SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Bernard Chaus, Inc.
- - - -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Bernard Chaus, Inc.
- - - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
-------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
BERNARD CHAUS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
The Annual Meeting of Stockholders of Bernard Chaus, Inc. (the
"Company"), a New York corporation, will be held on November 14, 1996 at 2:30
p.m. at Rihga Royal Hotel, 151 West 54th Street, New York, New York, Winter
Garden Room, mezzanine level, for the following purposes:
1. To elect five directors of the Company to serve until the next
Annual Meeting of Stockholders and until their respective successors have been
elected and qualified.
2. To approve the issuance to Josephine Chaus of warrants to purchase
common stock of the Company in consideration for her provision of additional
credit support to the Company.
3. To ratify the appointment of Deloitte & Touche as auditors of the
Company to serve for the fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on October 8, 1996 are
entitled to notice of and will be entitled to vote at the meeting.
YOU ARE REQUESTED TO FILL IN, DATE AND SIGN THE ENCLOSED PROXY, WHICH
IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND TO MAIL IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Wayne S. Miller
Secretary
New York, New York
October 16, 1996
- - - -------------------------------------------------------------------------------
IMPORTANT: Please sign, date and return your proxy card in the self-addressed,
stamped envelope enclosed for your convenience. No postage is required if
mailed within the United States.
- - - -------------------------------------------------------------------------------
2
<PAGE>
PRELIMINARY
BERNARD CHAUS, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
November 14, 1996
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Bernard Chaus, Inc., a New York
corporation (the "Company"), to be used at the Annual Meeting of Stockholders
which will be held on November 14, 1996 at 2:30 p.m. at the Rihga Royal Hotel,
151 West 54th Street, New York, New York, Winter Garden Room, mezzanine level,
and any adjournments or postponements thereof.
Stockholders who execute proxies retain the right to revoke them at
any time by notice in writing to the Chief Financial Officer of the Company or
by revocation in person at the meeting; unless so revoked, the shares
represented by proxies will be voted at the meeting in accordance with the
directions given therein. If no directions are given, proxies will be voted (i)
FOR the election of the nominees named below under the caption "Election of
Directors-Nominees for Election", (ii) FOR the approval of the issuance to
Josephine Chaus of warrants to purchase shares of common stock of the Company
("Common Stock") in consideration for her provision of additional credit
support to the Company, (iii) FOR the ratification of the appointment of
Deloitte & Touche as auditors for the Company's fiscal year ending June 30,
1997 and (iv) in the discretion of the proxies named on the proxy card with
respect to such other business as may properly come before the meeting and any
adjournments or postponements thereof.
The principal executive offices of the Company are located at 1410
Broadway, New York, New York 10018. The approximate date on which this Proxy
Statement and the enclosed form of proxy were first sent or given to
stockholders was October 16, 1996.
Stockholders of record at the close of business on October 8, 1996
are entitled to notice of and will be entitled to vote at the meeting. On
September 26, 1996 there were outstanding 26,277,274 shares of the Common Stock
of the Company. Each share of Common Stock is entitled to one vote.
VOTING PROCEDURES
Under the New York Business Corporation Law (the "BCL") and the
Company's By-Laws, the presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum of the
stockholders to take action at the Annual Meeting. Abstentions and broker
non-votes are counted as shares present in the determination of whether the
shares of Common Stock represented at the Annual Meeting constitute a quorum.
Once a quorum of the stockholders is established, under the BCL and the
Company's By-Laws, the directors standing for election must be elected by a
plurality of the votes cast. Any other action to be taken must be approved by a
majority of the votes cast. For voting purposes, abstentions and broker
non-votes will not be counted in determining whether the directors standing for
election have been elected or whether any other action has been approved.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table represents information with respect to the persons
who are known to the Company to be the beneficial owners of more than five
percent of the Common Stock as of September 30, 1996.
<TABLE>
<CAPTION>
AMOUNT AMOUNT BENEFICIALLY OWNED IF
NAME AND ADDRESS OF BENEFICIALLY PERCENT THE WARRANT PROPOSAL PERCENT
BENEFICIAL OWNER OWNED OF CLASS CONTAINED HEREIN IS APPROVED OF CLASS
---------------- ----- -------- ---------------------------- --------
<S> <C> <C> <C> <C>
Josephine Chaus (1) ................ 16,285,200(2) 56.1% 16,967,212 (3) 57.1%
1410 Broadway
New York, NY 10018
FMR Corp. (4) ...................... 1,359,000 5.2% 1,359,000 5.2%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- - - -----------
(1) All shares listed are owned of record and beneficially, with sole
investment and voting power, except that, with respect to 118,000
shares included in such amount, Josephine Chaus shares power to vote
and dispose of such shares with Daniel Rosenbloom which are held by
them as co-trustees for her children.
(2) Includes 2,796,500 shares of Common Stock purchasable upon the
exercise of warrants. See "Certain Transactions" below. Because of her
stock ownership and positions with the Company, Josephine Chaus may be
deemed to be a control person of the Company.
(3) Includes 682,012 shares of Common Stock purchasable upon the exercise
of warrants. See "Approval of Issuance of Warrants to Josephine Chaus"
below.
(4) FMR Corp. ("FMR") beneficially owns such shares through Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR and an
investment adviser (registered under Section 203 of the Investment
Advisers Act of 1940) to Fidelity Contrafund, an investment company
registered under Section 8 of the Investment Company Act of 1940 (the
"Fidelity Fund"). FMR has sole dispositive power with respect to such
shares, but has no voting power with respect to such shares. Such
shares are voted pursuant to guidelines established by the Fidelity
Fund. The information set forth in the table with respect to FMR and
in the foregoing text of this footnote was based upon a Schedule 13G
filed by FMR with the Securities and Exchange Commission in February
1996.
4
<PAGE>
The following table presents information as of September 30, 1996 with
respect to the number of shares of Common Stock beneficially owned by each of
the current directors of the Company and each Named Executive Officer (as
defined herein), other than Josephine Chaus whose ownership is shown in the
table above, and all of the directors and executive officers of the Company as
a group. The information below stating amounts beneficially owned and percent
of class owned includes options exercisable within 60 days.
AMOUNT
BENEFICIALLY PERCENT
NAME OWNED(1) OF CLASS
---- ----- --------
DIRECTORS:
Philip G. Barach (2) .......................... 15,000 *
Andrew Grossman (3) ........................... 600,000 2.3%
S. Lee Kling (4) .............................. 38,000 *
Harvey M. Krueger (5) ......................... 60,000 *
NAMED EXECUTIVE OFFICERS:
Richard A. Baker .............................. 0 *
Wayne S. Miller (6) ........................... 167,500 *
Michael Winter ................................ 0 *
Judith Leech .................................. 0 *
Patricia Hillsberg ............................ 0 *
Michael Bakert ................................ 0 *
All directors and executive officers as a group
(9 persons) (7) ............................... 17,171,950 57.3%
- - - -----------------------
* Less than one percent.
