CHAUS BERNARD INC, PRE 14A, 1997-10-30

CHAUS BERNARD INC
PRE 14A, 1997-10-30
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR

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<PAGE>

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934

Filed by the Registrant |X|

Filed by a Party other than the Registrant |_|

Check the appropriate box:

|X| Preliminary Proxy Statement

|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-7(e)(2))

|_| Definitive Proxy Statement

|_| Definitive Additional Materials

|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

Bernard Chaus, Inc.
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(Name of Registrant as Specified In Its Charter)

- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

|X| No fee required

|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

- -------------------------------------------------------------------------------

2) Aggregate number of securities to which transaction applies:

- -------------------------------------------------------------------------------

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):

- -------------------------------------------------------------------------------

4) Proposed maximum aggregate value of transaction:

- -------------------------------------------------------------------------------

5) Total fee paid:

- -------------------------------------------------------------------------------

|_| Fee paid previously with preliminary materials.

|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

<PAGE>

BERNARD CHAUS, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

The Annual Meeting of Stockholders of Bernard Chaus, Inc. (the
"Company"), a New York corporation, will be held on December 8, 1997 at 10:30
a.m. at Rihga Royal Hotel, 151 West 54th Street, New York, New York, Winter
Garden Room, mezzanine level, for the following purposes:

1. To elect five directors of the Company to serve until the next
Annual Meeting of Stockholders and until their respective successors have been
elected and qualified.

2. To approve an amendment to the Company's Certificate of
Incorporation, as amended (the "Charter") to effect a reverse stock split of
the Company's Common Stock such that every ten (10) shares of Common Stock
outstanding on the effective date of such reverse stock split would be
converted into one (1) share of common stock, $.01 par value ("Common Stock").

3. To approve the sale by the Company to Josephine Chaus of an
aggregate of up to 19,246,705 shares of Common Stock consisting (i) of
10,510,910 shares of Common Stock of the Company (on a post stock-split
basis), in exchange for approximately $40.5 million of the Company's
indebtedness to Josephine Chaus consisting of $28.0 million of existing
subordinated indebtedness (including accrued interest through January 15,
1998) and $12.5 million of indebtedness which will be owed to her; (ii) in
connection with the exercise by Josephine Chaus of her full $10.0 million
subscription in a rights offering to all holders of Common Stock of the
Company (the "Rights Offering"), of 6,988,635 shares of Common Stock of the
Company (on a post stock-split basis) ; and (iii) of up to 1,747,160
shares of Common Stock of the Company (on a post stock-split basis), in
connection with the standby commitment of Josephine Chaus to subscribe for up
to an additional $2.5 million of Common Stock of the Company if and to the
extent that the Company's other stockholders do not purchase at least that
amount in the Rights Offering, each at a purchase price equal to $1.4309 per
share (determined by the Company and management, and unanimously approved by the
disinterested members of the Company's Board of Directors). Proceeds from such
sales shall be used to retire a position of the existing indebtedness.

4. To ratify the appointment of Deloitte & Touche as auditors of the
Company to serve for the fiscal year ending June 30, 1998.

5. To transact such other business as may properly come before the
meeting or any adjournments thereof.

Stockholders of record at the close of business on October 10, 1997
are entitled to notice of and will be entitled to vote at the meeting.

YOU ARE REQUESTED TO FILL IN, DATE AND SIGN THE ENCLOSED PROXY, WHICH
IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND TO MAIL IT PROMPTLY
IN THE ENCLOSED ENVELOPE.

By Order of the Board of Directors,

Barton Heminover
Assistant Secretary

New York, New York
November ___, 1997

<PAGE>

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IMPORTANT: Please sign, date and return your proxy card in the self-addressed,
stamped envelope enclosed for your convenience. No postage is required if
mailed within the United States.
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<PAGE>

BERNARD CHAUS, INC.

------------------

PRELIMINARY PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS

December 8, 1997

This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Bernard Chaus, Inc., a New York
corporation (the "Company"), to be used at the Annual Meeting of Stockholders
which will be held on December 8, 1997 at 10:30 a.m. at the Rihga Royal Hotel,
151 West 54th Street, New York, New York, Winter Garden Room, mezzanine level,
and any adjournments or postponements thereof.

Stockholders who execute proxies retain the right to revoke them at
any time by notice in writing to the Assistant Secretary of the Company or by
revocation in person at the meeting; unless so revoked, the shares represented
by proxies will be voted at the meeting in accordance with the directions
given therein. If no directions are given, proxies will be voted (i) FOR the
election of the nominees named below under the caption "Election of
Directors-Nominees for Election", (ii) FOR the approval of an amendment to the
Company's Certificate of Incorporation, as amended (the "Charter") to effect a
reverse stock split (the "Stock Split") of the Company's Common Stock such
that every ten (10) shares of Common Stock outstanding on the effective date
of such reverse stock split would be converted into one (1) share of common
stock, of the Company, $.01 par value (the "Common Stock"), (iii) FOR the
approval of the sale by the Company to Josephine Chaus of an aggregate of up
to 19,246,705 shares of Common Stock consisting (a) of 10,510,910
shares, on a post Stock Split basis, of Common Stock of the Company, in
exchange for approximately $40.5 million of the Company's indebtedness to
Josephine Chaus ("J. Chaus", "Josephine Chaus", or "Ms. Chaus") consisting
of $28.0 million of existing subordinated indebtedness (including accrued
interest through January 15, 1998) and $12.5 million of indebtedness which
will be owed to her, (b) in connection with the exercise by Josephine Chaus of
her full $10.0 million subscription in a rights offering to all holders of
Common Stock of the Company (the "Rights Offering"), of 6,988,635 shares of
Common Stock of the Company, on a post Stock Split basis, and (c) of up to
1,747,160 shares of Common Stock of the Company, on a post Stock Split basis,
in connection with the standby commitment by Josephine Chaus to subscribe for
up to an additional $2.5 million of Common Stock if and to the extent
that the Company's other stockholders do not purchase at least that amount
in the Rights Offering, (iv) FOR the ratification of the appointment of
Deloitte & Touche as auditors for the Company's fiscal year ending
June 30, 1998, and (v) in the discretion of the proxies named on the proxy
card with respect to such other business as may properly come before the
meeting and any adjournments or postponements thereof. All share data in this
Proxy Statement, unless otherwise noted, gives effect to the proposed Stock
Split.

The principal executive offices of the Company are located at 1410
Broadway, New York, New York 10018. The approximate date on which this Proxy
Statement and the enclosed form of proxy were first sent or given to
stockholders was November __, 1997.

Stockholders of record at the close of business on October 10, 1997
are entitled to notice of and will be entitled to vote at the meeting. On
October 28, 1997 there were outstanding 26,277,274 shares of the Common Stock
of the Company without giving to the proposed Stock Split. Each share of
Common Stock is entitled to one vote.

<PAGE>

VOTING PROCEDURES

Under the New York Business Corporation Law (the "BCL") and the
Company's By-Laws, the presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum of the
stockholders to take action at the Annual Meeting. Abstentions and broker
non-votes are counted as shares present in the determination of whether the
shares of Common Stock represented at the Annual Meeting constitute a quorum.
Once a quorum of the stockholders is established, under the BCL and the
Company's By-Laws, the directors standing for election must be elected by a
plurality of the votes cast. Under the BCL an amendment to the Company's
Charter must be approved by a majority of the shares issued and outstanding
and entitled to vote at the meeting. Any other action to be taken must be
approved by a majority of the votes cast. For voting purposes, abstentions and
broker nonvotes will not be counted in determining whether the directors
standing for election have been elected or whether any other action has been
approved.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table represents information with respect to the
persons who are known to the Company to be the beneficial owners of more than
five percent of the Common Stock as of October 28, 1997.

AMOUNT BENEFICIALLY
OWNED IF THE SHARE
AMOUNT PERCENT ISSUE PROPOSALS
NAME AND ADDRESS OF BENEFICIALLY OF CONTAINED HEREIN ARE PERCENT
BENEFICIAL OWNER OWNED* CLASS APPROVED* OF CLASS
---------------- ----- ----- -------- --------

<S> <C> <C> <C> <C>
Josephine Chaus (1).................. 1,696,721(2) 57.02% 18,848,415 (3)(4) 69.5% (4)
1410 Broadway 20,595,575 (3)(5) 94.2% (5)
New York, NY 10018
</TABLE>

- -----------
* On a post Stock Split basis.

(1) All shares listed are owned of record and beneficially, with sole
investment and voting power, except that, with respect to 11,800
shares included in such amount, Josephine Chaus shares power to vote
and dispose of such shares with Daniel Rosenbloom which are held by
them as co-trustees for her children.

(2) Includes 347,851 shares of Common Stock purchasable upon exercise of
outstanding warrants. Because of her stock ownership and positions
with the Company, Josephine Chaus may be deemed a control person of
the Company.

(3) Does not include 347,851 shares of Common Stock purchasable upon
exercise of outstanding warrants, because Ms. Chaus has agreed to
surrender such warrants as part of the Restructuring (as defined
below). See "Recent Development - The Restructuring" and "Certain
Transactions -Josephine Chaus" below. Includes 10,510,910 shares of
Common Stock issuable to Ms. Chaus upon conversion of approximately
$40.5 million of the Company's indebtedness to Ms. Chaus
consisting of $28.0 million of existing subordinated indebtedness
(including accrued interest through January 15, 1998) and $12.5
million of indebtedness which will be owed to her prior to the
consummation of the Company's restructuring plan (the
"Restructuring"). See "Recent Development - The Restructuring" and
"Approval of Sale of Common Stock to Josephine Chaus."

(4) Assuming the subscription by Josephine Chaus for all rights issued to
her in the Rights Offering pursuant to her Purchase Commitment
(as defined below). See "Recent Development - The Restructuring."

(5) Assuming the subscription by Ms. Chaus for an additional $2.5 million
of rights in the Rights Offering pursuant to her Standby Commitment
(as defined below). See "Recent Development - The Restructuring."

<PAGE>

The following table presents information as of October 28, 1997 with
respect to the number of shares of Common Stock beneficially owned by each of
the current directors of the Company and each Named Executive Officer (as
defined herein), other than Josephine Chaus whose ownership is shown in the
table above, and all of the directors and executive officers of the Company as
a group. The information below stating amounts beneficially owned and percent
of class owned includes options exercisable within 60 days.

AMOUNT
BENEFICIALLY OWNED
IF THE SHARE
AMOUNT PROPOSALS
BENEFICIALLY PERCENT CONTAINED HEREIN PERCENT
NAME OWNED(1)** OF CLASS ARE APPROVED** OF CLASS
---- -------- -------- ------------ --------
<S> <C> <C> <C> <C>
DIRECTORS:
Philip G. Barach (2)............. 1,500 * 1,500 *
Andrew Grossman.................. 100,000 (3) 3.8% - (8) *
S. Lee Kling (4)................. 3,800 * 3,800 *
Harvey M. Krueger (5)............ 6,000 * 6,000 *
NAMED EXECUTIVE
OFFICERS:
Barton Heminover (6)............. 750 * 750 *
All directors and 1,808,771 (7) 58.58% (7) 18,860,465 (8),(9), 69.36% (8),(9),
executive officers as a (10) (10)
group (6 persons)................
20,607,625 (8),(9), 93.89% (8),(9),
(11) (11)
</TABLE>

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* Less than one percent.
** On a post Stock Split basis.

