<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION NO. 333-39041
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------
BERNARD CHAUS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 2331, 2339 13-2807386
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
----------
</TABLE>
1410 BROADWAY
NEW YORK, NEW YORK 10018
(212) 354-1280
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------
JOSEPHINE CHAUS ANDREW GROSSMAN
CHAIRWOMAN OF THE BOARD CHIEF EXECUTIVE OFFICER
BERNARD CHAUS, INC. BERNARD CHAUS, INC.
1410 BROADWAY 1410 BROADWAY
NEW YORK, NEW YORK 10018 NEW YORK, NEW YORK 10018
(212) 354-1280 (212) 354-1280
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
COPY TO:
RICHARD A. GOLDBERG, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 758-9500
-------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1997
PRELIMINARY PROSPECTUS
RIGHTS TO SUBSCRIBE FOR 13,977,270 SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF RIGHTS
EXPIRING ON JANUARY 23, 1998
[Chaus Logo]
Bernard Chaus, Inc., a New York corporation ("Chaus" or the
"Company"), is distributing at no cost to holders of its common stock, par
value $.01 per share (the "Common Stock"), of record as of the close of
business on December 17, 1997 (the "Record Date"), transferable rights (other
than those distributed to Josephine Chaus) to purchase shares of Common Stock
(the "Rights"). Each such holder (a "Holder"), other than Josephine Chaus,
Chairwoman of the Board and principal stockholder of the Company ("J. Chaus" or
"Ms. Chaus"), will receive one Right for each share of Common Stock held on the
Record Date (the "Rights Offering"), with each Right entitling the Holder
thereof to subscribe for and purchase 5.464751 shares of Common Stock (the
"Basic Subscription Privilege"), for a price of $1.4309 per share (on a post
Stock Split basis, the "Subscription Price"). Except where otherwise noted, all
share data in this Prospectus gives effect to a one-for-ten reverse stock split
to be effected on December 9, 1997, prior to the consummation of the Rights
Offering (the "Stock Split"). Ms. Chaus will receive one Right for each share
of Common Stock held by her on the Record Date, with each Right entitling her
to subscribe for and purchase 5.181105 shares of Common Stock at the
Subscription Price. No fractional shares or cash in lieu thereof will be issued
or paid. The number of shares distributed to each Holder upon exercise of the
Rights will be rounded up to the nearest whole number of shares. The Common
Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol
"CHS." On December 2, 1997, the last reported sales price for the Common Stock
on the NYSE was $0.9375 per share (without giving effect to the Stock Split).
See "Price Range of Common Stock; Dividend Policy." The Rights will expire at
5:00 p.m., New York City time, on January 23, 1998, unless extended as provided
herein (the "Expiration Date"). The issuance of shares pursuant to the Rights
Offering is subject to the following conditions: (i) the approval by the
Company's stockholders at the December 8, 1997 Annual Meeting of Stockholders
of the Company 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. On December 8, 1997,
at the Company's Annual Meeting of Stockholders, the Company's stockholders
approved the matters described under clause (i) above.
If shares of Common Stock offered hereby are not purchased by
Holders pursuant to the Basic Subscription Privilege (collectively, such shares
are sometimes hereinafter referred to as the "Excess Shares"), any Holder
purchasing all of the shares of Common Stock available to it pursuant to the
Basic Subscription Privilege may purchase the number of Excess Shares specified
by the Holder in the Subscription Documents (as defined below), subject to
proration (the "Oversubscription Privilege"). See "The Rights Offering--Basic
Subscription Privilege; Oversubscription Privilege."
The Company has entered into a purchase agreement (the
"Purchase Agreement") with Ms. Chaus, pursuant to which Ms. Chaus has agreed to
subscribe for and purchase all of the 6,988,635 shares of Common Stock issuable
to her upon exercise of the Rights distributed to her, for an aggregate
purchase price of $10.0 million (the "Purchase Commitment"). Pursuant to the
Purchase Agreement, Ms. Chaus has also agreed that, in the event that at least
1,747,160 shares of Common Stock offered hereby (the "Standby Shares") are not
purchased by the Holders, other than Ms. Chaus (or purchases by the other
directors of the Company in excess of $100,000 in the aggregate), pursuant to
the Basic Subscription Privilege or the Oversubscription Privilege, she will
purchase the unsubscribed portion of the Standby Shares at the Subscription
Price, for an aggregate purchase price of up to $2.5 million (the "Standby
Commitment"). As part of the Company's restructuring plan, J. Chaus has also
agreed to convert approximately $40.6 million of indebtedness owed to
Ms. Chaus, consisting of $28.1 million of existing subordinated indebtedness
(including accrued interest through January 23, 1998) and $12.5 million of
indebtedness which will be owed to Ms. Chaus prior to the consummation of the
Rights Offering (the "Conversion Commitment"), into 10,510,910 shares of
Common Stock of the Company. See "The Company" and "The Restructuring."
In addition to the Purchase Commitment and the Standby
Commitment of Ms. Chaus, the other members of the Board of Directors of the
Company have advised the Company that they intend to subscribe for their Basic
Subscription Privilege pursuant to the Rights Offering, and also to exercise
their Oversubscription Privilege in an aggregate amount, inclusive of their
Basic Subscription Privilege, of $600,000 of Common Stock.
The Rights Offering, together with the Conversion Commitment,
and a refinancing with BNY Financial Corporation ("BNYF"), the Company's
current working capital lender, is part of a comprehensive restructuring plan
to infuse capital into the Company, restructure the Company's indebtedness
owing to BNYF and J. Chaus, and provide the Company with working capital to
finance operations. The Purchase Commitment and Standby Commitment insure that
an aggregate of at least $12.5 million is received by the Company in the Rights
Offering. Depending on the number of Rights exercised by the Holders other than
Ms. Chaus and the Company's other directors, following completion of the
Rights Offering, J. Chaus will own between approximately 69.5% and 92.4% of
the issued and outstanding Common Stock of the Company. See "The Company,"
"Risk Factors--Control by Principal Stockholder" and "Use of Proceeds."
This Prospectus relates to the Rights and the shares of
Common Stock issuable upon the exercise of the Rights. Accompanying this
Prospectus are certain documents (collectively, the "Subscription Documents")
that must be completed and returned by a Holder in accordance with the
appropriate instructions in order to exercise the Basic Subscription Privilege
or the Oversubscription Privilege. Once a Holder has exercised any Right, such
exercise may not be revoked, unless there is a material amendment to the terms
of the Rights Offering. See "The Rights Offering--Amendment, Extension and
Termination." Holders exercising Rights should complete and return their
Subscription Documents with payment of the Subscription Price promptly to
insure timely receipt and the collection of any funds prior to the Expiration
Date. See "The Rights Offering--Exercise of Rights." Holders who do not
exercise or sell their Rights will relinquish any value inherent in the Rights.
See "Risk Factors--Dilution."
The Company has filed a listing application with the NYSE
seeking to list the shares of Common Stock issuable upon the exercise of the
Rights. There can be no assurance that such listing application will be
approved or accepted by the NYSE or that the Rights
1
<PAGE>
will be traded on the NYSE. There has been no prior market for the Rights and
there can be no assurance that a market for the Rights will develop. Rights may
be sold in over-the-counter and private sales transactions. Orders to sell
Rights must be received by ChaseMellon Shareholder Services, L.L.C. (the
"Subscription Agent") not later than on January 20, 1998, the third NYSE
trading day prior to the Expiration Date, if a Holder wishes to sell Rights
through the Subscription Agent.
CURRENT STOCKHOLDERS OF THE COMPANY WHO DO NOT PARTICIPATE IN
THE RIGHTS OFFERING WILL SUFFER SUBSTANTIAL DILUTION IN THEIR RELATIVE
PERCENTAGE OWNERSHIP IN THE COMPANY UPON ISSUANCE OF COMMON STOCK TO HOLDERS
EXERCISING RIGHTS.
SEE "RISK FACTORS," BEGINNING ON PAGE 13, FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF
THE RIGHTS AND OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE RIGHTS MAY NOT BE EXERCISED BY ANY PERSON, AND NEITHER
THIS PROSPECTUS NOR ANY SUBSCRIPTION DOCUMENT SHALL CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SHARES OF COMMON STOCK, IN ANY
JURISDICTION IN WHICH SUCH TRANSACTIONS WOULD BE UNLAWFUL. SEE "THE RIGHTS
OFFERING--STATE AND FOREIGN SECURITIES LAWS."
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
SUBSCRIPTION PRICE COMMISSIONS(1) COMPANY(2)
------------------ -------------- -----------
Per Share............ $1.4309 -- $1.4309
Total Minimum........ $1.4309 -- $12,500,000(3)
Total Maximum........ $1.4309 -- $20,000,000(4)
- ---------
(1) The shares of Common Stock are being offered and sold directly by the
Company, and no commissions or other remuneration is intended to be paid
to any person for soliciting purchases of the shares in the Rights
Offering. See "The Rights Offering--Method of Offering."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) Assuming no purchase of Common Stock by the Holders, other than Ms. Chaus,
pursuant to the Basic Subscription Privilege or the Oversubscription
Privilege, and the purchase by Ms. Chaus of shares required to be
purchased by her pursuant to the Purchase Commitment and the Standby
Commitment.
(4) Assumes the exercise of all Rights.
- ---------
The date of this Prospectus is__________________, 1997.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Washington, DC 20549, or at the Commission's regional
offices: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. The Common Stock is traded on the New York Stock Exchange.
The Company has filed with the Commission a Registration
Statement on Form S-3 (of which this Prospectus is a part) under the Securities
Act of 1933 (the "Securities Act") with respect to the Common Stock issuable
upon the exercise of the Rights and offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to such Registration Statement
and exhibits. A copy of the Registration Statement on file with the Commission
may be obtained from the Commission's principal office in Washington, D.C.,
upon payment of the fees prescribed by the Commission.
Copies of the Registration Statement may be obtained from the
Commission at its principal office upon payment of prescribed fees. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, where the contract or other document
has been filed as an exhibit to the Registration Statement, each such statement
is qualified in all respects by reference to the applicable document filed with
the Commission. The Registration Statement of which this Prospectus forms a
part has been filed electronically through the Commission's Electronic Data
Gathering Analysis and Retrieval System and may be obtained through the
Commission's website on the Internet (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are
hereby incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997.
3. Proxy Statement, dated November 12, 1997, with respect to
Annual Meeting of Stockholders to be held on December 8, 1997.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
Rights Offering shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of filing
thereof. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus has
been delivered, upon the written or oral request of any such person, a copy of
any and all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits). Requests
for such copies should be directed to: Bernard Chaus, Inc., 1410 Broadway, New
York, New York 10018, Attention: Chief Executive Officer, telephone (212)
354-1280.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial statements contained elsewhere in this
Prospectus or incorporated by reference herein and does not purport to be
complete. Reference is made to, and this Prospectus Summary is qualified in its
entirety by and should be read in conjunction with, the more detailed
information contained elsewhere in this Prospectus or incorporated by reference
herein. Prospective investors should carefully consider the information set
forth under "Risk Factors."
This Prospectus contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act, and Section 21E of the Exchange Act, which generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "believe," "target," "plan," "project," or
"continue" or the negatives thereof or other variations thereon or similar
terminology. Such statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, regarding, among
other items, (i) anticipated trends in the Company's business, (ii) future
expenditures for capital projects, (iii) the Company's ability to continue to
control costs and maintain quality, (iv) the Company's business strategies, and
(v) the Company's projected financial information. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in "Risk Factors" including,
among others, (a) changes in the Company's markets as a result of economic
influences, (b) the Company's history of losses, or (c) changes in the
competitive marketplace, including new products and pricing changes by the
Company's competitors. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this Prospectus
will in fact transpire. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
BACKGROUND; REASONS FOR RIGHTS OFFERING; PROSPECTS
The Rights Offering is the final stage of a major product
line repositioning and financial restructuring program that the Company has
been implementing over the past few years. Beginning in late fiscal 1994, the
Company commenced a program to reposition its Chaus product line at the high
end of "upper moderate" through the opening price points of the "better"
categories. Integral to its repositioning program was the hiring of Andrew
Grossman in September of 1994 as the Company's Chief Executive Officer. Mr.
Grossman was President of Jones Apparel Group, a manufacturer of women's
apparel, from 1991 to 1994. In September 1995, the Company entered into a
license agreement (the "Nautica License Agreement") with Nautica Apparel, Inc.
("Nautica"), a leading name in men's apparel, pursuant to which the Company has
obtained an exclusive license to design, contract for the manufacture of and
market a new women's apparel line under the Nautica brand name.
By August 1997, Mr. Grossman and the Company had completed
the repositioning of the Chaus product line into the opening price points of
the "better" category. Given the strong retail performance of the Company's
Chaus product line over the past 12 months, the Company's management believes
that the repositioning and remarketing of the Chaus product line has been
successfully implemented, and the Company's operating performance should
continue to improve over the next several years. In addition to successfully
improving the performance of its Chaus product line, the Company has begun to
implement a strategy designed to remedy the disappointing performance of the
Company's Nautica product line. To that end, the Company has, among other
things, hired a new executive officer, Lynn Buechner, formerly of Liz
Clairborne Collection to manage this line, and relaunch the Nautica product
line.
In addition to repositioning its product lines, the Company
has developed and implemented a comprehensive restructuring of its indebtedness
to BNYF and J. Chaus, as well as a recapitalization of the Company. In April
1997 the Company, together with its financial and legal advisors, entered into
negotiations with various financial institutions in order to seek an
alternative working capital lender, so as to provide the Company with the
additional liquidity it needs in order to fully implement the Company's product
line repositioning. For various reasons, including BNYF's agreement to
refinance the Company's existing debt on acceptable terms, the Company
determined to refinance its existing bank debt by negotiating a new financing
agreement with BNYF. Management believes that the Company's repositioning in
the market and its improved performance over the past several months, together
with its projected performance over the next fiscal year, made it possible for
the Company to negotiate a favorable financing agreement with BNYF. Management
also believes that the refinancing of the Company's prior bank debt and the
execution of the New Financing Agreement with BNYF has provided the Company
with an incremental $8.0 million of working capital to finance its operations
and the continued development of the Chaus product line and ongoing development
of its Nautica business. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition, Liquidity and Capital
Resources."
Over the past several years, Ms. Chaus has provided the
Company with substantial credit support, as well as other support. Commencing
in 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, J. Chaus agreed to provide the Company
with credit support in the form of a letter of credit (the "Letter of Credit").
The Letter of Credit, which was originally in the amount of $3.0 million, was
subsequently extended and increased to $5.0 million, $7.2 million and $10.0
million. Each time J. Chaus agreed to increase the amount of the Letter of
Credit, BNYF increased the Company's availability under the working capital
line. As additional credit support, Ms. Chaus also personally guaranteed, and
fully collateralized, $12.5 million of the Company's indebtedness to BNYF.
In September 1994, Ms. Chaus loaned the Company $7.2 million
in exchange for demand notes bearing interest at 12%. Proceeds of such cash
infusion were used for costs and associated expenses related to the retention
of Andrew Grossman as the Company's Chief Executive Officer. In order to
provide additional equity to the Company, enhance the Company's balance sheet,
and to accommodate BNYF, Ms. Chaus agreed to exchange such demand notes into
Common Stock of the Company. Upon shareholder approval, Ms. Chaus exchanged
such demand notes for 1,914,500 shares of Common Stock. Ms. Chaus also agreed,
in connection with the Company's November 1995 public offering, to extend the
maturity date of approximately $23.6 million of subordinated promissory notes
from July 1, 1996 to July 1, 1998. Over the past five fiscal years, Ms. Chaus
has committed approximately $56.0 million, in the aggregate, in the form of
equity infusions, loans and credit support, for the benefit of the Company.
4
<PAGE>
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.
In connection with the Company's negotiations with BNYF over
the past several months, BNYF once again requested that Ms. Chaus commit
additional personal assets for the benefit of the Company. Under the
Restructuring, as requested by BNYF in connection with the New Financing
Agreement, Ms. Chaus will provide the Company with credit support by (i)
converting the debt owed or to be owed to her (approximately $40.6 million)
into equity, (ii) committing to subscribe, pursuant to the Rights Offering, for
$10.0 million of newly issued Common Stock, and (iii) committing to subscribe
for up to an additional $2.5 million of newly issued Common Stock, if and to
the extent that the Company's other stockholders (not counting purchases by the
other directors of the Company in excess of $100,000 in the aggregate) do not
purchase at least that amount of stock in the Rights Offering.
Although BNYF required that Ms. Chaus purchase additional
shares of Common Stock in connection with the Restructuring, Ms. Chaus and the
Company's Board of Directors sought to minimize the dilution to existing
stockholders in connection with the Restructuring. Therefore, Ms. Chaus agreed
to convert indebtedness owed to her into additional shares of Common Stock and
to commit to purchase up to $2.5 million in additional equity on the condition
that the Company's other stockholders be afforded a meaningful opportunity to
participate in the future of the Company and its projected upside in the next
several years. Accordingly, the Company's stockholders are being given the
opportunity to purchase additional shares of Common Stock through the Rights
Offering.
Due to the fact that the total Company value (as estimated by
the Company's management and approved by the disinterested members of the
Company's Board of Directors) was less than the amount of the Company's
indebtedness owed or to be owed to BNYF and Ms. Chaus, the dilution to holders
of the Company's Common Stock, other than Ms. Chaus, from the conversion of
indebtedness into equity, would have reduced their ownership to less than 1% of
the Company's net equity value after giving effect to the Restructuring.
Nevertheless, in accordance with Ms. Chaus' desire to afford the Company's
other stockholders a meaningful opportunity to participate in the Company's
future, Ms. Chaus, as well as the Company's Board of Directors, have agreed to
allow such holders the right to retain a greater interest in the Company then
they would otherwise have been entitled to, and also afford them the
opportunity to participate in the Rights Offering.
EFFECT OF THE RESTRUCTURING PROGRAM ON SHARE OWNERSHIP
The following table shows the shares of Common Stock to be
outstanding (without giving effect to stock options) and the change in
percentage ownership at various stages of the Company's restructuring program:
- -------------------------------------------------------------------------------
Josephine Other Directors Other
Chaus of the Company Holders
- -------------------------------------------------------------------------------
Shares % Shares % Shares %
- -------------------------------------------------------------------------------
Pre-Stock Split 13,488,700 51.3 33,000 * 12,755,574 48.7
- -------------------------------------------------------------------------------
Post-Stock Split 1,348,870 51.3 3,300 * 1,275,557 48.7
- -------------------------------------------------------------------------------
Post-Stock Split (after
the Conversion Commitment
by Ms. Chaus but before the
remainder of the Rights
Offering) 11,859,780 90.3 3,300 * 1,275,557 9.7
- -------------------------------------------------------------------------------
Post-Rights Offering
(assuming only Ms. Chaus
and the Company's other
directors participate) 20,525,689 92.4 422,617 1.9 1,275,557 5.7
- -------------------------------------------------------------------------------
Post-Rights Offering
(assuming full participation
by all Holders of the 18,848,415 69.5 21,334 * 8,246,158 30.4
Company)
- -------------------------------------------------------------------------------
* Less than 1%
Therefore, upon completion of the restructuring program,
the Company will have between 22,223,863 and 27,115,907 shares of Common Stock
outstanding and Ms. Chaus's ownership will be as much as 92.4% or as little
as 69.5%.
The following is an example of how the Stock Split and the
Rights Offering would affect a typical Holder's shares of Common Stock: If a
Holder owns 10,000 shares of Common Stock prior to the Stock Split, the Holder
will own 1,000 shares of Common Stock after the Stock Split. A Holder owning
1,000 shares of Common Stock on the Record Date will receive 1,000 rights, each
of which will entitle the Holder to subscribe for and purchase 5.464751 shares
of Common Stock for a price of $1.4309 per share pursuant to the Basic
Subscription Privilege. Therefore, the Holder of 1,000 Rights will be entitled
to purchase 5,465 additional shares of Common Stock in the Rights Offering at
the Subscription Price, or $7,819.87 in the aggregate. If the Rights are fully
subscribed by such Holder, he or she would own an aggregate of 6,465 shares of
Common Stock. Each Holder purchasing all of the shares of Common Stock
available to it pursuant to the Basic Subscription Privilege may purchase,
pursuant to the Oversubscription Privilege, the number of Excess Shares
specified by the Holder in the Subscription Documents, subject to proration.
5
<PAGE>
THE COMPANY
The Company designs, arranges for the manufacture of and
markets an extensive range of women's career and casual sportswear which are
marketed principally under the CHAUS(R), CHAUS SPORT(R) and NAUTICA(R)
trademarks. Beginning in late fiscal 1994, the Company repositioned its Chaus
product line at the high end of the "upper moderate" through the opening price
points of the "better" categories. See "Business--Products." In September 1995,
the Company entered into the Nautica License Agreement with Nautica, a leading
name in men's apparel, pursuant to which the Company obtained an exclusive
license to design, contract for the manufacture of and market a new women's
apparel line under the Nautica brand name. The Company commenced sales of
products in its licensed Nautica line in August 1996. The Nautica product line
is being positioned in the "better" to "bridge" categories.
The Company's products currently are divided into two
principal product categories: (i) career sportswear and (ii) weekend casual
sportswear. In late fiscal 1994, the Company shifted its product focus from
single, fashion-driven items to full collections with an emphasis on
traditional styling. With this repositioning, the Company also has enhanced its
design and quality and by August 1997, the Company had successfully
repositioned its Chaus product line into the opening price points of the
"better" category. The Company's career and weekend casual sportswear are
marketed as coordinated groups of jackets, skirts, pants, blouses, sweaters and
related accessories which, while sold as separates, are coordinated by styles,
color schemes and fabrics and are designed to be merchandised and worn
together. The Company believes that the target consumers for its products are
women aged 24 to 64.
The Company produces collections of each of these product
lines for each of its five principal selling seasons: Spring, Summer, Fall I,
Fall II and Holiday. Spring and Fall traditionally have been the Company's
major selling seasons. Beginning in fiscal 1996, the Company combined the
Spring I and Spring II seasons into one Spring season, thus reducing the
selling seasons from six to five.
Management of the Company believes that the initiatives it
has implemented over the last two fiscal years have begun to positively impact
consumer acceptance of its Chaus products. During the last four fiscal
quarters, the Company has benefited from a significant improvement in the
sell-through rate of its core Chaus products to its retail customers. The
improved sales of the Chaus products have been primarily due to the Company's
repositioning of its product line, which entailed, among other things, (i) an
emphasis on product assortments that are well-focused at point-of-sale, (ii)
improvements in design integrity and quality, (iii) a move to better price
points, and (iv) more selective distribution. This improvement has resulted in
increases in orders for Holiday and Spring merchandise on its Chaus products,
of 44% and 45%, respectively, over the same period in the preceding year. In
addition to the increase in orders, the Company's margins have improved due to
efficient up-front planning, a reduction in off-price sales, and the
repositioning of the Chaus product into categories with higher price points.
For the first quarter of fiscal 1998, the Company reported its best quarter in
the last five fiscal years with a 97% increase in operating income over the
first quarter of the prior year and net income of $2.0 million. Furthermore,
the Company believes that the credit available to it under its new financing
arrangement with BNYF will increase its leverage in negotiating for the
purchase of products and thereby improve margin levels in the future. In order
to take advantage of this favorable trend, improve its balance sheet, infuse
capital into the Company, reduce interest and operating expenses, and increase
working capital, management of the Company has formulated a restructuring
program. In September 1997, the disinterested members of the Board of Directors
of the Company unanimously approved the restructuring program (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 $40.6 million of the Company's
indebtedness to J. Chaus, consisting of $28.1 million
of existing subordinated indebtedness (including
accrued interest through January 23, 1998) and $12.5
million of indebtedness which will be owed to J. Chaus,
will be converted into Common Stock of the Company;
(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 Stock Split.
<PAGE>
The Restructuring will have an immediate positive impact on
the Company's operating results and balance sheet. The Company's interest
expense will be reduced as a result of the elimination of interest charges on
the subordinated debt (approximately $2.8 million), credit support payments
($1.0 million) for the 1997 fiscal year and lower interest charges due to lower
projected borrowings. In addition, the Company's stockholders' equity
(deficiency) will be improved by a minimum of $52.0 million as a result of the
Restructuring. See "Unaudited Pro Forma Financial Data."
6
<PAGE>
THE RIGHTS OFFERING
Unless otherwise indicated, the share data contained in this
Prospectus (i) gives effect to the Stock Split to be effected prior to the
consummation of the Rights Offering, and (ii) is based on the number of shares
of Common Stock and other securities outstanding as of the date of this
Prospectus.
<TABLE>
<S> <C>
The Rights.................................. Each Holder of Common Stock, other
than J. Chaus, will receive one
transferable Right for every
share of Common Stock held of
record as of the Record Date, and
each Right will be exercisable
for 5.464751 shares of Common
Stock. Ms. Chaus will receive one
non-transferable Right for each
share of Common Stock held by her
as of the Record Date, and each
Right will be exercisable for
5.181105 shares of Common Stock.
An aggregate of 2,627,727 Rights
will be distributed. If all the
Rights are exercised, an
aggregate of 13,977,270 shares of
Common Stock (the "Underlying
Shares") will be sold upon
exercise of the Rights. See "The
Rights Offering--The Rights."
Transferability of Rights................... The Rights (other than those
distributed to J. Chaus) are
transferable and the Company has
filed a listing application with
the NYSE seeking to list the
Underlying Shares. There can be
no assurance that such listing
application will be approved or
accepted by NYSE. Nor can there
be any assurance that the Rights
will be traded on the NYSE or
that the Rights will have any
value or that any market for the
Rights will develop or, if a
market develops, that the market
will remain available throughout
the period that Rights are
exercisable. The Rights (other
than those distributed to J.
Chaus) will be evidenced by
transferable subscription
certificates ("Subscription
Certificates"). Each Right is
transferable (other than those
distributed to J. Chaus) in whole
by a Holder, but no fractional
Rights shall be transferable.
There has been no prior market
for the Rights, and no assurance
can be given that a market for
the Rights will develop or, if
such a market develops, how long
it will continue.
The Subscription Agent will
attempt to sell Rights for
Holders who deliver a
Subscription Certificate with the
instruction for sale contained on
the reverse side thereof,
properly executed, to the
Subscription Agent no later than
11:00 a.m., New York City time,
on the third NYSE trading day
preceding the Expiration Date.
There can be no assurance that
the Subscription Agent will be
able to sell any Rights or as to
the price that the Subscription
Agent will be able to obtain if
it is able to effect any such
sale. See "The Rights
Offering--Method of Transferring
Rights."
Subscription Price.......................... $1.4309 in cash per share of
Common Stock (the "Subscription
Price") subscribed for pursuant
to the Basic Subscription
Privilege, the Oversubscription
Privilege, the Purchase
Commitment or the Standby
Commitment.
Record Date................................. December 17, 1997
Expiration Date............................. January 23, 1998, at 5:00 p.m.,
New York City time, unless
extended. The Company may extend
the Expiration Date, will
announce any extension by not
later than 9:00 a.m., New York
City time, on the business day
following the previously
scheduled Expiration Date.
The Expiration Date will be
extended a reasonable period of
time if the Company files an
amendment to its Registration
Statement relating to the Rights
Offering that includes a material
change in the Rights Offering. See
"The Right Offering--Amendment,
Extension and Termination." Any
extension of the Expiration Date
will be for a period of at least
ten NYSE trading days, provided
that the Expiration Date shall in
no event be later than February
28, 1998. The Company will notify
stockholders of any extension of
the Expiration Date of the Rights
Offering through the issuance of a
press release indicating such
extension. See "The Rights
Offering--Expiration Date."
Basic Subscription Privilege................ Each Right entitles a Holder,
other than J. Chaus, to purchase
5.464751 shares of Common Stock
of the Company upon payment of
the Subscription Price for each
share purchased (the "Basic
Subscription Privilege"). Each
Right entitles J. Chaus, to
purchase 5.181105 shares of
Common Stock of the Company upon
payment of the Subscription Price
for each share purchased. See
"The Rights Offering--Basic
Subscription Privilege;
Oversubscription Privilege."
7
<PAGE>
Oversubscription Privilege.................. Each Holder who elects to exercise
in full his, her or its Basic
Subscription Privilege may also
subscribe at the Subscription
Price for additional Underlying
Shares available as a result of
unexercised Rights, if any (the
"Oversubscription Privilege"). If
an insufficient number of
Underlying Shares are available
to satisfy fully all exercises of
the Oversubscription Privilege
after reserving a sufficient
number of shares to fulfill
subscriptions for exercises by
Holder pursuant to the Basic
Subscription Privilege, the
available Underlying Shares will
be prorated among Holders who
exercise their Oversubscription
Privilege in proportion to the
respective number of Rights
exercised by such Holders
pursuant to the Basic
Subscription Privilege. See "The
Rights Offering--Basic
Subscription Privilege;
Oversubscription Privilege."
Purchase Commitment......................... Subject to the terms and
conditions of the Purchase
Agreement, J. Chaus has agreed to
subscribe for and purchase
6,988,635 shares of Common Stock
issuable upon exercise of the
Rights, for an aggregate purchase
price of $10.0 million (the
"Purchase Commitment"). See "The
Company," "The Rights
Offering--Purchase Commitment,"
"The Restructuring" and "Risk
Factors--Control by Principal
Stockholder."
Standby Commitment.......................... Subject to the terms and
conditions of the Purchase
Agreement, J. Chaus has agreed,
that in the event that at least
1,747,160 shares of Common Stock
offered hereby (the"Standby
Shares") are not purchased by
Holders, other than Ms. Chaus (or
purchases by the other directors
of the Company in excess of
$100,000 in the aggregate),
pursuant to the Basic
Subscription Privilege or the
Oversubscription Privilege, she
will purchase the unsubscribed
portion of the Standby Shares for
an aggregate purchase price of up
to $2.5 million (the "Standby
Commitment"). See "The Company,"
"The Rights Offering--Standby
Commitment," "The Restructuring"
and "Risk Factors--Control by
Principal Stockholder."
Procedure for Exercising Rights............. Rights may be exercised by a
Holder by properly completing and
signing the subscription
documents sent to such Holder in
connection with the Rights
Offering (the "Subscription
Documents") and forwarding such
Subscription Documents (or
following the Guaranteed Delivery
Procedures described herein and
therein), with payment of the
Subscription Price for each share
of Common Stock subscribed for
pursuant to the Basic
Subscription Privilege and
Oversubscription Privilege, if
any, prior to the Expiration
Date. If the mails are used to
forward Subscription Documents it
is recommended that insured,
registered mail be used. No
interest will be paid on funds
delivered in payment of the
Subscription Price. ONCE A HOLDER
HAS EXERCISED ANY RIGHTS, SUCH
EXERCISE MAY NOT BE REVOKED
UNLESS THE COMPANY FILES A
POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT RELATED TO
THE RIGHTS OFFERING THAT INCLUDES
A MATERIAL CHANGE IN THE TERMS OF
THE RIGHTS OFFERING (A "MATERIAL
AMENDMENT"), IN WHICH CASE A
HOLDER WILL HAVE TEN (10) NYSE
TRADING DAYS TO EVALUATE THE
MATERIAL AMENDMENT AND TO REVOKE
THE EXERCISE OF THEIR RIGHTS, IF
DESIRED. See "The Rights
Offering--Exercise of Rights,"
"The Rights Offering--Amendment,
Extension and Termination" and
"The Rights Offering--No
Revocation."
Procedure for Exercising Rights
by Foreign and Certain Other Stockholders... Subscription Documents will not be
mailed to Holders of Common Stock
whose addresses are outside the
United States or who have an Army
Post Office ("APO") or Fleet Post
Office ("FPO") address, but will
be held by the Subscription Agent
for their accounts. To exercise
the Rights represented thereby,
such Holders must contact the
Subscription Agent on or prior to
the Expiration Date. If no
contrary instructions have been
received by that time, the Rights
of such Holders will be sold,
subject to the Subscription
Agent's ability to find a
purchaser. Any such sales will be
at prevailing market prices. If
such Rights can be sold, a check
for the proceeds from the sale of
such Rights, less any applicable
brokerage commissions, taxes and
other expenses, will be remitted
to such Holders by mail or, if
such Holder's address is unknown,
held in a non- interest bearing
account by the Subscription
Agent. Such Rights expire at the
Expiration Date. See "The Rights
Offering--Foreign and Certain
Other Stockholders."
Persons Holding Common Stock and
Wishing to Exercise Rights Through Others... Holders who hold shares of the
Common Stock for the account of
others, such as brokers, trustees
or depositories for securities,
should notify the respective
beneficial owners of such shares
as soon as possible to ascertain
such beneficial owners'
intentions and to obtain
instructions with respect to the
Rights. If the beneficial owner
so instructs, the Holder shall
complete Subscription Documents
and submit them to the
Subscription Agent with the
proper payment. See "The Rights
Offering--Exercise of Rights."
8
<PAGE>
Issuance of Common Stock.................... Certificates representing shares
of the Common Stock purchased
pursuant to the valid exercise of
the Rights will be delivered to
subscribers as soon as
practicable after the Expiration
Date and the conditions to the
Rights Offering have been
satisfied. See "The Rights
Offering--Basic Subscription
Privilege; Oversubscription
Privilege" and "The Rights
Offering--Conditions to the
Rights Offering."
Conditions to the Rights Offering........... The issuance of shares pursuant to
the Rights Offering is subject to
the following conditions: (i) the
approval by the Company's
stockholders of the (a) Stock
Split, (b) issuance of 10,510,910
shares of Common Stock of the
Company to J. Chaus in connection
with the Conversion Commitment,
(c) sale by the Company of
6,988,635 shares to J. Chaus in
connection with the Purchase
Commitment, and (d) 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. On December 8,
1997, at the Company's Annual
Meeting of Stockholders, the
Company's Stockholders approved
the matters described under
clause (i) above.
Subscription Agent.......................... ChaseMellon Shareholder Services,
L.L.C.
Information Agent........................... Any questions regarding the Rights
Offering, including the procedure
for exercising Rights, and
requests for additional copies of
this Prospectus, the Subscription
Certificate or the notice of
guaranteed delivery should be
directed to ChaseMellon
Shareholder Services, L.L.C. (the
"Information Agent") at (800)
414-2879.
