<PAGE>
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:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-7(e)(2))
|X| 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)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| 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 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
- -------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
5) Total fee paid:
- -------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| 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 December 8, 1997 at 10:30 a.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 an amendment to the Company's Certificate of
Incorporation, as amended (the "Charter"), to effect a reverse
stock split of the Company's Common Stock such that every ten (10)
shares of Common Stock outstanding on the effective date of such
reverse stock split would be converted into one (1) share of common
stock, $.01 par value ("Common Stock").
3. To approve the sale by the Company to Josephine Chaus of an
aggregate of up to 19,246,705 shares of Common Stock consisting (i)
of 10,510,910 shares of Common Stock of the Company (on a post
stock-split basis), in exchange for approximately $40.5 million of
the Company's indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including accrued
interest through January 15, 1998) and $12.5 million of
indebtedness which will be owed to her; (ii) in connection with the
exercise by Josephine Chaus of her full $10.0 million subscription
in a rights offering to all holders of Common Stock of the Company
(the "Rights Offering"), of 6,988,635 shares of Common Stock of the
Company (on a post stock-split basis); and (iii) of up to 1,747,160
shares of Common Stock of the Company (on a post stock-split
basis), in connection with the standby commitment of Josephine
Chaus to subscribe for up to an additional $2.5 million of Common
Stock of the Company if and to the extent that the Company's other
stockholders do not purchase at least that amount in the Rights
Offering, each at a purchase price equal to $1.4309 per share
(determined by the Company and management, and unanimously approved
by the disinterested members of the Company's Board of Directors).
Proceeds from such sales shall be used to retire a portion of the
existing indebtedness.
4. To approve the adoption by the Company of the Bernard Chaus, Inc.
1998 Stock Option Plan.
5. To ratify the appointment of Deloitte & Touche as auditors of the
Company to serve for the fiscal year ending June 30, 1998.
6. 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 10, 1997 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,
Barton Heminover
Assistant Secretary
New York, New York
November 12, 1997
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
<PAGE>
BERNARD CHAUS, INC.
--------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 8, 1997
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 December 8, 1997 at 10:30 a.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 Assistant Secretary 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 an amendment
to the Company's Certificate of Incorporation, as amended (the "Charter"), to
effect a reverse stock split (the "Stock Split") of the Company's Common
Stock such that every ten (10) shares of Common Stock outstanding on the
effective date of such reverse stock split would be converted into one (1)
share of common stock, of the Company, $.01 par value (the "Common Stock"),
(iii) FOR the approval of the sale by the Company to Josephine Chaus ("J.
Chaus", "Josephine Chaus", or "Ms. Chaus") of an aggregate of up to
19,246,705 shares of Common Stock consisting (a) of 10,510,910 shares, on a
post Stock Split basis, of Common Stock of the Company, in exchange for
approximately $40.5 million of the Company's indebtedness to Josephine Chaus
consisting of $28.0 million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5 million of indebtedness
which will be owed to her, (b) in connection with the exercise by Josephine
Chaus of her full $10.0 million subscription in a rights offering to all
holders of Common Stock of the Company (the "Rights Offering"), of 6,988,635
shares of Common Stock of the Company, on a post Stock Split basis, and (c)
of up to 1,747,160 shares of Common Stock of the Company, on a post Stock
Split basis, in connection with the standby commitment by Josephine Chaus to
subscribe for up to an additional $2.5 million of Common Stock if and to the
extent that the Company's other stockholders do not purchase at least that
amount in the Rights Offering, (iv) FOR the adoption by the Company of the
Bernard Chaus, Inc. 1998 Stock Option Plan (the "1998 Stock Option Plan"), (v)
FOR the ratification of the appointment of Deloitte & Touche as auditors for
the Company's fiscal year ending June 30, 1998, and (vi) 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. All share data in this Proxy Statement, unless otherwise noted,
gives effect to the proposed Stock Split.
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 November 13, 1997.
Stockholders of record at the close of business on October 10, 1997 are
entitled to notice of and will be entitled to vote at the meeting. On October
28, 1997 there were outstanding 26,277,274 shares of the Common Stock of the
Company without giving effect to the proposed Stock Split. 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
<PAGE>
elected by a plurality of the votes cast. Under the BCL an amendment to the
Company's Charter must be approved by a majority of the shares issued and
outstanding and entitled to vote at the meeting. 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.
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 October 28, 1997.
<TABLE>
<CAPTION>
AMOUNT BENEFICIALLY
OWNED IF THE SHARE
AMOUNT PERCENT ISSUE PROPOSALS PERCENT
NAME AND ADDRESS OF BENEFICIALLY OF CONTAINED HEREIN OF
BENEFICIAL OWNER OWNED* CLASS ARE APPROVED* CLASS
- ------------------- -------------- --------- ------------------- ----------
<S> <C> <C> <C> <C>
Josephine Chaus (1). 1,696,721(2) 57.0% 18,848,415(3)(4) 69.5%
1410 Broadway 20,595,575(3)(5) 94.2%
New York, NY 10018
</TABLE>
- ------------
* On a post Stock Split basis.
(1) All shares listed are owned of record and beneficially, with sole
investment and voting power, except that, with respect to 11,800 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 347,851 shares of Common Stock purchasable upon exercise of
outstanding warrants. Because of her stock ownership and positions with
the Company, Josephine Chaus may be deemed a control person of the
Company.
(3) Does not include 347,851 shares of Common Stock purchasable upon
exercise of outstanding warrants because Ms. Chaus has agreed to
surrender such warrants as part of the Restructuring (as defined
below). See "Recent Development -- The Restructuring" and "Certain
Transactions -- Josephine Chaus" below. Includes 10,510,910 shares of
Common Stock issuable to Ms. Chaus upon conversion of approximately
$40.5 million of the Company's indebtedness to Ms. Chaus consisting of
$28.0 million of existing subordinated indebtedness (including accrued
interest through January 15, 1998) and $12.5 million of indebtedness
which will be owed to her prior to the consummation of the
Restructuring. See "Recent Development -- The Restructuring" and
"Approval of Sale of Common Stock to Josephine Chaus."
(4) Assuming the subscription by Josephine Chaus for all rights issued to
her in the Rights Offering pursuant to her Purchase Commitment (as
defined below). See "Recent Development -- The Restructuring."
(5) Assuming the subscription by Ms. Chaus for an additional $2.5 million
of rights in the Rights Offering pursuant to her Standby Commitment (as
defined below). See "Recent Development -- The Restructuring."
2
<PAGE>
The following table presents information as of October 28, 1997 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.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY OWNED
IF THE SHARE
AMOUNT PROPOSALS
BENEFICIALLY PERCENT CONTAINED HEREIN PERCENT
NAME OWNED (1)** OF CLASS ARE APPROVED** OF CLASS
- -------------------------------- -------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C>
DIRECTORS:
Philip G. Barach (2)............. 1,500 * 1,500 *
Andrew Grossman.................. 100,000(3) 3.8% --(8) *
S. Lee Kling (4)................. 3,800 * 3,800 *
Harvey M. Krueger (5)............ 6,000 * 6,000 *
NAMED EXECUTIVE
OFFICERS:
Barton Heminover (6)............. 750 * 750 *
All directors and executive
officers as a group (6 persons) 1,808,771(7) 58.6% 18,860,465(8),(9), 69.4%
(10)
20,607,625(8),(9), 93.9%
(11)
</TABLE>
- ------------
* Less than one percent.
** On a post Stock Split basis.
(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 1,000 shares of Common Stock under the
Bernard Chaus, Inc. 1986 Stock Option Plan, as amended (the "1986
Stock Option Plan").
(3) Includes options to purchase 100,000 shares of Common Stock under the
Grossman Option Plan (as defined herein)
(4) Includes options to purchase 2,000 shares of Common Stock under the
1986 Stock Option Plan.
(5) Includes options to purchase 5,000 shares of Common Stock under the
1986 Stock Option Plan.
(6) Consists of options to purchase 750 shares of Common Stock under the
1986 Stock Option Plan.
(7) Includes beneficial ownership of Josephine Chaus; also includes
options to purchase an aggregate of 112,050 shares of Common Stock
under the employee and director stock option plans, consisting of
12,050 shares of Common Stock under the 1986 Stock Option Plan and
options to purchase 100,000 shares of Common Stock under the Grossman
Option Plan.
(8) Does not include options to purchase 100,000 shares of Common Stock
under the Grossman Option Plan, because Mr. Grossman has agreed in
principle to relinquish all of his rights to his existing options, to
the extent that they have not been exercised prior to the
consummation of the Restructuring. The Company and Mr. Grossman are
currently negotiating amendments to his employment agreement. It is
anticipated that such amendments will, among other things, include
the grant of new stock options in substitution for his existing stock
options. See "Recent Development -- The Restructuring" and "Executive
Compensation -- Employment Arrangements" below.
(9) Does not include 347,851 shares of Common Stock purchasable upon
exercise of outstanding warrants, because Ms. Chaus has agreed to
surrender such warrants as part of the Restructuring. See "Recent
Development -- The Restructuring" and "Certain Transactions --
Josephine Chaus" below. Includes 10,510,910 shares of Common Stock
issuable to Ms. Chaus upon conversion of approximately $40.5 million
of the Company's indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including accrued
interest through January 15, 1998) and $12.5 million of indebtedness
which will be owed to her prior to the consummation of the
Restructuring. See "Approval of Sale of Common Stock to Josephine
Chaus."
(10) Includes beneficial ownership of Josephine Chaus assuming the
subscription by Josephine Chaus for $10 million of 6,988,635 shares
of Common Stock upon exercise of all rights issued to her in the
Rights Offering pursuant to her Purchase Commitment (as defined
below); includes options to purchase an aggregate of 12,050 shares of
Common Stock under the 1986 Stock Option Plan.
(11) Includes beneficial ownership of Josephine Chaus assuming the
subscription by Ms. Chaus for an additional $2.5 million of an
additional 1,747,160 shares of Common Stock upon exercise of rights
in the Rights Offering pursuant to her Standby Commitment (as defined
below); includes options to purchase an aggregate of 12,050 shares of
Common Stock under the 1986 Stock Option Plan; and does not include
options to purchase 100,000 shares of Common Stock under the Grossman
Option Plan because such options shall be terminated as part of the
Restructuring. See "Recent Development -- The Restructuring" and
"Executive Compensation -- Employment Arrangements."
3
<PAGE>
RECENT DEVELOPMENT -- THE RESTRUCTURING
In June 1997, the Company announced a proposed restructuring program to be
implemented by the Company. In September 1997, the disinterested members of
the Board of Directors of the Company unanimously approved the restructuring
plan (the "Restructuring") pursuant to which:
(i) the Company will seek to raise up to $20.0 million, but not less than
$12.5 million, of equity through the Rights Offering;
(ii) approximately $40.5 million of the Company's indebtedness to Ms.