(1) Except as otherwise indicated below, the persons listed have advised
the Company that they have sole voting and investment power with
respect to the securities listed as owned by them.

(2) Includes options to purchase 1,000 shares of Common Stock under the
Bernard Chaus, Inc. 1986 Stock Option Plan, as amended (the "Stock
Option Plan").

(3) Includes options to purchase 100,000 shares of Common Stock under the
Grossman Option Plan (as defined herein)

(4) Includes options to purchase 2,000 shares of Common Stock under the
Stock Option Plan.

(5) Includes options to purchase 5,000 shares of Common Stock under the
Stock Option Plan.

<PAGE>

(6) Consists of options to purchase 750 shares of Common Stock under the
Stock Option Plan.

(7) Includes beneficial ownership of Josephine Chaus; also includes
options to purchase an aggregate of 112,050 shares of Common Stock
under the employee and director stock option plans, consisting of
12,050 shares of Common Stock under the Stock Option Plan and options
to purchase 100,000 shares of Common Stock under the Grossman Option
Plan.

(8) Does not include options to purchase 100,000 shares of Common Stock
under the Grossman Option Plan, because Mr. Grossman has agreed in
principle to relinquish all of his rights to his existing options, to
the extent that they have not been exercised prior to the
consummation of the Restructuring. The Company and Mr. Grossman
are currently negotiating amendments to his employment agreement. It
is anticipated that such amendments will, among other things, include
the grant of new stock options in substitution of his existing stock
options. See "Recent Development - The Restructuring" and "Executive
Compensation Employment Arrangements" below.

(9) Does not include 347,851 shares of Common Stock purchasable upon
exercise of outstanding warrants, because Ms. Chaus has agreed to
surrender such warrants as part of the Restructuring. See "Recent
Development - The Restructuring" and "Certain Transactions --
Josephine Chaus" below. Includes 10,510,910 shares of Common Stock
issuable to Ms. Chaus upon conversion of approximately $40.5 million
of the Company's indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including accrued
interest through January 15, 1998) and $12.5 million of indebtedness
which will be owed to her prior to the consummation of the
Restructuring. See "Approval of Sale of Common Stock to Josephine
Chaus."

(10) Includes beneficial ownership of Josephine Chaus assuming the
subscription by Josephine Chaus for $10 million of 6,988,635 shares
of Common Stock upon exercise of all rights issued to her in the
Rights Offering pursuant to his Purchase Commitment; includes options
to purchase an aggregate of 12,050 shares of Common Stock under the
Stock Option Plan.

(11) Includes beneficial ownership of Josephine Chaus assuming the
subscription by Ms. Chaus for an additional $2.5 million of an
additional 1,747,160 shares of Common Stock upon exercise of rights
in the Rights Offering pursuant to her Standby Commitment; includes
options to purchase an aggregate of 12,050 shares of Common Stock
under the Stock Option Plan; and does not include options to purchase
100,000 shares of Common Stock under the Grossman Option Plan because
such options shall be terminated as part of the Restructuring.

RECENT DEVELOPMENT - THE RESTRUCTURING

In June 1997, the Company announced a proposed restructuring program to
be implemented by the Company. In September 1997, the disinterested members of
the Board of Directors of the Company unanimously approved the Restructuring
pursuant to which:

(i) the Company will seek to raise up to $20 million, but not
less than $12.5 million, of equity through the Rights
Offering;

(ii) approximately $40.5 million of the Company's indebtedness to
Ms. Chaus, consisting of $28 million of existing
subordinated indebtedness (including accrued interest
through January 15, 1998) and $12.5 million of indebtedness
which will be owed to Josephine Chaus, will be converted
into Common Stock of the Company (the "Conversion

<PAGE>

Commitment");

(iii) a new revolving credit facility (the "New Revolving
Facility"), and a new term loan facility (the "New Term
Loan", and together with the New Revolving Facility, the
"New Financing Agreement") was entered into with BNY
Financial Corporation ("BNYF"), the Company's current
working capital lender, on October 10, 1997; and

(iv) the Company will implement the proposed Stock Split.

Consummation of the Restructuring is subject to (i) the approval by
the Company's stockholders of (a) the Stock Split, (b) the issuance of
10,510,910 shares of Common Stock of the Company to J. Chaus in connection
with the Conversion Commitment, (c) the sale by the Company of 6,988,635
shares to J. Chaus in connection with the Purchase Commitment (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
absence of any litigation or governmental action challenging or seeking to
enjoin the Rights Offerings which in the sole judgment of the Company makes it
inadvisable to proceed with the Rights Offering. Accordingly, until such
conditions are satisfied ,there can be no assurance that the Restructuring
will be consummated. It is presently contemplated that the Restructuring will
be consummated by January 15, 1998. Ms. Chaus, Chairwoman of the Board, a
principal stockholder of the Company, and the owner of a majority of the
Company's Common Stock, has advised the Company that she intends to vote her
shares in favor of all matters relating to the Restructuring, thereby assuring
stockholder approval of such matters.

The Rights Offering

The Company will offer each of Ms. Chaus, and the Company's other
stockholders, the right (collectively, the "Rights") to subscribe for up to
$10 million of newly issued Common Stock, for a total of up to $20 million of
additional equity. The proceeds of the Rights Offering will be used to repay
amounts due under the New Financing Agreement. Subject to stockholder
approval, Ms. Chaus has agreed to exercise her full $10 million subscription
(the "Purchase Commitment") and to subscribe for up to an additional $2.5
million of Common Stock (the "Standby Commitment"), if and to the extent that
the Company's other stockholders do not purchase at least that amount of stock
in the Rights Offering. As described below, it is anticipated that Ms. Chaus
will satisfy her $10 million Purchase Commitment through the contribution of
funds currently used as credit support for the Company's Bank Debt (as defined
below). The Rights will be distributed, at no cost to the stockholders,
following the effectiveness of a registration statement to be filed with the
Securities and Exchange Commission. The Rights, which will be transferable
(other than those distributed to Ms. Chaus), will entitle the holders to
purchase Common Stock for a specified period of days (to be determined) after
the Rights Offering commences.

The information contained herein does not constitute an offering, and no
securities, including, without limitation, the Rights, are being offered
hereby. The Rights Offering will only be made by a prospectus filed with the
Securities and Exchange Commission.

Currently, Ms. Chaus beneficially owns approximately 57% of the Common
Stock of the Company.

<PAGE>

Upon the conversion of indebtedness owed by the Company to Ms. Chaus, and
prior to the Rights Offering, which is described below, she will beneficially
own approximately 90.3% of the Common Stock of the Company. Depending on the
number of Rights exercised by stockholders of the Company, other than Ms.
Chaus, following completion of the Rights Offering, Ms. Chaus will
beneficially own between approximately 69.5% and 94.2% of the Common Stock of
the Company.

Exchange of the Company's Indebtedness owed to Ms. Chaus for Equity Securities

Pursuant to the terms of the Restructuring, subject to stockholder
approval, approximately $40.5 million of the Company's indebtedness to Ms.
Chaus, consisting of $28 million of existing subordinated indebtedness
(including accrued interest through January 15, 1998) and $12.5 million of
indebtedness which will be owed to Ms. Chaus after the Subrogated Loan (as
defined below) is extended by her, will be converted into 10,510,910 shares of
Common Stock of the Company on a post Stock Split basis.

Restructuring of Bank Debt

The senior secured bank debt owing to BNYF by the Company, as of
September 30, 1997 (the "Bank Debt") consisted of approximately (i) $57.5
million in respect of direct borrowings, and (ii) $17.5 million in respect of
letters of credit.

In the Restructuring, the $57.5 million in respect of direct borrowings
by the Company has been and will be refinanced as follows: (i) $15 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 million in respect of borrowings previously
guaranteed by Ms. Chaus will be satisfied in full out of proceeds from a loan
made by BNYF to Ms. Chaus (the "BNYF--J. Chaus Loan"), and Ms. Chaus shall
become subrogated to the rights of BNYF with respect to such loan amount (the
"Subrogated Loan") until the Subrogated Loan is exchanged for equity, as set
forth above; and (iv) $10 million will be satisfied in full out of proceeds
received from the Rights Offering pursuant to the Purchase Commitment.

Under the terms of the Restructuring, approximately $17.5 million of
Bank Debt owing to BNYF in respect of letters of credit has been refinanced by
BNYF pursuant to the terms of the New Financing Agreement.

As an inducement to BNYF to enter into the New Financing Agreement, Ms.
Chaus has agreed with BNYF that shell will purchase, at the option of BNYF, a
$2.5 million junior participation in the New Financing Agreement between the
Company and BNYF, in the event that (i) an event of default occurs under the
New Financing Agreement prior to May 15, 1998, or (II) the Rights Offering is
not consummated prior to May 15, 1998 (the "Bank Debt Put").

Warrants and Options

In connection with the Restructuring, (i) Andrew Grossman, the Company's
Chief Executive Officer, has agreed in principle to relinquish all of his
rights to his existing options, to the extent that they have not been
exercised prior to the consummation of the Restructuring, and (ii) Ms. Chaus
has agreed in principle to relinquish all of her rights to her existing
warrants, to the extent that they have not been exercised prior to the
consummation of the Restructuring.

The Company currently intends that employees holding options will be
offered the right to exchange such options for new options.

Other Creditors of the Company; Other Matters in Connection with Restructuring

Under the proposed Restructuring, the Company's existing trade claims,
which are primarily held by the Company's customers and vendors, would be
unaffected.

8
<PAGE>

The Company and Mr. Grossman are currently negotiating amendments to his
employment agreement and it is anticipated that a restated and amended
employment agreement will be executed in the near term. It is expected that
such amendments, among other things, will include a cash bonus based upon the
Company's performance, the grant of new stock options in substitution for his
existing stock options, and the waiver by Mr. Grossman of his entitlement to
five percent (5%) of the Company's annual net profits, as currently provided
in his employment agreement.

ELECTION OF DIRECTORS

NOMINEES FOR ELECTION

Five directors will be elected at the meeting to serve until the next
annual meeting of stockholders and until their respective successors have been
elected and qualified.

EACH PROXY RECEIVED WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED
BELOW UNLESS OTHERWISE SPECIFIED IN THE PROXY. Josephine Chaus possesses the
power to vote more than 50% of the outstanding shares of the Common Stock.
Accordingly, the affirmative vote of Josephine Chaus is sufficient to approve
the election of these nominees. Josephine Chaus has advised the Company that
she intends to vote all of her shares in favor of such election.

At this time, the Board of Directors of the Company knows of no reason
why any nominee might be unable to serve. Except as indicated below, there are
no arrangements or understandings between any director and any other person
pursuant to which such person was selected as a director or nominee.

The following table sets forth certain information with respect to the
nominees for director:

NAME OF NOMINEE AGE DIRECTOR SINCE
--------------- --- --------------
<S> <C> <C>
Josephine Chaus............................. 46 1977
Andrew Grossman............................. 38 1994
S. Lee Kling................................ 68 1989
Harvey M. Krueger........................... 68 1992
Philip G. Barach............................ 67 1993
</TABLE>

Josephine Chaus has been an employee of the Company in various capacities
since its inception. She has been a director of the Company since 1977,
President from 1980 to February 1993, Chief Executive Officer from 1991
through September 1994, Chairwoman of the Board since 1991 and member of the
Office of the Chairman since September 1994. Members of the two-person Office
of the Chairman preside at all meetings of stockholders and the Board of
Directors of the Company, make such reports concerning the Company as the
Board of Directors shall direct, and have such other powers and perform such
other duties as are from time to time assigned to them by the Board of
Directors. In addition, the Chief Executive Officer reports to both members of
the Office of the Chairman (except in the case of a Chief Executive Officer
who also is a member of the Office of the Chairman, as is the case with Mr.
Grossman, in which event the Chief Executive Officer reports to the other
member of the Office of the Chairman).

