily due to the impact of full year
sales by four outlet stores opened in fiscal 1994 and the incremental impact
of one store opened early in fiscal 1995, partially offset by the closing of
four outlet stores in fiscal 1995 and a 2.0% decline in same store sales.
Gross profit as a percentage of net sales increased to 17.9% from 9.6% as
compared to the prior fiscal year. As discussed above, the increase, as a
percentage of net sales, resulted primarily from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued higher levels of
promotional allowances.
Selling, general and administrative expenses decreased by $10.6 million,
from 26.9% of net sales in fiscal 1994 to 24.7% of net sales in fiscal 1995.
This decrease was primarily attributable to the implementation of cost
reduction programs throughout the organization. Payroll and related costs
accounted for almost half of the decrease. Other areas with significant
decreases included freight, rent, cooperative advertising, professional fees,
and travel and entertainment.
In connection with the corporate restructuring program discussed above,
during the first quarter of fiscal 1995 the Company recorded restructuring
expenses of $1.2 million. These costs primarily related to employee severance
as the Company continued to reduce overhead costs. In January 1995, the
Company signed favorable early termination agreements with the landlords of
certain retail outlet stores, for which the Company had taken a reserve as
part of its restructuring expenses at June 30, 1994. As a result, the Company
was able to reduce the restructuring reserve, accrued in 1994, by
approximately $1.3 million. The benefit of this reduction was offset by
certain additional expenses provided for by the Company relating to
prospective continued restructuring of its retail and overseas operations.
During the first quarter of fiscal 1995, the Company recorded unusual
expenses of $7.8 million primarily related to the costs associated with the
signing of the Company's new Chief Executive Officer. During the fourth
quarter of fiscal 1995, the Company recorded $0.5 million in unusual expenses
related to certain legal matters.
Interest expense increased compared with the prior year, primarily due to
higher average bank borrowings at higher rates. In addition, in the third and
fourth quarters of fiscal 1995, the Company recorded non-cash charges of $0.5
and $0.7 million, respectively, for the warrants issued for credit support
received from its principal stockholder. See "-- Financial Condition,
Liquidity and Capital Resources."
Fiscal 1994 Compared to Fiscal 1993
In fiscal 1994, net sales decreased (principally in the Chaus and Chaus
Sport product lines) by $29.5 million, or 12.5%, compared to the prior fiscal
year . The sales decrease primarily resulted from lower average unit selling
prices, particularly through off-price channels, and higher promotional
allowances to accelerate sell-through at the retail level.The Company reduced
domestic standard selling prices and anticipated a more favorable business
trend which would have enabled it to increase sales; however, the
unanticipated continuation of reduced consumer spending in the women's
apparel industry resulted in a lower volume of purchasing of the Company's
products. As a result, the Company sold fewer units at regular price,
liquidated excess inventory at reduced prices and had higher promotional
allowances to accelerate and increase sell-through at the retail level.
Sales by the Company's outlet stores increased by $2.6 million compared to
the prior year. The increase was primarily due to three new outlet stores
opened, partially offset by the closing of one outlet store and a 3.5%
decline in same store sales.
Gross profit as a percentage of net sales decreased to 9.6% from 20.5% as
compared to the prior year. The decrease was primarily attributable to the
disposal of excess inventories at higher discounts to off-price channels, as
well as to an increase in promotional allowances.
Selling, general and administrative expenses, as a percentage of net
sales, increased to 26.9% from 24.3% as compared to the prior year, primarily
due to lower sales volume. The actual dollar expense decrease of $2.0 million
resulted from a $3.0 million savings in headcount reductions, offset by a
$1.0 million increase in Company outlet store expenses.
16
<PAGE>
In the fourth quarter of fiscal 1994, the Company recorded restructuring
expenses of approximately $5.3 million. The restructuring expenses included
approximately $2.1 million for the closing of selected outlet stores,
approximately $2.5 million for the consolidation and closing of office and
warehouse space and approximately $0.7 million for employee severance.
In addition, in the fourth quarter of fiscal 1994, the Company recorded
unusual expenses of $1.9 million, consisting primarily of expenses arising
from the abandonment of fixed assets, certain legal matters, and the winding
down of the Company's Canadian joint venture.
Interest expense increased compared with the prior fiscal year, primarily
due to a higher level of bank borrowings as well as the impact of higher
interest rates and increased balances on the subordinated debt.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Net cash used in operating activities was $29.1 million in fiscal 1993,
$5.0 million in fiscal 1994, and $4.8 million in fiscal 1995. The net cash
used in operating activities in fiscal 1995 resulted primarily from the net
loss of $27.9 million, inclusive of $5.3 million of non-cash charges,
reductions in accounts payable of $1.4 million and accrued expenses of $1.2
million, offset somewhat by decreases in accounts receivable of $9.9 million
and inventories of $9.3 million.
Historically, the Company has not required major capital expenditures. In
fiscal 1994 and 1995, purchases of fixed assets were $1.4 million and $0.4
million, respectively, consisting primarily of improvements in the Company's
New Jersey warehouse facilities, New York design and showroom facilities, and
additional computer and telecommunications equipment. In fiscal 1996, the
Company anticipates capital expenditures of approximately $0.5 million,
consisting primarily of expenditures for its warehouses and design facilities
and the purchase of additional computer software systems.
Amended Financing Agreement
The Amended Financing Agreement provides the Company with a $60 million
credit facility for letters of credit and direct borrowings, with a sublimit
for loans and advances of $40 million ($47 million for the period from
October 1, 1995 to November 30, 1995). The amount of financing available is
based upon a formula incorporating eligible receivables and inventory, cash
balances, other collateral, and permitted overadvances, all as defined in the
Amended Financing Agreement. At September 30, 1995, the Company had an
overadvance position of approximately $5.9 million under the Amended
Financing Agreement. The Amended Financing Agreement is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. During the first, second and fourth quarters of fiscal 1995, the
Company was not in compliance with its covenants concerning working capital
and net worth under the Amended Financing Agreement. BNYF has waived such
noncompliance, however, and, pursuant to the September Amendment, has relaxed
such covenants. The Amended Financing Agreement currently contains certain
financial covenants, including a covenant permitting a tangible net worth
deficit of not more than $11.5 million as of September 30, 1995, $12.5
million as of December 31, 1995, $13.5 million as of March 31, 1996 and $14.5
million as of June 30, 1996. In addition, the Company is required to maintain
a working capital deficiency of not more than $14.0 million as of September
30, 1995, $14.5 million as of December 31, 1995, $15.0 million as of March
31, 1996 and $15.5 million as of June 30, 1996. In the event of an equity
infusion, such covenants are to increase by 50% of the amount of such
infusion. Such covenants for periods after June 30, 1996 are to be modified
based upon the Company's business plan each year during the term.
Interest on direct borrowings is payable monthly at an annual rate equal
to the higher of (i) The Bank of New York's prime rate (8.75% at September
30, 1995) plus a margin between 0.5% and 1.5%, depending on the level of
overadvances, and (ii) the Federal Funds Rate in effect (5.75% at September
30, 1995) plus a margin between 1.0% and 2.0%, depending on the level of
overadvances. The annual default interest rate is 2.5% over prime. The
Amended Financing Agreement required the payment of a due diligence and
facility fee aggregating $0.6 million. In addition, there is an annual
commitment fee of 0.375% on the
17
<PAGE>
unused portion of the line, payable monthly, and letter of credit fees equal
to 0.125% of the outstanding letter of credit balance, payable monthly. The
Amended Financing Agreement also provides for the payment of minimum annual
service charges of $0.6 million. The Company may terminate the Amended
Financing Agreement upon 90 days' prior written notice at any time, subject
to termination fees. BNYF may terminate the Amended Financing Agreement after
February 21, 1998, upon 60 days' written notice to the Company.
Credit Support
As part of the negotiations with BNYF in connection with the Amended
Financing Agreement, in February 1995 Josephine Chaus increased the Letter of
Credit (originally provided by Ms. Chaus as credit support in the form of a
$3.0 million letter of credit in April 1994, and subsequently increased over
time to $7.2 million) to $10.0 million and extended its term until October
31, 1995 (the "February Increase/Extension"). In September 1995, Ms. Chaus
further extended the term of the Letter of Credit to January 31, 1996 (the
"September Extension"). Subsequently, in connection with the September
Amendment, Ms. Chaus provided the Company with the July Option to further
extend the Letter of Credit to July 31, 1996. In addition, in February 1995,
Ms. Chaus provided the Guarantee, to be in effect during the Amended
Financing Agreement's three-year term. See "Certain Transactions."
In consideration of the February Increase/Extension, the Guarantee and the
September Extension, the Special Committee authorized the issuance, subject
to stockholder approval, of the 1995 Warrants to purchase an aggregate of
1,580,000 shares of Common Stock. Because Ms. Chaus possesses the power to
vote more than 50% of the outstanding shares of Common Stock, Ms. Chaus's
affirmative vote in favor of the issuance of the 1995 Warrants to her is
sufficient to approve such issuance without the vote of any other
stockholders. Ms. Chaus has advised the Company that she intends to vote all
of her shares in favor of such issuance. As a result, the Company has
reflected the issuance of the warrants for the February Increase/Extension
and the Guarantee at June 30, 1995. The value of such warrants ($0.7 million)
was included as a charge to interest expense with a corresponding increase to
additional paid in capital. The issuance of the warrants for the September
Extension will be recorded in fiscal 1996.
Issuance of Stock in Exchange for Debt
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, in
order to provide additional equity to the Company, to enhance the Company's
balance sheet and to accommodate BNYF, Josephine Chaus exchanged such notes,
including accrued interest thereon of $0.2 million, for 1,914,500 shares of
the Company's Common Stock (based upon a purchase price of $3.85 per share).
See "Certain Transactions."
Subordinated Debt
The Company has outstanding at June 30, 1995, $21.1 million of
Subordinated Notes payable to Josephine Chaus. In September 1995, Josephine
Chaus extended the maturity date on all of the Subordinated Notes (which were
to mature on April 1, 1996) to July 1, 1996. In connection with this
offering, Ms. Chaus has agreed to extend the maturity date of the
Subordinated Notes to July 1, 1998. See "Certain Transactions."
Letter of Credit Financing
In June 1995, the Company and a major trading company entered into a sales
and letter of credit financing agreement (the "S&F Agreement") providing the
Company with up to $2.0 million in short-term financing (subject to various
terms and conditions as defined in the S&F Agreement) for the production of
its products overseas and secured by such products and related intangible
assets. Either party may terminate the S&F Agreement upon 30 days' written
notice to the other party.
18
<PAGE>
Nautica License Agreement
In September 1995, the Company entered into the Nautica License Agreement
pursuant to which the Company will arrange for the manufacture of, market,
distribute and sell a new women's career and casual sportswear line under the
Nautica name. The Nautica License Agreement runs through December 31, 1999
and is contingent upon the Company raising a minimum of $10.0 million in
equity capital by December 31, 1995. Additionally, the Company is required to
devote at least $7.0 million to the fulfillment of the Company's obligations
under the Nautica License Agreement, including related capital expenditures.
The Company's obligations also include minimum royalty and advertising
payments and the construction of a separate showroom for the display of the
Company's licensed Nautica products.
The Company intends to use approximately $7.0 million of the net proceeds
from this offering to develop and market the Company's licensed Nautica
product line, and the remaining net proceeds to support the growth of the
Company's existing product lines. See "Risk Factors--Working Capital
Deficiency; Future Financing Requirements" and "Use of Proceeds."
INFLATION
The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States, where it
competes, have had a significant effect on its net sales or profitability.
SEASONALITY
Historically, the Company's sales and operating results fluctuate by
quarter, with the greatest sales occurring in the Company's first and third
fiscal quarters. It is in these quarters that the Company's Fall and Spring
product lines, which traditionally have had the highest volume of net sales,
are shipped to customers, with revenues generally being recognized at the
time of shipment. As a result, the Company experiences significant
variability in its quarterly results and working capital requirements.
Moreover, delays in shipping can cause revenues to be recognized in a later
quarter, resulting in further variability in such quarterly results.
19
<PAGE>
BUSINESS
GENERAL
The Company designs, arranges for the manufacture of and markets an
extensive range of women's career and casual sportswear and dresses which are
marketed principally under the CHAUS(Registered Trademark) and CHAUS
SPORT(Registered Trademark) trademarks. In late fiscal 1994 the Company
initiated a corporate restructuring program characterized by a strengthened
management team, reduced selling, general and administrative expenses and, in an
effort to capitalize on the Company's well-recognized brand name, a return to
its historic product positioning. The Company's enhanced product line is being
repositioned at the high end of the "upper moderate" through the opening
price points of the "better" categories. The Company recently entered into
the Nautica License Agreement with Nautica, a leading name in men's apparel,
under which the Company will design, contract for the manufacture of and
market a new women's apparel line under the Nautica brand name.
CORPORATE STRATEGY/REPOSITIONING
The following summarizes the major aspects of the Company's restructuring
and its new corporate strategy.
Strengthen Management Team. At the core of the restructuring effort has
been the recruitment of seasoned industry professionals, led by the hiring in
September 1994 of Andrew Grossman, the then President of Jones Apparel Group
Inc., as the Company's new Chief Executive Officer. The Company believes that
Mr. Grossman's extensive experience in the women's apparel industry brings
new leadership and innovation to the Company. In connection with the hiring
of Mr. Grossman, the Company created a new Office of the Chairman, consisting
of Ms. Chaus and Mr. Grossman, to direct its new strategy and its operations.
Other additions to the core management team include Wayne Miller, the
Company's Chief Financial Officer, Judith Leech, the Company's Vice
President-Design, and Donna Poach, the Company's Vice President-Production.
Increase Operating Leverage. The Company began implementing an aggressive
expense reduction program in late fiscal 1994 which was primarily responsible
for a $10.6 million reduction in selling, general and administrative expenses
in fiscal 1995. Key initiatives behind the cost savings include a headcount
reduction, the centralization of certain operating and administrative
functions, the closing of office locations, the consolidation of distribution
facilities and the closing of selected Company outlet stores. Because certain
of the cost reductions were not in effect for the full fiscal 1995 year, the
Company believes that selling, general and administrative expenses will be
lower in fiscal 1996 than in fiscal 1995. The Company anticipates that if its
sales volume increases it will benefit from increased operating leverage.
Strategic Product Positioning. The Company is refocusing its product lines
to offer higher quality merchandise positioned at the high end of the "upper
moderate" through the opening price points of the "better" categories. The
Company believes that its product quality in terms of fabric choice, trimming
and fit is comparable to, yet priced below, its competitors' "better"
offerings. As a result, the Company believes that it has identified a
strategic niche in which it can offer a product line with a superior
perceived value by the consumer.
Collections Merchandising Strategy. As part of the Company's product
repositioning strategy, the Company has shifted its attention from single,
fashion-driven items to collections with an emphasis on updated traditional
styling. This shift to collections has enabled the Company to move away from
commodity pricing for single, fashion-driven items and to reduce the levels
of goods sold at off-price. The Company believes that there is a general
shift in the industry back to ensemble dressing, and the Company's collection
approach allows it to take advantage of such trend.
Door Penetration; Door Expansion. The Company believes that it is
currently underpenetrated within its customers compared to other major
women's apparel manufacturers. The Company will seek to increase the number
of individual stores ("doors") within store groups owned by its major
customers in which its products are distributed and to increase the amount of
retail floor space allocated to its products.
20
<PAGE>
Capitalize on Capabilities through Nautica Relationship. The Company
believes that the Nautica License Agreement represents an opportunity for
growth. This relationship with Nautica will provide the Company with access
to "better" to "bridge" departments while creating an alliance with a leading
company in the apparel industry.
PRODUCTS
The Company's products are divided into three principal product
categories: (i) career sportswear; (ii) weekend casual sportswear; and (iii)
dresses. As part of its restructuring/repositioning strategy, the Company has
shifted its product focus from single, fashion-driven items to full
collections with an emphasis on traditional styling. With this repositioning,
the Company also has enhanced its design and quality with, in certain cases,
an increase in price points to the high end of the "upper moderate" through
the opening price points of the "better" categories. The Company's career and
weekend casual sportswear are marketed as coordinated groups of jackets,
skirts, pants, blouses, sweaters and related accessories which, while sold as
separates, are coordinated by styles, color schemes and fabrics and are
designed to be merchandised and worn together. The Company believes that the
target consumers for its products are women aged 25 to 55.
The Company produces collections of each of these product lines for each
of its six principal selling seasons: Spring I, Spring II, Summer, Fall I,
Fall II and Holiday. Spring and Fall traditionally have been the Company's
major selling seasons. Beginning in fiscal 1996, the Company has combined the
Spring I and Spring II seasons into one Spring season, thus reducing the
selling seasons to five.
The Company's major product categories and associated brand names are
summarized in the following table:
<TABLE>
<CAPTION>
CAREER SPORTSWEAR WEEKEND CASUAL SPORTSWEAR DRESSES
---------------------------- ---------------------------- ------------------------
<S> <C> <C> <C>
BRAND NAMES Chaus Chaus Sport Chaus Dresses
Chaus Woman Chaus Woman
Chaus Petite Chaus Petite Dresses
PRODUCT OFFERINGS Jackets, Skirts, Pants, Casual Jackets, Sweaters, One-Piece Dresses,
Shorts, Blouses, Shirts, Skirts, Pants, Shirts, Knit Two-Piece Dresses,
Knit Tops, Sweaters Tops Pantsuits, Social
Dresses
INDUSTRY CATEGORIES Upper Moderate and Lower Upper Moderate and Lower Upper Moderate and Lower
Better Better Better
</TABLE>
During fiscal 1995, the suggested retail prices of the Company's products
ranged between $15.00 and $108.00. The Company's jackets ranged in price
between $40.00 and $108.00, its dresses ranged in price between $48.00 and
$106.00, its blouses and sweaters ranged in price between $32.00 and $76.00,
its skirts and pants ranged in price between $25.00 and $56.00, and its knit
tops and bottoms ranged in price between $15.00 and $60.00. As the Company
repositions its price points at the high end of the "upper moderate" through
the opening price points of the "better" categories, it anticipates that the
suggested retail price range of its products will increase during fiscal
1996.
21
<PAGE>
The following table sets forth a breakdown by percentage of the Company's
net sales by product category for fiscal 1993 through fiscal 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Career Sportswear
Chaus 31% 29% 31%
Chaus Woman 12 12 13
Chaus Petite 8 6 4
-------- -------- --------
Total 51 47 48
Weekend Casual 30 28 35
Sportswear
Dresses 12 13 12
Other (1) 7 12 5
======== ======== ========
Total 100% 100% 100%
======== ======== ========
</TABLE>
- ---------------
(1) Includes sales by outlet stores, offset by intercompany profit
eliminations. Also includes, for fiscal 1993 and fiscal 1994, (a) the
Company's JOSEPHINE and JEANSWEAR labels, which produced blouses and
jeans, respectively, until the beginning of fiscal 1995 when the
Company ceased producing garments using these labels (see
"--Products") and (b) a Canadian joint venture that the Company
terminated in June 1994.
Career Sportswear. The Company markets an extensive line of career
sportswear under the CHAUS label for misses sizes, the CHAUS WOMAN label for
larger sizes and the CHAUS PETITE label for smaller sizes. This product line
offers a full collection of sportswear geared primarily for the working
woman. Each sportswear collection typically includes a broad selection of
jackets, skirts, pants, blouses and sweaters, as well as more casual apparel
such as shorts, shirts and knit tops.
Weekend Casual Sportswear. The CHAUS SPORT label offers casual jackets,
sweaters, skirts, pants, shirts and knit tops. This product line offers soft
career, weekend and leisure sportswear intended for an informal working
environment as well as for casual wear.
Dresses. The Company produces dresses under the CHAUS DRESSES, CHAUS WOMAN
DRESSES and CHAUS PETITE DRESSES labels. The Company offers an extensive line
of dresses from daytime to evening wear, as well as dresses for the working
woman.
LICENSE AGREEMENT WITH NAUTICA
In September 1995, the Company entered into the Nautica License Agreement
under which the Company will have an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto
Rico. The Company's licensed Nautica product line will be distributed in
major department and specialty stores, at "better" to "bridge" price points
in Nautica designed in-store shops. Nautica has developed significant
brand-name recognition with its men's apparel lines. This relationship will
provide the Company with exposure to "better" to "bridge" departments, while
creating an alliance with a leading company in the apparel industry. The
Company expects to make the first sales of its licensed Nautica products
during the first quarter of fiscal 1997. The Company's license from Nautica
is limited to women's sportswear collections including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets, and outerwear and
sportswear dresses bearing the Nautica brand names and marks. The Company's
license from Nautica excludes business dresses, suits, coats and raincoats
that are not part of a sportswear collection. The license also excludes
shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.
22
<PAGE>
The initial term of the Nautica License Agreement runs through December
31, 1999, and is thereafter renewable for up to two periods of three years
each, provided that certain conditions are met (including the successful
attainment of certain sales targets and the requirement that Andrew Grossman
continue in his position as Chief Executive Officer during the term of the
Nautica License Agreement). Under the Nautica License Agreement, the Company
is obligated to raise at least $10.0 million in equity capital by December
31, 1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. The Company's obligations
also include minimum royalty and advertising payments and the construction of
a separate showroom for the display of the Company's licensed Nautica
products. Under the Nautica License Agreement, the Company intends to
dedicate a full operational merchandising and retail development group to its
licensed Nautica product line.
Pursuant to the terms of the Nautica License Agreement, the Company has
granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).
CUSTOMERS
The Company's products are sold nationwide in an estimated 2,500
individual stores operated by approximately 100 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.
The following table sets forth approximate percentages of the Company's
net sales to its five largest customers for the last two fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
------------------
NAME 1994 1995
- --------------------------------------------------- -------- --------
<S> <C> <C>
Dillard's Department Stores ........................ 16% 23%
May Department Stores Company(1) ................... 14 13
Federated Department Stores Inc.(2) ................ 12 11
Marshall's, a division of Melville Corporation .... 9 5
Dayton Hudson Department Stores .................... 5 5
-------- --------
Total .............................................. 56% 57%
======== ========
</TABLE>
- ---------------
(1) Included in the May Company group are Hechts, Foley's, Robinsons-May,
Kaufmann's, Filene's, Famous Barr Company, Meier & Frank and Lord &
Taylor.
(2) Included in the Federated group are Macy's, A&S, Rich's, Burdines,
Lazarus, Bon Marche, Jordan Marsh and Stern's.
SALES AND MARKETING
The Company's selling operation is highly centralized. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms. The Company has an in-house sales
force of 24, all of whom are located in the New York City showrooms. Senior
management, principally Josephine Chaus and Richard Baker (President),
actively participate in the planning of the Company's marketing and selling
efforts. The Company does not employ independent sales representatives or
operate regional sales offices, but it does participate in various regional
merchandise marts. This sales structure enables management to control the
Company's selling operation more effectively, to limit travel expenses, as
well as to deal directly with, and be readily accessible to, major customers.
Products are marketed to department and specialty store customers during
"market weeks," generally four to five months in advance of each of the
Company's selling seasons. The Company assists its customers in allocating
their purchasing budgets among the items in the various product lines to
enable consumers to view the full range of the Company's offerings in each
collection. During the course of the retail selling seasons, the Company
monitors its product sell-through at retail in order to directly assess
consumer response to its products.
23
<PAGE>
The Company emphasizes the development of long-term customer relationships
by consulting with its customers concerning the style and coordination of
clothing purchased by the store, optimal delivery schedules, floor
presentation, pricing and other merchandising considerations. Frequent
communications between the Company's senior management and other sales
personnel and their counterparts at various levels in the buying
organizations of the Company's customers is an essential element of the
Company's marketing and sales efforts. These contacts allow the Company to
closely monitor retail sales volume to maximize sales at acceptable profit
margins for both the Company and its customers. The Company's marketing
efforts attempt to build upon the success of prior selling seasons to
encourage existing customers to devote greater selling space to the Company's
product lines and to penetrate additional individual stores within the
Company's existing customers. The Company's largest customers discuss with
the Company retail trends and their plans regarding their anticipated levels
of total purchases of Company products for future seasons. These discussions
are intended to assist the Company in planning the production and timely
delivery of its products.
The Company maintains a limited cooperative advertising program under
which it reimburses, in certain circumstances, a portion of a customer's
advertising expenditures promoting the Company's products up to a maximum
percentage of the customer's purchases. Except for this cooperative
advertising program, the Company has not engaged in any direct advertising to
the public. Cooperative advertising expenditures were approximately $1.9
million, $1.6 million and $0.8 million in fiscal 1993, 1994 and 1995,
respectively.