(1) Except as otherwise indicated below, the persons listed have advised the
Company that they have sole voting and investment power with respect to
the securities listed as owned by them.
(2) Includes options to purchase 10,000 shares of Common Stock under the
Bernard Chaus, Inc. 1986 Stock Option Plan, as amended (the "Stock Option
Plan").
(3) Includes options to purchase 600,000 shares of Common Stock under the
Grossman Option Plan (as defined herein). See "Executive Compensation -
Employment Arrangements" below.
(4) Includes options to purchase 20,000 shares of Common Stock under the
Stock Option Plan.
(5) Includes options to purchase 50,000 shares of Common Stock under the
Stock Option Plan.
5
<PAGE>
(6) 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 150,000 shares of Common Stock under the Stock Option
Plan.
(7) Includes beneficial ownership of Josephine Chaus; also includes options
to purchase an aggregate of 886,750 shares of Common Stock under the
employee and director stock option plans, consisting of options to
purchase 286,750 shares of Common Stock under the Stock Option Plan and
options to purchase 600,000 shares of Common Stock under the Grossman
Option Plan.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
Five directors will be elected at the meeting to serve until the next
annual meeting of stockholders and until their respective successors have been
elected and qualified.
EACH PROXY RECEIVED WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED
BELOW UNLESS OTHERWISE SPECIFIED IN THE PROXY. 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 is sufficient to approve
the election of these nominees. Josephine Chaus has advised the Company that
she intends to vote all of her shares in favor of such election.
At this time, the Board of Directors of the Company knows of no reason why
any nominee might be unable to serve. Except as indicated below, there are no
arrangements or understandings between any director and any other person
pursuant to which such person was selected as a director or nominee.
The following table sets forth certain information with respect to the
nominees for director:
NAME OF NOMINEE AGE DIRECTOR SINCE
--------------- --- --------------
Josephine Chaus ............................... 45 1977
Andrew Grossman ............................... 37 1994
S. Lee Kling .................................. 67 1989
Harvey M. Krueger ............................. 67 1992
Philip G. Barach .............................. 66 1993
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. Members of the two-person Office of the
Chairman preside at all meetings of stockholders and the Board of Directors of
the Company, make such reports concerning the Company as the Board of Directors
shall direct, and have such other powers and perform such other duties as are
from time
6
<PAGE>
to time assigned to them by the Board of Directors. In addition, the Chief
Executive Officer reports to both members of the Office of the Chairman (except
in the case of a Chief Executive Officer who also is a member of the Office of
the Chairman, as is the case with Mr. Grossman, in which event the Chief
Executive Officer reports to the other member of the Office of the Chairman).
Andrew Grossman was appointed a director of the Company on September 13,
1994. He has been employed by the Company since September 28, 1994 as its Chief
Executive Officer and member of the Office of the Chairman (for a description
of the role and responsibilities of the Office of the Chairman, see "-
Josephine Chaus" above), pursuant to a five-year employment agreement. The
agreement provides that Mr. Grossman shall (a) be nominated to serve as a
director of the Company without additional compensation during each year of the
term of his employment agreement, (b) serve as the Chief Executive Officer and
a member of the Office of the Chairman of the Company, which office also
consists of Josephine Chaus and (c) upon expiration of the term of the
agreement, resign as a director of the Company. In connection with the
execution of Mr. Grossman's employment agreement, Josephine Chaus agreed to
vote all her shares of Common Stock at each annual meeting of stockholders held
during the term of the agreement in favor of his re-election to the Board of
Directors of the Company. See "Executive Compensation - Employment
Arrangements." Prior to November 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.
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 ("Willis
Corroon"). See "Certain Transactions." Mr. Kling served as Chairman of the
Board of Landmark Bancshares Corporation, a bank holding company in St. Louis,
Missouri until December 1991 when the company merged with Magna Group, Inc. He
had served in such capacity with Landmark since 1974 and had also served as
Chief Executive Officer of Landmark from 1974 through October 1990 except for
the period from May 1978 to January 1979 when he served as Assistant Special
Counselor on Inflation for the White House and Deputy for Ambassador Robert S.
Strauss. Mr. Kling serves on the Boards of Directors of Magna Group, Inc., a
multi-bank holding company; Lewis Galoob Toys, Inc., a toy manufacturer;
E-Systems, Inc., an electronic equipment manufacturer; Falcon Products, Co., a
furniture and fixtures manufacturer; Chemfix Technologies, Inc., an
environmental service company; National Beverage Corp., a beverage manufacturer
and Hanover Direct, Inc., a catalog and mail order company.
Harvey M. Krueger was appointed a director of the Company on January 2,
1992. He has been a Senior Managing Director of Lehman Brothers, Inc. ("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,
7
<PAGE>
a manufacturer of thermal comfort products, both of which are public companies.
The Board of Directors of the Company has standing Audit and Compensation
Committees. Messrs. Kling and Krueger are members of the Audit Committee and
served as members of the Audit Committee during fiscal 1996. Messrs. Barach,
Kling and Krueger are members of the Compensation Committee and served as
members of the Compensation Committee during fiscal 1996. None of Messrs.
Kling, Krueger or Barach is an employee of the Company. The Company does not
have a standing Nominating Committee.
The Compensation Committee is charged by the Board of Directors with
administering, reviewing and recommending changes in the Company's incentive
compensation plans for its executives and submitting such plans to the Board of
Directors for approval, allocating bonuses, determining the individuals to whom
stock options are to be granted, the number of shares subject to grant and the
terms of such operations, and recommending to the Board any changes in the
compensation of any employee of the Company whose annual compensation exceeds
$150,000. The Compensation Committee met or acted by written consent on seven
occasions during fiscal 1996.
The Audit Committee has such powers as may be assigned to it by the Board
of Directors from time to time and is charged with recommending annually to the
Board of Directors the independent auditors to be retained by the Company,
reviewing the audit plan with the auditors, reviewing the results of the audit
with the officers of the Company and its auditors and reviewing with the
officers and internal auditors of the Company the scope and nature of the
Company's internal auditing system. The Audit Committee met or acted by written
consent on four occasions during fiscal 1996.
During fiscal 1996, the Board of Directors of the Company met, or acted by
unanimous written consent, on nine occasions. While serving as a director, each
of the directors attended at least 75% of the meetings of the Board of
Directors and of the meetings held by all committees of the Board on which he
or she served during fiscal 1996.
COMPLIANCE WITH SECTION 16(A) OF SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own beneficially more than ten percent of the Common Stock to file
with the Securities and Exchange Commission initial reports of beneficial
ownership and reports of changes in beneficial ownership of the Common Stock.