Chaus, consisting of $28.0 million of existing subordinated indebtedness
(including accrued interest through January 15, 1998) and $12.5 million of
indebtedness which will be owed to Josephine Chaus, will be converted into
Common Stock of the Company (the "Conversion Commitment");
(iii) a new revolving credit facility (the "New Revolving Facility"), and
a new term loan facility (the "New Term Loan", and together with the New
Revolving Facility, the "new Financing Agreement") was entered into with BNY
Financial Corporation ("BNYF"), the Company's current working capital lender,
on October 10, 1997; and
(iv) the Company will implement the proposed Stock Split.
Consummation of the Restructuring is subject to (i) the approval by the
Company's stockholders of (a) the Stock Split, (b) the issuance of 10,510,910
shares of Common Stock of the Company to J. Chaus in connection with the
Conversion Commitment, (c) the sale by the Company of 6,988,635 shares to J.
Chaus in connection with the Purchase Commitment, and (d) the sale by the
Company of up to 1,747,160 shares to J. Chaus in connection with the Standby
Commitment, and (ii) the absence of any litigation or governmental action
challenging or seeking to enjoin the Rights Offering which in the sole
judgment of the Company makes it inadvisable to proceed with the Rights
Offering. Accordingly, until such conditions are satisfied, there can be no
assurance that the Restructuring will be consummated. It is presently
contemplated that the Restructuring will be consummated by January 15, 1998.
Ms. Chaus, Chairwoman of the Board, a principal stockholder of the Company,
and the owner of a majority of the Company's Common Stock, has advised the
Company that she intends to vote her shares in favor of all matters relating
to the Restructuring, thereby assuring stockholder approval of such matters.
THE RIGHTS OFFERING
The Company will offer each of Ms. Chaus, and the Company's other
stockholders, the right (collectively, the "Rights") to subscribe for up to
$10.0 million of newly issued Common Stock, for a total of up to $20.0 million
of additional equity. The proceeds of the Rights Offering will be used to repay
amounts due under the New Financing Agreement. Subject to stockholder
approval, Ms. Chaus has agreed to exercise her full $10.0 million subscription
(the "Purchase Commitment") and to subscribe for up to an additional $2.5
million of Common Stock (the "Standby Commitment"), if and to the extent that
the Company's other stockholders do not purchase at least that amount of
stock in the Rights Offering. As described below, it is anticipated that Ms.
Chaus will satisfy her $10.0 million Purchase Commitment through the
contribution of funds currently used as credit support for the Company's Bank
Debt (as defined below). The Rights will be distributed, at no cost to the
stockholders, following the effectiveness of a registration statement which
was initially filed with the Securities and Exchange Commission on October
30, 1997. The Rights, which will be transferable (other than those
distributed to Ms. Chaus), will entitle the holders to purchase Common Stock
for a specified period of days (to be determined) after the Rights Offering
commences.
The information contained herein does not constitute an offering, and no
securities, including, without limitation, the Rights, are being offered
hereby. The Rights Offering will only be made by a prospectus filed with the
Securities and Exchange Commission.
Currently, Ms. Chaus beneficially owns approximately 57% of the Common
Stock of the Company.
4
<PAGE>
Upon the conversion of indebtedness owed by the Company to Ms. Chaus, and
prior to the Rights Offering, which is described below, she will beneficially
own approximately 90.3% of the Common Stock of the Company. Depending on the
number of Rights exercised by stockholders of the Company, other than Ms.
Chaus, following completion of the Rights Offering, Ms. Chaus will
beneficially own between approximately 69.5% and 94.2% of the Common Stock of
the Company.
EXCHANGE OF THE COMPANY'S INDEBTEDNESS OWED TO MS. CHAUS FOR EQUITY
SECURITIES
Pursuant to the terms of the Restructuring, subject to stockholder
approval, approximately $40.5 million of the Company's indebtedness to Ms.
Chaus, consisting of $28.0 million of existing subordinated indebtedness
(including accrued interest through January 15, 1998) and $12.5 million of
indebtedness which will be owed to Ms. Chaus after the Subrogated Loan (as
defined below) is extended by her, will be converted into 10,510,910 shares
of Common Stock of the Company on a post Stock Split basis.
RESTRUCTURING OF BANK DEBT
The senior secured bank debt owing to BNYF by the Company, as of September
30, 1997 (the "Bank Debt") consisted of approximately (i) $57.5 million in
respect of direct borrowings, and (ii) $17.5 million in respect of letters of
credit.
In the Restructuring, the $57.5 million in respect of direct borrowings by
the Company has been and will be refinanced as follows: (i) $15.0 million has
been refinanced by BNYF pursuant to the terms of the New Term Loan; (ii)
approximately $20.0 million has been refinanced under the terms of the New
Revolving Facility; (iii) $12.5 million in respect of borrowings previously
guaranteed by Ms. Chaus will be satisfied in full out of proceeds from a loan
made by BNYF to Ms. Chaus (the "BNYF--J. Chaus Loan"), and Ms. Chaus shall
become subrogated to the rights of BNYF with respect to such loan amount (the
"Subrogated Loan") until the Subrogated Loan is exchanged for equity, as set
forth above; and (iv) $10.0 million will be satisfied in full out of proceeds
received from the Rights Offering pursuant to the Purchase Commitment.
Under the terms of the Restructuring, approximately $17.5 million of Bank
Debt owing to BNYF in respect of letters of credit has been refinanced by
BNYF pursuant to the terms of the New Financing Agreement.
As an inducement to BNYF to enter into the New Financing Agreement, Ms.
Chaus has agreed with BNYF that she will purchase, at the option of BNYF, a
$2.5 million junior participation in the New Financing Agreement between the
Company and BNYF, in the event that (i) an event of default occurs under the
New Financing Agreement prior to May 15, 1998, or (ii) the Rights Offering is
not consummated prior to May 15, 1998 (the "Bank Debt Put").
WARRANTS AND OPTIONS
In connection with the Restructuring, (i) Andrew Grossman, the Company's
Chief Executive Officer, has agreed in principle to relinquish all of his
rights to his existing options, to the extent that they have not been
exercised prior to the consummation of the Restructuring, and (ii) Ms. Chaus
has agreed in principle to relinquish all of her rights to her existing
warrants, to the extent that they have not been exercised prior to the
consummation of the Restructuring.
The Company currently intends that employees holding options will be
offered the right to exchange such options for new options.
OTHER CREDITORS OF THE COMPANY; OTHER MATTERS IN CONNECTION WITH
RESTRUCTURING
Under the proposed Restructuring, the Company's existing trade claims,
which are primarily held by the Company's customers and vendors, would be
unaffected.
The Company and Mr. Grossman are currently negotiating amendments to his
employment agreement and it is anticipated that a restated and amended
employment agreement will be executed in
5
<PAGE>
the near term. It is expected that such amendments, among other things, will
include a cash bonus based upon the Company's performance, the grant of new
stock options in substitution for his existing stock options, and the waiver
by Mr. Grossman of his entitlement to five percent (5%) of the Company's
annual net profits, as currently provided in his employment agreement.
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:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE
- ----------------- ----- --------------
<S> <C> <C>
Josephine Chaus .. 46 1977
Andrew Grossman .. 38 1994
S. Lee Kling...... 68 1989
Harvey M.
Krueger.......... 68 1992
Philip G. Barach . 67 1993
</TABLE>
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 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
6
<PAGE>
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 works in partnership with First Chicago
Equity Capital Corp. 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; Galoob
Toys, Inc., a toy manufacturer; E-Systems, Inc., an electronic equipment
manufacturer; Falcon Products, Co., a furniture and fixtures manufacturer;
Top Air Manufacturing Inc., a manufacturer of agricultural equipment;
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, R.G. Barry, a
manufacturer of thermal comfort products, and Syms Corp., an off-price
clothing retail company, all 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 1997. Messrs. Barach,
Kling and Krueger are members of the Compensation Committee and served as
members of the Compensation Committee during fiscal 1997. 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 four occasions during fiscal 1997.
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 1997.
During fiscal 1997, the Board of Directors of the Company met, or acted by
unanimous written consent, on six 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 1997.
7
<PAGE>
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 1997, 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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or accrued by
the Company for fiscal 1997 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) the other most highly compensated executive
officer 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 1997 $1,000,000 -- -- -- $ 3,014(3)
Member, Office of the Chairman 1996 $1,000,000 -- -- 150,000(2) $11,097(3)
1995 $ 790,178 $6,200,000(1) -- 150,000(2) $13,463(3)
Josephine Chaus
Chief Executive Officer (until 1997 $ 390,000 -- -- -- --
September 1994), Chairwoman of 1996 $ 390,000 -- -- -- --
the Board and Member, Office of 1995 $ 390,000 -- -- -- --
the Chairman
Michael Winter (4)
President--Nautica 1997 $ 253,846 -- -- -- $
1996 $ 248,077 -- -- 50,000 $35,375(6)
1995 -- (5) -- -- -- --
Wayne Miller (7)
Executive Vice President--Finance 1997 $ 309,135 -- -- -- $14,837(8)
and Administration, Chief
Financial......................... 1996 $ 250,000 -- -- -- $19,436(9)
Officer and Secretary 1995 $ 250,000 $ 25,000 -- 20,000 10,391(3)
Barton Heminover
Vice President--Corporate 1997 $ 129,808 -- -- 3,000 --
Controller and Assistant Secretary 1996 -- (10) -- -- -- --
1995 -- (10) -- -- -- --
</TABLE>
- ------------
* On a post Stock Split basis.
(1) 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 his employment
agreement) or if he leaves the Company without Good Reason (as
defined in his employment agreement). See "-- Employment Arrangements"
below.
8
<PAGE>
(2) All of such options will terminate as part of the Company's
Restructuring. See "Recent Development -- The Restructuring" and
"-- Employment Arrangements" below.
(3) Consists of health insurance premiums paid by the Company.
(4) Mr. Winter's employment with the Company terminated in December 1996.
From the date of the termination of his employment, through September
1997, Mr. Winter served as a consultant to the Company. For such
consulting services the Company paid Mr. Winter $374,994, in the
aggregate.
(5) Mr. Winter's employment with the Company commenced in January 1996.
(6) Consists of payments made by the Company toward the payment of
relocation expenses.
(7) Mr. Miller's employment with the Company terminated in September
1997.
(8) Includes payments made by the Company of (a) $4,750 in matching
contributions under the Company's Employee Savings Plan, and (b)
$10,087 in life insurance premiums.
(9) Includes payments made by the Company of (a) $9,247 in matching
contributions under the Company's Employee Savings Plan, and (b)
$10,189 in life insurance premiums.
(10) Mr. Heminover's employment with the Company commenced in July 1996.