Common Stock to be Outstanding After the
Rights Offering; Percentage to be owned by
J. Chaus.................................... Based on 2,627,727 shares
outstanding on the date of this
Prospectus, and giving effect to
the issuance of the Conversion
Shares to J. Chaus, if the Rights
Offering is fully subscribed for,
the Company will have
approximately 27,115,907 shares
outstanding. If no shares are
subscribed for pursuant to the
Basic Subscription Privilege or
the Oversubscription Privilege,
other than shares purchased by J.
Chaus, then based on 2,627,727
shares outstanding on the date of
this Prospectus, giving effect to
the issuance of the Conversion
Shares to J. Chaus and the other
directors of the Company, the
Company will have approximately
22,223,863 shares outstanding.
Depending on the number of Rights
exercised by the public Holders
following completion of the
Rights Offering, J. Chaus will
own between approximately 69.5%
and 92.4% of the issued and
outstanding Common Stock of the
Company.
Symbol for the Common Stock................. CHS
Use of Proceeds............................. Depending on the number of shares
of Common Stock subscribed for in
the Rights Offering, the net
proceeds received by the Company
from the Rights Offering after
payment of fees and expenses
(exclusive of fees and expenses
of the Restructuring which do not
relate to the Rights Offering),
will range between $12.0 million
and $19.5 million. See
"Management's Discussion and
Analysis of Financial Condition
and Results of Operations." All
of the net proceeds will be used
to retire a portion of Bank Debt.
See "Use of Proceeds" and "The
Rights Offering--The Rights."
Amendment, Extension
and Termination............................. The Company may amend, or extend
the Rights Offering at any time
prior to the Expiration Date, at
the Board of Directors'
discretion. In addition, the
Rights Offering will terminate if
the conditions to the Rights
Offering have not been satisfied
on or prior to the Expiration
Date. If the Company makes a
Material Amendment to the terms
of the Rights Offering, a new
definitive Prospectus will be
distributed to all Rights Holders
who had previously exercised
Rights and to all holders of
record on the date of such
amendment, together with a form
on which each exercising Rights
Holder can revoke its exercise.
Any Rights Holder who had
previously exercised any Rights,
or who exercises Rights within
four (4) business days after the
mailing of the new definitive
Prospectus, and who does not so
revoke its exercise within ten
(10) business days after the
mailing of the new definitive
Prospectus and form of
revocation, will be deemed not to
have canceled such exercise. If
any exercise of Rights is so
revoked, the Company will refund
as soon as practicable the full
amount of the Subscription Price
paid by such Rights Holder,
without interest. Any completed
Subscription Certificate received
by the Subscription Agent five
(5) or more business days after
the date of the amendment will be
deemed to constitute the consent
of the Rights Holder who
completed such Subscription
Certificate to the amended terms.
See "The Rights
Offering--Amendment, Extension
and Termination." The Company
will issue a press release with
respect to any amendment,
extension or termination of the
Rights Offering.
9
<PAGE>
State and Foreign Securities Laws........... The Rights may not be exercised by
any person, and neither this
Prospectus nor any Subscription
Document shall constitute an
offer to sell or a solicitation
of an offer to purchase any
shares of Common Stock, in any
jurisdiction in which such
transactions would be unlawful.
See "The Rights Offering--State
and Foreign Securities Laws."
Federal Income Tax Consequences............. For United States federal income
tax purposes, Holders generally
will not recognize taxable income
in connection with the issuance
to them or exercise by them of
Rights. Holders may recognize a
gain or loss upon the sale of the
Rights or the shares of Common
Stock acquired upon exercise of
the Rights. See "The Rights
Offering-- Federal Income Tax
Consequences."
Risk Factors................................ There are substantial risks in
connection with the Rights
Offering that should be
considered by prospective
purchasers. See "Risk Factors."
</TABLE>
10
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected historical and
unaudited pro forma financial data of the Company. The historical data has been
derived from the consolidated financial statements of the Company. The pro
forma data has been derived from the Unaudited Pro Forma Financial Data
included elsewhere in this Prospectus. The Unaudited Pro Forma Financial Data
does not purport to represent what the Company's results of operations actually
would have been if the transactions referred to herein had been consummated on
the date or for the periods indicated or what such results will be for any date
or any future period. The financial information below should be read in
conjunction with the other financial data of the Company and the consolidated
financial statements of the Company and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
PRO
FORMA
1993 1994 1995 1996 1997 1997(6)
---- ---- ---- ---- ---- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $235,819 $206,332 $181,697 $170,575 $160,100 $141,682
Cost of goods sold.................... 187,423 186,594 149,097 147,994 125,422(4) 111,038
Gross profit.......................... 48,396 19,738 32,600 22,581 34,678 30,644
Selling, general and administrative
expenses.............................. 57,410 55,400 44,794 40,162 40,924 35,790
Restructuring expenses................ --- 5,300(1) 1,200(1) --- 2,250(3) ---
Unusual expenses...................... --- 1,900(2) 8,333(2) --- --- ---
Interest expense...................... 2,322 3,439 5,976 6,560 8,030 1,435
Other income (expense), net........... 449 (190) 91 56 113 113
Loss (income) before income tax
provision............................. (10,887) (46,491) (27,612) (24,085) (16,413) (6,468)
Income tax provision.................. 102 264 301 301 50 50
Net Loss (income)..................... (10,989) (46,755) (27,913) (24,386) (16,463) (6,518)
Net Loss (income) per share (5)....... (0.60)* (2.55)* (1.40)* (1.02)* (0.63)* (0.24)
Weighted average number of
common and common equivalent
shares outstanding.................... 18,272* 18,352* 19,910* 23,987* 26,277* 27,116
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, (8)
PRO
FORMA
1996 1997 1997(6)
---- ---- -------
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................. $48,010 $58,856 $52,970
Cost of goods sold.................... 35,532 44,432 39,447
Gross profit.......................... 12,478 14,424 13,523
Selling, general and administrative
expenses.............................. 10,255 10,051 8,723
Restructuring expenses................ -- -- --
Unusual expenses...................... -- -- --
Interest expense...................... (1,838) (2,319) (627)
Other income (expense), net........... 6 (3) (3)
Loss (income) before income tax
provision............................. 391 2,051 4,170
Income tax provision.................. 30 50 50
Net Loss (income)..................... 361 2,001 4,120
Net Loss (income) per share (5)....... 0.01* 0.08* 0.15
Weighted average number of
common and common equivalent
shares outstanding.................... 26,838* 26,277* 27,116
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
AS OF JUNE 30,
PRO
FORMA
1993 1994 1995 1996 1997 1997(7)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency).......... $40,923 $3,342 $(13,914) $(19,483) $(32,729) $13,546
Total assets.......................... 90,208 51,619 28,660 32,742 34,138 43,382
Short-term debt, including current
portion of long-term debt............. 17,504 21,365 18,698 26,077 37,756 500
Long-term debt........................ 14,730 18,789 21,066 23,588 26,374 14,500
Stockholders' equity (deficiency)..... 33,147 (13,614) (32,379) (40,610) (57,060) 1,314
* Does not give effect to the Stock Split
</TABLE>
- ------------------
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
AS OF SEPTEMBER 30,
PRO
FORMA
1996 1997 1997(7)
---- ---- -------
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficiency).......... $(18,792) $(29,877) $16,398
Total assets.......................... 48,166 54,448 54,448
Short-term debt, including current
portion of long-term debt............. 38,356 56,178 500
Long-term debt........................ 24,264 27,121 14,500
Stockholders' equity (deficiency)..... (40,236) (55,059) 4,062
* Does not give effect to the Stock Split
</TABLE>
11
<PAGE>
(1) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.7 million for employee severance, and in fiscal 1995, $1.2
million of employee severance.
(2) Includes, in fiscal 1994, expenses relating primarily to abandonment of
fixed assets, certain legal matters and the winding down of the Company's
Canadian joint venture, and in fiscal 1995, $7.8 million primarily
relating to the costs associated with the signing of the Company's new
Chief Executive Officer and $0.5 million related to certain legal
matters.
(3) The Company recorded a $2.3 million charge in the fourth quarter of
fiscal 1997 for costs to be incurred in connection with the Restructuring
which was announced in June 1997. The costs incurred relate to the
closing of the Company's outlet stores (such as professional fees, lease
termination expenses, and write-off of fixed assets), in addition to
professional fees and other expenses associated with the implementation
of the Restructuring.
(4) Includes $1.1 million for liquidation of inventory as a result of
closing the Company's outlet stores.
(5) Computed by dividing net income (loss) by the weighted average number of
Common and Common Equivalent Shares outstanding during the years. For the
fiscal years ended 1997, 1996, 1995, 1994 and 1993, Common Equivalent
Shares were not included in the calculation as their inclusion would have
been antidilutive.
(6) Pro Forma income statement data gives effect to: (i) the elimination of
interest expense associated with the conversion of outstanding
indebtedness into Common Stock of the Company; (ii) the elimination of
credit support payments to Ms. Chaus; (iii) the elimination of retail
store outlet operations; and (iv) the elimination of Restructuring
expenses, and the adjusting entries reflecting each such item give effect
to such items occurring on July 1, 1996.
(7) Pro Forma balance sheet data gives effect to: (i) the conversion of
subordinated indebtedness (approximately $38.9 million at June 30, 1997
and $39.6 million at September 30, 1997) owed to J. Chaus into Common
Stock of the Company; (ii) the assumed raising of $19.5 million in net
proceeds from the Rights Offering; (iii) obtaining the New Term
Loan in the amount of $15.0 million; (iv) the Stock Split; and (v) the
payment of expenses associated with the New Financing Agreement. There
can be no assurance that the Rights Offering will be fully subscribed.
(8) The business of the Company is seasonal and the results for any period
are not necessarily indicative of the results that may be achieved for
an entire fiscal year.
12
<PAGE>
RISK FACTORS
In addition to the other information included in, or
incorporated by reference into this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business
before exercising the Rights and thereby purchasing the shares of Common Stock
offered hereby. An investment in the Rights and Common Stock offered hereby
involves a high degree of risk. Purchasers should carefully consider the
following risk factors, as well as all other information set forth or
incorporated in the Prospectus before purchasing any Rights or Common Stock
offered hereby. Prospective investors are cautioned that the statements in this
Prospectus that are not descriptions of historical facts may be forward-looking
statements. Such statements are based on many assumptions and are subject to
risks and uncertainties. Actual results could differ materially from the
results discussed in the forward looking statements due to a number of factors,
including, but not limited to, those identified below.
HISTORY OF LOSSES; DECLINING REVENUE BASE
The Company sustained net losses of $27.9 million, $24.4
million and $16.5 million in fiscal 1995, 1996 and 1997, respectively. In
addition, during such period the Company's revenues declined from $181.7
million in fiscal 1995 to $170.6 million in fiscal 1996 to $160.1 million in
fiscal 1997. The Company also experienced a reduction in the number of
individual stores within its major customer groups in which its products were
sold during this period. The Company believes that the Restructuring and other
initiatives it has taken will improve operating results. Although the Company's
sales increased in the first quarter of fiscal 1998 over the prior fiscal year
and it had net earnings for the quarter of $2.0 million, no assurance can be
given that revenues will continue to increase, that the number of stores within
which the Company's products are sold will continue to increase or that the
Company will be profitable for the full fiscal year or thereafter.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WORKING CAPITAL DEFICIENCY; FUTURE FINANCING REQUIREMENTS
At September 30, 1997, the Company had a working capital
deficiency of $29.9 million, and has had negative cash flow from operations of
$4.8 million, $22.7 million, $11.0 million and $18.4 million in fiscal 1995,
1996 and 1997 and the first quarter of fiscal 1998, respectively. The Company's
business plan requires the availability of sufficient cash flow and borrowing
capacity to finance its existing product lines and develop and market its
licensed Nautica product lines. The Company expects to satisfy such
requirements through cash flow from operations, proceeds from the Rights
Offering and borrowings under the New Financing Agreement which was entered
into with BNYF on October 10, 1997. Although there can be no assurance, the
Company believes that if the Restructuring is consummated and it achieves its
projections, the Company will have sufficient cash flow and credit availability
to meet its needs for the foreseeable future. There can be no assurance that
the Company will achieve its projections.
The New Financing Agreement consists of (i) the New Revolving
Facility which is a $66.0 million five-year revolving credit line with a $20.0
million sublimit for letters of credit, and (ii) the New Term Loan which is a
$15.0 million term loan facility. Each facility matures on December 31, 2002.
Ms. Chaus has provided the Company with various forms of
financial and credit support for several years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Under the
terms of the Restructuring, J. Chaus has agreed to convert indebtedness owed,
and to be owed prior to the consummation of the Rights Offering, to her by the
Company into shares of Common Stock of the Company. As a result, BNYF
indebtedness will be reduced and Ms. Chaus' credit support will be
discontinued. See "The Company" and "The Restructuring--Restructuring of
Credit Support Provided by Ms. Chaus."
The Company has no understanding with Ms. Chaus pursuant to
which Ms. Chaus would extend credit support to the Company after the
Restructuring is consummated. During recent fiscal periods, the Company was not
in compliance with certain financial covenants under the Old Bank Debt
Agreement (as defined below) with BNYF. Although BNYF had historically agreed
to relax such covenants and permit specified levels of overadvances, there can
be no assurance that it will continue to do so in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HIGH BORROWING LEVELS AND STOCKHOLDERS' DEFICIENCY
At September 30, 1997, the Company had short-term debt of
$56.2 million, long-term debt of $27.1 million and stockholders' deficiency of
$55.1 million. Although immediately after giving effect to the Rights Offering
and the contemplated conversion of indebtedness into shares of Common Stock of
the Company, the Company's short-term debt as of January 23, 1998 will be
reduced to $3.6 million, its long-term debt will be reduced to $14.5 million
and its stockholders' equity will be increased by $61.0 million to $3.9
million, the Company debt levels may increase in the future to the extent it
must seek to reborrow to meet its working capital needs.
OBLIGATIONS UNDER NAUTICA LICENSE AGREEMENT; SUCCESS OF NAUTICA PRODUCT LINE
The Company's obligations under the Nautica License Agreement
include meeting minimum sales targets, making minimum royalty and advertising
payments, and the requirement that Andrew Grossman continue in his position as
Chief Executive Officer during the Nautica License Agreement's term. See Note
11 to Notes to Consolidated Financial Statements. There can be no assurance
that the conditions to the continuance of the Nautica License Agreement will be
met or that the Company's licensed Nautica product line will be successful.
In connection with the Nautica license, Nautica has asserted
that the Company has not complied with and is not in compliance with all of the
terms of the Nautica License Agreement. To date, Nautica has not sought to
exercise any rights or remedies under the Nautica License Agreement. The
Company believes that Nautica's claims are baseless and without merit.
Notwithstanding that the Company believes that it has claims against Nautica
for its failure to perform under the terms of the Nautica License Agreement and
that the claims asserted by Nautica are baseless, the Company (i) is performing
and will continue to perform all of its obligations under the Nautica License
Agreement, and (ii) intends to enforce all of its rights and remedies under the
Nautica License Agreement.
13
<PAGE>
The Company commenced sales of its licensed Nautica products
in August 1996. The Company's Nautica product line has experienced intense
competition from other designer labels. See "Business--License Agreement with
Nautica." To date, the Company's Nautica product line has not generated the
levels of revenues which had been anticipated and there can be no assurance
that such revenues will increase in the foreseeable future, if ever.
APPAREL RETAILING CYCLES
The apparel industry is a cyclical industry heavily dependent
on the overall level of consumer spending, with purchases of apparel and
related goods tending to decline during periods when disposable income is low,
but also declining at other times. A difficult retail environment could result
in higher than normal levels of promotional sales by the Company, thereby
reducing the Company's gross profit margins.
CHANGES IN FASHION TRENDS
The Company believes that its success depends in substantial
part on its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner. There can be no assurance,
however, that the Company will be successful in this regard. The Company
attempts to minimize the risk of changing fashion trends and product acceptance
by producing a wide selection of garments during a particular selling season
and by closely monitoring retail sales of its products. However, if the Company
misjudges the market for a number of products or product groups, it may be
faced with a significant amount of unsold finished goods inventory, which could
have an adverse effect on the Company's results of operations.
DEPENDENCE ON MAJOR CUSTOMERS
The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company has historically incurred
minimal credit losses. At June 30, 1997 and 1996, approximately 62% and 66%,
respectively, of the Company's accounts receivables were due from department
store customers owned by four single corporate entities. During fiscal 1997,
approximately 63% of the Company's net sales were made to department store
customers owned by four single corporate entities, as compared to 60% in fiscal
1996 and 55% in fiscal 1995. Sales to Dillard's Department Stores accounted for
33% of net sales in fiscal 1997, 29% of net sales in fiscal 1996 and 22% of net
sales in fiscal 1995. Sales to nine department store companies owned by The May
Department Stores Company accounted for approximately 16% of the Company's net
sales in fiscal 1997, 10% of net sales in fiscal 1996 and 15% of net sales in
fiscal 1995. Sales to eight department store companies owned by Federated
Department Stores accounted for approximately 8% of net sales in fiscal 1997,
5% of net sales in fiscal 1996 and 11% of net sales in fiscal 1995. Sales to
two department store customers owned by TJX Companies, Inc. accounted for
approximately 6% of net sales in fiscal 1997, 16% of net sales in fiscal 1996
and 7% of net sales in fiscal 1995. The percentages of net sales are based upon
stores owned by the four corporate entities at the end of fiscal 1997. As a
result of the Company's dependence on these customers, they may have the
ability to influence the Company's business decisions. The loss of or
significant decrease in business from any of its major customers would have a
material adverse effect on the Company's financial position and results of
operations.
DEPENDENCE ON FOREIGN SOURCING; LONG LEAD TIMES
During fiscal 1997, the Company's products were manufactured
through third party foreign contractors, principally in South Korea, Hong Kong,
Taiwan, China, Indonesia and elsewhere in the Far East. As a result, the
Company may be adversely affected by political instability resulting in the
disruption of trade from foreign countries in which the Company's manufacturers
and suppliers are located, the imposition of additional regulations relating to
imports or duties, taxes and other charges on imports, any significant
decreases in the value of the dollar against foreign currencies and
restrictions on the transfer of funds. In addition, the Company's import
operations are subject to constraints imposed by bilateral textile agreements
between the United States and a number of foreign countries. These agreements
impose quotas on the amount and type of goods which can be imported into the
United States from these countries. Furthermore, because the Company's foreign
manufacturers are located at significant geographic distances from the Company,
the Company is generally required to allow greater lead time for foreign
orders. In addition, because orders from the Company's customers generally
precede the related shipping period by up to five months and the Company must
make substantial advance commitments to its suppliers (often as many as seven
months prior to the receipt of firm orders for the related merchandise), a lead
time of as long as twelve months may be required between the time the Company
commits to a supplier and the time of shipping. This reduces the Company's
manufacturing flexibility which increases the risks associated with changes in
fashion trends or consumer preferences. See "Business--Manufacturing and
Distribution" and "Business--Imports and Import Restrictions."
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's sales and operating results
fluctuate by quarter, with the greatest sales occurring in the Company's first
and third fiscal quarters. It is in these quarters that the Company's Fall and
Spring product lines, which traditionally have had the highest volume of net
sales, are shipped to customers, with revenues generally being recognized at
the time of shipment. As a result, the Company experiences significant
variability in its quarterly results and working capital requirements.
Moreover, delays in shipping can cause revenues to be recognized in a later
quarter, resulting in further variability in such quarterly results.
COMPETITION
There is intense competition in the sectors of the apparel
industry in which the Company participates. The Company competes with many
other apparel companies, some of which are larger and have better established
brand names and greater resources than the Company. In some cases, the Company
also competes with private-label brands of its department store customers. The
Company believes that in order to be successful in its industry, it must be
able to evaluate and respond to changing consumer demand and taste and to
remain competitive in the areas of style, quality and price while operating
within the significant production and delivery constraints of the industry.
Furthermore, the Company's traditional department store customers, which
account for a substantial portion of the Company's business,
14
<PAGE>
encounter intense competition from so-called "off-price" and discount
retailers, mass merchandisers and specialty stores. The Company believes that
its ability to increase its present levels of sales will depend on such
customers' ability to maintain their competitive position.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent upon the personal
efforts and abilities of Ms. Chaus, its Chairwoman of the Board, and Andrew
Grossman, its Chief Executive Officer. The Company has no employment agreement
with Ms. Chaus, its principal stockholder. The Company has an employment
agreement with Mr. Grossman for a term ending in September 2004, pursuant to
which Mr. Grossman has agreed not to compete with the Company during the term
of the agreement or, if the Company terminates the agreement (with certain
exceptions), for a period of up to two years after such termination depending
on the basis for termination. 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, will, among other things, 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. The Company believes that the
loss of the services of either Ms. Chaus or Mr. Grossman would likely have an
adverse effect on the Company. The Company maintains key man life insurance on
the lives of Ms. Chaus and Mr. Grossman in the amounts of $35.0 million and
$25.0 million, respectively. Furthermore, the Nautica License Agreement is
conditioned upon Mr. Grossman continuing as Chief Executive Officer. See
"Business--License Agreement with Nautica."
On September 15, 1997, the Company announced the resignation
of Wayne Miller, the Company's Chief Financial Officer. Pending the appointment
of a successor to Mr. Miller, Barton Heminover, the Company's Vice President --
Corporate Controller and Assistant Secretary, together with the Company's
financial advisors, will be responsible for discharging Mr. Miller's duties.
In addition, the Company believes that its future success
depends in part upon its ability to attract and retain qualified personnel.
There can be no assurance that the Company will be successful in attracting and
retaining such personnel in the future.
CONTROL BY PRINCIPAL STOCKHOLDER
Following the completion of the Rights Offering, J. Chaus
will beneficially own between approximately 69.5% and 92.4% of the outstanding
Common Stock depending on the number of Rights exercised. As a result of her
stock ownership, Ms. Chaus has, and will continue to have, sufficient voting
power to determine the direction and policies of the Company, the election of
the directors of the Company, the outcome of any other matter submitted to a
vote of stockholders, and to prevent or cause a change in control of the
Company.
POTENTIAL CONFLICTS OF INTEREST; RELATED PARTY TRANSACTIONS
Certain conflicts of interest may arise as a result of Ms.
Chaus' position as a director, member of the Office of the Chairman and
majority stockholder of the Company. There have been a number of related party
transactions between Ms. Chaus and the Company, principally involving her
provision of credit support to the Company. Such transactions are negotiated
with a special committee made up of the disinterested members of the Board
which, where appropriate, seeks the advice of an independent investment banking
firm in connection with the approval of any such transaction. When stockholder
approval is sought, Ms. Chaus, as majority stockholder, has the ability to
approve any such matter without the affirmative vote of any other stockholder
of the Company.
<PAGE>
LITIGATION
The Company is involved as a defendant in certain legal
proceedings incidental to its business. The Company believes that the outcome
of these legal proceedings will not have a material adverse impact on its
financial position or operations.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is highly
volatile. Factors such as quarterly variations in the Company's results of
operations and changes in general market conditions could cause the market
price of the Company's Common Stock to fluctuate significantly. See "Price
Range of Common Stock; Dividend Policy."
MARKET CONSIDERATIONS
There can be no assurance that the market price of the Common
Stock will not decline during the subscription period or that, following the
issuance of the Rights and the issuance of the Underlying Shares of Common
Stock upon exercise of the Rights, a subscribing Rights Holder will be able to
sell the Underlying Shares purchased in the Rights Offering at a price equal to
or greater than the Subscription Price.
IRREVOCABILITY OF SUBSCRIPTIONS
The election of a Holder to exercise Rights in the Rights
Offering is irrevocable, except in the case of a Material Amendment. See "The
Rights Offering--No Revocation." Moreover, until certificates are delivered,
subscribing Rights Holders may not be able to sell the Common Stock that they
have purchased in the Rights Offering. Certificates representing shares of the
Common Stock purchased pursuant to the Basic Subscription Privilege will be
mailed as soon as practicable after the subscriptions have been accepted by the
Subscription Agent to Holders not participating in the Oversubscription
Privilege. Certificates for shares of Common Stock issuable upon the exercise
of the Basic Subscription Privilege and the Oversubscription Privilege will be
mailed as soon as practicable after the Expiration Date. No interest will be
paid on any funds delivered to exercise Rights.
15
<PAGE>
DETERMINATION OF SUBSCRIPTION PRICE; MARKET CONSIDERATIONS AND UNCERTAIN MARKET
FOR RIGHTS
The Subscription Price was determined by the Company and
management, and was unanimously approved by the disinterested members of the
Company's Board of Directors. The Subscription Price does not necessarily bear
any relationship to the book value of the Company's assets, past operations,
cash flow, earnings, financial condition or any other established criteria for
value and should not be considered an indication of the underlying values of
the Company. The market price of the Common Stock could be subject to
significant fluctuations in response to the Company's operating results and
other factors, including the size of the public float of the Common Stock
which will depend, in part, on the percentage of the Rights that are exercised
by Holders after the Rights Offering. See "The Rights Offering--Determination
of Subscription Price."
The Rights (other than those distributed to Ms. Chaus) are
expected to be traded on the NYSE until the close of business on the last
trading day prior to the Expiration Date. There has been no prior market for
the Rights and, although the Rights (other than those distributed to Ms. Chaus)
will be transferable, there can be no assurance that the Rights will have any
economic value or that a market for the Rights will develop or be sustained.
There can also be no assurance that, following the issuance of the Rights and
of the Underlying Shares upon exercise of Rights, a subscribing Holder will be
able to sell shares of Common Stock purchased in the Rights Offering at a price
equal to or greater than the Subscription Price.
CONTINUED LISTING OF THE COMMON STOCK ON THE NYSE
In addition, the Company does not currently satisfy certain
of the conditions for continued listing on the NYSE and, depending on the level
of participation in the Rights Offering by stockholders, other than Ms. Chaus,
the Company may fail to meet certain additional NYSE requirements, after
completion of the Rights Offering. The Company has submitted a business plan
for the re-attainment of compliance with the continuing listing standards of
the NYSE. The NYSE has informed the Company in writing that it will be
monitoring such plan on a quarterly basis and that the Company's ability to
maintain its listing on the NYSE will be dependent upon meeting such plan.
Accordingly, there can be no assurance that the NYSE will not undertake to
subspend the Common Stock from trading, or delist the Common Stock, in the
future. The Company expects to file a listing application with the NYSE seeking
to list the Underlying Shares. There can be no assurance that such listing
application will be approved and accepted by the NYSE, or that the Rights and
the Underlying Shares will be traded on the NYSE.
DILUTION
The Rights entitle the Holders of shares of Common Stock to
purchase shares of Common Stock at a price below the prevailing market price of
the Common Stock immediately prior to the commencement of the Rights Offering.
Although all shareholders will be diluted by the conversion of approximately
$40.6 million of the Company's indebtedness to Ms. Chaus, consisting of $28.1
million of existing subordinated indebtedness (including interest accrued
through January 23, 1998) and $12.5 million of indebtedness which will be owed
to J. Chaus, which will be converted into Common Stock pursuant to the
Restructuring, holders of shares of Common Stock who exercise their Rights will
otherwise preserve or increase their proportionate interest in their equity
ownership and voting power of the Company. Stockholders who do not exercise
their Rights will experience a significant further decrease in their
proportionate interest in the equity ownership and voting power of the Company.
The sale of the Rights may not compensate a stockholder for all or any part of
any reduction in the market value of such stockholder's Common Stock resulting
from the Rights Offering. Stockholders who do not exercise or sell their Rights
will relinquish any value inherent in the Rights.
After giving effect to the Rights Offering, the Company will
have between approximately 27,115,907 and 22,223,863 shares of Common Stock
issued and outstanding, depending on the number of Rights exercised as compared
with approximately 2,627,727 shares of Common Stock, issued and outstanding as
of the date of this Prospectus.
If no Rights are exercised, other than those that are
exercised by Ms. Chaus and the other directors of the Company, the percentage
of shares owned by shareholders other than Ms. Chaus and the other directors
of the Company, will decrease from approximately 9.7% (after giving effect to
the conversion of indebtedness owed by the Company to Ms. Chaus into
additional shares of Common Stock pursuant to the Conversion Commitment) to
5.7%.
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the
"Unaudited Pro Forma Financial Data") as of June 30, 1997 and September 30,
1997, for the year ended June 30, 1997 and for the quarter ended September 30,
1997 has been derived from the application of pro forma adjustments to the
financial statements of the Company. The pro forma financial data for the year
ended June 30, 1997 and for the quarter ended September 30, 1997, as applicable
gives effect to: (i) the elimination of interest expense associated with the
conversion of outstanding indebtedness into Common Stock of the Company; (ii)
the elimination of credit support payments to Ms. Chaus; (iii) the elimination
of retail store outlet operations; (iv) the elimination of Restructuring
expenses; (v) the conversion of subordinated indebtedness (approximately $38.9
million at June 30, 1997 and $39.6 million at September 30, 1997) owed to J.
Chaus into Common Stock of the Company; (vi) the assumed raising of $19.5
million in net proceeds from the Rights Offering; (vii) obtaining the New
Term Loan in the amount of $15.0 million; (viii) the Stock Split; and (ix) the
payment of expenses associated with the New Financing Agreement. The pro forma
statement of income statement data for the year ended June 30, 1997 and for the
quarter ended September 30, 1997, gives effect to: (i), (ii), (iii) and (iv)
and the adjusting entries reflecting each such item give effect to such items
occurring on July 1, 1996 and July 1, 1997, respectively. The related pro forma
balance sheet data as of June 30, 1997 and September 30, 1997 gives effect to:
(v), (vi), (vii), (viii) and (ix) as if each had occurred on June 30, 1997
and September 30, 1997, respectively. The adjustments are described in the
accompanying notes. The Unaudited Pro Forma Financial Data does not purport to
represent what the Company's financial position and results of operations
actually would have been if those transactions had been consummated on the date
or for the periods indicated, or what such results will be for any future date
or for any future period. The Unaudited Pro Forma Financial Data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
---------------------------------------------------------
HISTORICAL PRO FORMA
CONSOLIDATED CONSOLIDATED
STATEMENT OF STATEMENT OF
OPERATIONS ADJUSTING OPERATIONS
AS OF 6/30/97 ENTRIES AS OF 6/30/97
------------------- --------------- ---------------------
<S> <C> <C> <C>
Net sales $160,100 $(18,418) a $141,682
Cost of goods sold 125,422 (14,384) a 111,038
------------------- --------------- ---------------------
Gross profit 34,678 (4,034) a 30,644
Selling general & administrative expenses 40,924 (5,134) a 35,790
Restructuring expenses 2,250 (2,250) b --
------------------- --------------- ---------------------
(8,496) 3,350 (5,146)
Other income (expense), net 113 113
Interest expense (8,030) 2,852 c (1,435)
957 d
2,786 e
------------------- --------------- ---------------------
Income before provision for income taxes (16,413) 6,202 (6,468)
Provision for income taxes 50 50
------------------- --------------- ---------------------
Net loss $ (16,463) $6,202 $(6,518)
=================== =============== =====================
</TABLE>
a - Eliminate retail store outlet operations.
b - Eliminate Restructuring expenses.
c - Eliminate interest expense associated with reduction of bank debt by $32.0
million out of the proceeds of the BNYF-J. Chaus Loan and the Company raising
$19.5 million in net proceeds from the Rights Offering. There can be no
assurance that the Rights Offering will be fully subscribed.
d - Eliminate credit support payments to Ms. Chaus.
e - Eliminate interest expense associated with conversion of $26.4 million of
subordinated indebtedness of the Company to J. Chaus (as of June 30, 1997) into
Common Stock of the Company.
17
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
(IN THOUSANDS)
----------------------------------------------------------------------
HISTORICAL PRO FORMA
CONSOLIDATED ADJUSTING CONSOLIDATED
BALANCE SHEET ENTRIES BALANCE SHEET
AS OF 6/30/97 RESTRUCTURING AS OF 6/30/97
---------------------- ----------------------- ----------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $330 $ 9,244 a $9,349
(225) b
Accounts receivable, net 7,451 7,451
Inventories 23,746 23,746
Prepaid expenses 568 568
---------------------- ----------------------- ----------------------
Total current assets 32,095 9,019 41,114
Fixed assets- net 1,295 1,295
Other assets 748 225 b 973
---------------------- ----------------------- ----------------------
$34,138 $9,244 $43,382
====================== ======================= ======================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable - bank $37,756 $(37,756) a --
Current portion of Long-term debt 500 a $500
Accounts payable 19,825 19,825
Accrued expenses 5,393 5,393
Accrued restructuring expenses 1,850 1,850
---------------------- ----------------------- ----------------------
Total current liabilities 64,824 (37,256) 27,568
Subordinated promissory notes 26,374 (26,374) a --
Long-term debt -- 14,500 a 14,500
---------------------- ----------------------- ----------------------
91,198 (49,130) 42,068
---------------------- ----------------------- ----------------------
STOCKHOLDERS' DEFICIENCY
Preferred stock -- --
Common stock 269 2 a 271
Additional paid-in capital 65,463 38,874 a 123,835
19,500 a
(2) a
Deficit (121,312) (121,312)
Less: Treasury stock (1,480) (1,480)
---------------------- ----------------------- ----------------------
Total stockholders' equity (deficiency) (57,060) 58,374 1,314
---------------------- ----------------------- ----------------------
34,138 9,244 43,382
====================== ======================= ======================
</TABLE>
a - To reflect the (i) the conversion of subordinated indebtedness owed and to
be owed to J. Chaus, into Common Stock of the Company, (ii) the Company raising
$19.5 million in net proceeds from the Rights Offering, (iii) $12.5 million in
respect of borrowings previously guaranteed by Ms. Chaus being satisfied in
full upon her assumption of such amount of Bank Debt pursuant to the BNYF -J.