Andrew Grossman was appointed a director of the Company on September 13,
1994. He has been employed by the Company since September 28, 1994 as its
Chief Executive Officer and member of the Office of the Chairman (for a
description of the role and responsibilities of the Office of the Chairman,
see "- Josephine Chaus" above), pursuant to a five-year employment agreement.
The agreement provides that Mr. Grossman shall (a) be nominated to serve as a
director of the Company without additional compensation during each year of
the term of his employment agreement, (b) serve as the Chief Executive Officer
and a member of the Office of the Chairman of the Company, which office also
consists of Josephine Chaus and (c) upon expiration of the term of the
agreement, resign as a director of the Company. In connection with the
execution of Mr. Grossman's employment agreement, Josephine Chaus agreed to
vote all her shares of Common Stock at each annual meeting of stockholders
held during the term of the agreement in favor of his re-election to the Board
of Directors of the Company. See "Executive Compensation - Employment
Arrangements." Prior to November 1994, Mr. Grossman was President from 1991 to
1994 and Executive Vice President from 1990 to 1991 of Jones Apparel Group, a
manufacturer of women's apparel, and Vice President of Merchandising for Jones
New York from 1987 through 1990. Prior to joining Jones, Mr. Grossman was
employed by Willi Wear Ltd., Herbert Grossman Enterprises, the Ralph Lauren
Womens Wear division of Bidermann Industries, Inc. and the Evan Picone
division of Palm Beach Inc.

<PAGE>

S. Lee Kling was elected a director of the Company on February 22, 1989.
He has served since 1991 as Chairman of the Board of Kling Rechter & Company,
a merchant banking company which works in partnership with First Chicago
Equity Capital Corp. and serves as Vice Chairman of Willis Corroon Corp. of
Missouri ("Willis Corroon"). See "Certain Transactions." Mr. Kling served as
Chairman of the Board of Landmark Bancshares Corporation, a bank holding
company in St. Louis, Missouri until December 1991 when the company merged
with Magna Group, Inc. He had served in such capacity with Landmark since 1974
and had also served as Chief Executive Officer of Landmark from 1974 through
October 1990 except for the period from May 1978 to January 1979 when he
served as Assistant Special Counselor on Inflation for the White House and
Deputy for Ambassador Robert S. Strauss. Mr. Kling serves on the Boards of
Directors of Magna Group, Inc., a multi-bank holding company; Lewis Galoob
Toys, Inc., a toy manufacturer; E-Systems, Inc., an electronic equipment
manufacturer; Falcon Products, Co., a furniture and fixtures manufacturer; Top
Air Manufacturing Inc., a manufacturer of agricultural equipment; National
Beverage Corp., a beverage manufacturer and Hanover Direct, Inc., a catalog
and mail order company.

Harvey M. Krueger was appointed a director of the Company on January 2,
1992. He has been a Senior Managing Director of Lehman Brothers, Inc. ("Lehman
Brothers"), an investment banking firm, since May 1984. See "Certain
Transactions." From December 1977 to May 1984, he was Managing Director of
Lehman Brothers Kuhn Loeb, Inc. From 1965 to 1977, he was a Partner of Kuhn
Loeb & Co. and in 1977, he served as President and Chief Executive Officer of
Kuhn Loeb & Co.

Philip G. Barach was appointed a director of the Company on November 26,
1993. He was, from July 1968 to March 1990 the Chief Executive Officer of U.S.
Shoe Corp., a shoe manufacturer. In addition, Mr. Barach served as Chairman of
the board of directors of U.S. Shoe Corp. from March 1990 to March 1993. Mr.
Barach currently serves as a director of Union Central Life Insurance Company,
an insurance carrier, and serves as a director of Glimcher Real Estate
Investment Trust, a real estate company, and R.G. Barry, a manufacturer of
thermal comfort products, both of which are public companies.

The Board of Directors of the Company has standing Audit and Compensation
Committees. Messrs. Kling and Krueger are members of the Audit Committee and
served as members of the Audit Committee during fiscal 1997. Messrs. Barach,
Kling and Krueger are members of the Compensation Committee and served as
members of the Compensation Committee during fiscal 1997. None of Messrs.
Kling, Krueger or Barach is an employee of the Company. The Company does not
have a standing Nominating Committee.

The Compensation Committee is charged by the Board of Directors with
administering, reviewing and recommending changes in the Company's incentive
compensation plans for its executives and submitting such plans to the Board
of Directors for approval, allocating bonuses, determining the individuals to
whom stock options are to be granted, the number of shares subject to grant
and the terms of such operations, and recommending to the Board any changes in
the compensation of any employee of the Company whose annual compensation
exceeds $150,000. The Compensation Committee met or acted by written consent
on four occasions during fiscal 1997.

The Audit Committee has such powers as may be assigned to it by the Board
of Directors from time to time and is charged with recommending annually to
the Board of Directors the independent auditors to be retained by the Company,
reviewing the audit plan with the auditors, reviewing the results of the audit
with the officers of the Company and its auditors and reviewing with the
officers and internal auditors of the Company the scope and nature of the
Company's internal auditing system. The Audit Committee met

<PAGE>

or acted by written consent on four occasions during fiscal 1997.

During fiscal 1997, the Board of Directors of the Company met, or acted
by unanimous written consent, on six occasions. While serving as a director,
each of the directors attended at least 75% of the meetings of the Board of
Directors and of the meetings held by all committees of the Board on which he
or she served during fiscal 1997.

COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own beneficially more than ten percent of the Common Stock to file
with the Securities and Exchange Commission initial reports of beneficial
ownership and reports of changes in beneficial ownership of the Common Stock.
Officers, directors and persons owning more than ten percent of the Common
Stock are required to furnish the Company with copies of all such reports. To
the Company's knowledge, based solely on a review of copies of such reports
furnished to the Company, the Company believes that during fiscal 1997, all
Section 16(a) filing requirements applicable to its executive officers,
directors and persons owning beneficially more than ten percent of the Common
Stock were complied with.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all cash compensation paid or accrued by
the Company for fiscal 1997 with respect to (a) Josephine Chaus, who served as
the Company's Chief Executive Officer until Andrew Grossman was hired in
September 1994, and who has served thereafter as a member of the Office of the
Chairman, (b) Andrew Grossman, who has been the Company's Chief Executive
Officer since September 1994, (c) each of the two other most highly
compensated executive officers of the Company and (d) two former executive
officer (collectively, the "Named Executive Officers"), for services rendered
by such persons in all capacities to the Company.

ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- ----------------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL POSITION RESTRICTED UNDERLYING ALL OTHER
HELD DURING FISCAL YEAR 1996 YEAR SALARY BONUS STOCK AWARDS OPTIONS* COMPENSATION
- ---------------------------------- ------ ------ ----- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman
Chief Executive Officer and 1997 $1,000,000 -- -- -- $ 3,014(3)
Member, Office of the Chairman 1996 $1,000,000 -- -- 150,000(2) $ 11,097(3)
1995 $ 790,178 $6,200,000(1) -- 150,000(2) $ 13,463(3)
Josephine Chaus
Chief Executive Officer (until 1997 $ 390,000 -- -- -- --
September 1994), Chairwoman of 1996 $ 390,000 -- -- -- --
the Board and Member, Office of 1995 $ 390,000 -- -- -- --
the Chairman

Michael Winter (4)
President - Nautica 1997 $ 253,846 -- -- -- $ --
1996 $ 248,077 -- -- 50,000 $ 35,375(6)
1995 --(5) -- -- -- --
</TABLE>

<PAGE>

ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ----------------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL POSITION RESTRICTED UNDERLYING ALL OTHER
HELD DURING FISCAL YEAR 1996 YEAR SALARY BONUS STOCK AWARDS OPTIONS COMPENSATION
- ---------------------------------- ---- ------ ----- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne Miller (7)
Executive Vice President - Finance 1997 $ 309,135 -- -- -- $14,837(9)
and Administration, Chief Financial 1996 $ 250,000 -- -- -- $19,436(8)
Officer and Secretary 1995 $ 250,000 $ 25,000 -- 20,000 10,391(3)
Barton Heminover
Vice President - Corporate 1997 $ 129,808 -- -- 3,000 --
Controller and Assistant Secretary 1996 --(10) -- -- -- --
1995 --(10) -- -- -- --
</TABLE>
* On a post Stock Split basis.

(1) The Company paid Mr. Grossman a sign-on bonus of $6.2
million portions of which must be paid back to the Company
if Mr. Grossman's employment is terminated for cause (as
defined in his employment agreement) or if he leaves the
Company without Good Reason (as defined in his employment
agreement). See "-- Employment Arrangements" below.
(2) All of such options will terminate as part of the Company's
Restructuring. See "Recent Development - The Restructuring"
and "--Employment Arrangements" below.
(3) Consists of health insurance premiums paid by the Company.
(4) Mr. Winter's employment with the Company terminated in
December 1996. From the date of the termination of his
employment, through September 1997, Mr. Winter served as a
consultant to the Company. For such consulting services the
Company paid Mr. Winter $374,994, in the aggregate.
(5) Mr. Winter's employment with the Company commenced in
January 1996.
(6) Consists of payments made by the Company toward the payment
of relocation expenses.
(7) Mr. Miller's employment with the Company terminated in
September 1997.
(8) Includes payments made by the Company of (a) $9,247 in
matching contributions under the Company's Employee Savings
Plan, and (b) $10,189 in life insurance premiums.
(9) Includes payments made by the Company of (a) $4,750 in
matching contributions under the Company's Employee
Savings Plan, and (b) $10,087 in life insurance premiums.
(10) Mr. Heminover's employment with the Company commenced in
July 1996.

<PAGE>

OPTION GRANTS TABLE

The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options during the fiscal
year ended June 30, 1997. The Company did not have during such fiscal year,
and currently does not have, any plans providing for the grant of stock
appreciation rights.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM2
------------------------------------------------------------ ----------------------
% OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN OR BASE EXPIRATION
NAME (#)1* FISCAL YEAR PRICE(3) DATE 5% 10%
---- ------ ----------- -------- ------ -- --------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman..................... -- -- -- -- -- --
Josephine Chaus..................... -- -- -- -- -- --
Michael Winter...................... -- -- -- -- -- --
Wayne Miller........................ -- -- -- -- -- --
Barton Heminover.................... 3,000 31.6% $31.25 9/11/06 $58,459 $189,413
</TABLE>

* On a post Stock Split basis.

(1) All options were granted under the Stock Option Plan.
(2) Potential pre-tax realizable value is based on the assumption that
the stock appreciates from the market value on the date of grant at
the annual rates of appreciation shown on the table over the option
term (ten years). This is a theoretical value. The actual realized
value depends upon the market value of the Company's stock at the
exercise date.
(3) The actual Exercise Price was $3.125. It has been adjusted to reflect
the post Stock Split price.