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, 1997. 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
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN OR BASE EXPIRATION
NAME (#)1* FISCAL YEAR PRICE (3) DATE 5% 10%
- -------------------- -------------- --------------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman...... -- -- -- -- -- --
Josephine Chaus...... -- -- -- -- -- --
Michael Winter....... -- -- -- -- -- --
Wayne Miller......... -- -- -- -- -- --
Barton Heminover .... 3,000 31.6% $31.25 9/11/06 $58,459 $189,413
</TABLE>
- ------------
* On a post Stock Split basis.
(1) All options were granted under the 1986 Stock Option Plan.
(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.
(3) The actual exercise price was $3.125. It has been adjusted to reflect
the post Stock Split price.
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 1997 by the Named Executive Officers and the
value of unexercised options at fiscal year end.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES SHARES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF VALUE OF
SECURITIES SECURITIES UNEXERCISED IN- UNEXERCISED
UNDERLYING UNDERLYING THE-MONEY IN-THE-MONEY
UNEXERCISED UNEXERCISED OPTIONS AT OPTIONS AT
SHARES OPTIONS AT OPTIONS AT JUNE 30, JUNE 30,
ACQUIRED VALUE JUNE 30, 1997 JUNE 30, 1997 1997(1) 1997(1)
NAME ON EXERCISE REALIZED EXERCISABLE* UNEXERCISABLE* EXERCISABLE UNEXERCISABLE
- ------------------- ------------- ---------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman (2). -- -- 70,000 230,000 0 0
Josephine Chaus..... -- -- -- -- -- --
Michael Winter...... -- -- 12,500 37,500 0 0
Wayne Miller........ -- -- 17,500 12,500 0 0
Barton Heminover ... -- -- -- 3,000 0 0
</TABLE>
- ------------
* On a post Stock Split basis.
(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.
(2) All of Mr. Grossman's options shall be terminated as part of the
Company's Restructuring. See "Recent Development -- The Restructuring"
and "-- Employment Arrangements" below.
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 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 150,000 shares (adjusted for the Stock
Split) 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 150,000 shares (adjusted for
the Stock Split) of Common Stock. Each of the Initial Options and the
Additional Options were granted pursuant to his employment agreement and a
stock option agreement (the "Grossman Option Plan").
Under the employment agreement, Mr. Grossman receives an annual salary of
$1.0 million and is entitled to an annual bonus (the "Bonus Plan") consisting
of 5% of the Company's Annual Net Profits (such amount, the "Net Profit
Participation"). Mr. Grossman is the sole participant in the Bonus Plan.
"Annual Net Profits" are defined in the agreement as net income of the
Company for any fiscal year as reflected on the audited financial statements
of the Company for such fiscal year prepared in accordance with generally
accepted accounting principles applied consistent with past practices and
certified by the Company's independent public accountants. No bonus was
payable for fiscal 1997. 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 and bonuses received by Mr. Grossman from
other employers. If Mr. Grossman terminates the
10
<PAGE>
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 $22.50 per
share, the closing price (adjusted for the Stock Split) 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, 1994. 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 $56.25, the closing price (adjusted for the Stock
Split) 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
300,000 (adjusted for the Stock Split).
The Company and Mr. Grossman are currently negotiating amendments to his
employment agreement and it is anticipated that a restated and amended
employment agreement will be executed in the near term. It is expected that
such amendments, among other things, will include a cash bonus based upon the
Company's performance, the grant of new stock options in substitution for his
existing stock options, and the waiver by Mr. Grossman of his entitlement to
five percent (5%) of the Company's annual net profits, as currently provided
in his employment agreement.
Josephine Chaus. The Company's employment agreement with Josephine Chaus,
Chairwoman of the Board, commenced on July 1, 1992 and expired on June 30,
1994. Since such date, she has been employed on the same terms, although
without a written agreement. The annual base salary under such agreement is
$390,000 or such larger amount as the Compensation Committee of the Board of
Directors shall from time to time determine. As of the date hereof, no such
larger amounts have been authorized or paid.
Michael Winter. The Company had a three-year employment agreement, dated
December 14, 1995 and effective January 1, 1996, with Michael Winter, former
President of the Company's Nautica division. During the term of the
agreement, Mr. Winter's salary was $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
50,000 shares of the Company's Common Stock at an exercise price of $36.25
per share, representing the closing price (adjusted for the Stock Split) of
the underlying shares of Common Stock on the grant date. The agreement
provided that, 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
11
<PAGE>
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.
Pursuant to a Consulting Agreement dated the 31st day of December, 1996,
between Mr. Winter and the Company (the "Consulting Agreement"), Mr. Winter
resigned as President of the Company's Nautica division. Pursuant to the
Consulting Agreement, Mr. Winter served as a consultant to the Company from
January 1, 1997 through September 30, 1997, and received an aggregate of
$374,994 over the nine-month period, net of certain offsets.
Wayne Miller. The Company had a two-year employment agreement with Wayne
Miller, Executive Vice President--Finance and Administration, Chief Financial
Officer and Secretary, dated as of June 3, 1994, which was to be
automatically extended for additional one year periods unless either party
thereto specifies otherwise. During the term of the agreement, Mr. Miller's
salary was $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 5,000, 5,000 and
20,000 shares of the Company's Common Stock at their respective exercise
prices of $20.00, $18.75 and $47.50, respectively per share, representing the
closing prices of the underlying shares of Common Stock on their respective
grant dates (adjusted for the Stock Split). The agreement provided that if
the agreement was 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 was 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 September 1997, Mr. Miller resigned as Executive Vice
President--Finance and Administration, Chief Financial Officer and Secretary.
Pending the appointment of a successor to Mr. Miller, Mr. Heminover, together
with the Company's financial advisors, will be responsible for all of Mr.
Miller's duties.
1986 STOCK OPTION PLAN
The Company has in effect the 1986 Stock Option Plan, as amended and
restated as of January 1, 1987, as further amended by Amendment No. 1
thereto, effective July 1, 1989, Amendment No. 2 thereto, effective July 1,
1990, Amendment No. 3 thereto, effective July 1, 1991, Amendment No.4
thereto, effective as of July 1, 1993 and Amendment No. 5 thereto, effective
as of November 15, 1995.
As of June 30, 1997, options to purchase an aggregate of 1,194,758 shares
had been granted and were outstanding under the 1986 Stock Option Plan at
exercise prices ranging between $18.75 and $56.25 per share (on a post Stock
Split basis). All options granted during the past three fiscal years were
granted at an exercise price equal to the market price of the Company's
Common Stock on the date of the grant of such options. On October 28, 1997,
the closing sales price of the Company's Common Stock on the New York Stock
Exchange was $0.625. For a description of options owned by the Named
Executive Officers as of June 30, 1997 and options received by such Named
Executive Officers during the fiscal year ended June 30, 1997, see "Executive
Compensation" above. As of June 30, 1997, the current executive officers as a
group had received options to purchase an aggregate of 303,000 shares (on a
post Stock Split basis) pursuant to the 1986 Stock Option Plan, and the
current non-employee directors as a group had received options to purchase
8,000 shares (on a post Stock Split basis) pursuant to the 1986 Stock Option
Plan.
The Board of Directors has approved a new stock option plan, the 1998 Stock
Option Plan, subject to stockholder approval. The 1998 Stock Option Plan is
described below under the caption "Adoption of 1998 Stock Option Plan." In
connection with the Restructuring, the Company intends to offer employees
holding options the right to exchange such options for options to be issued
under the 1998 Stock Option Plan.
12
<PAGE>
DIRECTORS' COMPENSATION
During fiscal 1997, 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
non-employee directors' Formula Plan contained in the 1986 Stock Option Plan,
non-employee directors are granted a one time option to acquire 1,000 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 intends to
offer directors the right to exchange their options for new options under the
1998 Stock Option Plan. See "Adoption of 1998 Stock Option Plan." In
addition, the formula plan will be replaced with a new option program under
the 1998 Stock Option Plan which has not yet been determined. 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 1997. 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 the first quarter of fiscal 1996 for which it received fees
aggregating $25,000. In addition, Lehman Brothers served as managing
underwriter to the Company in connection with an underwritten public offering
of 5,750,000 shares (not adjusted for the Stock Split) of Common Stock
(including 750,000 shares (not adjusted for the Stock Split) 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 1997 were approximately
$335,000.
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, none of whom
are either officers or 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:
(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 1986
Stock Option Plan and, if adopted, the 1998 Stock Option Plan. Unless
otherwise provided by the Committee at the time an option is granted, options
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 align the economic interests of the
Company's officers and other key employees with those of the Company's
stockholders.
13
<PAGE>
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 1997. 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 determine to establish earnings targets for future fiscal
years.
1986 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 1986
Stock Option Plan and the Board of Directors has adopted the 1998 Stock
Option Plan, subject to approval of the Company's stockholders, 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 vest ratably over a four-year period.
Levels of participation in the 1986 stock option program generally vary on the
basis of the recipient's position in the Company under the 1998 Stock Option
Plan. See "Adoption of 1998 Stock Option Plan." In connection with the
Restructuring, the Company intends that employees holding options will be
offered the right to exchange such options for new options.
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 for bonus compensation or stock incentives. As a
result, Josephine Chaus did not participate in the Company's bonus program or
the 1986 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 four 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 $1.0 million
and an annual bonus of 5% of the Annual Net Profits of the Company. No bonus
was payable for fiscal 1997. 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. The Company and Mr. Grossman are currently
negotiating amendments to his employment agreement and it is anticipated that
a restated and amended employment agreement will be executed in the near
term. It is expected that such amendments, among other things, will include a
cash bonus based upon the Company's performance, the grant of new stock
options in substitution for his existing stock options, and the waiver by Mr.
Grossman of his entitlement to five percent (5%) of the Company's annual net
profits, as currently provided in his employment agreement.
COMPENSATION COMMITTEE
Philip Barach
S. Lee Kling
Harvey M. Krueger
14
<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, 1997 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.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BERNARD CHAUS, INC., THE S&P 500 INDEX
AND THE S&P TEXTILE APPAREL MANUFACTURER INDEX
<TABLE>
<CAPTION>
6/92 6/93 6/94 6/95 6/96 6/97
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Bernard Chaus, Inc. $100 $ 52 $ 28 $ 74 $ 48 $ 16
S & P 500 $100 $114 $115 $145 $183 $247
S & P 500 TEXTILES
(APPAREL) $100 $ 96 $ 84 $ 88 $110 $121
</TABLE>
- ------------
* $100 INVESTED ON 6/30/92 IN STOCK OR INDEX--
Including Reinvestment of Dividends.
Fiscal Year Ending June 30.
