<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1996 .
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________________to __________________.
Commission file number 1-9169
BERNARD CHAUS, INC.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York 13-2807386
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
1410 Broadway, New York, New York 10018
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Date Class Shares Outstanding
---- ----- --------------------
February 7, 1997 Common Stock, $0.01 par value 26,277,274
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
Condensed Consolidated Balance Sheets as of
December 31, 1996, June 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations
for the Six Months and Quarters ended
December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1996 1996 1995
------------ --------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 39 $ 247 $ 312
Accounts receivable, net 7,124 7,995 19,401
Inventories 19,020 21,256 22,491
Prepaid expenses and other current assets 787 783 1,015
-------- ------- -------
Total current assets 26,970 30,281 43,219
Fixed assets-- net 1,584 1,898 2,023
Other assets 1,003 563 526
------- ------- -------
$29,557 $32,742 $45,768
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable-- banks $29,906 $26,077 $17,077
Accounts payable 13,639 17,435 20,940
Accrued expenses 5,559 6,056 5,484
Accrued restructuring expenses -- 0-- 196 811
------- ------- -------
Total current liabilities 49,104 49,764 44,312
Subordinated promissory notes 24,957 23,588 22,306
Accrued restructuring expenses -- -- --
------- ------- -------
74,061 73,352 66,618
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value,
authorized shares -- 1,000,000;
outstanding shares -- none
Common stock, $.01 par value; authorized shares -- 50,000,000;
issued shares -- 26,899,974 at December 31, 1996, 26,893,724 at
June 30, 1996 and 26,883,641 at
December 31, 1995 269 269 269
Additional paid-in capital 65,463 65,450 65,110
Deficit (108,756) (104,849) (84,749)
Less: Treasury stock, at cost --
622,700 shares (1,480) (1,480) (1,480)
-------- -------- --------
Total stockholders' deficiency (44,504) (40,610) (20,850)
-------- -------- --------
$ 29,557 $ 32,742 $ 45,768
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
For the Six For the
Months Ended Quarter Ended
December 31, December 31,
1996 1995 1996 1995
------------ ------------ ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 86,094 $ 97,920 $ 38,084 $ 49,035
Cost of goods sold 65,746 79,300 30,214 41,159
-------- -------- ------- -------
Gross profit 20,348 18,620 7,870 7,876
Selling, general &
administrative expenses 20,428 19,677 10,173 9,913
-------- -------- -------- -------
Loss from operations (80) (1,057) (2,303) (2,037)
Interest and other income, net 41 50 35 (58)
Interest expense (3,832) (3,128) (1,994) (1,709)
-------- -------- -------- --------
Loss before income taxes (3,871) (4,135) (4,262) (3,804)
Income taxes 36 151 6 75
-------- -------- -------- --------
Net loss ($ 3,907) ($ 4,286) ($ 4,268) ($ 3.879)
========= ========= ========= =========
Net loss per common share ($0.15) ($0.20) ($0.16) ($0.17)
====== ====== ====== ======
Weighted average number of common
and common equivalent shares
outstanding 26,277,000 21,735,000 26,277,000 23,010,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
December 31, December 31,
1996 1995
----------------- --------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($ 3,907) ($ 4,286)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 461 575
(Credit) Provision for losses on accounts receivable (60) 90
Deferred interest on
subordinated promissory notes 1,369 1,240
Non-cash interest expense -- 200
Changes in operating assets and liabilities:
Accounts receivable 931 (11,845)
Inventories 2,236 (6,288)
Prepaid expenses and other assets (444) 460
Accounts payable (3,796) 8,018
Accrued expenses (497) (65)
Accrued restructuring expenses (196) (1,993)
-------- --------
Net Cash Used In Operating Activities (3,903) (13,894)
INVESTING ACTIVITIES
Purchases of fixed assets-- net of disposal (147) (206)
-------- --------
Net Cash Used In Investing Activities (147) (206)
FINANCING ACTIVITIES
Net proceeds (payments) on short-term bank borrowings 3,829 (1,621)
Net proceeds from issuance of stock -- 15,423
Net proceeds from exercise of options 13 192
-------- --------
Net Cash Provided By Financing Activities 3,842 13,994
-------- --------
Decrease in cash and cash equivalents (208) (106)
Cash and Cash Equivalents, Beginning of Quarter 247 418
-------- --------
Cash and Cash Equivalents, End of Quarter $ 39 $ 312
======== ========
Cash Paid for:
Taxes 27 11
Interest 2,197 1,860
Supplemental schedule of non-cash financing activities:
Issuance of warrants for credit support
by principal stockholder 200
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six Months Ended December 31, 1996 and December 31, 1995
1. Summary Of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997 or any other period. The balance sheet at June 30, 1996 has been derived
from the audited financial statements at that date. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
Net Loss Per Share: Net loss per share has been computed by dividing
the applicable net loss by the weighted average number of common shares
outstanding. Common equivalent shares were not included as their inclusion
would have been antidilutive.