Chaus Loan, which amount will, as part of the subordinated indebtedness owed to
J. Chaus by the Company, be converted into equity, (iv) obtaining the New Term
Loan in the amount of $15.0 million, and (v) the Stock Split. There can be no
assurance that the Rights Offering will be fully subscribed. Note 7 of the
Notes to the Consolidated Financial Statements, discloses the effect of the
Rights being exercised solely by J. Chaus pursuant to the Purchase Commitment
and the Standby Commitment.
b - Record payment of expenses associated with New Financing Agreement.
18
<PAGE>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED CONSOLIDATED
STATEMENT OF STATEMENT OF
OPERATIONS ADJUSTING OPERATIONS
AS OF 9/30/97 ENTRIES AS OF 9/30/97
------------------- --------------- ---------------------
<S> <C> <C> <C>
Net sales $58,856 $(5,886) a $52,970
Cost of goods sold 44,432 (4,985) a 39,447
Gross profit 14,424 (901) a 13,523
Selling general & administrative expenses 10,051 1328) a 8,723
------------------- --------------- ---------------------
4,373 427 4,800
Other income (expense), net (3) (3)
Interest expense (2,319) 720 b (627)
225 c
747 d
------------------- --------------- ---------------------
Income before income taxes 2,051 2,119 4,170
Provision for income taxes 50 50 e 100
------------------- --------------- ---------------------
Net income $ 2,001 $ 2,069 $ 4,070
=================== =============== =====================
</TABLE>
a - Eliminate retail store outlet operations.
b - Eliminate interest expense associated with reduction of bank debt by
$32.0 million out of the proceeds of the BNYF - J.Chaus Loan and the
Company raising $19.5 million in net proceeds from the Rights
Offering. There can be no assurance that the Rights Offering will be
fully subscribed.
c - Eliminate credit support payments to Ms. Chaus.
d - Eliminate interest expense associated with conversion of $27.1 million
of subordinated indebtedness of the Company to J. Chaus (as of
September 30, 1997) into Common Stock of the Company.
e- Reflects the utilization of net operating losses and payment of
alternative minimum taxes.
19
<PAGE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
CONSOLIDATED ADJUSTING CONSOLIDATED
BALANCE SHEET ENTRIES BALANCE SHEET
AS OF 9/30/97 RESTRUCTURING AS OF 9/30/97
---------------------- ----------------------- ---------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 236 $ (225) a $ 11
Accounts receivable, net 29,159 29,159
Inventories 22,549 22,549
Prepaid expenses 565 565
---------------------- ----------------------- ---------------------
Total current assets 52,509 (225) 52,284
Fixed assets net 1,157 1,157
Other assets 782 225 a 1,007
---------------------- ----------------------- ---------------------
$54,448 $ 0 $54,448
====================== ======================= =====================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable--bank $56,178 $(47,000) b $ 9,178
Current portion of Long-term debt 500 b 500
Accounts payable 19,003 19,003
Accrued expenses 5,822 5,822
Accrued restructuring expenses 1,383 1,383
---------------------- ----------------------- ---------------------
Total current liabilities 82,386 (46,500) 35,886
Subordinated promissory notes 27,121 (27,121) b 0
Long-term debt 0 14,500 b 14,500
---------------------- ----------------------- ---------------------
109,507 (59,121) 50,386
---------------------- ----------------------- ---------------------
STOCKHOLDERS' DEFICIENCY
Preferred stock 0 0
Common stock 269 2 b 271
Additional paid-in capital 65,463 39,621 b 124,582
19,500 b
(2) b
Deficit (119,311) (119,311)
Less: Treasury stock (1,480) (1,480)
---------------------- ----------------------- ---------------------
Total stockholders' equity (deficiency) (55,059) 59,121 4,062
---------------------- ----------------------- ---------------------
54,448 0 54,448
====================== ======================= =====================
</TABLE>
a - Record payment of expenses associated with New Financing Agreement.
b - To reflect the (i) the conversion of subordinated indebtedness owed
and to be owed to J. Chaus, into Common Stock of the Company, (ii) the
Company raising $19.5 million in net proceeds from the Rights Offering,
(iii) $12.5 million in respect of borrowings previously guaranteed by
Ms. Chaus being satisfied in full upon her assumption of such amount of
Bank Debt pursuant to the BNYF-J. Chaus Loan, which amount will, as
part of the subordinated indebtedness owned to J. Chaus by the Company,
be converted into equity, (iv) obtaining the New Term Loan in the
amount of $15.0 million, and (v) the Stock Split. There can be no
assurance that the Rights Offering will be fully subscribed.
20
<PAGE>
PROJECTED FINANCIAL INFORMATION
GENERAL ASSUMPTIONS
The projected financial information set forth below ("PFI")
should be read in conjunction with the assumptions, qualifications, limitations
and explanations set forth herein, the selected historical financial
information and the other information set forth in "Selected Historical
Financial Data" as set forth in this Prospectus and the Pro Forma Financial
Statements.
The PFI contained herein constitutes "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and
Section 21E of the Exchange Act. The PFI reflects numerous assumptions,
including various assumptions with respect to the anticipated future
performance of the Company after the Restructuring (the "Restructured Company")
industry performance, general business and economic conditions and other
matters, some of which are beyond the control of the Restructured Company. In
addition, unanticipated events and circumstances may affect the actual
financial results of the Restructured Company. THEREFORE, WHILE THE PFI IS
NECESSARILY PRESENTED WITH NUMERICAL SPECIFICITY, THE ACTUAL RESULTS ACHIEVED
THROUGHOUT THE YEARS 1998 - 1999 ("PFI Period") MAY VARY FROM THE PROJECTED
RESULTS. THESE VARIATIONS MAY BE MATERIAL. ACCORDINGLY, NO REPRESENTATION CAN
BE MADE OR IS MADE WITH RESPECT TO THE ACCURACY OF THE PFI OR THE ABILITY OF
THE RESTRUCTURED COMPANY TO ACHIEVE THE PROJECTED RESULTS. See "Risk Factors"
for a discussion of certain factors that may affect the future financial
performance of the Restructured Company and of the various risks associated
with the securities of the Restructured Company to be issued pursuant to the
Plan.
The Company does not, as a matter of course, make public
projected financial information of their anticipated financial position or
results of operations. Accordingly, the Company does not anticipate that they
will, and disclaims any obligation to, furnish updated projected financial
information in the event that actual industry performance or the general
economic or business climate differs from that upon which the PFI has been
based. Further, the Company does not anticipate that they will include such
information in documents required to be filed with the Securities and Exchange
Commission, or otherwise make such information public.
The PFI has been prepared by the Company's management, and it
believes that the assumptions underlying the projected financial information
for the PFI Period, when considered on an overall basis, are reasonable in
light of current circumstances. However, the Company has historically furnished
projections (on at least an annual basis) to its bank lenders over the last
five fiscal years, and most of such projections were not achieved. Accordingly,
no assurance can be given or is given that the PFI will be realized. The PFI
was not prepared in accordance with standards for projected financial
information promulgated by the American Institute of Certified Public
Accountants or with a view to compliance with published guidelines of the
Securities and Exchange Commission regarding projected financial information or
forecasts.
Neither the Company's independent auditors, nor any other
independent accountants or financial advisors, have compiled, examined, or
performed any procedures with respect to the projected consolidated financial
information contained herein, nor have they expressed any opinion or any other
form of assurance on such information or its achieveability, and assume no
responsibility for, and disclaim any association with, the projected
consolidated financial information.
RIGHTS HOLDERS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE
RELIABILITY OF THE PFI AND THE REASONABLENESS OF THE RELATED ASSUMPTIONS IN
REACHING THEIR DETERMINATION AS TO WHETHER TO PARTICIPATE IN THE RIGHTS
OFFERING.
GENERAL ECONOMIC ASSUMPTIONS
The PFI assumes that the current economic environment
continues throughout the PFI Period. The PFI also assumes that no unforeseen
national or international events will occur during the PFI Period that would
cause the retail and/or women's apparel industries to be adversely impacted.
The apparel industry is a cyclical industry and the PFI assumes a continuation
of the current favorable climate in the industry. It is further assumed that no
changes in the U.S. tax laws will occur which will adversely impact the
Company's ability to utilize its net operating loss carry forwards.
Neither the Company nor any of its respective directors and
officers assumes any responsibility for the accuracy of such PFI. In addition,
because estimates and assumptions underlying the PFI are inherently subject to
significant economic and competitive uncertainties and contingencies which are
beyond the Company's control, there can be assurance that the PFI will be
realized. Actual results may be higher or lower that those set forth herein.
EFFECTIVE DATE OF THE RESTRUCTURING
The PFI assumes that the Restructuring will be effected in
accordance with its terms. The actual date of consummation of the Restructuring
is not known, however, the Company expects it to occur on or about January 23,
1998. Any significant delay in the expected date of consummation of the
Restructuring could have a significant unfavorable impact of financial
performance, including net income for the year ended June 30, 1998, and could
result in additional professional and other fees.
NET SALES
During the PFI Period, net sales are assumed to increase from
$198.0 million in fiscal year 1998 to $231.3 million in fiscal year 1999. The
assumed increase in net sales during the PFI Period is based on a continuation
of recent favorable trends in customer orders for merchandise, sales of the
Company's product at the retail level, and a modest increase in the number of
locations at which the product is
21
<PAGE>
sold or an increase of sales at existing locations. The Company's ability to
achieve the PFI is dependent upon a reversal of the historical trend of
declining revenues over the last several fiscal years.
GROSS MARGIN
The overall level of gross margin as a percentage of
merchandise sales estimated by management is based on historical results and
current trends in the Company's performance. Management believes that, as a
result of the refocusing of the Company's merchandising strategy, the Company
will be able to achieve its projected gross margin levels as presented in the
enclosed PFI. The assumed increase in gross margin levels (from 21.7% in fiscal
1997 to 24.7% in fiscal 1998, and 25.3% in fiscal 1999) assumes that the
Company will increase the percentage of sales at regular prices and reduce the
percentage of promotional sales, as compared to fiscal 1997. A difficult retail
environment or a misjudgement by the Company in fashion trends could increase
the level of off price and promotional sales which would reduce gross margin
levels.
OPERATING EXPENSES
Operating expenses are forecast based upon existing expense
structures and adjusted for increases in sales and general economic inflation.
It is assumed that expenses will increase in total dollar amount during the PFI
Period from $39.0 million in fiscal year 1998 to $41.8 million in fiscal year
1999, principally as a result of general economic inflation and the anticipated
sales growth.
Selling, general and administrative expenses are expected to
grow at rates somewhat lower than the increase in sales because certain fixed
costs are in place and will not increase as a result of additional sales. As a
result, operating expenses as a percentage of net sales are project to decrease
from 19.7% in 1998 to 18.0% in 1999. Over the past several years, management
has downsized several departments to more efficient levels by consolidating
responsibilities and eliminating under-utilized administrative and clerical
positions. Departmental reengineering has reduced manual or duplicative efforts
and enhanced operational efficiencies while reducing overall operating costs.
As such, management believes that the existing corporate infrastructure is
sufficient to support the Company's current operations, as well as the
anticipated growth throughout the projection period without a significant
increase from current expense levels.
INTEREST EXPENSE
The PFI reflects a reduction in interest expense due to the
lower levels of indebtedness resulting from the Restructuring and the projected
cash flows of the Company.
BALANCE SHEET CONSIDERATIONS
Projections of changes in certain balance sheet accounts such
as accounts receivable, inventory and accounts payable are primarily based upon
historical ratios.
CAPITAL EXPENDITURES
The PFI assumes capital expenditures of approximately $3.1
million during the PFI Period to be used for the upgrade of its management
information systems, installation of Nautica shops and fixtures at department
stores, and general corporate purposes.
THE RIGHTS OFFERING
The PFI assumes that the Rights are fully subscribed
resulting in net proceeds to the Company of $19.5 million. There can be no
assurance that any of the Rights, other than those exercised by J. Chaus
pursuant to the Purchase Commitment and the Standby Commitment, will be
exercised.
WORKING CAPITAL FINANCING
The Restructured Company will utilize its working capital
facility in the aggregate amount of $58.5 million (after giving effect to the
Restructuring) to provide primarily for import letter of credit requirements
and for seasonal working capital needs. The PFI assumes that the Company will
reach agreement with BNYF on appropriate levels of overadvances to support its
1999 business plan.
INCOME TAXES
As of June 30, 1997, the Company had a tax net operating loss
carryforward (NOL) of approximately $101.0 million to offset future income tax
liabilities. The NOL will be partially reduced due to cancellation of
indebtedness income that will be realized by the Company in connection with the
conversion, pursuant to the Conversion Commitment, of the principal amount of
subordinated indebtedness owed to Ms. Chaus by the Company. The Company does
not believe that the transactions contemplated by the Restructuring. will cause
a limitation of the use of the remaining NOL.
22
<PAGE>
<TABLE>
<CAPTION>
Projected Consolidated
Balance Sheet Information
(In thousands)
June 30,
1998 1999
---------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $197 $6,441
Accounts receivable, net of related 20,967 25,406
allowances
Inventory 19,575 24,094
Prepaid expenses 604 424
-------------- -------------
TOTAL CURRENT ASSETS $41,343 $ 56,365
-------------- -------------
Fixed assets - net 719 1,814
Other assets 957 762
-------------- -------------
TOTAL ASSETS $43,019 $ 58,941
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable-bank $1,593 --
Accounts payable 15,868 $19,530
Accrued expenses 4,206 4,295
Current portion of long-term debt 1,000 1,000
-------------- -------------
TOTAL CURRENT LIABILITIES 22,667 24,825
-------------- -------------
Long-term debt 13,500 12,500
-------------- -------------
TOTAL LIABILITIES 36,167 37,325
-------------- -------------
STOCKHOLDERS' EQUITY
Common stock 269 269
Additional paid-in capital 125,445 125,445
Ending retained deficit (117,382) (102,618)
Less: treasury stock (1,480) (1,480)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 6,852 21,616
-------------- -------------
TOTAL LIABILITIES AND EQUITY $43,019 $58,941
============== =============
23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECTED CONSOLIDATED
STATEMENTS OF OPERATIONS INFORMATION
(IN THOUSANDS)
FISCAL YEAR ENDING JUNE 30,
% TO % TO
1998 SALES 1999 SALES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES $198,012 100.00% $231,253 100.00%
COST OF GOODS SOLD (149,167) (75.33%) (172,773) (74.71%)
------------------ ---------------- --------------- ---------------
GROSS PROFIT 48,845 24.67% 58,480 25.29%
------ ------ -------- ------
SELLING, GENERAL AND ADMINISTRATIVE (39,001) (19.70%) (41,826) (18.09%)
------------------ ---------------- --------------- ---------------
OPERATING INCOME 9,844 4.97% 16,654 7.20%
------ ----- -------- -----
Interest Expense (5,639) (2.85%) (1,370) (0.59%)
--------- ------- ---------- -------
Income Before Provision for Income Taxes 4,205 2.12% 15,284 6.61%
Provision for Income Taxes (275) (0.14%) (520) (0.22%)
-------- ------- ---------- -------
NET INCOME $3,930 1.98% $14,764 6.38%
======= ===== ======= =====
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PROJECTED CONSOLIDATED
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
FISCAL YEAR ENDING JUNE 30,
1998 1999
------ -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $3,930 $14,764
Adjustment to reconcile net income to net cash used in operating
activities:
Deferred interest on subordinated promissory notes 1,609 --
Depreciation 972 1,600
Changes in operating assets and liabilities
Net accounts receivable (13,516) (4,439)
Inventory 4,171 (4,519)
Prepaids and other assets (36) 180
Accounts payable (3,957) 3,662
Accrued expenses (3,037) 89
---------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (9,864) 11,337
---------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets, net (606) (2,500)
----------- ------------
Net cash used in investing activities (606) (2,500)
----------- ------------
FINANCING ACTIVITIES:
Repayments of short-term bank borrowings (36,163) (1,593)
Proceeds from long-term debt 15,000 --
Repayments of long-term debt (500) (1,000)
Proceeds from Loan by J. Chaus 12,500 --
Proceeds from Rights Offering, net 19,500 --
---------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,337 (2,593)
---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ($133) $6,244
Cash and cash equivalents, beginning of year 330 197
---------- -----------
Cash and cash equivalents, end of year $197 $6,441
========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Conversion of debt to common stock $40,482
==========
</TABLE>
25
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights (other than
those distributed to Ms. Chaus), at no cost, to Holders, of record as of the
Record Date. Each Holder, other than J. Chaus, will receive one Right for each
share of Common Stock held on the Record Date with each Right entitling the
Holder thereof to subscribe for and purchase 5.464751 shares of Common Stock at
the Subscription Price the Basic Subscription Privilege"), for a price of
$1.4309 per share (the "Subscription Price"). Ms. Chaus will receive one
non-transferable Right for each share of Common Stock held by her on the Record
Date, with each Right entitling her to subscribe for and purchase 5.181105
shares of Common Stock at the Subscription Price. On December 2, 1997 the
average of the bid and asked prices for the Common Stock on the NYSE was
$0.9375 per share (without giving effect to the Stock Split). The Expiration
Date will be extended a reasonable period of time (at least ten (10) NYSE
trading days) if the Company files an amendment to its registration statement
relating to the Rights Offering which includes a material change in the Rights
Offering. See "The Rights Offering--Amendment, Extension and Termination."
There can be no assurance that shares of the Common Stock will trade at prices
above the Subscription Price. See "Risk Factors--Determination of Subscription
Price; Market Considerations and Uncertain Market for Rights."
No fractional shares or cash in lieu thereof will be issued
or paid. The number of shares distributed to each Holder upon exercise of the
Rights will be rounded up to the nearest whole number of shares.
The issuance by the Company of shares of Common Stock
pursuant to the Rights Offering is not conditioned upon the subscription of
any minimum number of shares of Common Stock by Holders of the Rights. See
"The Rights Offering--Basic Subscription Privilege; Oversubscription
Privilege."
J. Chaus' obligations under the Purchase Agreement are
subject to certain customary conditions. The Company's management believes that
the conditions to J. Chaus' obligations under the Purchase Agreement will be
satisfied or waived and that each of the Standby Commitment and the Purchase
Commitment will be fulfilled.
Before exercising or selling any Rights, potential investors
are urged to read carefully the information set forth under "Risk Factors."
Each Right (other than those distributed to Ms. Chaus) is
transferable in whole by a Holder but no fractional Rights shall be
transferable.
All commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the exercise of
Rights are the responsibility of the Holder of the Rights and none of such
commissions, fees or expenses shall be paid by the Company.
METHOD OF OFFERING
The Rights Offering is being made directly by the Company.
The Company will pay no underwriting discounts or commissions, finders fees or
other remuneration in connection with any distribution of the Rights or sales
of the shares of Common Stock offered hereby, other than the fees paid to
ChaseMellon Shareholder Services, L.L.C., as Subscription Agent. The Company
estimates that the expenses of the Rights Offering (exclusive of fees and
expenses of the Restructuring which do not relate to the Rights Offering) will
total approximately $0.5 million.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on
January 23, 1998, unless extended by the Company as provided herein (the
"Expiration Date"). See "The Rights Offering--Amendment, Extension and
Termination." On and after the Expiration Date, all unexercised Rights will be
null and void. The Company will notify stockholders of any extension of the
Expiration Date of the Rights Offering through the issuance of a press release
indicating such extension. The Company will not be obligated to honor any
purported exercise of Rights received by the Subscription Agent after 5:00
p.m., New York City time, on the Expiration Date, regardless of when the
documents relating to such exercise were transmitted, except when timely
transmitted pursuant to the Guaranteed Delivery Procedures described below.
The Expiration Date will not be extended beyond February 28,
1998.
BASIC SUBSCRIPTION PRIVILEGE; OVERSUBSCRIPTION PRIVILEGE
The Basic Subscription Privilege entitles the Holder of each
Right, other than J. Chaus, to receive, upon payment of the Subscription Price
for each share subscribed for, 5.464751 shares of Common Stock. The Basic
Subscription Privilege entitles J. Chaus to receive, upon payment of the
Subscription Price for each share subscribed for, 5.181105 shares of Common
Stock. No interest will be paid on funds delivered in connection with the
payment of the Subscription Price. If any shares of Common Stock offered hereby
are not purchased pursuant to the Basic Subscription Privilege (such shares, in
aggregate, are sometimes hereinafter referred to as the "Excess Shares"), any
Holder who elects to exercise in full his, her or its Basic Subscription
Privilege may also subscribe at the Subscription Price for additional
Underlying Shares available as a result of unexercised Rights, if any (the
"Oversubscription Privilege"). If an insufficient number of Underlying Shares
are available to satisfy fully all exercises of the Oversubscription Privilege,
after reserving a sufficient number of shares to fulfill subscriptions for
exercises by Holders pursuant to the Basic Subscription Privilege, the
available Underlying Shares will be prorated among Holders who exercise their
Oversubscription Privilege in proportion to the respective numbers of Rights
exercised by such Holders pursuant to the Basic Subscription Privilege.
Certificates representing shares of the Common Stock purchased pursuant to the
Basic Subscription Privilege will be mailed as soon as practicable after the
subscriptions have been accepted by the Subscription Agent to Holders not
participating in the Oversubscription Privilege. Certificates for shares of
Common Stock issuable upon exercise of the Basic Subscription Privilege and
Oversubscription Privilege will be mailed as soon as practicable
26
<PAGE>
after the Expiration Date. The Company will notify a Holder exercising the
Oversubscription Privilege promptly after the Expiration Date of the number of
Excess Shares available to such Holder for oversubscription. If a proration of
the Excess Shares results in a Holder's receiving fewer shares of Common Stock
than the Holder subscribed for pursuant to the Oversubscription Privilege, then
the excess funds paid by that Holder as the Subscription Price for shares not
issued will be returned by mail to subscribers as soon as practicable after the
Expiration Date, without interest or deduction.
PURCHASE COMMITMENT
Subject to the terms and conditions of the Purchase
Agreement, J. Chaus has agreed to subscribe and purchase 6,988,635 shares of
Common Stock (the "J. Chaus Shares") issuable upon exercise of the Rights, for
an aggregate purchase price of $10.0 million (the "Purchase Commitment"). See
"The Company," "The Restructuring" and "Risk Factors--Control by Principal
Stockholder." The rights and obligations of the Company and J. Chaus under the
Purchase Agreement are subject to certain customary conditions, including
approval by the Company's stockholders, and the absence of any litigation or
governmental action challenging or seeking to enjoin the Rights Offering or the
Purchase Agreement, which in the sole judgment of the Company makes it
inadvisable to proceed with the Rights Offering or the Purchase Commitment.
STANDBY COMMITMENT
J. Chaus has agreed, subject to the terms and conditions of
the Purchase Agreement, that in the event that at least 1,747,160 shares of
Common Stock offered hereby (the "Standby Shares") are not purchased by
Holders, other than Ms. Chaus (or purchases by the other directors of the
Company in excess of $100,000 in the aggregate), pursuant to the Basic
Subscription Privilege or the Oversubscription Privilege, she will purchase
the unsubscribed portion of the Standby Shares for an aggregate purchase price
of up to $2.5 million (the "Standby Commitment"). The rights and obligations of
the Company and J. Chaus under the Purchase Agreement are subject to certain
customary conditions, including approval by the Company's stockholders, and the
absence of any litigation or governmental action challenging or seeking to
enjoin the Rights Offering or the Purchase Agreement which in the sole
judgment of the Company, makes it inadvisable to proceed with the Rights
Offering or the Purchase Agreement. On December 8, 1997, at the Company's
Annual Meeting of Stockholders, the Company's stockholders approved the
transactions contemplated by the Purchase Agreement. See "The Company,"
"The Restructuring" and "Risk Factors--Control by Principal Stockholder."
In addition to the Purchase Commitment and the Standby
Commitment of Ms. Chaus, the other members of the Board of Directors of the
Company have advised the Company that they intend to subscribe for their full
Basic Subscription Privilege pursuant to the Rights Offering, and also to
exercise their Oversubscription Privilege in an aggregate amount, inclusive of
their Basic Subscription Privilege, of $600,000 of Common Stock.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company and
management, and was unanimously approved by the disinterested members of the
Company's Board of Directors. The Company's objective in establishing the
Subscription Price was to establish a fair price level for the shares, raise
the targeted proceeds, and provide all of the Company's stockholders with a
reasonable opportunity to make an additional investment in the Company and
minimalize the involuntary dilution of their ownership and voting percentage in
the Company. The Restructuring, including, without limitation, the Rights
Offering, was unanimously approved by the disinterested members of the
Company's Board of Directors.
In approving the Subscription Price, the Board of Directors
considered such factors as the projected value of the Company after giving
effect to the Restructuring, alternatives available to the Company for raising
capital, the market price of the Common Stock, the pro rata nature of the
offering, pricing of similar transactions, the business prospects for the
Company and the general condition of the securities markets. There can be no
assurance, however, that the market price of the Common Stock will not decline
during the subscription period or that, following the issuance of the Rights
and of the Underlying Shares upon exercise of Rights, a subscribing Holder will
be able to sell the Rights or sell the Underlying Shares purchased in the
Rights Offering at a price equal to or greater than the Subscription Price.
SUBSCRIPTION PRICE
The Subscription Price is $1.4309 in cash per share of Common
Stock subscribed for pursuant to the Basic Subscription Privilege, the
Oversubscription Privilege, the Purchase Commitment or the Standby Commitment.
<PAGE>
EXERCISE OF RIGHTS
Rights may be exercised by a Holder, by delivering to the
Subscription Agent, at or prior to the Expiration Date, the properly completed
and executed Subscription Documents evidencing those Rights, with any required
signature guarantees, together with payment in full of the Subscription Price
for each share of the Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. Such payment must be
made by (a) check or bank draft drawn upon a U.S. bank or postal, telegraphic,
or express money order payable to ChaseMellon Shareholder Services, L.L.C., as
Subscription Agent, or (b) wire transfer of same day funds to the account
maintained by the Subscription Agent for such purpose at The Chase Manhattan
Bank, New York, NY, ABA No. 021000021, Attention: ChaseMellon Shareholder
Services Reorg. Account: 323-213057 (Bernard Chaus, Inc.) Payment of the
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) the clearance of any uncertified check, (ii) the receipt
by the Subscription Agent of any certified check or bank draft drawn upon
a U.S. bank or any postal, telegraphic or express money order or (iii) the
receipt of good funds in the Subscription Agent's account designated above.
HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY UNCERTIFIED PERSONAL CHECK
SHOULD NOTE THAT SUCH A CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR
AND ARE URGED TO MAKE
27
<PAGE>
PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT
BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
The addresses to which the Subscription Documents and payment of the
Subscription Price should be delivered are:
By Mail: ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 3301
South Hackensack, New Jersey 07606
By Hand: ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
120 Broadway, 13th Floor
New York, New York 10271
By Overnight
Delivery: ChaseMellon Shareholder Services, L.L.C
Reorganization Department
85 Challenger Road - Mail Drop - Reorg
Ridgefield Park, NJ 07660
If a Rights Holder wishes to exercise Rights, but time will not permit such
Holder to cause the Subscription Documents evidencing such Rights to reach the
Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
1. such Holder has caused payment in full of the Subscription Price
for each share of the Common Stock being subscribed for pursuant to the
Basic Subscription Privilege and Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent on or prior to the
Expiration Date;
2. the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially
in the form provided with the Instructions as to Use of Bernard Chaus, Inc.
Subscription Certificates (the "Instructions") distributed with the
Subscription Documents and this Prospectus, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealer, Inc. (the "NASD"), or from a commercial
bank or trust company having an office or correspondent in the United States
(each, an "Eligible Institution"), stating the name of the exercising Rights
Holder, the number of Rights represented by the Subscription Documents held
by such exercising Rights Holder, the number of shares of the Common Stock
being subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Documents evidencing such Rights
within three trading days following the date of the Notice of Guaranteed
Delivery; and
3. the properly completed Subscription Documents evidencing the Rights
being exercised, with any required signatures guaranteed, are received by
the Subscription Agent within three trading days following the date of the
Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner as
Subscription Documents at the addresses set forth above, or may be
transmitted to the Subscription Agent by telegram or facsimile transmission
(facsimile no. (201) 329-8936) confirmed by telephone (telephone no. (201)
296-4860). Additional copies of the form of Notice of Guaranteed Delivery
are available upon request from the Information Agent.
Funds received in payment of the Subscription Price for
shares of Common Stock subscribed for pursuant to the Rights will be held in a
segregated account pending issuance of such shares.
Unless a Subscription Document (i) provides that the shares
of the Common Stock to be issued pursuant to the exercise of Rights represented
thereby are to be delivered to the record holder of such Rights, or (ii) is
submitted for the account of an Eligible Institution, signatures on such
Subscription Document must be guaranteed by a commercial bank, trust company,
securities broker or dealer, credit union, savings association or other
eligible guarantor institution which is a member of or a participant in a
signature guarantee program acceptable to the Subscription Agent.
Holders who hold shares of the Common Stock for the account
of others, such as brokers, trustees or depositaries for securities, should
notify the respective beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the record holder
of such Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment.
If an exercising Holder does not indicate the number of
Rights being exercised, or does not forward full payment of the aggregate
Subscription Price for the number of Rights that the Holder indicates are being
exercised, then the Holder will be deemed to have exercised the Basic
Subscription Privilege with respect to the maximum number of Rights that may be
exercised for the aggregate payment delivered by the Holder and, to the extent
that the aggregate payment delivered by the Holder exceeds the product of the
Subscription Price multiplied by the number of Rights evidenced by the
Subscription Document delivered by the Holder (such excess being the
"Subscription Excess"), the Holder will be deemed to have exercised the
Oversubscription Privilege to purchase, to the extent available, that number of
whole Excess Shares equal to the quotient obtained by dividing the Subscription
Excess by the Subscription Price. Any amount remaining after application of the
foregoing procedures shall be returned to the Holder promptly by mail without
interest or deduction.
The instructions accompanying the Subscription Certificates
should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION
DOCUMENTS TO THE COMPANY.
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<PAGE>
THE METHOD OF DELIVERY OF SUBSCRIPTION DOCUMENTS AND PAYMENT
OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND
RISK OF HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH SUBSCRIPTION
DOCUMENTS AND PAYMENTS ARE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT,
BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any Right. Subscriptions will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as the Company determines in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give notification.
The Company will pay the fees and expenses of the
Subscription Agent.
Any questions or requests for assistance concerning the
method of exercising Rights or subscribing pursuant to the Oversubscription
Privilege or requests for additional copies of this Prospectus or the Notice of
Guaranteed Delivery should be directed to the Information Agent, ChaseMellon
Shareholder Services, L.L.C., at its address set forth under "Information
Agent."
INFORMATION AGENT
The Company has appointed ChaseMellon Shareholder Services,
L.L.C. as Information Agent for the Rights Offering. Any questions or requests
for additional copies of this Prospectus or the Notice of Guaranteed Delivery
may be directed to the Information Agent at the address and numbers below:
Address: ChaseMellon Shareholder Services, L.L.C.
Information Agent
450 West 33rd Street, 15th Floor
New York, New York 10001
Telephone Number: (800) 414-2879
The Company will pay the fees and expenses of the Information
Agent and has agreed to indemnify the Information Agent from certain
liabilities which it may incur in connection with the Rights Offering.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment
channels, including banks and brokers. If the Rights are traded on the NYSE, it
is anticipated that the Rights will be traded on the NYSE until the close of
business on the last day prior the Expiration Date. There has, however, been no
prior trading on the Rights, and no assurance can be given that a trading
market in the Rights will develop, or if a market develops, that the market
will remain available throughout the subscription period. Although the Company
intends to identify broker-dealers who will make a market in the Rights, there
can be no assurance that a trading market for the Rights will develop or, if
such a market develops, as to how long it will continue.
The Rights evidenced by a single Subscription Certificate may
be transferred (other than those distributed to Ms. Chaus), in whole or in
part, by endorsing the Subscription Certificate for transfer in accordance with
the instructions included thereon. No fraction of an individual Right shall be
transferable (e.g. a Holder may not seek to transfer a portion of a Right by
selling the right to acquire 3 shares and retaining the right to acquire 2.46
shares). However, a portion of the Rights evidenced by a single Subscription
Certificate may be transferred (other than those distributed to Ms. Chaus) by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the Rights
evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Holder or, if the Holder so instructs, to an
additional transferee. A signature guarantee must be provided by an Eligible
Institution.
The Rights (other than those distributed to Ms. Chaus)
evidenced by a Subscription Certificate also may be sold, in whole or in part,
through the Subscription Agent by delivering to the Subscription Agent such
Subscription Certificate properly executed for sale by the Subscription Agent.
If only a portion of the Rights evidenced by a single Subscription Certificate
is to be sold by the Subscription Agent, such Subscription Certificate must be
accompanied by instructions setting forth the action to be taken with respect
to the Rights that are not to be sold. If the Rights can be sold, sales of such
Rights will be deemed to have been effected at the weighted average price
received by the Subscription Agent for all Rights sold by it on the day such
Rights are sold, less any applicable brokerage commissions, taxes and other
direct expenses of sale. Promptly following the settlement of any such sale,
the Subscription Agent will send the Holder a check for the net proceeds (after
deduction of any applicable brokerage commissions, taxes and other direct
expenses of the sale) from the sale of any Rights sold. Orders to sell Rights
must be received by the Subscription Agent prior to 11:00 a.m., New York City
time, on the third NYSE trading day preceding the Expiration Date. If less than
all sales orders received by the Subscription Agent can be filled, sales
proceeds will be prorated among the Holders based upon the number of Rights
each Holder has instructed the Subscription Agent to sell during such period,
irrespective of when during such period the instructions are received by the
Subscription Agent. The Subscription Agent's obligation to execute orders for
the sale of Rights is subject to its ability to find buyers. Any Rights that
cannot be sold by the Subscription Agent by 5:00 p.m., New York City time, on
the third NYSE trading day preceding the Expiration Date, will be returned
promptly by mail to the Holder.