DESIGN
The Company's products and certain of the fabrics from which they are made
are designed by an in-house staff of fashion designers. The 11-person design
staff, headed by Judith Leech, monitors current fashion trends and changes in
consumer preferences. Josephine Chaus and Andrew Grossman, who are
instrumental in the design function, meet regularly with the design staff to
create, develop and coordinate the seasonal collections. The Company believes
that its design staff is known for its distinctive styling and its ability to
contemporize fashion classics. Emphasis is placed on the coordination of
outfits and quality of fabrics to encourage the purchase of more than one
garment.
MANUFACTURING AND DISTRIBUTION
The Company believes that outsourcing its manufacturing maximizes its
flexibility while avoiding significant capital expenditures, work-in-process
buildup and the costs of a large workforce. The Company does not own any
manufacturing facilities; all of its products are manufactured in accordance
with its design specifications and production schedules through arrangements
with independent manufacturers. A substantial amount (approximately 90%) of
its product is manufactured by approximately 35 key independent suppliers
located primarily in South Korea, Hong Kong, Taiwan, Sri Lanka, China,
Indonesia and elsewhere in the Far East. Approximately 10% of the Company's
products are manufactured in Israel, India and the Caribbean Basin. No
contractual obligations exist between the Company and its manufacturers
except on an order-by-order basis. During fiscal 1995, the Company purchased
approximately 57% of its finished goods from its ten largest manufacturers,
including approximately 11% of its purchases from its largest manufacturer.
Contracting with foreign manufacturers enables the Company to take advantage
of prevailing lower labor rates and to use a skilled labor force to produce
high quality products.
Generally, each manufacturer agrees to produce finished garments on the
basis of purchase orders from the Company, specifying the price and quantity
of items to be produced and supported by a letter of credit naming the
manufacturer as beneficiary to secure payment for the finished garments.
The Company's technical production support staff located in New York City
produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design staff, and marks and grades
the patterns in anticipation of production. While the factories have the
capability to perform these services, the Company believes that its personnel
can best express its design concepts and efficiently supervise production to
better ensure that a quality product is produced. Once
24
<PAGE>
production fabric is shipped to them, the manufacturers produce finished
garments in accordance with the production samples and obtain necessary quota
allocations and other requisite customs clearances. Branch offices of the
Company's subsidiaries in Korea and Hong Kong monitor production at each
manufacturing facility to control quality, compliance with the Company's
specifications and timely delivery of finished garments, and arrange for the
shipment of finished products to the Company's New Jersey distribution
center. Almost all finished goods are shipped to the Company's New Jersey
distribution center for final inspection, assembly into collections,
allocation and shipment to customers.
The Company believes that the number and geographical diversity of its
manufacturing sources minimize the risk of adverse consequences that would
result from termination of its relationship with any of its larger
manufacturers. The Company also believes that it would have the ability to
develop, over a reasonable period of time, adequate alternate manufacturing
sources should any of its existing arrangements terminate. However, should
any substantial number of such manufacturers become unable or unwilling to
continue to produce apparel for the Company or to meet their delivery
schedules, or if the Company's present relationships with such manufacturers
were otherwise materially adversely affected, there can be no assurance that
the Company would find alternate manufacturers of finished goods on
satisfactory terms to permit the Company to meet its commitments to its
customers on a timely basis. In such event, the Company's operations could be
materially disrupted, especially over the short-term. The Company believes
that relationships with its major manufacturers are satisfactory.
The Company uses a broad range of fabrics in the production of its
clothing, consisting of synthetic fibers (including polyester and acrylic),
natural fibers (including cotton and wool), and blends of natural and
synthetic fibers. The Company does not have any formal, long-term
arrangements with any fabric or other raw material supplier. During fiscal
1995, virtually all of the fabrics used in the Company's products were
ordered from the Company's five largest suppliers, which are located in
Japan, Taiwan and Korea. The Company selects the fabrics to be purchased,
which are generally produced for it in accordance with its own
specifications. To date, the Company has not experienced any significant
difficulty in obtaining fabrics or other raw materials and considers its
sources of supply to be adequate.
The Company operates under substantial time constraints in producing each
of its collections. Orders from the Company's customers generally precede the
related shipping period by up to five months. However, proposed production
budgets are prepared substantially in advance of the Company's initial
commitments for each collection. In order to make timely delivery of
merchandise which reflects current style trends and tastes, the Company
attempts to schedule a substantial portion of its fabric and manufacturing
commitments relatively late in a production cycle. However, in order to
secure adequate amounts of quality raw materials, especially greige (i.e.,
"undyed") goods, the Company must make substantial advance commitments to
suppliers of such goods, often as much as seven months prior to the receipt
of firm orders from customers for the related merchandise. Many of these
early commitments are made subject to changes in colors, assortments and/or
delivery dates.
IMPORTS AND IMPORT RESTRICTIONS
The Company's arrangement with its manufacturers and suppliers are subject
to the risks attendant to doing business abroad, including the availability
of quota and other requisite customs clearances, the imposition of export
duties, political and social instability, currency revaluations and
restrictions on the transfer of funds. Bilateral agreements between exporting
countries, including those from which the Company imports substantially all
of its products, and the United States' imposition of quotas limits the
amount of certain categories of merchandise, including substantially all
categories of merchandise manufactured for the Company, that may be imported
into the United States. Furthermore, the majority of such agreements contain
"consultation clauses" which allow the United States to impose at any time
restraints on the importation of categories of merchandise which, under the
terms of the agreements, are not subject to specified limits. The bilateral
agreements through which quotas are imposed have been negotiated under the
framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Arrangement ("MFA") which has been in
effect since 1974. The United States has recently concluded international
negotiations known as the "Uruguay Round" in which a variety of trade matters
were reviewed and modified. Quotas established under the MFA will be
gradually
25
<PAGE>
phased out over a ten year transition period, after which the textile and
clothing trade will be fully integrated into the General Agreement on Trade
and Tariffs ("GATT") and will be subject to the same disciplines as other
sections. The GATT agreement provides for expanded trade, improved market
access, lower tariffs and improved safeguard mechanisms.
The United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, with the result that the Company's operations and its ability
to continue to import products at current or increased levels could be
adversely affected. The Company cannot now predict the likelihood or
frequency of any such events occurring. The Company monitors duty, tariff and
quota-related developments, and seeks continually to minimize its potential
exposure to quota-related risks through, among other measures, geographical
diversification of its manufacturing sources, allocation of production of
merchandise categories where more quota is available and shifts of production
among countries and manufacturers. The expansion in the past few years of the
Company's varied manufacturing sources and the variety of countries in which
it has potential manufacturing arrangements, although not the result of
specific import restrictions, have had the result of reducing the potential
adverse effect of any increase in such restrictions.
Substantially all of the Company's products are subject to United States
customs duties. In the ordinary course of business, the Company, from time to
time, is subject to claims by the United States Customs Service ("Customs")
for duties and other charges, is entitled to refunds from Customs due to
overpayment of duties by the Company and may be required to pay penalties
with respect to underpayment of duties. The Company conducted an internal
review, on its own initiative, with respect to the declared price of certain
of its imported finished goods to determine whether such price had been
understated because of a failure to include the cost of raw materials
provided by the Company to certain of its manufacturers, as well as the cost
of shipping such raw materials by air freight to such manufacturers. During
fiscal 1987, the Company made a voluntary tender to Customs of duties and
other charges believed to be due with regard to such finished goods and as a
result, in accordance with routine administrative procedure in voluntary
disclosure and tender situations, Customs initiated an audit to verify the
accuracy of the Company's submission and records. The Company tendered $0.5
million to U.S. Customs in December 1991 as an offer-in-compromise in order
to settle this matter. In November 1994, the Company received a letter from
Customs notifying it that the offered amount of $0.5 million had been
accepted in full settlement of any and all claims against the Company. Such
liability had been provided for in a prior year.
OUTLET STORES
At June 30, 1995, the Company had 31 outlet stores as compared to 34
stores at June 30, 1994. The outlet stores operate throughout the country in
traditional factory outlet centers in locations intended to minimize conflict
with the Company's major retail department store customers. As part of the
Company's continued restructuring, four outlet stores were closed during
fiscal 1995. An additional three outlet stores were closed in July 1995, and
the Company plans to close six more outlet stores during the remainder of
fiscal 1996 and does not intend to open any new stores in the near future.
The Company also has realigned its outlet store business to reflect the
changes it has made in its pricing and product strategy. As the Company has
reduced its inventory levels, it will seek to utilize its outlet stores as
more of a sale point for current merchandise without negatively impacting its
department store sales.
BACKLOG
At September 14, 1995, the Company's order book reflected unfilled
customer orders for approximately $48.0 million of merchandise (compared to a
backlog of $62.6 million at September 20, 1994), all of which is scheduled
for delivery during fiscal 1996. Starting in the first quarter of fiscal
1996, the Company has eliminated one selling season by combining Spring I and
Spring II, partially accounting for the decrease in backlog. At September 20,
1994, Spring I bookings accounted for approximately $7.5 million of the
backlog; at September 14, 1995, there were no Spring I season bookings. The
September 1994 backlog included $2.4 million of Holiday bookings of the
Company's Dress division; no such bookings are included in backlog for the
later period due to timing differences in the selling season. In
26
<PAGE>
addition, many customers cut back their orders for the Company's products in
fiscal 1995 to see what the retail demand would be for the Company's
repositioned, higher-quality/higher-priced product line. A portion of the
decline in backlog was attributable to this cutback.
Order book data at any date are materially affected by the timing of the
initial showing of collections to the trade, as well as by the timing of
recording of orders and of shipments. Accordingly, the Company believes that
order book data do not provide meaningful period to period comparisons as of
specific dates, and comparisons of backlog information with such information
as of specific dates for prior periods are not necessarily indicative of
future results. The Company does not believe that cancellations, rejections
or returns will materially reduce the amount of sales realized from such
backlog.
TRADEMARKS
CHAUS(Registered Trademark), CHAUS ESSENTIAL(Registered Trademark), CHAUS
SPORT(Registered Trademark), CHAUS WOMAN(Registered Trademark) and MS.
CHAUS(Registered Trademark) are registered trademarks of the Company in the
United States for use on ladies' garments. These trademarks are renewable in
the years 2004, 2008, 2002, 2004 and 2005, respectively. JOSEPHINE(Registered
Trademark) is also a registered trademark of the Company in the United
States, renewable in the year 2001, for use on ladies' blouses and sweaters.
The Company considers its trademarks to have significant value in the
marketing of its products.
The Company has also registered its CHAUS, CHAUS SPORT, CHAUS WOMAN, and
JOSEPHINE marks for women's apparel in certain foreign countries and has
legal trademarks in certain foreign countries for selected women's
accessories including handbags, small leather goods and footwear.
COMPETITION
The women's apparel industry is highly competitive, both within the United
States and abroad. The Company competes with many apparel companies, some of
which are larger, and have better established brand names and greater
resources than the Company. In some cases the Company also competes with
private-label brands of its department store customers.
The Company believes that an ability to effectively anticipate, gauge and
respond to changing consumer demand and taste relatively far in advance, as
well as an ability to operate within substantial production and delivery
constraints (including obtaining necessary quota allocations), is necessary
to compete successfully in the women's apparel industry. Consumer and
customer acceptance and support, which depend primarily upon styling,
pricing, quality (both in material and production), and product identity, are
also important aspects of competition in this industry. The Company believes
that its success will depend upon its ability to remain competitive in these
areas.
Furthermore, the Company's traditional department store customers, which
account for a substantial portion of the Company's business, encounter
intense competition from so-called "off-price" and discount retailers, mass
merchandisers and specialty stores. The Company believes that its ability to
increase its present levels of sales will depend on such customers' ability
to maintain their competitive position and the Company's ability to increase
its market share of sales to department stores.
PROPERTIES
The Company's principal executive offices are located at 1410 Broadway in
New York City, where the Company leases approximately 41,000 square feet, of
which approximately 10,000 square feet have been vacated as part of the
Company's restructuring plan. These facilities also house the Company's
showrooms and its sales, design, production and merchandising staffs. This
space is occupied under several leases expiring through July 1996. Net base
rental expense aggregated approximately $1.4 million, $2.1 million and $2.2
million in fiscal 1993, 1994 and 1995, respectively, and is expected to
aggregate approximately $2.3 million in fiscal 1996. Chaus also leases
approximately 19,000 square feet of space at 520 Eighth Avenue in New York
City, which houses its technical production support facilities (including its
sample and pattern makers). Net base rental expense for this space aggregated
approximately $0.4 million in fiscal 1993 and fiscal 1994 and $0.3 million in
fiscal 1995. The lease for this facility expires in January 1997 and the
Company expects the aggregate base rental expense to be approximately $0.2
million in fiscal 1996.
27
<PAGE>
During fiscal 1995, the Company consolidated its warehouse and
distribution centers into one building, reducing the leased square footage
from approximately 390,000 square feet to approximately 275,000 square feet.
This facility houses the Company administrative and finance personnel, its
computer operations, one retail outlet store and its warehouse and
distribution center. The leases for the Secaucus facilities expire in 1996.
Base rental expense for the Secaucus facilities aggregated approximately $1.8
million in fiscal 1993, $2.4 million in fiscal 1994 and $1.5 million in
fiscal 1995. The base rental expense is expected to aggregate approximately
$1.5 million in fiscal 1996.
Office locations are also leased in Hong Kong, Korea and Taiwan, with
annual aggregate rental expense of approximately $0.5 million for fiscal
1995. In prior years, the Company also leased foreign office locations in the
Philippines and Italy. The aggregate rental payments including these
locations approximated $0.7 million in both fiscal 1993 and fiscal 1994. In
July 1995, the Company closed its Taiwan office and anticipates that
aggregate annual rental expense in fiscal 1996 will approximate $0.3 million.
The Company also leases space for its outlet stores operation. The annual
aggregate base rental expense for such facilities, with the average store
utilizing approximately 3,000 square feet in fiscal 1995, was approximately
$1.9 million in fiscal 1995 and is expected to be approximately $1.5 million
for fiscal 1996. For fiscal 1993 and fiscal 1994 the base rental expense for
the outlet stores' operations was $1.6 million and $1.9 million,
respectively.
LEGAL PROCEEDINGS
In 1992, Federal Judge Shirley Wohl Kram dismissed with prejudice as
time-barred the Amended Complaint against the Company and others in
consolidated class actions entitled Phifer v. Chaus et al., Goldschlack v.
Chaus et al., Susman v. Chaus et al., and I. Bibcoff Inc. Pension Trust Fund
v. Chaus et al, (which claims had alleged misstatements and omissions in the
Company's July 1986 prospectus delivered in connection with the 1986 Offering
and its 1986 and 1987 annual reports). On April 19, 1993, a Class Action
Complaint was filed in the Superior Court of New Jersey, Hudson County,
against the Company and others, including the Company's lead underwriter in
the 1986 Offering. Allegations in such complaint were common law fraud and
negligent misrepresentation in the sale of the Company's stock in the 1986
Offering, which allegations were substantially similar to the claims that
were dismissed with prejudice in the federal court. One of the plaintiffs
from the federal action was originally a party in this action in state court.
On June 18, 1993, the Company received by mail a copy of Jury Demand Class
Action in the Superior Court of New Jersey, Hudson County entitled Theodore
M. Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The Complaint
was amended in September 1993 to delete Lisa Phifer as a plaintiff. On May
27, 1994, the Company moved to dismiss the Complaint and/or to deny or limit
class status. In a decision rendered in November 1994, the Superior Court
denied the plaintiff's motion for the class certification and dismissed all
claims against the director defendants (Josephine Chaus and the Estate of
Bernard Chaus) and all claims not based upon actual reliance. With the denial
of class certification, absent a successful appeal, the plaintiff's claims
would not have a material adverse affect on the Company. In any event,
management believes that such action is without merit.
A claim for indemnification has been asserted by the Company's former
underwriters against the Company. The indemnification claim demands repayment
of the legal fees and expenses incurred by such underwriters in connection
with the consolidated class actions entitled Phifer v. Chaus, et al.
Discussions are ongoing with counsel for such underwriters to resolve this
claim.
There are no other material pending legal proceedings to which the Company
is a party or to which any of its properties is subject.
28
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ ----- -------------------------------------------
<S> <C> <C>
Josephine Chaus ......... 44 Chairwoman of the Board and Office of the
Chairman
Andrew Grossman ......... 36 Chief Executive Officer and Office of the
Chairman
Richard Baker ........... 49 President
S. Lee Kling (1)(2) .... 66 Director
John W. Burden III (2) . 58 Director
Harvey M. Krueger (1)(2) 65 Director
Philip G. Barach (1) ... 65 Director
Wayne S. Miller ......... 38 Executive Vice President -- Finance and
Administration, Chief Financial Officer
and Secretary
Michael Root ............ 46 President -- Ms. Chaus Division
Michael Bakert .......... 47 President -- Retail Division
Karen A. Maloney ........ 38 Vice President -- Corporate Controller
Judith Leech ............ 34 Vice President -- Design
Donna Poach ............. 40 Vice President -- Production
Scott Hyatt ............. 37 Vice President -- Technical Services and
Quality Control
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Josephine Chaus has been an employee of the Company in various capacities
since its inception. She has been a director of the Company since 1977,
President from 1980 to February 1993, Chief Executive Officer from 1991
through September 1994, Chairwoman of the Board since 1991 and member of the
Office of the Chairman since September 1994.
Andrew Grossman was appointed a director of the Company on September 13,
1994. He has been employed by the Company as its Chief Executive Officer and
member of the Office of the Chairman since September 28, 1994. Prior to
September 1994, Mr. Grossman was President from 1991 to 1994 and Executive
Vice President from 1990 to 1991 of Jones Apparel Group, a manufacturer of
women's apparel, and Vice President of Merchandising for Jones New York from
1987 through 1990. Prior to joining Jones, Mr. Grossman was employed by Willi
Wear Ltd., Herbert Grossman Enterprises, the Ralph Lauren Womens Wear
division of Bidermann Industries, Inc. and the Evan Picone division of Palm
Beach Inc.
Richard A. Baker has served as President of the Company since February 15,
1993, and served as a director of the Company from February 1993 to September
1994. From 1986 to 1992, Mr. Baker was employed by Esprit de Corp., a firm
engaged in the apparel business, first as president of Esprit Sport and then
for five years as president of Esprit de Corp. Women's Wear.
S. Lee Kling was elected a director of the Company on February 22, 1989.
He has served since 1991 as Chairman of the Board of Kling Rechter & Company,
a merchant banking company which operates in partnership with Barclays Bank
PLC, and serves as Vice Chairman of Willis Corroon Corp. of Missouri. See
"Certain Transactions." Mr. Kling served as Chairman of the Board of Landmark
Bancshares Corporation, a bank holding company in St. Louis, Missouri until
December 1991 when the company merged with Magna Group, Inc. He had served in
such capacity with Landmark since 1974 and had also served as Chief Executive
Officer of Landmark from 1974 through October 1990 except for the period from
May 1978 to January 1979 when he served as Assistant Special Counselor on
Inflation for the White House and Deputy for Ambassador Robert S. Strauss.
Mr. Kling serves on the Boards of Directors of
29
<PAGE>
Magna Group, Inc., a multi-bank holding company; Lewis Galoob Toys, Inc., a
toy manufacturer; E-Systems, Inc., an electronic equipment manufacturer;
Falcon Products, Co., a furniture and fixtures manufacturer; National
Beverage Corp., a beverage manufacturer and Hanover Direct, Inc., a catalog
and mail order company.
John W. Burden III was elected a director of the Company on November 14,
1991. He was, from 1985 until his retirement in January 1990, Chairman of
Federated Department Stores, Inc., a major operator of department stores in
the United States. Mr. Burden has been a director of Jan Bell Marketing Inc.,
which is engaged in the jewelry business, since August 1994 and Carson Pirie
Scott Incorporated, which owns department stores, since August 1993. Mr.
Burden has advised the Company that, due to personal time constraints, he
will not stand for reelection at the Company's November 1995 Annual Meeting
of Stockholders.
Harvey M. Krueger was appointed a director of the Company on January 2,
1992. He has been a Senior Managing Director of Lehman Brothers, an
investment banking firm, since May 1984. See "Certain Transactions." From
December 1977 to May 1984, he was Managing Director of Lehman Brothers Kuhn
Loeb, Inc. From 1965 to 1977, he was a Partner of Kuhn Loeb & Co. and in
1977, he served as President and Chief Executive Officer of Kuhn Loeb & Co.
Philip G. Barach was appointed a director of the Company on November 26,
1993. He was, from July 1968 to March 1990 the Chief Executive Officer of
U.S. Shoe Corp., a shoe manufacturer. In addition, Mr. Barach served as
Chairman of the board of directors of U.S. Shoe Corp. from March 1990 to
March 1993. Mr. Barach currently serves as a director of Union Central Life
Insurance Company, an insurance carrier, and serves as a director of Glimcher
Real Estate Investment Trust, a real estate company, and R. G. Barry, both of
which are public companies.
Wayne S. Miller joined the Company as Executive Vice President--Finance
and Administration and Chief Financial Officer in June 1994, and was
appointed Secretary of the Company in November 1994. From April 1994 to June
1994, Mr. Miller served as Crisis Manager at USA Classic, Inc., an apparel
company. From February 1994 to March 1994 he was a consultant to various
apparel companies. From October 1990 to January 1994 he was President and
Chief Executive Officer of Publix Group, L.P., an apparel company, which
filed a petition for reorganization under Chapter 11 of the federal
bankruptcy laws ("Chapter 11") in June 1993. Prior to that Mr. Miller was
Chief Financial Officer at Basco All-American Sportswear Corp.
Michael Root has been President of the Company's Ms. Chaus Division since
July 1993. From 1991 to July 1993 he was employed by Impressions, an apparel
company, as President, Dress Division. From 1987 through 1990, he was a
partner in Susan Bennett, a dress and suit company. He was President of the
dress division at SK & Company, a women's apparel company, from 1983 to 1987.
From 1979 to 1983 he was President -- Dress Division of the Company.
Michael Bakert has been President of the Company's Retail Division from
1994 to the present. From 1990 to 1994, he was Vice President Director of
Retail for Carole Little, a women's apparel company. From 1985 to 1990, he
was Vice President Director of Stores of Phillip Van Heusen, an apparel and
accessory manufacturer. From 1983 to 1985, he was regional director for
National Shirt Shops, an apparel retailer. From 1978 to 1983, he was district
manager for Chess King, a subsidiary of The Melville Corporation, an apparel
and accessory retailer.
Karen A. Maloney has been Vice President - Corporate Controller since July
1995. From December 1990 through July 1995, she was employed by Bidermann
Industries Corp., an apparel company that filed a petition for reorganization
under Chapter 11 in July 1995, as Assistant Controller Financial Reporting
(December 1990 through May 1992) and as Vice President, Corporate Controller
(June 1992 to July 1995). From March 1986 through May 1990 she was employed
by Federal Paper Board Company, a paper and forest products company, in
various management positions.
Judith Leech joined the Company as Vice President --Design in January
1995. From 1994 to 1995, Ms. Leech served as Design Director for Adrienne
Vittadini and the Vice President Design for Clifford
30
<PAGE>
and Wills/J. Crew Group, both apparel companies. From 1991 to 1994, Ms. Leech
served as Design Director for the A Line Anne Klein division of Anne Klein,
an apparel company, and from 1987 to 1991 she served as Vice President Design
for Liz Claiborne, an apparel company.
Donna Poach joined the Company as Vice President --Production in August
1995. From 1989 to 1995, Ms. Poach served in various capacities for August
Silk, an apparel company, including serving in Paris from 1992 to 1994 as the
developer of August Silk's license business in Europe. From 1985 to 1989, Ms.
Poach served as Vice President -- Product Planning of Jones New York.
Scott Hyatt has served as Vice President -- Technical Services and Quality
Control since prior to July 1990. Mr. Hyatt is the son-in-law of the late
Bernard Chaus, founder of the Company.