<PAGE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table provides information with respect to the exercise of
stock options during fiscal 1997 by the Named Executive Officers and the value
of unexercised options at fiscal year end.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF NUMBER OF VALUE OF VALUE OF
SECURITIES SECURITIES UNEXERCISED IN- UNEXERCISED
UNDERLYING UNDERLYING THE-MONEY IN-THE-MONEY
UNEXERCISED UNEXERCISED OPTIONS AT OPTIONS AT
SHARES OPTIONS AT OPTIONS AT JUNE 30, JUNE 30,
ACQUIRED VALUE JUNE 30, 1997 JUNE 30, 1997 1997(1) 1997(1)
NAME ON EXERCISE REALIZED EXERCISABLE* UNEXERCISABLE* EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Grossman (2)............ -- -- 70,000 230,000 0 0
Josephine Chaus................ -- -- -- -- -- --
Michael Winter................. -- -- 12,500 37,500 0 0

Wayne Miller .................. -- -- 17,500 12,500 0 0
Barton Heminover............... -- -- -- 3,000 0 0
</TABLE>
* On a post Stock Split basis.

(1) The value is based on the excess of the market price of the Company's
Common Stock at the end of fiscal 1996 over the option price of the
unexercised options.

(2) All of Mr. Grossman's options shall be terminated as part of the
Company's Restructuring. See "Recent Development - The Restructuring"
and "--Employment Arrangements" below.

EMPLOYMENT ARRANGEMENTS

Andrew Grossman. On September 1, 1994, the Company entered into a
five-year employment agreement with Andrew Grossman, Chief Executive Officer
and Member of the Office of the Chairman of the Company, with an option to
extend the term of Mr. Grossman's agreement for an additional five years. On
September 13, 1995, the Company exercised the option to extend his employment
agreement. The Company paid Mr. Grossman a sign-on bonus of $6.2 million,
portions of which must be paid back to the Company if Mr. Grossman's
employment is terminated for cause (as defined in the employment agreement) or
if he leaves the Company without Good Reason (as defined in the employment
agreement). The sign-on bonus was nondeductible by the Company for tax
purposes. In addition, in connection with the initial term of Mr. Grossman's
employment agreement, Mr. Grossman was granted options (the "Initial Options")
to purchase an aggregate of 150,000 shares of Common Stock; and in connection
with the extension of Mr. Grossman's employment agreement, Mr. Grossman was
granted options (the "Additional Options") to purchase an additional 150,000
shares of Common Stock. Each of the Initial Options and the Additional Options
were granted pursuant to his employment agreement and a stock option agreement
(the "Grossman Option Plan").

Under the employment agreement, Mr. Grossman receives an annual salary of
$1.0 million and is entitled to an annual bonus (the "Bonus Plan") consisting
of 5% of the Company's Annual Net Profits (such amount, the "Net Profit
Participation"). Mr. Grossman is the sole participant in the Bonus Plan.
"Annual Net Profits" are defined in the agreement as net income of the Company
for any fiscal year as reflected on the audited financial statements of the
Company for such fiscal year prepared in accordance with generally accepted
accounting principles applied consistent with past practices and certified by
the

<PAGE>

Company's independent public accountants. No bonus was payable for fiscal
1997. The terms of the Bonus Plan were adopted by a committee of three
"outside directors" as such term is used for purposes of Section 162(m) of the
Internal Revenue Code (the "Code") and approved by the stockholders of the
Company at the 1994 Annual Meeting of Stockholders.

If the employment agreement is terminated by the Company other than for
cause or the death or disability of Mr. Grossman (or by Mr. Grossman if the
Company shall be in material breach of its obligations), the Company is
required to pay Mr. Grossman his annual salary and the Net Profit
Participation that he would have received had the agreement not been
terminated, less any compensation and bonuses received by Mr. Grossman from
other employers. If Mr. Grossman terminates the employment agreement prior to
its second anniversary for other than the Company's material breach, then the
Company is required to pay Mr. Grossman an annual salary for a two-year period
provided he, among other things, adheres to certain non-solicitation,
non-compete and confidentiality provisions contained in the employment
agreement.

The employment agreement also provides that if Mr. Grossman's employment
is terminated (with certain exceptions) after a change in control (as
described below), Mr. Grossman is to receive a lump sum payment equal to the
aggregate annual salary (discounted to present value) that he would have
received had his employment agreement not been terminated. A "change in
control" is defined to include certain mergers or asset sales; the failure to
stand for re-election of a majority of the existing Board of Directors; and
the acquisition by any person or group of stock resulting in beneficial
ownership of at least the number of shares collectively owned at such time by
Josephine Chaus and/or members of her immediate family, affiliates or certain
other related parties. In the event of such change in control or the
termination of Mr. Grossman's employment for certain specified reasons, any
unvested portion of the options shall vest immediately and shall remain
exercisable for a period of six months after such date, unless the options are
earlier terminated pursuant to the terms of the employment agreement.

Upon the execution of the employment agreement on September 1, 1994, Mr.
Grossman received the Initial Options at an exercise price of $22.50 per
share, the closing price (adjusted for the Stock Split) of the Common Stock on
the date of grant of such options. The Initial Options vest at a rate of 20%
per year commencing on September 1, 1994. On September 14, 1995, upon the
exercise by the Company of its option to extend the employment agreement for
an additional five-year period, Mr. Grossman received the Additional Options
at an exercise price of $56.25, the closing price (adjusted for the Stock
Split) of the Common Stock on the date of grant of such options. The
Additional Options vest at a rate of 20% per year commencing on September 1,
1998. The maximum number of shares of Common Stock which may be granted to Mr.
Grossman pursuant to the Grossman Option Plan, which was approved by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders, is
300,000 (adjusted for the Stock Split).

Josephine Chaus. The Company's employment agreement with Josephine Chaus,
Chairwoman of the Board, commenced on July 1, 1992 and expired on June 30,
1994. Since such date, she has been

<PAGE>

employed on the same terms, although without a written agreement. The annual
base salary under such agreement is $390,000 or such larger amount as the
Compensation Committee of the Board of Directors shall from time to time
determine. As of the date hereof, no such larger amounts have been authorized
or paid.

Michael Winter. The Company had a three-year employment agreement, dated
December 14, 1995 and effective January 1, 1996, with Michael Winter, former
President of the Company's Nautica division. During the term of the agreement,
Mr. Winter's salary was $500,000 per annum. In addition, Mr. Winter was
granted, pursuant to the terms and conditions of his employment agreement,
ten-year incentive stock options to purchase an aggregate of 50,000 shares of
the Company's Common Stock at an exercise price of $36.25 per share,
representing the closing price (adjusted for the Stock Split) of the
underlying shares of Common Stock on the grant date. The agreement provided
that, if the agreement is terminated by the Company without cause or by Mr.
Winter for "Good Reason" (other than in connection with a "change in control"
(as such term is defined in the agreement)), the Company shall pay Mr. Winter
severance and non-competition payments equal to his base salary for the lesser
of (i) twelve months and (ii) the remainder of the agreement's term. If,
following a "change in control" (as such term is defined in the agreement),
the agreement is terminated by the Company without cause or by Mr. Winter for
"Good Reason", the Company shall pay Mr. Winter severance and noncompetition
payments equal to his base salary for the lesser of (i) twenty-four months and
(ii) the remainder of the agreement's term. In addition, all stock options
which have not yet vested shall vest on the date of such termination referred
to in the two preceding sentences.

Pursuant to a Consulting Agreement dated the 31st day of December, 1996,
between Mr. Winter and the Company (the "Consulting Agreement"), Mr. Winter
resigned as President of the Company's Nautica division. Pursuant to the
Consulting Agreement, Mr. Winter served as a consultant to the Company from
January 1, 1997 through September 30, 1997, and received an aggregate of
$374,994 over the nine-month period, net of certain offsets.

Wayne Miller. The Company had a two-year employment agreement with Wayne
Miller, Executive Vice President - Finance and Administration, Chief Financial
Officer and Secretary, dated as of June 3, 1994, which was to be automatically
extended for additional one year periods unless either party thereto specifies
otherwise. During the term of the agreement, Mr. Miller's salary was $250,000
per annum. Pursuant to the terms of the agreement, Mr. Miller was paid an
initial bonus of $25,000. In addition, Mr. Miller was granted, pursuant to the
terms and conditions of his employment agreement, ten-year incentive stock
options to purchase an aggregate of 5,000, 5,000 and 20,000 shares of the
Company's Common Stock at their respective exercise prices of $20.00, $18.75
and $47.50, respectively per share, representing the closing prices of the
underlying shares of Common Stock on their respective grant dates (adjusted
for the Stock Split). The agreement provided that if the agreement was
terminated by the Company without cause, the Company shall pay Mr. Miller
severance and non-competition payments equal to his base salary for a twelve
month period. If the agreement was terminated by the Company or by Mr. Miller
for "Good Reason" in connection with or following a "change in control" (as
such terms are defined in the agreement), the Company shall pay Mr. Miller a
severance and noncompetition payment equal to the sum of (x) two times his
base salary in effect at the time of termination plus (y) an amount equal to
two times the annual cash bonus award earned by Mr. Miller.

In September 1997, Mr. Miller resigned as Executive Vice President -
Finance and Administration, Chief Financial Officer and Secretary. Pending the
appointment of a successor to Mr. Miller, Mr.

<PAGE>

Heminover, together with the Company's financial advisors, will be responsible
for all of Mr. Miller's duties.

STOCK OPTION PLAN

The Company has in effect the Stock Option Plan, as amended and restated
as of January 1, 1987, as further amended by Amendment No. 1 thereto,
effective July 1, 1989, Amendment No. 2 thereto, effective July 1, 1990,
Amendment No. 3 thereto, effective July 1, 1991, and Amendment No.4 thereto,
effective as of July 1, 1993.

As of June 30, 1997, options to purchase an aggregate of 1,194,758 shares
had been granted and were outstanding under the Stock Option Plan at exercise
prices ranging between $1.875 and $5.625 per share. All options granted during
the past three fiscal years were granted at an exercise price equal to the
market price of the Company's Common Stock on the date of the grant of such
options. On October 28, 1997, the closing sales price of the Company's Common
Stock on the New York Stock Exchange was $0.625. For a description of options
owned by the Named Executive Officers as of June 30, 1997 and options received
by such Named Executive Officers during the fiscal year ended June 30, 1997,
see "Executive Compensation" above. As of June 30, 1997, the current executive
officers as a group had received options to purchase an aggregate of 303,000
shares (on a post Stock Split basis) pursuant to the Stock Option Plan, and
the current non-employee directors as a group had received options to purchase
8,000 shares (on a post Stock Split basis) pursuant to the Stock Option Plan.

In connection with the Restructuring, the Company intends that employees
holding options will be offered the right to exchange such options for new
options.

<PAGE>

DIRECTORS' COMPENSATION

During fiscal 1997, directors who were not employees of the Company
received an annual fee of $8,000 plus $1,000 for each Board of Directors or
Committee meeting attended. In addition to annual fees, pursuant to the
non-employee directors' Formula Plan contained in the Stock Option Plan,
non-employee directors are granted a one time option to acquire 1,000 shares
of Common Stock, exercisable up to 50% one year after the grant and 50% two
years after the grant, provided the director has been duly elected or
re-elected, as the case may be, in the interim. The per share exercise price
of any non-incentive stock option may not be less than 85% of the fair market
value of the Common Stock on the date of the grant. The Company has purchased
and will maintain a $50,000 term life insurance policy on behalf of each
director with the benefits to be paid to each director's designated
beneficiary.