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<PAGE>
Holders (other than Ms. Chaus) wishing to transfer all or a
portion of their Rights should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any, and
(iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither the Company nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
A new Subscription Certificate will be issued to a submitting
Holder (other than Ms. Chaus), or to any designated transferee, upon the
partial exercise or sale of Rights only if the Subscription Agent receives a
properly endorsed Subscription Certificate no later than 5:00 p.m., New York
City time, on the third day prior to the Expiration Date. After such time and
date, no new Subscription Certificates will be issued. Accordingly, after such
time and date a Holder exercising less than all of its Rights will lose the
power to sell or exercise its remaining Rights. A new Subscription Certificate
will be sent by first class mail to the submitting Holder, or to any designated
transferee, only if the Subscription Agent receives the properly completed
Subscription Certificate by 5:00 p.m., New York City time, on the third day
prior to the Expiration Date. Unless the submitting Holder makes other
arrangements with the Subscription Agent, a new Subscription Certificate issued
after 5:00 p.m., New York City time, on the third day prior to the Expiration
Date, will be held for pickup by the submitting Holder, or the designated
transferee, at the Subscription Agent's hand delivery address provided above.
All deliveries of newly issued Subscription Certificates will be at the risk of
the submitting Holder, or the designated transferee.
Except for the fees charged by the Subscription Agent (which
will be paid by the Company as described below), all commissions, fees and
other expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, sale or exercise of Rights will be for the
account of the transferor of the Rights, and none of such commissions, fees or
expenses will be paid by the Company or the Subscription Agent.
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Certificates will not be mailed to Holders or to
any subsequent transferees of any Subscription Certificates whose addresses are
outside the United States or who have APO or FPO addresses, but will be held by
the Subscription Agent for such Holders' accounts. To exercise or sell their
Rights, such Holders must notify the Subscription Agent prior to 11:00 a.m.,
New York City time, on the third NYSE trading day prior to the Expiration Date,
at which time (if no contrary instructions have been received) the Rights
represented thereby will be sold, subject to the Subscription Agent's ability
to find a purchaser. Any such sales will be at prevailing market prices. See
"--Method of Transferring Rights." If the Rights can be sold, a check for the
proceeds from the sale of any Rights, less any applicable brokerage
commissions, taxes and other expenses, will be remitted to such Holders by
mail. The proceeds, if any, resulting from sales of Rights of Holders whose
addresses are not known by the Subscription Agent or to whom delivery cannot be
made will be held by the Subscription Agent in a non-interest bearing account.
Any amount remaining unclaimed on the second anniversary of the Expiration Date
will be turned over by the Subscription Agent to the Company and, after such
date, any person claiming such proceeds as an unsecured general creditor of the
Company, shall be entitled to look only to the Company for payment thereof. The
Rights of such Holders expire at the Expiration Date.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION
PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED
UNLESS THE COMPANY FILES A POST-EFFECTIVE AMENDMENT TO ITS REGISTRATION
STATEMENT RELATED TO THE RIGHTS OFFERING THAT INCLUDES A MATERIAL AMENDMENT. IN
WHICH CASE A HOLDER WILL HAVE A REASONABLE PERIOD OF TIME (AT LEAST TEN (10)
NYSE TRADING DAYS) TO EVALUATE THE MATERIAL AMENDMENT AND TO REVOKE THE
EXERCISE OF THEIR RIGHTS, IF DESIRED.
CONDITIONS TO THE RIGHTS OFFERING
The issuance of shares pursuant to the Rights Offering is
subject to the following conditions: (i) the approval by the Company's
stockholders at the December 8, 1997 Annual Meeting of Stockholders of the
Company of the (a) Stock Split, (b) issuance of 10,510,910 shares of Common
Stock by 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. On December 8, 1997, at the
Company's Annual Meeting of Stockholders, the Company's stockholders approved
the matters described under clause (i) above.
SHARES OF THE COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING; PERCENTAGE
OWNERSHIP BY J. CHAUS AND OTHER HOLDERS
Based on 2,627,727 the number of shares outstanding on the
date of this Prospectus, and giving effect to the issuance of the Conversion
Shares to J. Chaus, if the Rights Offering is fully subscribed for, the Company
will have approximately 27,115,907 shares outstanding. If no shares are
subscribed for pursuant to the Basic Subscription Privilege or the
Oversubscription Privilege, other than shares purchased by J. Chaus and the
other directors of the Company, then based on 2,627,727 the number of shares
outstanding on the date of this Prospectus, giving effect to the issuance of
the Conversion Shares to J. Chaus, the Company will have approximately
22,223,863 shares outstanding.
The following table shows the shares of Common Stock to be
outstanding (without giving effect to stock options) and the change in
percentage ownership at various stages of the Restructuring:
- -------------------------------------------------------------------------------
Josephine Other Directors Other
Chaus of the Company Holders
- -------------------------------------------------------------------------------
Shares % Shares % Shares %
- -------------------------------------------------------------------------------
Pre-Stock Split 13,488,700 51.3 33,000 * 12,755,574 48.7
- -------------------------------------------------------------------------------
Post-Stock Split 1,348,870 51.3 3,300 * 1,275,557 48.7
- -------------------------------------------------------------------------------
Post-Stock Split (after
the Conversion Commitment
by Ms. Chaus but before the
remainder of the Rights
Offering) 11,859,780 90.3 3,300 * 1,275,557 9.7
- -------------------------------------------------------------------------------
Post-Rights Offering
(assuming only Ms. Chaus
and the Company's other
directors participate) 20,525,689 92.4 422,617 1.9 1,275,557 5.7
- -------------------------------------------------------------------------------
Post-Rights Offering
(assuming full participation
by all Holders of the 18,848,415 69.5 21,334 * 8,246,158 30.4
Company)
- -------------------------------------------------------------------------------
* Less than 1%
Therefore, upon completion of the Restructuring, the Company
will have between 22,223,863 and 27,115,907 shares of Common Stock outstanding
and Ms. Chaus's ownership will be as much as 92.4% or as little as 69.5%.
The following is an example of how the Stock Split and the
Rights Offering would affect a typical Holder's shares of Common Stock: If a
Holder owns 10,000 shares of Common Stock prior to the Stock Split, the Holder
will own 1,000 shares of Common Stock after the Stock Split. A Holder owning
1,000 shares of Common Stock on the Record Date will receive 1,000 rights, each
of which will entitle the Holder to subscribe for and purchase 5.464751 shares
of Common Stock for a price of $1.4309 per share pursuant to the Basic
Subscription Privilege. Therefore, the Holder of 1,000 Rights will be entitled
to purchase 5,465 additional shares of Common Stock in the Rights Offering at
the Subscription Price, or $7,819.87 in the aggregate. If the Rights are fully
subscribed by such Holder, he or she would own an aggregate of 6,465 shares of
Common Stock. Each Holder purchasing all of the shares of Common Stock
available to it pursuant to the Basic Subscription Privilege may purchase,
pursuant to the Oversubscription Privilege, the number of Excess Shares
specified by the Holder in the Subscription Documents, subject to proration.
AMENDMENT, EXTENSION AND TERMINATION
The Company reserves the right to extend the Expiration Date
and to amend the terms and conditions of the Rights Offering at the Board of
Director's discretion. In addition, the Rights Offering will terminate if the
conditions to the Rights Offering have not been satisfied on or prior to the
Expiration Date. If the Company makes a Material Amendment to the terms of the
Rights Offering, the Registration Statement of which this Prospectus forms a
part, will be amended, and a new definitive Prospectus will be distributed to
all Rights Holders who have previously exercised Rights and to holders of
record of unexercised Rights on the date the Company amends such terms. In
addition, all holders
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<PAGE>
who have previously exercised Rights, or who exercise Rights within four (4)
business days after the mailing of the new definitive Prospectus, will be
provided with a form of Revocation of Rights Exercise, on which such Rights
Holders can revoke their exercise of Rights and their subscriptions under the
terms of the Rights Offering as amended by the Company. Any Rights Holder who
has previously exercised any Rights, or who exercises Rights within four (4)
business days after the mailing of the new definitive Prospectus, and who does
not revoke its exercise within ten (10) business days after the mailing of such
Revocation by the Company will be deemed not to have canceled such Rights
Holder's exercise of Rights. If any exercise of Rights is so revoked, the full
amount of the Subscription Price theretofore paid by such Rights Holder will be
returned promptly after the Expiration Date by mail, without any interest
earned on such funds. Any completed Subscription Certificate received by the
Subscription Agent five (5) or more business days after the date of the
amendment will be deemed to constitute the consent of the Rights Holder who
completed such Subscription Certificate to the amended terms.
The Company reserves the right at any time prior to delivery
of the shares of Common Stock purchased in the Rights Offering to terminate the
Rights Offering if the conditions of the Rights Offering have not been
satisfied on or prior to the Expiration Date. Such termination would be
effected by the Company by giving oral or written notice of such termination to
the Subscription Agent and making a public announcement thereof. If the Rights
Offering is so terminated, the Subscription Price will be returned promptly
after the Expiration Date by mail, without any interest earned on such funds.
Neither the Company nor any selling Rights Holder will have any obligation to a
purchaser of Rights, whether such purchase was made through the Subscription
Agent or otherwise, in the event the Rights Offering is terminated.
SHARES NOT PURCHASED IN THE RIGHTS OFFERING
Any shares of Common Stock remaining after exercise of the
Basic Subscription Privilege and the Oversubscription Privilege will be
retained by the Company and will not be offered to the public.
STATE AND FOREIGN SECURITIES LAWS
The Rights Offering is not being made in any state or other
jurisdiction in which it is unlawful to do so, nor is the Company selling or
accepting any offers to purchase any shares of the Common Stock from Rights
Holders who are residents of any such state or other jurisdiction. The Company,
if it so determines in its sole discretion, may decline to make modifications
to the terms of the Rights Offering requested by certain states or other
jurisdictions or to qualify the Common Stock in any state or other
jurisdiction, in which event Rights Holders resident in those states or
jurisdictions will not be eligible to participate in the Rights Offering.
NO BOARD RECOMMENDATION
An investment in the Common Stock must be made pursuant to
each Rights Holder's or prospective investor's evaluation of his, her or its
best interests. Accordingly, the Board of Directors of the Company makes no
recommendation to any Rights Holder or prospective investor regarding the
exercise of Rights.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of federal income tax consequences is
for general information only and is based upon the Internal Revenue Code of
1986, as amended to date (the "Code"), the regulations promulgated or proposed
thereunder, the position of the Internal Revenue Service (the "Service") set
forth in published revenue rulings, revenue procedures and other announcements
and court decisions as in effect on the date of this Prospectus. No assurance
can be given that future legislative or administrative actions or decisions
will not result in changes in the law which would result in significant
modifications to the following discussion. The following summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular investor or to certain types of investors subject to special
treatment under the federal income tax laws (for example, and without
limitation, banks, dealers in securities, life insurance companies, tax exempt
organizations and foreign taxpayers), and does not discuss any aspect of state,
local or foreign tax laws. The following discussion is limited to Holders who
will hold the Rights, and any shares of the Common Stock received therefor upon
exercise thereof, as capital assets (i.e., generally, for investment).
Receipt of Rights. Under Section 305 of the Code, a Holder
should not recognize income for federal income tax purposes by reason of the
receipt of a Right, and the Company intends to so treat the distribution of
Rights as a nontaxable distribution.
Basis and Holding Period of the Rights. A Holder's basis in
the Rights received as a distribution on such Holder's shares of Common Stock
will be zero, unless either (i) the fair market value of the Rights on the date
of issuance is 15% or more of the fair market value (on the date of issuance)
of the shares of the Common Stock with respect to which they are received or
(ii) the holder of Common Stock irrevocably elects, in his, her or its federal
income tax return for the taxable year in which the Rights are received, to
allocate part of the basis of its shares of the Common Stock to the Rights. If
the conditions set forth in either (i) or (ii) above are satisfied, then upon
exercise of the Rights or sale of the Rights, the Holder's basis in its shares
of Common Stock will be allocated between the shares of Common Stock and the
Rights in proportion to the fair market values of each on the date of issuance.
The holding period of the Rights received by a Holder as a distribution on such
Holder's shares of the Common Stock will include the Holder's holding period
(as of the date of issuance) for the shares of the Common Stock with respect to
which Rights were issued.
Lapse of Rights. Holders who allow the Rights received by
them at the Issuance to lapse will not recognize any gain or loss, because such
Holders will not be permitted to allocate any portion of the basis in their
Common Stock to such Rights.
Exercise of the Rights; Basis and Holding Period of Shares of
Common Stock. Holders of the Rights will not recognize any gain or loss upon
the exercise of such Rights. The basis of the shares of the Common Stock
acquired through exercise of the Rights generally will be equal to the sum of
the Subscription Price paid therefor and the Holder's basis in such Rights (if
any). The holding period for the shares of the Common Stock acquired through
exercise of the Rights will begin on the date such Rights are exercised.
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<PAGE>
Disposition of Rights or Common Stock. The sale or other
disposition of the Rights or Common Stock acquired on exercise of a Right will
result in the recognition of capital gain or loss by the Holder in an amount
equal to the difference between the amount realized and the Holder's basis in
such Rights (if any) or Common Stock, as the case may be. Capital gain
recognized by a noncorporate Holder will be subject to a reduced rate of tax if
the holding period of the Rights or Common Stock sold or disposed of is greater
than twelve months and will be subject to a further reduced rate of tax if the
holding period for such Rights or Common Stock is greater than eighteen months.
Capital gains recognized by corporations currently are subject to tax at the
same rate as ordinary income.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY, EACH HOLDER
OF RIGHTS AND COMMON STOCK SHOULD CONSULT WITH HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF ACQUISITION, OWNERSHIP AND DISPOSITION
OF THE RIGHTS AND COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL, FOREIGN AND INCOME TAX LAWS.
INFORMATION AVAILABLE
Any questions or requests for assistance concerning the
method of exercising Rights or additional copies of the Prospectus, the
Instructions or the Notice of Guaranteed Delivery may be directed to the
Information Agent or the Company at the telephone number and address below.
Bernard Chaus, Inc.
Attention: Barton Heminover, Vice President--Corporate Controller
1410 Broadway
New York, New York 10018
(212) 354-1280
32
<PAGE>
THE RESTRUCTURING
Management of the Company believes that the initiatives it
has implemented over the last two fiscal years have begun to positively impact
consumer acceptance of its Chaus products. During the last three fiscal
quarters, the Company has benefitted from significant improvement in the
sell-through rate of its core Chaus products to its retail customers. In order
to take advantage of this favorable trend, improve its balance sheet, infuse
capital into the Company, reduce interest and operating expenses and increase
working capital, management of the Company has formulated a restructuring
program, which was announced in June 1997. In September 1997, the disinterested
members of the Board of Directors of the Company unanimously approved 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 $40.6 million of the Company's
indebtedness to Ms. Chaus, consisting of $28.1
million of existing subordinated indebtedness
(including accrued interest through January 23,
1998) and $12.5 million of indebtedness which will
be owed to J. Chaus will be converted into Common
Stock of the Company;
(iii) the New Financing Agreement was entered into with
BNYF, the Company's current working capital lender,
on October 10, 1997; and
(iv) the Company will implement the Stock Split.
Consummation of the Restructuring is subject to: (i) the
approval by the Company's stockholders at the December 8, 1997 Annual Meeting
of Stockholders of the Company 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 other 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. On December 8, 1997,
at the Company's Annual Meeting of Stockholders, the Company's stockholders
approved the matters described under clause (i) above. It is presently
contemplated that the Restructuring will be consummated by January 31, 1998.
Although there can be no assurance, the Company believes
that if the Restructuring is consummated and, it achieves its PFI, the Company
will have sufficient cash flow and credit availability to meet its needs for
the foreseeable future. See "Projected Financial Information."
UNDERTAKINGS BY J. CHAUS
Over the past several years, Ms. Chaus has provided the
Company with substantial credit support, as well as other support. Commencing
in 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, J. Chaus agreed to provide the Company
with credit support in the form of a letter of credit (the "Letter of Credit").
The Letter of Credit which was in the amount of $3.0 million was subsequently
extended and increased to $5.0 million, $7.2 million, and $10.0 million. Each
time J. Chaus agreed to increase the amount of the Letter of Credit, BNYF
increased the Company's availability under its working capital line. As
additional credit support, Ms. Chaus also personally guaranteed, and fully
collateralized, $12.5 million of the Company's indebtedness to BNYF.
In September 1994, Ms. Chaus loaned the Company $7.2 million
in exchange for demand notes bearing interest at 12%. Proceeds of such cash
infusion were used for costs and associated expenses related to the signing of
the Company's new Chief Executive Officer. In order to provide additional
equity to the Company, enhance the Company's balance sheet, and to accommodate
BNYF, Ms. Chaus agreed to exchange such demand notes into Common Stock of the
Company. Upon stockholder approval Ms. Chaus exchanged such demand notes for
1,914,500 shares of Common Stock. Ms. Chaus also agreed, in connection with the
Company's November 1995 public offering, to extend the maturity date of
approximately $23.6 million of subordinated promissory notes from July 1, 1996
to July 1, 1998.
As part of the Restructuring, Ms. Chaus will once again
provide the Company with credit support by (i) converting (a) $28.1 million of
existing subordinated indebtedness (including accrued interest through January
23, 1998), and (b) $12.5 million of indebtedness to be owed to Ms. Chaus upon
her assumption of such amount of Bank Debt pursuant to the BNYF - J. Chaus
Loan, ($40.6 million as of January 23, 1998) into equity, (ii) committing to
subscribe, pursuant to the Rights Offering for $10.0 million Common Stock, and
(iii) committing 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 of stock in the Rights Offering.
Due to the fact that the total Company value (as estimated by
the Company's management and approved by the disinterested members of the
Company's Board of Directors) is less than the amount of the Company's
indebtedness owed or to be owed to BNYF and Ms. Chaus, the holders of the
Company's Common Stock, other than Ms. Chaus, are not legally entitled to any
portion of the Company's net equity value after giving effect to the
Restructuring. Nevertheless, Ms. Chaus has agreed to allow such holders the
right to retain their interests in the Company (subject to dilution), and
afford them the opportunity to participate in the Rights Offering. See
"Prospectus Summary--Background; Reasons for the Rights Offering; Prospects."
THE RIGHTS OFFERING
The Company will seek to raise up to $20.0 million, but not
less than $12.5 million, of equity through the Rights Offering. See "The
Rights Offering."
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<PAGE>
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 $40.6 million of the Company's indebtedness
to Ms. Chaus consisting of $28.1 million of existing subordinated indebtedness
(including accrued interest through January 23, 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.
RESTRUCTURING OF BANK DEBT
The senior secured bank debt owing to BNYF by the Company, as
of September 30, 1997 (the "Bank Debt") consists 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 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 will 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.
The approximately $75.0 million of Bank Debt that has been
refinanced as part of the Restructuring, has been refinanced under two
facilities that are part of the New Financing Agreement: (i) the New Revolving
Facility which is a $66.0 million five-year revolving credit line with a $20.0
million sublimit for letters of credit, and (ii) the New Term Loan which is a
$15.0 million term loan facility. Each facility matures on December 31, 2002.
The Company's obligations under the New Financing Agreement are secured by a
first priority lien on substantially all of the Company's assets, including the
Company's accounts receivable, inventory and trademarks.
BNYF's existing warrants to purchase 125,000 shares of Common
Stock (the "Existing BNYF Warrants") were extinguished, and BNYF received new
warrants (the "New BNYF Warrants") to purchase (i) 375,000 shares of the
Company's Common Stock, with an exercise price of $1.0625 per share, the
closing price per share of the Common Stock on June 26, 1997, the date on which
BNYF and the Company executed a commitment letter (the "Commitment Letter")
describing the terms and conditions of the Restructuring, and (ii) 125,000
shares of the Company's Common Stock, with an exercise price equal to the
thirty day average trading price on the NYSE of the Company's Common Stock
beginning on the date of the consummation of the Rights Offering.
The New Financing Agreement amends certain provisions of the
Old Bank Debt Agreement and provides for maximum availability of $81.0 million,
and overadvances of up to $12.8 million. The New Financing Agreement also
amends certain financial covenants contained in the Old Bank Debt Agreement.
The New Financing Agreement provides for certain additional events of default,
among which are the default by Ms. Chaus under the Bank Debt Put (as defined
below), and the failure by the Company to close all of its retail outlets by
the end of January 1998.
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").
RESTRUCTURING OF CREDIT SUPPORT PROVIDED BY MS. CHAUS
On October 10, 1997, in substitution for the $12.5 Million
Guarantee (as defined below) 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, as described above, 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 shall be
applied by BNYF to retire $22.5 million of the Bank Debt.
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<PAGE>
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 AND 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 the near term. It is
expected that such amendments will, among other things, 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.
USE OF PROCEEDS
The net proceeds from the Rights Offering are expected to be
between $12.0 million (if the only subscriptions are pursuant to the Purchase
Commitment and the Standby Commitment) and $19.5 million (if all Rights offered
hereby are fully subscribed), after payment of fees and expenses (exclusive of
fees and expenses of the Restructuring which do not relate to the Rights
Offering). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." All of the net proceeds will be used to retire a
portion of the Bank Debt owed to BNYF. The Bank Debt borrowed pursuant to the
Old Bank Debt Agreement had a maturity date of February 20, 1999, and has been
refinanced under the New Financing Agreement. See "The Restructuring." Interest
on the Bank Debt accrued at a rate of .5% above the prime rate.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of
Common Stock. As of October 6, 1997, 2,627,727 shares of Common Stock were
outstanding. In addition, 4,936,000 shares of Common Stock were reserved for
issuance upon the exercise of outstanding 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.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to
one vote on all matters requiring a vote of stockholders. Since the Common
Stock does not have cumulative voting rights, the holders of shares having more
than 50% of the voting power, if they choose to do so, may elect all the
directors of the Company and the holders of the remaining shares would not be
able to elect any directors.
Subject to the rights of holders of any series of preferred
stock that may be issued in the future, the holders of the Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. See "Price Range of Common
Stock and Dividend Policy." In the event of a voluntary or involuntary
liquidation of the Company, all stockholders are entitled to a pro rata
distribution of the assets of the Company remaining after payment of claims of
creditors and liquidation preferences of any preferred stock. Holders of the
Common Stock have no conversion, redemption or sinking fund rights.
At the November 15, 1995 Annual Meeting of Stockholders, the
stockholders of the Company approved an amendment to the Certificate of
Incorporation (the "Amendment") to eliminate preemptive rights of holders of
the Common Stock. Until the effective date of the Amendment (November 16, 1995)
holders of the Common Stock had preemptive rights, subject to certain
exceptions prescribed by the New York Business Corporation Law. All issuances
of Common Stock subsequent to the Company's 1986 initial Public Offering and
prior to the effective date of the Amendment, as well as issuances of warrants
and options to purchase Common Stock, fell within one of such exceptions.
On September 11, 1997, the Board of Directors of the Company
authorized an amendment to the Certificate of Incorporation, which was approved
by the stockholders at the December 8, 1997 Annual Meeting of Stockholders of
the Company, which provides that Section A of ARTICLE FOURTH of the Certificate
of Incorporation is amended to read as follows:
"FOURTH: A. Authorized Shares. The total number of shares of
all classes of stock which the Corporation shall have the 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
35
<PAGE>
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 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."
TRANSFER AGENT
The transfer agent for the Common Stock is ChaseMellon
Shareholder Services, New York, New York 10001.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of
preferred stock (the "Preferred Stock"). The Board of Directors is authorized
to fix the relative rights and preferences of the shares of Preferred Stock,
including voting powers, dividend rights, liquidation preferences, redemption
rights and conversion privileges. As of the date of this Prospectus, the Board
of Directors has not authorized any series of Preferred Stock, and there are no
agreements or understandings for the issuance of Preferred Stock. Without
stockholder approval, the Board of Directors could adversely affect the voting
power of the holders of Common Stock and, by issuing shares of Preferred Stock
with certain voting, conversion and/or redemption rights, could discourage any
attempt to obtain control of the Company.
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "CHS." The following table sets forth for each of the
Company's fiscal periods indicated the high and low sales prices for the Common
Stock as reported on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996
First Quarter ............................. $6.125 $4.750
Second Quarter .......................... 5.625 3.125
Third Quarter ............................ 5.000 2.875
Fourth Quarter ........................... 4.625 3.000
FISCAL 1997
First Quarter ............................. $3.625 $2.000
Second Quarter .......................... 2.875 1.625
Third Quarter ............................ 1.750 0.500
Fourth Quarter ........................... 1.500 0.687
FISCAL 1998
First Quarter ............................. $2.250 $0.875
Second Quarter (through December 2, 1997) 1.437 0.562
</TABLE>
As of September 26, 1997, the Company had approximately 1,045
stockholders of record.
The Company has not declared or paid cash dividends or made
other distributions on its Common Stock since prior to its initial public
offering of Common Stock in the 1986 Offering. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors and will
depend on the Company's earnings, its capital requirements and financial
condition. It is the present intention of the Board of Directors to retain all
earnings, if any, for use in the Company's business operations and,
accordingly, the Board of Directors does not expect to declare or pay any
dividends in the foreseeable future. In addition, the New Financing Agreement
prohibits the Company from declaring dividends or making other distributions on
its capital stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition, Liquidity and Capital
Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of September 30, 1997 and as adjusted to give effect to (i) the
Rights Offering assuming the Rights Offering is fully subscribed; (ii) the
conversion of approximately $39.6 million of the Company's indebtedness to Ms.
Chaus, consisting of $27.1 million of existing subordinated indebtedness and
$12.5 million of indebtedness which will be owed to Ms. Chaus, into 10,510,910
shares of Common Stock; and (iii) the refinancing of the Bank Debt through the
New Financing Agreement. There can be no assurance the Rights Offering will be
fully subscribed. This information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources," financial
statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
ACTUAL AS ADJUSTED
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................ $56,178 $9,678
Long-term debt......................................................... 27,121 14,500
Total stockholders' (deficiency) equity................................ (55,059) 4,062
Total capitalization................................................... 28,240 28,240
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated,
certain items expressed as a percentage of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES........................... 100.0% 100.0% 100.0% 100.0% 100.0%
GROSS PROFIT........................ 21.7 13.2 17.9 24.5 26.0
SELLING, GENERAL AND 25.6 23.5 24.7 17.1 21.4
ADMINISTRATIVE EXPENSES.............
RESTRUCTURING EXPENSES.............. 1.4 -- 0.7 -- --
UNUSUAL EXPENSES.................... -- -- 4.6 -- --
INTEREST EXPENSE.................... 5.0 3.8 3.3 (3.9) (3.8)
NET INCOME (LOSS)................... (10.3) (14.3) (15.4) 3.4 0.8
</TABLE>
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
In the quarter ended September 30, 1997, net sales increased
by $10.8 million or 22.6% as compared to the quarter ended September 30, 1996.
This sales increase was primarily due to an increase in sales at regular and
incentive prices of the Company's Chaus product lines. Units shipped increased
by approximately 21.6% with a nominal increase in the average selling price.
In the quarter ended September 30, 1997, gross profit
increased by $1.9 million as compared to the quarter ended September 30, 1996
as a result of the increase in the Company's net sales. Gross profit as a
percentage of net sales decreased to 24.5% in the quarter ended September 30,
1997 from 26.0% in the comparable quarter last year primarily due to lower
gross profit percentage associated with the Company's Nautica licensed product
line and its retail outlet stores, partially offset by an increase in its Chaus
product lines.
Selling, general and administrative expenses decreased by
$0.2 million in the quarter ended September 30, 1997 as compared to the quarter
ended September 30, 1996, primarily due to decreases in payroll and payroll
related items by approximately $0.1 million, and decreases in other selling,
general and administrative expenses of approximately $0.1 million. As a
percentage of net sales, selling, general and administrative expenses decreased
to 17.1% for the quarter ended September 30, 1997 from 21.4% for the comparable
quarter ended September 30, 1996, because expenses remained relatively constant
as sales increased.
Interest expense in the quarter ended September 30, 1996
increased $0.5 million as compared with the corresponding quarter of the prior
fiscal year primarily as a result of higher average bank borrowings.
Fiscal 1997 Compared to Fiscal 1996
In fiscal 1997, net sales decreased by $10.5 million, or
6.1%, compared to the prior year. The decrease in net sales was due
predominately to a reduction in off-price sales, and the discontinuation of
dresses as a product category in March 1996. the decrease in net sales was
partially offset by sales of the Company's licensed Nautica product of
approximately $25.0 million, which commenced in August 1996. Sales by the
Company's outlet stores decreased by $1.2 million, or 6.5%, as compared to the
prior year. This decrease was due to the closing of nine outlet stores during
the past two years.
Gross profit as a percentage of net sales was 21.7% as
compared to 13.2% in the previous year. The increase in gross profit as a
percentage of net sales is primarily the result of a decrease in off-price
sales volume and the impact of eliminating dresses as a product category in
February 1996.
Selling, general and administrative expenses increased by
$0.8 million, to 25.6% of net sales in fiscal 1997 from 23.5% of net sales in
fiscal 1996. this increase is primarily due to costs associated with the
licensed Nautica product line such as payroll, advertising, sample expense, and
royalty fees. The increase in such expenses was partially offset by a decrease
in payroll expenses throughout other areas of the Company, and a decrease in
occupancy costs. The decrease in occupancy costs was due to a decrease in
occupancy costs at the corporate headquarters which resulted from a decrease in
the space leased and the reduction in the number of outlet stores and the
attendant leases.
The Company recorded a $2.3 million restructuring charge in
the fourth quarter of fiscal 1997 for costs to be incurred in connection with
the Restructuring, which was announced in June 1997. The costs incurred relate
to the closing of the Company's outlet stores (such
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<PAGE>
as professional fees, lease termination expenses, and write-off of fixed
assets), in addition to professional fees and other expenses associated with
the implementation of the company's proposed Restructuring. In addition, the
Company recorded a $1.1 million charge to cost of goods sold related to the
liquidation of the retail outlet store inventory.
Fiscal 1996 Compared to Fiscal 1995
In fiscal 1996, net sales decreased by $11.2 million, or
6.1%, compared to the prior year. Approximately $8.6 million is due to the
decrease in dress sales as a result of the discontinuation of dresses as a
product category. The sales decrease is also the result of lower sales at
regular and incentive prices combined with an increase in off-price sales at
deeper discounts than the prior year.
Sales by the Company's outlet stores decreased by $5.7
million compared to the prior year. This decrease is largely due to the closing
of six outlet stores in fiscal 1996 and a decline in same-store sales of
approximately $2.2 million.
Gross profit as a percentage of net sales was 13.2% as
compared to 17.9% for the previous year. The decrease in gross profit as a
percentage of net sales reflects the impact of increased off-price sales volume
at deeper discounts. The Company's dress division realized a negative gross
margin of $2.2 million for fiscal 1996 which adversely impacted gross profit as
a percentage of net sales.
Selling, general and administrative expenses decreased by
$4.6 million, from 24.7% of net sales in fiscal 1995 to 23.5% of net sales in
fiscal 1996. This decrease is due to a decrease in payroll and payroll related
items of approximately $2.7 million, a decrease in occupancy costs of $1.2
million and a decrease in other expenses of $0.7 million. The decrease in
payroll and payroll related items was predominately due to a decrease of
approximately $0.7 million as a result of the closing of six stores in fiscal
1996 and a decrease of approximately $2.0 million due to employee reductions as
the Company continues to improve the efficiency of its operations. The decrease
in occupancy costs was primarily due to a $1.0 million decrease associated with
the consolidation of the distribution facility and a $0.5 million decrease due
to the reduction in outlet stores.
At the end of fiscal 1995 the balance of the restructuring
reserve was $2.8 million. During fiscal 1996 $2.6 million was charged against
the restructuring reserve, consisting of charges relating to consolidation of
warehouse and office space ($1.3 million), severance related costs ($0.8
million) and outlet store closing costs ($0.5 million). At June 30, 1996 the
balance in the restructuring reserve was $0.2 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Net cash used in operating activities was $18.4 million in
the quarter ended September 30, 1997 as compared to $12.2 million in the
quarter ended September 30, 1996. The net cash used in operating activities
resulted primarily from increases in accounts receivable ($21.7 million),
partially offset by a decrease in inventory ($1.2 million) and net income ($2.0
million).
Net cash used in operating activities was $11.0 million in
fiscal 1997, $22.7 million in fiscal 1996, and $4.8 million in fiscal 1995. The
net cash used in operating activities in fiscal 1997 resulted primarily from
the net loss of $16.5 million, inclusive of $3.6 million of non-cash charges,
and increases in inventory of $2.5 million, partially offset by an increase in
accrued restructuring expenses of $1.7 million and an increase in accounts
payable of $2.4 million.
Historically, the Company has not required major capital
expenditures. In fiscal 1997 and 1996, purchases of fixed assets were $0.2
million and $0.5 million, respectively, consisting primarily of improvements in
the Company's New Jersey warehouse facilities, and New York design and showroom
facilities. In fiscal 1997, the Company incurred expenditures of $0.4 million
for "in store" fixtures and signs purchased in connection with the Nautica
product line. These "in store" fixtures and signs were placed in approximately
120 department stores. In fiscal 1998, the Company anticipates capital
expenditures of approximately $0.5 million, consisting primarily of
expenditures for the Company's New Jersey warehouse facility, and New York
design and showroom facilities. The Company also anticipates expenditures of
approximately $1.0 million for "in store" fixtures and signs purchased in
connection with the Nautica product line.
Old Bank Debt Agreement
The Company and BNYF, a wholly owned subsidiary of The Bank
of New York, entered into a financing agreement in July 1991, which was amended
and restated effective as of February 21, 1995 and further amended, effective
as of September 28, 1995 (the "September 1995 Amendment"), May 9, 1996 (the
"May 1996 Amendment"), September 17, 1996 (the "September 1996 Amendment"),
January 31, 1997 (the "January 1997 Amendment"), March 21, 1997 (the "March
1997 Amendment"), and April 1, 1997 (the "April 1, 1997 Amendment") and April
29, 1997 (the "April 29, 1997 Amendment") (collectively, the "Old Bank Debt
Agreement"). The Old Bank Debt Agreement provided the Company with a $72.0
million credit facility for letters of credit and direct borrowings, with a
sublimit for loans and advances ranging between $40.0 and $58.0 million. The
amount of financing available was based upon a formula incorporating eligible
receivables and inventory, cash balances, other collateral and permitted
overadvances, all as defined in the Old Bank Debt Agreement. At September 30,
1997, the Company had availability of approximately $5.7 million (inclusive of
overadvance availability) under the Old Bank Debt Agreement. The Company's
obligations under the Old Bank Debt Agreement were secured by the Company's
accounts receivable, inventory and trademarks.