15
<PAGE>
AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT OF THE COMMON STOCK
GENERAL
The Board of Directors of the Company has unanimously approved (subject to
stockholder approval), an amendment to the Company's Charter, substantially
in the form of Exhibit "A" attached to this Proxy Statement (the "Stock Split
Charter Amendment"), and incorporated herein by this reference effecting the
Stock Split with respect to all issued shares of Common Stock; however such
text is subject to change as may be required by the Secretary of State of the
State of New York (the "Secretary of State"). If the Stock Split Charter
Amendment is approved by the actions of the Company's stockholders, as a
result of the Stock Split, every ten (10) shares of existing Common Stock
outstanding ("Old Common Stock") as of the time of filing of the Stock Split
Charter Amendment with the New York Secretary of State (the "Effective Date")
would be automatically converted into one (1) new share of Common Stock ("New
Common Stock").
The Charter provides for 50,000,000 authorized shares of Common Stock, no
par value per share, 26,277,274 are issued and outstanding as of October 28,
1997.
PURPOSES AND REASONS FOR THE STOCK SPLIT
The Board of Directors believes that the Stock Split is beneficial to the
Company and the stockholders. The principal reasons for the Stock Split are
to realign the Company's capitalization in a manner appropriate for the
Restructuring as more fully described above.
The Common Stock is currently quoted on the New York Stock Exchange (the
"NYSE"). The Company believes the Stock Split makes it more likely that the
Company will be able to maintain its listing on the NYSE. The closing bid
price per share of the Common Stock on October 28, 1997 was approximately
$.625. Although the NYSE has not, to date, taken any action to delist the
shares of Common Stock, there can be no assurance that it will not undertake
to do so in the future.
If the Common Stock were to be disqualified from listing on the NYSE it
would likely have an adverse effect on the trading in, and liquidity of, the
Common Stock.
The Board of Directors also believes that the current low per share price
of the Common Stock as reported on the NYSE has had a negative effect on the
price and marketability of existing shares, the amount and percentage
(relative to share price) of transaction costs paid by individual
stockholders and the potential ability of the Company to raise capital by
issuing additional shares or to undertake merger or acquisition transactions.
Reasons for these effects include internal policies and practices of certain
institutional investors which prevent or tend to discourage the purchase of
low-priced stocks, the fact that many brokerage houses do not permit
low-priced stocks to be used as collateral for margin accounts or to be
purchased on margin and a variety of brokerage house policies and practices
which tend to discourage individual brokers within those firms from dealing
in low-priced stocks.
In addition, since broker's commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Common Stock can result in
individual stockholders paying transaction costs which are a higher
percentage of the share price than would be the case if the share price were
substantially higher. The Board of Directors believes that the Stock Split,
and the expected resulting increased price level, may enhance investor
interest in the Common Stock and may help the investment community realize
the underlying value of the Common Stock. There is, however, no assurance
that any of the foregoing effects will occur.
The Board of Directors recognizes that reverse stock splits are sometimes
believed to result in a decrease in the aggregate market value of an issuer's
common stock. The Board of Directors believes however, that this possible
negative impact is outweighed by what it perceives to be a greater negative
impact of not effecting the Stock Split.
WHILE THE BOARD OF DIRECTORS BELIEVES THAT THE SHARES OF COMMON STOCK WILL
TRADE AT HIGHER PRICES THAN THOSE WHICH HAVE PREVAILED IN RECENT MONTHS,
THERE IS NO ASSURANCE THAT SUCH INCREASE IN THE TRADING PRICE WILL OCCUR OR,
IF IT DOES OCCUR, THAT IT WILL EQUAL OR EXCEED THE DIRECT ARITHMETICAL RESULT
OF THE STOCK
16
<PAGE>
SPLIT SINCE THERE ARE NUMEROUS FACTORS AND CONTINGENCIES WHICH COULD AFFECT
SUCH PRICE. THERE IS NO ASSURANCE THAT THE COMPANY WILL CONTINUE TO MEET THE
LISTING REQUIREMENTS FOR THE NYSE FOLLOWING THE STOCK SPLIT.
CERTAIN EFFECTS OF THE STOCK SPLIT
If effected, the Stock Split would reduce the number of outstanding shares
of Old Common Stock from 26,277,274 as of October 28, 1997 to approximately
2,627,727 shares of New Common Stock as of the Effective Date. (The foregoing
assumes no issuances of Common Stock between the Record Date and the
Effective Date.) The Stock Split itself would have no effect on the number of
authorized shares of Common Stock or the par value of the stock.
All outstanding options, warrants, rights and convertible securities would
be appropriately adjusted, as required by their terms, for the Stock Split
automatically on the Effective Date. The Stock Split would not affect any
stockholder's proportionate equity interest in the Company except for those
stockholders who would receive an additional share of Common Stock in lieu of
fractional shares. None of the rights currently accruing to holders of the
Company's Common Stock, or options or warrants to purchase Common Stock, will
be affected by the Stock Split.
The result of the Stock Split effected due to the Stock Split Charter
Amendment would be that stockholders of the Company who own ten (10) or more
shares of Old Common Stock would receive one (1) share of New Common Stock
for each ten (10) shares of Old Common Stock and one additional share in lieu
of the issuance of fractional shares of New Common Stock. Stockholders of the
Company who own fewer than ten (10) shares of Old Common Stock on the date
the Stock Split is effected, will be entitled to receive one (1) share of New
Common Stock in lieu of receiving fractional shares resulting from the Stock
Split.
Although the Board of Directors believes as of the date of this Proxy
Statement that the Stock Split is advisable, the Stock Split may be abandoned
by the Board of Directors at any time before, during or after the Annual
Meeting and prior to the Effective Date.
The Board of Directors may make any and all changes to the Stock Split
Charter Amendment that it deems necessary in order to file the Stock Split
Charter Amendment with the Secretary of State of the State of New York and
give effect to the Stock Split.
MECHANICS OF STOCK SPLIT
If the Stock Split is approved by the requisite vote of the Company's
stockholders, the Company will file the Stock Split Charter Amendment as soon
as practicable thereafter, and the Stock Split will be effective on the date
of such filing, unless abandoned by the Board of Directors as described
above. Upon filing of the Stock Split Charter Amendment, every ten (10)
issued and outstanding shares of Old Common Stock will, effective upon such
filing, be automatically and without any action on the part of the
stockholders converted into and reconstituted as one (1) share of New Common
Stock.
As soon as practical after the Effective Date, the Company will forward,
or cause to be forwarded, a letter of transmittal to each holder of record of
shares of Old Common Stock outstanding as of the Effective Date. The letter
of transmittal will set forth instructions for the surrender of certificates
representing shares of Old Common Stock to the Company's transfer agent in
exchange for certificates representing the number of whole shares of New
Common Stock into which the shares of Old Common Stock have been converted as
a result of the Stock Split. CERTIFICATES SHOULD NOT BE SENT TO THE COMPANY
OR THE TRANSFER AGENT PRIOR TO RECEIPT OF SUCH LETTER OF TRANSMITTAL FROM THE
COMPANY.
Until a stockholder forwards a completed letter of transmittal together
with certificates representing his, her or its shares of Old Common Stock to
the transfer agent and receives a certificate representing shares of New
Common Stock, such stockholder's Old Common Stock shall be deemed equal to
the number of whole shares of New Common Stock to which each stockholder is
entitled as a result of the Stock Split.
No scrip or fractional certificates will be issued in the Stock Split.
Instead, the Company will issue one additional share of New Common Stock to
each affected stockholder at no cost to the stockholder. The
17
<PAGE>
ownership of a fractional interest will not give the holder thereof any
voting, dividend or other rights except the right to receive an additional
share therefor as described herein. The number of shares of New Common Stock
to be issued in connection with settling such fractional interests is not
expected to be material.
For the purpose of determining ownership of Common Stock at the Effective
Date, shares will be considered to be held by the person in whose name those
shares are registered on the stock records of the Company, regardless of the
beneficial ownership of those shares. For example, if certain shares are
registered in the name of a husband and his wife, those two amounts of shares
will be treated separately and as held by two different stockholders for the
purposes of determining ownership of Common Stock at the Effective Date.
No service charges will be payable by stockholders in connection with the
exchange of certificates, all expenses of which will be borne by the Company.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK SPLIT
The following is a summary of the material anticipated federal income tax
consequences of the Stock Split to stockholders of the Company. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Department Regulations (the "Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of
the date hereof, all of which are subject to change. This summary does not
take into account possible changes in such laws or interpretations, including
amendments to the Code, applicable statutes, Regulations and proposed
Regulations or changes in judicial or administrative rulings; some of which
may have retroactive effect. No assurance can be given that any such changes
will not adversely affect the tax consequences discussed in this summary.
This summary is provided for general information only and does not purport
to address all aspects of the possible federal income tax consequences of the
Stock Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON OR ENTITY. In
particular, and without limiting the foregoing, this summary does not
consider the federal income tax consequences to stockholders of the Company
in light of their individual investment circumstances or to stockholders
subject to special treatment under the federal income tax laws (for example,
tax exempt entities, life insurance companies, regulated investment companies
and foreign taxpayers). In addition, this summary does not address any
consequences of the Stock Split under any state, local or foreign tax laws.
As a result, it is the responsibility of each stockholder to obtain and rely
on advice from his, her or its personal tax advisor as to: (i) the effect on
his, her or its personal tax situation of the Stock Split, including the
application and effect of state, local and foreign income and other tax laws;
(ii) the effect of possible future legislation and Regulations; and (iii) the
reporting of information required in connection with the Stock Split on his,
her or its own tax returns. It will be the responsibility of each stockholder
to prepare and file all appropriate federal, state and local tax returns.
No ruling from the Internal Revenue Service ("Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
stockholders of the Company as a result of the Stock Split. ACCORDINGLY, EACH
STOCKHOLDER IS ENCOURAGED TO CONSULT HIS, HER OR ITS TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
The Company believes that the Stock Split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Code. As a result, a
stockholder of the Company who exchanges his, her or its Old Common Stock
solely for New Common Stock will recognize no gain or loss for federal income
tax purposes. A stockholder's aggregate tax basis in his, her or its shares
of New Common Stock received from the Company will be the same as his, her or
its aggregate tax basis in the Old Common Stock exchanged therefor. The
holding period of the New Common Stock received by such stockholder will
include the period during which the Old Common Stock surrendered in exchange
therefor was held, provided such Common Stock is held as a capital asset on
the date of the exchange.
18
<PAGE>
STOCKHOLDER APPROVAL
The approval of the Stock Split Charter Amendment to the Company's Charter
effecting the Stock Split requires the affirmative vote of a majority of the
outstanding shares of the Common Stock.
Dissenting stockholders have no appraisal rights under New York law or
under the Company's Charter or Bylaws in connection with the approval of the
Stock Split Charter Amendment to effect the Stock Split.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK
SPLIT. EACH PROXY RECEIVED WILL BE VOTED FOR APPROVAL OF THE STOCK SPLIT
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 STOCK SPLIT 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 THE STOCK SPLIT.