31
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or accrued by
the Company during fiscal 1995 with respect to (a) Josephine Chaus, who
served as the Company's Chief Executive Officer until Andrew Grossman was
hired in September 1994, and who has served thereafter as a member of the
Office of the Chairman, (b) Andrew Grossman, who has been the Company's Chief
Executive Officer since September 1994, (c) each of the four other most
highly compensated executive officers of the Company and (d) a former
executive officer (collectively, the "Named Executive Officers"), for
services rendered by such persons in all capacities to the Company.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or accrued by
the Company during fiscal 1995 with respect to (a) Josephine Chaus, who
served as the Company's Chief Executive Officer until Andrew Grossman was
hired in September 1994, and who has served thereafter as a member of the
Office of the Chairman, (b) Andrew Grossman, who has been the Company's Chief
Executive Officer since September 1994, (c) each of the four other most
highly compensated executive officers of the Company and (d) a former
executive officer (collectively, the "Named Executive Officers"), for
services rendered by such persons in all capacities to the Company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- --------------------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL POSITION RESTRICTED UNDERLYING ALL OTHER
HELD DURING FISCAL YEAR 1995 YEAR SALARY BONUS STOCK AWARDS OPTIONS COMPENSATION
- ------------------------------- ------ ------------ --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman 1995 $790,178 $6,200,000(2) -- 1,500,000 --
Chief Executive Officer and 1994 -- (1) -- -- -- --
Member, Office of the Chairman 1993 -- (1) -- -- --
Josephine Chaus 1995 $392,000 -- -- -- --
Chief Executive Officer (until 1994 392,000 -- -- -- --
September 1994), Chairwoman of 1993 392,000 -- -- -- --
the Board and Member, Office -- -- -- --
of the Chairman
Richard Baker 1995 $506,000 -- -- -- --
President 1994 480,000 -- -- 480,000 $35,367(4)
1993 178,000(3) -- -- -- --
Wayne Miller 1995 $250,000 $ 25,000 -- 200,000 --
Executive Vice President-- 1994 -- (5) -- -- 100,000 --
Finance and Administration, 1993 -- (5) -- -- -- --
Chief Financial Officer and
Secretary
Michael Root 1995 $237,000 -- -- 50,000 $24,538(7)
Vice-President--Sales 1994 223,000 -- -- 50,000 --
1993 -- (6) -- -- -- --
Marc A. Zuckerman (8) 1995 $158,000 -- -- -- $ 4,693(9)
Treasurer 1994 130,000 -- -- -- 4,670(9)
1993 121,000 -- -- -- 4,181(9)
Michael Fieman (10) 1995 $364,033 -- -- -- --
Executive Vice 1994 358,000 -- -- -- --
President--Production 1993 358,000 $ 115,000 -- -- --
</TABLE>
- ---------------
(1) Mr. Grossman's employment with the Company commenced in September
1994.
(2) The Company paid Mr. Grossman a sign-on bonus of $6,200,000, portions
of which must be paid back to the Company if Mr. Grossman's
employment agreement is terminated for cause (as defined in his
employment agreement) or if he leaves the Company without Good Reason
(as defined in his employment agreement). See "--Employment
Arrangements" below.
(3) Mr. Baker's employment commenced in February 1993.
(4) Includes payments made by the Company of (a) $29,517 toward the
payment of relocation expenses, and (b) $5,850 in life insurance
premiums.
(5) Mr. Miller's employment with the Company commenced in June 1994.
(6) Mr. Root's employment with the Company commenced in July 1993.
(7) Includes (a) $23,438 in above-market earnings on the exercise of
options to purchase 12,500 shares of Common Stock and (b) $1,100 in
401(k) matching contributions.
(8) Mr. Zuckerman's employment with the Company terminated in August
1995.
(9) Includes contributions made by the Company pursuant to its 401(k)
Plan for the benefit of the named executive.
(10) Mr. Fieman's employment with the Company terminated in June 1995.
32
<PAGE>
OPTION GRANTS TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options during fiscal 1995.
The Company did not have during such fiscal year, and currently does not
have, any plans providing for the grant of stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM(2)
----------------------------------------------------- --------------------------
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN OR BASE EXPIRATION
NAME (#)(1) FISCAL YEAR PRICE DATE 5% 10%
- ------------------ ------------ ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman .. 1,500,000 68.6% $2.25 9/1/04 $5,497,500 $8,754,000
Josephine Chaus .. -- -- -- -- -- --
Richard Baker ..... -- -- -- -- -- --
Wayne Miller ...... 200,000 9.2% $ 4.75 11/23/04 $1,474,000 $2,464,000
Michael Root ...... 50,000 2.3% $3.38 7/19/04 $ 274,900 $ 437,650
Marc A. Zuckerman -- -- -- -- -- --
Michael Fieman ... -- -- -- -- --
</TABLE>
- ---------------
(1) All options were granted under the Company's 1986 Stock Option Plan,
as amended (the "Stock Option Plan"), except for those granted to Mr.
Grossman who received his options pursuant to an employment agreement
and a stock option agreement with the Company. See "--Employment
Arrangements" below.
(2) Potential pre-tax realizable value is based on the assumption that
the stock appreciates from the market value on the date of grant at
the annual rates of appreciation shown on the table over the option
term (ten years). This is a theoretical value. The actual realized
value depends upon the market value of the Company's stock at the
exercise date.
33
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information with respect to the exercise of
stock options during fiscal 1995 by the Named Executive Officer and the value
of unexercised options at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED IN- UNEXERCISED IN-
UNEXERCISED UNEXERCISED THE-MONEY THE-MONEY
SHARES OPTIONS AT JUNE OPTIONS AT JUNE OPTIONS AT JUNE OPTIONS AT JUNE
ACQUIRED ON VALUE 30, 1995 30, 1995 30, 1995(1) 30, 1995(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ------------- ---------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman .. -- -- 0 1,500,000 0 $4,125,000
Josephine Chaus .. -- -- -- -- -- --
Richard Baker ..... -- -- 240,000 240,000 $60,000 $ 60,000
Wayne Miller ...... -- -- 25,000 275,000 $72,563 $ 279,688
Michael Root ...... 12,500 $65,625 0 87,500 0 0
Marc A. Zuckerman -- -- -- 0 0 0
Michael Fieman ... 135,000 $624,375 0 0 0 0
</TABLE>
- ---------------
(1) The value is based on the excess of the market price of the Company's
Common Stock at the end of fiscal 1995 over the option price of the
unexercised options.
EMPLOYMENT ARRANGEMENTS
Andrew Grossman. On September 1, 1994, the Company entered into a
five-year employment agreement with Andrew Grossman, Chief Executive Officer
and Member of the Office of the Chairman of the Company, with an option to
extend the term of Mr. Grossman's agreement for an additional five years. On
September 13, 1995, the Company exercised the option to extend his employment
agreement. The Company paid Mr. Grossman a sign-on bonus of $6.2 million,
portions of which must be paid back to the Company if Mr. Grossman's
employment is terminated for cause (as defined in the employment agreement)
or if he leaves the Company without Good Reason (as defined in the
agreement). The sign-on bonus was nondeductible by the Company for tax
purposes. In addition, in connection with the initial term of Mr. Grossman's
employment agreement, Mr. Grossman was granted options to purchase an
aggregate of 1,500,000 shares of Common Stock; and in connection with the
extension of Mr. Grossman's employment agreement, Mr. Grossman was granted
options to purchase an additional 1,500,000 shares of Common Stock.
Under the employment agreement, Mr. Grossman receives an annual salary of
$1.0 million and is entitled to an annual bonus (the "Bonus Plan") consisting
of 5% of the Company's "Annual Net Profits" (such amount, the "Net Profit
Participation"). Mr. Grossman is the sole participant in the Bonus Plan.
"Annual Net Profits" are defined in the agreement as net income of the
Company for any fiscal year as reflected on the audited financial statements
of the Company for such fiscal year prepared in accordance with generally
accepted accounting principles applied consistent with past practices and
certified by the Company's independent public accountants. No bonus was
payable for fiscal year 1995. The terms of the Bonus Plan were adopted by a
committee of three "outside directors" as such term is used for purposes of
Section 162(m) of the Internal Revenue Code (the "Code") and approved by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders.
If the employment agreement is terminated by the Company other than for
cause or the death or disability of Mr. Grossman (or by Mr. Grossman if the
Company shall be in material breach of its obligations), the Company is
required to pay Mr. Grossman his annual salary and the Net Profit
Participation that he would have received had the agreement not been
terminated, less any compensation
34
<PAGE>
and bonuses received by Mr. Grossman from other employers. If Mr. Grossman
terminates the employment agreement prior to its second anniversary for other
than the Company's material breach, then the Company is required to pay Mr.
Grossman an annual salary for a two-year period provided he, among other
things, adheres to certain non-solicitation, non-compete and confidentiality
provisions in the employment agreement.
The employment agreement also provides that if Mr. Grossman's employment
is terminated (with certain exceptions) after a change in control (as
described below), Mr. Grossman is to receive a lump sum payment equal to the
aggregate annual salary (discounted to present value) that he would have
received had his employment agreement not been terminated. A "change in
control" is defined to include certain mergers or asset sales; the failure to
stand for re-election of a majority of the existing Board of Directors; and
the acquisition by any person or group of stock resulting in beneficial
ownership of at least the number of shares collectively owned at such time by
Josephine Chaus and/or members of her immediate family, affiliates or certain
other related parties. In the event of such change in control or the
termination of Mr. Grossman's employment for certain specified reasons, any
unvested portion of the options shall vest immediately and shall remain
exercisable for a period of six months after such date, unless the options
are earlier terminated pursuant to the terms of the employment agreement.
Pursuant to the terms of Mr. Grossman's employment agreement and a stock
option agreement dated September 1, 1994 with Mr. Grossman, upon the
execution of the employment agreement Mr. Grossman received options to
purchase 1,500,000 shares of Common Stock of the Company at an exercise price
of $2.25 per share, the closing price per share on September 1, 1994, the
date of the agreement, which options vest ratably over a five-year period
commencing on September 1, 1995. Mr. Grossman received options to purchase an
additional 1,500,000 shares of Common Stock (the "1995 Options") when the
Company exercised its option to extend the employment agreement for an
additional five years (the "Grossman Option Plan") at an exercise price of
$5.625, the closing price of the Company's Common Stock on September 14,
1995, the date of grant of such options. The 1995 Options vest ratably over a
five-year period commencing on September 1, 1999. The maximum number of
shares of Common Stock which may be granted to Mr. Grossman pursuant to the
Grossman Option Plan, which was approved by the stockholders of the Company
at the 1994 Annual Meeting of Stockholders, is 3,000,000.
Josephine Chaus. The Company's employment agreement with Josephine Chaus,
Chairwoman of the Board, commenced on July 1, 1992 and expired on June 30,
1994. Since such date, she has been employed on the same terms, although
without a written agreement. The annual base salary under such agreement is
$390,000 or such larger amount as the Compensation Committee of the Board of
Directors shall from time to time determine. As of the date hereof, no such
larger amounts have been authorized or paid.
Richard Baker. The Company has an employment agreement with Richard Baker,
President of the Company, dated as of February 15, 1993 which terminates on
February 14, 1997. Mr. Baker's salary during the first year of the agreement
was $450,000 and will increase by $25,000 annually until the agreement
terminates. The agreement provides for the provision of a cash bonus if the
Company achieves certain financial targets during each fiscal year of the
term of the agreement. No such bonus was payable in fiscal 1995. If during
each of fiscal 1994, 1995 and 1996, while Mr. Baker is employed by the
Company, certain financial objectives are met by the Company, then Mr. Baker
will have the right, pursuant to the Company's Restricted Stock Purchase
Plan, to purchase 25,000 shares of the Company's Common Stock at the price of
$1.00 per share. The target was not met for fiscal 1995. In addition, Mr.
Baker was granted, pursuant to the terms and conditions of the Stock Option
Plan, ten-year incentive stock options to purchase 480,000 shares of Common
Stock at an exercise price of $4.75 per share, the closing price of the
Company's Common Stock on the date of grant of such options. Ten thousand
incentive options vested on February 14, 1993, 110,000 vested on February 14,
1994, 120,000 vested on February 14, 1995, and 120,000 will vest on each of
the next two anniversaries thereof provided he is employed by the Company. If
the Company terminates Mr. Baker's employment without cause, the Company
shall pay him his base salary for the year of termination plus any cash bonus
earned for the year immediately preceding the termination. In addition, all
incentive stock options which would have vested at the anniversary of the
agreement immediately following such termination shall vest on such
termination date. If Mr. Baker's
35
<PAGE>
employment is terminated by him for "Good Reason" or by the Company in
connection with a "change in control" (as such terms are defined in the
agreement), then the Company shall pay Mr. Baker a severance and
non-competition payment equal to two times the sum of his base salary for the
year of termination plus the annual cash bonus earned in the year immediately
preceding the year of termination. In addition, all options would vest
immediately upon such termination referred to in the preceding sentence.
Wayne S. Miller. The Company has a two-year employment agreement with
Wayne S. Miller, Executive Vice President--Finance and Administration, Chief
Financial Officer and Secretary, dated as of June 3, 1994, which
automatically shall be extended for additional one year periods unless either
party thereto specifies otherwise. During the term of the agreement, Mr.
Miller's salary will be $250,000 per annum. Pursuant to the terms of the
agreement, Mr. Miller was paid an initial bonus of $25,000. In addition, Mr.
Miller was granted, pursuant to the terms and conditions of his employment
agreement, ten-year incentive stock options to purchase an aggregate of
50,000 shares of the Company's Common Stock at an exercise price of $1.88 per
share, representing the closing price of the underlying shares of Common
Stock on the grant date. If the agreement is terminated by the Company
without cause, the Company shall pay Mr. Miller a severance and
non-competition payment equal to his base salary for a twelve month period.
If the agreement is terminated by the Company or by Mr. Miller for "Good
Reason" in connection with or following a "change in control" (as such terms
are defined in the agreement), the Company shall pay Mr. Miller a severance
and noncompetition payment equal to the sum of (x) two times his base salary
in effect at the time of termination plus (y) an amount equal to two times
the annual cash bonus award earned by Mr. Miller. In addition, all stock
options which have not yet vested shall vest on the date of such termination
referred to in the preceding sentence.
DIRECTORS' COMPENSATION
During the 1995 fiscal year, directors who were not employees of the
Company received an annual fee of $8,000 plus $1,000 for each Board of
Directors or Committee meeting attended. In addition to annual fees, pursuant
to a non-employee directors' Formula Plan contained in the Stock Option Plan,
non-employee directors are granted a one time option to acquire 10,000 shares
of Common Stock, exercisable up to 50% one year after the grant and 50% two
years after the grant, provided that the director has been duly elected (or
re-elected, as the case may be) in the interim. The per share exercise price
of any non-incentive stock option may not be less than 85% of the fair market
value of the Common Stock on the date of the grant. The Company has purchased
and will maintain a $50,000 term life insurance policy on behalf of each
director with the benefits to be paid to each director's designated
beneficiary.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 30,
1995 with respect to the beneficial ownership of the Common Stock, before and
after giving effect to the offering, by (a) each person known by the Company
to be the beneficial owner of more than five percent of the outstanding
shares of Common Stock, (b) the current directors of the Company and the
Named Executive Officers, and (c) all executive officers and directors of the
Company as a group. Except as otherwise indicated below, the persons
referenced below have advised the Company that they have sole voting and
investment power with respect to the securities listed as owned by them.
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT -----------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
- --------------------------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
Josephine Chaus .................................... 14,706,550 65.9%(1) 56.3%(1)(2)
Philip G. Barach (3) ............................... 54,300 * *
Andrew Grossman (4) ................................ 300,000 1.4% 1.1%
S. Lee Kling (5) ................................... 35,000 * *
Harvey M. Krueger (6) .............................. 60,000 * *
John W. Burden (7) ................................. 60,000 * *
Richard A. Baker (8) ............................... 240,000 1.1% *
Wayne Miller (9) ................................... 92,500 * *
Marc A. Zuckerman .................................. 0 * *
Michael Root (10) .................................. 25,000 * *
Michael Fieman ..................................... 80,000 * *
All directors and executive officers as a group (13
persons)(11) ...................................... 15,653,354 67.8%(1) 58.1%(1)(2)
</TABLE>
- ---------------
* Less than one percent.
(1) Includes (a) 1,216,500 shares of Common Stock purchasable upon the
exercise of warrants, and (b) 118,000 shares of Common Stock which
are held by Ms. Chaus and Daniel Rosenbloom as co-trustees for Ms.
Chaus's children, as to which shares Ms. Chaus shares voting and
disposal power with Mr. Rosenbloom.
(2) Includes 1,580,000 shares of Common Stock purchasable upon the
exercise of the 1995 Warrants, granted to Ms. Chaus in May 1995 and
September 1995, respectively, for certain credit support provided by
her to the Company, the issuance of which is subject to stockholder
approval at the November 1995 Annual Meeting of Stockholders. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Financial Condition, Liquidity and Capital
Resources" and "Certain Transactions." If the Company's stockholders
approve the issuance of the 1995 Warrants, Ms. Chaus will
beneficially own 16,286,550 shares of Common Stock after the
offering.
(3) Includes options to purchase 5,000 shares of Common Stock under the
Stock Option Plan.
(4) Includes options to purchase 300,000 shares of Common Stock under the
Grossman Option Plan. See "--Employment Arrangements" above.
(5) Includes options to purchase 20,000 shares of Common Stock under the
Stock Option Plan.
(6) Includes options to purchase 50,000 shares of Common Stock under the
Stock Option Plan.
(7) Includes options to purchase 50,000 shares of Common Stock under the
Stock Option Plan.
(8) Includes options to purchase 240,000 shares of Common Stock under the
Stock Option Plan.
(9) Includes (a) 17,500 shares of Common Stock held by Mr. Miller's
spouse, with respect to which he may be deemed a beneficial owner,
and (b) options to purchase 75,000 shares of Common Stock under the
Stock Option Plan.
(10) Includes options to purchase 25,000 shares of Common Stock under the
Stock Option Plan.
(11) Includes options to purchase 765,000 shares of Common Stock under the
employee and director stock option plans.
37
<PAGE>
CERTAIN TRANSACTIONS
JOSEPHINE CHAUS
Subordinated Debt. The Company had outstanding at June 30, 1995, $21.1
million of Subordinated Notes payable to Josephine Chaus certain of which
were originally issued on June 30, 1986 and the remainder of which were
issued in February and March 1991. In connection with this offering, Josephine
Chaus agreed to extend the maturity date of the Subordinated Notes (which were
to mature on July 1, 1996) to July 1, 1998. The blended annual interest rate on
the Subordinated Notes is 11.36%, and payments of interest under the
Subordinated Notes are not currently permitted as a result of bank covenant
requirements. Ms. Chaus is prohibited from accelerating the Subordinated Notes
on account of such inability to pay interest through the maturity thereof.
1994 Warrants. Because during fiscal 1994, the Company required
availability under its working capital credit line with the Bank in excess of
the amount available under its borrowing base formula, Josephine Chaus agreed
to provide credit support in the form of the Letter of Credit. The Bank
increased the Company's borrowing availability by various amounts as the
amount and expiration date of the Letter of Credit were increased and
extended, respectively. In return for such credit support, the Company issued
to Ms. Chaus, upon stockholder approval, the 1994 Warrants to purchase an
aggregate of 1,216,500 shares of Common Stock of the Company, exercisable
through November 22, 1999, at prices ranging between $2.25 and $4.62 per
share.
1995 Warrants. As part of the negotiations with BNYF, in February 1995
Josephine Chaus provided the February Increase/Extension and the Guarantee,
the latter to be in effect during the Amended Financing Agreement's
three-year term (unless the term is earlier terminated), and in September
1995 provided the September Extension. In addition, in connection with this
offering, Ms. Chaus has provided the Company with the July Option to further
extend the Letter of Credit to July 31, 1996. If the Company (upon a
determination by the Special Committee) exercises the July Option, Ms. Chaus
will be entitled to certain additional warrants (the number of such
additional warrants shall be determined by the Special Committee in a manner
consistent with past practices, and shall be subject to receipt of a letter
of a nationally recognized investment banking firm as to the commercial
reasonableness thereof). In consideration of the February Increase/Extension,
the Guarantee and the September Extension, the Special Committee authorized
the issuance, subject to stockholder approval, of the 1995 Warrants
consisting of (a) warrants (the "February Increase Warrants") to purchase
815,000 shares of the Company's Common Stock at an exercise price of $4.05
per share, (b) warrants (the "Guarantee Warrants") to purchase 535,000 shares
of the Company's Stock at an exercise price of $4.05 per share and (c)
warrants (the "September Extension Warrants") to purchase 230,000 shares of
the Company's Common Stock at an exercise price of $6.75 per share. The
exercise prices of the February Increase Warrants and the Guarantee Warrants
are equal to 120% of the closing price of the Company's Common Stock on the
NYSE on May 17, 1995, the day immediately preceding the date when the Special
Committee approved the issuance of such warrants; and the exercise price of
the September Extension Warrants is equal to 120% of the closing price of the
Company's Common Stock on the NYSE on September 14, 1995, the date when the
Special Committee approved the issuance of the September Extension Warrants.
Ms. Chaus has received warrant compensation for her provision of the
Guarantee only through October 31, 1995. Thereafter, for each three month
period of the Guarantee, Ms. Chaus will receive cash compensation of $50,000.
Equity In Exchange for Debt. In September 1994, Josephine Chaus loaned the
Company $7.2 million in exchange for which she received demand notes bearing
interest at 12%. At the request of the Special Committee, in order to provide
additional equity to the Company, to enhance the Company's balance sheet and
to accommodate BNYF, Josephine Chaus subsequently agreed to exchange such
notes for shares of Common Stock of the Company on terms determined by the
Special Committee. In November 1994, following stockholder approval,
Josephine Chaus exchanged such notes, including accrued interest thereon, for
1,914,500 shares of Common Stock (based upon a purchase price of $3.85 per
share).
38
<PAGE>
JEFFREY CHAUS
Jeffrey Chaus (son of the late Bernard Chaus, founder of the Company) and
his spouse own a company which operates one retail clothing store located in
Fort Lee, New Jersey. During fiscal 1995, the Company sold its products to
this store at the same prices and on terms similar to the terms applicable to
sales by the Company of its products to its other retail customers during
fiscal 1995. The Company's gross sales to the store owned by Jeffrey Chaus
aggregated approximately $72,000 during fiscal 1995. At June 30, 1995, the
store owned by Jeffrey Chaus owed the Company approximately $8,000 for
merchandise sold by the Company to his store through such date.
RICHARD A. BAKER
In 1993, in connection with the Company's hiring of Richard A. Baker as
the President of the Company, the Company loaned an aggregate of $432,500 to
Mr. Baker in two installments to help him finance his relocation, including
the purchase of a home. Mr. Baker also was a director of the Company at that
time. The loan is evidenced by a promissory note dated July 9, 1993 (the
"Note") bearing interest at an annual rate of 7%. Pursuant to the terms of
the Note, Mr. Baker must repay principal and interest on a monthly basis over
a 60-month period commencing October 15, 1994. At September 30, 1995, the
remaining principal amount outstanding under the Note was $117,000.
HARVEY KRUEGER
Harvey Krueger, a director of the Company and member of its Compensation
Committee, is a Senior Managing Director of Lehman Brothers, which provided
certain advisory services to the Company during fiscal 1995 and the first
quarter of fiscal 1996 for which it received fees of $175,000. See
"Underwriting."
S. LEE KLING
S. Lee Kling, a director of the Company and member of its Audit and
Compensation Committees, serves as Vice Chairman of an insurance broker,
Willis Corroon Corp. of Missouri, from which the Company obtains various
insurance policies (i.e., travel, directors and officers liability, and life
insurance). In addition, a son of Mr. Kling is employed by Willis Corroon
Corp. of Missouri. The total aggregate premium payments paid to the insurance
broker in respect of such insurance during fiscal 1995 was approximately
$327,000.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. As
of September 30, 1995, 21,108,641 shares of Common Stock were outstanding. In
addition, 7,310,378 shares of Common Stock were reserved for issuance upon
the exercise of outstanding warrants and options.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of stockholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of
the voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect
any directors.
Subject to the rights of holders of any series of preferred stock that may
be issued in the future, the holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available thereof. See "Price Range of Common Stock and
Dividend Policy." In the event of a voluntary or involuntary liquidation of
the Company, all stockholders are entitled to a pro rata distribution of the
assets of the Company remaining after payment of claims of creditors and
liquidation preferences of any preferred stock. Holders of the Common Stock
have no conversion, redemption or sinking fund rights.