Officers, directors and persons owning more than ten percent of the Common
Stock are required to furnish the Company with copies of all such reports. To
the Company's knowledge, based solely on a review of copies of such reports
furnished to the Company, the Company believes that during fiscal 1996, all
Section 16(a) filing requirements applicable to its executive officers,
directors and persons owning beneficially more than ten percent of the Common
Stock were complied with.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or accrued by
the Company for fiscal 1996 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) two former executive
officers (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 1996 YEAR SALARY BONUS STOCK AWARDS OPTIONS COMPENSATION
---------------------------------- ---- ------ ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman
Chief Executive Officer and 1996 $1,000,000 __ __ 1,500,000 $11,097(3)
Member, Office of the Chairman 1995 $ 790,178 $6,200,000(2) __ 1,500,000 $13,463(3)
1994 --(1) __ __ __ __
Josephine Chaus
Chief Executive Officer (until 1996 $390,000 __ __ __ __
September 1994), Chairwoman of the 1995 390,000 __ __ __ __
Board and Member, Office of the 1994 390,000 __ __ __ __
Chairman
Richard Baker (4)
President 1996 $307,694 __ __ __ $130,849(5)
1995 506,000 __ __ __ $5,850(3)
1994 480,000 __ __ 480,000 $35,367(6)
Michael Winter
President - Nautica 1996 $248,077 __ __ 500,000 $35,375(8)
1995 --(7) __ __ __ __
1994 --(7) __ __ __ __
Wayne S. Miller
Executive Vice President - Finance 1996 $250,000 __ __ __ $10,189(3)
and Administration, Chief 1995 $250,000 $25,000 __ 200,000 $10,391(3)
Financial Officer and Secretary 1994 --(9) __ __ 100,000 __
Michael Bakert (10)
President - Retail Division 1996 $208,558 __ __ __ __
1995 $248,582 __ __ __ __
1994 --(10) __ __ __ __
Judith Leech
Vice President - Design 1996 $ 211,154 __ __ __ __
1995 96,227 __ __ 75,000 __
1994 --(11) __ __ __ __
Patricia Hillsberg
Vice President 1996 $ 194,400 __ __ __ __
1995 --(12) __ __ __ __
1994 --(12) __ __ __ __
</TABLE>
9
<PAGE>
(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
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) Consists of life insurance premiums paid by the Company.
(4) Mr. Baker's employment with the Company terminated in February 1996.
(5) Includes payments made by the Company of (a) $124,999 in severance
payments and (b) $5,850 in life insurance premiums.
(6) Includes payments made by the Company of (a) $29,517 toward the
payment of relocation expenses, and (b) $5,850 in life insurance
premiums.
(7) Mr. Winter's employment with the Company commenced in January 1996.
(8) Consists of payments made by the Company toward relocation expenses.
(9) Mr. Miller's employment with the Company commenced in June 1994.
(10) Mr. Bakert's employment with the Company commenced in June 1994 and
terminated in June 1996.
(11) Ms. Leech's employment with the Company commenced in January 1995.
(12) Ms. Hillsberg's employment with the Company commenced in July 1995.
OPTION GRANTS TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options during the fiscal year
ended June 30, 1996. 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)
----------------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS IN EXERCISE
GRANTED FISCAL OR BASE EXPIRATION
NAME (#)(1) YEAR PRICE DATE 5% 10%
---- --------- -------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman ........ 1,500,000 72.7% $5.625 9/14/05 $5,306,298 $13,447,202
Josephine Chaus ........ __ __ __ __ __ __
Richard Baker .......... __ __ __ __ __ __
Michael Winter ......... 500,000 24.2% $3.625 1/2/06 $1,139,872 $ 2,888,658
Wayne S. Miller ........ __ __ __ __ __ __
Michael Bakert ......... __ __ __ __ __ __
Judith Leech .......... __ __ __ __ __ __
Patricia Hillsberg ..... __ __ __ __ __ __
</TABLE>
(1) All options were granted under the Stock Option Plan, except for those
granted to Mr. Grossman who received his options pursuant to the
Grossman Option Plan. 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.
10
<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 1996 by the Named Executive Officers 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 VALUE OF VALUE OF
SECURITIES SECURITIES UNEXERCISED UNEXERCISED
UNDERLYING UNDERLYING IN-THE-MONEY IN-THE-MONEY
UNEXERCISED UNEXERCISED OPTIONS AT OPTIONS AT
SHARES OPTIONS AT OPTIONS AT JUNE 30, JUNE 30,
ACQUIRED VALUE JUNE 30, 1996 JUNE 30, 1996 1996(1) 1996(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman .... __ __ 300,000 2,700,000 $300,000 $1,200,000
Josephine Chaus .... __ __ __ __ __ __
Richard Baker ...... __ __ __ __ __ __
Michael Winter ..... __ __ 0 500,000 0 0
Wayne S. Miller .... __ __ 100,000 200,000 $65,625 $65,625
Michael Bakert ..... 6,250 $10,156 6,250 0 $7,813 0
Judith Leech ....... __ __ __ __ __ __
Patricia Hillsberg.. __ __ __ __ __ __
</TABLE>
(1) The value is based on the excess of the market price of the Company's
Common Stock at the end of fiscal 1996 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 $6,200,000,
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 employment
agreement). The sign-on bonus was nondeductible by the Company for tax
purposes. In addition, in connection with the initial term of Mr. Grossman's
employment agreement, Mr. Grossman was granted options (the "Initial Options")
to purchase an aggregate of 1,500,000 shares of Common Stock; and in connection
with the extension of Mr. Grossman's employment agreement, Mr. Grossman was
granted options (the "Additional Options") to purchase an additional 1,500,000
shares of Common Stock. Each of the Initial Options and the Additional Options
were granted pursuant to his employment agreement and a stock option agreement
(the "Grossman Option Plan").
Under the employment agreement, Mr. Grossman receives an annual salary
of $1,000,000 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
1996. 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
11
<PAGE>
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 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 contained in the employment agreement.
The employment agreement also provides that if Mr. Grossman's
employment is terminated (with certain exceptions) after a change in control
(as described below), Mr. Grossman is to receive a lump sum payment equal to
the aggregate annual salary (discounted to present value) that he would have
received had his employment agreement not been terminated. A "change in
control" is defined to include certain mergers or asset sales; the failure to
stand for re-election of a majority of the existing Board of Directors; and the
acquisition by any person or group of stock resulting in beneficial ownership
of at least the number of shares collectively owned at such time by Josephine
Chaus and/or members of her immediate family, affiliates or certain other
related parties. In the event of such change in control or the termination of
Mr. Grossman's employment for certain specified reasons, any unvested portion
of the options shall vest immediately and shall remain exercisable for a period
of six months after such date, unless the options are earlier terminated
pursuant to the terms of the employment agreement.
Upon the execution of the employment agreement on September 1, 1994,
Mr. Grossman received the Initial Options at an exercise price of $2.25 per
share, the closing price of the Common Stock on the date of grant of such
options. The Initial Options vest at a rate of 20% per year commencing on
September 1, 1995. On September 14, 1995, upon the exercise by the Company of
its option to extend the employment agreement for an additional five-year
period, Mr. Grossman received the Additional Options at an exercise price of
$5.625, the closing price of the Common Stock on the date of grant of such
options. The Additional Options vest at a rate of 20% per year commencing on
September 1, 1998. The maximum number of shares of Common Stock which may be
granted to Mr. Grossman pursuant to the Grossman Option Plan, which was
approved by the stockholders of the Company at the 1994 Annual Meeting of
Stockholders, is 3,000,000.