The Old Bank Debt Agreement contained certain financial
covenants including covenants regarding the Company's tangible net worth
deficit and working capital deficiency. In addition to a cap on personal
property leases, the Company was also prohibited from declaring or paying
dividends or making other distributions on its capital stock, with certain
exceptions. In a Waiver, dated May 5, 1997 (the "Waiver"), BNYF waived covenant
compliance with net worth, working capital and quarterly minimum profit
requirement for the period ended March 31, 1997.
39
<PAGE>
Interest on direct borrowings was payable monthly at an
annual rate equal to the higher of (i) The Bank of New York's prime rate (8.50%
at September 30, 1997) plus 0.5% (The Bank of New York prime rate plus 1.5% in
the event the Company's overadvance position exceeded the allowable
overadvances) or (ii) the Federal Funds Rate (5.625% at September 30, 1997) in
effect plus 1% (Federal Funds Rate in effect plus 2% in the event the Company's
overadvance position exceeded the allowable overadvances). There was an annual
commitment fee of 0.375% of the unused portion of the line, payable monthly,
and letter of credit fees equal to 0.125% of the outstanding letter of credit
balance, payable monthly. The Old Bank Debt Agreement required the payment of
minimum service charges of $0.6 million per annum. In connection with the May
1996 Amendment, BNYF was paid a fee of $25,000, and additional fees of $10,000
per month through December 1996 were provided for, with BNYF agreeing to
provide specified levels of overadvances up to $10.0 million through the same
period. In connection with the Waiver, BNYF was paid a fee of $25,000 and the
Company issued the Existing BNYF Warrants. In connection with the
Restructuring, the Existing BNYF Warrants were extinguished, and BNYF received
the New BNYF Warrants. See "The Restructuring--Restructuring of Bank Debt."
BNYF could have terminated the Old Bank Debt Agreement after February 20, 1999,
upon 60 days' written notice to the Company.
On October 10, 1997, the Company and BNYF entered into the
New Financing Agreement which amended and restated in its entirety the Old Bank
Debt Agreement. The New Financing Agreement amends certain provisions of the
Old Bank Debt Agreement and provides for maximum availability of $81.0 million,
and overadvances of up to $12.8 million. The New Financing Agreement also
amends certain financial covenants contained in the Old Bank Debt Agreement.
The New Financing Agreement provides for certain additional events of default,
among which are the default by Ms. Chaus under the Bank Debt Put, and the
failure by the Company to close all of its retail outlets by the end of January
1998. See "The Restructuring--Restructuring of Bank Debt".
New Financing Agreement
The New Financing Agreement consists of two facilities: (i)
the New Revolving Facility which is a $66.0 million five-year revolving credit
line with a $20.0 million sublimit for letters of credit, and (ii) the New Term
Loan which is a $15.0 million term loan facility. Each facility matures on
December 31, 2002. See "The Restructuring--Restructuring of Bank Debt".
The New Financing Agreement contains financial covenants
requiring, among other things, the maintenance of minimum levels of tangible
net worth, working capital and maximum permitted loss (minimum permitted
profit).
Credit Support
Josephine Chaus has arranged for a letter of credit (the
"Letter of Credit") in various amounts since April 1994 in return for which
BNYF has increased the availability under the Old Bank Debt Agreement. In
consideration for credit support provided by Ms. Chaus to the Company prior to
February 1995, Ms. Chaus was granted 1,216,500 warrants (the "1994 Warrants"),
exercisable through November 22, 1999, at prices ranging between $2.25 and
$4.62 per share. As part of the negotiations with BNYF in connection with the
Old Bank Debt Agreement, in February 1995 Josephine Chaus increased the Letter
of Credit to $10.0 million and extended its term to October 31, 1995 (the
"February 1995 Increase/Extension"). In addition, in February 1995, Ms. Chaus
provided a $5.0 million personal guarantee (the "$5.0 Million Guarantee"), to
be in effect during the Old Bank Debt Agreement's term. 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 her provision of the
February 1995 Increase/Extension, the $5.0 Million Guarantee and the September
1995 Extension, a special committee consisting of disinterested members of the
Board of Directors of the Company (the "Special Committee") authorized the
issuance to Ms. Chaus of warrants (the "1995 Warrants") to purchase an
aggregate of 1,580,000 shares of Common Stock at prices ranging between $4.05
and $6.75 per share. The issuance of the 1995 Warrants was approved at the 1995
Annual Meeting of Stockholders. The issuance of the 1994 Warrants, the warrants
for the February 1995 Increase/Extension and the warrants for the $5.0 Million
Guarantee was recorded in fiscal 1995 at a value of $1.1 million, and was
included as a charge to interest expense with a corresponding increase to
additional paid-in capital. The issuance of the warrants for the September 1995
Extension was recorded in the second quarter of fiscal 1996 at a value of $0.2
million, and was included as a charge to interest expense with a corresponding
increase to additional paid-in capital. Ms. Chaus received warrant compensation
for her provision of the $5.0 Million Guarantee only through October 31, 1995.
Thereafter, for each three month period of the $5.0 Million Guarantee, she has
received cash compensation of $50,000, as authorized by the Special Committee.
In connection with the September 1995 Amendment, Ms. Chaus
provided the Company with an option to further extend the Letter of Credit to
July 31, 1996 (the "July 1996 Option"), subject to the consummation of the
Company's November 1995 public offering of Common Stock. 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 of her provision of the
July 1996 Extension, the Special Committee authorized the issuance to Ms.
Chaus, of warrants (the "1996 Warrants") to purchase an aggregate of 682,012
shares of Common Stock at a price of $4.20 per share. The issuance of the 1996
Warrants was approved by the stockholders of the Company at the 1996 Annual
Meeting of Stockholders. The issuance of the 1996 Warrants ($0.3 million) was
recorded in the third quarter of fiscal 1996, at a value of $0.3 million and
was included as a charge to interest expense with a corresponding increase to
additional paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed
to extend the Letter of Credit to January 31, 1997 (the "January 1997
Extension") and additionally provided a collateralized increase of $5.0 million
in the $5.0 Million Guarantee to $10.0 million (the "$10.0 Million Guarantee").
In connection with the January 1997 Extension, the Special Committee approved
the payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, 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 by $2.5 million
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.
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<PAGE>
Ms. Chaus previously entered into 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. See "The Restructuring--Restructuring of Credit Support
Provided by Ms. Chaus."
On October 10, 1997, in substitution for the $12.5 Million
Guarantee previously provided by Ms. Chaus, she entered into the October
Deposit Letter pursuant to which she provided $12.5 million in cash collateral
and secured 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, as described above, the Subrogated Loan will,
immediately thereafter, be exchanged by Ms. Chaus for shares of common stock of
the Company. See "The Restructuring--Restructuring of Credit Support Provided
by Ms. Chaus," and "The Restructuring--Exchange of the Company's Indebtedness
Owed to Ms. Chaus for Equity Securities."
Subordinated Debt
The Company had outstanding at September 30, 1997, $27.1
million of subordinated notes payable to Josephine Chaus (the "Subordinated
Notes"). In connection with the Company's November 1995 public offering,
Josephine Chaus extended the maturity date of the Subordinated Notes (which
were to mature on July 1, 1996) to July 1, 1998. The Company has been unable to
pay principal or interest, with certain exceptions, under the Subordinated
Notes as a result of covenants in the Old Bank Debt Agreement. See Note 7 to
Notes to the Company's Consolidated Financial Statements. The Subordinated
Notes will, as part of the Restructuring, be exchanged for equity. See "The
Restructuring--Exchange of the Company's Indebtedness owed to Ms. Chaus for
Equity Securities."
Proposed Restructuring of Indebtedness
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 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 $40.6 million of the Company's indebtedness to Ms.
Chaus, consisting of $28.1 million of existing subordinated indebtedness
(including accrued interest through January 23, 1998) and $12.5 million of
indebtedness which will be owed to Ms. Chaus, will be converted into Common
Stock of the Company; (iii) the New Financing Agreement (entered into on
October 10, 1997); and (iv) the Company will implement the Stock Split. In
connection with the Restructuring, BNYF has agreed that the credit support,
described above, heretofore provided by Ms. Chaus, will be terminated once the
New Financing Agreement becomes effective. Consummation of the Restructuring is
subject to the approval of certain aspects of the Restructuring by the
stockholders of the Company. Such approval was obtained on December 8, 1997
at the Company's Annual Meeting of Stockholders. It is presently contemplated
that the Restructuring will be consummated by January 31, 1998. See "The
Restructuring."
Future Financing Requirements
At September 30, 1997, the Company had a working capital
deficiency of $29.9 million. The Company requires the availability of
sufficient cash flow and borrowing capacity to finance its existing product
lines and to develop and market its licensed Nautica product lines. The Company
expects to satisfy such requirements through cash flow from operations,
borrowings under the New Financing Agreement and proceeds from the Rights
Offering.
Although there can be no assurance, the Company believes that
if the Restructuring is consummated, the Company will have sufficient cash flow
and credit availability to meet its needs at least through the end of fiscal
1998.
The foregoing discussion contains forward-looking statements
which are based upon current expectations and involve a number of
uncertainties, including the Company's ability to obtain additional financing,
retail market conditions, consumer acceptance of the Company's products,
shareholder approval of certain matters related to the Restructuring and
consummation of the Restructuring.
INFLATION
The Company does not believe that the relatively moderate
rates of inflation which recently have been experienced in the United States,
where it competes, have had a significant effect on its net sales or
profitability.
SEASONALITY
Historically, the Company's sales and operating results
fluctuate by quarter, with the greatest sales occurring in the Company's first
and third fiscal quarters. It is in these quarters that the Company's Fall and
Spring product lines, which traditionally have had the highest volume of net
sales, are shipped to customers, with revenues generally being recognized at
the time of shipment. As a result, the Company experiences significant
variability in its quarterly results and working capital requirements.
Moreover, delays in shipping can cause revenues to be recognized in a later
quarter, resulting in further variability in such quarterly results.
41
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, effective for interim and annual periods ending after
December 15, 1997, establishes standards for computing and presenting earnings
per share ("EPS") and simplifies the standards for computing EPS currently
found in Accounting Principles Board Opinion No. 15, Earnings per Share, Common
stock equivalents under APB No. 15, with the exception of contingently issuable
shares (shares issuable for little or no cash consideration), are no longer
included in the calculation of primary, or basic EPS. Under SFAS No. 128,
contingently issuable shares are included in the calculation of basic EPS. For
the year ended June 30, 1997, the adoption of SFAS No. 128 would not have had a
material effect on the calculation of EPS.
SFAS No. 129, Disclosure of Information about Capital
Structure, effective for periods ending after December 15, 1997, establishes
standards for disclosing information about an entity's capital structure. This
statement requires disclosure of the pertinent rights and privileges of various
securities outstanding (stocks, options, warrants, preferred stock, debt and
participation rights) including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices and
redemption requirements. Adoption of this statement will have no effect on the
Company as it currently discloses the information required.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 established standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement,
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is effective for
fiscal periods beginning after December 15, 1997. The Company has not yet
determined the impact, if any, of adopting this standard.
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<PAGE>
BUSINESS
PRODUCTS
The Company's products currently are divided into two
principal product categories: (i) career sportswear and (ii) weekend casual
sportswear. In late fiscal 1994 the Company shifted its product focus from
single, fashion-driven items to full collections with an emphasis on
traditional styling. With this repositioning, the Company also has enhanced its
design and quality and by August 1997, the Company had successfully positioned
its Chaus product line into the opening price points of the "better" category.
The Company's career and weekend casual sportswear are marketed as coordinated
groups of jackets, skirts, pants, blouses, sweaters and related accessories
which, while sold as separates, are coordinated by styles, color schemes and
fabrics and are designed to be merchandised and worn together. The Company
believes that the target consumers for its products are women aged 24 to 64.
The Company produces collections of each of these product
lines for each of its five principal selling seasons: Spring, Summer, Fall I,
Fall II and Holiday. Spring and Fall traditionally have been the Company's
major selling seasons.
The Company's major product categories and associated brand
names are summarized in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
WEEKEND CASUAL
CAREER SPORTSWEAR SPORTSWEAR
BRAND NAMES Chaus Chaus Sport
Chaus Woman Nautica
Chaus Petite
PRODUCT OFFERINGS Jackets, Skirts, Pants, Casual Jackets
Shorts, Blouses, Shirts, Sweaters, Skirts, Pants,
Knit Tops, Sweaters Shirts, Knit Tops, Outerwear
INDUSTRY CATEGORIES Chaus--Better Chaus Sport--Upper Moderate and Better
Nautica--Better and Bridge
</TABLE>
Women's apparel is generally divided into five price
categories, namely (listed from lowest to highest) "mass merchandise,"
"moderate," "better," "bridge" and "designer." These categories are
distinguished principally by differences in price and, as a general matter, by
differences in quality.
During fiscal 1997, the suggested retail prices of the
Company's Chaus products ranged between $20.00 and $280.00. The Company's
jackets ranged in price between $120.00 and $280.00, its blouses and sweaters
ranged in price between $48.00 and $130.00, its skirts and pants ranged in
price between $28.00 and $130.00, and its knit tops and bottoms ranged in price
between $24.00 and $120.00.
The following table sets forth a breakdown by percentage of
the Company's net sales by product category for fiscal 1995 through fiscal
1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Career Sportswear
Chaus 37% 41% 31%
Chaus Woman 11 11 13
Chaus Petite 6 5 4
----- ----- -----
Total 54 57 48
Weekend Casual - Sportswear 30 33 35
Nautica 15 -- --
Dresses -- 8 12
Other (1) 1 2 5
----- ----- -----
Total 100% 100% 100%
</TABLE>
- --------------
<PAGE>
(1) Includes sales by outlet stores, offset by intercompany
eliminations. Also includes, for fiscal 1995, the Company's
JOSEPHINE and JEANSWEAR labels, which produced blouses and
jeans, respectively, until the beginning of fiscal 1995 when
the Company ceased producing garments using these labels.
Career Sportswear. The Company markets an extensive line of
career sportswear under the CHAUS label for misses sizes, the CHAUS WOMAN label
for larger sizes and the CHAUS PETITE label for smaller sizes. These product
lines offer a full collection of sportswear geared primarily for the working
woman. Each sportswear collection typically includes a broad selection of
jackets, skirts, pants, blouses and sweaters, as well as more casual apparel
such as shorts, shirts and knit tops.
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<PAGE>
Weekend Casual Sportswear. The CHAUS SPORT label offers
casual jackets, sweaters, skirts, pants, shirts and knit tops. This product
line offers soft career, weekend and leisure sportswear intended for an
informal working environment as well as for casual wear.
LICENSE AGREEMENT WITH NAUTICA
In September 1995, the Company entered into the Nautica
License Agreement under which the Company has an exclusive license to
manufacture, market, distribute and sell licensed product for women under the
Nautica(R) brand name in the United States and Puerto Rico. The Company
currently distributes its licensed Nautica product line in major department and
specialty stores, at "better" to "bridge" price points. Nautica has developed
significant brand-name recognition with its men's apparel lines. The Company's
relationship with Nautica provides the Company with exposure to "better" to
"bridge" departments, while creating an alliance with a leading company in the
apparel industry. The Company's first sales of its licensed Nautica products
occurred in August 1996. The Company's license from Nautica is limited to
women's sportswear collections including coordinating knits, blouses, wovens,
sweaters, pants, skirts, jackets, and outerwear and sportswear dresses bearing
the Nautica brand names and marks. The Company's license from Nautica excludes
business dresses, suits, coats and raincoats that are not part of a sportswear
collection. The license also excludes shoes, scarves, socks, stockings or
accessories for ladies bearing the Nautica brand names and marks.
The initial term of the Nautica License Agreement runs
through December 31, 1999, and is thereafter renewable, at the option of the
Company, for up to two periods of three years each, provided that certain
conditions are met (including the successful attainment of certain sales
targets and the requirement that Andrew Grossman continue in his position as
Chief Executive Officer during the term of the Nautica License Agreement). The
Company's obligations include minimum royalty and advertising payments. A
separate showroom was constructed for the display of the Company's licensed
Nautica products and a full operational merchandising and retail development
group has been dedicated to its licensed Nautica product line.
Pursuant to the terms of the Nautica License Agreement, the
Company has granted Nautica a ten-year option to purchase up to 150,000 shares
of the Company's Common Stock at a purchase price of $5.00 per share (the
closing price of the Common Stock on the NYSE on September 6, 1995, the date
the Company entered into the Nautica License Agreement).
In August 1996, the Company commenced sales of its licensed
NAUTICA label. As initially launched, the Nautica product line encompassed both
career sportswear and weekend casual sportswear. In view of the disappointing
performance of the Company's Nautica product line to date, the Company has
hired a new executive officer, Lynn Buechner, formerly of Liz Clairborne
Collection to manage the product line, and intends to relaunch the Nautica
product line. In contrast to the previous Nautica product line, the relaunched
line will have a narrow focus on casual sportswear items -- a focus that is
consistent with the Nautica men's line.
In connection with the Nautica license, Nautica has asserted
that the Company has not complied with and is not in compliance with all of the
terms of the Nautica License Agreement. To date, Nautica has not sought to
exercise any rights or remedies under the Nautica License Agreement. The
Company believes that Nautica's claims are baseless and without merit.
Notwithstanding that the Company believes that it has claims against Nautica
for its failure to perform under the terms of the Nautica License Agreement and
that the claims asserted by Nautica are baseless, the Company (i) is performing
and will continue to perform all of its obligations under the Nautica License
Agreement, and (ii) intends to enforce all of its rights and remedies under the
Nautica License Agreement.
CUSTOMERS
The Company's products are sold nationwide in an estimated
1,900 individual stores operated by approximately 150 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.
The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company has historically incurred
minimal credit losses.
SALES AND MARKETING
The Company's selling operation is highly centralized. Sales
to the Company's department and specialty store customers are made primarily
through the Company's New York City showrooms. The Company has an in-house
sales force of 26, all of whom are located in the New York City showrooms.
Senior management, principally Josephine Chaus, Chairwoman of the Board and
principal stockholder of the Company, and Andrew Grossman, Chief Executive
Officer, actively participate in the planning of the Company's marketing and
selling efforts. The Company does not employ independent sales representatives
or operate regional sales offices, but it does participate in various regional
merchandise marts. This sales structure enables management to control the
Company's selling operation more effectively, to limit travel expenses, as well
as to deal directly with, and be readily accessible to, major customers.
Products are marketed to department and specialty store
customers during "market weeks," generally four to five months in advance of
each of the Company's selling seasons. The Company assists its customers in
allocating their purchasing budgets among the items in the various product
lines to enable consumers to view the full range of the Company's offerings in
each collection. During the course of the retail selling seasons, the Company
monitors its product sell-through at retail in order to directly assess
consumer response to its products.
DESIGN
The Company's products and certain of the fabrics from which
they are made are designed by an in-house staff of fashion designers. The 16
person design staff, headed by Judith Leech, monitors current fashion trends
and changes in consumer preferences. Josephine Chaus and Andrew Grossman, the
Company's Chief Executive Officer, who are instrumental in the design function,
meet regularly with the design
44
<PAGE>
staff to create, develop and coordinate the seasonal collections. The Company
believes that its design staff is known for its distinctive styling and its
ability to contemporize fashion classics. Emphasis is placed on the
coordination of outfits and quality of fabrics to encourage the purchase of
more than one garment.
MANUFACTURING AND DISTRIBUTION
The Company does not own any manufacturing facilities; all of
its products are manufactured in accordance with its design specifications and
production schedules through arrangements with independent manufacturers. The
Company believes that outsourcing its manufacturing maximizes its flexibility
while avoiding significant capital expenditures, work-in-process buildup and
the costs of a large workforce. A substantial amount (approximately 80%) of its
product is manufactured by approximately 35 key independent suppliers located
primarily in South Korea, Hong Kong, Taiwan, China, Indonesia and elsewhere in
the Far East. Approximately 20% of the Company's products are manufactured in
the United States and the Caribbean Basin. No contractual obligations exist
between the Company and its manufacturers except on an order-by-order basis.
During fiscal 1997, the Company purchased approximately 68% of its finished
goods from its ten largest manufacturers, including approximately 19% of its
purchases from its largest manufacturer. Contracting with foreign manufacturers
enables the Company to take advantage of prevailing lower labor rates and to
use a skilled labor force to produce high quality products.
Generally, each manufacturer agrees to produce finished
garments on the basis of purchase orders from the Company, specifying the price
and quantity of items to be produced and supported by a letter of credit naming
the manufacturer as beneficiary to secure payment for the finished garments.
The Company's technical production support staff, located in
New York City, produces patterns, prepares production samples from the patterns
for modification and approval by the Company's design staff, and marks and
grades the patterns in anticipation of production. While the factories have the
capability to perform these services, the Company believes that its personnel
can best express its design concepts and efficiently supervise production to
better ensure that a quality product is produced. Once production fabric is
shipped to them, the manufacturers produce finished garments in accordance with
the production samples and obtain necessary quota allocations and other
requisite customs clearances. Branch offices of the Company's subsidiaries in
Korea and Hong Kong monitor production at each manufacturing facility to
control quality, compliance with the Company's specifications and timely
delivery of finished garments, and arrange for the shipment of finished
products to the Company's New Jersey distribution center. Almost all finished
goods are shipped to the Company's New Jersey distribution center for final
inspection, assembly into collections, allocation and shipment to customers.
The Company believes that the number and geographical
diversity of its manufacturing sources minimize the risk of adverse
consequences that would result from termination of its relationship with any of
its larger manufacturers. The Company also believes that it would have the
ability to develop, over a reasonable period of time, adequate alternate
manufacturing sources should any of its existing arrangements terminate.
However, should any substantial number of such manufacturers become unable or
unwilling to continue to produce apparel for the Company or to meet their
delivery schedules, or if the Company's present relationships with such
manufacturers were otherwise materially adversely affected, there can be no
assurance that the Company would find alternate manufacturers of finished goods
on satisfactory terms to permit the Company to meet its commitments to its
customers on a timely basis. In such event, the Company's operations could be
materially disrupted, especially over the short-term. The Company believes that
relationships with its major manufacturers are satisfactory.
The Company uses a broad range of fabrics in the production
of its clothing, consisting of synthetic fibers (including polyester and
acrylic), natural fibers (including cotton and wool), and blends of natural and
synthetic fibers. The Company does not have any formal, long-term arrangements
with any fabric or other raw material supplier. During fiscal 1997, virtually
all of the fabrics used in the Company's products manufactured in the Far East
were ordered from the Company's five largest suppliers in the Far East, which
are located in Japan, Taiwan and Korea, and virtually all of the fabric used in
the Company's products manufactured in the United States and the Caribbean
Basin were ordered by three major suppliers from these regions. The Company
selects the fabrics to be purchased, which are generally produced for it in
accordance with its own specifications. To date, the Company has not
experienced any significant difficulty in obtaining fabrics or other raw
materials and considers its sources of supply to be adequate.
The Company operates under substantial time constraints in
producing each of its collections. Orders from the Company's customers
generally precede the related shipping period by up to five months. However,
proposed production budgets are prepared substantially in advance of the
Company's initial commitments for each collection. In order to make timely
delivery of merchandise which reflects current style trends and tastes, the
Company attempts to schedule a substantial portion of its fabric and
manufacturing commitments relatively late in a production cycle. However, in
order to secure adequate amounts of quality raw materials, especially greige
(i.e., "undyed") goods, the Company must make substantial advance commitments
to suppliers of such goods, often as much as seven months prior to the receipt
of firm orders from customers for the related merchandise. Many of these early
commitments are made subject to changes in colors, assortments and/or delivery
dates.
IMPORTS AND IMPORT RESTRICTIONS
The Company's arrangements with its manufacturers and
suppliers are subject to the risks attendant to doing business abroad,
including the availability of quota and other requisite customs clearances, the
imposition of export duties, political and social instability, currency
revaluations, and restrictions on the transfer of funds. Bilateral agreements
between exporting countries, including those from which the Company imports
substantially all of its products, and the United States' imposition of quotas,
limits the amount of certain categories of merchandise, including substantially
all categories of merchandise manufactured for the Company, that may be
imported into the United States. Furthermore, the majority of such agreements
contain "consultation clauses" which allow the United States to impose at any
time restraints on the importation of categories of merchandise which, under
the terms of the agreements, are not subject to specified limits. The bilateral
agreements through which quotas are imposed have been negotiated under the
framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Arrangement ("MFA") which has been in effect
since 1974. The United States has concluded international negotiations known as
the "Uruguay Round" in which a variety of trade matters were reviewed and
modified. Quotas established under the MFA will be gradually phased out over a
ten year transition period, after which the textile and clothing trade will be
fully integrated into the General Agreement on Trade and
45
<PAGE>
Tariffs ("GATT") and will be subject to the same disciplines as other sections.
The GATT agreement provides for expanded trade, improved market access, lower
tariffs and improved safeguard mechanisms.
The United States and the countries in which the Company's
products are manufactured may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adversely adjust presently prevailing quotas,
duty or tariff levels, with the result that the Company's operations and its
ability to continue to import products at current or increased levels could be
adversely affected. The Company cannot now predict the likelihood or frequency
of any such events occurring. The Company monitors duty, tariff and
quota-related developments, and seeks continually to minimize its potential
exposure to quota-related risks through, among other measures, geographical
diversification of its manufacturing sources, allocation of production of
merchandise categories where more quota is available and shifts of production
among countries and manufacturers. The expansion in the past few years of the
Company's varied manufacturing sources and the variety of countries in which it
has potential manufacturing arrangements, although not the result of specific
import restrictions, have had the result of reducing the potential adverse
effect of any increase in such restrictions.
Substantially all of the Company's products are subject to
United States customs duties. In the ordinary course of business, the Company,
from time to time, is subject to claims by the United States Customs Service
("Customs") for duties and other charges, is entitled to refunds from Customs
due to overpayment of duties by the Company and may be required to pay
penalties with respect to underpayment of duties.
RETAIL OUTLET STORES
At September 30, 1997, the Company had 21 retail outlet
stores as compared to 22 stores at June 30, 1997. The retail outlet stores
operate throughout the country in traditional factory outlet centers in
locations intended to minimize conflict with the Company's major retail
department store customers. The Company plans to close all of its retail outlet
stores (other than the retail outlet store located at the Company's Secaucus
facility, the space for which is leased by the Company as part of its warehouse
lease) by the end of January 1998, and does not intend to open any new stores
in the foreseeable future. Failure to close such retail stores by the end of
January 1998 is an event of default under the New Financing Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--New Financing Agreement" and "--Fiscal 1997 Compared to Fiscal
1996."
BACKLOG
As of October 13, 1997, the Company's order book reflected
unfilled customer orders for approximately $92.0 million of merchandise. As of
September 20, 1996 (as disclosed in the prior year) the backlog was $45.0
million. Order book data at any date are materially affected by the timing of
the initial showing of collections to the trade, as well as by the timing of
recording of orders and of shipments. This year's backlog includes unfilled
customer orders for the upcoming spring season. Company does not believe that
cancellations, rejections or returns will materially reduce the amount of sales
realized from such backlog.
TRADEMARKS
CHAUS(R), CHAUS ESSENTIAL(R), CHAUS SPORT(R), CHAUS WOMAN(R)
and MS. CHAUS(R) are registered trademarks of the Company in the United States
for use on ladies' garments. These trademarks are renewable in the years 2004,
2008, 2002, 2004 and 2005, respectively. JOSEPHINE(R) is also a registered
trademark of the Company in the United States, renewable in the year 2001, for
use on ladies' blouses and sweaters. The Company considers its trademarks to
be strong and highly recognized, and to have significant value in the
marketing of its products. See " --License Agreement with Nautica" for certain
information concerning the Company's Nautica License Agreement.
The Company has also registered its CHAUS, CHAUS SPORT,
CHAUS WOMAN, and JOSEPHINE marks for women's apparel in certain foreign
countries and has legal trademarks in certain foreign countries for selected
women's accessories including handbags, small leather goods and footwear.
EMPLOYEES
At June 30, 1997, the Company employed 482 employees as
compared with 525 employees at June 30, 1996. This total includes 67 in
managerial and administrative positions, approximately 92 in production,
production administration and design, 207 in marketing, merchandising and sales
(including 178 employees in the retail outlet store operation) and 61 in
distribution. Of the Company's total employees, 55 were located in the Far
East. The Company is a party to a collective bargaining agreement with the
Amalgamated Workers Union, Local 88, covering 83 full-time employees. This
agreement expires in August 1999.
The Company considers its relations with its employees to be
satisfactory and has not experienced any business interruptions as a result of
labor disagreements with its employees.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 2,672,727 shares of Common Stock
outstanding and, upon the completion of the Rights Offering will have, between
approximately 22,223,863 (if Rights are exercised solely by Ms. Chaus pursuant
to the Purchase Commitment and the Standby Commitment and the Company's other
directors pursuant to their intentions) and 27,115,907 (if all Rights offered
hereby are exercised) shares of Common Stock outstanding. Of such shares, the
shares sold in the Rights Offering (other than shares which may be purchased
by "affiliates of the Company", including up to 8,735,795 shares to be
purchased by Ms. Chaus pursuant to the Purchase Commitment and the Standby
Commitment), will be freely tradeable without restriction or further
registration under the Securities Act. Of the remaining outstanding shares,
11,859,780 shares of Common Stock beneficially owned by Josephine Chaus will be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act or an applicable exemption from the registration
requirements of the Securities Act, including Rule 144.
46
<PAGE>
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including a person who may be deemed
an affiliate of the Company, who has beneficially owned restricted shares for
at least one year from the later of the date such restricted shares were
acquired from the Company and (if applicable) the date they were acquired from
an affiliate, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume in the public market during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain
requirements as to the manner and notice of sale and the availability of public
information concerning the Company. Ms. Chaus has satisfied the one-year
holding period with respect to 1,348,870 of such shares.
Further, under Rule 144(k), a person who is not an affiliate
of the Company and has not been an affiliate at any time during the 90 days
preceding a sale and who has beneficially owned the shares for a period of at
least two years would be entitled to sell the shares immediately without regard
to volume limitations and the other conditions described above.
No predictions can be made as to the effect, if any, that
market sales of shares of existing stockholders or the availability of such
shares for future sale will have on the market price of shares of Common Stock
prevailing from time to time. The prevailing market price of Common Stock after
the Rights Offering could be adversely affected by future sales of substantial
amounts of Common Stock by existing stockholders.
INDEMNIFICATION OF THE SUBSCRIPTION AGENT
The Company will pay the fees and expenses of ChaseMellon
Shareholder Services, L.L.C., as Subscription Agent, and has also agreed to
indemnify the Subscription Agent from any liability which it may incur in
connection with the Rights Offering, including liabilities under the Securities
Act. The Company will pay the fees and expenses of ChaseMellon Stockholder
Services, L.L.C., as Information Agent, and has agreed to indemnify the
Information Agent from certain liabilities which it may incur in connection
with the Rights Offering, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with this offering will
be passed upon for the Company by Shereff, Friedman, Hoffman & Goodman, LLP,
New York, New York.
EXPERTS
The consolidated financial statements and the related
financial statement schedule included and incorporated by reference in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
years ended June 30, 1996 and 1997, and for each of the three years in the
period ended June 30, 1997, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is included and
incorporated by reference herein, and has been so included and incorporated in
reliance upon such report of such firm given upon their authority as experts in
accounting and auditing.