Holders of the Common Stock currently have preemptive rights, subject to
certain exceptions prescribed by the New York Business Corporation Law. In
the opinion of Shereff, Friedman, Hoffman
39
<PAGE>
& Goodman, LLP, counsel to the Company, all issuances of Common Stock
subsequent to the 1986 Offering, as well as issuances of warrants and options
to purchase Common Stock, fell within one of such exceptions. On September
27, 1995, the Board of Directors approved, subject to approval of the
Company's stockholders at the November 1995 Annual Meeting of Stockholders,
an amendment to the Certificate of Incorporation (the "Amendment") to
eliminate such preemptive rights. Holders of Common Stock who do not vote in
favor of the Amendment to eliminate such preemptive rights will have the
right to dissent and to receive payment for their shares of Common Stock
provided they comply with the provisions of Section 623 of the New York
Business Corporation Law. Josephine Chaus possesses the power to vote more
than 50% of the outstanding shares of the Common Stock; accordingly, the
affirmative vote of Josephine Chaus, who has advised the Company that she
intends to vote all of her shares in favor of the Amendment, is sufficient to
approve the Amendment.
TRANSFER AGENT
The transfer agent for the Common Stock is Chemical Bank, New York, New
York 10005.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock
(the "Preferred Stock"). The Board of Directors is authorized to fix the
relative rights and preferences of the shares of Preferred Stock, including
voting powers, dividend rights, liquidation preferences, redemption rights
and conversion privileges. As of the date of this Prospectus, the Board of
Directors has not authorized any series of Preferred Stock, and there are no
agreements or understandings for the issuance of any shares of Preferred
Stock. Because of its broad discretion with respect to the creation and
issuance of Preferred Stock without stockholder approval, the Board of
Directors could adversely affect the voting power of the holders of Common
Stock and, by issuing shares of Preferred Stock with certain voting,
conversion and/or redemption rights, could discourage any attempt to obtain
control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 21,108,641 shares of Common Stock outstanding
and, upon the completion of this offering will have 26,108,641 shares of
Common Stock outstanding. Of such shares, the shares sold in the offering
(other than shares which may be purchased by "affiliates" of the Company)
will be freely tradeable without restriction or further registration under
the Securities Act. Of the remaining outstanding shares, 13,490,050 shares of
Common Stock beneficially owned by Josephine Chaus are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144"), and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144. Certain
of the Company's executive officers and directors (including Ms. Chaus and
Mr. Grossman) have agreed not to offer, sell, or otherwise dispose of their
shares, with certain limited exceptions, for a period of 120 days after the
date of this offering without the prior written consent of Lehman Brothers,
as representative of the Underwriters. Subject to the expiration of such
120-day Underwriter's lockup period, the 13,490,050 shares beneficially owned
by Ms. Chaus will be eligible for sale pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least two years from the later of the date
such restricted shares were acquired from the Company and (if applicable) the
date they were acquired from an affiliate, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock (260,810 shares based on the
number of shares to be outstanding immediately after this offering) or the
average weekly trading volume in the public market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain requirements as
to the manner and notice of sale and the availability of public information
concerning the Company. Ms. Chaus has satisfied the two-year holding period
with respect to 11,575,550 of such shares.
40
<PAGE>
Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other restrictions, but
without regard to the two-year holding period. Restricted shares held by
affiliates of the Company eligible for sale in the public market under Rule
144 are subject to the foregoing volume limitations and other restrictions.
Further, under Rule 144(k), if a period of at least three years has
elapsed between the later of the date restricted shares were acquired from
the Company and the date they were acquired from an affiliate of the Company,
and the person was not an affiliate for at least three months prior to the
sale, such person would be entitled to sell the shares immediately without
regard to volume limitations and the other conditions described above.
Mr. Grossman has registration rights which require the filing of a
Registration Statement on Form S-8 under the Securities Act with respect to
the shares underlying his options. Such Registration Statement will permit
him to sell such shares from time to time without the limitations imposed by
Rule 144.
No predictions can be made as to the effect, if any, that market sales of
shares of existing stockholders or the availability of such shares for future
sale will have on the market price of shares of Common Stock prevailing from
time to time. The prevailing market price of Common Stock after the offering
could be adversely affected by future sales of substantial amounts of Common
Stock by existing stockholders.
UNDERWRITING
The Underwriters named below, for whom Lehman Brothers Inc. is acting as
representative (the "Representative"), have severally agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of
each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc. .............................
-----------
Total .......................................... 5,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page hereof, and to certain dealers
(who may include the Underwriters) at such public offering price, less a
selling concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share, to certain other Underwriters or to certain other brokers or dealers
(who may include the Underwriters). After this offering to the public, the
offering price and selling terms may be changed by the Representative.
The Company has granted to the Underwriters an option to purchase up to an
additional 750,000 shares of Common Stock, exercisable solely to cover
overallotments, at the public offering price, less the underwriting discounts
and commissions shown on the cover page of this Prospectus. Such option may
be exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will
be committed to purchase a number of the additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
41
<PAGE>
The Company and the executive officers and directors of the Company have
agreed that they will not, without the prior written consent of Lehman
Brothers Inc., directly or indirectly, offer, sell, or otherwise dispose of
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for, shares of Common Stock), or, as to the Company, sell or
grant options, rights or warrants with respect to shares of Common Stock,
other than (i) pursuant to existing benefit plans of the Company or any of
its subsidiaries and (ii) in accordance with the terms of the Underwriting
Agreement, for a period of 120 days after the date of this offering.
The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
During 1994 and 1995, Lehman Brothers Inc. provided to the Special
Committee its view as to the commercial reasonableness of the transactions
involving the issuance by the Company to Josephine Chaus of Common Stock and
of warrants to purchase Common Stock, in exchange for promissory notes and in
consideration for her provision of credit support to the Company,
respectively. See "Certain Transactions." In consideration of such services,
Lehman Brothers Inc. received advisory fees in the aggregate amount of
$175,000.
Harvey M. Krueger, a Senior Managing Director of Lehman Brothers Inc., is
a director of the Company, a member of its Compensation Committee and a
beneficial owner of 60,000 shares of Common Stock. See "Management",
"Principal Stockholders" and "Certain Transactions."
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed on
for the Company by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New
York and for the Underwriters by Schulte Roth & Zabel, New York, New York.
EXPERTS
The financial statements as of June 30, 1994 and 1995 and for the years
then ended and the related financial statement schedule for the year ended
June 30, 1994, included and incorporated by reference in this Prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are included and incorporated by reference herein and
have been so included and incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of Bernard Chaus, Inc. for the year ended June 30, 1993, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files periodic
reports, proxy statements, and other information with the Commission. Such
reports, proxy statements, and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its regional offices located at Suite 1300, Seven World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
material can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W.,Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-2 and schedules and exhibits thereto under the Securities Act with respect
to the Common Stock offered hereby. This
42
<PAGE>
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in Registration Statement and schedules
and exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to such Registration Statement, including the exhibits filed as part thereof.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated in this Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994;
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994; and
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies, supersedes, or replaces such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of this Prospectus. Any person receiving a
copy of this Prospectus may obtain without charge, upon written or oral
request, a copy of any of the documents incorporated by reference herein,
except for exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the documents which this Prospectus
incorporates). Requests should be directed to: Corporate Secretary, 1410
Broadway, New York, New York 10018, telephone number (212) 354-1280.
43
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Reports of Independent Auditors F-2
Consolidated Balance Sheets--June 30, 1994 and 1995 F-4
Consolidated Statements of Operations--Years Ended June 30, 1993, 1994 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficiency)--Years Ended June 30,
1993, 1994 and 1995 F-6
Consolidated Statements of Cash Flows--Years Ended June 30, 1993, 1994 and 1995 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Bernard Chaus, Inc.
We have audited the accompanying consolidated balance sheets of Bernard
Chaus, Inc. and subsidiaries as of June 30, 1994 and June 30, 1995 and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Bernard Chaus, Inc. and
subsidiaries at June 30, 1994 and June 30, 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
October 6, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Bernard Chaus, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Bernard Chaus, Inc. and subsidiaries
for the year ended June 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations, cash flows and changes in stockholders' equity of Bernard Chaus,
Inc. and subsidiaries operations and their cash flows for the year ended June
30, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
August 18, 1993
F-3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ..................................... $ 468 $ 418
Accounts receivable, less allowances of $6,340 and $4,226 .... 17,757 7,646
Inventories ................................................... 25,503 16,203
Prepaid expenses .............................................. 3,743 1,523
---------- ----------
Total current assets ........................................ 47,471 25,790
Fixed assets -- net ............................................ 3,612 2,392
Other assets ................................................... 536 478
---------- ----------
$ 51,619 $ 28,660
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities ............................................
Notes payable -- banks ........................................ $ 21,115 $ 18,698
Subordinated promissory notes -- current ...................... 250 --
Accounts payable .............................................. 14,290 12,922
Accrued expenses .............................................. 6,710 5,549
Accrued restructuring expenses ................................ 1,764 2,535
---------- ----------
Total current liabilities ................................... 44,129 39,704
Subordinated promissory notes .................................. 18,789 21,066
Accrued restructuring expenses ................................. 2,315 269
---------- ----------
65,233 61,039
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, authorized shares
--1,000,000;
outstanding shares -- none
Common stock, $.01 par value; authorized shares --50,000,000;
issued shares -- 18,975,031 at June 30, 1994 and 21,073,081
at
June 30, 1995 ................................................ 190 211
Additional paid-in capital .................................... 40,226 49,353
Deficit ....................................................... (52,550) (80,463)
Less: Treasury stock, at cost -- 622,700 shares ............... (1,480) (1,480)
---------- ----------
Total stockholders' deficiency .............................. (13,614) (32,379)
---------- ----------
$ 51,619 $ 28,660
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Net sales .................................... $ 235,819 $ 206,332 $ 181,697
Cost of goods sold ........................... 187,423 186,594 149,097
------------ ------------ -----------
Gross profit ................................. 48,396 19,738 32,600
Selling, general and administrative expenses 57,410 55,400 44,794
Restructuring expenses ....................... -- 5,300 1,200
Unusual expenses ............................. -- 1,900 8,333
------------ ------------ -----------
(9,014) (42,862) (21,727)
Interest expense ............................. (2,322) (3,439) (5,976)
Other income (expense), net .................. 449 (190) 91
------------ ------------ -----------
Loss before provision for income taxes ...... (10,887) (46,491) (27,612)
Provision for income taxes ................... 102 264 301
------------ ------------ -----------
Net loss ..................................... $ (10,989) $ (46,755) $ (27,913)
============ ============ ===========
Net loss per share ........................... $ (0.60) $ (2.55) $ (1.40)
============ ============ ===========
Weighted average number of common shares
outstanding ................................. 18,272,000 18,352,000 19,910,000
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
------------ -------- ------------
<S> <C> <C> <C>
Balance at July 1, 1992 . 18,735,508 $187 $39,427
Net loss ................. -- -- --
Exercise of stock options 239,523 3 805
------------ -------- ------------
Balance at June 30, 1993 18,975,031 190 40,232
Net loss ................. -- -- --
Restricted stock purchase
and retirement -- net .. -- -- (6)
------------ -------- ------------
Balance at June 30, 1994 18,975,031 190 40,226
Net loss .................
Exchange of notes for
common stock ............ 1,914,500 19 7,352
Issuance of warrants .... -- -- 1,136
Exercise of stock options 183,550 2 639
------------ -------- ------------
Balance at June 30, 1995 21,073,081 $211 $49,353
============ ======== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TREASURY STOCK
RETAINED ----------------------
EARNINGS NUMBER OF
(DEFICIT) SHARES AMOUNT TOTAL
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at July 1, 1992 . $ 5,194 622,700 $(1,480) $ 43,328
Net loss ................. (10,989) -- -- (10,989)
Exercise of stock options -- -- -- 808
----------- --------- ---------- ----------
Balance at June 30, 1993 (5,795) 622,700 (1,480) 33,147
Net loss ................. (46,755) -- -- (46,755)
Restricted stock purchase
and retirement -- net .. -- -- -- (6)
----------- --------- ---------- ----------
Balance at June 30, 1994 (52,550) 622,700 (1,480) (13,614)
Net loss ................. (27,913) (27,913)
Exchange of notes for
common stock ............ -- -- -- 7,371
Issuance of warrants .... -- -- -- 1,136
Exercise of stock options -- -- -- 641
----------- --------- ---------- ----------
Balance at June 30, 1995 $(80,463) 622,700 $(1,480) $(32,379)
=========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net loss .......................................... $(10,989) $(46,755) $(27,913)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization .................... 1,553 2,485 1,305
Loss on disposal of fixed assets ................. -- 1,192 358
(Recovery of) provision for losses on accounts
receivable ...................................... (25) 117 225
Non-cash interest expense ........................ -- 2,436 3,584
Changes in operating assets and liabilities:
Accounts receivable .............................. 2,764 12,688 9,886
Inventories ...................................... (26,097) 20,471 9,300
Prepaid expenses and other assets ................ (2,655) 2,094 2,278
Accounts payable ................................. 4,588 (5,199) (1,368)
Accrued expenses ................................. 1,808 1,372 (1,161)
Accrued restructuring expenses ................... -- 4,079 (1,275)
----------- ----------- -----------
Net Cash Used In Operating Activities .............. (29,053) (5,020) (4,781)
Investing Activities
Purchases of fixed assets ......................... (2,275) (1,357) (443)
----------- ----------- -----------
Net Cash Used In Investing Activities .............. (2,275) (1,357) (443)
Financing Activities
Net proceeds (repayments) from short-term bank
borrowings ....................................... 14,881 6,234 (2,417)
Principal payments on subordinated promissory
notes ............................................ (7,377) (750) (250)
Proceeds from issuance of subordinated promissory
notes ............................................ -- -- 7,200
Purchase and retirement of restricted stock ...... -- (6) --
Net proceeds from exercise of options ............. 808 -- 641
----------- ----------- -----------
Net Cash Provided By Financing Activities ......... 8,312 5,478 5,174
----------- ----------- -----------
Decrease In Cash And Cash Equivalents .............. (23,016) (899) (50)
Cash and Cash Equivalents, Beginning of Year ...... 24,383 1,367 468
----------- ----------- -----------
Cash and Cash Equivalents, End of Year ............. $ 1,367 $ 468 $ 418
=========== =========== ===========
Cash paid for:
Taxes ............................................. 308 61 7
Interest .......................................... 1,896 1,413 2,283
Supplemental schedule of non-cash financing
activities:
Exchange of subordinated promissory notes for
common stock .................................... -- -- 7,200
Issuance of warrants for credit support by
principal stockholder ........................... -- -- 1,136
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Bernard Chaus, Inc. (the Company or Chaus), designs, arranges for the
manufacture of and markets an extensive range of women's career and casual
sportswear and dresses which are marketed principally under the
CHAUS(Registered Trademark) and CHAUS SPORT(Registered Trademark) trademarks.
The Company's products are sold nationwide through department store chains,
specialty retailers and other retail outlets.
In the latter part of fiscal 1994, the Company initiated a restructuring plan
which entailed several initiatives to improve its financial position. These
initiatives included, among other things, a $7.2 million cash infusion from
Josephine Chaus to fund the costs associated with hiring Andrew Grossman as
its new Chief Executive Officer, negotiation of a new three year bank
financing agreement (the Amended Financing Agreement--see Note 6) with BNY
Financial Corporation, a wholly owned subsidiary of The Bank of New York (BNYF),
expiring in February 1998, overhead reductions, centralization of certain
functions, closing of selected outlet stores, and a reduction in inventory
levels.
In conjunction with the Amended Financing Agreement, Josephine Chaus provided
the Bank with collateral in the form of a $10 million letter of credit (the
Letter of Credit) which expires on January 31, 1996, and a $5 million
personal guarantee (the Guarantee) for the duration of the Amended Financing
Agreement. In September 1995, Ms. Chaus also provided the Company with an
option to extend the Letter of Credit until July 31, 1996 (see Note 6).
During fiscal 1995, operating expenses were reduced by $10.6 million and
inventories were reduced by $9.3 million. The Company closed three outlet
stores in July 1995, and plans to close six additional outlet stores during
the remainder of fiscal 1996. Additionally, the Company has announced its
intentions to raise equity capital, a portion of which will be used to
finance the working capital needs of its Nautica product line (see Note 11).
The Company's business plan requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and the
development and marketing of its new licensed Nautica lines. The Company
expects to satisfy such requirements through cash flow from operations, its
line of credit under the Amended Financing Agreement, the proceeds of the
proposed equity offering (see Note 11), and, in the near term, continued
credit support from Josephine Chaus. The Company will seek to satisfy its
operating requirements without utilizing credit support from Ms. Chaus,
although there can be no assurance that it will be successful in doing so.
The Company has no understanding with Ms. Chaus pursuant to which she would
extend the Letter of Credit beyond July 31, 1996.
Although there can be no assurance that the plans set forth above will
provide the Company with adequate resources, the Company believes that these
initiatives will have a positive impact on future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Material intercompany accounts and transactions have been
eliminated.
Net Loss Per Share:
Net loss per share has been computed by dividing the applicable net loss by
the weighted average number of common shares outstanding during the year.
Common equivalent shares were not included as their inclusion would have been
antidilutive.
F-8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Revenues are recorded at the time merchandise is shipped, and with regard to
the outlet stores, at the time when goods are sold to the customer.
Credit Terms:
The Company extends credit to its customers based upon an evaluation of the
customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1994 and 1995, approximately 41.5% and 44.7%,
respectively, of the Company's accounts receivable balances were due from
department store customers owned by three single corporate entities. Sales to
these three entities comprised approximately 13%, 17%, and 9%, respectively,
of the Company's net sales for fiscal 1993, approximately 16%, 14% and 9%,
respectively, of the Company's net sales for fiscal 1994, and approximately
23%, 13% and 7%, respectively, of the Company's net sales for fiscal 1995.
Cash Equivalents:
Cash equivalents are short-term, highly liquid investments purchased with an
original maturity of three months or less.
Inventories:
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
Fixed Assets:
Furniture and equipment are depreciated principally using the straight-line
method over eight years. Leasehold improvements are amortized using the
straight-line method over either the term of the lease or the estimated
useful life of the improvement, whichever period is shorter. Computer
software is depreciated using the straight-line method over three years.
Foreign Currency Transactions:
The Company negotiates substantially all of its purchase orders with foreign
manufacturers in United States dollars. The Company considers the United
States dollar to be the functional currency of its overseas subsidiaries. All
foreign currency gains and losses are recorded in the Consolidated Statement
of Operations.
Employee Benefits:
The Company does not typically provide post-employment benefits to its
employees. Accordingly, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" has no material effect on
the Company's financial statements.
Income Taxes:
Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (Statement 109). Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss). Prior to the adoption of Statement 109, income tax
expense was determined using the deferred method. Deferred tax expense was
based on items of income and expenses that were reported in different years
in the financial statements and tax returns and were measured at the tax rate
in effect in the year the difference originated. As permitted by Statement
109, the Company has elected not to restate the financial statements of any
prior years. There was no effect of adopting this change.
F-9
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain reclassifications were made to the 1994 and 1993 financial statements
to conform to the 1995 presentation.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods ...... $25,075 $13,248
Work-in-process ...... 124 2,034
Raw materials ...... 304 921
---------- ----------
$25,503 $16,203
========== ==========
</TABLE>
Inventories include merchandise in transit (principally finished goods) of
approximately $11.2 million at June 30, 1994 and $4.8 million at June 30,
1995.
4. FIXED ASSETS
Fixed assets at cost, net of accumulated depreciation and amortization,
consist of:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Furniture and equipment ..... $12,121 $11,878
Leasehold improvements ....... 9,303 8,251
---------- ----------
21,424 20,129
Less accumulated depreciation
and amortization ............ 17,812 17,737
---------- ----------
$ 3,612 $ 2,392
========== ==========
</TABLE>
F-10
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Significant components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .................. $ 17,800 $ 25,700
Costs capitalized to inventory for tax purposes .. 1,300 1,200
Accrued interest, subordinated debt/warrants ..... 1,000 2,400
Book over tax depreciation ........................ 1,600 2,100
Sales allowances not currently deductible ........ 2,600 2,200
Reserves and other items not currently deductible 700 600
---------- ----------
25,000 34,200
Valuation allowance for deferred tax assets ...... (25,000) (34,200)
---------- ----------
Net deferred tax asset ............................ $ 0 $ 0
========== ==========
</TABLE>
There was a change in the valuation allowance for the year ended June 30,
1995 of $9.2 million.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------
1993 1994 1995
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit for federal
income taxes at the statutory
rate of 34.5% in 1993
and 35.0% in 1994 and 1995 ......... ($3,756) ($16,272) ($9,665)
State and local income taxes .......
net of federal tax benefit ......... 102 264 301
Executive compensation in excess of -- --
amount deductible for tax purposes -- -- 2,100
Other ............................... -- -- 35
Effect of unrecognized tax loss .... -- --
carryforwards ...................... 3,756 16,272 7,530
---------- ----------- ----------
Provision for income taxes .......... $ 102 $ 264 $ 301
========== =========== ==========
</TABLE>
At June 30, 1995, the Company has a federal net operating loss carryforward
for income tax purposes of approximately $60 million, which will expire
between 2006 and 2010.
6. FINANCIAL AGREEMENTS
An amended and restated financing agreement with BNYF, originally entered
into in July, 1991, amended and restated effective as of February 21, 1995,
and further amended effective as of September 28, 1995 (the "Amended
Financing Agreement") provides the Company with a $60 million credit facility
for letters of credit and direct borrowings, with a sublimit for loans and
advances of $40 million ($47 million for the period from October 1, 1995
through November 30, 1995). At June 30, 1995, the Company was in an
overadvance position of $5.3 million, with BNYF permitting overadvances up to
$6.0 million. The amount of financing available is based upon a formula
incorporating eligible receivables and inventory, cash balances, other
collateral, and permitted overadvances, all as defined in the Amended
Financing Agreement. The Amended Financing Agreement is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory.
F-11
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL AGREEMENTS (CONTINUED)
Interest on direct borrowings is payable monthly at an annual rate equal to
the higher of (i) The Bank of New York's prime rate (9.0% at June 30, 1995)
plus 0.5% (The Bank of New York prime rate plus 1.5% in the event the
Company's overadvance position exceeds the allowable overadvances) or (ii) the
Federal Funds Rate in effect plus 1% (Federal Funds Rate plus 2% in the event
the Company's overadvance position exceeds the allowable overadvances). There
is a commitment fee of 0.375% of the unused portion of the line, payable
monthly, and letter of credit fees equal to 0.125% of the outstanding letter
of credit balance, payable monthly. The Amended Financing Agreement required
the payment of a due diligence and facility fee aggregating $0.6 million. In
addition, the Amended Financing Agreement provides for the payment of minimum
service charges of $0.5 million per annum. The Company may terminate the
Amended Financing Agreement upon 90 days' prior written notice at any time,
subject to termination fees. BNYF may terminate after February 21, 1998, upon
60 days' written notice to the Company. The weighted average interest rate
was 6.5%, 6.7% and 8.9% for the years ended June 30, 1993, 1994 and 1995,
respectively.
The Amended Financing Agreement contains covenants relative to minimum levels
of working capital and net worth and a cap on personal property leases. The
Company is also prohibited from declaring or paying dividends, or making
other distributions on its capital stock, with certain exceptions. During the
first, second and fourth quarters of fiscal year 1995, the Company was not in
compliance with certain financial covenants. BNYF has waived such
noncompliance.
As part of the renegotiation (see Note 7), in February 1995 Josephine Chaus
increased the Letter of Credit from $7.2 million to $10 million and extended
its term from April 15, 1995 to October 31, 1995 (the February
Increase/Extension) and has, in September 1995, further extended its term to
January 31, 1996 (the September Extension) and, in October 1995, provided the
Company with an option to further extend the Letter of Credit to July 31,
1996. Additionally, Ms. Chaus provided BNYF with the Guarantee. In
consideration for these actions, a Special Committee of the Company's Board
of Directors of the Company (the Special Committee) has authorized the
issuance of warrants (the 1995 Warrants) consisting of (a) warrants to
purchase 815,000 shares of the Company's Common Stock (the February Increase
Warrants) at an exercise price of $4.05 per share, (b) warrants to purchase
535,000 shares of the Company's common stock (the Guarantee Warrants) at an
exercise price of $4.05 per share and (c) warrants to purchase 230,000 shares
of the Company's common stock (the September Extension Warrants) at an
exercise price of $6.75 per share. The exercise prices of the February
Increase Warrants and the Guarantee Warrants are equal to 120% of the closing
price of the Company's Common Stock on the New York Stock Exchange (the NYSE)
on May 17, 1995, the day immediately preceding the date when the Special
Committee approved the issuance of such warrants; and the exercise price of
the September Extension Warrants is equal to 120% of the closing price of the
Company's Common Stock on the NYSE on September 14, 1995, the date when the
Special Committee approved the September Extension Warrants. The 1995
Warrants are subject to stockholder approval and receipt of an opinion from a
nationally recognized investment banking firm that the terms of the 1995
Warrants are commercially reasonable. The Guarantee Warrants reflect
compensation for the provision of the Guarantee only through October 31, 1995;
thereafter, for each three month period of the Guarantee, Ms. Chaus will receive
cash compensation of $50,000.