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. Until February 1996, the Company had an employment
agreement with Richard Baker, President of the Company, dated as of February
15, 1993, which agreement was to terminate on February 14, 1997. Mr. Baker's
salary during the first year of the agreement was $450,000 and increased by
$25,000 annually until the agreement terminated. The agreement provided for the
provision of a cash bonus if the Company achieved certain financial targets
during each fiscal year of the term of the agreement. No such bonus was payable
in fiscal 1996. If during each of fiscal 1994, 1995 and 1996, while Mr. Baker
was employed by the Company, certain financial objectives were met by the
Company, then Mr. Baker would have
12
<PAGE>
had 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 or fiscal 1996. 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 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, and 120,000
vested on each of February 14, 1995 and February 14, 1996.
Pursuant to a letter agreement, effective as of February 6, 1996, Mr.
Baker resigned as President of the Company. Pursuant to such letter agreement,
Mr. Baker will receive an aggregate of $270,833 over the twelve month period
ending February 6, 1997, net of certain offsets for monies received from other
employment. Such amount will be offset by the remaining principal and interest
due under the Note (as defined below). See "Certain Transactions."
Michael Winter. The Company has a three-year employment agreement,
dated December 14, 1995 and effective January 1, 1996, with Michael Winter,
President of the Company's Nautica division. During the term of the agreement,
Mr. Winter's salary will be $500,000 per annum. In addition, Mr. Winter was
granted, pursuant to the terms and conditions of his employment agreement,
ten-year incentive stock options to purchase an aggregate of 500,000 shares of
the Company's Common Stock at an exercise price of $3.625 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 or by
Mr. Winter for "Good Reason" (other than in connection with a "change in
control" (as such term is defined in the agreement)), the Company shall pay Mr.
Winter severance and non-competition payments equal to his base salary for the
lesser of (i) twelve months and (ii) the remainder of the agreement's term. If,
following a "change in control" (as such term is defined in the agreement), the
agreement is terminated by the Company without cause or by Mr. Winter for "Good
Reason", the Company shall pay Mr. Winter severance and noncompetition payments
equal to his base salary for the lesser of (i) twenty-four months and (ii) the
remainder of the agreement's term. In addition, all stock options which have
not yet vested shall vest on the date of such termination referred to in the
two preceding sentences.
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
severance and non-competition payments 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 two sentences.
13
<PAGE>
Michael Bakert. Michael Bakert's employment with the Company terminated in
June 1996 pursuant to a letter agreement dated June 24, 1996. Pursuant to such
letter agreement, Mr. Bakert will receive an aggregate of $225,000 over the
twelve month period ending July 26, 1997, subject to an offset for monies
received from other employment.
DIRECTORS' COMPENSATION
During fiscal 1996, 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 the 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 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.
COMPENSATION COMMITTEE INTERLOCKS
Philip Barach, S. Lee Kling and Harvey M. Krueger are members of the
Compensation Committee of the Board of Directors of the Company, and served as
members of the Compensation Committee during fiscal 1996. Mr. Krueger, who also
is a member of the Company's Audit 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
aggregating $175,000. In addition, Lehman Brothers served as managing
underwriter by the Company in connection with an underwritten public offering
of 5,750,000 shares of Common Stock (including 750,000 shares of Common Stock
to cover over-allotments), which public offering was consummated in November
1995. Mr. Kling, who also is a member of the Company's Audit Committee, serves
as Vice Chairman of an insurance broker, Willis Corroon, from which the Company
obtains various insurance policies (i.e., travel, directors and officers
liability, and life insurance). A son of Mr. Kling also is employed by Willis
Corroon. The total aggregate premium payments paid to Willis Corroon in respect
of such insurance during fiscal 1996 were approximately $345,000.
COMPENSATION COMMITTEE REPORT
Committee. The Compensation Committee establishes and reviews the
Company's arrangements and programs for compensating its executive officers,
including the Named Executive Officers. The Compensation Committee is composed
of Philip Barach, S. Lee Kling and Harvey M. Krueger, all directors who are
neither officers nor employees of the Company.
Background, Objectives and Philosophy. The Compensation Committee's
objective is to establish an over-all compensation program that rewards
executives as the Company's net income reaches certain targeted levels and,
through the grant of options, as the market price of the Company's Common Stock
increases.
The Compensation Committee believes that there are three principal
components which should be included in a compensation program:
14
<PAGE>
1) base salary;
2) annual cash incentives; and
3) stock option incentives.
Under this approach, the attainment of yearly earnings and other
short-term targets is compensated through yearly bonuses under an Incentive
Award Plan (the "Incentive Award Plan") and long-term performance of the
Company is rewarded through the grant of stock options pursuant to the Stock
Option Plan. Unless otherwise provided by the Committee at the time an option
is granted, options granted under the Stock Option Plan vest ratably over a
four-year period. This approach is consistent with the Committee's view that
incentive programs should be based upon performance and that awards of stock
options should ally the economic interests of the Company's officers and other
key employees with those of the Company's stockholders.
Compensation Program Components.
Base Salary. Base salaries are set at levels that are competitive within
the apparel industry. An annual salary adjustment within each applicable
position/salary level is determined by evaluating the performance of the
individual, including the achievement of numerate and non-numerate objectives,
in the context of the financial results of the Company.
Annual Cash Incentives. Cash incentive awards are based on performance as
measured by the Company's net income. The Compensation Committee believes that
net income is an appropriate measure of performance because it promotes the
achievement of corporate-wide goals. The Company has in effect the Incentive
Award Plan in which key employees, other than Josephine Chaus, are eligible to
participate. Generally, the Compensation Committee establishes corporate-wide
objectives for net earnings each year, the attainment of which serve as the
basis for computing annual bonuses. No earnings targets were fixed for fiscal
1996. In the past, individual bonuses for key employees under the Incentive
Award Plan have been recommended by management to the Compensation Committee
which, in turn, makes the final determination. A portion of each executive's
bonus has also been dependent on the achievement of written numerate objectives
which are jointly established in advance by each such executive and the Chief
Executive Officer. The Compensation Committee may determinate to establish
earnings targets for future fiscal years.
Stock Option Plan. The Compensation Committee believes that the use of
stock options as the principal basis for creating long-term incentives
satisfies the objective of aligning the interests of executive management with
those of the Company's stockholders. The Company has in effect the Stock Option
Plan pursuant to which the Compensation Committee may grant executives, other
than Josephine Chaus, options to purchase Common Stock of the Company. The
Company utilizes vesting periods to encourage key executives to continue in the
employ of the Company. Unless otherwise provided by the Compensation Committee
at the time an option is granted, options granted under the Stock Option Plan
vest ratably over a four-year period. Levels of participation in the Stock
Option Plan generally vary on the basis of the recipient's position in the
Company.