47
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<S> <C>
Report of Independent Auditors.................................................................................................F-2
Consolidated Balance Sheets -- June 30, 1997 and 1996 .........................................................................F-3
Consolidated Statements of Operations -- Years Ended June 30, 1997, 1996 and 1995..............................................F-4
Consolidated Statements of Stockholders' Equity (Deficiency) --
Years Ended June 30, 1997, 1996 and 1995....................................................................................F-5
Consolidated Statements of Cash Flows -- Years Ended June 30, 1997, 1996 and 1995..............................................F-6
Notes to Consolidated Financial Statements.....................................................................................F-7
The following consolidated financial statement schedule of Bernard Chaus, Inc. and subsidiaries is included in Item 14(a)(2):
Condensed Consolidated Balance Sheets -- June 30, 1997, September 30, 1997 and 1996 (Unaudited) ..............................F-20
Condensed Consolidated Statements of Operations -- Quarters Ended
September 30, 1997 and 1996 (Unaudited)...................................................................................F-21
Consolidated Statements of Cash Flows -- Quarters Ended
September 30, 1997 and 1996 (Unaudited)...................................................................................F-22
Notes to Condensed Consolidated Financial Statements (Unaudited)..............................................................F-23
The following consolidated financial statements of Bernard Chaus, Inc. and subsidiaries are included in Item 8:
Schedule II -- Valuation and Qualifying Accounts.............................................................................S-1
</TABLE>
The other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Bernard Chaus, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Bernard Chaus,
Inc. and subsidiaries as of June 30, 1997 and June 30, 1996 and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended June 30, 1997. Our audits also
included the financial statement schedule listed in the Index at item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bernard Chaus, Inc. and
subsidiaries at June 30, 1997 and June 30, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
September 19, 1997
(October 10, 1997 as to Note 6)
F-2
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................... $ 330 $ 247
Accounts receivable, less allowances of $5,375 and $5,070...................... 7,451 7,995
Inventories.................................................................... 23,746 21,256
Prepaid expenses............................................................... 568 783
--------- ---------
Total current assets........................................................ 32,095 30,281
Fixed assets-- net............................................................... 1,295 1,898
Other assets..................................................................... 748 563
--------- ---------
$ 34,138 $ 32,742
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable-- bank........................................................... $ 37,756 $ 26,077
Accounts payable............................................................... 19,825 17,435
Accrued expenses............................................................... 5,393 6,056
Accrued restructuring expenses................................................. 1,850 196
Total current liabilities................................................... 64,824 49,764
Subordinated promissory notes.................................................... 26,374 23,588
91,198 73,352
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, authorized shares -- 1,000,000; outstanding
shares -- none
Common stock, $.01 par value; authorized shares -- 50,000,000; issued shares
-- 26,899,974 at June 30, 1997 and 26,893,724
at June 30, 1996............................................................ 269 269
Additional paid-in capital..................................................... 65,463 65,450
Deficit........................................................................ (121,312) (104,849)
Less: Treasury stock, at cost-- 622,700 shares................................ (1,480) (1,480)
Total stockholders' deficiency.............................................. (57,060) (40,610)
$ 34,138 $ 32,742
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Fiscal Year Ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales......................................................... $ 160,100 $ 170,575 $ 181,697
Cost of goods sold................................................ 125,422 147,994 149,097
---------- ----------- -----------
Gross profit...................................................... 34,678 22,581 32,600
Selling, general and administrative expenses...................... 40,924 40,162 44,794
Restructuring expenses............................................ 2,250 -- 1,200
Unusual expenses.................................................. -- -- 8,333
------------ ------------ ------------
( 8,496) (17,581) (21,727)
Interest expense.................................................. (8,030) (6,560) (5,976)
Other income (expense), net....................................... 113 56 91
------------ ------------- ------------
Loss before provision for income taxes............................ (16,413) (24,085) (27,612)
Provision for income taxes........................................ 50 301 301
------------ ------------- -------------
Net loss.......................................................... $ (16,463) $ (24,386) $ ( 27,913)
=========== =========== =============
Net loss per share................................................ $ (.63) $ (1.02) $ (1.40)
============= ============ =============
Weighted average number of common shares
outstanding..................................................... 26,277,000 23,987,000 19,910,000
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(In thousands, except number of shares)
Common Stock Additional Treasury Stock
Number of Paid-in Number of
Shares Amount Capital (Deficit) Shares Amount Total
------- ------ --------- ----------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994 18,975,031 $ 190 $40,226 $(52,550) 622,700 $ (1,480) $(13,614)
Net loss..................... (27,913) (27,913)
Exchange of notes for
common stock............... 1,914,500 19 7,352 -- -- -- 7,371
Issuance of warrants......... -- -- 1,136 -- -- -- 1,136
Exercise of stock options.... 183,550 2 639 -- -- -- 641
---------- ------ -------- -------- -------- --------- --------
Balance at June 30, 1995..... 21,073,081 211 49,353 (80,463) 622,700 (1,480) (32,379)
Net loss..................... (24,386) (24,386)
Net proceeds from issuance...
of common stock............ 5,750,000 57 15,366 -- -- -- 15,423
Issuance of warrants......... -- -- 520 -- -- -- 520
Exercise of stock options.... 70,643 1 211 212
------------ ------ --------- ---------- ---------- --------- --------
Balance at June 30, 1996..... 26,893,724 269 65,450 (104,849) 622,700 (1,480) (40,610)
Net loss.................. (16,463) (16,463)
Exercise of stock options.... 6,250 -- 13 13
------------- ------ ---------- ------------ ------------ ----------- ---------
Balance at June 30, 1997 26,899,974 $ 269 $65,463 $(121,312) 622,700 $(1,480) $(57,060)
========== ====== ======= ========= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net loss............................................................... $(16,463) $(24,386) $(27,913)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization........................................ 865 974 1,305
Loss on disposal of fixed assets..................................... -- -- 358
(Recovery of) provision for losses on accounts
receivable......................................................... (20) (69) 225
Deferred interest on subordinated promissory
notes.............................................................. 2,786 2,522 2,277
Non-cash interest expense............................................ -- 520 1,307
Changes in operating assets and liabilities:
Accounts receivable................................................ 564 (280) 9,886
Inventories........................................................ (2,490) (5,053) 9,300
Prepaid expenses and other assets.................................. 372 655 2,278
Accounts payable................................................... 2,390 4,513 (1,368)
Accrued expenses................................................... (663) 507 (1,161)
Accrued restructuring expenses..................................... 1,654 (2,608) (1,275)
-------- --------- ---------
Net Cash Used In Operating Activities.................................... (11,005) (22,705) (4,781)
-------- --------- --------
Investing Activities
Purchases of fixed assets.............................................. (186) (480) (443)
Purchases of other assets.............................................. (418) --- ---
----------- ------------ ----------
Net Cash Used In Investing Activities (604) (480) (443)
Financing Activities
Net proceeds from (repayments of) short-term bank
borrowings........................................................... 11,679 7,379 (2,417)
Net proceeds from issuance of stock.................................... -- 15,423 --
Principal payments on subordinated promissory
notes................................................................ -- -- (250)
Proceeds from issuance of subordinated promissory
notes................................................................ -- -- 7,200
Net proceeds from exercise of options.................................. 13 212 641
--------- ----------- -----------
Net Cash Provided by Financing Activities................................ 11,692 23,014 5,174
------- --------- ----------
Increase (Decrease) In Cash And Cash Equivalents......................... 83 (171) (50)
Cash and Cash Equivalents, Beginning of Year............................. 247 418 468
--------- ---------- -----------
Cash and Cash Equivalents, End of Year................................... $ 330 $ 247 $ 418
========== ========== ===========
Cash paid for:
Taxes.................................................................. 13 14 7
Interest .............................................................. 4,822 3,809 2,283
Supplemental schedule of non-cash financing activities:
Exchange of subordinated promissory notes for
common stock ...................................................... -- -- 7,200
Issuance of warrants for credit support by
principal stockholder ............................................. -- 520 1,136
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Bernard Chaus, Inc. (the "Company") designs, arranges for the
manufacture of and markets an extensive range of women's career and casual
sportswear which are marketed principally under the CHAUS(R), CHAUS SPORT(R),
and NAUTICA(R) trademarks. The Company's products are sold nationwide through
department store chains, specialty retailers and other retail outlets.
In the latter part of fiscal 1994, the Company initiated a
restructuring plan (the "1994 Restructuring Plan") which entailed several
initiatives to improve its financial position. These initiatives included,
among other things, a $7.2 million cash infusion from Josephine Chaus to fund
the costs associated with hiring Andrew Grossman as its new Chief Executive
Officer, negotiation of a new bank financing agreement with BNY Financial
Corporation ("BNYF"), a wholly owned subsidiary of The Bank of New York,
expiring in February 1999, overhead reductions, centralization of certain
functions, closing of selected outlet stores.
On November 22, 1995, the Company issued 5,750,000 shares of
Common Stock at a price of $3.00 per share in an underwritten public offering.
Proceeds from the offering, net of commissions and other expenses were $15.4
million.
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 a
restructuring program (the "Restructuring"). See Notes 6 and 7.
The Company's business plan requires the availability of
sufficient cash flow and borrowing capacity to finance its existing product
lines and the development and marketing of its new licensed Nautica lines. The
Company expects to satisfy such requirements through cash flow from operations,
and its proposed Restructuring, including the New Financing Agreement.
Although there can be no assurance that the plans set forth
above will provide the Company with adequate resources, the Company believes
that these initiatives will have a positive impact on future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Material intercompany accounts and
transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Loss Per Share:
Net loss per share has been computed by dividing the
applicable net loss by the weighted average number of common shares outstanding
during the year. Common equivalent shares were not included as their inclusion
would have been antidilutive.
Revenue Recognition:
Revenues are recorded at the time merchandise is shipped, and
with regard to the outlet stores, at the time when goods are sold to the
customer.
F-7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Credit Terms:
The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company has historically incurred
minimal credit losses. At June 30, 1997 and 1996, approximately 62% and 66%, of
the Company's accounts receivables were due from department store customers
owned by four single corporate entities. During fiscal 1997, approximately 63%
of the Company's net sales were made to department store customers owned by
four single corporate entities, as compared to 60% in fiscal 1996 and 55% in
fiscal 1995. Sales to Dillard's Department Stores accounted for 33% of net
sales in fiscal 1997, 29% of net sales in fiscal 1996 and 22% of net sales in
fiscal 1995. Sales to nine department store companies owned by The May
Department Stores Company accounted for approximately 16% of the Company's net
sales in fiscal 1997, 10% of net sales in fiscal 1996 and 15% of net sales in
fiscal 1995. Sales to eight department store companies owned by Federated
Department Stores accounted for approximately 8% of net sales in fiscal 1997,
5% of net sales in fiscal 1996 and 11% of net sales in fiscal 1995. Sales to
two department store customers owned by TJX Companies, Inc. accounted for
approximately 6% of net sales in fiscal 1997, 16% of net sales in fiscal 1996
and 7% of net sales in fiscal 1995.
The percentages of net sales are based upon stores owned by
the four corporate entities at the end of fiscal 1997. As a result of the
Company's dependence on these customers, they may have the ability to influence
the Company's business decisions. The loss of or significant decrease in
business from any of its major customers would have a material adverse effect
on the Company's financial position and results of operations.
Cash Equivalents:
Cash equivalents are short-term, highly liquid investments
purchased with an original maturity of three months or less.
Inventories:
Inventories are stated at the lower of cost, using the
first-in, first-out method, or market.
Fixed Assets:
Furniture and equipment are depreciated principally using the
straight-line method over eight years. Leasehold improvements are amortized
using the straight-line method over either the term of the lease or the
estimated useful life of the improvement, whichever period is shorter. Computer
software is depreciated using the straight-line method over three years.
Other Assets:
"In store" fixtures and signs are depreciated using the
straight line method over five years.
Foreign Currency Transactions:
The Company negotiates substantially all of its purchase
orders with foreign manufacturers in United States dollars. The Company
considers the United States dollar to be the functional currency of its
overseas subsidiaries. All foreign currency gains and losses are recorded in
the Consolidated Statement of Operations.
Income Taxes:
The Company records income taxes in accordance with Financial
Accounting Standards Board Statement SFAS No. 109, "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss).
F-8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
For financial instruments, including cash and cash
equivalents, accounts receivable and payable, accruals and notes payable --
bank, it was assumed that the carrying amounts approximated fair value due to
their short maturity.
It is not practicable to determine the fair value of the
subordinated debt with the principal shareholder as alternative sources of
financing have not been evaluated by the Company.
Effect of Accounting Pronouncements Not Yet Adopted:
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, effective for interim and annual periods ending after
December 15, 1997, establishes standards for computing and presenting earnings
per share ("EPS") and simplifies the standards for computing EPS currently
found in Accounting Principles Board Opinion No. 15, Earnings per Share, Common
stock equivalents under APB No. 15, with the exception of contingently issuable
shares (shares issuable for little or no cash consideration), are no longer
included in the calculation of primary, or basic EPS. Under SFAS No. 128,
contingently issuable shares are included in the calculation of basic EPS. For
the year ended June 30, 1997, the adoption of SFAS No. 128 would not have had a
material effect on the calculation of EPS.
SFAS No. 129, Disclosure of Information about Capital
Structure, effective for periods ending after December 15, 1997, establishes
standards for disclosing information about an entity's capital structure. This
statement requires disclosure of the pertinent rights and privileges of various
securities outstanding (stocks, options, warrants, preferred stock, debt and
participation rights) including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices and
redemption requirements. Adoption of this statement will have no effect on the
Company as it currently discloses the information required.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", ("SFAS 130"). SFAS 130 established standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement,
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is effective for
fiscal periods beginning after December 15, 1997. The Company has not yet
determined the impact, if any, of adopting this standard.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of: JUNE 30, JUNE 30,
1997 1996
----------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished goods .......................................... $19,981 18,151
Work-in-process ........................................ 1,027 1,471
Raw materials .......................................... 2,738 1,634
-------- --------
$23,746 $21,256
======= =======
</TABLE>
Inventories include merchandise in transit (principally finished goods) of
approximately $8.5 million at June 30, 1997 and $9.0 million at June 30, 1996.
F-9
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FIXED ASSETS
Fixed assets at cost, net of accumulated depreciation and amortization, consist
of:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture and equipment........................................... $10,233 $10,234
Leasehold improvements............................................ 7,955 8,118
------ -------
$18,188 $18,352
Less accumulated depreciation and amortization.................... 16,893 16,454
------- -------
$ 1,295 $ 1,898
======= =======
</TABLE>
5. INCOME TAXES
Significant components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 42,500 $ 38,200
Costs capitalized to inventory for tax purposes.......... 1,300 900
Accrued interest, subordinated debt/warrants............. 4,000 3,000
Book over tax depreciation............................... 2,000 1,900
Sales allowances not currently deductible................ 2,100 1,600
Reserves and other items not currently deductible........ 1,700 1,200
--------- --------
53,600 46,800
Valuation allowance for deferred tax assets................ (53,600) (46,800)
------ ------
Net deferred tax asset....................................$ 0 $ 0
============= =========
</TABLE>
There was a change in the valuation allowance for the year ended June 30, 1997
of $ 6.8 million.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1997 1996 1995
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit for federal
income taxes at the statutory rate of
35.0% in each of 1997, 1996 and 1995..................... ($5,694) ($8,430) ($9,665)
State and local income taxes
net of federal tax benefit............................... 50 301 301
Executive compensation in excess of
amount deductible for tax purposes....................... -- -- 2,100
Other...................................................... 51 35 35
Effect of unrecognized federal tax loss
carryforwards............................................ 5,643 8,395 7,530
-------- -------- -------
Provision for income taxes................................. $ 50 $ 301 $ 301
========== ======== =======
</TABLE>
At June 30, 1997, the Company has a federal net operating
loss carryforward for income tax purposes of approximately $101 million, which
will expire between 2006 and 2011.
F-10
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL AGREEMENT
The Company and BNYF, a wholly owned subsidiary of The Bank
of New York, entered into a financing agreement in July 1991, which was amended
and restated effective as of February 21, 1995 and further amended, effective
as of September 28, 1995 (the "September 1995 Amendment"), May 9, 1996 (the
"May 1996 Amendment"), September 17, 1996 (the "September 1996 Amendment"),
January 31, 1997 (the "January 1997 Amendment"), March 21, 1997 (the "March
1997 Amendment"), and April 1, 1997 (the "April 1, 1997 Amendment") and April
29, 1997 (the "April 29, 1997 Amendment") (collectively, the "Old Bank Debt
Agreement"). The Old Bank Debt Agreement provided the Company with a $72
million credit facility for letters of credit and direct borrowings, with a
sublimit for loans and advances ranging between $40.0 and $58.0 million. The
amount of financing available was based upon a formula incorporating eligible
receivables and inventory, cash balances, other collateral and permitted
overadvances, all as defined in the Old Bank Debt Agreement. At June 30, 1997,
the Company had availability of approximately $2.1 million (inclusive of
overadvance availability) under the Old Bank Debt Agreement. The Company's
obligations under the Old Bank Debt Agreement were secured by the Company's
accounts receivable, inventory and trademarks.
The Old Bank Debt Agreement contained certain financial
covenants including covenants limiting the Company's tangible net worth deficit
and working capital deficiency. In addition to a cap on personal property
leases, the Company was also prohibited from declaring or paying dividends or
making other distributions on its capital stock, with certain exceptions.
During the third quarter of fiscal year 1996, the Company was not in compliance
with certain financial covenants. BNYF had waived such noncompliance.
Interest on direct borrowings was payable monthly at an
annual rate equal to the higher of (i) The Bank of New York's prime rate (8.25%
at June 30, 1997) plus 0.5% (The Bank of New York prime rate plus 1.5% in the
event the Company's overadvance position exceeded the allowable overadvances)
or (ii) the Federal Funds Rate in effect plus 1% (Federal Funds Rate in effect
plus 2% in the event the Company's overadvance position exceeded the allowable
overadvances). There was a commitment fee of 0.375% of the unused portion of
the line, payable monthly, and letter of credit fees equal to 0.125% of the
outstanding letter of credit balance, payable monthly. The Old Bank Debt
Agreement required the payment of minimum service charges of $0.6 million per
annum. In connection with the May 1996 Amendment, BNYF was paid a fee of
$25,000, and additional fees of $10,000 per month through December 1996 were
provided for, with BNYF agreeing to provide specified levels of overadvances up
to $10.0 million through the same period. In connection with the September 1996
Amendment, BNYF agreed to provide overadvances of up to $15.0 million through
June 1997. BNYF could have terminated the Old Bank Debt Agreement after
February 20, 1999, upon 60 days' written notice to the Company. The weighted
average interest rate was 6.7%, 8.9% and 9.0% for the years ended June 30,
1994, 1995, and 1996, respectively.
Josephine Chaus has arranged for the Letter of Credit in
various amounts since April 1994 in return for which BNYF has increased the
availability under the Old Bank Debt Agreement. In consideration for credit
support provided by Ms. Chaus to the Company prior to February 1995, Ms. Chaus
was granted 1,216,500 warrants (the "1994 Warrants"), exercisable through
November 22, 1999, at prices ranging between $2.25 to $4.62 per share. In
February 1995 Josephine Chaus increased the Letter of Credit to $10.0 million
and extended its term to October 31, 1995 (the "February 1995
Increase/Extension"). In addition, in February 1995, Mrs. Chaus provided a
$5.0 million personal guarantee (the "$5.0 Million Guarantee"), to be in
effect during the Old Bank Debt Agreement's term. 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 1995
Increase/Extension, the $5.0 Million Guarantee and the September 1995
Extension, a special committee consisting of disinterested members of the
Board of Directors of the Company (the "Special Committee") authorized the
issuance of warrants (the "1995 Warrants") to purchase an aggregate of
1,580,000 shares of Common Stock at prices ranging between $4.05 and $6.75 per
share. The issuance of the 1995 Warrants was approved at the 1995 Annual
Meeting of Stockholders. Ms. Chaus received warrant compensation for her
provision of the $5.0 Million Guarantee only through October 31, 1995.
Thereafter, for each three month period of the $5.0 Million Guarantee, she has
received cash compensation of $50,000, as authorized by the Special Committee.
The issuance of the 1994 Warrants, the warrants for the February 1995
Increase/Extension and the warrants for the $5.0 Million Guarantee were
recorded in fiscal 1995 at a value of $1.1 million, included as a charge to
interest expense with a corresponding increase to additional paid-in capital.
The issuance of the warrants for the September 1995 Extension was recorded in
the second quarter of fiscal 1996 at a value of $0.2 million, included as a
charge to interest expense with a corresponding increase to additional paid-in
capital.
In connection with the September 1995 Amendment, Ms. Chaus
provided the Company with an option to further extend the Letter of Credit to
July 31, 1996 (the "July 1996 Option"), subject to the consummation of the
Company's November 1995
F-11
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
public offering of Common Stock. 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 of her provision of the July 1996 Extension,
the Special Committee authorized the issuance to Ms. Chaus, of warrants (the
"1996 Warrants") to purchase an aggregate of 682,012 shares of Common Stock at
a price of $4.20 per share. The issuance of the 1996 Warrants was approved by
the stockholders of the Company at the 1996 Annual Meeting of Stockholders. The
issuance of the 1996 Warrants ($0.3 million) was recorded in the third quarter
of fiscal 1996, at a value of $0.3 million and was included as a charge to
interest expense with a corresponding increase to additional paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed
to extend the Letter of Credit to January 31, 1997 (the "January 1997
Extension") and additionally provided a collateralized increase of $5.0 million
in the $5.0 Million Guarantee to $10.0 million (the "$10.0 Million Guarantee").
In connection with the January 1997 Extension, the Special Committee approved
the payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus
agreed to extend the Letter of Credit to July 31, 1997 (the "July 1997
Extension") and increase the amount of the $10.0 Million Guarantee by $2.5
million to $12.5 million (the "$12.5 Million Guarantee") and fully
collateralize the $12.5 Million Guarantee. In connection with the July
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.
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
million has been refinanced by BNYF pursuant to the terms of the New Term Loan;
(ii) approximately $20 million has been refinanced under the terms of the New
Revolving Facility; (iii) $12.5 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 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 the $17.5 million of
Bank Debt owing to BNYF in respect of letters of credit will be refinanced by
BNYF pursuant to the terms of the New Financing Agreement.
The approximately $75 million of Bank Debt that has been
refinanced as part of the Restructuring, has been refinanced under two
facilities that are part of the New Financing Agreement: (i) the New Revolving
Facility which is a $66 million five-year revolving credit line with a $20
million sublimit for letters of credit, and (ii) the New Term Loan which is a
$15 million term loan facility. Each facility will mature on December 31, 2002.
The Company's obligations under the New Financing Agreement are secured by a
first priority lien on substantially all of the Company's assets, including the
Company's accounts receivable, inventory and trademarks.
Interest on the New Revolving Facility accrues at 1/2 of 1%
above the Prime Rate and is payable on a monthly basis, in arrears. Interest on
the New Term Loan accrues at an interest rate ranging from 1/2 of 1% above the
Prime Rate to 1 1/2% above the Prime Rate, which interest rate will be
determined, from time to time, based upon the Company's availability under the
New Revolving Facility. With the exception of warrants issued to BNYF (as
discussed below), the Company's execution of the New Financing Agreement did
not require the payment of any commitment, closing, administration or facility
fees. The New Financing Agreement provides for service charges and letter of
credit fees on substantially the same terms as those existing under the
Company's Old Bank Debt Agreement with BNYF.
Amortization payments in the amount of $250,000 are payable
quarterly in arrears in connection with the New Term Loan. The first
amortization payment is due on March 31, 1998. A balloon payment in the amount
of $10.25 million is due on
F-12
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2002. In the event of the earlier termination by the Company of
the New Financing Agreement, the Company will be liable for termination fees
initially equal to $2.8 million, and declining to $2.2 million after October 8,
2000.
BNYF's existing warrants to purchase 125,000 shares of Common
Stock (the "Existing BNYF Warrants") were extinguished, and BNYF received new
warrants (the "New BNYF Warrants") to purchase (i) 375,000 shares of the
Company's Common Stock, with an exercise price of $1.0625 per share, the
closing price per share of the Common Stock on June 26, 1997, the date on which
BNYF and the Company executed a commitment letter (the "Commitment Letter")
describing the terms and conditions of the Restructuring and (ii) 125,000
shares of the Company's Common Stock, with an exercise price equal to the
thirty day average trading price on the New York Stock Exchange beginning on
the date of the consummation of the Rights Offering.
The New Financing Agreement amends certain provisions of the
Old Bank Debt Agreement and provides for maximum availability of $81 million,
and overadvances of up to $12.8 million. The New Financing Agreement also
amends certain financial covenants contained in the Old Bank Debt Agreement.
The New Financing Agreement provides for certain additional events of default,
among which are the default by Ms. Chaus under the Bank Debt Put (as defined
below), and the failure by the Company to close all of its retail outlets by
the end of January 1988.
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 before May 15, 1998 or (ii) the
Rights Offering is not consummated prior to May 15, 1998 (the "Bank Debt Put").
Ms. Chaus previously entered into a deposit letter dated July
23, 1997 (the "July Deposit Letter") pursuant to which she provided $10 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 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 million of Bank Debt.
On October 10, 1997, in substitution for 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
shall be 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, as described above, the
Subrogated Loan will, immediately thereafter, be exchanged by Ms. Chaus for
shares of Common Stock of the Company.
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.
In connection with the Restructuring, Ms. Chaus has agreed in
principle to relinquish all of her rights in and to her existing warrants, and
such warrants, to the extent they have not been exercised, shall be
extinguished.
7. 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 program (the "Restructuring") pursuant to which:
(i) the Company will seek to raise up to $20 million,
but not less than $12.5 million, of equity through
a rights offering (the "Rights Offering");
F-13
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ii) approximately $40.5 million of the Company's
indebtedness to Ms. Chaus, consisting of $28 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 ("Ms. Chaus" or "J. 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 a 1-for-10 reverse stock
split (the "Stock Split").
Under the proposed Restructuring, the Company's existing
trade claims, which are primarily held by the Company's customers and vendors,
would be unaffected.
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. See Note 9.
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 (as defined below), and
(d) the sale by the Company of up to 1,747,160 shares to J. Chaus in connection
with the Standby Commitment (as defined below), and (ii) the absences 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 Company recorded a $2.3 million restructuring charge in
the fourth quarter of fiscal 1997 for costs to be incurred in connection with
the Restructuring, which was announced in June 1997. The costs incurred relate
to the closing of the Company's outlet stores (such as professional fees, lease
termination expenses, and write-off of fixed assets), in addition to
professional fees and other expenses associated with the implementation of the
Company's proposed Restructuring. In addition, the Company recorded a $1.1
million charge to cost of goods sold related to the liquidation of the retail
outlet store inventory.
The following table sets forth the consolidated
capitalization of the Company as of June 30, 1997 and the unaudited pro forma
consolidated capitalization of the Company after giving effect to the
Restructuring as if certain items had occurred at June 30, 1997. Such items
include (i) subordinated indebtedness owed and to be owed to Josephine Chaus,
being converted into Common Stock of the Company, (ii) as part of the Rights
Offering, the Company raising at least $12.5 million of equity (less expenses
of the Rights Offering of $.5 million) from the principle stockholder and/or
other stockholders, (iii) $12.5 million in respect of borrowings previously
F-14
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
guaranteed by Ms. Chaus being satisfied in full out of proceeds from the
BNYF--J. Chaus Loan, and (iv) obtaining the New Term Loan in the amount of $15
million.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
Total Debt
Bank Debt $ 37,756 $ -
Subordinated Promissory Notes 26,374 -
Term Loan - 15,000
-------------- -------------
Total debt 64,130 15,000
Total stockholders' deficiency (57,060) (6,186)
----------- -------------
Total capitalization $ 7,070 $ 8,814
========== ==========
</TABLE>
Although there can be no assurance, the Company believes that
the Company will have adequate resources after the consummation of the
Restructuring.
8. SUBORDINATED PROMISSORY NOTES
The Company had outstanding at June 30, 1997, $26.4 million,
including accrued interest at 12% per annum, of subordinated promissory notes
payable to Josephine Chaus, certain of which were originally issued on June 30,
1986 and the remainder of which were issued in February and March 1991 (the
"Subordinated Notes"). The Company has been prohibited from making payments of
principal or interest on the Subordinated Notes since 1993 (with the exception
of principal payments of approximately $0.5 million, $0.3 million and $0.3
million in November 1993, February 1994 and August 1994, respectively) as a
result of restrictive covenants under the Old Bank Debt Agreement. In
connection with the public offering, Ms. Chaus extended the maturity date of
the Subordinated Notes (which were to mature on July 1, 1996) to July 1, 1998.
In September 1994, Josephine Chaus loaned $7.2 million to the
Company in exchange for subordinated promissory notes bearing interest at 12%
per annum. Proceeds of such cash infusion were used for costs and associated
expenses related to the signing of the Company's new chief executive officer.
In November 1994, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate the bank, Josephine
Chaus subsequently agreed, at the request of the Special Committee, to exchange
such notes for shares of Common Stock of the Company on terms determined by a
Special Committee of the Board of Directors. In November 1994, following
stockholder approval, Josephine Chaus exchanged such notes, including accrued
interest thereon ($.2 million), for 1,914,500 shares of Common Stock (based
upon a purchase price of $3.85 per share). The purchase price was determined by
the Special Committee and the purchase was approved by the Company's
stockholders at the November 22, 1994 Annual Meeting of Stockholders.
In connection with the Restructuring, Ms. Chaus has agreed to
convert all indebtedness owed to her by the Company into Common Stock. See
Notes 6 and 7.
F-15
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
Pension Plan:
Pursuant to a collective bargaining agreement, all of the
Company's union employees are covered by a defined benefit pension plan.
Pension expense amounted to approximately $53,000, $105,000 and $69,000 in
fiscal 1995, 1996 and 1997, respectively. As of December 31, 1996, the
actuarial present value of the accumulated vested and non-vested plan benefits
amounted to $0.5 million and net assets available for benefits amounted to $0.5
million. Actuarial assumptions related to weighted average interest rate and
weighted average rate of return were 8.0% and 8.5%, respectively, for each of
1995, 1996 and 1997.
Savings Plan:
The Company has a savings plan (the "Savings Plan") under
which eligible employees may contribute a percentage of their compensation and
the Company (subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and are
subject to vesting provisions of the Savings Plan. Expense under the Savings
Plan was approximately $0.2 in each of fiscal 1995, 1996 and 1997. An aggregate
of 100,000 shares of Common Stock has been reserved for issuance under the
Savings Plan.
Restricted Stock Plan:
In November 1987, the Company's stockholders approved the
adoption of a restricted stock plan (the "Restricted Plan"). Pursuant to the
Restricted Plan, 250,000 restricted shares of the Company's Common Stock were
reserved for allocation to key employees of the Company. The restrictions on
the shares terminate as to 25 percent of such shares on each anniversary of
their date of allocation. As of June 30, 1997, no restricted shares have been
granted under this plan.
Stock Option Plan:
Pursuant to the Company's 1986 Stock Option Plan, as amended
(the "Option Plan"), the Company may grant to eligible individuals incentive
stock options, as defined in the Internal Revenue Code, and non-incentive stock
options. At the annual meeting of stockholders in November 1993, the
stockholders approved the increase in the number of shares of Common Stock with
respect to which options may be granted from 1,500,000 shares to 2,500,000
shares. No stock options may be granted subsequent to 2006 and the exercise
price may not be less than 100% of the fair market value on the date of grant
for incentive stock options and 85% of the fair market value on the date of
grant for non-incentive stock options.
In connection with the Restructuring, the Company currently
intends that employees holding options will be offered the right to exchange
such options for new options.
Grossman Option Plan:
At the annual meeting of stockholders in November 1994, the
stockholders approved the issuance of options for the Company's new Chief
Executive Officer (the "Grossman Option Plan") to purchase 3,000,000 shares of
Common Stock. Of this amount, 1,500,000 options were granted in September 1994
(and included in the following table), and the balance were granted in
September 1995 in connection with the extension of the term of his employment
agreement. The Company and Mr. Grossman are currently negotiating amendments to
his employment agreement. See Note 11.
F-16
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total Options Reserved for Issuance
At June 30, 1997, a total of approximately 4,936,000 shares
of Common Stock were reserved for issuance under the Stock Option, Savings and
Grossman Option Plans.
NON-INCENTIVE
STOCK OPTIONS
----------------------------
NUMBER EXERCISE
OF SHARES PRICE RANGE
----------- -------------
<S> <C> <C> <C>
Outstanding at July 1, 1994 1,419,148 $1.875--$9.375
Options granted 2,186,688 $2.250--$4.750
Options canceled (555,428) $2.000--$9.375
Options exercised (183,550) $2.000--$4.750
----------
Outstanding at June 30, 1995 2,866,858 $1.875--$4.875
Options granted 2,064,000 $3.625--$5.875
Options canceled (687,201) $1.875--$5.875
Options exercised ( 70,643) $1.875--$4.880
-----------
Outstanding at June 30, 1996 4,173,014 $1.875--$5.625
Options granted 95,000 $2.375--$3.125
Options canceled (67,006) $2.000--$4.880
Options exercised (6,250) $2.000--$2.000
------------
Outstanding at June 30, 1997 4,194,758 $1.875--$5.625
========= ==============
</TABLE>
The stock options become exercisable in annual 25% increments
commencing one year after issuance. As of June 30, 1997 options to purchase
approximately 1,205,000 shares were exercisable.
Stock Based Compensation:
All stock options are granted at fair market value of the
Common Stock at grant date. The weighted average fair value of stock options
granted during 1997 and 1996 was $1.93 and $3.29, respectively. The fair value
of each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for the
grants in 1996: risk-free interest rate of 6.38%; expected dividend yield of
0%; expected life of 3.05 years; and expected volatility of 97.25%. The
outstanding stock options at June 30, 1997 have a weighted average contractual
life of 7.68 years. The number of stock options exercisable at June 30, 1997
was 4,219,758. These options have a weighted average exercise price of $3.85
per share.
The Company accounts for the stock option plans in accordance
with the Accounting Principles Board Opinion No. 25, under which no
compensation cost is recognized for stock option awards. Had compensation cost
been determined consistent with Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's pro
forma net loss for 1997 and 1996 would have been $19,658 and $26,469,
respectively. The Company's pro forma net loss per share for 1997 and 1996
would have been $0.73 and $1.10, respectively. Because the SFAS 123 method of
accounting has not been applied to options granted prior to 1995, the resulting
pro forma compensation cost may not be representative of that to be expected in
future years.
10. 1994 RESTRUCTURING PLAN AND UNUSUAL EXPENSES
Relative to the 1994 Restructuring Plan discussed in Note 1,
during the first fiscal quarter of 1995 the Company recorded restructuring
expenses of $1.2 million. These costs primarily related to employee severance
as the Company continued to reduce overhead costs.
F-17
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In January 1995, the Company signed favorable early
termination agreements with the landlords of certain outlet stores, for which
the Company had previously provided a reserve as part of its restructuring
expenses at June 30, 1994. As a result, the Company was able to reduce its
restructuring expenses by approximately $1.3 million. The benefit of this
reduction was offset, however, by certain additional expenses provided by the
Company related to its retail and overseas operations.
During the first fiscal quarter of 1995, the Company recorded
unusual expenses of $7.8 million primarily related to costs associated with the
signing of the Company's new Chief Executive Officer. In the fourth quarter of
fiscal 1995, the Company recorded an additional $0.5 million related to certain
legal matters.
11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Lease Obligations:
The Company leases showroom, distribution and office
facilities, retail outlet facilities and equipment under various noncancellable
operating lease agreements which expire through 2006. In connection with the
Restructuring, the Company will close all of its retail outlet stores (other
than the retail outlet store located at the Company's Secaucus facility, the
space for which is leased by the Company as part of its warehouse lease) by the
end of January 1998. See Note 7. Rental expense for the years ended June 30,
1995, 1996 and 1997 was approximately 7.0 million, $5.8 million, and $4.7
respectively.
The minimum aggregate rental commitments at June 30, 1997 are
as follows (in thousands):
Fiscal year ending:
1998 .............................. $3,460
1999 .............................. 2,318
2000 .............................. 2,000
2001 .............................. 610
2002 .............................. 436
Subsequent to 2002 ................. 576
--------
$9,400
The above table reflects rental commitments under the present
lease agreements including approximately $4.9 million related to retail store
leases. Under the proposed Restructuring, the Company plans to close
substantially all of its retail outlet stores (see Note 1). The lease
termination cost associated with these closings is approximately $800,000.