The 1995 Warrants will be exercisable for five years from the date of
issuance and will be (in the case of the February Increase Warrants and the
Guarantee Warrants, but not the September Extension Warrants) fully
transferable. In addition, the Company has borne all out-of-pocket expenses
incurred by Josephine Chaus in providing the credit support, which thereby
reduced the number of warrants received by her
F-12
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL AGREEMENTS (CONTINUED)
accordingly. Josephine Chaus will forfeit a pro rata portion of the February
Increase Warrants and/or Guarantee Warrants if the Letter of Credit and/or
the Guarantee, as applicable, is terminated before October 31, 1995; and will
forfeit a pro rata portion of the September Extension Warrants if the Letter
of Credit is terminated before January 31, 1996.
Josephine Chaus possesses the power to vote more than 50% of the outstanding
shares of Common Stock. Consequently, the affirmative vote of Josephine Chaus
for the issuance of the 1995 Warrants to her is sufficient to approve such
issuance without the vote of any other stockholders. Josephine Chaus has
advised the Company that she intends to vote all of her shares in favor of
such issuance. As a result, the Company has recorded a charge to interest
expense with a corresponding increase to additional paid-in capital of $0.5
million for the issuance of the February Increase Warrants and the Guarantee
Warrants during the fourth quarter of fiscal 1995 and will reflect a charge
for the issuance of the September Extension Warrants during fiscal 1996.
Additionally, in consideration for credit support provided to the Company in
connection with the prior financing agreement with the BNYF, Josephine Chaus
was granted 1,216,500 warrants (the 1994 Warrants) exercisable through
November 22, 1999 at prices ranging between $2.25 to $4.62 per share. The
value of the 1994 Warrants has been included as a charge to interest expense
($0.7 million) during fiscal 1995 with a corresponding increase to paid-in
capital.
In June 1995, the Company and a major trading company entered into a sales
and financing agreement (the S&F Agreement) which provided the Company with
additional financing to purchase its products. Either party may terminate the
S&F Agreement upon 30 days' written notice to the other party.
7. SUBORDINATED PROMISSORY NOTES
The Company has outstanding at June 30, 1995, $21.1 million of subordinated
promissory notes payable to Josephine Chaus certain of which were originally
issued on June 30, 1986 and the remainder of which were issued in February
and March 1991 (the "Subordinated Notes"). The Company has been prohibited
from making payments of principal or interest on the Subordinated Notes since
1993 (with the exception of principal payments of approximately $.5 million,
$.3 million and $.3 million in November 1993, February 1994 and August 1994,
respectively) as a result of restrictive covenants under the prior financing
agreement and the Amended Financing Agreement. In September 1995, Josephine
Chaus extended the maturity date on all of the Subordinated Notes (which were
to mature on April 1, 1996) to July 1, 1996. In connection with the proposed
equity offering, Ms. Chaus subsequently agreed to extend the maturity
date of the Subordinated Notes to July 1, 1998, subject to the consummation
of such offering.
In September 1994, Josephine Chaus loaned $7.2 million to the Company in
exchange for subordinated promissory notes bearing interest at 12% per annum.
Proceeds of such cash infusion were used for costs and associated expenses
related to the signing of the Company's new chief executive officer. In
November 1994, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate the Bank, Josephine
Chaus subsequently agreed, at the request of the Special Committee, to
exchange such notes for shares of Common Stock of the Company on terms
determined by a Special Committee of the Board of Directors. In November
1994, following stockholder approval, Josephine Chaus exchanged such notes,
including accrued interest thereon ($.2 million), for 1,914,500 shares of
Common Stock (based upon a purchase price of $3.85 per share). The purchase
price was determined by the Special Committee and the purchase was approved
by the Company's stockholders at the November 22, 1994 Annual Meeting of
Stockholders.
F-13
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Pension Plan:
Pursuant to a collective bargaining agreement, all of the Company's union
employees are covered by a defined benefit pension plan. Pension expense
amounted to approximately $28,000, $61,000 and $53,000 in fiscal 1993, 1994
and 1995, respectively. As of December 31, 1994, the actuarial present value
of the accumulated vested and non-vested plan benefits amounted to $0.4
million and net assets available for benefits amounted to $0.3 million.
Actuarial assumptions related to weighted average interest rate and weighted
average rate of return were 8.25% and 8.5%, respectively, for fiscal 1993,
and 8.0% and 8.5%, respectively, for both fiscal 1994 and 1995.
Savings Plan:
The Company has a savings plan (the Savings Plan) under which eligible
employees may contribute a percentage of their compensation and the Company
(subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and
are subject to vesting provisions of the Savings Plan. Expense under the
Savings Plan was approximately $0.3 million, $0.3 million and $0.2 million in
fiscal 1993, 1994, and 1995, respectively. An aggregate of 100,000 shares of
Common Stock has been reserved for issuance under the Savings Plan.
Incentive Award Plan:
The Company maintains an incentive award plan (the Award Plan) pursuant to
which eligible participants may be awarded bonuses if net earnings of the
Company reach a predetermined level. No compensation has been awarded under
the Award Plan in the fiscal years ended June 30, 1993, 1994 and 1995.
Restricted Stock Plan:
In November 1987, the Company's stockholders approved the adoption of a
restricted stock plan (the Restricted Plan). Pursuant to the Restricted Plan,
250,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25 percent of such shares on each anniversary of their date
of allocation. As of June 30, 1995, no restricted shares have been granted
under this plan.
Stock Option Plan:
Pursuant to the Stock Option Plan (the Option Plan), the Company may grant to
eligible individuals incentive stock options, as defined in the Internal
Revenue Code, and non-incentive stock options. At the annual meeting of
stockholders in November 1993, the stockholders approved the increase in the
number of shares of Common Stock with respect to which options may be granted
from 1,500,000 shares to 2,500,000 shares. No stock options may be granted
subsequent to 1996 and the exercise price may not be less than 100% of the
fair market value on the date of grant for incentive stock options and 85% of
the fair market value on the date of grant for non-incentive stock options.
Grossman Option Plan:
In addition, at the annual stockholders meeting on November 1994, the
stockholders approved the issuance of options for the Company's new Chief
Executive Officer (the Grossman Option Plan) to purchase 3,000,000 shares of
common stock. Of this amount, 1,500,000 options were options were granted in
September 1994 (and included in the table below) and the balance were issued
in September 1995 in connection with the extension of the term of his
employment agreement.
F-14
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
NON-INCENTIVE
STOCK OPTIONS
----------------------------
NUMBER OF EXERCISE PRICE
SHARES RANGE
----------- ---------------
<S> <C> <C>
Outstanding at June 30, 1992 .. 1,286,108 $2.375 -- $6.500
Options granted in fiscal 1993 86,906 $2.875 -- $9.375
Options canceled ............... (21,027) $4.250 - $5.375
Options exercised .............. (239,523) $2.375 -- $6.500
-----------
Outstanding at June 30, 1993 .. 1,112,464 $2.375 -- $9.375
Options granted in fiscal 1994 630,000 $1.875 -- $4.750
Options canceled ............... (323,316) $2.875 -- $6.500
-----------
Outstanding at June 30, 1994 .. 1,419,148 $1.875 -- $9.375
Options granted in fiscal 1995 2,186,688 $ 2.25 -- $4.750
Options canceled ............... (555,428) $2.000 -- $9.375
Options exercised .............. (183,550) $2.000 -- $4.750
-----------
Outstanding at June 30, 1995 .. 2,866,858 $1.875 -- $4.875
=========== ================
</TABLE>
The stock options become exercisable in annual 25% increments commencing one
year after issuance. As of June 30, 1995 options to purchase approximately
573,000 shares were exercisable.
At June 30, 1995, a total of approximately 5,363,000 shares of Common Stock
were reserved for issuance under the Stock Option, Savings and Grossman
Option Plans.
9. RESTRUCTURING AND UNUSUAL EXPENSES
Relative to the restructuring program discussed in Note 1, during the first
fiscal quarter of 1995 the Company recorded restructuring expenses of $1.2
million. These costs primarily related to employee severance as the Company
continued to reduce overhead costs.
In January 1995, the Company signed favorable early termination agreements
with the landlords of certain outlet stores, for which the Company had
previously 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.
In fiscal 1994, the Company recorded restructuring expenses of $5.3 million.
These expenses included $2.1 million for closing selected outlet stores, $2.5
million for the consolidation and closing of office and warehouse space and
$0.7 million for employee severance.
During the first fiscal quarter of 1995, the Company recorded unusual
expenses of $7.8 million primarily related to costs associated with the
signing of the Company's new Chief Executive Officer. In the fourth quarter
of fiscal 1995, the Company recorded an additional $0.5 million related to
certain legal matters. During the fourth quarter of fiscal 1994, the Company
recorded $1.9 million of unusual expense consisting primarily of expenses
arising from the abandonment of fixed assets, certain legal matters and the
winding down of the Company's Canadian joint venture.
F-15
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Lease Obligations:
The Company leases showroom, distribution and office facilities, retail
outlet facilities and equipment under various noncancellable operating lease
agreements which expire through 2005. Rental expense for the years ended June
30, 1993, 1994 and 1995 was approximately $8.1 million, $11.2 million
(approximately $3.7 million of which is included in restructuring expenses)
and $7.0 million, respectively.
The minimum aggregate rental commitments at June 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending:
1996 .............. $ 5,512
1997 .............. 2,644
1998 .............. 1,362
1999 .............. 1,116
2000 .............. 870
Subsequent to 2000 1,558
--------
$13,062
========
</TABLE>
Letters of Credit:
The Company is contingently liable under letters of credit issued by banks to
cover contractual commitments for merchandise purchases of approximately
$11.0 million at June 30, 1995.
Litigation:
By order dated September 1, 1992, Federal Judge Shirley Wohl Kram dismissed
with prejudice as time-barred the Amended Complaint against the Company and
others, in the previously reported consolidated class actions entitled Phifer
v. Chaus et al., Goldschlack v. Chaus et al., Susman v. Chaus et al. and I.
Bibcoff Inc. Pension Trust Fund v. Chaus et al. In such actions, claims were
asserted against the Company and others, including the Company's lead
underwriters, for alleged misstatements and omissions contained in the
Company's July 1986 Prospectus delivered in connection with the Company's
initial public offering and its 1986 and 1987 Annual Reports. Plaintiffs's
attorneys filed a notice of appeal, which they subsequently withdrew subject
to the right to restore the appeal by January 8, 1993. No such appeal was
made and the action was automatically deemed dismissed with prejudice.
On April 19, 1993, a Class Action Complaint was filed in the Superior Court
of New Jersey, Hudson County, against the Company and others, including the
lead underwriter of the Company's 1986 initial public offering, alleging
common law fraud and negligent misrepresentation in the sale of the Company's
stock in its initial public offering, allegations that are substantially
similar to the claims that were dismissed with prejudice in the federal
court. One of the plaintiffs from the federal action was originally a party
in this action in state court. On June 18, 1993, the Company received by
mail, a copy of Jury Demand Class Action in the Superior Court of New Jersey,
Hudson County, entitled Theodore M. Wietecha and Lisa A. Phifer v. Bernard
Chaus, Inc. et al. The complaint was amended in September 1993 to delete Lisa
Phifer as a plaintiff. On May 27, 1994, the Company moved to dismiss the
complaint and/or to deny or limit class status. On May 27, 1994, the Company
moved to dismiss the complaint and/or to deny or limit class status. In a
decision rendered in November, 1994, the Superior Court denied the
plaintiff's motion for the class certification and dismissed all claims
against the director defendants (Josephine Chaus and the Estate of Bernard
Chaus) and all claims not based upon actual reliance.
With the denial of class certification, absent a successful appeal, the
plaintiff's claims would not have a material adverse affect on the Company.
In any event, management believes, based on the advice of counsel, that such
action is without merit.
F-16
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
A claim for indemnification has been asserted by the Company's former
Underwriters against the Company. The indemnification claim demands repayment
of the legal fees and expenses incurred by the Underwriters in connection
with the consolidated class actions entitled Phifer v. Chaus, et al.
Discussions are ongoing with counsel for the Underwriters to resolve this
claim.
The Company is also involved in various other legal proceedings arising out
of the conduct of its business. The Company believes that the eventual
outcome of the proceedings referred to above will not have a material adverse
effect on the Company's financial condition or results of operations.
Employment Agreement:
The Company has entered into a number of employment agreements with various
senior executives. In addition to his $1 million salary, Mr. Grossman is
entitled to a bonus equal to 5% of the Company's annual net profits, as
defined, for the duration of his agreement, which expires in 2004.
11. SUBSEQUENT EVENTS
In September 1995, the Company entered into the Nautica License Agreement
under which the Company will have an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto
Rico. The Company's licensed Nautica product line will be distributed in
major department and specialty stores, at "better" to "bridge" price points
in Nautica designed in-store shops. Nautica has developed significant
brand-name recognition with its men's apparel lines. This relationship will
provide the Company with exposure to "better" to "bridge" departments, while
creating an alliance with a leading company in the apparel industry. The
Company expects to make the first sales of its licensed Nautica products
during the first quarter of fiscal 1997. The Company's license from Nautica
is limited to women's sportswear collections including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets, and outerwear and
sportswear dresses bearing the Nautica brand names and marks. The Company's
license from Nautica excludes business dresses, suits, coats and raincoats
that are not part of a sportswear collection. The license also excludes
shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.
The initial term of the Nautica License Agreement runs through December 31,
1999, and is thereafter renewable for up to two periods of three years each,
provided that certain conditions are met (including the successful attainment
of certain sales targets and the requirement that Andrew Grossman continue in
his position as Chief Executive Officer during the term of the Nautica
License Agreement). Under the Nautica License Agreement, the Company is
obligated to raise at least $10.0 million in equity capital by December 31,
1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. The Company's obligations
also include minimum royalty and advertising payments and the construction of
a separate showroom for the display of the Company's licensed Nautica
products. Under the Nautica License Agreement, the Company intends to
dedicate a full operational merchandising and retail development group to its
licensed Nautica product line.
Pursuant to the terms of the Nautica License Agreement, the Company has
granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).
The Company is preparing a Registration Statement for filing with the
Securities and Exchange Commission in October 1995 with respect to an equity
offering of 5,000,000 shares of Common Stock. Proceeds of the offering will
be used to satisfy the Nautica License Agreement's requirements and to
support the growth of the Company's existing Chaus product lines.
F-17
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Common Stock offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person in any jurisdiction
in which it is unlawful to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 6
Use of Proceeds ............................... 10
Price Range of Common Stock
and Dividend Policy .......................... 11
Capitalization ................................ 12
Dilution ...................................... 13
Selected Consolidated Financial Data ......... 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Business ...................................... 20
Management .................................... 29
Principal Stockholders ........................ 37
Certain Transactions .......................... 38
Description of Capital Stock .................. 39
Shares Eligible for Future Sale ............... 40
Underwriting .................................. 41
Legal Matters ................................. 42
Experts ....................................... 42
Available Information ......................... 42
Incorporation of Certain Documents by
Reference .................................... 43
Index to Consolidated Financial Statements ... F-1
</TABLE>
5,000,000 SHARES
COMMON STOCK
[CHAUS LOGO]
PROSPECTUS
NOVEMBER , 1995
LEHMAN BROTHERS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred by the Company in connection with this offering are:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ............. $9,914
NASD filing fees ................. 3,375
Accounting fees and expenses* ...
Legal fees and expenses* .........
Printing costs* ..................
Blue sky fees and expenses* .....
Transfer agent's fees* ...........
Miscellaneous* ...................
-------------
$
=============
<FN>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 722 and 726 of the New York Business Corporation Law (the "BCL")
grant the Company broad powers to indemnify and insure its directors and
officers against liabilities they may incur in such capacities. In accordance
therewith, the Company's Certificate of Incorporation (the "Charter") and
by-laws provide for the fullest indemnification of an officer or director of
the Company under the BCL. The Charter also eliminates liability for monetary
damages for any breach of directors' duty to the Company and its
stockholders, provided that such breach does not result from (a) (i) an act
or omission in bad faith, (ii) intentional misconduct or (iii) a knowing
violation of law, (b) a transaction from which a director derived a personal
benefit or financial gain to which the director was not entitled, or (c) the
approval of dividends, stock repurchases, asset distributions or loans to
directors in violation of the BCL.
The Company has entered into agreements with its directors and certain of
its officers that require the Company to indemnify such persons against
expenses, including attorneys' fees, judgments, fines, settlements and other
amounts incurred directly or indirectly in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person served as a director or officer of the
Company or any of its affiliated enterprises, provided that such
indemnification is consistent with the BCL. The agreements also require the
Company to carry directors' and officers' liability insurance for as long as
such person serves in a capacity that exposes such person to liability unless
and until the Company's Board of Directors decides that the cost of the
insurance does not justify the benefit. The Company has purchased such
directors' and officers' liability insurance covering certain liabilities
which may be incurred by its directors and officers in the performance of
their services for the Company.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
</TABLE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
**1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation (the "Restated Certificate") of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-1, Registration No. 33-5954 (the "1986 Registration Statement").
*3.11 Amendment dated November 18, 1987 to the Restated Certificate.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
3.2 By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q for the quarter ended December 31, 1987).
3.3 Amendment dated September 13, 1994 to By-Laws (incorporated by reference to
Exhibit 10.105 of the Company's Form 10-Q for the quarter ended September 30,
1994).
**5 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, with respect to legality of
shares being issued.
10.1 Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-K for the year ended June 30, 1987 (the "1987 Form 10-K")).
10.2 1986 Stock Option Plan, as amended and restated as of January 1, 1987 (the "1986
Stock Option Plan") (incorporated by reference to Exhibit 10.2 of the Company's
Form 10-K for the year ended July 1, 1989 (the "1989 Form 10-K")).
10.3 Amendment No. 1 to the 1986 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the 1989 Form 10-K).
10.4 Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the 1986
Registration Statement).
10.5 Agreement, dated August 28, 1987, between Amalgamated Workers Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.3 of
the 1987 Form 10-K).
10.6 Agreement, dated September 1, 1990, between Amalgamated Workers . Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended June 30, 1990).
10.7 Lease, dated January 29, 1987, between L.H. Charney Associates and the Company,
of space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.19 of the 1987 Form 10-K).
10.8 Lease, dated July 27, 1987, between L. H. Charney Associates and the Company, of
space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the
year ended July 2, 1988 (the "1988 Form 10-K")).
10.9 Agreement dated December 3, 1990 among Bernard Chaus, Inc., Bernard Chaus,
Josephine Chaus and National Union Fire Insurance Company of Pittsburgh, Pa., the
Company's directors and officers liability carrier ((incorporated by reference to
Exhibit 10.31 of the Company's Form 10-Q for the quarter ended December 31,
1990).
10.10 Employment Agreement, dated July 1, 1991, between the Company and Josephine Chaus
(incorporated by reference to Exhibit 10.39 of the Company's Form 10-K for the
year ended June 30, 1991).
10.11 Employment Agreement, dated November 4, 1991 between Michael Fieman and the
Company (incorporated by reference to Exhibit 10.60 of the Company's Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K")).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
10.12 Employment Agreement, dated February 15, 1993 between Richard A. Baker and the
Company (incorporated by reference to Exhibit 10.71 of the Company's Form 10-K
for the year ended June 30, 1993 (the "1993 Form 10-K")).
10.13 Employment Agreement, dated July 1, 1993 between Michael Root and the Company
(incorporated by reference to Exhibit 10.72 of the 1993 Form 10-K).
10.14 Employment Agreement dated June 3, 1994 between the Company and Wayne Miller
(incorporated by reference to Exhibit 10.89 of the Company's Form 10-K for the
year ended June 30, 1994 (the "1994 Form 10-K")).
10.15 Employment Agreement dated September 1, 1994 between the Company and Andrew
Grossman with Stock Option Agreement dated as of September 1, 1994 by and between
the Company and Andrew Grossman (incorporated by reference to Exhibit 10.90 of
the 1994 Form 10-K).
10.16 Settlement Agreement dated as of September 1994 among Nicole Eskenazi, the
Company and certain others (incorporated by reference to Exhibit 10.91 of the
1994 Form 10-K).
10.17 Severance agreement dated as of June 16, 1994 between the Company and Anthony M.
Pisano (incorporated by reference to Exhibit 10.92 of the 1994 Form 10-K).
10.18 Waiver dated September 23, 1993 to the Restated and Amended Financing Agreement
between the Company and BNY Financial Corporation (the "Financing Agreement")
effective July 1, 1992 (incorporated by reference to Exhibit 10.82 of the 1993
Form 10-K).
10.19 Waiver dated November 5, 1993 to the Financing Agreement (incorporated by
reference to Exhibit 10.83 of the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.20 Amendment, effective October 1, 1993, to the Financing Agreement (incorporated by
reference to Exhibit 10-84 of the Company's Form 10-Q for the quarter ended
December 31, 1993 (the "December 1993 Form 10-Q")).
10.21 Waiver dated January 13, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.85 of the December 1993 Form 10-Q).
10.22 Waiver dated February 10, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.86 of the December 1993 Form 10-Q).
10.23 Waiver dated May 4, 1994 to the Financing Agreement (incorporated by reference to
Exhibit 10.87 of the Company's Form 10-Q for the quarter ended March 31, 1994).
10.24 Waiver dated September 20, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.93 of the 1994 Form 10-K).
10.25 Agreement, dated June 15, 1988, between the Company and Bernard Chaus and
Josephine Chaus, amending the terms of the Company's subordinated promissory
notes to each of them, each in the principal amount of $7,365,000, the form of
which was filed as Exhibit 10.13 of the 1986 Registration Statement (incorporated
by reference to Exhibit 10.11 of the 1988 Form 10-K).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
10.26 Agreement, dated May 17, 1990 between the Company and Bernard Chaus and Josephine
Chaus amending the terms of the Company's subordinated promissory notes to each
of them, each in the principal amount of $7,365,000, the form of which was filed
as Exhibit 10.13 of the 1986 Registration Statement.
10.27 Agreement, dated February 21, 1991 between the Company and Bernard Chaus and
Josephine Chaus amending the terms of the Company's subordinated promissory notes
to each of them, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.74 of the 1993 Form 10-K).
10.28 Subordinated promissory notes dated March 12, 1991, between the Company and
Bernard Chaus and Josephine Chaus, separately, each in the amount of $5,000,000
(incorporated by reference to Exhibit 10.75 of the 1993 Form 10-K).
10.29 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.76 of the 1993 Form 10-K).
10.30 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.77 of the 1993 Form 10-K).
10.31 Agreement, dated July 15, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.78 of the 1993 Form 10-K).
10.32 Agreement, dated October 30, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.79 of the 1993 Form 10-K).
10.33 Demand Notes, dated June 30, 1993, between the Company and the Estate of Bernard
Chaus and Josephine Chaus, each in the principal amount of $1,520,216
(incorporated by reference to Exhibit 10.80 of the 1993 Form 10-K).
10.34 Agreement, dated September 21, 1993, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal amount of
$7,365,000 (incorporated by reference to Exhibit 10.81 of the 1993 Form 10-K).
10.35 Subordinated promissory notes dated August 1, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $208,716 (incorporated by reference to Exhibit 10.94 of the 1994 Form 10-K).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
10.36 Subordinated promissory note dated August 1, 1993, between the Company and
Josephine Chaus in the amount of $1,311,500 (incorporated by reference to Exhibit
10.95 of the 1994 Form 10-K.)
10.37 Subordinated Promissory Note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus in the amount of $1,000,000 (incorporated by reference to
Exhibit 10.96 of the 1994 Form 10-K).
10.38 Subordinated promissory note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus, in the amount of $311,500 (incorporated by reference to
Exhibit 10.97 of the 1994 Form 10-K).
10.39 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $181,056 (incorporated by reference to Exhibit 10.98 of the 1994 Form 10-K).
10.40 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $412,950 (incorporated by reference to Exhibit 10.99 of the 1994 Form 10-K).
10.41 Agreements dated September 9, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $5,000,000 (incorporated by
reference to Exhibit 10.100 of the 1994 Form 10-K).