APPROVAL OF SALE OF COMMON STOCK TO JOSEPHINE CHAUS
In connection with the Restructuring, the Company is proposing to sell an
aggregate of up to 19,246,705 shares (on a post Stock Split basis) of Common
Stock to Ms. Chaus (the "Share Issuance Proposal"). Such proposal is being
made in order to facilitate the Restructuring, enhance the Company's balance
sheet and accommodate BNYF. The Share Issuance Proposal concerns the proposed
sale to Ms. Chaus of an aggregate of up to 19,246,705 shares (on a post Stock
Split basis) of Common Stock consisting of: (i) 10,510,910 shares of Common
Stock of the Company, in exchange for approximately $40.5 million of the
Company's indebtedness to Josephine Chaus, consisting of (a) $28.0 million of
existing subordinated indebtedness (including accrued interest through
January 15, 1998) and (b) $12.5 million of indebtedness to be owed to
Josephine Chaus after the Subrogated Loan is extended by her; (ii) in
connection with the exercise by Josephine Chaus, pursuant to her Purchase
Commitment, of her full $10.0 million subscription in the Rights Offering,
6,988,635 shares of Common Stock of the Company; and (iii) up to 1,747,160
shares of Common Stock of the Company, in connection with her Standby
Commitment, each at a purchase price equal to $1.4309 per share (determined
by the Company and management, and unanimously approved by the disinterested
members of the Company's Board of Directors). Proceeds from such sales shall
be used to retire a portion of the existing indebtedness.
The shares of Common Stock to be sold to Josephine Chaus have no
preemptive rights. 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 sales of the shares of Common Stock to
Josephine Chaus discussed herein. The dilutive impact to all stockholders of
the Company, other than Ms. Chaus, will depend on the number of rights
exercised by the stockholders of the Company, other than Josephine Chaus, in
the Rights Offering. If no rights are exercised, other than those exercised
by Josephine Chaus pursuant to her Purchase Commitment and the Standby
Commitment, the percentage of shares owned by the stockholders, other than
Josephine Chaus will be reduced from 43.0% (without giving effect to the
Conversion Commitment) to 5.8% (after giving effect to the Conversion
Commitment). If all rights offered in the Rights Offering are fully
subscribed, then the percentage of shares owned by the stockholders of the
Company, other than Josephine Chaus, will be reduced from 43.0% (without
giving effect to the Conversion Commitment) to 30.5% (after giving effect
to the Conversion Commitment).
The approval of the sale of Common Stock to Josephine Chaus requires the
affirmative vote of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF SHARES OF COMMON STOCK OF THE
COMPANY PURSUANT TO THE SHARE ISSUANCE PROPOSAL.
JOSEPHINE CHAUS POSSESSES THE POWER TO VOTE MORE THAN 50% OF THE
OUTSTANDING SHARES OF COMMON STOCK. CONSEQUENTLY, THE AFFIRMATIVE VOTE OF
JOSEPHINE CHAUS IS SUFFICIENT TO APPROVE THE COMPANY'S SALE TO JOSEPHINE
CHAUS OF THE COMMON STOCK WITHOUT THE VOTE OF ANY OTHER SHAREHOLDERS.
JOSEPHINE CHAUS HAS ADVISED THE COMPANY THAT SHE INTENDS TO VOTE ALL OF HER
SHARES IN FAVOR OF SUCH SALE.
19
<PAGE>
ADOPTION 1998 STOCK OPTION PLAN
General
The Board of Directors of the Company adopted the Bernard Chaus, Inc. 1998
Stock Option Plan on November 7, 1997 effective as of the effective date of
the Rights Offering, subject to approval of the 1998 Stock Option Plan by the
stockholders of the Company. The purpose of the 1998 Stock Option Plan is to
enhance the Company's ability to attract and retain employees, officers,
consultants and directors and to incentivize such persons to devote their
abilities and industry to the success of the Company's business enterprise.
Summary of 1998 Stock Option Plan
The following summary description of the principal terms of the 1998 Stock
Option Plan does not purport to be complete and is qualified in its entirety
by the full text of the 1998 Stock Option Plan, a copy of which has been
attached as an exhibit to this Proxy Statement.
Pursuant to the 1998 Stock Option Plan, employees, officers, consultants
and directors of the Company chosen by the Committee (as defined below) will
be eligible to receive awards of stock options ("Options") in consideration
for services performed for the Company (such individuals, "Optionees");
provided, however, that only employees of the Company or its future
subsidiaries may receive Incentive Stock Options (as defined below) under the
1998 Stock Option Plan. Currently, there are approximately 500 persons
eligible to receive awards under the 1998 Stock Option Plan. Options granted
under the 1998 Stock Option Plan may be either nonqualified stock options
("Nonqualified Options") or "incentive stock options," within the meaning of
Section 422 of the Code ("Incentive Stock Options").
The total number of shares of Common Stock with respect to which Options
may be awarded under the 1998 Stock Option Plan (subject to antidilution and
similar adjustments) shall be ten percent of the issued and outstanding
shares of Common Stock at the close of business on the effective date of the
Rights Offering (which shall be between 2,187,443 and 2,711,591 shares of
Common Stock). Except as described in the following sentence, to date, the
Committee has not determined to grant any Options under the 1998 Stock Option
Plan; however, it may do so in the future. On the 30th day following the
consummation of the Rights Offering, the Company will grant to Lynn Buechner,
President of the Company's Nautica Women's Division, an option to acquire
such number of shares of Common Stock as have an aggregate fair market value
on such date equal to $400,000. Such option will vest in equal parts on each
of the first five anniversaries of the grant date and have an exercise price
per share equal to the average fair market value of the Common Stock during
the 30 day period immediately following consummation of the Restructuring;
provided, however, that the per share exercise price of the option shall not
be less than the fair market value of such Common Stock on the date of grant.
In addition, in connection with the Restructuring, the Company intends to
offer employees holding options granted under the Company's 1986 Stock Option
Plan the right to exchange such options for options to be issued under
the 1998 Stock Option Plan. As of June 30, 1997, options to purchase an
aggregate of 1,194,758 shares have been granted and were outstanding under
the 1986 Stock Option Plan.
The 1998 Stock Option Plan shall be administered by a committee consisting
of at least two members of the Board (the "Committee"). Subject to the
provisions of the 1998 Stock Option Plan, the Committee will determine when
and to whom Options will be granted, the number of shares covered by each
Option and the terms and provisions applicable to each Option; provided,
however, that the Committee may not award Options to any employee with
respect to more than 2,200,000 shares of Common Stock during the term of the
1998 Stock Option Plan. The Committee may construe and interpret the 1998
Stock Option Plan and may at any time establish, amend and revoke such rules
and regulations for the 1998 Stock Option Plan as it deems advisable.
An Option may be granted on such terms and conditions as the Committee may
approve, provided that all Incentive Stock Options must be granted with an
exercise price equal to the fair market value of the underlying shares as of
the date of grant (110% in the case of Incentive Stock Options granted to a
"ten percent shareholder" (as defined in Section 422 of the Code)). The 1998
Stock Option Plan imposes no such minimum exercise price on Nonqualified
Options. Payment of the Option exercise price may be
20
<PAGE>
made by cash and/or the transfer of shares of Common Stock to the Company
upon such terms and conditions as determined by the Committee. Each Option
shall become exercisable in such installments and at such times as determined
by the Committee and set forth in an agreement evidencing the grant of an
Option. Each Option shall be for such term as the Committee shall determine,
provided that no Option shall have a term of greater than ten years (five
years in the case of an Incentive Stock Option granted to a "ten percent
shareholder"). In the event of certain change in control transactions, each
outstanding Option shall become immediately and fully exercisable.
The Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the 1998 Stock Option Plan; provided, however,
that, to the extent necessary under applicable law, no amendment shall be
effective unless approved by stockholders of the Company. In addition, no
such change may adversely affect any Option previously granted, except with
the written consent of the Optionee.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws
relating to Options awarded under the 1998 Stock Option Plan. This summary is
not intended to be exhaustive and, among other things, does not describe
state, local or foreign income and other tax consequences.
An Optionee will not recognize any taxable income upon the grant of a
Nonqualified Option and the Company will not be entitled to a tax deduction
with respect to such grant. Upon exercise of a Nonqualified Option, the
excess of the fair market value of the Common Stock on the exercise date over
the exercise price will be taxable as compensation income to the Optionee,
subject, in the case of an employee, to tax withholding. Subject to the
Optionee including such excess amount in income or the Company satisfying
applicable reporting requirements, the Company should be entitled to a tax
deduction in the amount of such compensation income. The Optionee's tax basis
for the Common Stock received pursuant to the exercise of a Nonqualified
Option will equal the sum of the compensation income recognized and the
exercise price.
In the event of a sale of Common Stock received upon the exercise of a
Nonqualified Option, any appreciation or depreciation after the exercise date
generally will be taxed as capital gain or loss, provided that any gain will
be subject to reduced rates of tax if the Common Stock was held for more than
twelve months and will be subject to further reduced rates if the Common
Stock was held for more than eighteen months.
Generally, an Optionee should not recognize taxable income at the time of
grant or exercise of an Incentive Stock Option and the Company should not be
entitled to a tax deduction with respect to such grant or exercise. The
exercise of an Incentive Stock Option generally will give rise to an item of
tax preference that may result in alternative minimum tax liability for the
Optionee.
A sale or other disposition by an Optionee of shares acquired upon the
exercise of an Incentive Stock Option more than one year after the transfer
of the shares to such Optionee and more than two years after the date of
grant of the Incentive Stock Option should result in any difference between
the net sale proceeds and the exercise price being treated as long-term
capital gain or loss to the Optionee with no deduction being allowed to the
Company, provided that any gain will be subject to a further reduced rate of
tax if the shares acquired upon exercise of the Option are held for more than
eighteen months. Upon a sale or other disposition of shares acquired upon the
exercise of an Incentive Stock Option within one year after the transfer of
the shares to the Optionee or within two years after the date of grant of the
Incentive Stock Option (including the delivery of such shares in payment of
the exercise price of another Incentive Stock Option within such period), any
excess of (a) the lesser of (i) the fair market value of the shares at the
time of exercise of the Option and (ii) the amount realized on such
disqualifying sale or other disposition of the shares over (b) the exercise
price of such shares, should constitute ordinary income to the Optionee and
the Company should be entitled to a deduction in the amount of such income.
The excess, if any, of the amount realized on a disqualifying sale over the
fair market value of the shares at the time of the exercise of the Option
generally will constitute capital gain subject to tax at a rate which is
based on the holding period for the shares, and will not be deductible by the
Company.