Compensation of the Chief Executive Officer. Josephine Chaus served as
Chief Executive Officer of the Company until Andrew Grossman was hired in
September 1994. Since such time she has served as Chairwoman of the Board and
member of the Office of the Chairman of the Company. As Josephine Chaus is a
controlling stockholder of the Company, the Compensation Committee did not
believe there was a need
15
<PAGE>
for bonus compensation or stock incentives. As a result, Josephine Chaus did
not participate in the Company's bonus program or the Stock Option Plan. The
annual base salary provided for in her employment agreement with the Company,
which expired in June 1994, was $390,000 or such larger amount as the
Compensation Committee shall determine. Although Ms. Chaus's employment
agreement is no longer in effect, the Company continues to compensate her at
the same rate. Ms. Chaus's annual base salary was not increased above the
$390,000 level which has been the same for the past three years.
Andrew Grossman has served as the Chief Executive Officer of the Company
since September 1994. Mr. Grossman was compensated pursuant to the terms of his
employment agreement which provides for an annual salary of $1,000,000 and an
annual bonus of 5% of the Annual Net Profits of the Company. No bonus was
payable for fiscal 1996. During fiscal 1996, Mr. Grossman also was awarded the
Additional Options which vest at a rate of 20% per year commencing September
1998. The terms of the Bonus Plan and the Grossman Option Plan were approved by
the stockholders of the Company at the 1994 Annual Meeting of Stockholders.
COMPENSATION COMMITTEE
Philip Barach
S. Lee Kling
Harvey M. Krueger
16
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the total cumulative return
(assuming dividends are reinvested) on the Company's Common Stock during the
five fiscal years ended June 30, 1996 with the cumulative return on the
Standard & Poor's 500 Index and the Standard & Poor's Textile-Apparel
Manufacture Index, assuming investment of $100 in each of the above at their
closing stock prices on June 30, 1991.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BERNARD CHAUS, INC., THE S&P 500 INDEX
AND THE S&P TEXTILE APPAREL MANUFACTURER INDEX
RESEARCH DATA GROUP TOTAL RETURN --DATA SUMMARY
CHS
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------
6/91 6/92 6/93 6/94 6/95 6/96
<S> <C> <C> <C> <C> <C> <C> <C>
CHAUS BERNARD INC. CHS 100 257 133 71 190 124
S&P 500 ............ I500 100 113 129 131 165 208
S&P TEXTILES ....... ITXA 100 99 96 84 87 109
</TABLE>
CHAUS BERNARD INC
CHS
<TABLE>
<CAPTION>
BEGIN
NO. OF DIV DIV ENDING CUM TOTAL
TYPE OF CLOSE SHARES DIV $ PER $.$$ SHARES NO. OF SHRHLDR
DATE* LINE PRICE** *** SHARE** PAID REINVD SHARES RETURN
- - - ---------- ------- --------- -------- --------- ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/30/91 BEGIN 2.625 38.095 38.095 100
06/30/92 YE 6.750 38.095 38.095 257
06/30/93 YE 3.500 38.095 38.095 133
06/30/94 YE 1.875 38.095 38.095 71
06/30/95 YE 5.000 38.095 38.095 190
06/30/96 YE 3.250 38.095 38.095 124
</TABLE>
- - - ------------
* Fiscal year end and ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits.
*** `Begin No. of Shares' based on $100 investment.
17
<PAGE>
APPROVAL OF ISSUANCE OF WARRANTS TO
JOSEPHINE CHAUS
During fiscal 1994, the Company required availability under its working
capital credit line with BNY Financial Corporation ("BNYF") in excess of the
amount available under its borrowing base formula. To assist the Company,
Josephine Chaus agreed to provide credit support in the form of a letter of
credit (the "Letter of Credit"). She initially provided the Letter of Credit in
the amount of $3 million on April 15, 1994, which was increased to $5.0 million
on June 14, 1994, to $7.2 million on September 13, 1994 and to $10.0 million in
February 1995. The expiration date of the Letter of Credit, initially in effect
through October 15, 1994, was extended to April 15, 1995, October 31, 1995 and
then to January 31, 1996. See "Certain Transactions." BNYF increased the
Company's borrowing availability by various amounts as the amount and
expiration date of the Letter of Credit were increased and extended,
respectively. In addition, Ms. Chaus agreed to guarantee personally $5.0
million of the Company's indebtedness to BNYF (the "$5.0 Million Guarantee"),
with the $5.0 Million Guarantee to be in effect during the credit facility's
term.
During fiscal 1996, the Company required additional availability under its
working capital credit line with BNYF. To further assist the Company, Josephine
Chaus agreed to provide additional credit support in the form of an option to
further extend the Letter of Credit's expiration date to July 31, 1996 (the
"July 1996 Option"). In January 1996, the Company exercised the July 1996
Option to extend the Letter of Credit to July 31, 1996 (the "July 1996
Extension"). In consideration for her provision of the July 1996 Extension, a
special committee composed of disinterested outside members of the Board of
Directors of the Company (the "Special Committee"), has authorized the issuance
to Josephine Chaus, subject to stockholder approval, of warrants (the "1996
Warrants") to purchase an aggregate of 682,012 shares of Common Stock at an
exercise price of $4.20 per share. The Special Committee approved the issuance
of the 1996 Warrants on January 19, 1996. The exercise price of the 1996
Warrants represents a 20% premium over the closing price of the Common Stock on
the New York Stock Exchange on January 19, 1996, the date the Special Committee
approved the issuance of the 1996 Warrants. The 1996 Warrants will be
exercisable upon issuance, will not be transferable, will expire five years
from the date of issuance and will contain customary antidilution provisions.
The Company has borne all out-of-pocket expenses incurred by Josephine Chaus in
providing the July 1996 Extension.
In approving the 1996 Warrants, the Special Committee sought the advice of
Lehman Brothers, which provided its views as to the commercial reasonableness
of the transaction. A copy of the Lehman Brothers letter is annexed to this
proxy statement as Exhibit A. Harvey Krueger, a Senior Managing Director of
Lehman Brothers, is a director of the Company and a member of its Audit and
Compensation Committees. Mr. Krueger was not a member of the Special Committee
and did not act on behalf of Lehman Brothers in rendering the Lehman Brothers
letter.
The Special Committee determined the appropriate number of the 1996
Warrants based upon the monetary amount of the July 1996 Extension (i.e., the
Letter of Credit in the amount of $10.0 million) and the expected duration of
the July 1996 Extension (i.e., the maturity date of the Letter of Credit). The
Black-Scholes method of valuing warrants was utilized to assist the Committee
in determining the number of warrants to be provided to Ms. Chaus in return for
her provision of the July 1996 Extension.
See "Security Ownership of Certain Beneficial Owners and Management" for
information concerning the share ownership of Josephine Chaus before and after
giving effect to the issuance of the 1996 Warrants and
18
<PAGE>
the resulting dilutive impact upon the other stockholders of the Company from
the issuance of the 1996 Warrants.