Letters of Credit:
The Company is contingently liable under letters of credit
issued by banks to cover contractual commitments for merchandise purchases of
approximately $13.6 million at June 30, 1997.
Litigation:
On April 19, 1993, a Class Action Complaint was filed in the
Superior Court of New Jersey, Hudson County, against the Company and others,
including the lead underwriter of the Company's 1986 initial public offering,
alleging common law fraud and negligent misrepresentation in the sale of the
Company's stock in its initial public offering. During fiscal 1996 the Company
reached settlement regarding these claims for approximately $0.3 million, which
expense had been provided for in a prior year. In connection with the Class
Action Complaint, a claim for indemnification was asserted by the Company's
former Underwriters against the Company. The indemnification claim demanded
repayment of the legal fees and expenses incurred by the Underwriters in
connection with the consolidated class actions entitled Phifer v. Chaus, et al.
During fiscal 1996 the Company reached settlement regarding this matter for
approximately $0.8 million, which expense had been provided for in a prior
year.
The Company is a defendant in an action which was commenced
in federal district court in New York by the Equal Employment Opportunity
Commission ("EEOC") on behalf of three patternmakers, each of whom was
terminated by the Company in late 1995. The complaint alleges discrimination on
the basis of age and national origin. The Company was served with the complaint
F-18
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on April 7, 1997. The complaint seeks equitable relief, including (i)
reinstatement of the three individuals at issue, (ii) an injunction against the
Company engaging in age or national-origin discrimination, and (iii) an order
that the Company carry out an affirmative action program for individuals over
40 and for individuals of Italian and/or non-Asian origin. The complaint also
seeks back pay, front pay, liquidated damages, compensatory damages, punitive
damages, and the EEOC's costs in the action. The company will answer the
complaint and deny the material allegations of the complaint and intends to
vigorously oppose the action.
The Company is also involved in various other legal
proceedings arising out of the conduct of its business. The Company believes
that the eventual outcome of the proceedings referred to above will not have a
material adverse effect on the Company's financial condition or results of
operations.
Employment Agreement:
The Company has entered into a number of employment
agreements with various senior executives. In addition to his $1 million
salary, Mr. Grossman is entitled to a bonus equal to 5% of the Company's annual
net profits, as defined, for the duration of his agreement, which expires in
2004. 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 will, among other things, 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.
Nautica License Agreement
In September 1995, the Company entered into a license
agreement (the "Nautica License Agreement") with Nautica Apparel Inc.
("Nautica"), pursuant to which the Company will arrange for the manufacture of,
market, distribute and sell a new women's career and casual sportswear line
under the Nautica name. The initial term of the Nautica License Agreement runs
through December 31, 1999, and is thereafter renewable, at the option of the
Company, for up to two periods of three years each, provided that certain
conditions are met (including the successful attainment of certain sales
targets and the requirement that Andrew Grossman continue in his position as
Chief Executive Officer during the term of the Nautica License Agreement). The
Company's obligations include minimum royalty and advertising payments.
Pursuant to the terms of the Nautica License Agreement, the
Company has granted Nautica a ten-year option to purchase up to 150,000 shares
of the Company's Common Stock at a purchase price of $5.00 per share (the
closing price of the Common Stock on the NYSE on September 6, 1995, the date
the Company entered into the Nautica License Agreement).
12. COMMON STOCK OFFERING
On November 22, 1995, the Company issued 5,750,000 shares of
Common Stock at a price of $3.00 per share in an underwritten public offering.
Proceeds from the offering, net of commissions and other expenses totaling $1.8
million, were $15.4 million.
F-19
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1997 1997 1996
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................................... $ 236 $ 330 $ 210
Accounts receivable, net............................................. 29,159 7,451 23,384
Inventories ......................................................... 22,549 23,746 20,997
Prepaid expenses and other current assets ........................... 565 568 755
--------- -------- ---------
Total current assets ....................................... 52,509 32,095 45,346
Fixed assets-- net .................................................. 1,157 1,295 1,764
Other assets ........................................................ 782 748 1,056
--------- -------- -----------
$54,448 $34,138 $48,166
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable-- banks ............................................... $56,178 $37,756 $38,356
Accounts payable..................................................... 19,003 19,825 19,942
Accrued expenses .................................................... 5,822 5,393 5,776
Accrued restructuring expenses....................................... 1,383 1,850 64
-------- -------- ---------
Total current liabilities .................................. 82,386 64,824 64,138
Subordinated promissory notes ....................................... 27,121 26,374 24,264
-------- -------- --------
109,507 91,198 88,402
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value,
authorized shares -- 1,000,000;
outstanding shares -- none
Common stock, $.01 par value;
authorized shares -- 50,000,000;
issued shares -- 26,899,974 at
September 30, 1997, June 30, 1997
and September 30, 1996...................................... 269 269 269
Additional paid-in capital .......................................... 65,463 65,463 65,463
Deficit ............................................................. (119,311) (121,312) (104,488)
Less: Treasury stock, at cost --
622,700 shares.............................................. (1,480) (1,480) (1,480)
-------- -------- --------
Total stockholders' deficiency.............................. (55,059) (57,060) (40,236)
-------- -------- --------
$ 54,448 $ 34,138 $ 48,166
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------ -----
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 58,856 $ 48,010
Cost of goods sold ...................................... 44,432 35,532
--------- ---------
Gross profit............................................. 14,424 12,478
Selling, general and
administrative expenses................................ 10,051 10,255
--------- ---------
Income from operations................................... 4,373 2,223
Interest and other income, net........................... (3) 6
Interest expense......................................... (2,319) (1,838)
--------- ----------
Income before income taxes............................... 2,051 391
Income taxes............................................. 50 30
---------- -----------
Net income .............................................. $2,001 $ 361
========== ===========
Net income per share..................................... $0.08 $0.01
========== ===========
Weighted average number of
common and common
equivalent shares outstanding.......................... 26,277,000 26,838,000
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net income ...................................................................... $ 2,001 $ 361
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization ...................................................... 196 268
Provision for losses on accounts receivable ..................................... 20 20
Deferred interest on
subordinated promissory notes.................................................... 747 676
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (21,728) (15,409)
Inventories ..................................................................... 1,197 259
Prepaid expenses and other assets................................................ 8 (465)
Accounts payable ................................................................ (822) 2,507
Accrued expenses ................................................................ 429 (280)
Accrued restructuring expenses .................................................. (467) (132)
--------- ---------
Net Cash Used In Operating Activities............................................... (18,419) (12,195)
--------- ---------
Investing Activities
Purchases of fixed assets .......................................................... (73) (134)
Purchases of in-store fixtures...................................................... (24) --
--------- ----------
Net Cash Used In Investing Activities............................................. (97) (134)
--------- ----------
Financing Activities
Net proceeds from short-term bank borrowings .................................... 18,422 12,279
Net proceeds from exercise of options............................................ 0 13
----------- ----------
Net Cash Provided By Financing Activities........................................... 18,422 12,292
-------- --------
Decrease in cash and cash equivalents ........................................... (94) (37)
Cash and Cash Equivalents, Beginning of Quarter.................................. 330 247
--------- ---------
Cash and Cash Equivalents, End of Quarter........................................ $ 236 $ 210
========= =========
Cash Paid for:
Taxes............................................................................. 7 13
Interest.......................................................................... 1,483 996
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Quarters Ended September 30, 1997 and September 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1998 or any other period. The balance sheet at June 30, 1997 has been derived
from the audited financial statements at that date. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
Net Income Per Share: Net income per share has been computed
by dividing the applicable net income by the weighted average number of common
shares outstanding and common stock equivalents, if applicable.
2. INVENTORIES
Inventories (principally finished goods) are stated at the
lower of cost, using the first-in first-out (FIFO) method, or market. Included
in inventories is merchandise in transit of approximately $7.0 million at
September 30, 1997, $8.5 million at June 30, 1997 and $7.8 million at September
30, 1996.
3. NEW FINANCING AGREEMENT
On October 10, 1997, the Company and BNY Financial
Corporation, a wholly-owned subsidiary of The Bank of New York ("BNYF"),
entered into 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") which amended and restated
in its entirety the Company's February 1995 financing agreement with BNYF, as
amended (the "Old Bank Debt Agreement"). The New Financing Agreement amends
certain provisions of the Old Bank Debt Agreement and provides for maximum
availability of $81.0 million, and overadvances of up to $12.8 million. The New
Financing Agreement also amends certain financial covenants contained in the
Old Bank Debt Agreement. The New Financing Agreement provides for certain
additional events of default, among which are the default by Josephine Chaus,
Chairwoman of the Board, a principal stockholder of the Company and the owner
of a majority of the Company's Common Stock ("Josephine Chaus" or "Ms. Chaus"),
under the Bank Debt Put (as defined below), and the failure by the Company to
close all of its retail outlets by the end of January 1998.
The New Financing Agreement consists of two facilities: (i)
the New Revolving Facility which is a $66.0 million five-year revolving credit
line with a $20.0 million sublimit for letters of credit, and (ii) the New Term
Loan which is a $15.0 million term loan facility. Each facility matures on
December 31, 2002.
Interest on the New Revolving Facility accrues at 1/2 of 1%
above the Prime Rate and is payable on a monthly basis, in arrears. Interest on
the New Term Loan accrues at an interest rate ranging from 1/2 of 1% above the
Prime Rate to 1 1/2% above the Prime Rate, which interest rate will be
determined, from time to time, based upon the Company's availability under the
New Revolving Facility. With the exception of warrants issued to BNYF (as
discussed below), the Company's execution of the New Financing Agreement did
not require the payment of any commitment, closing, administration or facility
fees. The New Financing Agreement provides for service charges and letter of
credit fees on substantially the same terms as those existing under the Old
Bank Debt Agreement. As part of the New Financing Agreement, BNYF's existing
warrants were extinguished, and BNYF received new warrants to purchase 500,000
shares of the Company's Common Stock.
Amortization payments in the amount of $250,000 are payable
quarterly in arrears in connection with the New Term Loan. The first
amortization payment is due on March 31, 1998. A balloon payment in the amount
of $10.25 million is due on December 31, 2002. In the event of the earlier
termination by the Company of the New Financing Agreement, the Company will be
liable for termination fees initially equal to $2.8 million, and declining to
$2.2 million after October 8, 2000. The Company's obligations under the New
Financing Agreement are secured by a first priority lien on substantially all
of the Company's assets, including the Company's accounts receivable, inventory
and trademarks.
F-23
<PAGE>
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 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").
The New Financing Agreement contains financial covenants
requiring, among other things, the maintenance of minimum levels of tangible
net worth, working capital and maximum permitted loss (minimum permitted
profit).
4. PROPOSED RESTRUCTURING OF INDEBTEDNESS
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, through an offer of rights to subscribe ("Rights"), up to
$20.0 million, but not less than $12.5 million, of equity through a rights
offering to all shares of Common Stock of the Company (the "Rights Offering")
of 13,977,270 shares of Common Stock of the Company (on a post stock split
basis); (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 Ms. Chaus, will be converted into Common
Stock of the Company; (iii) the New Financing Agreement (entered into on
October 10, 1997); and (iv) the Company will implement a reverse stock split of
the Company's Common Stock such that every ten (10) shares of Common Stock
would be converted into one (1) share of Common Stock. In addition, the
Company's retail outlet stores will be liquidated during the second quarter of
fiscal 1998. In connection with the Restructuring, BNYF has agreed that the
credit support, described above, heretofore provided by Ms. Chaus, will be
terminated once the New Financing Agreement becomes effective. Consummation of
the Restructuring is subject to the approval of certain aspects of the
Restructuring by the stockholders of the Company. Accordingly, until such
approval is obtained, there can be no assurances that the Restructuring will
occur or be consummated. It is presently contemplated that the Restructuring
will be consummated by January 31, 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 following table sets forth the consolidated
capitalization of the Company as of September 30, 1997 and the unaudited pro
forma consolidated capitalization of the Company after giving effect to the
Restructuring as if certain items had occurred at September 30, 1997. Such
items include (i) subordinated indebtedness owed and to be owed to Josephine
Chaus, being converted into Common Stock of the Company, (ii) as part of the
Rights Offering, the Company raising at least $12.5 million of equity (less
expenses of the Rights Offering of $0.5 million) from Ms. Chaus and/or other
stockholders, (iii) $12.5 million in respect of borrowings previously
guaranteed by Ms. Chaus being satisfied in full out of proceeds from a loan
made by BNYF to Ms. Chaus, and (iv) obtaining the New Term Loan in the amount
of $15.0 million.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
------------------
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
Total Debt
Bank Debt $ 56,178 $ 16,678
Subordinated Promissory Notes 27,121 --
Term Loan -- 15,000
--------- ---------
Total Debt 83,299 31,678
Total stockholders' deficiency (55,059) (3,438)
--------- ---------
Total capitalization $ 28,240 $ 28,240
========= =========
</TABLE>
Although there can be no assurance, the Company believes that
if the Restructuring is consummated, the Company will have adequate resources
to operate its business assuming it meets its business plan.
F-24
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
BERNARD CHAUS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ----------- ---------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1997
Allowance for doubtful accounts ................................ $ 378 $ (20) $ 17 (1) $ 341
======= ========= ========= =======
Reserve for sales discounts and
customer allowances and deductions ........................... $4,692 $18,976 $18,634 (2) $5,034
----- ------- ------- ------
Accrued restructuring expenses ................................. $ 196 $ 1,850 $ 196 (4) $1,850
------- ------- -------- ------
Year ended June 30, 1996
Allowance for doubtful accounts ................................ $ 619 $ (70) $ 171 (1) $ 378
------- ------- -------- ------
Reserve for sales discounts and
customer allowances and deductions ........................... $3,607 $17,519 $16,434 (2) $4,692
------ ------ ------ ------
Accrued restructuring expenses ................................. $2,804 $ 0 $ 2,608 (4) $ 196
------ -------- ------- ------
Year ended June 30, 1995
Allowance for doubtful accounts ................................ $ 355 $ 225 $ (39)(1) $ 619
------ -------- -------- ------
Reserve for sales discounts and
customer allowances and deductions ........................... $5,985 $33,695 $36,073 (2) $3,607
------ ------- ------- ------
Accrued restructuring expenses ................................. $4,079 $ 1,200 $ 2,475 (3) $2,804
------ --------- -------- ------
</TABLE>
- --------------
(1) Uncollectible accounts written off.
(2) Allowances charged to reserve and granted to customers.
(3) Reversal of provision no longer required and expenses charged to reserve.
(4) Expenses charged to reserve.
S-1
<PAGE>
<TABLE>
<S> <C>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE RIGHTS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, RIGHTS TO SUBSCRIBE FOR
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON 13,977,270 SHARES
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS OF COMMON STOCK
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER EXPIRING ON JANUARY 23, 1998
TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR [Chaus Logo]
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
-------------
PROSPECTUS
_______, 1997
-------------
PAGE
AVAILABLE INFORMATION..................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........... 3
PROSPECTUS SUMMARY........................................ 4
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL DATA............................... 11
RISK FACTORS.............................................. 13
UNAUDITED PRO FORMA FINANCIAL DATA ....................... 17
PROJECTED FINANCIAL INFORMATION........................... 21
THE RIGHTS OFFERING....................................... 26
THE RESTRUCTURING......................................... 33
USE OF PROCEEDS........................................... 35
DESCRIPTION OF CAPITAL STOCK.............................. 35
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY.............. 36
CAPITALIZATION............................................ 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 38
BUSINESS ................................................. 43
SHARES ELIGIBLE FOR FUTURE SALE........................... 46
INDEMNIFICATION OF THE SUBSCRIPTION AGENT................. 47
LEGAL MATTERS............................................. 47
EXPERTS................................................... 47
FINANCIAL STATEMENTS...................................... F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred by the Company in connection with the Rights Offering
are:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fee......................................... $ 6,061
Accounting fees and expenses*................................ $ 50,000
Legal fees and expenses*..................................... $300,000
Information Agent & Subscription Agent costs*................ $ 35,000
Printing costs*.............................................. $ 30,000
Miscellaneous*............................................... $ 78,939
--------
Total........................................................ $500,000
* Estimated
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 722 and 726 of the New York Business Corporation Law (the
"BCL") grant the Registrant broad powers to indemnify and insure its directors
and officers against liabilities they may incur in such capacities. In
accordance therewith, the Registrant's Restated Card of Incorporation, as
amended (the "Charter") and By-Laws, provide for the fullest indemnification of
an officer or director of the Company under the BCL. The Charter also
eliminates liability for monetary damages for any breach of directors' duty to
the Registrant and its stockholders, provided that such breach does to result
from (a)(i) an act or omission in bad faith, (ii) intentional misconduct or
(iii) a knowing violation of law, (b) a transaction from which a director
derived a personal benefit or financial gain to which the director was not
entitled, or (c) the approval of dividends, stock repurchases, asset
distributions or loans to directors in violation of the BCL.
The Registrant has entered into agreements with its directors and
certain of its officers that require the Registrant to indemnify such persons
against expenses, including attorneys' fees, judgments, fines, settlements and
other amounts incurred directly or indirectly in connection with any
proceeding, whether actual or threatened, to which any such person may be made
a party by reason of the fact that such person served as a director or officer
of the Registrant or any of its affiliated enterprises, provided that such
indemnification is consistent with the BCL. The agreements also require the
Registrant to carry directors' and officers' liability insurance for as long as
such person serves in a capacity that exposes such person to liability unless
and until the Registrant's Board of Directors decides that the cost of the
insurance does not justify the benefit. The Company has purchased such
directors' and officers' liability insurance covering certain liabilities which
may be incurred by its directors and officers in the performance of their
services for the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A list of the exhibits included as part of this Registration Statement
is set forth in the Exhibit Index that immediately precedes such exhibits and
is incorporated herein by reference.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are inapplicable or the required information has otherwise been given.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 13(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that
II-1
<PAGE>
is incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on this 8th day of December, 1997.
BERNARD CHAUS, INC.
By: /s/ Andrew Grossman
Name: Andrew Grossman
Title: Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE Titles Date
- --------- ------ ----
<S> <C> <C>
/s/ Andrew Grossman Chief Executive Officer and Member, Office of the Chairman, and a December 8, 1997
- ------------------------- Director
Andrew Grossman
/s/ Josephine Chaus Chairwoman of the Board and Member, Office of the Chairman, and a
- ------------------------- Director December 8, 1997
Josephine Chaus
/s/ Barton Heminover Vice President-Corporate Controller and Assistant Secretary December 8, 1997
- -------------------------
Barton Heminover
* Director December 8, 1997
- -------------------------
Philip G. Barach
* Director December 8, 1997
- -------------------------
S. Lee Kling
* Director December 8, 1997
- -------------------------
Harvey M. Krueger
By: /s/ Andrew Grossman
- --------------------------------
Andrew Grossman
Attorney in Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
4.1 Form of Common Stock Certificate
4.2 Form of Subscription Certificate
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Shereff, Friedman Hoffman & Goodman, LLP (included in its
opinion filed as Exhibit 5.1 hereto)
*24.1 Power of Attorney
99.1 Form of Instructions as to use of Subscription Certificates
99.2 Form of Notice of Guaranteed Delivery for Subscription Certificates
99.3 Form of Special Notice to Holders who addresses are outside of the
United States
99.4 Form of Letter to holders of Common Stock who are record holders
99.5 Form of Letter to holders of Common Stock who are beneficial holders
99.6 Form of Letter to holders of Common Stock who are nominees
* Previously filed.
II-4
<PAGE>
BERNARD CHAUS, INC.
CERTIFICATE OF STOCK
COMMON COMMON
NU
- ------------------- -------------------
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
PAR VALUE $.01 CUSIP 162510 10 1
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the owner of
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Bernard Chaus, Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Corporation and the signatures of its duly
authorized officers.
BERNARD CHAUS, INC.
CORPORATE SEAL
1975
NEW YORK
DATED:
/s/ Wayne S. Miller /s/ Josephine Chaus
---------------------------- -------------------------
Secretary Chairwoman of the Board
Countersigned and Registered:
CHEMICAL BANK
BY TRANSFER AGENT
AND REGISTRAR.
AUTHORIZED OFFICER.
----------------------------------------------------------
AMERICAN BANK NOTE COMPANY.
<PAGE>
BERNARD CHAUS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO
SO REQUESTS A COPY OF THE DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF, WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
ANY SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT
TEN ENT -as tenants by the entireties ........Custodian.......
JT TEN -as joint tenants with right (Cust) (Minor)
of survivorship and not under Uniform Gifts to Minors
as tenants in common Act ......................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,__________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WRITTEN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
------------------------------------
- ------------------------------------------------------------------------------
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED,
-------------------------
----------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
BERNARD CHAUS, INC.
SUBSCRIPTION CERTIFICATE FOR RIGHTS OFFERING
FOR HOLDERS OF RECORD ON DECEMBER 17, 1997
<TABLE>
<S> <C> <C> <C>
162510 20 0
- ------------- -------------- ------------------------------------ ------------------
SEQUENCE # ACCOUNT KEY SUBSCRIPTION CERTIFICATE NUMBER CUSIP NUMBER
- -------------------------- -----------------------
SHS ELIGIBLE TO SUBSCRIBE RECORD DATE SHARES
</TABLE>
Bernard Chaus, Inc. (the "Company") is conducting a rights offering
(the "Rights Offering") which entitles each holder of the Company's common
stock, $.01 par value per share (the "Common Stock"), as of the close of
business on December 17, 1997 (the "Record Date") to receive one transferable
right (a "Right") for each share of Common Stock held of record on the Record
Date. Each Right entitles the holder thereof to subscribe for and purchase
5.464751 shares of Common Stock (the "Basic Subscription Privilege") at a
subscription price of $1.4309 per share. If any shares of Common Stock are not
purchased by holders of Rights pursuant to the Basic Subscription Privilege
(the "Excess Shares"), any holder purchasing all of the shares of Common Stock
available to it may purchase an additional number of the Excess Shares, if so
specified in the subscription documents, subject to proration. No fractional
shares or cash in lieu thereof will be issued or paid. In lieu of fractional
shares, the aggregate number of shares of Common Stock distributed to each
holder upon exercise of the Rights will be rounded up to the next whole
number. Set forth above is the number of shares of Common Stock held by such
holder; and the number of shares to which each holder is entitled to subscribe
pursuant to the Basic Subscription Privilege.
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE
RIGHTS OFFERING, PLEASE REFER TO THE PROSPECTUS DATED DECEMBER __, 1997 (THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CHASEMELLON SHAREHOLDER SERVICES,
L.L.C. (THE "INFORMATION AGENT") (TOLL FREE (800) 414-2879). CAPITALIZED TERMS
USED BUT NOT DEFINED HEREIN SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO SUCH
TERMS IN THE PROSPECTUS.
THIS SUBSCRIPTION CERTFICIATE ORDER FORM MUST BE RECEIVED BY
CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT") WITH
PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 23, 1998 (UNLESS
EXTENDED IN THE SOLE DISCRETION OF THE COMPANY TO A TIME NOT LATER THAN
5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 28, 1998 (AS IT MAY BE EXTENDED,
THE "EXPIRATION DATE"). ANY RIGHTS NOT EXERCISED PRIOR TO THE EXPIRATION DATE
WILL BE NULL AND VOID. ANY SUBSCRIPTION FOR SHARES OF COMMON STOCK IN THE
RIGHTS OFFERING MADE HEREBY IS IRREVOCABLE UNLESS THE TERMS OF THE RIGHTS
OFFERING ARE SUBSEQUENTLY MATERIALLY AMENDED.
The Rights represented by this Subscription Certificate may be
exercised by duly completing Form 1; and may be transferred, assigned,
exercised or sold through a bank or broker by duly completing Form 2; and
may be sold through the Subscription Agent by duly completing Form 3. Rights
holders are advised to review the Prospectus and instructions, copies of
which are available from the Subscription Agent or Information Agent, before
exercising or selling their Rights.
<PAGE>
SUBSCRIPTION TO PURCHASE SHARES OF COMMON STOCK OFFERED BY BERNARD CHAUS, INC.
RETURN TO: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301 120 Broadway, 13th Floor
South Hackensack, New Jersey 07606 New York, New York 10271
Attn: Reorganization Dept. Attn: Reorganization Dept.
</TABLE>
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road, Mail Drop Reorg
Ridgefield Park, New Jersey 07760
SUBSCRIPTION PRICE: $1.4309 PER SHARE
The registered owner whose name is inscribed hereon, or assigns, is entitled
to subscribe for shares of Common Stock, par value $.01 per share (the "Common
Stock"), of Bernard Chaus, Inc. ("BCI") upon the terms and subject to the
conditions set forth in the Prospectus and instructions relating to the use
hereof.
BERNARD CHAUS, INC.
By: By:
-------------------------------- --------------------------------
Assistant Secretary Chairwoman of the Board
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING FULL RIGHTS) AT THE
OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER
ONLY PART OF THEIR RIGHTS, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION CERTIFICATE
IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY.
<PAGE>
FORM 1
EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises one or
more Rights to subscribe for shares of Common Stock as indicated below, on the
terms and subject to the conditions specified in the Prospectus, receipt of
which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Basic
Subscription Privilege (one Right needed to subscribe for
5.464751 shares):__________
(b) Number of shares subscribed for pursuant to the
Oversubscription Privilege:_____________________.
(c) Total Subscription (total number of shares on lines (a)
and (b) multiplied by the Subscription Price):$__________*
METHOD OF PAYMENT (CHECK AND COMPLETE APPROPRIATE BOX(ES)):
|_| Check, bank draft, or money order payable to
"ChaseMellon Shareholder Services, L.L.C., as
Subscription Agent";
or
|_| Wire transfer directed to The Chase Manhattan
Bank, New York, NY, ABA No. 021000021, Attention:
ChaseMellon Shareholder Services Reorg. Account:
323-213057 (Bernard Chaus, Inc.)
(d) If the Rights being exercised pursuant to the Basic
Subscription Privilege do not account for all of the Rights
represented by this Subscription Certificate (check only one)
|_| Deliver to the undersigned a new Subscription
Certificate evidencing the remaining rights to
which the undersigned is entitled.
|_| Deliver a new Subscription Certificate in accordance
with the undersigned's Form 2 instructions (which
include any required signature guarantees).
|_| Sell the remaining unexercised Rights in accordance
with the undersigned's Form 3 instructions.
|_| Do not deliver any new Subscription Certificates to
me.
|_| Check here if Rights are being exercised pursuant
to a Notice Of Guaranteed Delivery delivered to the
Subscription Agent prior to the date hereof and
complete the following:
Name(s) of Registered Holder(s)
---------------------
Window Ticket Number (if any)
-----------------------
Date of Execution of Notice of Guaranteed
Delivery
-------------------------------------------
Name of Institution Which Guaranteed Delivery
-------
* If the aggregate Subscription Price enclosed or transmitted is
insufficient to purchase the total number of shares included in lines
(a) and (b), or if the number of shares being subscribed for is not
specified, the Rights holder exercising this Subscription Certificate
shall be deemed to have subscribed for the maximum amount of shares
that could be subscribed for upon payment of such amount. If the
number of shares to be subscribed for pursuant to the
Oversubscription Privilege is not specified and the amount enclosed
or transmitted exceeds the aggregate Subscription Price for all
shares represented by this Subscription Certificate (the
"Subscription Excess"), the Rights holder exercising this
Subscription Certificate shall be deemed to have exercised the
Oversubscription Privilege to purchase, to the extent available, that
number of whole shares of Common Stock equal to the quotient obtained
by dividing the Subscription Excess by the Subscription Price,
subject to the limit on the number of shares a Rights holder may
purchase pursuant to the Oversubscription Privilege. To the extent
any portion of the aggregate Subscription Price enclosed or
transmitted remains after the foregoing procedures, such funds shall
be mailed to the subscriber without interest or deduction as soon as
practicable.
----------------------------------------------------
Subscriber's Signature
Telephone No. ( )
-----------------------------
FORM 2
TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS, OR TO
EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received,
Rights represented by this Subscription Certificate are hereby assigned to
(please print name and address and Taxpayer Identification Number or Social
Security Number of transferee in full):
Name:
-------------------------------------------------
Address:
----------------------------------------------
- ----------------------------------------------------
Social Security Number or Taxpayer Identification No.
- ----------------------------------------------------
Signature(s) of Transferor(s)
Signatures Guaranteed by:
Proceeds from the sale of Rights may be subject to withholding of U.S. taxes
unless the Seller's certified U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent
and the seller is not otherwise subject to U.S. backup withholding.
FORM 3
TO SELL SOME OR ALL OF YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT:
The undersigned hereby authorizes the Subscription Agent to sell Rights
represented by this Subscription Certificate but not exercised hereby and to
deliver to the undersigned a check for the proceeds, if any, from the sale
thereof, Less any applicable brokerage commissions, taxes or other direct
expenses of sale. The Subscription Agent's obligation to execute orders is
subject to its ability to find buyers for the Rights.
- -------------------------------------------------------------------------------
Subscriber's Signature
In order to sell Rights through the Subscription Agent, you must complete and
sign the substitute Form W-9 as provided in Section 8 of the Instructions
FORM 4
DELIVERY INSTRUCTIONS: Address for mailing of stock or new Subscription
Certificate or any cash payment in accordance with the Prospectus if other
than shown on the reverse hereof:
Name:
-----------------------------------------------
Address:
----------------------------------------------
<PAGE>
December 8, 1997
Bernard Chaus, Inc.
1410 Broadway
New York, NY 10018
Ladies and Gentlemen:
Bernard Chaus, Inc., a New York corporation (the "Company"),
intends to transmit for filing with the Securities and Exchange Commission
Amendment No. 1 to Registration Statement under the Securities Act of 1933, as
amended, on Form S-3 (as amended, the "Registration Statement") which relates
to (i) 2,627,727 subscription rights ("Rights") which are being distributed to
the Company's stockholders and (ii) 13,977,270 shares of the Company's common
stock, par value $.01 per share (the "Shares"), which are being offered for
sale upon exercise of the Rights. Each Right entitles the holders thereof,
other than Josephine Chaus, to subscribe for and purchase 5.464751 Shares at
$1.4309 per Share and entitles Ms. Chaus to subscribe for and purchase
5.181105 Shares at $1.4309 per Share. This opinion is an exhibit to the
Registration Statement.
We have acted as counsel to the Company in connection with
the proposed distribution of the Rights and the proposed offer and sale of the
Shares as contemplated by the Registration Statement. However, we are not
general counsel to the Company and would not ordinarily be familiar with or
aware of matters relating to the Company unless they are brought to our
attention by representatives of the Company. We have examined copies (in each
case signed, certified or otherwise proved to our satisfaction) of the
Company's Certificate of Incorporation and By-Laws as presently in effect,
minutes and other instruments evidencing actions taken by the Company's
directors and stockholders, and such other documents and instruments relating
to the Company and the proposed offering as we have deemed necessary under the
circumstances. The issuance of Shares in the Rights Offering is subject to the
approval of the stockholders of the Company at the December 8, 1997 Annual
Meeting of Stockholders (the "Annual Meeting") of a one for ten reverse
stock split of the Company's Common Stock and of the issuance of Shares
to Ms. Chaus pursuant to the Rights Offering. Ms. Chaus, who owns a majority
of the outstanding shares of the Company's Common Stock has advised the
Company that she intends to vote all of her Shares of Common Stock in favor of
such matters. Accordingly, we have assumed, for purposes of this opinion, the
approval of such matters by the Company's stockholders at the Annual Meeting.
In our examination of all such agreements, documents, certificates and
instruments, we have assumed the genuineness of all signatures and the
authenticity of all agreements, documents, certificates and instruments
submitted to us as originals and the conformity with the originals of all
agreements, instruments, documents and certificates submitted to us as
copies. Insofar as this opinion relates to securities to be issued in the
future, we have assumed that all applicable laws, rules and regulations in
effect at the time of such issuance are the same as such laws, rules and
regulations in effect as of the date hereof.
<PAGE>
Bernard Chaus, Inc.
December 8, 1997
Page 2
We note that we are members of the Bar of the State of New
York and do not opine herein on the laws of any jurisdiction other than the
State of New York and the federal laws of the United States.
Based on the foregoing, and subject to and in reliance on
the accuracy and completeness of the information relevant thereto provided to
us, it is our opinion that:
1. The Company has been duly incorporated under the
laws of the State of New York and has an authorized
capital stock consisting of 50,000,000 shares of
common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share.
2. The Rights to be distributed to the stockholders of
the Company have been duly authorized and (subject
to the effectiveness of the Registration Statement
and compliance with applicable state securities
laws), when issued, will be legally and validly
issued, fully paid and non-assessable.
3. The maximum number of Shares to be issued upon
exercise of the Rights have been duly authorized
and (subject to the effectiveness of the Registration
Statement and compliance with applicable state
securities laws), when issued and paid for in
accordance with the terms of the Rights, will be
legally and validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and as an exhibit to any filing made by
the Company under the securities or "Blue Sky" laws of any state.
This opinion is furnished to you in connection with the
filing of the Registration Statement, and is not to be used, circulated,
quoted or otherwise relied upon for any other purposes, except as expressly
provided in the preceding paragraph.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G:RAG:GA:LML
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Bernard Chaus, Inc. on Form S-3 of our report dated September 19, 1997 (October
10, 1997 as to Note 6), appearing in and incorporated by reference in the
Annual Report on Form 10-K of Bernard Chaus, Inc. for the year ended June 30,
1997, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
October 30, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-39041 of Bernard Chaus, Inc. on Form S-3 of our
report dated September 19, 1997 (October 10, 1997 as to Note 6), appearing in
and incorporated by reference in the Annual Report on Form 10-K of Bernard
Chaus, Inc. for the year ended June 30, 1997, and to the reference to us under
the heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
New York, New York
December 8, 1997
<PAGE>
INSTRUCTIONS AS TO USE OF
BERNARD CHAUS, INC.