21
<PAGE>
Under certain circumstances the accelerated vesting or exercise of Options
in connection with a change of control of the Company might be deemed an
"excess parachute payment" for purposes of the golden parachute tax
provisions of Section 280G of the Code. To the extent it is so considered,
the Optionee may be subject to a 20% excise tax and the Company may be denied
a tax deduction.
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess of
$1 million in any taxable year to the chief executive officer or any of the
four other most highly compensated executive officers who are employed by the
Company on the last day of the taxable year. Compensation attributable to
Options granted under the 1998 Stock Option Plan with an exercise price at
least equal to the fair market value of the underlying Common Stock on the
date of grant should not be subject to the deduction limitation. Compensation
attributable to Options granted under the 1998 Stock Option Plan with an
exercise price below fair market value of the underlying Common Stock on the
date of grant may be subject to the deduction limitations of Section 162(m)
of the Code.
Stockholder Approval
The approval of the 1998 Stock Option Plan requires the affirmative vote
of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1998
STOCK OPTION PLAN. EACH PROXY RECEIVED WILL BE VOTED FOR APPROVAL OF THE 1998
STOCK OPTION PLAN 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 1998 STOCK OPTION PLAN 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 THE 1998 STOCK OPTION
PLAN.
CERTAIN TRANSACTIONS
JOSEPHINE CHAUS
Subordinated Debt. The Company had outstanding at June 30, 1997, $26.4
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. The Subordinated Notes will, as part of the Restructuring, be
exchanged for equity. See "Recent Development -- The Restructuring" and
"Approval of Sale of Common Stock to Josephine Chaus."
Bank Debt Put. As an inducement to BNYF to enter into the New Financing
Agreement with the Company, Ms. Chaus has agreed with BNYF that she will
purchase, at the option of BNYF, a $2.5 million junior participation in the
New Financing Agreement between the Company and BNYF, in the event that (i)
an event of default occurs under the New Financing Agreement prior to May 15,
1998, or (ii) the Rights Offering is not consummated prior to May 15, 1998
(the "Bank Debt Put").
CREDIT SUPPORT
1994 Warrants. 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. To assist the Company, Josephine Chaus
agreed to provide credit support in the form of a letter of credit (the
"Letter
22
<PAGE>
of Credit"). She initially provided the Letter of Credit in the amount of $3.0
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. 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. 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 (prior to the Stock Split) 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. As part of the Restructuring, Josephine
Chaus will relinquish all of her rights to the 1994 Warrants, to the extent
they have not been exercised prior to the consummation of the Restructuring.
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 (prior to the Stock Split) 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. As part of the
Restructuring, Josephine Chaus will relinquish all of her rights to the 1995
Warrants, to the extent they have not been exercised prior to the
consummation of the Restructuring.
1996 Warrants. 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 (prior to the Stock Split) 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. In approving the issuance
of the 1996 Warrants to Josephine Chaus, the Special Committee sought the
advice of Lehman Brothers, which provided its view as to the commercial
reasonableness of the transaction. The issuance of the 1996 Warrants was
approved by the stockholders of the Company at the 1996 Annual Meeting of
Stockholders. As part of the Restructuring, Josephine Chaus will relinquish
all of her rights to the 1996 Warrants, to the extent they have not been
exercised prior to the consummation of the Restructuring.
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.
23
<PAGE>
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.
RESTRUCTURING OF CREDIT SUPPORT PROVIDED BY MS. CHAUS
On October 10, 1997, in substitution for the the personal guaranty of
$12.5 million of Bank Debt (the "$12.5 Million Guarantee") previously
provided by Ms. Chaus, she entered into a deposit letter (the "October
Deposit Letter") pursuant to which she provided $12.5 million in cash
collateral to secure the Bank Debt. The cash collateral was provided from the
proceeds of the BNYF--J. Chaus Loan. Immediately prior to the consummation of
the Rights Offering, and subject to the other conditions to the Restructuring
being satisfied, the $12.5 million in cash collateral will be released and
used to retire $12.5 million of the Bank Debt. As a result of such repayment,
the Company will become indebted to Ms. Chaus for $12.5 million. Pursuant to
the terms of the Subrogated Loan, the Subrogated Loan will, immediately
thereafter, be exchanged by Ms. Chaus for shares of Common Stock of the
Company.
Ms. Chaus previously entered into a deposit letter dated July 23, 1997
(the "July Deposit Letter") pursuant to which she provided $10.0 million in
cash collateral to secure the Bank Debt in substitution for the letter of
credit previously provided by her. The July Deposit Letter was amended on
October 10, 1997 to provide that the $10.0 million in cash collateral shall be
held as collateral to secure indebtedness under the New Financing Agreement.
Immediately prior to the consummation of the Rights Offering, and subject to
the other conditions of the Restructuring being satisfied, such collateral
will be released and used by Ms. Chaus to purchase shares of Common Stock
issuable to her upon the exercise of the Rights, in satisfaction of her
Purchase Commitment in connection with the Rights Offering. The Company will
use the proceeds from the Purchase Commitment to retire $10.0 million of Bank
Debt.
Pursuant to the New Financing Agreement, in the event that the Rights
Offering is not consummated by May 15, 1998, the cash collateral held under
the October Deposit Letter and the July Deposit Letter will be applied by
BNYF to retire $22.5 million of the Bank Debt.
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 the first
quarter of fiscal 1996 for which it received fees of $25,000. 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 1997 were approximately $303,000.
24
<PAGE>
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, 1998. 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.
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 July 15, 1998.
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 Stockholder Services, LLP, Corporate Trust Group as stock
transfer agent to aid in the solicitation of proxies at an anticipated fee of
approximately $11,000 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 1997 Annual Report to Stockholders, including financial
statements for the fiscal year ended June 30, 1997, 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, 1997 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: Barton Heminover
Vice President -- Corporate Controller
and Assistant Secretary
25
<PAGE>
EXHIBIT A
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT A
1-FOR-10 REVERSE SPLIT OF THE COMPANY'S COMMON STOCK.
RESOLVED, that the Board of Directors is authorized to file an amendment
to the Company's Articles of Incorporation following this proposal to effect
a reverse 1-for-10 stock split (the "Stock Split").
AMENDMENT TO ARTICLE OF THE
COMPANY'S ARTICLES OF INCORPORATION
1. The Certificate of Incorporation is amended to effect a reverse Stock
Split of shares of Common stock of the Corporation, par value $ .01 per share
("Common Stock") on the basis of issuing one share of Common STOCK for each
ten (10) issued shares of Common STOCK, by amending Section A of ARTICLE
FOURTH of the Certificate of Incorporation to read as follows:
FOURTH. A. Authorized Shares. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is 51,000,000
shares, consisting of (i) 50,000,000 shares of common stock, $0.01 par
value per share (hereinafter referred to as "Common Stock"), and (ii)
1,000,000 shares of preferred stock, $0.01 par value per share
(hereinafter referred to as "Preferred Stock").
Upon the filing of this amendment with the office of the Secretary of
State of the State of New York, each share of Common Stock of the
Corporation, issued at such time, shall be changed into one-tenth (0.1) of
one fully paid and non-assessable share of Common Stock of the Corporation.
In lieu of the issuance of any fractional shares that would otherwise result
from the reverse stock split effected hereby, the Corporation shall issue to
any stockholder that would otherwise receive fractional shares of Common
Stock one (1) additional share of Common Stock; and further
RESOLVED, that following the effectiveness of this amendment, certificates
for the shares of Common Stock to be outstanding after the Stock Split shall
be issued pursuant to procedures adopted by the Corporation's Board of
Directors and communicated to those who are to receive new certificates; and
further
RESOLVED, that the Board of Directors of the Corporation may amend and/or
restate the Corporation's certificate of incorporation pursuant to New York
Business Corporation Law Sections 805 and 807 without approval of the
stockholders of the Corporation, and may direct the officers of the
Corporation to take all other acts as they deem necessary to effectuate the
foregoing.
A-1
<PAGE>
EXHIBIT B
BERNARD CHAUS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Plan is to strengthen Bernard Chaus, Inc. (the
"Company") by providing an incentive to its employees, officers, consultants
and directors and thereby encouraging them to devote their abilities and
industry to the success of the Company's business enterprise. It is intended
that this purpose be achieved by extending to employees, officers,
consultants and directors of the Company and its Subsidiaries an added
long-term incentive for high levels of performance and unusual efforts
through the grant of Incentive Stock Options and Nonqualified Stock Options
(as each term is herein defined).
2. DEFINITIONS.
For purposes of the Plan:
2.1 "Affiliate" means any entity, directly or indirectly, controlled by,
controlling or under common control with the Company or any corporation or
other entity acquiring, directly or indirectly, all or substantially all the
assets and business of the Company, whether by operation of law or otherwise.
2.2 "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason
of a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise.
2.5 A "Change in Control" shall mean the occurrence during the term of the
Plan of:
(a) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of more than
fifty percent (50%) or more of the then outstanding Shares or the combined
voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has
occurred, Shares or Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition
which would cause a Change in Control. A "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or
other Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Company (for purposes of this definition, a "Subsidiary"), (ii) the
Company or its Subsidiaries, (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined), or (iv) a trust or
private foundation or other estate planning vehicle established by a
shareholder of the Company, of voting securities of the Company from such
shareholder and/or the acquisition by the heirs, executors or
administrators of a shareholder of the Company of voting securities of the
Company from such shareholder;
(b) The individuals who, as of the close of business on the Rights
Offering Effective Date are members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-thirds of the members of
the Board; provided, however, that if the election, or nomination for
election by the Company's common stockholders, of any new director was
approved by a vote of at
B-1
<PAGE>
least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described
in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or into the
Company or in which securities of the Company are issued, unless such
merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Company or in which
securities of the Company are issued where:
(A) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least fifty percent (50%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the
Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of the
Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any Subsidiary,
(iii) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Company or any Subsidiary,
or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of more
than fifty percent (50%) or more of the then outstanding Voting
Securities or Shares, has Beneficial Ownership of more than fifty
percent (50%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities or its
common stock.
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of
the assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting
Securities by the Company which, by reducing the number of Shares or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of
the acquisition of Shares or Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Shares or Voting Securities which increases the
percentage of the then outstanding Shares or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means a committee, as described in Section 3.1, appointed
by the Board from time to time to administer the Plan and to perform the
functions set forth herein.
B-2
<PAGE>
2.8 "Company" means Bernard Chaus, Inc.
2.9 "Disability" means:
(a) in the case of an Optionee whose employment with the Company or a
Subsidiary is subject to the terms of an employment agreement between such
Optionee and the Company or Subsidiary, which employment agreement
includes a definition of "Disability", the term "Disability" as used in
this Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement
remains in effect; and
(b) in all other cases, the term "Disability" as used in this Plan or any
Agreement shall mean a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period
of one hundred eighty (180) consecutive days.