A vote by a stockholder in favor of the approval of the issuance of the
1996 Warrants to Ms. Chaus may be prejudicial to the right of such stockholder
to challenge the issuance of the 1996 Warrants to Ms. Chaus at a later time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ISSUANCE
OF THE 1996 WARRANTS TO JOSEPHINE CHAUS IN CONSIDERATION FOR HER PROVISION OF
ADDITIONAL CREDIT SUPPORT TO THE COMPANY. EACH PROXY RECEIVED WILL BE VOTED FOR
APPROVAL OF THE ISSUANCE OF THE 1996 WARRANTS TO JOSEPHINE CHAUS UNLESS
OTHERWISE SPECIFIED IN THE PROXY.
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 IS SUFFICIENT TO APPROVE THE ISSUANCE OF THE 1996 WARRANTS
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.
CERTAIN TRANSACTIONS
JOSEPHINE CHAUS
Subordinated Debt. The Company had outstanding at June 30, 1996, $23.6
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"). In connection
with the Company's November 1995 public offering, Josephine Chaus agreed
(subject to the consummation of such public offering) 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
11.25%, and payments of principal and interest under the Subordinated Notes
currently are not 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.
Credit Support.
1994 Warrants. Because during fiscal 1994, the Company required
availability under its working capital credit line with BNYF in excess of the
amount available under its borrowing base formula, Josephine Chaus agreed to
provide credit support in the form of the Letter of Credit. See "Approval of
Issuance of Warrants to Josephine Chaus" above. BNYF increased the Company's
borrowing availability by various amounts as the amount and expiration date of
the Letter of Credit were increased and extended, respectively. In return for
such credit support, the Company issued to Ms. Chaus, upon stockholder
approval, warrants (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, in each case a price which
was 20% above the market price of the Company's Common Stock at the time of the
grant. In approving the issuance of the 1994 Warrants to Ms. Chaus, the Special
Committee sought the advice of Lehman Brothers, which provided its view as to
the commercial reasonableness of the transaction.
19
<PAGE>
1995 Warrants. During fiscal 1995, Josephine Chaus provided additional
credit support to the Company in the form of an increase in the Letter of
Credit to $10.0 million and an extension of its term to October 31, 1995 (the
"February Increase/Extension"). Ms. Chaus also provided the $5.0 Million
Guarantee at that time. In September 1995, Ms. Chaus further extended the term
of the Letter of Credit to January 31, 1996 (the "September 1995 Extension").
In consideration of the February Increase/Extension, the $5.0 Million Guarantee
and the September Extension, the Company issued to Ms. Chaus, upon stockholder
approval, warrants (the "1995 Warrants") to purchase an aggregate of 1,580,000
shares of Common Stock at prices ranging between $4.05 and $6.75 per share, in
each case a price which was 20% above the market price of the Common Stock at
the time of the grant. In approving the issuance of the 1995 Warrants to Ms.
Chaus, the Special Committee sought the advice of Lehman Brothers, which
provided its view as to the commercial reasonableness of the transaction.
1996 Warrants. See "Approval of Issuance of Warrants to Josephine
Chaus" above for information relating to the Company's proposed issuance to
Josephine Chaus of the 1996 Warrants in consideration for her provision of
additional credit support to the Company.
Additional Compensation. In connection with a May 1996 amendment to
the BNYF credit facility, Ms. Chaus agreed to extend the Letter of Credit to
January 31, 1997 (the "January 1997 Extension") and additionally provided a
collateralized increase of $5.0 million in the $5.0 Million Guarantee to $10.0
million (the "$10.0 Million Guarantee"). In connection with the January 1997
Extension, the Special Committee approved the payment of cash compensation to
Ms. Chaus of $100,000 for each three month period of the Letter of Credit as
extended from July 31, 1996 to January 31, 1997. For her provision of the $10.0
Million Guarantee, the Special Committee approved an increase in the amount of
cash compensation payable to Ms. Chaus for her guaranty, to $100,000 for each
three month period of the $10.0 Million Guarantee.
In connection with a September 1996 amendment to the BNYF credit
facility, Ms. Chaus agreed to extend the Letter of Credit to July 31, 1997 (the
"July 1997 Extension"), increase the amount of the $10.0 Million Guarantee to
$12.5 Million (the "$12.5 Million Guarantee") and fully collateralize the $12.5
Million Guarantee. In connection with the July 1997 Extension, the Special
Committee approved the payment of cash compensation to Ms. Chaus of $100,000
for each additional three month period of the Letter of Credit as extended from
January 31, 1997 to July 31, 1997. For her provision of the $12.5 Million
Guarantee, the Special Committee approved an increase in the amount of cash
compensation payable to Ms. Chaus for her guaranty, to $125,000 for each three
month period of the $12.5 Million Guarantee.
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). In approving
the issuance of shares to Ms. Chaus in exchange for such notes, the Special
Committee sought the advice of Lehman Brothers, which provided its view as to
the commercial reasonableness of the transaction.
20
<PAGE>
JEFFREY CHAUS
During fiscal 1996, Jeffrey Chaus (son of the late Bernard Chaus, founder
of the Company) and his spouse owned a company which operated one retail
clothing store located in Fort Lee, New Jersey. Mr. Chaus closed this store in
January 1996. During fiscal 1996, the Company sold its products to this store
at the same prices and on terms similar to the terms applicable to sales of the
products to such stores 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 1996. The Company's gross sales to the store owned by
Jeffrey Chaus aggregated approximately $9,766 during fiscal 1996. At June 30,
1996, the store owned by Jeffrey Chaus did not owe the Company any monies for
merchandise sold by the Company to his store through such date.
HARVEY KRUEGER
Harvey Krueger, a director of the Company and member of its Audit and
Compensation Committees, is a Senior Managing Director of Lehman Brothers,
which provided certain advisory services to the Company during fiscal 1995 and
the first quarter of fiscal 1996 for which it received fees of $175,000. In
addition, Lehman Brothers served as managing underwriter by the Company in
connection with the Company's public offering which was consummated in November
1995.
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, from which the Company obtains various insurance policies (i.e.,
travel, directors and officers liability, and life insurance). In addition, a
son of Mr. Kling is employed by Willis Corroon. The total aggregate premium
payments paid to Willis Corroon in respect of such insurance during fiscal 1996
were approximately $345,000.
RICHARD BAKER
In 1993, in connection with the Company's hiring of Richard A. Baker as
the President of the Company, the Company loaned (the "Loan") 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 was 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 was to repay principal and interest on a monthly basis over
a 60-month period commencing October 15, 1994. In November 1995, the Company's
stockholders ratified the making of the Loan to Mr. Baker.
In February 1996, Mr. Baker resigned as President of the Company. Pursuant
to a letter agreement, effective as of February 6, 1996, Mr. Baker resigned as
President of the Company. Pursuant to such letter agreement, Mr. Baker will
receive an aggregate of $270,833 over the twelve month period ending February
6, 1997, net of certain offsets for monies received from other employment. Such
amount also will be offset by $123,078 representing the remaining principal and
interest due under the Note as of February 1996.