10.42 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $1,520,216 (incorporated by
reference to Exhibit 10.101 of the 1994 Form 10-K).
10.43 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.102 of the 1994 Form 10-K).
10.44 Agreement dated December 31, 1993, between the Company and Josephine Chaus
reflecting amendments to a subordinated promissory note in the principal amount
of $1,311,500 (incorporated by reference to Exhibit 10.103 of the 1994 Form
10-K).
10.45 Agreement dated December 31, 1993, between the Company and the Estate of Bernard
Chaus, reflecting amendments to subordinated promissory notes, in the principal
amounts of $1,000,000 and $311,500 (incorporated by reference to Exhibit 10.104
of the 1994 Form 10-K).
10.46 Agreement dated November 9, 1994, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.107 of the Company's Form 10-Q for the quarter ended
September 30, 1994 (the "September 1994 Form 10-Q")).
10.47 Agreement dated November 9, 1994, between the Company and the Estate of Bernard
Chaus extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.108 of the September 1994 Form 10-Q).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
10.48 Agreement dated December 19, 1994, assigning the subordinated notes from the
Estate of Bernard Chaus to Josephine Chaus (incorporated by reference to Exhibit
10.110 of the Company's Form 10-Q for the quarter ended December 30, 1994 (the
"December 1994 Form 10-Q").
10.49 Agreement dated January 11, 1995, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.111 of the December 1994 Form 10-Q).
10.50 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
32,500 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.112 of the Company's Form 10-Q for the quarter ended
March 31, 1995 (the "March 1995 Form 10-Q")).
10.51 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
206,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.113 of the March 1995 Form 10-Q).
10.52 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
338,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.114 of the March 1995 Form 10-Q).
10.53 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
640,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.115 of the March 1995 Form 10-Q).
10.54 Waiver dated November 7, 1994, to the Financing Agreement (incorporated by
reference to Exhibit 10.106 of the September 1994 Form 10-Q).
10.55 Waiver dated February 10, 1995 to the Financing Agreement (incorporated by
reference to Exhibit 10.109 of the December 1994 Form 10-Q).
10.56 Agreement effective February 21, 1995 (the "Amended Financing Agreement") between
the Company and BNY Financial Corporation restating and amending the Financing
Agreement (incorporated by reference to Exhibit 10.116 of the March 1995 Form
10-Q).
*10.57 Waiver dated September 14, 1995 to the Amended Financing Agreement.
*10.58 Agreement effective as of September 28, 1995 relating to the Amended Financing
Agreement.
10.59 Agreement dated April 28, 1995 between the Company and Josephine Chaus extending
the due dates on subordinated promissory notes (incorporated by reference to
Exhibit 10.117 of the March 1995 Form 10-Q).
*10.60 Agreement dated September 8, 1995 between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes.
*10.61 License Agreement dated as of September 6, 1995 between the Company and Nautica
Apparel Inc. (confidential portions of which have been omitted and filed
separately with the Commission subject to an order granting confidential
treatment).
10.62 Amendment No. 2 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1990 Annual Meeting of Stockholders).
10.63 Amendment No. 3 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Stockholders).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
----------- ---------------
<S> <C> <C>
10.64 Amendment No. 4 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1993 Annual Meeting of Stockholders).
*10.65 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
extending the due dates on subordinated promissory notes and clarifying the
subordination provision.
*10.66 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
providing the Company with an option to extend a Letter of Credit to July 31,
1996.
**21 List of Subsidiaries of the Company.
**23.1 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in opinion at
Exhibit 5 above).
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Ernst & Young LLP
**27 Financial Data Schedule.
- ---------------
<FN>
* Filed herewith.
** To be filed by amendment.
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement on Form S-2 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
10th day of October, 1995.
BERNARD CHAUS, INC.
By:
/s/ Josephine Chaus
---------------------------------
Josephine Chaus
Chairwoman of the Board
and Office of the Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Josephine Chaus and Wayne
Miller, and each of them (with full power of each of them to act alone), his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him or her and on his or her behalf, and
in his or her name, place and stead, in any and all capacities to execute and
sign any and all amendments to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done
in and about premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or her or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof and the Registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
- ------------------------- ----------------------------------------- --------------------
<S> <C> <C>
/s/ Richard A. Baker President October 10, 1995
- --------------------------
Richard A. Baker
/s/ Josephine Chaus Chairwoman of the Board and Office of the October 10, 1995
- -------------------------- Chairman
Josephine Chaus
/s/ Andrew Grossman Chief Executive Officer and Office of the October 10, 1995
- -------------------------- Chairman, Director (Principal Executive
Andrew Grossman Officer)
/s/ Karen A. Maloney Vice President -- Corporate Controller October 10, 1995
- --------------------------
Karen A. Maloney
/s/ Wayne S. Miller Executive Vice President -- Finance and October 10, 1995
- -------------------------- Administration, Chief Financial Officer
Wayne S. Miller and Secretary (Principal Financial and
Accounting Officer)
/s/ Philip Barach Director October 10, 1995
- --------------------------
Philip Barach
/s/ S. Lee Kling Director October 10, 1995
- --------------------------
S. Lee Kling
/s/ Harvey M. Krueger Director October 10, 1995
- --------------------------
Harvey M. Krueger
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
**1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation (the "Restated Certificate") of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-1, Registration No. 33-5954 (the "1986 Registration Statement").
*3.11 Amendment dated November 18, 1987 to the Restated Certificate.
3.2 By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q for the quarter ended December 31, 1987).
3.3 Amendment dated September 13, 1994 to By-Laws (incorporated by reference to
Exhibit 10.105 of the Company's Form 10-Q for the quarter ended September 30,
1994).
**5 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, with respect to legality of
shares being issued.
10.1 Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-K for the year ended June 30, 1987 (the "1987 Form 10-K")).
10.2 1986 Stock Option Plan, as amended and restated as of January 1, 1987 (the "1986
Stock Option Plan") (incorporated by reference to Exhibit 10.2 of the Company's
Form 10-K for the year ended July 1, 1989 (the "1989 Form 10-K")).
10.3 Amendment No. 1 to the 1986 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the 1989 Form 10-K).
10.4 Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the 1986
Registration Statement).
10.5 Agreement, dated August 28, 1987, between Amalgamated Workers Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.3 of
the 1987 Form 10-K).
10.6 Agreement, dated September 1, 1990, between Amalgamated Workers . Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended June 30, 1990).
10.7 Lease, dated January 29, 1987, between L.H. Charney Associates and the Company,
of space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.19 of the 1987 Form 10-K).
10.8 Lease, dated July 27, 1987, between L. H. Charney Associates and the Company, of
space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the
year ended July 2, 1988 (the "1988 Form 10-K")).
10.9 Agreement dated December 3, 1990 among Bernard Chaus, Inc., Bernard Chaus,
Josephine Chaus and National Union Fire Insurance Company of Pittsburgh, Pa., the
Company's directors and officers liability carrier ((incorporated by reference to
Exhibit 10.31 of the Company's Form 10-Q for the quarter ended December 31,
1990).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
10.10 Employment Agreement, dated July 1, 1991, between the Company and Josephine Chaus
(incorporated by reference to Exhibit 10.39 of the Company's Form 10-K for the
year ended June 30, 1991).
10.11 Employment Agreement, dated November 4, 1991 between Michael Fieman and the
Company (incorporated by reference to Exhibit 10.60 of the Company's Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K")).
10.12 Employment Agreement, dated February 15, 1993 between Richard A. Baker and the
Company (incorporated by reference to Exhibit 10.71 of the Company's Form 10-K
for the year ended June 30, 1993 (the "1993 Form 10-K")).
10.13 Employment Agreement, dated July 1, 1993 between Michael Root and the Company
(incorporated by reference to Exhibit 10.72 of the 1993 Form 10-K).
10.14 Employment Agreement dated June 3, 1994 between the Company and Wayne Miller
(incorporated by reference to Exhibit 10.89 of the Company's Form 10-K for the
year ended June 30, 1994 (the "1994 Form 10-K")).
10.15 Employment Agreement dated September 1, 1994 between the Company and Andrew
Grossman with Stock Option Agreement dated as of September 1, 1994 by and between
the Company and Andrew Grossman (incorporated by reference to Exhibit 10.90 of
the 1994 Form 10-K).
10.16 Settlement Agreement dated as of September 1994 among Nicole Eskenazi, the
Company and certain others (incorporated by reference to Exhibit 10.91 of the
1994 Form 10-K).
10.17 Severance agreement dated as of June 16, 1994 between the Company and Anthony M.
Pisano (incorporated by reference to Exhibit 10.92 of the 1994 Form 10-K).
10.18 Waiver dated September 23, 1993 to the Restated and Amended Financing Agreement
between the Company and BNY Financial Corporation (the "Financing Agreement")
effective July 1, 1992 (incorporated by reference to Exhibit 10.82 of the 1993
Form 10-K).
10.19 Waiver dated November 5, 1993 to the Financing Agreement (incorporated by
reference to Exhibit 10.83 of the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.20 Amendment, effective October 1, 1993, to the Financing Agreement (incorporated by
reference to Exhibit 10-84 of the Company's Form 10-Q for the quarter ended
December 31, 1993 (the "December 1993 Form 10-Q")).
10.21 Waiver dated January 13, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.85 of the December 1993 Form 10-Q).
10.22 Waiver dated February 10, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.86 of the December 1993 Form 10-Q).
10.23 Waiver dated May 4, 1994 to the Financing Agreement (incorporated by reference to
Exhibit 10.87 of the Company's Form 10-Q for the quarter ended March 31, 1994).
10.24 Waiver dated September 20, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.93 of the 1994 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
10.25 Agreement, dated June 15, 1988, between the Company and Bernard Chaus and
Josephine Chaus, amending the terms of the Company's subordinated promissory
notes to each of them, each in the principal amount of $7,365,000, the form of
which was filed as Exhibit 10.13 of the 1986 Registration Statement (incorporated
by reference to Exhibit 10.11 of the 1988 Form 10-K).
10.26 Agreement, dated May 17, 1990 between the Company and Bernard Chaus and Josephine
Chaus amending the terms of the Company's subordinated promissory notes to each
of them, each in the principal amount of $7,365,000, the form of which was filed
as Exhibit 10.13 of the 1986 Registration Statement.
10.27 Agreement, dated February 21, 1991 between the Company and Bernard Chaus and
Josephine Chaus amending the terms of the Company's subordinated promissory notes
to each of them, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.74 of the 1993 Form 10-K).
10.28 Subordinated promissory notes dated March 12, 1991, between the Company and
Bernard Chaus and Josephine Chaus, separately, each in the amount of $5,000,000
(incorporated by reference to Exhibit 10.75 of the 1993 Form 10-K).
10.29 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.76 of the 1993 Form 10-K).
10.30 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.77 of the 1993 Form 10-K).
10.31 Agreement, dated July 15, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.78 of the 1993 Form 10-K).
10.32 Agreement, dated October 30, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.79 of the 1993 Form 10-K).
10.33 Demand Notes, dated June 30, 1993, between the Company and the Estate of Bernard
Chaus and Josephine Chaus, each in the principal amount of $1,520,216
(incorporated by reference to Exhibit 10.80 of the 1993 Form 10-K).
10.34 Agreement, dated September 21, 1993, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal amount of
$7,365,000 (incorporated by reference to Exhibit 10.81 of the 1993 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
10.35 Subordinated promissory notes dated August 1, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $208,716 (incorporated by reference to Exhibit 10.94 of the 1994 Form 10-K).
10.36 Subordinated promissory note dated August 1, 1993, between the Company and
Josephine Chaus in the amount of $1,311,500 (incorporated by reference to Exhibit
10.95 of the 1994 Form 10-K.)
10.37 Subordinated Promissory Note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus in the amount of $1,000,000 (incorporated by reference to
Exhibit 10.96 of the 1994 Form 10-K).
10.38 Subordinated promissory note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus, in the amount of $311,500 (incorporated by reference to
Exhibit 10.97 of the 1994 Form 10-K).
10.39 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $181,056 (incorporated by reference to Exhibit 10.98 of the 1994 Form 10-K).
10.40 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $412,950 (incorporated by reference to Exhibit 10.99 of the 1994 Form 10-K).
10.41 Agreements dated September 9, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $5,000,000 (incorporated by
reference to Exhibit 10.100 of the 1994 Form 10-K).
10.42 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $1,520,216 (incorporated by
reference to Exhibit 10.101 of the 1994 Form 10-K).
10.43 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.102 of the 1994 Form 10-K).
10.44 Agreement dated December 31, 1993, between the Company and Josephine Chaus
reflecting amendments to a subordinated promissory note in the principal amount
of $1,311,500 (incorporated by reference to Exhibit 10.103 of the 1994 Form
10-K).
10.45 Agreement dated December 31, 1993, between the Company and the Estate of Bernard
Chaus, reflecting amendments to subordinated promissory notes, in the principal
amounts of $1,000,000 and $311,500 (incorporated by reference to Exhibit 10.104
of the 1994 Form 10-K).
10.46 Agreement dated November 9, 1994, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.107 of the Company's Form 10-Q for the quarter ended
September 30, 1994 (the "September 1994 Form 10-Q")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
10.47 Agreement dated November 9, 1994, between the Company and the Estate of Bernard
Chaus extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.108 of the September 1994 Form 10-Q).
10.48 Agreement dated December 19, 1994, assigning the subordinated notes from the
Estate of Bernard Chaus to Josephine Chaus (incorporated by reference to Exhibit
10.110 of the Company's Form 10-Q for the quarter ended December 30, 1994 (the
"December 1994 Form 10-Q").
10.49 Agreement dated January 11, 1995, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.111 of the December 1994 Form 10-Q).
10.50 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
32,500 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.112 of the Company's Form 10-Q for the quarter ended
March 31, 1995 (the "March 1995 Form 10-Q")).
10.51 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
206,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.113 of the March 1995 Form 10-Q).
10.52 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
338,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.114 of the March 1995 Form 10-Q).
10.53 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
640,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.115 of the March 1995 Form 10-Q).
10.54 Waiver dated November 7, 1994, to the Financing Agreement (incorporated by
reference to Exhibit 10.106 of the September 1994 Form 10-Q).
10.55 Waiver dated February 10, 1995 to the Financing Agreement (incorporated by
reference to Exhibit 10.109 of the December 1994 Form 10-Q).
10.56 Agreement effective February 21, 1995 (the "Amended Financing Agreement") between
the Company and BNY Financial Corporation restating and amending the Financing
Agreement (incorporated by reference to Exhibit 10.116 of the March 1995 Form
10-Q).
*10.57 Waiver dated September 14, 1995 to the Amended Financing Agreement.
*10.58 Agreement effective as of September 28, 1995 relating to the Amended Financing
Agreement.
10.59 Agreement dated April 28, 1995 between the Company and Josephine Chaus extending
the due dates on subordinated promissory notes (incorporated by reference to
Exhibit 10.117 of the March 1995 Form 10-Q).
*10.60 Agreement dated September 8, 1995 between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes.
*10.61 License Agreement dated as of September 6, 1995 between the Company and Nautica
Apparel Inc. (confidential portions of which have been omitted and filed
separately with the Commission subject to an order granting confidential
treatment).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
10.62 Amendment No. 2 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1990 Annual Meeting of Stockholders).
10.63 Amendment No. 3 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Stockholders).
10.64 Amendment No. 4 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1993 Annual Meeting of Stockholders).
*10.65 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
extending the due dates on subordinated promissory notes and clarifying the
subordination provision.
*10.66 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
providing the Company with an option to extend a Letter of Credit to July 31,
1996.
**21 List of Subsidiaries of the Company.
**23.1 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in opinion at
Exhibit 5 above).
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Ernst & Young LLP
**27 Financial Data Schedule.
<FN>
- ---------------
* Filed herewith.
** To be filed by amendment.
</TABLE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BERNARD CHAUS, INC.
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned, being the President and Secretary of the corporation, hereby
certify:
FIRST: The name of the corporation is BERNARD CHAUS, INC.
SECOND: That the Certificate of Incorporation was filed by the Secretary
of State of New York on the 16th day of April, 1975.
THIRD: That the amendment to the Certificate of Incorporation effected
by this Certificate is as follows:
1. A new Article EIGHTH is added to the Corporation's Certificate of
Incorporation to read in its entirety as follows, and the existing Article
EIGHTH is redesignated as Article NINTH:
"EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or its shareholders for damages for any breach of his duty
as a director; provided, however, that nothing in this Article EIGHTH shall
eliminate or limit the liability of any director if a judgment or other
final adjudication adverse to him establishes that his acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation
of law or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled or that his acts violated
Section 719 of the Business Corporation Law of the State of New York.
Notwithstanding the foregoing, nothing in this Article EIGHTH shall
eliminate or limit the liability of a director for any act or omission
occurring prior to the date of the filing of the Certificate of Amendment
to the Certificate of Incorporation of the Corporation that includes this
Article EIGHTH."
FOURTH: That the amendment to the Certificate of Incorporation is
authorized by the affirmative vote of the Board of Directors of the Corporation
and by vote of the holders
of a majority of all outstanding shares entitled to vote on an amendment to the
Certificate of Incorporation at a meeting of shareholders.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 18th day of
November, 1987.
/s/ Bernard Chaus
--------------------------
Bernard Chaus, Chairman and
Chief Executive Officer
/s/ Anthony M. Pisano
--------------------------
Anthony M. Pisano, Secretary
September 14, 1995
Bernard Chaus, Inc.
1410 Broadway
New York, NY 10018
Gentlemen/Ladies:
We refer to our Restated and Amended Financing Agreement
with you bearing effective date of July 1, 1992, as amended
("Agreement"). Capitalized terms herein have the meaning
ascribed to them in the Agreement unless otherwise indicated.
1. We waive any rights we would otherwise have as a result
of the fact that, on June 30, 1995, Tangible Net Worth was less
than ($9,000,000) and Working Capital was less than
($11,000,000).
2. In consideration of the foregoing, you agree to pay us
$35,000 on execution hereof. In addition to our other rights, we
may charge said amount to your account.
The waivers herein are limited to the date and the
provisions specified above. We reserve all of our other rights,
including but not limited to our rights arising out of your
failure to comply with the provisions specified above on a date
other than that specified above. Accordingly, nothing herein is,
or should be construed to be, a precedent.
Subject to the foregoing, the Agreement is ratified and
confirmed.
Very truly yours,
BNY Financial Corporation
By: s/ Andrew Rogow
-----------------------------
Andrew Rogow
AGREED:
Bernard Chaus, Inc.
By: /s/ Karen A Maloney
------------------------
Karen A Maloney
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK- FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
October 6, 1995
Bernard Chaus, Inc.
1410 Broadway
New York, NY 10018
Gentlemen/women:
Reference is made to the Restated and Amended Financing
Agreement between us bearing the effective date of February 21,
1995, as supplemented and amended (the "Financing Agreement").
Any capitalized terms used but not defined herein shall have the
meanings set forth in the Financing Agreement.
It is hereby agreed that effective as of September 28, 1995,
the Financing Agreement shall be amended as follows:
1. Paragraph 2(a) shall be amended so as to provide that
the limit on the aggregate amount of Loans outstanding at any
time shall be increased from $40,000,000 to $47,000,000 during
the period commencing on October 1, 1995 and ending on November
30, 1995 (the "Increase Period"). Accordingly, during the
Increase Period only, the references to the amount $40,000,000 in
the eighth and twelfth lines of Paragraph 2(a) shall be amended
to read $47,000,000. At the end of the Increase Period such
references shall revert back to the original amount of
$40,000,000.
2. The definition of Applicable Permitted Overadvances set
forth in Paragraph 8 shall be amended to read in its entirety as
follows:
" `Applicable Permitted Overadvances' shall mean solely
with respect to the period commencing on September 28, 1995 and
ending on July 4, 1996, 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:
9/28/95 - 10/28/95 $6,000,000
10/29/95 - 11/4/95 1,525,000
11/5/95 - 11/28/95 5,125,000
11/29/95 - 12/4/95 0
12/5/95 - 12/28/95 2,950,000
12/29/95 - 1/4/96 175,000
1/5/96 - 1/28/96 3,775,000
1/29/96 - 2/4/96 1,775,000
2/5/96 - 2/28/96 5,950,000
2/29/96 - 3/4/96 2,725,000
3/5/96 - 3/28/96 6,700,000
3/29/96 - 4/4/96 2,725,000
4/5/96 - 4/28/96 6,100,000
4/29/96 - 5/4/96 1,500,000
5/5/96 - 5/28/96 4,775,000
5/29/96 - 6/4/96 3,125,000
6/5/96 - 6/28/96 6,250,000
6/29/96 - 7/4/96 2,475,000"
3. Paragraph 9(a)(vi) shall be amended to read in its
entirety as follows:
"( 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:
As of September 30, 1995 ($11,500,000)
As of December 31, 1995 ($12,500,000)
As of March 31, 1996 ($13,500,000)
As of June 30, 1996 ($14,500,000)
Intangible assets include write ups, unamortized
debt discount and expense, unamortized deferred
charges, patents, licenses, R&D expenses, and
other intangible items."
4. Paragraph 9(a) (vii) shall be amended to read in its
entirety as follows:
"( 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:
As of September 30, 1995 ($14,000,000)
As of December 31, 1995 ($14,500,000)
As of March 31, 1996 ($15,000,000)
As of June 30, 1996 ($15,500,000)"
5. The unnumbered paragraph following Paragraphs 9(a) (vi)
and (vii) shall be amended to read as follows:
"The amounts set forth in the above subsections
(vi) and (vii) shall be amended for the fiscal years
ending June 30, 1997 and June 30, 1998 upon receipt by
us at least 30 days prior to June 30th 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."
Except as set forth herein, the Financing Agreement shall
remain in full force and effect in accordance with its terms.
If you are in agreement with the foregoing, please so
indicate by signing and returning the enclosed copy of this
letter.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Andrew Rogow
-------------------
Title: Vice President
BERNARD CHAUS, INC.
By: /s/ Wayne Miller
------------------
Title: Executive Vice President-
Finance and Administration
JOSEPHINE CHAUS
September 8, 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 April 1, 1996. 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 July 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/ Karen A. Maloney
------------------------------------------
Karen A. Maloney, Corporate Controller
Date: September 8, 1995
-----------------------------------------
[Domestic]
LICENSE AGREEMENT
This License Agreement made and entered into as of the
date set forth in Item 1 of Schedule A hereto by and between the Licensor set
forth in Item 2 of Schedule A hereto ("LICENSOR"), and the Licensee set forth in
Item 2 of Schedule A hereto ("LICENSEE").
WHEREAS, LICENSOR and LICENSEE engage or will engage, either
directly or indirectly, in the business of marketing and selling apparel and
accessories;
WHEREAS, LICENSOR also engages in the business of designing and
manufacturing apparel and accessories bearing the label "NAUTICA" or some
variation of the word "Nautica" and certain related signs and symbols;
WHEREAS, LICENSOR is the owner of certain marks, including but
not limited to, the name and mark "Nautica" registered in the United States and
elsewhere and other names, marks, logos and slogans for which applications for
registration may in the future be made, which marks are set forth in Schedule B
hereto (collectively, the "Nautica Names and Marks");
WHEREAS, LICENSOR owns the right to grant to others the right to
use and exploit the Nautica Names and Marks; and
WHEREAS, LICENSEE desires to obtain the exclusive right in the
geographic area described in Item 3 of Schedule A hereto (the "Territory") with
respect to the licensed products as described in and according to the provisions
set forth in Schedule A hereto, and according to the provisions of this
Agreement.
NOW, THEREFORE, in consideration of these recitals, of the
following mutual covenants and other good and valuable consideration, LICENSOR
and LICENSEE agree as follows:
SECTION 1
Schedules/Definitions
1.1 Attached hereto are the following Schedules which are
herein incorporated by reference:
Schedule A - License Summary
Schedule B - Licensed Marks
1.2 Certain terms used herein and in the Schedules shall
have the definitions assigned to them in the context in which they appear. Such
definitions shall be equally applicable to both the singular and plural forms of
the terms defined, and words of any gender shall include each other gender where
appropriate, and words such as "herein", "hereof" and "hereunder", and words of
similar import, shall refer to this Agreement, including the Schedules thereto
which are an integral part of the Agreement as a whole and not to any particular
section or part thereof.