2.10 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
2.11 "Eligible Individual" means any officer or employee of the Company or
a Subsidiary, or any director, consultant or advisor who is receiving cash
compensation from the Company or a Subsidiary, designated by the Committee as
eligible to receive Options subject to the conditions set forth herein;
provided, however, that only employees of the Company or any Subsidiary may
receive Incentive Stock Options under this Plan.
2.12 "Employee Option" means an Option granted pursuant to Section 5.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14 "Fair Market Value" on any date means the closing sales prices of the
Shares on such date on the principal national securities exchange on which
such Shares are listed or admitted to trading, or, if such Shares are not so
listed or admitted to trading, the average of the per Share closing bid price
and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the
Fair Market Value shall be the value established by the Board in good faith
and, in the case of an Incentive Stock Option, in accordance with Section 422
of the Code.
2.15 "Incentive Stock Option" means an Option satisfying the requirements
of Section 422 of the Code and designated by the Committee as an Incentive
Stock Option.
2.16 "Nonemployee Director" means a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.17 "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
2.18 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, or any or all of them.
2.19 "Optionee" means a person to whom an Option has been granted under
the Plan.
2.20 "Outside Director" means a director of the Company who is an "outside
director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.21 "Parent" means any corporation which is a parent corporation (within
the meaning of Section 424(e) of the Code) with respect to the Company.
2.22 "Plan" means the Bernard Chaus, Inc. 1998 Stock Incentive Plan, as
amended and restated from time to time.
2.23 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.24 "Shares" means the common stock, par value $.01 per share, of the
Company.
B-3
<PAGE>
2.25 "Subsidiary" means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) with respect to the
Company.
2.26 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of
the Code applies.
2.27 "Ten-Percent Stockholder" means an Eligible Individual, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company, or of a Parent or a Subsidiary.
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of
the Plan. The Committee shall keep minutes of its meetings. A quorum shall
consist of not fewer than two members of the Committee and a majority of a
quorum may authorize any action. Any decision or determination reduced to
writing and signed by a majority of all of the members of the Committee shall
be as fully effective as if made by a majority vote at a meeting duly called
and held. The Committee shall consist of at least two (2) directors of the
Company; provided, however, that (A) each member shall be a Nonemployee
Director and (B) to the extent necessary for any Option intended to qualify
as performance-based compensation under Section 162(m) of the Code to so
qualify, each member of the Committee shall be an Outside Director. No member
of the Committee shall be liable for any action, failure to act,
determination or interpretation made in good faith with respect to this Plan
or any transaction hereunder, except for liability arising from his or her
own willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Committee
for all costs and expenses and, to the extent permitted by applicable law,
any liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause
of action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Employee Options shall
be granted under the Plan and the number of such Employee Options to be
granted and to prescribe the terms and conditions (which need not be
identical) of each such Employee Option, including the purchase price per
Share subject to each Employee Option, and make any amendment or
modification to any Agreement consistent with the terms of the Plan;
(b) to construe and interpret the Plan and the Options granted hereunder
and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any
defect or supplying any omission, or reconciling any inconsistency in the
Plan or in any Agreement, in the manner and to the extent it shall deem
necessary or advisable so that the Plan complies with applicable law
including Rule 16b-3 under the Exchange Act and the Code to the extent
applicable, and otherwise to make the Plan fully effective. All decisions
and determinations by the Committee in the exercise of this power shall be
final, binding and conclusive upon the Company, the Subsidiaries, the
Optionees, and all other persons having any interest therein;
(c) to determine the duration and purposes for leaves of absence which
may be granted to an Optionee on an individual basis without constituting
a termination of employment or service for purposes of the Plan;
(d) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(e) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Company
with respect to the Plan.
B-4
<PAGE>
4. STOCK SUBJECT TO THE PLAN.
4.1 The maximum number of Shares that may be made the subject of Options
granted under the Plan shall be ten percent (10%) of the issued and
outstanding Shares at the close of business on the Rights Offering Effective
Date (which shall be between 2,187,443 and 2,711,591 Shares); provided,
however, that the maximum number of Shares that an Eligible Individual may be
granted in respect of Options may not exceed 2,200,000 Shares. Upon a Change
in Capitalization, the maximum number of Shares referred to in the first
sentence of this Section 4.1 shall be adjusted in number and kind pursuant to
Section 12. The Company shall reserve for the purposes of the Plan, out of
its authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be determined
by the Board.
4.2 Upon the granting of an Option, the number of Shares available under
Section 4.1 for the granting of further Options shall be reduced as follows:
In connection with the granting of an Option, the number of Shares shall be
reduced by the number of Shares in respect of which the Option is granted or
denominated.
4.3 Whenever any outstanding Option or portion thereof expires, is
canceled or is otherwise terminated for any reason without having been
exercised or payment having been made in respect of the entire Option, the
Shares allocable to the expired, canceled or otherwise terminated portion of
the Option may again be the subject of Options granted hereunder.
5. OPTION GRANTS FOR ELIGIBLE INDIVIDUALS.
5.1 AUTHORITY OF COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select those Eligible
Individuals who will receive Employee Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an Agreement.
5.2 PURCHASE PRICE. The purchase price or the manner in which the purchase
price is to be determined for Shares under each Employee Option shall be
determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Incentive Stock Option
shall not be less than 100% of the Fair Market Value of a Share on the date
the Employee Option is granted (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder). Subject to Section 5.5, the Committee
shall have the authority to change the purchase price for Shares under an
Employee Option subsequent to its grant.
5.3 MAXIMUM DURATION. Employee Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock
Option shall not be exercisable after the expiration of ten (10) years from
the date it is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option
shall not be exercisable after the expiration of ten (10) years from the date
it is granted. The Committee may, subsequent to the granting of any Employee
Option, extend the term thereof, but in no event shall the term as so
extended exceed the maximum term provided for in the preceding sentence.
5.4 VESTING. Subject to Section 6.4, each Employee Option shall become
exercisable in such installments (which need not be equal) and at such times
as may be designated by the Committee and set forth in the Agreement. To the
extent not exercised, installments shall accumulate and be exercisable, in
whole or in part, at any time after becoming exercisable, but not later than
the date the Employee Option expires. The Committee may accelerate the
exercisability of any Employee Option or portion thereof at any time.
5.5 MODIFICATION. No modification of an Employee Option shall adversely
alter or impair any rights or obligations under the Employee Option without
the Optionee's consent.
6. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
6.1 NON-TRANSFERABILITY. Unless set forth in the Agreement evidencing the
Option (other than an Incentive Stock Option) at the time of grant or at any
time thereafter, an Option granted hereunder shall not be transferable by the
Optionee to whom granted except by will or the laws of descent and
B-5
<PAGE>
distribution or pursuant to a domestic relations order (within the meaning of
Rule 16a-12 promulgated under the Exchange Act), and an Option may be
exercised during the lifetime of such Optionee only by the Optionee or his or
her guardian or legal representative. The terms of such Option shall be
final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
6.2 METHOD OF EXERCISE. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares
to be purchased and accompanied by payment therefor and otherwise in
accordance with the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise of an Option
shall be paid, as determined by the Committee in its discretion, in either of
the following forms (or any combination thereof): (i) cash and/or (ii) the
transfer of Shares to the Company upon such terms and conditions as
determined by the Committee. In addition, Employee Options may be exercised
through a registered broker-dealer pursuant to such cashless exercise
procedures which are, from time to time, deemed acceptable by the Committee,
and the Committee may authorize that the purchase price payable upon exercise
of an Employee Option may be paid by having Shares withheld that otherwise
would be acquired upon such exercise. Any Shares transferred to the Company
(or withheld upon exercise) as payment of the purchase price under an Option
shall be valued at their Fair Market Value on the day preceding the date of
exercise of such Option. The Optionee shall deliver the Agreement evidencing
the Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreement to the Optionee. No
fractional Shares (or cash in lieu thereof) shall be issued upon exercise of
an Option and the number of Shares that may be purchased upon exercise shall
be rounded to the nearest number of whole Shares.
6.3 RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (i) the Option
shall have been exercised pursuant to the terms thereof, (ii) the Company
shall have issued and delivered Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the
books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such Shares, subject to
such terms and conditions as may be set forth in the applicable Agreement.
6.4 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control, all
Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable. In the event an Optionee's employment with
the Company terminates following a Change in Control, each Option held by the
Optionee that was exercisable as of the date of termination of the Optionee's
employment shall remain exercisable for a period ending not before the
earlier of (A) the first anniversary of the termination of the Optionee's
employment or (B) the expiration of the stated term of the Option; but in no
event shall the exercise period exceed the maximum term provided in Section
5.3.
7. EFFECT OF A TERMINATION OF EMPLOYMENT.
The Agreement evidencing the grant of each Option shall set forth the
terms and conditions applicable to such Option upon a termination or change
in the status of the employment of the Optionee by the Company, a Subsidiary
or a Division (including a termination or change by reason of the sale of a
Subsidiary or a Division), which shall be as the Committee may, in its
discretion, determine at the time the Option is granted or thereafter.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the
maximum number and class of Shares or other stock or securities with
respect to which Options may be granted under the Plan, (ii) the maximum
number and class of Shares or other stock or securities with respect to
which Options may be granted to any Eligible Individual during any fiscal
year during the term of the Plan, and (iii) subject to the provisions of
Section 162(m) of the Code, the number and class of Shares or other stock
or securities which are subject to outstanding Options granted under the
Plan and the purchase price therefor, if applicable.
B-6
<PAGE>
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments
in the purchase price) shall be made in such manner as not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the
extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to, new, additional or
different shares of stock or securities, such new, additional or different
shares shall thereupon be subject to all of the conditions, and
restrictions which were applicable to the Shares subject to the Option, as
the case may be, prior to such Change in Capitalization.
9. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Section 8.4 or as otherwise provided in an Agreement or
otherwise by the Committee, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company
(a "Transaction"), the Plan and the Options issued hereunder shall continue
in effect in accordance with their respective terms, except that following a
Transaction each Optionee shall be entitled to receive in respect of each
Share subject to any outstanding Options, as the case may be, upon exercise
of any Option, the same number and kind of stock, securities, cash, property
or other consideration that each holder of a Share was entitled to receive in
the Transaction in respect of a Share; provided, however, that such stock,
securities, cash, property, or other consideration shall remain subject to
all of the conditions, restrictions and performance criteria which were
applicable to the Options prior to such Transaction.
10. INTERPRETATION.
(a) The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith.
Any provisions inconsistent with such Rule shall be inoperative and shall
not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant Agreement, each
Employee Option granted under the Plan is intended to be performance-based
compensation within the meaning of Section 162(m)(4)(C) of the Code. The
Committee shall not be entitled to exercise any discretion otherwise
authorized hereunder with respect to such Options if the ability to
exercise such discretion or the exercise of such discretion itself would
cause the compensation attributable to such Options to fail to qualify as
performance-based compensation.