OTHER
Wietecha. 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
21
<PAGE>
al. (which claims had alleged misstatements and omissions in the Company's July
1986 prospectus delivered in connection with the Company's initial public
offering of Common Stock in 1986 (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 of the 1986 Offering. Allegations in
such complaint were common law fraud and negligent misrepresentation in the
sale of the Company's Common 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. During fiscal 1996 the Company settled these claims for
approximately $0.3 million, which expense had been provided for in a prior
year.
A claim for indemnification was asserted by the Company's former
underwriters against the Company. The indemnification claim demanded repayment
of the legal fees and expenses incurred by such underwriters in connection with
the consolidated class actions entitled Phifer v. Chaus, et al. During fiscal
1996 the Company settled this matter for approximately $0.8 million, which
expense had been provided for in a prior year.
There are no other material pending legal proceedings to which the Company
is a party or to which any of its properties is subject.
SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed Deloitte & Touche LLP, independent auditors, as the Company's
auditors for the fiscal year ending June 30, 1997. Deloitte & Touche has served
as the Company's independent auditors since June 10, 1994. Although stockholder
ratification of the selection of Deloitte & Touche is not required, the Board
considers it desirable for stockholders to pass upon the selection of auditors.
It is expected that representatives of Deloitte & Touche will be present
at the meeting and will have the opportunity to make a statement if they so
desire and will be available to respond to appropriate questions of
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF THE AUDITORS. EACH PROXY RECEIVED WILL BE VOTED FOR THE
RATIFICATION OF THE APPOINTMENT OF THE AUDITORS UNLESS OTHERWISE SPECIFIED IN
THE PROXY.
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 IS SUFFICIENT TO RATIFY THE APPOINTMENT OF THE AUDITORS.
22
<PAGE>
JOSEPHINE CHAUS HAS ADVISED THE COMPANY THAT SHE INTENDS TO VOTE ALL OF HER
SHARES IN FAVOR OF SUCH RATIFICATION OF THE APPOINTMENT.
PROPOSALS FOR NEXT YEAR'S MEETING
Any proposal by a stockholder who intends to be present at the next Annual
Meeting of Stockholders must be received by the Company for inclusion in its
proxy statement and form of proxy relating to that Annual Meeting no later than
June 16, 1997.
MISCELLANEOUS
The Board of Directors of the Company does not intend to present, and does
not have any reason to believe that others intend to present, any matter of
business at the meeting other than as set forth in the accompanying Notice of
Annual Meeting of Stockholders. However, if other matters properly come before
the meeting, it is the intention of the persons named in the enclosed form of
proxy to vote any proxies in accordance with their judgment.
The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this Proxy Statement and other material which may be
sent to stockholders in connection with this solicitation. The Board of
Directors may use the services of the Company's directors, officers and other
regular employees to solicit proxies. In addition, the Company has retained
Chase Mellon Shareholder Services, LLP, Corporate Trust Group as stock transfer
agent to aid in the solicitation of proxies at an anticipated fee of
approximately $10,000 plus reasonable expenses. The Company may reimburse
persons holding shares in their names or in the names of nominees for their
expenses in sending proxies and proxy material to their principals.
Copies of the 1996 Annual Report to Stockholders, including financial
statements for the fiscal year ended June 30, 1996, are being mailed to the
stockholders prior to or simultaneously with this Proxy Statement.
THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION (FORM 10-K) FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO EACH
STOCKHOLDER WITHOUT CHARGE (OTHER THAN A REASONABLE CHARGE FOR ANY EXHIBIT
REQUESTED) UPON WRITTEN REQUEST TO:
Bernard Chaus, Inc.
800 Secaucus Road
Secaucus, New Jersey 07094
Attention: Wayne S. Miller
Executive Vice President-Finance and
Administration, Chief Financial Officer
and Secretary
23
<PAGE>
EXHIBIT A
LEHMAN BROTHERS
August 16, 1996
Special Committee of the
Board of Directors
Bernard Chaus, Inc.
1410 Broadway
New York, N.Y. 10018
Dear Members of the Board:
We understand that Bernard Chaus, Inc. (the "Company") has entered into a
transaction with its Chairwoman of the Board and principal shareholder,
Josephine Chaus, pursuant to which Josephine Chaus extended the maturity of a
letter of credit to the Company's lender, BNY Financial Corporation ("BNY"), as
credit support for the Company's working capital line.
Josephine Chaus had initially provided a $3.0 million letter of credit to BNY
on April 15, 1994, which was increased to $5.0 million on June 14, 1994, and to
7.2 million on September 13, 1994 (the "Initial Letter of Credit"). The Initial
Letter of Credit was to remain in effect until April 15, 1995. Josephine Chaus
agreed to increase the amount of the Initial Letter of Credit from $7.2 million
to $10.0 million as of February 15, 1995 and to have it remain in effect until
October 31, 1995, the term of which was subsequently extended to January 31,
1996 (the "New Letter of Credit"). Josephine Chaus also provided a $5.0 million
personal guarantee (the "Personal Guarantee") to support the Company's working
capital line, which is to be in effect for the three year term of the credit
facility unless terminated earlier. In consideration for the Initial Letter of
Credit, the New Letter of Credit and the Personal Guarantee, BNY increased the
Company's credit availability by various amounts above the amount determined by
formulas and covenants set forth in its financing agreement with the Company.
We understand that Josephine Chaus agreed to extend the $10 million New Letter
of Credit for an additional six month period from January 31, 1996 until July
31, 1996. In consideration for her extending the New Letter of Credit, a
Special Committee of the Board of Directors of the Company (the "Special
Committee"), subject to shareholder approval and the receipt of this letter,
authorized the issuance to Josephine Chaus of warrants to purchase 682,012
shares of common stock of the Company at an exercise price of $4.20 per share
(the "Extension Warrants"). The exercise price of the Warrants represents a 20%
premium to the closing price of the Company's common stock on the New York
Stock Exchange on January 19, 1996, the date that the Special Committee
approved the issuance of such Extension Warrants. The Extension Warrants will
be exercisable upon issuance, will expire five years from the date of issuance
and will not be transferable. In addition, the Company has borne all
out-of-pocket expenses to be incurred by Josephine Chaus in providing the New
Letter of Credit, which thereby reduced the number of warrants received
accordingly. We further understand it was agreed at such time that Josephine
Chaus would forfeit a pro rata portion of the Extension Warrants if the New
Letter of Credit was terminated before July 31, 1996. The issuance of the
Extension Warrants to Josephine Chaus in exchange for the New Letter of Credit
is hereafter referred to as the "Warrants Transaction."
You have asked our view, as investment bankers, as to the commercial
reasonableness of the financial terms of the Warrants Transaction in view of
the Company's circumstances at the time that the Special Committee authorized
the issuance of the Extension Warrants.