SECTION 2
Grant of Rights
2.1 Grant of Rights. Subject to the terms and conditions of
this Agreement, LICENSEE shall have the exclusive right to use the Nautica Names
and Marks solely in connection with the exercise of the rights described in Item
4 of Schedule A hereto, in the Territory, with respect to the licensed products
described in Item 5 of Schedule A hereto (the "Licensed Products"). The final
decision of any question regarding the definition of products which LICENSEE may
wish to produce as Licensed Products shall rest with LICENSOR.
2.2 Exclusivity. The rights granted hereby (the "License")
are personal to LICENSEE and exclusive in the Territory only and LICENSEE shall
not have the right to exercise the rights described in Item 4 of Schedule A
hereto other than in the Territory, or to license others to exercise such
rights, with respect to the Licensed Products or any other products which in any
way is identified with the Nautica Names and Marks anywhere within or without
the Territory except as specifically otherwise provided herein.
2.3 Term. This Agreement shall be effective upon the
execution and delivery of this Agreement by the parties hereto and the
satisfaction of all condition precedents, if any, set forth in Item 6 of
Schedule A. Unless sooner terminated as provided in this Agreement, the term of
the License granted hereby to LICENSEE shall expire on the date set forth in
Item 7(a) of Schedule A hereto (the "Term"). Provided that LICENSEE has
complied with all of its obligations under this Agreement, LICENSOR agrees to
enter into negotiations with LICENSEE to renew the License upon such terms and
conditions as may be mutually agreed to by LICENSOR and LICENSEE unless terms
for renewal of this Agreement are provided for in Item 7(b) of Schedule A.
2.4 Personal Benefit. LICENSEE expressly represents and
warrants that the License has been acquired to exercise the rights described in
Item 4 of Schedule A hereto with respect to the Licensed Products in the
Territory and not for resale or other disposition of the License to others.
SECTION 3
Nautica Names and Marks
3.1 Validity and Use. (a) LICENSEE acknowledges the
validity, value and proprietary nature of the Nautica Names and Marks including
all goodwill associated therewith, whether generated by LICENSOR, LICENSEE or
other licensees, and agrees that they are, and shall remain, the exclusive
property of LICENSOR. LICENSEE's use of the Nautica Names and Marks shall inure
to the benefit of LICENSOR. LICENSEE shall assign and convey to LICENSOR any
such rights to or interest in the Nautica Names and Marks as LICENSEE may
acquire by reason of the use thereof at LICENSEE's expense. LICENSEE shall not,
by use, registration or any other means, establish title to similar or related
names, logos, trademarks, service marks and slogans.
(b) LICENSEE shall comply with any and all applicable national,
provincial, state and local laws, regulations and interpretations thereof
relating to the use of the Nautica Names and Marks, including but not limited to
any which requires the registration of the Nautica Names and Marks. LICENSEE
shall, prior to or contemporaneous with such compliance, provide LICENSOR with
copies of all documents filed by LICENSEE, together with an explanation of the
reasons therefor, and copies of the law or regulations applicable. Any
registration of the Nautica Names and Marks shall specify that LICENSEE's use
thereof is limited to the Territory and will terminate with the termination of
the License. No such registration shall create in LICENSEE any property right
in or privilege to the use of the Nautica Names and Marks which survive the
termination of the License.
(c) LICENSEE shall not interfere with the use or registration
of the Nautica Names and Marks by LICENSOR or by any other licensee of LICENSOR.
LICENSEE shall not use the Nautica Names and Marks or any related or confusingly
similar names, logos, trademarks, service marks, slogans or refer in any way to
the fact that it is a licensee of LICENSOR, in connection with any business
activity or in the operation of any business entity other than as authorized by
this Agreement.
3.2 Right to Change; Cooperation. LICENSOR shall have the
right, exercisable from time to time, to make any changes it deems necessary in
and to the Nautica Names and Marks. LICENSEE shall cooperate with LICENSOR in
effecting any such changes by following all reasonable directions of LICENSOR
relating thereto.
3.3 Sub-Licensing. LICENSEE shall not, in any manner,
authorize or purport to authorize another to use the Nautica Names and Marks,
except to the extent specifically provided herein.
3.4 Confusingly Similar Nautica Names and Marks. LICENSEE
shall not use the Nautica Names and Marks, any facsimiles thereof or any
confusingly similar names or marks as part of its name or in the name of any
bank account of LICENSEE without the prior written consent of LICENSOR.
3.5 Unauthorized Use by Others. LICENSEE shall (a) promptly
report to LICENSOR any unauthorized use of the Nautica Names and Marks or
confusingly similar names or marks, (b) cooperate with LICENSOR in precluding
unauthorized use of the Nautica Names and Marks or any confusingly similar
names, marks, logos or slogans and (c) promptly notify LICENSOR of, and
cooperate in the defense of, any suits filed against LICENSEE challenging the
validity of any or all of the Nautica Names and Marks.
SECTION 4
Payments, Reports and Records
4.1 Royalty Payments. In consideration of the License granted
hereunder, LICENSEE agrees to pay LICENSOR royalty payments equal to the
percentage of net sales of the Licensed Products as set forth in Item 8 of
Schedule A hereto during each royalty year as set forth in Item 9 of Schedule A
hereto (each, a "Royalty Year"). Any sale by LICENSEE or its affiliates,
associates or subsidiaries of (i) the Licensed Products or (ii) products of
apparel and accessories based upon, or copied from, LICENSOR or any design,
concept, sketch or other information obtained from LICENSOR or any Licensed
Product, whether or not bearing the Nautica Names and Marks shall be deemed a
sale made by LICENSEE for all purposes hereunder, including, without limitation,
for the purpose of computing royalty payments due LICENSOR. Amounts due
LICENSOR hereunder shall be held by LICENSEE in trust for the benefit of
LICENSOR until actually paid to LICENSOR.
4.2 Minimum Royalty; Payments. Notwithstanding anything to the
contrary contained in this Agreement, LICENSEE shall pay to LICENSOR during the
Term minimum royalty payments in the amounts and at the times set forth in Item
10 of Schedule A hereto (each, a "Minimum Royalty"). The balance of royalty
payments in excess of a Minimum Royalty, if any, due LICENSOR shall be paid
within ++++ calendar days after the end of each Royalty Year.
4.3 Currency and Taxes. All payments to LICENSOR shall be made
in United States currency. Payments based upon net sales of the Licensed
Products shall be converted into United States dollars at the New York foreign
exchange selling rate as published in The Wall Street Journal (or comparable
source in the event that The Wall Street Journal fails to publish such exchange
rate) on the last business day of the fiscal quarter (as defined below) in which
such net sales occur. LICENSOR shall bear the tax to be levied under law
applicable in the Territory on the income of LICENSOR arising under this
Agreement, provided, however, that LICENSEE shall bear all value added taxes, if
any, to be levied under law applicable in the Territory. In the event that
LICENSEE deducts any tax from the amounts due to LICENSOR hereunder, LICENSEE
shall contemporaneously with such deduction send to LICENSOR a tax certificate
showing the calculation and the payment of such tax.
4.4 Periodic Statements. LICENSEE shall furnish LICENSOR,
quarterly, commencing with the first Royalty Quarter (as defined in Item 9 of
Schedule A) following the execution of this Agreement and continuing until a
final certification of wind-up is delivered, with a detailed statement (the
"Quarterly Statement"), certified to be accurate by an authorized officer of
LICENSEE, showing cumulatively and separately for each Licensed Product the
following: (a) the line, item, design, number, description and price of the
Licensed Products sold or distributed during the preceding Royalty Quarter, (b)
any actual returns of the Licensed Products made during the preceding Royalty
Quarter, and (c) the amount of payment due LICENSOR. Such Quarterly Statements
shall be furnished to LICENSOR within ++++++ days after the end of the Royalty
Quarter for which such Statement is made. In addition, LICENSEE shall furnish
LICENSOR, annually, commencing with the first Royalty Year and continuing until
a final certification of wind-up is delivered, with a detailed statement (the
"Annual Statement"), certified to be accurate by an authorized officer of
LICENSEE, showing cumulatively and separately for each Nautica Product the
following: (i) the line, item, design, number, description and price of the
Licensed Products sold or distributed during the preceding Royalty Year; (ii)
any actual returns of Licensed Products made during the preceding Royalty Year;
and (iii) the amount of payment due LICENSOR. Such Annual Statements shall be
furnished to LICENSOR, within ++++++++++ days after the end of the Royalty Year
for which such Statement is made and shall be accompanied by payment to LICENSOR
of any amounts of royalty in excess of minimum royalties paid that may be due
LICENSOR. The Quarterly and Annual Statements shall be furnished to LICENSOR
whether or not there is any distribution or sales of Licensed Products during
the preceding Royalty Quarter, and whether or not any amounts are then due
LICENSOR. The failure or refusal of LICENSEE to timely furnish any Quarterly or
Annual Statement or payments shall be deemed a substantial and material breach
of this Agreement and shall entitle LICENSOR, without any prejudice to any other
right which LICENSOR may have under law, in contract or in equity for such
breach, to terminate the License. The receipt or acceptance by LICENSOR of any
of the Quarterly or Annual Statements furnished pursuant hereto or of any
payments made hereunder (or the cashing of any checks paid hereunder) shall not
preclude LICENSOR from questioning the correctness thereof at any time. In the
event that any inconsistencies or mistakes are discovered in such statements or
payments, they shall immediately be rectified and the appropriate payment shall
immediately be made by LICENSEE.
SECTION 5
Quality of Licensed Products
5.1 Licensed Products to be of High Quality. LICENSEE agrees
(a) that the Licensed Products and their manufacture, distribution and packaging
shall be of a high standard and of such style, appearance and quality as shall,
in the sole and exclusive judgment of LICENSOR, be adequate and suited to their
exploitation to the best advantage and to the protection and enhancement of the
material and the goodwill pertaining thereto, (b) that the Licensed Products
shall be manufactured, sold, distributed and advertised in accordance with all
applicable laws, (c) that the policy of sale, distribution, and/or exploitation
by LICENSEE shall be of high standard and to the best advantage and (d) that the
same shall in no manner reflect adversely upon the Nautica Names and Marks, the
Licensed Products or LICENSOR. LICENSEE further agrees that all rights granted
herein shall be exploited and/or exercised so as not to interfere with, detract
from, or alter the concepts used by LICENSOR or known to the public; and that
LICENSEE shall use its best efforts to preserve the concepts therein. In
particular, LICENSEE acknowledges that any merchandising of the Licensed
Products by LICENSEE as may be permitted hereunder shall be in full conformity
with the foregoing.
5.2 Quality Control. The nature, quality, color, design and
style of the Licensed Products and other material produced or used under the
License or on or in connection with which the Nautica Names and Marks are to be
used shall be subject to LICENSOR's approval. To this end, LICENSEE shall
furnish to LICENSOR, free of cost for LICENSOR'S review, samples of each
Licensed Product. LICENSEE agrees to make such changes in the Licensed Products
as are reasonably requested by LICENSOR. In addition, from time to time, after
LICENSEE has commenced selling the Licensed Products and upon LICENSOR's
request, LICENSEE shall furnish, without cost to LICENSOR, a reasonable number
of additional samples of the Licensed Products.
SECTION 6
Additional Covenants and Representations and Warranties
6.1 Distribution, Marketing and Sales Participation. In
addition to LICENSEE's covenants contained in other sections of this Agreement,
LICENSEE agrees:
(a) [Intentionally omitted].
(b) to send, at LICENSEE's sole cost and expense, one or more
persons to work with LICENSOR'S staff for the purpose of educating LICENSEE as
to the image and concept of the Nautica Names and Marks and the implementation
of such image and concept in the Territory;
(c) [Intentionally omitted].
(d) to pay all cost and expense, including without limitation,
cost for lodging, travel (business class) and meals, incurred by two
representatives of LICENSOR in participating in any design meeting outside of
New York City;
(e) to keep confidential, and not disclose to any third party,
any confidential information regarding LICENSOR or LICENSOR'S strategy, plan or
concept regarding the manufacturing, marketing, distribution and sale of the
Licensed Products or the development and enhancement of the Nautica Names and
Marks except to the extent necessary to implement the purpose of this Agreement;
(f) not to take any action, directly or indirectly, to
circumvent the spirit of the parties in entering this Agreement;
(g) not to design, manufacture, sell, distribute or promote any
apparel or accessories based upon, or copied from, LICENSOR or any design,
concept, sketch or other information obtained from LICENSOR or any Licensed
Product;
(h) [Intentionally omitted].
(i) to such additional covenants set forth in Item 13 of
Schedule A hereto.
6.2 Standards of Operation. LICENSEE shall, at all times,
actively promote, cultivate, develop and expand sales of the Licensed Products
in the Territory and shall give prompt, courteous and efficient service to the
public in accordance with the highest standards of honesty, integrity and fair
dealing and shall not discredit, dishonor or otherwise injure the goodwill and
reputation of LICENSOR, the License, the Nautica Names and Marks or other
licensees of LICENSOR.
6.3 Loss, Injury or Damage. LICENSEE shall defend, protect,
indemnify and hold harmless LICENSOR and any of its affiliates, subsidiaries,
agents, officers and directors, during and after the term of the License, from
and against the full amount of any and all claims, demands, losses, liabilities
and expenses, including but not limited to attorney's fees, whether arising
during or after the term of the License, and whether alleged or proven, which
arise out of: (a) the LICENSEE's use of the Nautica Names and Marks, (b) the
termination of this Agreement or the License by LICENSOR for any reason, (c) the
acts or omissions of LICENSEE or any of the LICENSEE's agents, servants or
employees, (d) the inaccuracy or incorrectness in any material respect as of the
date hereof of any representation or warranty made by LICENSEE and (e) the
default by LICENSEE in the performance of any of its obligations under this
Agreement. Notwithstanding the foregoing, nothing contained above shall be
deemed to require LICENSEE to indemnify LICENSOR for claims, demands, losses,
liabilities and expenses arising from claims of trademark infringement brought
by parties not affiliated with LICENSOR or LICENSEE.
6.4 Delinquency Charges. Amounts not paid when due shall accrue
interest from the date due until paid at the rate of 1 1/2% per month, or the
maximum interest permitted by applicable laws, whichever is less.
6.5 Compliance with Laws. LICENSEE shall comply with all
national, federal, provincial, state, county and municipal statutes, laws,
ordinances, regulations, rules or orders and shall obtain, at its own expense,
any variances, special exceptions, zoning approvals and all licenses and other
permits required by governmental authorities. This Section 6.6 shall not be
construed to prevent LICENSEE from engaging in a bona fide contest of the
validity or applicability of any law.
6.6 Right to Inspect. LICENSEE shall, during regular business
hours and, upon advance notice at all other times, permit LICENSOR, through its
authorized representatives, to visit and remain in the business offices of
LICENSEE to: (a) inspect, examine and test any merchandise, furnishings,
fixtures, equipment, supplies, signs or other items used by LICENSEE in
connection with the merchandising of the Licensed Products, (b) observe the
nature, quality, quantity and value of the goods sold and of the customer
service rendered, (c) examine, audit and copy any of LICENSEE's books and
records and (d) observe the manner and method in which LICENSEE operates.
LICENSOR may require LICENSEE to remove any item of inventory, equipment,
furnishing, decor or merchandise used in connection with the merchandising of
the Licensed Products. In exercise of its rights hereunder, LICENSOR shall not
unreasonably interfere with LICENSEE's business operations. LICENSOR agrees to
keep confidential all information obtained from LICENSEE with respect to the
business of LICENSEE, unless LICENSOR is required by applicable law, regulations
or the interpretation thereof to make such disclosure or LICENSOR shall uncover
a violation of the terms hereof or discrepancy is found with respect to any
information provided by LICENSEE to LICENSOR and such violation or discrepancy
is not promptly resolved to the satisfaction of LICENSOR.
6.7 Opportunity to Investigate. LICENSEE represents,
warrants and covenants that LICENSEE has fully investigated, to LICENSEE's
satisfaction, LICENSOR, the Licensed Products and the right and license
represented by this Agreement. Moreover, LICENSEE represents and warrants that
in making those decisions, LICENSEE did not rely upon sales volume, sales
projections, profitability or other statements made by LICENSOR, its
representatives, agents or officers concerning retail stores selling Licensed
Products, but has rather relied on LICENSEE's own examination of the merits and
risks involved in deciding to enter into this Agreement.
SECTION 7
Advertising and Promotion
7.1 Advertising of the Licensed Products. LICENSEE
acknowledges that advertising and promotion of Licensed Products are in the best
interest of LICENSEE. During the term of this Agreement, LICENSEE shall, unless
otherwise provided for in Item 14 of Schedule A, pay to LICENSOR for advertising
and publicizing the Nautica Names and Marks for the Licensed Products in the
Territory for each Royalty Year the amount set forth on Item 14 of Schedule A.
LICENSOR shall, from time to time throughout each Royalty Year, invoice LICENSEE
for expenditures incurred by LICENSOR to advertise and publicize the Licensed
Products in the Territory. LICENSEE shall promptly pay to LICENSOR the amounts
so invoiced, provided that LICENSEE shall not be required to pay in any Royalty
Year more than the amount set forth on Item 14 of Schedule A and provided
further that if, in any one Royalty Year, LICENSEE is required to pay less than
the amount for such Royalty Year set forth on Item 14 of Schedule A, LICENSEE
shall be obligated to incur the remaining amount in the immediately following
Royalty Year, if invoiced by LICENSOR. LICENSOR shall implement all such
advertising. LICENSOR will have the sole right to produce and insert all
advertising and promotion materials. LICENSOR shall provide LICENSEE with proof
of advertising expenditures paid by LICENSOR hereunder. LICENSOR agrees that
LICENSOR will expend or cause to be expended for advertising and promotion of
Licensed Products, other products bearing the Nautica Name and Marks, the
Nautica Names and Marks and the image conveyed thereby an aggregate amount equal
to twice the amount required to be paid by LICENSEE to LICENSOR under this
Agreement for advertising and promotion.
7.2 [Intentionally omitted].
7.3 [Intentionally omitted].
7.4 Best Efforts of LICENSEE. LICENSEE shall diligently and
continuously use and exert its best efforts throughout the Territory and during
the entire term of the License to distribute and sell the Licensed Products, to
make and maintain adequate arrangements for the distribution of the Licensed
Products, and to promote and expand their sales hereunder to the highest levels
practicably obtainable.
SECTION 8
Relationship of the Parties
8.1 Independent Contractor. Nothing herein contained and
no acts or assistance given or rendered by LICENSOR or LICENSEE shall be
construed to constitute LICENSOR or LICENSEE as partners, joint venturers,
agents or employees of each other. LICENSEE acknowledges that it is an
independent contractor. LICENSEE shall not authorize any contract, agreement,
warranty, representation or create any obligation, express or implied, on behalf
of LICENSOR, and shall not otherwise hold itself out as agent or representative
of LICENSOR nor permit any other person within its control to do so.
8.2 LICENSOR's Right to Assign. LICENSOR may assign or otherwise
transfer all or any part of the rights, obligations and benefits under this
Agreement to any party whom LICENSOR shall deem capable of fulfilling LICENSOR's
obligations under this Agreement.
SECTION 9
Records, Books and Accounting
9.1 Books and Records. LICENSEE shall, so long as the License is in
effect and for six (6) years thereafter, maintain true and accurate books and
records covering all transactions by it relating to the License, the Licensed
Products, LICENSOR or this Agreement. LICENSEE shall promptly furnish to
LICENSOR such books, records, reports and other information, financial or
otherwise, which LICENSOR may from time to time request.
9.2 Annual Statements. (a) So long as the License is in effect,
LICENSEE shall furnish to LICENSOR, within +++++++++ after the end of each of
its fiscal years, financial statements prepared in accordance with generally
accepted accounting principles but which need not be certified by public
accountants.
(b) LICENSOR shall be entitled at any time, and from time to
time, to have LICENSEE's books and records examined or audited with respect to
any period or periods relevant to this Agreement. LICENSEE shall cooperate
fully with the persons or entities making such examination or audit. If the
examination or audit discloses that any report with respect to which the
examination or audit is conducted shows a misstatement of the information for
such period by more than two percent, LICENSEE shall bear the costs and expenses
of such examination or audit and LICENSEE shall, within ++ days after demand by
LICENSOR pay all such costs and expenses and all royalty payments, if any, which
shall be owing based upon such a misstatement. If the examination or audit does
not disclose a misstatement of more than two percent, LICENSOR shall bear the
costs and expenses of such examination or audit. Notwithstanding anything to
the contrary contained above, LICENSEE shall not be liable for the costs and
expenses of any examination and/or audit which discloses a misstatement of
information by more than three (3%) percent if (i) the amount of royalties
payable to LICENSOR is not misstated by more than two percent and (ii) LICENSEE
can demonstrate to LICENSOR's reasonable satisfaction that any other
misstatement of information was due to an inadvertent clerical, arithmetical or
administrative error or errors.
9.3 Monthly Reports. If requested by LICENSOR from time to time,
LICENSEE shall submit to LICENSOR, no later than the ++++ day of each month, an
accurate monthly report in a form prescribed by LICENSOR setting forth for the
preceding month such information as LICENSOR may reasonably request which bear
upon sale of the Licensed Products.
SECTION 10
Termination
10.1 Non-Compliance. LICENSOR may terminate the License
before the expiration of the Term upon LICENSEE's failure to comply with any
covenant or requirement of this Agreement after written notice to LICENSEE and
an opportunity (not to exceed ++ days) to cure such failure or if any
representation of LICENSEE contained in this Agreement shall at any time be
determined by LICENSOR to be false, misleading or incomplete at the time such
representations were made.
10.2 Automatic Termination. In addition to the grounds
stated in Section 10.1 above, the License shall immediately terminate if any one
of the following events shall occur:
(a) LICENSEE generally shall not pay its debts as they become
due, become insolvent, suspend its usual business, be declared by a court of
competent jurisdiction to be legally incompetent or cease to exist;
(b) LICENSEE shall enter into an agreement with its creditors
to reduce its obligations to them or to defer their fulfillment, make a general
assignment for the benefit of its creditors, commence any proceeding relating to
it seeking discharge or reduction of its debts, an arrangement, composition,
reorganization or any other form of relief from its creditors or from a court or
governmental agency pursuant to any bankruptcy, reorganization, arrangement,
readjustment of debt, receivership, dissolution or liquidation law, statute or
procedure of any jurisdiction (national, federal, provincial state or foreign)
for the relief of financially distressed debtors (each of the foregoing a
"Debtor Relief Procedure");
(c) a Debtor Relief Procedure shall be instituted, initiated or
commenced against LICENSEE hereunder for any obligation of LICENSEE and an order
for relief is entered or the petition is controverted but is not dismissed
within ++ days after the commencement of the case or the substantial equivalent
occurs or the Debtor Relief Procedure is not dismissed or otherwise terminated
within ++ days of its commencement;
(d) LICENSEE shall take any action to effect any event
described in subsections 10.2 (a), (b) or (c);
(e) any default or event of default shall occur in respect of
any evidence of material indebtedness or liability for money borrowed by
LICENSEE if the effect thereof is to permit the holders to accelerate the
maturity of such evidence of indebtedness or liability or to require the
prepayment thereof (other than by a regularly scheduled repayment) unless such
default or event of default is waived by such holders within 3 days in the case
of a payment and other defaults or events of default other than a financial
covenant default or event of default and within ++ days in the case of a
financial covenant default or event of default;
(f) a final judgment against LICENSEE remains unsatisfied for
++++++ days (unless a supersedeas or other appeal bond has been filed) and
LICENSEE's rights under this Agreement shall be seized, taken over or foreclosed
by a government official in the exercise of his duties, or seized, taken over or
foreclosed by a creditor, lien holder or lessor; or a levy of execution has been
made upon the License and it is not discharged within ++++ days of such levy;
(g) LICENSEE shall be convicted of a felony, or any other
criminal misconduct which, in the opinion of LICENSOR, adversely affects the
reputation of the Nautica Names and Marks; or
(h) LICENSEE shall submit to LICENSOR on +++ or more separate
occasions a monthly, quarterly or annual report, financial statement, monthly
statement or other information or supporting records which misstates the
information contained therein for any period by more than +++ percent.