11. POOLING TRANSACTIONS.
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if
any, as are specifically recommended by an independent accounting firm
retained by the Company to the extent reasonably necessary in order to assure
that the Pooling Transaction will qualify as such, including but not limited
to (i) deferring the vesting, exercise, payment, settlement or lapsing of
restrictions with respect to any Option, (ii) providing that the payment or
settlement in respect of any Option be made in the form of cash, Shares or
securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any Option to
the extent necessary to accommodate the foregoing, but not beyond the maximum
term permitted for any Option.
12. TERMINATION AND AMENDMENT OF THE PLAN.
The Plan shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option may be granted thereafter.
Subject to Section 11, the Board may sooner terminate the Plan and the Board
may at any time and from time to time amend, modify or suspend the Plan;
provided, however, that:
(a) no such amendment, modification, suspension or termination shall
impair or adversely alter any Options theretofore granted under the Plan,
except with the consent of the Optionee, nor shall any amendment,
modification, suspension or termination deprive any Optionee of any Shares
which he or she may have acquired through or as a result of the Plan; and
B-7
<PAGE>
(b) to the extent necessary under applicable law, no amendment shall be
effective unless approved by the stockholders of the Company in accordance
with applicable law.
13. OTHER ARRANGEMENTS.
The adoption of the Plan by the Board shall not be construed as creating
any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
14. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an Option other than at
the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(iii) limit in any way the right of the Company or any Subsidiary to
terminate the employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular
rate of compensation or for any particular period of time.
15. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
15.1 Except as to matters of federal law, the Plan and the rights of all
persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of New York without giving effect to conflicts of
laws principles thereof.
15.2 The obligation of the Company to sell or deliver Shares with respect
to Options granted under the Plan shall be subject to all applicable laws,
rules and regulations, including all applicable federal and state securities
laws, and the obtaining of all such approvals by governmental agencies as may
be deemed necessary or appropriate by the Committee.
15.3 The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or to
obtain for Eligible Individuals granted Incentive Stock Options the tax
benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
15.4 Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance
of Shares, no Options shall be granted or payment made or Shares issued, in
whole or in part, unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions as acceptable
to the Committee.
15.5 Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not
otherwise exempt from such registration, such Shares shall be restricted
against transfer to the extent required by the Securities Act and Rule 144 or
other regulations thereunder. The Committee may require any individual
receiving Shares pursuant to an Option granted under the Plan, as a condition
precedent to receipt of such Shares, to represent and warrant to the Company
in writing that the Shares acquired by such individual are acquired without a
view to any distribution thereof and will not be sold or transferred
B-8
<PAGE>
other than pursuant to an effective registration thereof under said Act or
pursuant to an exemption applicable under the Securities Act or the rules and
regulations promulgated thereunder. The certificates evidencing any of such
Shares shall be appropriately legended to reflect their status as restricted
securities as aforesaid.
16. MISCELLANEOUS.
16.1 MULTIPLE AGREEMENTS. The terms of each Option may differ from other
Options granted under the Plan at the same time, or at some other time. The
Committee may also grant more than one Option to a given Eligible Individual
during the term of the Plan, either in addition to, or in substitution for,
one or more Options previously granted to that Eligible Individual.
16.2 WITHHOLDING OF TAXES.
(a) At such times as an Optionee recognizes taxable income in connection
with the receipt of Shares or otherwise hereunder (a "Taxable Event"), the
Optionee shall pay to the Company an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be withheld
by the Company in connection with the Taxable Event (the "Withholding Taxes")
prior to the issuance, or release from escrow, of such Shares or otherwise.
The Company shall have the right to deduct from any payment of cash to an
Optionee an amount equal to the Withholding Taxes in satisfaction of the
obligation to pay Withholding Taxes. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Optionee may make a written election
(the "Tax Election"), which may be accepted or rejected in the discretion of
the Committee, to have withheld a portion of the Shares then issuable to him
or her having an aggregate Fair Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise,
the Optionee shall, within ten (10) days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at its
principal executive office.
16.3. EFFECTIVE DATE. The effective date of this Plan shall be the
effective date of the Company's rights offering as contemplated by the Form
S-3 Registration Statement under the Securities Act of 1933, as amended,
which was filed by the Company with the Securities and Exchange Commission on
October 30, 1997 (the "Rights Offering Effective Date"), subject only to the
approval by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders duly held in accordance with the applicable laws of
the State of New York within twelve (12) months of the adoption of the Plan
by the Board.
B-9
<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
DECEMBER 8, 1997
The undersigned hereby constitutes and appoints Josephine Chaus and
Barton Heminover, 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 December 8, 1997 at 10:30 a.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 an amendment to the Company's Certificate of
Incorporation, as amended to effect a reverse stock
split (the "Stock Split") of the Company's Common Stock
such that every ten (10) shares of Common Stock
outstanding on the effective date of the Stock
Split would be converted into one (1) share of common
stock, of the Company, $.01 par value ("Common Stock"):
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
3. To approve the sale by the Company to Josephine Chaus of
an aggregate of up to 19,246,705 shares of Common Stock
consisting (a) of 10,510,910 shares, on a post Stock
Split basis, of Common Stock of the Company, in exchange
for approximately $40.5 million of the Company's
indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5
million of indebtedness which will be owed to her, (b)
in connection with the exercise by Josephine Chaus of
her full $10.0 million subscription in a rights offering
to all holders of Common Stock of the Company, of
6,988,635 shares of Common Stock of the Company, on a
post Stock Split basis (the "Rights Offering"), and (c)
of up to 1,747,160 shares of Common Stock of the
Company, on a post Stock Split basis, in connection with
the standby commitment by Josephine Chaus to subscribe
for up to an additional $2.5 million of Common Stock if
and to the extent that the Company's other stockholders
do not purchase at least that amount in the Rights
Offering:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
4. To approve the adoption by the Company of the Bernard
Chaus, Inc. 1998 Stock Option Plan:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
5. To ratify the appointment of Deloitte & Touche LLP as the
Company's auditors for the Company's fiscal year ending
June 30, 1998:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
6. 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 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 AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION, AS AMENDED, TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT, (III)
FOR THE APPROVAL OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF AN
AGGREGATE OF UP TO 19,246,705 SHARES OF COMMON STOCK CONSISTING (A) OF
10,510,910 SHARES, ON A POST STOCK SPLIT BASIS, OF COMMON STOCK OF THE
COMPANY, IN EXCHANGE FOR APPROXIMATELY $40.5 MILLION OF THE COMPANY'S
INDEBTEDNESS TO JOSEPHINE CHAUS, (B) OF 6,988,635 SHARES OF COMMON STOCK OF
THE COMPANY, ON A POST STOCK SPLIT BASIS, IN CONNECTION WITH THE EXERCISE BY
JOSEPHINE CHAUS OF HER FULL $10.0 MILLION SUBSCRIPTION IN THE RIGHTS OFFERING,
AND (C) OF UP TO 1,747,160 SHARES OF COMMON STOCK OF THE COMPANY, ON A POST
STOCK SPLIT BASIS, IN CONNECTION WITH THE STANDBY COMMITMENT BY JOSEPHINE
CHAUS, (IV) FOR THE ADOPTION BY THE COMPANY OF THE BERNARD CHAUS, INC. 1998
STOCK OPTION PLAN, (V) FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE
& TOUCHE AS AUDITORS FOR THE COMPANY'S FISCAL YEAR ENDING JUNE 30, 1998, AND
(VI) 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 undersigned acknowledges receipt of the accompanying
Proxy Statement dated November 12, 1997.
Date:________________________________, 1997
_________________________________________________________
_________________________________________________________
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 1997 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
DECEMBER 8, 1997
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 December 8, 1997 at 10:30 a.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 an amendment to the Company's Certificate of
Incorporation, as amended to effect a reverse stock
split (the "Stock Split") of the Company's Common Stock
such that every ten (10) shares of Common Stock
outstanding on the effective date of the Stock Split
would be converted into one (1) share of common
stock, of the Company, $.01 par value ("Common
Stock"):
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
3. To approve the sale by the Company to Josephine Chaus
of an aggregate of up to 19,246,705 shares of Common
Stock consisting (a) of 10,510,910 shares, on a post
Stock Split basis, of Common Stock of the Company, in
exchange for approximately $40.5 million of the Company's
indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5
million of indebtedness which will be owed to her, (b)
in connection with the exercise by Josephine Chaus of
her full $10.0 million subscription in a rights offering
to all holders of Common Stock of the Company, of
6,988,635 shares of Common Stock of the Company, on a
post Stock Split basis (the "Rights Offering"), and (c)
of up to 1,747,160 shares of Common Stock of the
Company, on a post Stock Split basis, in connection with
the standby commitment by Josephine Chaus to subscribe
for up to an additional $2.5 million of Common Stock if
and to the extent that the Company's other stockholders
do not purchase at least that amount in the Rights
Offering:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
4. To approve the adoption by the Company of the
Bernard Chaus, Inc. 1998 Stock Option Plan:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
5. To ratify the appointment of Deloitte & Touche LLP as
the Company's auditors for the Company's fiscal year
ending June 30, 1998:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
6. 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 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 AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION, AS AMENDED, TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT, (III)
FOR THE APPROVAL OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF AN AGGREGATE
OF UP TO 19,246,705 SHARES OF COMMON STOCK CONSISTING (A) OF
10,510,910 SHARES, ON A POST STOCK SPLIT BASIS, OF COMMON STOCK OF THE
COMPANY, IN EXCHANGE FOR APPROXIMATELY $40.5 MILLION OF THE COMPANY'S
INDEBTEDNESS TO JOSEPHINE CHAUS, (B) OF 6,988,635 SHARES OF COMMON STOCK OF
THE COMPANY, ON A POST STOCK SPLIT BASIS, IN CONNECTION WITH THE EXERCISE BY
JOSEPHINE CHAUS OF HER FULL $10.0 MILLION SUBSCRIPTION IN THE RIGHTS OFFERING,
AND (C) OF UP TO 1,747,160 SHARES OF COMMON STOCK OF THE COMPANY, ON A POST
STOCK SPLIT BASIS, IN CONNECTION WITH THE STANDBY COMMITMENT BY JOSEPHINE
CHAUS, (IV) FOR THE ADOPTION BY THE COMPANY OF THE BERNARD CHAUS, INC. 1998
STOCK OPTION PLAN, (V) FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE
& TOUCHE AS AUDITORS FOR THE COMPANY'S FISCAL YEAR ENDING JUNE 30, 1998, AND
(VI) 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 undersigned acknowledges receipt of the accompanying
Proxy Statement dated November 12, 1997.
Date:________________________________, 1997
_________________________________________________________
_________________________________________________________
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 1997 Annual Meeting of Stockholders.