A-1
<PAGE>
In connection with our analysis, we have:
(1) reviewed the financial statements of the Company as set forth in the
Forms 10-K and 10-Q of the Company filed with the Securities and Exchange
Commission for the fiscal year ended June 30, 1995 and the quarters ended
September 30, 1995, December 31, 1995 and March 31, 1996, respectively;
(2) reviewed certain financial information furnished to us by the management
of the Company, including selected financial projections of the Company;
(3) analyzed the trading history (price and volume) of the Company's common
stock over the past few years through the date the Special Committee
authorized the issuance of the Extension Warrants and the date hereof;
and
(4) conducted discussions with Josephine Chaus as well as the Company's Chief
Financial Officer and Chief Financial Officer concerning the business,
operations and prospects of the Company as well as its efforts to secure,
and prospects for securing, alternative financing.
We have assumed and relied upon the accuracy and completeness of the
information used by us in our analysis without assuming responsibility for
independent verification of such information and have further relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading or of any materially
positive developments pending at the time that the Warrants Transaction was
being considered by the Special Committee. With respect to the financial
projections of the Company, upon advice of the Company we have assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company. In performing our analysis,
we have not conducted a physical inspection of the properties and facilities of
the Company and have not made nor obtained any evaluation or appraisals of the
assets or liabilities of the Company. In addition, you have not authorized us
to solicit, and we have not solicited, any indications of interest from any
third parties with respect to providing any financing to, or guarantees on
behalf of, the Company. Our analysis is necessarily based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date
that the Special Committee authorized the issuance of the Extension Warrants.
Based upon and subject to the foregoing, we are of the view that, given the
Company's circumstances at the time that the Special Committee authorized the
issuance of the Extension Warrants, the financial terms of the Warrants
Transaction were, at the time such transaction was authorized, commercially
reasonable from the Company's perspective.
This letter is solely for the use and benefit of the Special Committee of the
Board of Directors of the Company and shall not be discussed publicly or made
available to, or relied upon by, any third party without our prior approval.
Sincerely,
LEHMAN BROTHERS
A-2
<PAGE>
[front]
PROXY COMMON STOCK
BERNARD CHAUS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 14, 1996
The undersigned hereby constitutes and appoints Josephine Chaus
and Wayne S. Miller, and each of them, with full power of substitution,
attorneys and proxies to represent and to vote all of the shares of Common
Stock which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, at the Annual Meeting of the
Stockholders of BERNARD CHAUS, INC., to be held on November 14, 1996 at 2:30
p.m. at the Rihga Royal Hotel, 151 West 54th Street, New York, New York, Winter
Garden Room, mezzanine level, and at any adjournment or postponement thereof,
on all matters coming before said meeting.
1. TO ELECT DIRECTORS.
Nominees: Philip G. Barach, Josephine Chaus, Andrew Grossman, S. Lee
Kling and Harvey M. Krueger. (Mark only one of the following boxes.)
[ ] VOTE FOR all nominees listed above, except vote withheld as to
the following nominees (if any):
[ ] VOTE WITHHELD from all nominees.
2. To approve the issuance to Josephine Chaus of warrants to purchase
shares of Common Stock of the Company in consideration for her
provision of additional credit support to the Company:
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
auditors:
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
4. At their discretion, upon any other business which may properly come
before the meeting or any adjournment thereof.
<PAGE>
[back]
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL VOTE
(I) FOR THE ELECTION AS DIRECTORS OF THE NOMINEES OF THE BOARD OF DIRECTORS,
(II) FOR THE APPROVAL OF THE ISSUANCE TO JOSEPHINE CHAUS OF WARRANTS TO
PURCHASE COMMON STOCK OF THE COMPANY IN CONSIDERATION FOR HER PROVISION OF
ADDITIONAL CREDIT SUPPORT TO THE COMPANY, AND (III) FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S AUDITORS. THIS PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned acknowledges receipt of the accompanying Proxy
Statement dated October 16, 1996.
Date:________________________________, 1996
-------------------------------------------
-------------------------------------------
Signature of Stockholder(s)
(When signing as attorney, trustee, executor,
administrator, guardian, corporate officer, etc., please
give full title. If more than one trustee, all should sign.
Joint owners must each sign.)
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ABOVE.
I plan [ ] I do not plan [ ]
to attend the 1996 Annual Meeting of Stockholders.
<PAGE>
[front]
PROXY COMMON STOCK
BERNARD CHAUS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 14, 1996
The undersigned hereby directs CHASE MANHATTAN BANK, Corporate
Trustee under the Bernard Chaus, Inc. Corporate Trust which was established to
aid in the execution of the Bernard Chaus, Inc. Employee Savings Plan (the
"Plan") to vote all of the undersigned's pro rata share of Bernard Chaus, Inc.
Common Stock held by the Corporate Trustee under the Plan, at the Annual
Meeting of the Stockholders of BERNARD CHAUS, INC., to be held on November 14,
1996 at 2:30 p.m. at the Rihga Royal Hotel, 151 West 54th Street, New York, New
York, Winter Garden Room, mezzanine level, and at any adjournment or
postponement thereof, on all matters coming before said meeting.
1. TO ELECT DIRECTORS.
Nominees: Philip G. Barach, Josephine Chaus, Andrew Grossman, S. Lee
Kling and Harvey M. Krueger. (Mark only one of the following boxes.)
[ ] VOTE FOR all nominees listed above, except vote withheld as to
the following nominees (if any):
[ ] VOTE WITHHELD from all nominees.
2. To approve the issuance to Josephine Chaus of warrants to purchase
shares of Common Stock of the Company in consideration for her
provision of additional credit support to the Company:
[ ] VOTE [ ] FOR VOTE AGAINST [ ] ABSTAIN
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
auditors:
[ ] VOTE [ ] FOR VOTE AGAINST [ ] ABSTAIN
4. At their discretion, upon any other business which may properly come
before the meeting or any adjournment thereof.
<PAGE>
[back]
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL VOTE
(I) FOR THE ELECTION AS DIRECTORS OF THE NOMINEES OF THE BOARD OF DIRECTORS,
(II) FOR THE APPROVAL OF THE ISSUANCE TO JOSEPHINE CHAUS OF WARRANTS TO
PURCHASE COMMON STOCK OF THE COMPANY IN CONSIDERATION FOR HER PROVISION OF
ADDITIONAL CREDIT SUPPORT TO THE COMPANY, AND (III) FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE AS THE COMPANY'S AUDITORS. THIS PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned acknowledges receipt of the accompanying Proxy
Statement dated October 16, 1996.
Date:________________________________, 1996
-------------------------------------------
-------------------------------------------
Signature of Stockholder(s)
(When signing as attorney, trustee, executor,
administrator, guardian, corporate officer, etc., please
give full title. If more than one trustee, all should sign.
Joint owners must each sign.)
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ABOVE.
I plan [ ] I do not plan [ ]
to attend the 1996 Annual Meeting of Stockholders.