10.3 Consequences of Termination. Upon termination of the
License, LICENSEE shall cease to be an authorized licensee of LICENSOR and
LICENSEE shall:
(a) promptly pay LICENSOR all sums owed to it from LICENSEE
without set-off, counterclaim, abatement or other diminution, but in no case
later than +++++++ days after termination of the License;
(b) immediately and permanently discontinue and thereafter
refrain from the use of any of the Nautica Names and Marks, or any names, marks
or other indicia or operating systems which are or may be confusingly similar to
the Nautica Names and Marks and permanently remove, at the LICENSEE's expense,
all signs or other store furnishings containing any of the Names or Marks or
other things the use of which is prohibited by this Section 10.3;
(c) immediately and permanently discontinue all advertising
placed by LICENSEE which contains or makes reference to any of the Nautica Names
and Marks or other things the use of which is prohibited by this Section 10.3
and cancel all such advertising already placed or contracted for which would
otherwise be published, broadcast, displayed or disseminated after the date of
termination; and
(d) notwithstanding anything herein to the contrary,
LICENSEE shall have a period of +++++++++++++++++ +++++ days after expiration of
the Term of the License within which to sell the Licensed Products on hand, in
process, in transit, or on order on the date of termination and to continue on a
nonexclusive basis to use the Nautica Names and Marks in connection therewith in
compliance with all the terms and conditions of this Agreement, including the
payment of earned royalties; LICENSEE shall furnish to LICENSOR within xxxxxxx
days after expiration of the term of this Agreement a statement listing Licensed
Products on hand, in process,in transit or on order on the date of expiration or
termination; after such xxxxxx day period, LICENSEE shall immediately
discontinue such sale of the Licensed Products and the use of the Nautica Names
and Marks except for the sale, at the option of LICENSOR, to LICENSOR or to its
designee of Licensed Products at a price equal to LICENSEE's full cost thereof.
No earned royalties shall be paid or payable with respect to Licensed Products
sold to LICENSOR at any time.
Notwithstanding clauses (a) through (d) of this Section 10.3,
all obligations of LICENSEE shall survive the termination of the License.
10.4 Relief in Equity Against Certain Defaults. In the
event of a breach or threatened breach by LICENSEE of any of its obligations
under this Agreement, LICENSEE acknowledges and agrees that LICENSOR will have
no adequate remedies at law and that it will be irreparably damaged in the event
that the provisions of this Agreement are not specifically enforced.
Accordingly, LICENSEE agrees that (a) an action for specific performance of the
obligations created by this Agreement shall be a proper remedy for such breach
or threatened breach and (b) LICENSEE shall not assert as a defense or otherwise
in any such action an allegation or claim that would contravene the agreement
set forth in this Section 10.4. Such equitable remedy shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
available to LICENSOR for a breach or threatened breach of this Agreement,
including the recovery of damages.
SECTION 11
Assignment and Transfer
LICENSEE shall not sell, assign, transfer, encumber,
hypothecate, permit to become subject to a security interest or otherwise
dispose of any right, title or interest in the License or this Agreement, in
whole or in part, voluntarily or involuntarily, directly or indirectly, without
the prior written consent and approval of the LICENSOR. As used herein, a
transfer of control of LICENSEE shall constitute a transfer of the License.
SECTION 12
Remedies
12.1 Other Rights. In addition to the right to termination,
LICENSOR may take, upon any default by LICENSEE, whatever action it deems
reasonably necessary to protect its rights and interests under this Agreement.
The termination of this License by LICENSOR shall not be deemed an election of
remedies by LICENSOR and any such termination shall be without prejudice to any
rights or remedies which LICENSOR may otherwise have against LICENSEE under law,
in contract or in equity for breach of this Agreement.
12.2 Equitable Relief. LICENSEE acknowledges that its failure
to cease the use of the Name and Marks or to cease the manufacture, sale or
distribution of the Licensed Products at the termination or expiration of the
License, except as expressly provided herein, will result in immediate and
irreparable damage to LICENSOR and to the rights of any subsequent licensee.
LICENSEE acknowledges and admits that there is no adequate remedy at law for
such failure, and LICENSEE agrees that in the event of such failure, LICENSOR
shall be entitled to equitable relief and such other and further relief as any
court with jurisdiction may deem just and proper.
12.3 Costs of Collection, Enforcement and Defense. LICENSEE
shall pay all costs and expenses caused LICENSOR, including attorneys' fees,
incurred by LICENSOR to enforce its rights under this Agreement, including, but
not limited to, the collection of any amounts owed to LICENSOR by LICENSEE, the
seeking of a temporary restraining order or injunction, or the obtaining of
damages (provided that LICENSOR ultimately prevails).
12.4 Consent to Jurisdiction. LICENSEE irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
located in New York City (both Federal and state) for any actions relating to
this Agreement and the transactions contemplated hereby (and LICENSEE agrees not
to commence any action relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by registered
mail to LICENSEE shall be effective service of process for any action brought
against LICENSEE in any such court. LICENSEE irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
relating to this Agreement or the transactions contemplated hereby in the courts
located in New York City (both Federal and state).
SECTION 13
Payments and Withholding
13.1 Payment Information. All payments due under this
Agreement shall be made by wire transfer in United States dollars in funds that
are immediately and irrevocably available to LICENSOR, as set forth in Item 16
of Schedule A hereto.
13.2 Payment Obligations. Whenever any payment to be made
hereunder would, without this provision, be due and payable on a day which is
not a business day in New York City, it shall be due on the next succeeding
business day. Nothing in this Agreement shall, however, relieve LICENSEE from
its obligation or payment of amounts due under this Agreement, including default
interest for payments not made when due for any reason whatsoever. If LICENSEE
is unable to remit payments due to restrictions imposed by laws or regulations
applicable in the Territory, or other legitimate authority, LICENSEE, with the
reasonable assistance of LICENSOR, shall determine an alternative means of
payment as promptly as possible.
13.3 Application of Payments. LICENSOR shall apply payments
received from or for the account of LICENSEE first to accrued, unpaid interest
due LICENSOR and next to other sums due LICENSOR other than royalty payments,
notwithstanding any direction by LICENSEE to the contrary.
13.4 Payments to be Made Without Set-off, Deduction, etc.
LICENSEE agrees not to assert any set-offs, counterclaims or reductions
whatsoever, or to make any deductions for bad debts, discounts or any cost
incurred in the marketing, sale, distribution or exploitation of the Name and
Marks from the royalty, interest or other payments due LICENSOR hereunder,
except and only to the extent specifically provided in this Agreement.
SECTION 14
General Provisions
14.1 Cumulative Remedies. All rights and remedies conferred
upon LICENSOR by this Agreement and by law shall be cumulative of each other and
neither the exercise nor the failure to exercise any such right or remedy shall
preclude the exercise of any other right or remedy.
14.2 Non-Waiver. No failure by LICENSOR to take any action
on account of any default by the LICENSEE, whether in a single instance or
repeatedly, shall constitute a waiver of any such default or of any performance
required of the LICENSEE. No express waiver by LICENSOR of any provision or
performance of any term or condition of this Agreement or of any default by the
LICENSEE shall be construed as a waiver of any other or future provision,
performance or default.
14.3 Validity. If any provision of this Agreement shall be
invalid or unenforceable either in its entirety or by virtue of its scope or
application to given circumstances such provision shall be deemed modified to
the extent necessary to render the same valid or as not applicable to given
circumstances, or deemed to be excised from this Agreement, as the situation may
require. This Agreement shall be construed and enforced as if such provision
had been included herein as so modified in scope or application or had not been
included herein, as the case may be. In the event such total or partial
invalidity or unenforceability of any provision of this Agreement exists only
with respect to the laws of a particular jurisdiction, this Section 14.3 shall
operate upon such provision only to the extent that the laws of such
jurisdiction are applicable to such provision.
14.4 Notices. (a) Any notices, reports, requests or
demands to be given by either party to the other under the provisions of this
Agreement shall be forwarded by facsimile transmission and shall be confirmed by
certified or registered air mail, charges prepaid, to the telephone numbers and
addresses as set forth in Item 17 of Schedule A hereto.
All notices, reports, requests or demands shall be deemed given
on the date any such facsimile transmission is transmitted regardless of whether
or not received. Failure to receive confirmation by registered air mail shall
not affect the validity of the notices, reports, requests or demands transmitted
by facsimile transmission.
(b) The parties hereto may change the address for notices by
notice of change of address given in the manner provided in the above paragraph.
14.5 Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and all prior understandings and agreements between the parties hereto
relating to the subject matter hereof are hereby superseded. This Agreement may
be modified only by a writing signed by all parties to be bound by the
modification.
14.6 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and signatories hereto, their
respective heirs, executors, administrators, personal representatives,
successors and assigns.
14.7 Controlling Law. This Agreement, including all matters
relating to the validity, construction, performance and enforcement thereof,
shall be governed by the laws of the State of New York applicable to agreements
wholly made and to be performed therein.
14.8 Counterparts. This Agreement may be executed in any number of
identical counterparts, each of which shall be deemed an original, and all of
which, when taken together, shall constitute one and the same document.
14.9 Survival. The representations, warranties, covenants,
obligations and indemnities of LICENSEE contained in this Agreement or in any
ancillary document referred to hereunder shall survive the termination of the
License and this Agreement.
14.10 Neither Party to be Deemed Drafter. This contract is to
be deemed to have been prepared jointly by the parties hereto; any uncertainty
or ambiguity existing herein shall not be interpreted against either party but
according to the application of rules of contracts generally.
14.11 English Language. All statements, reports, notices and
correspondences required hereunder shall be in the English language.
[NEXT PAGE IS SIGNATURE PAGE]
IN WITNESS WHEREOF, LICENSOR and LICENSEE have caused this
Agreement to be executed and entered into as of the date set forth in Item 1 of
Schedule A hereto.
LICENSOR:
By: /s/ David Chu
---------------
Title: President
LICENSEE:
By: /s/ Andrew Grossman
--------------------
Title: Chief Executive Officer
SCHEDULE A
TO
LICENSE AGREEMENT
Item 1. Date of License Agreement: As of September 6, 1995.
Item 2. Name of LICENSOR and LICENSEE:
Licensor: Nautica Apparel, Inc.
a Delaware corporation
Licensee: Bernard Chaus Incorporated, a New York
corporation
Item 3. Territory: United States of America and Puerto Rico
Item 4. Rights Granted:
Licensor hereby license Licensee to manufacture, market,
distribute and sell the Licensed Products for ladies in the Territory. Licensee
may have the Nautica Names and Marks affixed to Licensed Products being
manufactured outside the Territory, provided Licensee takes all necessary
precautions to prevent labels, tags and other indicia of the Nautica Names and
Marks from being used otherwise than in connection with the Licensed Products
for distribution and sale within the Territory.
Item 5. Licensed Products:
Ladies' sportswear collection, including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets and outerwear and sportswear
dresses, bearing the Nautica Names and Marks but excluding as separate
classification business, dresses, suits, coats and raincoats, and excluding
shoes, scarves, socks, stockings or accessories for ladies bearing the Nautica
Names and Marks.
Item 6. License Effective Date/Conditions Precedent:
Upon execution and delivery of the agreement by both Licensor
and Licensee and payment of the amount due on signing referred to in Item 10
below.
Item 7.(a)Date of Expiration:
December 31, 1999, unless, Licensee shall have failed to raise
at least U.S. $10,000,000 in additional equity capital on or before December 31,
1995, in which event this Agreement shall terminate on December 31, 1995. In
the event that this Agreement shall terminate on December 31, 1995 because of
Licensee's reasonable failure to raise at least U.S. $10,000,000 in additional
equity capital despite Licensee's best efforts, Licensor shall refund the amount
paid by Licensee to Licensor upon the signing of this Agreement and the "Option"
(as hereinafter defined), to the extent not previously exercised, shall be
returned to Licensee.
Item 7.(b)Renewal Terms:
Provided that this Agreement has not been previously terminated,
this License Agreement shall be renewable for up to two (2) renewal periods of
three (3) years each. The first renewal, if any, shall be by notice given to
Licensor by Licensee no earlier than March 31, 1999 nor later than June 30,
1999, provided that:
(i) Licensee is in full compliance with all provisions
hereunder;
(ii) projected annualized wholesale sales volume equal or
exceed U.S. $++++++++++;
(iii) Andrew Grossman is, and can be reasonably expected to
continue to be, employed by LICENSEE in a position of executive authority
(unless Andrew Grossman is disabled, dead or otherwise incapacitated); and
(iv) Licensee is paying all of its debts as they come due.
The second renewal, if any, shall be by notice given to Licensor
by Licensee no earlier than March 31, 2002 nor later than June 30, 2002,
provided that:
(i) Licensee is not in default hereunder and is otherwise in
full compliance with all provisions hereunder;
(ii) projected annualized wholesale sales volume equal or
exceed U.S. $++++++++++; and
(iii) Licensee is paying all of its debts as they come due.
Item 8. Royalties:
Licensee shall pay Licensor a royalty equal to ++++++++
percent of net wholesale sales volume in respect of wholesale sales for each
Royalty Year. The preceding sentence shall not apply to wholesale sales to
free-standing Nautica Ladies outlet stores. Royalties payable in respect of the
sale of Licensed Products from outlets shall be as provided for in Item 13.
Notwithstanding the foregoing, with respect to "off-price"
merchandise, Licensee shall pay Licensor a royalty equal to ++++++++++ percent
of the net wholesale sales volume of such "off-price" merchandise. "Off-price"
merchandise shall mean merchandise which is sold at a discount of at least
++++++++++++ percent below Licensee's regular wholesale price for such
merchandise. In no event shall "off-price" merchandise exceed +++++++++++++
percent of gross sales.
As used herein, "net wholesale sales volume" shall mean gross
wholesale sales of the Licensed Products less returns of such Products in the
ordinary course of business, but in no event shall such returns exceed ++++++++
percent of gross sales of such Products, less normal trade and cash discounts,
less overbilling against wholesale line price.
Item 9. Royalty Years and Royalty Quarters:
As used herein, a "Royalty Quarter" shall mean a calendar
quarter except that the first Royalty Quarter of the first Royalty Year shall
commence upon the date hereof and end March 31, 1997.
As used herein, a "Royalty Year" shall mean the Year commencing
January 1 and ending December 31 except that the first Royalty Year shall
commence on the date hereof and end December 31, 1997.
Item 10. Minimum Royalties:
Minimum royalty for the first Royalty Year shall be U.S.
$+++++++ payable as follows:
U.S. $++++++ on signing;
U.S. $+++++++ on December 31, 1996;
U.S. $+++++++ on March 31, 1997
U.S. $+++++++ on June 30, 1997; and
U.S. $+++++++ on September 30, 1997.
Minimum royalties for the second Royalty Year shall be U.S.
$+++++++++.
Minimum royalties for the third Royalty Year shall be
$+++++++++.
For Royalty Years, if any, subsequent to the third Royalty Year,
the Minimum royalty shall be the greater of U.S. $+++++++++ or ++++++++++++
percent of the aggregate royalties payable to Licensor in the previous Royalty
Year.
Minimum royalties other than otherwise provided herein shall be
paid in four (4) equal installments on the last day of each Royalty Quarter
within each Royalty Year.
Item 11. [Not Applicable].
Item 12. [Not Applicable].
Item 13. Additional Covenants:
The Licensee, as additional consideration for this Agreement,
hereby grants to the Licensor an option (the "Option") to purchase up to an
aggregate of 150,000 shares (the "Shares") of the common stock of the Licensee,
$0.01 par value ("Common Stock"), at the purchase price equal to the closing
price of the Common Stock on the New York Stock Exchange on September 6, 1995,
exercisable in cumulative installments at any time after the date hereof and
prior to September 5, 2006. The Option, or any part thereof, shall be exercised
by the giving of written notice of exercise to the Chief Executive Officer of
the Licensee specifying the number of whole shares to be purchased and
accompanied by payment of the aggregate price of the number of shares purchased
in exercising the Option together with a copy of this Agreement and such
investment declarations as may be reasonably required by the Licensee; such
exercise shall be effective upon receipt by the Chief Executive Officer of the
Licensee of such written notice, payment, copy of the Agreement and investment
declaration.
Licensor to have final approval on selection of each design.
All accounts sold to by Licensee are subject to approval by
Licensor in advance. Additionally, Licensee shall be entitled to sell to all
accounts that Licensor sells to.
Licensee may, with the prior approval of Licensor, sell the
Licensed Product in dedicated Nautica Ladies outlet stores. Such approvals, if
any, shall be given with respect to specific outlet stores at specific
locations. No more than +++ +++++ percent of wholesale sales in any given year
can be sold in all such outlet stores. Notwithstanding anything to the contrary
contained in this Agreement, royalties payable with respect to sales through
dedicated Nautica Ladies outlet stores shall be ++++++++++ percent of the retail
sales volume of such sales. Licensee agrees to provide Licensor with
documentation to substantiate such outlet retail sales.
Licensee shall, as soon as practicable after the signing of this
Agreement, but in no event later than the commencement of the launch of any of
the Licensed Products, build, stock, maintain and operate a separate showroom in
the Nautica image for the display of the Licensed Products.
Licensor agrees that in the event that Licensor desires, during
the term of this Agreement, to license any party other than Licensee to market,
sell or distribute the Licensed Products in Canada, Licensor shall deliver a
written notice of the proposed license (the "License Notice") to Licensee. The
License Notice shall contain a description of the proposed transaction and the
terms thereof, including the territory to be covered by the proposed license,
the terms and conditions of the proposed license, the name of the person to whom
or in favor of whom the proposed license shall be made (the "Proposed Licensee")
and a description of the consideration to be received by Licensor under the
proposed license. The License Notice shall be accompanied by an offer by
Licensor to Licensee to grant Licensee the proposed license described in the
License Notice on the terms and conditions set forth therein.
For a period of ++++++++ days after a receipt of the License
Notice, Licensee may, by written notice to Licensor accept in whole but not in
part the offer to grant such license.
In the event that Licensee shall not agree to acquire all of
such license, Licensor may proceed with granting the proposed license; provided,
however, that such license to the Proposed Licensee shall be on terms and at a
price no more favorable than the terms and consideration set forth in the
License Notice with respect to the territories and products being licensed to
the Proposed Licensee and provided, further, that such license shall be granted
within +++++++++++++++ ++++++++++++ days from the date of the License Notice,
otherwise, such proposed arrangement shall again become subject to the
requirements set forth in this section.
Licensee represents, warrants and covenants that it will use its
reasonable best efforts to raise at least $7 million in additional equity
capital by December 31, 1995. Licensee further represents, warrants and
covenants that it will devote at least $7 million to the fulfillment of its
obligations under the License Agreement, including without limitation, the
design, distribution and sale of the Licensed Products and the establishment of
retail boutiques within department store customers.
Licensee further represents, warrants and covenants that it has
and will continue to employ Andrew Grossman to be Licensee's Chief Executive
Officer for a period at least through August 31, 2000. Licensee agrees that if
Andrew Grossman's employment as chief executive officer is terminated by the
Licensee for any reason other than for "cause" (as hereinafter defined),
Licensor may, upon three (3) months' written notice terminate this Agreement. As
used herein, "cause" shall mean misconduct of Mr. Grossman resulting in a
material harm to the Licensee
Licensee further represents, warrants and covenants that this
Agreement is the legal, valid and binding obligation of Licensee enforceable in
accordance with the terms hereof. Licensee agrees that it shall, on or before
October 1, 1995, deliver to Licensor certified resolutions of the Board of
Directors authorizing, ratifying and confirming all of the terms of this
Agreement. Such resolutions shall be duly certified by the Secretary or
Assistant Secretary of Licensee.
Item 14. Advertising Budget:
Licensee shall expend U.S. $+++++++ for national print
advertising, public relations and fashion show related events in the first
Royalty Year.
Licensee shall expend U.S. $+++++++++ for national print
advertising, public relations and fashion show related events in the second
Royalty Year.
For each Royalty Year after the second Royalty Year, Licensee
shall expend for national print advertising, public relations and fashion show
related events in each Royalty Year the greater of (i) ++++++++++ percent of net
wholesale sales volume for such Royalty Year or (ii) U.S. $+++++++++.
In the event that Licensee, in good faith fails to expend the
amount required as set forth above during any Royalty Year after the second
Royalty Year, Licensee shall, in addition to the amount otherwise required to be
expended in the following Royalty Year, expend such deficiency amount in the
following Royalty Year.
Item 15. Not Applicable.
Item 16. Payment Information:
All payments on account of royalty payments should be made to:
Nautica Apparel, Inc.
40 West 57th Street
New York, New York 10019
Attention: Financial Administrator
Item 17. Addresses for Notice:
To Licensee: Bernard Chaus Incorporated
1410 Broadway
New York, New York 10018
Attn: Chairman
Telefax: (212) 398-3824
with a copy to:
Shereff, Friedman, Hoffman
& Goodman, LLP
919 Third Avenue
New York, NY 10022-9998
Attn: Martin Nussbaum, Esq.
Telefax: (212) 758-9526
To Licensor: Nautica Apparel, Inc.
40 West 57th Street
New York, NY 10019
Telex: 289950
Telefax: (212) 841-7154
with a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, NY 10017
Attn: Edward G. H. Chin, Esq.
Telex: 238465
Telefax: (212) 213-1199
SCHEDULE B
TO
LICENSE AGREEMENT
Licensed Marks
JOSEPHINE CHAUS
October 9, 1995
Board of Directors
Bernard Chaus, Inc.
1410 Broadway
New York, NY 10018
RE: 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 July 1, 1996. In order to facilitate the proposed
underwritten public offering by the Company of approximately 5,000,000 shares
of the Company's Common Stock (the "Public Offering"), 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 July 1, 1998.
I also agree that each of the Notes is further amended hereby to
clarify that the failure of the Company to pay interest to me under the Notes
by reason of a covenant or other prohibition under the Amended Financing
Agreement shall not entitle me to accelerate the principal payments due under
the Notes.
The effectiveness of the amendments to the Notes contained in this
Letter Agreement is expressly conditioned upon the consummation of the Public
Offering.
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/ WAYNE MILLER
------------------
Name: Wayne Miller
Title: Executive Vice President - Finance
and Administration; Chief Financial Officer
44/3407-0/A:\001SUBOR.DOC/Chaus #13
JRS:rk/Oct 10, 1995 - 2:14 am (WP 6.1)
JOSEPHINE CHAUS
October 9, 1995
Board of Directors
Bernard Chaus, Inc.
1410 Broadway
New York, New York 10018
RE: OPTION TO EXTEND LETTER OF CREDIT
Dear Sirs and Madam:
I have heretofore arranged for the provision by Citibank, N.A. of a
letter of credit expiring on January 31, 1995 (the "Letter of Credit") in the
principal amount of $10.0 million to support the credit availability of
Bernard Chaus, Inc. (the "Company") under the Amended and Restated Financing
Agreement effective as of February 21, 1995 (the "Bank Agreement") with BNY
Financial Corp.
In order to provide the Company with maximum flexibility in
satisfying its credit support needs through July 31, 1996 and in connection
with the amendment to the Bank Agreement effective as of September 28, 1995, I
hereby grant the Company an option (the "Option") effective as of
October 6, 1995, to extend the expiration date of the Letter of Credit to
July 31, 1996. This option shall be exercisable, in whole or in part, by the
Company, acting through a Special Committee (the "Special Committee")
consisting of independent members of the Board of Directors of the Company.
The Special Committee shall have the right to exercise the Option
to extend the Letter of Credit for all or any portion of such $10.0 million or
for all or any portion of the period ending July 31, 1996. The Option shall be
exercisable on not less than ten (10) days' notice to me prior to the
scheduled January 31, 1996 expiration date of the Letter of Credit.
I understand that, if the Option is exercised, I shall be entitled to
certain warrants to purchase Common Stock, based upon the portion of the
Option which is exercised, the number and terms of which shall be determined
by the Special Committee consistent with past practices, and shall be subject
to shareholder approval and receipt of a letter of a nationally recognized
investment banking firm as to the commercial reasonableness thereof.
Very truly yours,
/s/ JOSEPHINE CHAUS
-------------------
Josephine Chaus
Accepted and Agreed to:
BERNARD CHAUS, INC.
By: /s/ WAYNE MILLER
----------------
Name: Wayne Miller
Title: Executive Vice President - Finance
and Administration; Chief Financial Officer
16/3407-0/A:\JULYOPT.109/JRS Chaus #13
JRS:dk;kk/Oct 10, 1995 - 2:18 am (WP 6.1)
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Bernard Chaus, Inc. on Form S-2 of our report dated September 21, 1994
included in the Annual Report on Form 10-K of Bernard Chaus, Inc. for the
year ended June 30, 1994, and to the use of our report dated October 6, 1995
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
October 10, 1995
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions ``Experts'' and
``Selected Consolidated Financial Data'' and to the use of our report
dated August 18, 1993, in the Registration Statement (Form S-2) and the
related Prospectus of Bernard Chaus, Inc. and Subsidiaries for the
registration of 5,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
New York, New York
October 9, 1995