SUBSCRIPTION CERTIFICATES
---------
CONSULT THE INFORMATION AGENT, YOUR BANK OR BROKER
AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the
"Rights Offering") by Bernard Chaus, Inc., a New York corporation (the
"Company"), to the holders of shares of its common stock, par value $.01 per
share (the "Common Stock"), as described in the Company's Prospectus dated
December __, 1997 (the "Prospectus"). Holders of record of Common Stock as of
the close of business on December 17, 1997 (the "Record Date"), are receiving
one transferable subscription right (a "Right") for each share of Common Stock
held by them on the Record Date. Each Right entitles the holder thereof to
subscribe for and purchase 5.464751 shares of Common Stock (the "Basic
Subscription Privilege") at a subscription price of $1.4309 per share. If any
shares of Common Stock are not purchased by holders of Rights pursuant to the
Basic Subscription Privilege (the "Excess Shares"), any holder purchasing all
of the shares of Common Stock available to it may purchase an additional
number of the Excess Shares, if so specified in the subscription documents,
subject to proration. No fractional shares or cash in lieu thereof will be
issued or paid. In lieu of fractional shares, the aggregate number of shares
of Common Stock distributed to each holder upon exercise of the Rights will be
rounded up to the next whole number. See "The Rights Offering" in the
Prospectus.
The Rights will expire at 5:00 p.m., New York City time, on
January 23, 1998, unless extended (the "Expiration Date").
The number of Rights to which you are entitled and the
number of shares purchasable thereunder are printed on the face of your
Subscription Certificate. You should indicate your wishes with regard to the
exercise, transfer or sale of your Rights by completing the appropriate form
or forms of the Subscription Certificate and returning the Subscription
Certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATES MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR
SUSCRIPTION CERTIFICATES MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION
PRICE, INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT, ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. YOU MAY NOT REVOKE ANY EXERCISE OF A RIGHT UNLESS THE COMPANY
FILES A POST-EFFECTIVE AMENDMENT TO ITS REGISTRATION STATEMENT RELATED TO THE
RIGHTS OFFERING WHICH INCLUDES A MATERIAL CHANGE IN THE TERMS OF THE RIGHTS
OFFERING.
1. Subscription Privilege.
To exercise Rights, send your properly completed and
executed Subscription Certificates, together with payment in full of the
Subscription Price for each share of Common Stock subscribed for pursuant to
the Basic Subscription Privilege and the Oversubscription Privilege, to the
Subscription Agent. Payment of the Subscription Price must be made in U.S.
dollars by (a) check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to ChaseMellon Shareholder
Services, L.L.C., as Subscription Agent, or (b) wire transfer of same day
funds to the account maintained by the Subscription Agent for such purpose at
The Chase Manhattan Bank, New York, NY, ABA No. 021000021, Attn: ChaseMellon
Shareholder Services Reorg. Account: 323-213057 (Bernard Chaus, Inc.). The
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) the clearance of any uncertified check, (ii) the receipt
by the Subscription Agent of any certified check or bank draft drawn upon a
U.S. bank or any postal, telegraphic or express money order or (iii) the
receipt of good funds in the Subscription Agent's account designated above. IF
PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS
WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK
ARE URGED TO MAKE PAYMENT
<PAGE>
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS
RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. You may
also transfer your Subscription Certificate to your bank or broker in accordance
with the procedures specified in Instruction 3(a) below, make arrangements for
the delivery of funds on your behalf and request such bank or broker to
exercise the Rights represented by such Subscription Certificates on you behalf.
Alternatively, you may cause a written guarantee substantially in the form
delivered with these instructions (the "Notice of Guaranteed Delivery") from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office or correspondent in the United States (each of the
foregoing being an "Eligible Institution"), to be received by the Subscription
Agent at or prior to the Expiration Date together with payment in full of the
applicable Subscription Price. Such Notice of Guaranteed Delivery must state
your name, the number of Rights represented by your Subscription Certificate
and the number of shares of Common Stock being purchased pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, and will guarantee
the delivery to the Subscription Agent of your properly completed and executed
Subscription Certificate within three New York Stock Exchange trading days
following the date of the Notice of Guaranteed Delivery. If this procedure is
followed, your Subscription Certificates must be received by the Subscription
Agent within three New York Stock Exchange trading days of the Notice of
Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery
may be obtained upon request from the Information Agent at the address, or by
calling the telephone number, indicated below.
Banks, brokers or other nominee holders of Rights who
exercise Rights on behalf of beneficial owners of Rights will be required to
certify to the Subscription Agent and the Company (by delivering to the
Subscription Agent a Nominee Holder Subscription Certification substantially
in the form available from the Subscription Agent) the aggregate number of
Rights that have been exercised, and the number of shares of Common Stock that
are being subscribed for pursuant to the Oversubscription Privilege, by each
beneficial owner of Rights (including such nominee itself) on whose behalf
such nominee holder is acting. In the event that a Nominee Holder Subscription
Certification is not delivered in respect of a Subscription Certificate, the
Subscription Agent shall for all purposes (including for purposes of any
allocation in connection with the Oversubscription Privilege) be entitled to
assume that such certificate was exercised on behalf of a single beneficial
owner. If more Excess Shares are subscribed for pursuant to the
Oversubscription Privilege than are available for sale, Excess Shares will be
allocated as described above among beneficial owners exercising the
Oversubscription Privilege in proportion to such owners' exercise of Rights
pursuant to the Basic Subscription Privilege.
The addresses and facsimile number of the Subscription Agent
and the Information Agent are as follows:
By Mail:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 3301
South Hackensack, New Jersey 07606
By Hand:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
120 Broadway, 13th Floor
New York, New York 10271
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
85 Challenger Road - Mail Drop - Reorg.
Ridgefield Park, New Jersey 07660
Facsimile Transmission:
(201) 329-8936
Confirmation by Telephone:
<PAGE>
(201) 296-4860
If you exercise less than all of the Rights evidenced by
your Subscription Certificate by so indicating on Form 1 of your Subscription
Certificate, the Subscription Agent either (i) will issue to you a new
Subscription Certificate evidencing the unexercised Rights, (ii) if you so
indicate in Forms 1 and 2 of your Subscription Certificate, will transfer the
unexercised Rights in accordance with your instructions or (iii) if you so
indicate in Forms 1 and 3 of your Subscription Certificate, will sell the
unexercised Rights through the Subscription Agent. However, if you choose to
have a new Subscription Certificate sent to you or a transferee, you or such
transferee may not receive any such new Subscription Certificate in sufficient
time to permit sale or exercise of the Rights evidenced thereby. If you have
not indicated the number of Rights being exercised, or if the dollar amount
you have forwarded is not sufficient to purchase (or exceeds the amount
necessary to purchase) the number of shares subscribed for, you will be
deemed to have exercised the Basic Subscription Privilege with respect to
the maximum number of whole Rights which may be exercised for the Subscription
Price payment delivered by you and, to the extent that the Subscription Price
payment delivered by you exceeds the product of the Subscription Price
multiplied by the number of Rights evidenced by the Subscription Certificates
delivered by you (such excess being the "Subscription Excess"), you will be
deemed to have exercised the Oversubscription Privilege to purchase, to the
extent available, that number of whole shares of Common Stock equal to the
quotient obtained by dividing the Subscription Excess by the Subscription
Price.
2. Delivery of Stock Certificates.
The following deliveries and payments will be made to the
address shown on the face of your Subscription Certificate unless you provide
instructions to the contrary in Form 4 of your Subscription Certificate.
(a) Shares of Common Stock. Certificates representing shares
of Common Stock purchased pursuant to the Basic Subscription Privilege will be
mailed as soon as practicable after the subscription has been accepted by the
Subscription Agent to Rights holders not participating in the Oversubscription
Privilege. As soon as practicable after the Expiration Date, the Subscription
Agent will mail to each Rights holder who validly exercises Rights the number
of shares of Common Stock issuable to such Rights holder pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. See "The Rights
Offering--Basic Subscription Privilege; Oversubscription Privilege" in the
Prospectus.
(b) Subscription Excess Payments. As soon as practicable
after the Expiration Date, the Subscription Agent will mail to each Rights
holder the amount of any Subscription Excess payable to such Rights holder,
without interest or deduction.
3. To Sell or Transfer Rights
(a) Sales of Rights Through a Bank or Broker. To sell all
Rights evidenced by a Subscription Certificate through your bank or broker, so
indicate in Form 2 of your Subscription Certificate and deliver your properly
completed and executed Subscription Certificate to your bank or broker. If Form
2 of your Subscription Certificate is completed without designating a
transferee, the Subscription Agent may thereafter treat the bearer of the
Subscription Certificate as the absolute owner of all of the Rights evidenced
by such Subscription Certificate for all purposes, and the Subscription Agent
shall not be affected by any notice to the contrary. Because your bank or
broker cannot issue Subscription Certificates, if you wish to sell less than
all of the Rights evidenced by a Subscription Certificate, either you or your
bank or broker must instruct the Subscription Agent as to the action to be
taken with respect to the Rights not sold, or you or your bank or broker must
first have your Subscription Certificate divided into Subscription Certificate
of appropriate denominations by following the procedures set forth in
Instruction 4 below. The Subscription Certificates evidencing the number of
Rights you intend to sell can then be transferred by your bank or broker in
accordance with the instructions in this Instruction 3(a).
(b) Transfer of Rights to a Designated Transferee. To
transfer all of your Rights to a transferee other than a bank or broker, you
must complete Form 2 of your Subscription Certificate in its entirety, execute
the Subscription Certificate and have your signature guaranteed by an Eligible
Institution. A Subscription Certificate that has been properly transferred in
its entirety may be exercised by a new holder without having a new
Subscription Certificate issued. In order to exercise, or otherwise take
action with respect to, such a transferred Subscription Certificate, the new
holder should deliver the Subscription Certificate, together with payment of
the applicable Subscription Price (with respect to the exercise of both the
Basic Subscription Privilege and the Oversubscription Privilege) and complete
separate instructions signed by the new holder, to the
<PAGE>
Subscription Agent in ample time to permit the Subscription Agent to take the
desired action. Because only the Subscription Agent can issue Subscription
Certificates, if you wish to transfer less than all of the Rights evidenced by
your Subscription Certificate to a designated transferee, you must instruct the
Subscription Agent as to the action to be taken with respect to the Rights not
sold or transferred, or you must divide your Subscription Certificate into
Subscription Certificates of appropriate smaller denominations by following
the procedures set forth in Instruction 4 below. The Subscription Certificate
evidencing the number of Rights you intend to transfer can then be transferred
by following the procedures set forth in this Instruction 3(b).
(c) Sale of Rights through Subscription Agent. To sell some
or all of your Rights through the Subscription Agent, you must complete Form 3
and deliver the Subscription Certificate to the Subscription Agent. Your
Subscription Certificate should be delivered to the Subscription Agent
properly executed for sale by the Subscription Agent in ample time for it to
be sold and exercised, but in no event later than 11:00 a.m., New York City
time, three New York Stock Exchange trading days prior to the Expiration Date.
The Subscription Agent's obligation to execute orders is subject to its ability
to find buyers. If you wish to sell less than all of your Rights, you or your
bank or broker must instruct the Subscription Agent as to the action to be
taken with respect to the Rights not sold. Promptly following the Expiration
Date, the Subscription Agent will send you a check for the net proceeds of
such sale as described in the Prospectus. If you wish to sell Rights through
the Subscription Agent, you should also complete the Substitute Form W-9
referred to in Instruction 7 below.
4. To Have a Subscription Certificate Divided into Smaller Demoninations
To have a Subscription Certificate divided into smaller
denominations, send your Subscription Certificate, together with complete
separate instructions (including specifications of the denominations into
which you wish your Rights to be divided) signed by you, to the Subscription
Agent, allowing a sufficient amount of time for new Subscription Certificates
to be issued and returned so that they can be used prior to the Expiration
Date. Alternatively, you may ask a bank or broker to effect such actions on
your behalf. Your signature must be guaranteed by an Eligible Institution if
any of the Subscription Certificates are to be issued in a name other than
in which the old Subscription Certificates was issued. Subscription
Certificates may not be divided into fractional Rights, and any instruction
to do so will be rejected. AS A RESULT OF DELAYS IN THE MAIL, THE TIME OF THE
TRANSMITTAL, THE NECESSARY PROCESSING TIME AND OTHER FACTOR, YOU OR YOUR
TRANSFEREE MAY NOT RECEIVE SUCH NEW SUBSCRIPTION CERTIFICATES IN TIME TO
ENABLE THE RIGHTS HOLDER TO COMPLETE A SALE OR EXERCISE BY THE EXPIRATION
DATE. NEITHER THE COMPANY NOR THE SUBSCRIPTION AGENT WILL BE LIABLE TO EITHER
A TRANSFEROR OR A TRANSFEREE FOR ANY SUCH DELAYS.
5. Execution.
(a) Execution by Registered Holder. The signature of the
Subscription Certificate must correspond with the name of the registered holder
exactly as it appears on the face of the Subscription Certificate without any
alteration or change whatsoever. Persons who sign the Subscription Certificate
in a representative or other fiduciary capacity must indicate their capacity
when signing and, unless waived by the Company in its sole and absolute
discretion, must present to the Subscription Agent satisfactory evidence of
their authority to so act.
(b) Execution by Person Other than Registered Holder. If the
Subscription Certificate is executed by a person other than the holder named
on the face of the Subscription Certificate, proper evidence of authority of
the person executing the Subscription Certificate must accompany the same
unless the Company, for good cause, dispenses with proof of authority.
(c) Signature Guarantees. Your signature must be guaranteed
by an Eligible Institution if you wish to transfer your Rights, as specified
in Instruction 3(b) above, to a transferee other than a bank or broker, if you
wish a new Subscription Certificate or Certificate to be issued in a name other
than that in which the old Subscription Certificate was issued, as specified in
Instruction 4 above, or if you specify special payment or delivery
instructions pursuant to Form 4 of your Subscription Certificate.
6. Method of Delivery.
<PAGE>
The method of delivery of Subscription Certificates and
payment of the Subscription Price to the Subscription Agent will be at the
election and risk of the Rights holder. If sent by mail, it is recommended
that they be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery
to the Subscription Agent and the clearance of any checks sent in payment of
the Subscription Price prior to 5:00 p.m., New York City time, on the
Expiration Date.
7. Substitute Form W-9.
Each Rights holder who elects to exercise Rights should
provide the Subscription Agent with a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, substantially in the form included with these
instructions. A copy of Substitute Form W-9 may be obtained upon request from
the Subscription Agent and the Information Agent at the address indicated
above. Failure to provide the information on the form may subject such holder
to a $50.00 penalty and 31% backup federal income tax withholding with respect
to dividends or other distributions that may be paid by the Company on shares
of Common Stock purchased upon the exercise of Rights.
<PAGE>
IMPORTANT TAX INFORMATION
Under United States federal income tax law, dividend
payments and other distributions that may be made by the Company on shares of
Common Stock issued upon the exercise of Rights may be subject to backup
withholding, and each Rights holder who either exercised Rights should provide
the Subscription Agent (as the company's agent) with such Rights holder's
correct taxpayer identification number on Substitute Form W-9 below. If such
Rights holder is an individual, the taxpayer identification number is his
social security number. If the Subscription Agent, which is also the transfer
agent for the Company, is not provided with the correct taxpayer
identification number in connection with such payments, the Rights holder may
be subject to a $50.00 penalty imposed by the Internal Revenue Service.
Exempt Rights holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In general, in order for a foreign
individual to qualify as an exempt recipient, such Rights holder must submit a
statement, signed under the penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the
Subscription Agent. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company or the
Subscription Agent, as the case may be, will be required to withhold 31% of
any such payments made to the Rights holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding, a Rights holder is required
to notify the Subscription Agent of his correct taxpayer identification number
by completing the form below certifying that the taxpayer identification
number provided on Substitute Form W-9 is correct (or that such Rights holder
is awaiting a taxpayer identification number).
What Number to Give the Subscription Agent
Each Rights holder is required to give the Subscription
Agent the social security number or employer identification number of the
record owner of the Rights. If the Rights are in more than one name or are not
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report.
<PAGE>
PAYER'S NAME: ChaseMellon Shareholder Services, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
Substitute PART I - Taxpayer Identification No. Part II - For Payees Exempt
FORM W-9 from Backup Withholding
(see enclosed Guidelines)
</TABLE>
Department of the Treasury
Internal Revenue Service
<TABLE>
<CAPTION>
<S> <C> <C>
Payer's Request for
Taxpayer
Identification Number
(TIN)
- ----------------------------- ---------------------------------------------------------------------- ------------------------------
Enter your taxpayer identification number in the
appropriate box. For most individuals, this is
your social security number. If you do not have ----------------
Social Security a number, see How to Obtain a Social Security
"TIN" in the Number enclosed Guidelines. Number
Note: If the account is in more than one name, ----------------
see the chart on page 2 of enclosed Guidelines to Employer
determine what number to give. Identification
Number
-------------------------------------------------- -------------------
</TABLE>
Certification - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding either because I have
not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup
withholding.
- -------------------------------------------------------------------------------
Certification Guidelines - You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
under reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
- -------------------------------------------------------------------------------
SIGNATURE Date , 199
----------------------- ----------------- -
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
<PAGE>
<TABLE>
<CAPTION>
GUIDELINES FOR CERTIFICATE OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--Social Security numbers have
nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e.. 00-0000000. The table below will determine the number to give the payer.
<S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND
SOCIAL SECURITY NUMBER OF
1. Individual This individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, the
first individual on the account (1)
3. Custodian account of a minor (Uniform Gift to Minors Act) The minor (2)
4. a. The usual revocable savings trust (grantor is also trustee) The grantor-trustee (1)
b. The so-called trust account that is not a legal or valid The actual owner (1)
trust under State law.
5. Sole proprietorship The owner (4)
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND
EMPLOYER IDENTIFICATION NUMBER OF
6. A valid trust, estate, or pension trust Legal entity (do not furnish the identification number of
the personal representative or trustee unless the legal
entity itself is not designated in the account title) (3)
7. Corporation The corporation
8. Association, club, religious, charitable, education or other tax- The organization
exempt organization
9. Partnership The partnership
10. A broker or registered nominee The broker or nominee
11. Account with the department of Agriculture in the name of a The public entity
public entity (such as State or local government; school
district or prison) that receives agricultural program
payments.
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) List first and circle the name of the legal trust, estate or pension
trust.
(4) Show the name of the owner.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
Obtaining a number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
Payees Exempt from Backup Withholding
<PAGE>
Payees specifically exempted from backup withholding on ALL payments
include the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under Section 501(a), or an
individual retirement plan, or a custodial account under section
403(b)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A dealer in securities or commodities registered in the United States
or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under section 884(a).
o An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign material bank of issue.
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to non-resident aliens subject to withholding under section
1441.
o Payments to partnership not engaged in a trade or business in the
United States and which have at least one non-resident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest or obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the Payer's trade or business and you
have not provided your current taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852)
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE
THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see the regulations under sections
6041, 6041(a), 6042, 6044, 6045, 6049, 6050A and 6060N. Privacy Act Notice.
Section 6109 requires most recipients of dividends, interest or other payments
to give taxpayer identification numbers to payers who must report the payments
to IRS. The IRS uses the numbers for identification purposes, and to help
verify the accuracy of your tax return. Payers must be given the numbers
whether or not recipients are required to file tax returns. Payers must
generally withhold 31% of taxable interest, dividends, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmation may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR SUBSCRIPTION CERTIFICATES ISSUED BY
BERNARD CHAUS, INC.
This form, or one substantially equivalent hereto, must be
used to exercise Rights pursuant to the Rights Offering described in the
Prospectus dated December , 1997 (the "Prospectus") of Bernard Chaus, Inc., a
New York corporation (the "Company"), if a holder of Rights cannot deliver the
Subscription Certificate(s) evidencing the Rights (the "Subscription
Certificate(s)"), to the Subscription Agent listed below (the "Subscription
Agent") at or prior to 5:00 p.m. New York City time, on January 23, 1998,
unless extended (the "Expiration Date"). Such form must be delivered by hand
or sent by facsimile transmission or mail to the Subscription Agent, and must
be received by the Subscription Agent on or prior to the Expiration Date. See
"The Rights Offering--Exercise of Rights" in the Prospectus. Payment of the
Subscription Price of $1.4309 per share for each share of Common Stock
subscribed for upon exercise of such Rights must be received by the
Subscription Agent in the manner specified in the Prospectus at or prior to
5:00 p.m., New York City time, on the Expiration Date even if the Subscription
Certificate evidencing such Rights is being delivered pursuant to the
procedure for guaranteed delivery thereof.
The Subscription Agent is
ChaseMellon Shareholder Services, L.L.C.
By Mail: Reorganization Department
P.O. Box 3301
South Hackensack, New Jersey 07606
By Hand: Reorganization Department
120 Broadway, 13th Floor
New York, NY 10271
By Overnight Delivery: Reorganization Department
85 Challenger Road - Mail Drop - Reorg
Ridgefield Park, New Jersey 07660
Facsimile Transmission: (201) 329-8936
Confirm by Telephone: (201) 296-4860
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the
holder of Subscription Certificate(s) representing _________ Rights and that
such Subscription Certificate(s) cannot be delivered to the Subscription Agent
at or before 5:00 p.m., New York City time, on the Expiration Date. Upon the
terms and subject to the conditions set forth in the Prospectus, receipt of
which is hereby acknowledged, the undersigned hereby elects to exercise the
Basic Subscription Privilege to subscribe for 5.464751 shares of Common Stock
per Right with respect to each of _________ Rights represented by such
Subscription Certificate and, if the Basic Subscription Privilege is
subscribed in full by the undersigned, to subscribe for up to an additional
_________ shares of Common Stock pursuant to the Oversubscription Privilege.
The undersigned understands that payment of the Subscription Price of $1.4309
per share for each share of Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege must be received by
the Subscription Agent at or before 5:00 p.m., New York City time, on the
Expiration Date and represents that such payment, in the aggregate amount of
$____________, either (check appropriate box):
|_| in being delivered to the Subscription Agent
herewith; or
|_| has been delivered separately to the Subscription
Agent;
and is or was delivered in the manner set forth below (check appropriate box
and complete information relating thereto):
|_| wire transfer of funds
- name of transferor institution
----------------
- date of transfer
------------------------------
- confirmation number (if available)
-------------
|_| uncertified check (payment by uncertified check
will not be deemed to have been received by the
Subscription Agent until such check has cleared.
Holders paying by such means are urged to make
payment sufficiently in advance of the Expiration
Date to ensure that such payment is received and
clears by such date.)
|_| certified check
|_| bank draft (cashier's check)
|_| money order
- name of maker
----------------------------------
- date of check, draft or money order
------------
- check, draft or money order number
------------
- bank on which check is drawn or issuer
of money order
----------------------------
Signature(s) Address
--------------------------- -------------------------
- ---------------------------------------- ---------------------------------
Name(s)
------------------------------ ---------------------------------
- ------------------------------------- Area Code and Tel. No(s).
Please Type or Print ---------
----------------------------------
Subscription Certificate
No(s). (if available)
---------------------------------------------------------
<PAGE>
GUARANTEE OF DELIVERY
(Not to be used for Subscription Certificate signature guarantee)
The undersigned, a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, guarantees that the undersigned will
deliver to the Subscription Agent the Subscription Certificate(s) representing
the Rights being exercised hereby, with any required signature guarantees and
any other required documents, all within three New York Stock Exchange trading
days after the date hereof.
Dated: , 199
- --------------------------------------- ------------- -
- --------------------------------------- --------------------------
(Name of Firm)
- --------------------------------------- --------------------------
- --------------------------------------- --------------------------
(Area Code and Telephone Number) (Authorized Signature)
The institution which completes this form must communicate
the guarantee to the Subscription Agent and must deliver the Subscription
Certificate(s) to the Subscription Agent within the time period shown herein.
Failure to do so could result in a financial loss to such institution.
<PAGE>
SPECIAL NOTICE TO HOLDERS OF
BERNARD CHAUS, INC.
Common Stock
WHOSE ADDRESSES ARE OUTSIDE
THE UNITED STATES
Dear Shareholder(s):
Enclosed you will find materials relating to the rights
offering (the "Offering") of Bernard Chaus, Inc. (the "Company"). Holders of
Common Stock as of the close of business on December 17, 1997 (the "Record
Date") will receive transferable rights ("Rights") to subscribe for and
purchase 5.464751 shares of Common Stock (the "Basic Subscription Privilege")
at a subscription price of $1.4309 per share. If any shares of Common Stock
are not purchased by holders of Rights pursuant to the Basic Subscription
Privilege (the "Excess Shares"), any holder purchasing all of the shares of
Common Stock available to it may purchase an additional number of the Excess
Shares, if so specified in the subscription documents, subject to proration.
Each beneficial owner of Common Stock is entitled to one
Right for each share of Common Stock owned on the Record Date. No fractional
shares or cash in lieu thereof will be issued or paid. In lieu of fractional
shares, the aggregate number of shares of Common Stock distributed to each
holder upon exercise of the Rights will be rounded up to the next whole
number.
A Subscription Certificate representing Rights to subscribe
for shares of the Company's Common Stock at $1.4309 per share is not included
in this mailing, but instead is being held on your behalf by the Subscription
Agent, ChaseMellon Shareholder Services, L.L.C. If you wish to exercise any or
all of these Rights, or if you wish to transfer, assign or sell your Rights,
you must so instruct the Subscription Agent in the manner described in the
accompanying Prospectus and the related Instructions as to Use of Bernard
Chaus, Inc. Subscription Certificates by 5:00 p.m., New York City time, on
January 23, 1998, unless the Offering is extended by the Company to a date not
later than 5:00 p.m., New York City time, on February 28, 1998. Rights not
exercised by such time will be null and void.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. AT (800) 414-2879.
<PAGE>
BERNARD CHAUS, INC.
6,988,635 Shares of Common Stock
Offered Pursuant to Rights
Distributed to Stockholders of
Bernard Chaus, Inc.
December , 1997
This notice is being distributed to all holders of shares of
the Common Stock, par value $.01 per share (the "Common Stock"), of record as
of the close of business on December 17, 1997 (the "Record Date") of Bernard
Chaus, Inc. (the "Company"), in connection with a distribution of transferable
subscription rights (the "Rights"). Each Right entitles the holder thereof to
subscribe for and purchase 5.464751 shares of Common Stock (the "Basic
Subscription Privilege") at a subscription price of $1.4309 per share. If any
shares of Common Stock are not purchased by holders of Rights pursuant to the
Basic Subscription Privilege (the "Excess Shares"), any holder purchasing all
of the shares of Common Stock available to it may purchase an additional
number of the Excess Shares, if so specified in the subscription documents,
subject to proration.
Each beneficial owner of Common Stock is entitled to one
Right for each share of Common Stock owned on the Record Date. No fractional
shares or cash in lieu thereof will be issued or paid. In lieu of fractional
shares, the aggregate number of shares of Common Stock distributed to each
holder upon exercise of the Rights will be rounded up to the next whole
number.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A transferable Subscription Certificate
representing your Rights;
3. The "Instructions as to Use of Bernard Chaus, Inc.
Subscription Certificates" (including Guidelines
For Certification of Taxpayer Identification Number
on Substitute Form W-9);
4. A Notice of Guaranteed Delivery for Subscription
Certificates issued by Bernard Chaus, Inc.; and
5. A return envelope addressed to ChaseMellon
Shareholder Services, L.L.C., the Subscription
Agent.
You prompt action is requested. The Rights will expire at
5:00 p.m., New York City time, on January 23, 1998 unless extended by the
Company (the "Expiration Date").
To exercise the Rights, properly completed and executed
Subscription Certificates (unless the guaranteed delivery procedures are
complied with) and payment in full for all Rights exercised must be delivered
to the Subscription Agent as indicated in the Prospectus prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Rights may also be
transferred, assigned, exercised or sold through a bank or broker or through
the Subscription Agent by properly completing and executing the appropriate
Forms on the Subscription Certificates.
Additional copies of the enclosed materials may be obtained
from ChaseMellon Shareholder Services, L.L.C. the Information Agent. The
Information Agent's toll-free telephone number is (800) 414-2879.
By Order of the Board of Directors
<PAGE>
BERNARD CHAUS, INC.
6,988,635 Shares of Common Stock
Offered Pursuant to Rights
Distributed to Stockholders of
Bernard Claus, Inc.
To Our Clients:
Enclosed for your consideration is a Prospectus, dated
December __, 1997, and the "Instructions as to Use of Bernard Chaus, Inc.
Subscription Certificates" relating to the offer by Bernard Chaus, Inc. (the
"Company") of 6,988,635 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, at a subscription price of $1.4309 per share,
pursuant to transferable subscription rights (the "Rights") distributed to
holders of record of Common Stock as of the close of business on December 17,
1997 (the "Record Date").
As described in the accompanying Prospectus, you will
receive one transferable Right for each share of Common Stock carried by us in
your account as of the Record Date. Each Right will entitle you to subscribe
for and purchase 5.464751 shares of Common Stock (the "Basic Subscription
Privilege") at a subscription price of $1.4309 per share (the "Subscription
Price"). If any shares of Common Stock are not purchased by holders of Rights
pursuant to the Basic Subscription Privilege (the "Excess Shares"), any holder
purchasing all of the shares of Common Stock available to it may purchase an
additional number of the Excess Shares, if so specified in the subscription
documents, subject to proration.
Each beneficial owner of Common Stock is entitled to one
Right for each share of Common Stock owned on the Record Date. No fractional
shares or cash in lieu thereof will be issued or paid. In lieu of fractional
shares, the aggregate number of shares of Common Stock distributed to each
holder upon exercise of the Rights will be rounded up to the next whole
number.
THE MATERIALS ENCLOSED ARE BEING FORWARDED TO YOU AS THE
BENEFICIAL OWNER OF COMMON STOCK CARRIED BY US IN YOUR ACCOUNT BUT NOT
REGISTERED IN YOUR NAME, EXERCISES OF RIGHTS MAY BE MADE BY ONLY US AS THE
RECORD OWNER AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request
instructions as to whether you wish us to elect to subscribe for any shares of
Common Stock, to which you are entitled pursuant to the terms and subject to
the conditions set forth in the enclosed Prospectus and the related
"Instructions as to Use of Bernard Chaus, Inc. Subscription Certificates."
However, we urge you to read these documents carefully before instructing us
to exercise Rights.
Your instructions to us should be forwarded as promptly as
possible in order to permit us to exercise Rights on your behalf in accordance
with the provisions of the offering. The offering will expire at 5:00 p.m.,
New York City time, on January 23, 1998, unless the offering is extended by
the Company. Once you have exercised a Right, such exercise may not be revoked
unless the Company files a post-effective amendment to its Registration
Statement related to this Rights Offering which includes a material change in
the terms of the Rights Offering.
If you wish to have us, on your behalf, exercise the Rights
for any shares of Common Stock, or if you wish to have us on your behalf,
transfer, assign or sell your Rights, please so instruct us by completing,
executing and returning to us the instruction form on the reverse side of this
letter.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO CHASEMELLON SHAREHOLDER SERVICES, INC., THE INFORMATION AGENT, AT
THE FOLLOWING TELEPHONE NUMBER: (800) 414-2879.
<PAGE>
BERNARD CHAUS, INC.
6,988,635 Shares of Common Stock
Offered Pursuant to Rights
Distributed to Stockholders of
Bernard Chaus, Inc.
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
This letter is being distributed to securities dealers,
commercial banks, trust companies and other nominees in connection with the
offer by Bernard Chaus, Inc. (the "Company) of 6,988,635 shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company, at a
subscription price of $1.4309 per share, pursuant to transferable subscription
rights (the "Rights") distributed to holders of record of Common Stock as of
the close of business on December 17, 1997 (the "Record Date"). Each Right
entitles the holder thereof to subscribe for and purchase 5.464751 shares of
Common Stock (the "Basic Subscription Privilege") at a subscription price of
$1.4309 per share. If any shares of Common Stock are not purchased by holders
of Rights pursuant to the Basic Subscription Privilege (the "Excess Shares"),
any holder purchasing all of the shares of Common Stock available to it may
purchase an additional number of the Excess Shares, if so specified in the
subscription documents, subject to proration. The Rights are further described
in the Prospectus and evidenced by a Subscription Certificate registered in
your name or the name of your nominee.
Each beneficial owner of Common Stock registered in your
name or the name of your nominee is entitled to one Right for each share of
Common Stock owned by such beneficial owner on the Record Date. No fractional
shares or cash in lieu thereof will be issued or paid. In lieu of fractional
shares, the aggregate number of shares of Common Stock distributed to each
beneficial owner upon exercise of the Rights will be rounded up to the next
whole number.
We are asking you to contract your clients for whom you hold
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the Rights.
Enclosed are copies of the following documents:
1. The Prospectus:
2. Subscription Certificate(s) evidencing Rights;
3. The "Instructions as to Use of Bernard Chaus, Inc.
Subscription Certificates" (including Guidelines
For Certification of Taxpayer Identification Number
on Substitute Form W-9);
4. A form of letter which may be sent to your clients
for whose accounts you hold Common Stock registered
in your name or the name of your nominee, with
space provided for obtaining such clients'
instructions with regard to the Rights; and
5. A Notice of Guaranteed Delivery for Subscription
Certificates issued by Bernard Chaus, Inc.
Your prompt action is requested. The Rights will expire at
5:00 p.m., New York City time, on January 23, 1998, unless extended by the
Company (the "Expiration Date").
<PAGE>
To exercise the Rights, properly completed and executed
Subscription Certificates (unless the guaranteed delivery procedures are
complied with) and payment in full for all Rights exercised must be delivered
to the Subscription Agent as indicated in the Prospectus prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Rights may also be
transferred, assigned, exercised or sold through a bank or broker or through
the Subscription Agent by properly completing and executing the appropriate
Forms on the Subscription Certificates.
Additional copies of the enclosed materials may be obtained
from ChaseMellon Shareholder Services, L.L.C., the Information Agent. The
Information Agent's toll-free telephone number is 1-800-414-2879.
Very truly yours,
BERNARD CHAUS, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS AN AGENT OF BERNARD CHAUS, INC. ANY OTHER PERSON
MAKING OR DEEMED TO BE MAKING OFFERS OF THE COMMON SHARES ISSUABLE UPON VALID
EXERCISE OF THE RIGHTS, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFERING EXCEPT FOR
STATEMENTS MADE IN THE PROSPECTUS.