COMPENSATION COMMITTEE INTERLOCKS

Philip Barach, S. Lee Kling and Harvey M. Krueger are members of the
Compensation Committee of the Board of Directors of the Company, and served as
members of the Compensation Committee during fiscal 1997. Mr. Krueger, who
also is a member of the Company's Audit Committee, is a Senior Managing
Director of Lehman Brothers, which provided certain advisory services to the
Company during the first quarter of fiscal 1996 for which it received fees
aggregating $25,000. In addition, Lehman Brothers served as managing
underwriter to the Company in connection with an underwritten public offering
of 5,750,000 shares (not adjusted for the Stock Split) of Common Stock
(including 750,000 shares (not adjusted for the Stock Split) of Common Stock
to cover over-allotments), which public offering was consummated in November
1995. Mr. Kling, who also is a member of the Company's Audit Committee, serves
as Vice Chairman of an insurance broker, Willis Corroon, from which the
Company obtains various insurance policies (i.e., travel, directors and
officers liability, and life insurance). A son of Mr. Kling also is employed
by Willis Corroon. The total aggregate premium payments paid to Willis Corroon
in respect of such insurance during fiscal 1997 were approximately $335,000.

COMPENSATION COMMITTEE REPORT

Committee. The Compensation Committee establishes and reviews the
Company's arrangements and programs for compensating its executive officers,
including the Named Executive Officers. The Compensation Committee is composed
of Philip Barach, S. Lee Kling and Harvey M. Krueger, none of whom are either
officers or employees of the Company.

Background, Objectives and Philosophy. The Compensation Committee's
objective is to establish an over-all compensation program that rewards
executives as the Company's net income reaches certain targeted levels and,
through the grant of options, as the market price of the Company's Common
Stock increases.

<PAGE>

The Compensation Committee believes that there are three principal
components which should be included in a compensation program:

1) base salary;

2) annual cash incentives; and

3) stock option incentives.

Under this approach, the attainment of yearly earnings and other
short-term targets is compensated through yearly bonuses under an Incentive
Award Plan (the "Incentive Award Plan") and long-term performance of the
Company is rewarded through the grant of stock options pursuant to the Stock
Option Plan. Unless otherwise provided by the Committee at the time an option
is granted, options granted under the Stock Option Plan vest ratably over a
four-year period. This approach is consistent with the Committee's view that
incentive programs should be based upon performance and that awards of stock
options should ally the economic interests of the Company's officers and other
key employees with those of the Company's stockholders.

Compensation Program Components.

Base Salary. Base salaries are set at levels that are competitive within
the apparel industry. An annual salary adjustment within each applicable
position/salary level is determined by evaluating the performance of the
individual, including the achievement of numerate and non-numerate objectives,
in the context of the financial results of the Company.

Annual Cash Incentives. Cash incentive awards are based on performance as
measured by the Company's net income. The Compensation Committee believes that
net income is an appropriate measure of performance because it promotes the
achievement of corporate-wide goals. The Company has in effect the Incentive
Award Plan in which key employees, other than Josephine Chaus, are eligible to
participate. Generally, the Compensation Committee establishes corporate-wide
objectives for net earnings each year, the attainment of which serve as the
basis for computing annual bonuses. No earnings targets were fixed for fiscal
1997. In the past, individual bonuses for key employees under the Incentive
Award Plan have been recommended by management to the Compensation Committee
which, in turn, makes the final determination. A portion of each executive's
bonus has also been dependent on the achievement of written numerate
objectives which are jointly established in advance by each such executive and
the Chief Executive Officer. The Compensation Committee may determine to
establish earnings targets for future fiscal years.

Stock Option Plan. The Compensation Committee believes that the use of
stock options as the principal basis for creating long-term incentives
satisfies the objective of aligning the interests of executive management with
those of the Company's stockholders. The Company has in effect the Stock
Option Plan pursuant to which the Compensation Committee may grant executives,
other than Josephine Chaus, options to purchase Common Stock of the Company.
The Company utilizes vesting periods to encourage key executives to continue
in the employ of the Company. Unless otherwise provided by the Compensation
Committee at the time an option is granted, options granted under the Stock
Option Plan vest ratably over a four-year period. Levels of participation in
the Stock Option Plan generally vary on the basis of the

<PAGE>

recipient's position in the Company. In connection with the Restructuring, the
Company intends that employees holding options will be offered the right to
exchange such options for new options.

Compensation of the Chief Executive Officer. Josephine Chaus served as
Chief Executive Officer of the Company until Andrew Grossman was hired in
September 1994. Since such time she has served as Chairwoman of the Board and
member of the Office of the Chairman of the Company. As Josephine Chaus is a
controlling stockholder of the Company, the Compensation Committee did not
believe there was a need for bonus compensation or stock incentives. As a
result, Josephine Chaus did not participate in the Company's bonus program or
the Stock Option Plan. The annual base salary provided for in her employment
agreement with the Company, which expired in June 1994, was $390,000 or such
larger amount as the Compensation Committee shall determine. Although Ms.
Chaus's employment agreement is no longer in effect, the Company continues to
compensate her at the same rate. Ms. Chaus's annual base salary was not
increased above the $390,000 level which has been the same for the past four
years.

Andrew Grossman has served as the Chief Executive Officer of the Company
since September 1994. Mr. Grossman was compensated pursuant to the terms of
his employment agreement which provides for an annual salary of $1.0 million
and an annual bonus of 5% of the Annual Net Profits of the Company. No bonus
was payable for fiscal 1997. During fiscal 1996, Mr. Grossman also was awarded
the Additional Options which vest at a rate of 20% per year commencing
September 1998. The terms of the Bonus Plan and the Grossman Option Plan were
approved by the stockholders of the Company at the 1994 Annual Meeting of
Stockholders. The Company and Mr. Grossman are currently negotiating
amendments to his employment agreement and it is anticipated that a restated
and amended employment agreement will be executed in the near term. It is
expected that such amendments, among other things, will include a cash bonus
based upon the Company's performance, the grant of new stock options in
substitution for his existing stock options, and the waiver by Mr. Grossman of
his entitlement to five percent (5%) of the Company's annual net profits, as
currently provided in his employment agreement.

COMPENSATION COMMITTEE
Philip Barach
S. Lee Kling
Harvey M. Krueger

<PAGE>

PERFORMANCE GRAPH

The following Performance Graph compares the total cumulative return
(assuming dividends are reinvested) on the Company's Common Stock during the
five fiscal years ended June 30, 1997 with the cumulative return on the
Standard & Poor's 500 Index and the Standard & Poor's Textile-Apparel
Manufacture Index, assuming investment of $100 in each of the above at their
closing stock prices on June 30, 1991.

[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BERNARD CHAUS, INC., THE S&P 500 INDEX
AND THE S&P TEXTILE APPAREL MANUFACTURER INDEX

6/92 6/93 6/94 6/95 6/96 6/97
BERNARD CHAUS, INC. $100 $52 $28 $74 $48 $16
S & P 500 $100 $114 $115 $145 $183 $247
S & P 500 TEXTILES (APPAREL) $100 $96 $84 $88 $110 $121

* $100 INVESTED ON 6/30/92 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.

<PAGE>

AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT OF THE COMMON STOCK

General

The Board of Directors of the Company has unanimously approved (subject
to stockholder approval), an amendment to the Company's Charter, substantially
in the form of Exhibit "A" attached to this Proxy Statement (the "Stock Split
Charter Amendment"), and incorporated herein by this reference effecting the
Stock Split with respect to all issued shares of Common Stock; however such
text is subject to change as may be required by the Secretary of State of the
State of New York (the "Secretary of State"). If the Stock Split Charter
Amendment is approved by the actions of the Company's stockholders, as a
result of the Stock Split, every ten (10) shares of existing Common Stock
outstanding ("Old Common Stock") as of the time of filing of the Stock Split
Charter Amendment with the New York Secretary of State (the "Effective Date")
would be automatically converted into one (1) new share of Common Stock ("New
Common Stock").

The Charter provides for 50,000,000 authorized shares of Common Stock, no
par value per share, 26,277,274 are issued and outstanding as of October 28,
1997.

Purposes and Reasons for the Stock Split

The Board of Directors believes that the Stock Split is beneficial to the
Company and the stockholders. The principal reasons for the Stock Split are to
realign the Company's capitalization in a manner appropriate for the
Restructuring as more fully described above.

The Common Stock is currently quoted on the New York Stock Exchange (the
"NYSE"). The Company believes the Stock Split makes it more likely that the
Company will be able to maintain its listing on the NYSE. The closing bid
price per share of the Common Stock on October 28, 1997 was approximately
$.625. Although the NYSE has not, to date, taken any action to delist the
shares of Common Stock, there can be no assurance that it will not undertake
to do so in the future.

If the Common Stock were to be disqualified from listing on the NYSE it
would likely have an adverse effect on the trading in, and liquidity of, the
Common Stock.

The Board of Directors also believes that the current low per share price
of the Common Stock as reported on the NYSE has had a negative effect on the
price and marketability of existing shares, the amount and percentage
(relative to share price) of transaction costs paid by individual stockholders
and the potential ability of the Company to raise capital by issuing
additional shares or to undertake merger or acquisition transactions. Reasons
for these effects include internal policies and practices of certain
institutional investors which prevent or tend to discourage the purchase of
low-priced stocks, the fact that many brokerage houses do not permit
low-priced stocks to be used as collateral for margin accounts or to be
purchased on margin and a variety of brokerage house policies and practices
which tend to discourage individual brokers within those firms from dealing in
low-priced stocks.

In addition, since broker's commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Common Stock can result in
individual stockholders paying transaction costs which are a higher percentage
of the share

<PAGE>

price than would be the case if the share price were substantially higher. The
Board of Directors believes that the Stock Split, and the expected resulting
increased price level, may enhance investor interest in the Common Stock and
may help the investment community realize the underlying value of the Common
Stock. There is, however, no assurance that any of the foregoing effects will
occur.

The Board of Directors recognizes that reverse stock splits are sometimes
believed to result in a decrease in the aggregate market value of an issuer's
common stock. The Board of Directors believes however, that this possible
negative impact is outweighed by what it perceives to be a greater negative
impact of not effecting the Stock Split.

WHILE THE BOARD OF DIRECTORS BELIEVES THAT THE SHARES OF COMMON STOCK
WILL TRADE AT HIGHER PRICES THAN THOSE WHICH HAVE PREVAILED IN RECENT MONTHS,
THERE IS NO ASSURANCE THAT SUCH INCREASE IN THE TRADING PRICE WILL OCCUR OR,
IF IT DOES OCCUR, THAT IT WILL EQUAL OR EXCEED THE DIRECT ARITHMETICAL RESULT
OF THE STOCK SPLIT SINCE THERE ARE NUMEROUS FACTORS AND CONTINGENCIES WHICH
COULD AFFECT SUCH PRICE. THERE IS NO ASSURANCE THAT THE COMPANY WILL CONTINUE
TO MEET THE LISTING REQUIREMENTS FOR THE NYSE FOLLOWING THE STOCK SPLIT.

Certain Effects of the Stock Split

If effected, the Stock Split would reduce the number of outstanding
shares of Old Common Stock from 26,277,274 as of October 28, 1997 to
approximately 2,627,727 shares of New Common Stock as of the Effective Date.
(The foregoing assumes no issuances of Common Stock between the Record Date
and the Effective Date.) The Stock Split itself would have no effect on the
number of authorized shares of Common Stock or the par value of the stock.

All outstanding options, warrants, rights and convertible securities
would be appropriately adjusted, as required by their terms, for the Stock
Split automatically on the Effective Date. The Stock Split would not affect
any stockholder's proportionate equity interest in the Company except for
those stockholders who would receive an additional share of Common Stock in
lieu of fractional shares. None of the rights currently accruing to holders of
the Company's Common Stock, or options or warrants to purchase Common Stock,
will be affected by the Stock Split.

The result of the Stock Split effected due to the Stock Split Charter
Amendment would be that stockholders of the Company who own ten (10) or more
shares of Old Common Stock would receive one (1) share of New Common Stock for
each ten (10) shares of Old Common Stock and one additional share in lieu of
the issuance of fractional shares of New Common Stock. Stockholders of the
Company who own fewer than ten (10) shares of Old Common Stock on the date the
Stock Split is effected, will be entitled to receive one (1) share of New
Common Stock in lieu of receiving fractional shares resulting from the Stock
Split.

Although the Board of Directors believes as of the date of this Proxy
Statement that the Stock Split is advisable, the Stock Split may be abandoned
by the Board of Directors at any time before, during or after the Annual
Meeting and prior to the Effective Date.

<PAGE>

The Board of Directors may make any and all changes to the Amendment that
it deems necessary in order to file the Stock Split Charter Amendment with the
Secretary of State of the State of New York and give effect to the Stock
Split.

Mechanics of Stock Split

If the Stock Split is approved by the requisite vote of the Company's
stockholders, the Company will file the Stock Split Charter Amendment as soon
as practicable thereafter, and the Stock Split will be effective on the date
of such filing, unless abandoned by the Board of Directors as described above.
Upon filing of the Stock Split Charter Amendment, every ten (10) issued and
outstanding shares of Old Common Stock will, effective upon such filing, be
automatically and without any action on the part of the stockholders converted
into and reconstituted as one (1) share of New Common Stock.

As soon as practical after the Effective Date, the Company will forward,
or cause to be forwarded, a letter of transmittal to each holder of record of
shares of Old Common Stock outstanding as of the Effective Date. The letter of
transmittal will set forth instructions for the surrender of certificates
representing shares of Old Common Stock to the Company's transfer agent in
exchange for certificates representing the number of whole shares of New
Common Stock into which the shares of Old Common Stock have been converted as
a result of the Stock Split. CERTIFICATES SHOULD NOT BE SENT TO THE COMPANY OR
THE TRANSFER AGENT PRIOR TO RECEIPT OF SUCH LETTER OF TRANSMITTAL FROM THE
COMPANY.

Until a stockholder forwards a completed letter of transmittal together
with certificates representing his, her or its shares of Old Common Stock to
the transfer agent and receives a certificate representing shares of New
Common Stock, such stockholder's Old Common Stock shall be deemed equal to the
number of whole shares of New Common Stock to which each stockholder is
entitled as a result of the Stock Split.

No scrip or fractional certificates will be issued in the Stock Split.
Instead, the Company will issue one additional share of New Common Stock to
each affected Stockholder at no cost to the stockholder. The ownership of a
fractional interest will not give the holder thereof any voting, dividend or
other rights except the right to receive an additional share therefor as
described herein. The number of shares of New Common Stock to be issued in
connection with settling such fractional interests is not expected to be
material.

For the purpose of determining ownership of Common Stock at the Effective
Date, shares will be considered to be held by the person in whose name those
shares are registered on the stock records of the Company, regardless of the
beneficial ownership of those shares. For example, if certain shares are
registered in the name of a husband and his wife, those two amounts of shares
will be treated separately and as held by two different stockholders for the
purposes of determining ownership of Common Stock at the Effective Date.

No service charges will be payable by stockholders in connection with the
exchange of certificates, all expenses of which will be borne by the Company.

<PAGE>

Federal Income Tax Consequences of the Stock Split

The following is a summary of the material anticipated federal income tax
consequences of the Stock Split to stockholders of the Company. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Department Regulations (the "Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of
the date hereof, all of which are subject to change. This summary does not
take into account possible changes in such laws or interpretations, including
amendments to the Code, applicable statutes, Regulations and proposed
Regulations or changes in judicial or administrative rulings; some of which
may have retroactive effect. No assurance can be given that any such changes
will not adversely affect the discussion of this summary.

This summary is provided for general information only and does not
purport to address all aspects of the possible federal income tax consequences
of the Stock Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON OR ENTITY.
In particular, and without limiting the foregoing, this summary does not
consider the federal income tax consequences to Stockholders of the Company in
light of their individual investment circumstances or to Stockholders subject
to special treatment under the federal income tax laws (for example, tax
exempt entities, life insurance companies, regulated investment companies and
foreign taxpayers). In addition, this summary does not address any
consequences of the Stock Split under any state, local or foreign tax laws. As
a result, it is the responsibility of each Stockholder to obtain and rely on
advice from his, her or its personal tax advisor as to: (i) the effect on his,
her or its personal tax situation of the Stock Split, including the
application and effect of state, local and foreign income and other tax laws;
(ii) the effect of possible future legislation and Regulations; and (iii) the
reporting of information required in connection with the Stock Split on his,
her or its own tax returns. It will be the responsibility of each stockholder
to prepare and file all appropriate federal, state and local tax returns.

No ruling from the Internal Revenue Service ("Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
Stockholders of the Company as a result of the Stock Split. ACCORDINGLY, EACH
STOCKHOLDER IS ENCOURAGED TO CONSULT HIS, HER OR ITS TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.

The Company believes that the Stock Split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Code. As a result, no
gain or loss will be recognized by the Company or its Stockholders in
connection with the Stock Split. A stockholder of the Company who exchanges
his, her or its Old Common Stock solely for New Common Stock will recognize no
gain or loss for federal income tax purposes. A stockholder's aggregate tax
basis in his, her or its shares of New Common Stock received from the Company
will be the same as his, her or its aggregate tax basis in the Old Common
Stock exchanged therefor. The holding period of the New Common Stock received
by such stockholder will include the period during which the Old Common Stock
surrendered in exchange therefor was held, provided all such Common Stock was
held as a capital asset on the date of the exchange.

Stockholder Approval

The approval of the Stock Split Charter Amendment to the Company's
Charter effecting the Stock Split requires the affirmative vote of a majority
of the outstanding shares of the Common Stock.

<PAGE>

Dissenting stockholders have no appraisal rights under New York law or
under the Company's Charter or Bylaws in connection with the approval of the
Stock Split Charter Amendment to effect the Stock Split.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK SPLIT.
EACH PROXY RECEIVED WILL BE VOTED FOR APPROVAL OF THE STOCK SPLIT UNLESS
OTHERWISE SPECIFIED IN THE PROXY.

JOSEPHINE CHAUS POSSESSES THE POWER TO VOTE MORE THAN 50% OF THE
OUTSTANDING SHARES OF THE COMMON STOCK. ACCORDINGLY, THE AFFIRMATIVE VOTE OF
JOSEPHINE CHAUS IS SUFFICIENT TO APPROVE THE STOCK SPLIT WITHOUT THE VOTE OF
ANY OTHER STOCKHOLDERS. JOSEPHINE CHAUS HAS ADVISED THE COMPANY THAT SHE
INTENDS TO VOTE ALL OF HER SHARES IN FAVOR OF THE STOCK SPLIT.

APPROVAL OF SALE OF COMMON STOCK TO JOSEPHINE CHAUS

In connection with the Restructuring, the Company is proposing to sell an
aggregate of up to 19,246,705 shares of Common Stock to Ms. Chaus (the "Share
Issuance Proposal"). Such proposal is being made in order to facilitate the
Restructuring, enhance the Company's balance sheet and accommodate BNYF. The
Share Issuance Proposal concerns the proposed sale to Ms. Chaus of an aggregate
of up to 19,246,705 shares of Common Stock consisting of: (i)10,510,910 shares
of Common Stock of the Company, in exchange for approximately $40.5 million of
the Company's indebtedness to Josephine Chaus, consisting of (a) $28 million of
existing subordinated indebtedness (including accrued interest through
January 15, 1998) and (b) $12.5 million of indebtedness to be owed to
Josephine Chaus after the Subrogated Loan is extended by her; (ii) in
connection with the exercise by Josephine Chaus, pursuant to her Purchase
Commitment, of her full $10.0 million subscription in the Rights Offering,
6,988,635 shares of Common Stock of the Company; and (iii) up to 1,747,160
shares of Common Stock of the Company, in connection with her Standby
Commitment, each at a purchase price equal to $1.4309 per share (determined by
the Company and management, and unanimously approved by the disinterested
members of the Company's Board of Directors). Proceeds from such sales shall
be used to retire a portion of the existing indebtedness.

The shares of Common Stock to be sold to Josephine Chaus have no
preemptive rights. See "Security Ownership of Certain Beneficial Owners and
Management" for information concerning the share ownership of Josephine Chaus
before and after giving effect to the sales of the shares of Common Stock to
Josephine Chaus discussed herein. The dilutive impact to all stockholders of
the Company, other than Ms. Chaus, will depend on the number of rights
exercised by the stockholders of the Company, other than Josephine Chaus, in
the Rights Offering. If no rights are exercised, other than those exercised by
Josephine Chaus pursuant to her Purchase Commitment and the Standby
Commitment, the percentage of shares owned by the stockholders, other than
Josephine Chaus will be reduced from 42.98% to 5.85%. If all rights offered in
the Rights Offering are fully subscribed, then the percentage of shares owned
by the stockholders of the Company, other than Josephine Chaus, will be
reduced from 42.98% to 30.85%.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF SHARES OF COMMON
STOCK OF THE COMPANY PURSUANT OT THE SHARE ISSUANCE PROPOSAL.

<PAGE>

JOSEPHINE CHAUS POSSESSES THE POWER TO VOTE MORE THAN 50% OF THE
OUTSTANDING SHARES OF COMMON STOCK. CONSEQUENTLY, THE AFFIRMATIVE VOTE OF
JOSEPHINE CHAUS IS SUFFICIENT TO APPROVE THE COMPANY'S SALE TO JOSEPHINE CHAUS
OF THE COMMON STOCK WITHOUT THE VOTE OF ANY OTHER SHAREHOLDERS. JOSEPHINE
CHAUS HAS ADVISED THE COMPANY THAT SHE INTENDS TO VOTE ALL OF HER SHARES IN
FAVOR OF SUCH SALE.

CERTAIN TRANSACTIONS

JOSEPHINE CHAUS

Subordinated Debt. The Company had outstanding at June 30, 1997, $26.4
million of subordinated promissory notes payable to Josephine Chaus certain of
which were originally issued on June 30, 1986 and the remainder of which were
issued in February and March 1991 (the "Subordinated Notes"). In connection
with the Company's November 1995 public offering, Josephine Chaus agreed
(subject to the consummation of such public offering) to extend the maturity
date of the Subordinated Notes (which were to mature on July 1, 1996) to July
1, 1998. The blended annual interest rate on the Subordinated Notes is 11.25%,
and payments of principal and interest under the Subordinated Notes currently
are not permitted as a result of bank covenant requirements. Ms. Chaus is
prohibited from accelerating the Subordinated Notes on account of such
inability to pay interest through the maturity thereof. The Subordinated Notes
will, as part of the Restructuring, be exchanged for equity. See "Recent
Development - The Restructuring" and "Approval of Sale of Common Stock to
Josephine Chaus."

Bank Debt Put. As an inducement to BNYF to enter into the New Financing
Agreement with the Company, Ms. Chaus has agreed with BNYF that she will
purchase, at the option of BNYF, a $2.5 million junior participation in the
New Financing Agreement between the Company and BNYF, in the event that (i) an
event of default occurs under the New Financing Agreement prior to May 15,
1998, or (ii) the Rights Offering is not consummated prior to May 15, 1998
(the "Bank Debt Put").

Credit Support.

1994 Warrants. During fiscal 1994, the Company required availability
under its working capital credit line with BNYF in excess of the amount
available under its borrowing base formula. To assist the Company, Josephine
Chaus agreed to provide credit support in the form of a letter of credit (the
"Letter of Credit"). She initially provided the Letter of Credit in the amount
of $3 million on April 15, 1994, which was increased to $5.0 million on June
14, 1994, to $7.2 million on September 13, 1994 and to $10.0 million in
February 1995. The expiration date of the Letter of Credit, initially in
effect through October 15, 1994, was extended to April 15, 1995, October 31,
1995 and then to January 31, 1996. BNYF increased the Company's borrowing
availability by various amounts as the amount and expiration date of the
Letter of Credit were increased and extended, respectively. In addition, Ms.
Chaus agreed to guarantee personally $5.0 million of the Company's
indebtedness to BNYF (the "$5.0 Million Guarantee"), with the $5.0 Million
Guarantee to be in effect during the credit facility's term. In return for
such credit support, the Company issued to Ms. Chaus, upon stockholder
approval, warrants (the "1994 Warrants") to purchase an aggregate of 1,216,500
shares of Common Stock of the Company, exercisable through November 22, 1999,
at prices ranging between $2.25 and $4.62 per share, in each case a price
which was 20% above the market price of the Company's Common Stock at the time
of the grant. In approving the issuance of the 1994 Warrants to Ms. Chaus, the
Special Committee sought the advice of Lehman Brothers, which

<PAGE>

provided its view as to the commercial reasonableness of the transaction. As
part of the Restructuring, Josephine Chaus will relinquish all of her rights
to the 1994 Warrants, to the extent they have not been exercised prior to the
consummation of the Restructuring.

1995 Warrants. During fiscal 1995, Josephine Chaus provided
additional credit support to the Company in the form of an increase in the
Letter of Credit to $10.0 million and an extension of its term to October 31,
1995 (the "February Increase/Extension"). Ms. Chaus also provided the $5.0
Million Guarantee at that time. In September 1995, Ms. Chaus further extended
the term of the Letter of Credit to January 31, 1996 (the "September 1995
Extension"). In consideration of the February Increase/Extension, the $5.0
Million Guarantee and the September Extension, the Company issued to Ms.
Chaus, upon stockholder approval, warrants (the "1995 Warrants") to purchase
an aggregate of 1,580,000 shares of Common Stock at prices ranging between
$4.05 and $6.75 per share, in each case a price which was 20% above the market
price of the Common Stock at the time of the grant. In approving the issuance
of the 1995 Warrants to Ms. Chaus, the Special Committee sought the advice of
Lehman Brothers, which provided its view as to the commercial reasonableness
of the transaction. As part of the Restructuring, Josephine Chaus will
relinquish all of her rights to the 1995 Warrants, to the extent they have not
been exercised prior to the consummation of the Restructuring.

1996 Warrants. During fiscal 1996, the Company required additional
availability under its working capital credit line with BNYF. To further
assist the Company, Josephine Chaus agreed to provide additional credit
support in the form of an option to further extend the Letter of Credit's
expiration date to July 31, 1996 (the "July 1996 Option"). In January 1996,
the Company exercised the July 1996 Option to extend the Letter of Credit to
July 31, 1996 (the "July 1996 Extension"). In consideration for her provision
of the July 1996 Extension, a special committee composed of disinterested
outside members of the Board of Directors of the Company (the "Special
Committee"), has authorized the issuance to Josephine Chaus, subject to
stockholder approval, of warrants (the "1996 Warrants") to purchase an
aggregate of 682,012 shares of Common Stock at an exercise price of $4.20 per
share. The Special Committee approved the issuance of the 1996 Warrants on
January 19, 1996. In approving the issuance of the 1996 Warrants to Josephine
Chaus, the Special Committee sought the advice of Lehman Brothers, which
provided it view at to the commercial reasonableness of the transaction. The
issuance of the 1996 Warrants was approved by the stockholders of the Company
at the 1996 Annual Meeting of Stockholders. As part of the Restructuring,
Josephine Chaus will relinquish all of her rights to the 1996 Warrants, to the
extent they have not been exercised prior to the consummation of the
Restructuring.

Additional Compensation. In connection with a May 1996 amendment to
the BNYF credit facility, Ms. Chaus agreed to extend the Letter of Credit to
January 31, 1997 (the "January 1997 Extension") and additionally provided a
collateralized increase of $5.0 million in the $5.0 Million Guarantee to $10.0
million (the "$10.0 Million Guarantee"). In connection with the January 1997
Extension, the Special Committee approved the payment of cash compensation to
Ms. Chaus of $100,000 for each three month period of the Letter of Credit as
extended from July 31, 1996 to January 31, 1997. For her provision of the
$10.0 Million Guarantee, the Special Committee approved an increase in the
amount of cash compensation payable to Ms. Chaus for her guaranty, to $100,000
for each three month period of the $10.0 Million Guarantee.

In connection with a September 1996 amendment to the BNYF credit
facility, Ms. Chaus agreed to extend the Letter of Credit to July 31, 1997
(the "July 1997 Extension"), increase the amount of the $10.0 Million
Guarantee to $12.5 Million (the "$12.5 Million Guarantee") and fully
collateralize the $12.5

<PAGE>

Million Guarantee. In connection with the July 1997 Extension, the Special
Committee approved the payment of cash compensation to Ms. Chaus of $100,000
for each additional three month period of the Letter of Credit as extended
from January 31, 1997 to July 31, 1997. For her provision of the $12.5 Million
Guarantee, the Special Committee approved an increase in the amount of cash
compensation payable to Ms. Chaus for her guaranty, to $125,000 for each three
month period of the $12.5 Million Guarantee.

Restructuring of Credit Support Provided by Ms. Chaus

On October 10, 1997, in substitution for the the personal guaranty
of $12.5 million of Bank Debt (the "$12.5 Million Guarantee") previously
provided by Ms. Chaus, she entered into a deposit letter (the "October Deposit
Letter") pursuant to which she provided $12.5 million in cash collateral to
secure the Bank Debt. The cash collateral was provided from the proceeds of
the BNYF--J. Chaus Loan. Immediately prior to the consummation of the Rights
Offering, and subject to the other conditions to the Restructuring being
satisfied, the $12.5 million in cash collateral will be released and used to
retire $12.5 million of the Bank Debt. As a result of such repayment, the
Company will become indebted to Ms. Chaus for $12.5 million. Pursuant to the
terms of the Subrogated Loan, 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 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.

Pursuant to the New Financing Agreement, in the event that the Rights
Offering is not consummated by May 15, 1998, the cash collateral held under
the October Deposit Letter and the July Deposit Letter will be applied by BNYF
to retire $22.5 million of the Bank Debt.

HARVEY KRUEGER

Harvey Krueger, a director of the Company and member of its Audit and
Compensation Committees, is a Senior Managing Director of Lehman Brothers,
which provided certain advisory services to the Company during the first
quarter of fiscal 1996 for which it received fees of $25,000. In addition,
Lehman Brothers served as managing underwriter by the Company in connection
with the Company's public offering which was consummated in November 1995.

S. LEE KLING

S. Lee Kling, a director of the Company and member of its Audit and
Compensation Committees, serves as Vice Chairman of an insurance broker,
Willis Corroon, from which the Company obtains various insurance policies
(i.e., travel, directors and officers liability, and life insurance). In
addition, a son of Mr.

<PAGE>

Kling is employed by Willis Corroon. The total aggregate premium payments paid
to Willis Corroon in respect of such insurance during fiscal 1997 were
approximately $303,000.

SELECTION OF AUDITORS

The Board of Directors, upon the recommendation of the Audit
Committee, has appointed Deloitte & Touche LLP, independent auditors, as the
Company's auditors for the fiscal year ending June 30, 1998. Deloitte & Touche
has served as the Company's independent auditors since June 10, 1994. Although
stockholder ratification of the selection of Deloitte & Touche is not
required, the Board considers it desirable for stockholders to pass upon the
selection of auditors.

It is expected that representatives of Deloitte & Touche will be
present at the meeting and will have the opportunity to make a statement if
they so desire and will be available to respond to appropriate questions of
stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF THE AUDITORS. EACH PROXY RECEIVED WILL BE VOTED FOR
THE RATIFICATION OF THE APPOINTMENT OF THE AUDITORS UNLESS OTHERWISE
SPECIFIED IN THE PROXY.

JOSEPHINE CHAUS POSSESSES THE POWER TO VOTE MORE THAN 50% OF THE
OUTSTANDING SHARES OF THE COMMON STOCK. ACCORDINGLY, THE AFFIRMATIVE VOTE OF
JOSEPHINE CHAUS IS SUFFICIENT TO RATIFY THE APPOINTMENT OF THE AUDITORS.
JOSEPHINE CHAUS HAS ADVISED THE COMPANY THAT SHE INTENDS TO VOTE ALL OF HER
SHARES IN FAVOR OF SUCH RATIFICATION OF THE APPOINTMENT.

PROPOSALS FOR NEXT YEAR'S MEETING

Any proposal by a stockholder who intends to be present at the next
Annual Meeting of Stockholders must be received by the Company for inclusion
in its proxy statement and form of proxy relating to that Annual Meeting no
later than July __, 1998.

MISCELLANEOUS

The Board of Directors of the Company does not intend to present, and
does not have any reason to believe that others intend to present, any matter
of business at the meeting other than as set forth in the accompanying Notice
of Annual Meeting of Stockholders. However, if other matters properly come
before the meeting, it is the intention of the persons named in the enclosed
form of proxy to vote any proxies in accordance with their judgment.

The Company will bear the cost of preparing, assembling and mailing
the enclosed form of proxy, this Proxy Statement and other material which may
be sent to stockholders in connection with this solicitation. The Board of
Directors may use the services of the Company's directors, officers and other

<PAGE>

regular employees to solicit proxies. In addition, the Company has retained
Chase Mellon Stockholder Services, LLP, Corporate Trust Group as stock
transfer agent to aid in the solicitation of proxies at an anticipated fee of
approximately $11,000 plus reasonable expenses. The Company may reimburse
persons holding shares in their names or in the names of nominees for their
expenses in sending proxies and proxy material to their principals.

Copies of the 1997 Annual Report to Stockholders, including financial
statements for the fiscal year ended June 30, 1997, are being mailed to the
stockholders prior to or simultaneously with this Proxy Statement.

THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION (FORM 10-K) FOR THE FISCAL YEAR ENDED JUNE
30, 1997 TO EACH STOCKHOLDER WITHOUT CHARGE (OTHER THAN A REASONABLE CHARGE
FOR ANY EXHIBIT REQUESTED) UPON WRITTEN REQUEST TO:

Bernard Chaus, Inc.
800 Secaucus Road
Secaucus, New Jersey 07094
Attention: Barton Heminover
Vice President Corporate Controller
and Assistant Secretary

<PAGE>

EXHIBIT A

PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT
A 1-FOR-10 REVERSE SPLIT OF THE COMPANY'S COMMON STOCK

RESOLVED, that the Board of Directors is authorized to file an
amendment to the Company's Articles of Incorporation following this proposal
to effect a reverse 1-for-10 stock split (the "Stock Split").

AMENDMENT TO ARTICLE OF THE
COMPANY'S ARTICLES OF INCORPORATION

1. The Certificate of Incorporation is amended to effect a reverse
Stock Split of shares of Common stock of the Corporation, par value $ .01 per
share ("Common Stock") on the basis if issuing one share of Common STOCK for
each ten (10) issued shares of Common STOCK, by amending Section A of ARTICLE
FOURTH of the Certificate of Incorporation to read as follows:

FOURTH. A. Authorized Shares. The total number of shares
of all classes of stock which the Corporation shall have authority
to issue is 51,000,000 shares, consisting of (i) 50,000,000 shares
of common stock, $0.01 par value per share (hereinafter referred to
as "Common Stock"), and 1,000,000 of preferred stock, $0.01 par
value per share (hereinafter referred to as "Preferred Stock").

Upon the filing of this amendment with the office of the Secretary
of State of the State of New York, each share of Common Stock of the
Corporation, issued at such time, shall be changed into one-tenth (0.1) of one
fully paid and non-assessable share of Common Stock of the Corporation. In
lieu of the issuance of any fractional shares that would otherwise result from
the reverse stock split effected hereby, the Corporation shall issue to any
stockholder that would otherwise receive fractional shares of Common Stock one
(1) additional share of Common Stock.

and further

RESOLVED, that following the effectiveness of this amendment,
certificates for the shares of Common Stock to be outstanding after the Stock
Split shall be issued pursuant to procedures adopted by the Corporation's
Board of Directors and communicated to those who are to receive new
certificates; and further

RESOLVED, that the Board of Directors of the Corporation may amend
and/or restate the Corporation's certificate of incorporation pursuant to New
York Business Corporation Law Sections 805 and 807 without approval of the
stockholders of the Corporation, and may direct the officers of the
Corporation to take all other acts as they deem necessary to effectuate the
foregoing.

A-1

<PAGE>

[front]

PROXY COMMON STOCK

BERNARD CHAUS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 8, 1997

The undersigned hereby constitutes and appoints Josephine Chaus and
Barton Heminover, and each of them, with full power of substitution, attorneys
and proxies to represent and to vote all of the shares of Common Stock which
the undersigned would be entitled to vote, with all powers the undersigned
would possess if personally present, at the Annual Meeting of the Stockholders
of BERNARD CHAUS, INC., to be held on December 8, 1997 at 10:30 a.m. at the
Rihga Royal Hotel, 151 West 54th Street, New York, New York, Winter Garden
Room, mezzanine level, and at any adjournment or postponement thereof, on all
matters coming before said meeting.

1. TO ELECT DIRECTORS.

Nominees: Philip G. Barach, Josephine Chaus, Andrew Grossman, S.
Lee Kling and Harvey M. Krueger.
(Mark only one of the following boxes.)

|_| VOTE FOR all nominees listed above, except vote
withheld as to the following nominees (if any):

-----------------------------------------------

|_| VOTE WITHHELD from all nominees.

2. To approve an amendment to the Company's Certificate of
Incorporation, as amended to effect a reverse stock
split (the "Stock Split") of the Company's Common Stock
such that every ten (10) shares of Common Stock
outstanding on the effective date of such reverse stock
split would be converted into one (1) share of common
stock, of the Company, $.01 par value:

|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

3. To approve the sale by the Company to Josephine Chaus of
an aggregate of up to 19,246,705 shares of Common Stock
consisting (a) of 10,510,910 shares, on a post Stock
Split basis, of Common Stock of the Company, in exchange
for approximately $40.5 million of the Company's
indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5
million of indebtedness which will be owed to her, (b)
in connection with the exercise by Josephine Chaus of
her full $10.0 million subscription in a rights offering
to all holders of Common Stock of the Company, of
6,988,635 shares of Common Stock of the Company, on a
post Stock Split basis (the "Rights Offering"), and (c)
of up to 1,747,160 shares of Common Stock of the
Company, on a post Stock Split basis, in connection with
the standby commitment by Josephine Chaus to subscribe
for up

<PAGE>

to an additional $2.5 million of Common Stock if and to
the extent that the Company's other stockholders do not
purchase at least that amount in the Rights Offering.
Proceeds from such sales shall be used to retire a
position of the existing indebtedness.
:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

4. To ratify the appointment of Deloitte & Touche LLP as the
Company's auditors:

|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

5. At their discretion, upon any other business which may
properly come before the meeting or any adjournment
thereof.

[back]

This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder.

IF NO DIRECTIONS ARE GIVEN, PROXIES WILL BE VOTED (I) FOR THE ELECTION OF
THE NOMINEES NAMED BELOW UNDER THE CAPTION "ELECTION OF DIRECTORS-NOMINEES FOR
ELECTION," (II) FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION, AS AMENDED, TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT, (III)
FOR THE APPROVAL OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF AN
AGGREGATE OF UP TO 19,246,705 SHARES OF COMMON STOCK CONSISTING (A) OF
10,510,910 SHARES, ON A POST STOCK SPLIT BASIS, OF COMMON STOCK OF THE
COMPANY, IN EXCHANGE FOR APPROXIMATELY $40.5 MILLION OF THE COMPANY'S
INDEBTEDNESS TO JOSEPHINE CHAUS, (B) OF 6,988,635 SHARES OF COMMON STOCK OF
THE COMPANY, ON A POST STOCK SPLIT BASIS, IN CONNECTION WITH THE EXERCISE BY
JOSEPHINE CHAUS OF HER FULL $10.0 MILLION SUBSCRIPTION IN THE RIGHTS OFFERING,
AND (C) OF UP TO 1,747,160 SHARES OF COMMON STOCK OF THE COMPANY, ON A POST
STOCK SPLIT BASIS, IN CONNECTION WITH THE STANDBY COMMITMENT BY JOSEPHINE
CHAUS, (IV) FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE AS
AUDITORS FOR THE COMPANY'S FISCAL YEAR ENDING JUNE 30, 1998, AND (V) IN THE
DISCRETION OF THE PROXIES NAMED ON THE PROXY CARD WITH RESPECT TO SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.

The undersigned acknowledges receipt of the accompanying
Proxy Statement dated November __, 1997.

Date:________________________________, 1997

_________________________________________________________

Signature of Stockholder(s)

(When signing as attorney, trustee,
executor, administrator, guardian,

<PAGE>

corporate officer, etc.,
please give full title.
If more than one trustee,
all should sign. Joint
owners must each sign.)

PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ABOVE.

I plan |_| I do not plan |_|
to attend the 1997 Annual Meeting of Stockholders.

<PAGE>

[front]

PROXY COMMON STOCK

BERNARD CHAUS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 8, 1997

The undersigned hereby directs CHASE MANHATTAN BANK,
Corporate Trustee under the Bernard Chaus, Inc. Corporate Trust which was
established to aid in the execution of the Bernard Chaus, Inc. Employee
Savings Plan (the "Plan") to vote all of the undersigned's pro rata share of
Bernard Chaus, Inc. Common Stock held by the Corporate Trustee under the Plan,
at the Annual Meeting of the Stockholders of BERNARD CHAUS, INC., to be held
on December 8, 1997 at 10:30 a.m. at the Rihga Royal Hotel, 151 West 54th
Street, New York, New York, Winter Garden Room, mezzanine level, and at any
adjournment or postponement thereof, on all matters coming before said
meeting.

1. TO ELECT DIRECTORS.

Nominees: Philip G. Barach, Josephine Chaus, Andrew
Grossman, S. Lee Kling and Harvey M. Krueger.
(Mark only one of the following boxes.)

|_| VOTE FOR all nominees listed above, except vote
withheld as to the following nominees (if any):

|_| VOTE WITHHELD from all nominees.

|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

3. To approve the sale by the Company to Josephine Chaus
of an aggregate of up to 19,246,705 shares of Common
Stock consisting (a) of 10,510,910 shares, on a post
Stock Split basis, of Common Stock of the Company, in
exchange for approximately $40.5 million of the Company's
indebtedness to Josephine Chaus consisting of $28.0
million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5
million of indebtedness which will be owed to her, (b)
in connection with the exercise by Josephine Chaus of
her full $10.0 million subscription in a rights offering
to all holders of Common Stock of the Company, of
6,988,635 shares of Common Stock of the Company, on a
post Stock Split basis (the "Rights Offering"), and (c)
of up to 1,747,160 shares of Common Stock of the
Company, on a post Stock Split basis, in connection with
the standby commitment by Josephine Chaus to subscribe
for up to an additional $2.5 million of Common Stock if
and to the extent that the Company's other stockholders
do not purchase at least that amount in the Rights
Offering. Proceeds from such sales shall be used to
retire a position of the existing indebtedness.

<PAGE>

|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

4. To ratify the appointment of Deloitte & Touche LLP as
the Company's auditors:

|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN

5. At their discretion, upon any other business which may
properly come before the meeting or any adjournment
thereof. [back]

This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder.

IF NO DIRECTIONS ARE GIVEN, PROXIES WILL BE VOTED (I) FOR THE ELECTION OF
THE NOMINEES NAMED BELOW UNDER THE CAPTION "ELECTION OF DIRECTORS-NOMINEES FOR
ELECTION," (II) FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION, AS AMENDED, TO EFFECT A 1-FOR-10 REVERSE STOCK SPLIT, (III)
FOR THE APPROVAL OF THE SALE BY THE COMPANY TO JOSEPHINE CHAUS OF AN AGGREGATE
OF UP TO 19,246,705 SHARES OF COMMON STOCK CONSISTING (A) OF
10,510,910 SHARES, ON A POST STOCK SPLIT BASIS, OF COMMON STOCK OF THE
COMPANY, IN EXCHANGE FOR APPROXIMATELY $40.5 MILLION OF THE COMPANY'S
INDEBTEDNESS TO JOSEPHINE CHAUS, (B) OF 6,988,635 SHARES OF COMMON STOCK OF
THE COMPANY, ON A POST STOCK SPLIT BASIS, IN CONNECTION WITH THE EXERCISE BY
JOSEPHINE CHAUS OF HER FULL $10.0 MILLION SUBSCRIPTION IN THE RIGHTS OFFERING,
AND (C) OF UP TO 1,747,160 SHARES OF COMMON STOCK OF THE COMPANY, ON A POST
STOCK SPLIT BASIS, IN CONNECTION WITH THE STANDBY COMMITMENT BY JOSEPHINE
CHAUS, (IV) FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE AS
AUDITORS FOR THE COMPANY'S FISCAL YEAR ENDING JUNE 30, 1998, AND (V) IN THE
DISCRETION OF THE PROXIES NAMED ON THE PROXY CARD WITH RESPECT TO SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.

The undersigned acknowledges receipt of the accompanying
Proxy Statement dated November __, 1997.

Date:________________________________, 1997

_________________________________________________________

Signature of Stockholder(s)

(When signing as
attorney, trustee,
executor, administrator,
guardian, corporate
officer, etc., please
give full title. If more
than one trustee, all
should sign. Joint
owners must each sign.)

<PAGE>

PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ABOVE.

I plan |_| I do not plan |_|
to attend the 1997 Annual Meeting of Stockholders.