2. Inventories
Inventories (principally finished goods) are stated at the lower of
cost, using the first-in first-out (FIFO) method, or market. Included in
inventories is merchandise in transit of approximately $7.9 million at
December 31, 1996, $9.0 million at June 30, 1996 and $8.9 million at December
31, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Operating results for the six months and quarter ended December 31,
1996 are not necessarily indicative of the results that may be expected for
the year ending June 30, 1997 or any other period.
For the six months ended December 31, 1996, net sales decreased by
$11.8 million or 12.1% as compared to the six months ended December 31, 1995.
Net sales for the quarter ended December 31, 1996, decreased by $10.9 or 22.3%
as compared to the quarter end December 31, 1995. The sales decrease for the
six months and quarter as compared to the prior fiscal year was primarily due
to a decrease in the volume of sales of Chaus products, and the discontinuation
of the Chaus dress product line. The sales decrease was partially
6
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BERNARD CHAUS, INC. AND SUBSIDIARIES
offset by initial regular price sales of the Company's licensed Nautica(R)
product line. The amount of units shipped for the six months ended December
31, 1996 decreased by 20% and by 24% for the quarter. The impact of the
decrease on the Company's net sales was partially offset by an increase in the
average selling price per unit.
Gross profit as a percentage of net sales was 23.6% for the six
months and 20.7% for the quarter ended December 31, 1996 as compared to 19.0%
and 16.1% for the six months and three months ended December 31, 1995,
respectively. The increase in gross profit as a percentage of net sales for
each of the six months and quarter was attributable to the initial sales of
the Nautica(R) product line and an improved gross profit percentage for Chaus
products due to fewer units being sold off price this year as compared to last
year.
Selling, general and administrative expenses increased by $0.8
million and $0.3 million for the six months and quarter ended December 31,
1996, respectively, as compared to the comparable periods in the prior fiscal
year. The increase in expenses for the six months and quarter are primarily
due to expenses associated with Nautica(R) product line. The increases in
expenses were partially offset by the discontinuation of the Chaus dress
product line and the Company continuing to review its overhead structure,
which resulted in decreases in payroll and payroll related items and decreases
in other selling, general and administrative expenses. As a percentage of net
sales, selling, general, and administrative expenses were 23.7% and 26.7% for
the six months and quarter ended December 31, 1996 as compared to 20.1% and
20.2% for the six months and quarter ended December 31, 1995.
Interest expense for the six months and quarter ended December 31,
1996 increased as compared to the comparable periods in the prior fiscal year
primarily as a result of the cash compensation payable to Josephine Chaus for
credit support provided by her to the Company ( see-- "Financial Position,
Liquidity and Capital Resources"), in addition to higher average bank
borrowings.
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was $3.9 million for the six
months ended December 31, 1996 as compared to $13.9 million in the six months
ended December 31, 1995. The decrease in net cash used in operating activities
resulted primarily from the net loss of $3.9 million (inclusive of the $1.4
million non-cash interest charge), a decrease in accounts payable of $3.8
million, partially offset by a decrease in inventory of $2.2 million and a
decrease in accounts receivable of $0.9 million.
Amended Financing Agreement
The Company and BNY Financial Corporation ("BNYF") entered into a
financing agreement in July 1991, which was amended and restated effective as
of February 21, 1995 and further amended, effective as of September 28, 1995
(the "September 1995 Amendment"), May 9, 1996 (the "May 1996 Amendment"),
September 17, 1996 (the "September 1996 Amendment")
7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
and January 31, 1997 (the "January 1997 Amendment") (collectively, the
"Amended Financing Agreement"). The Amended Financing Agreement provides the
Company with a $70 million credit facility for letters of credit and direct
borrowings, with a sublimit for loans and advances ranging between $40.0 and
$56.0 million. The amount of financing available is based upon a formula
incorporating eligible receivables and inventory, cash balances, other
collateral and permitted overadvances, all as defined in the Amended Financing
Agreement. The January 1997 Amendment allows for overadvances ranging between
$9.5 and $15.0 million through June 1997, subject to compliance with certain
financial covenants through such date. At December 31, 1996, the Company had
availability of approximately $2.2 million (inclusive of overadvance
availability) under the Amended Financing Agreement. The Amended Financing
Agreement is collateralized by substantially all of the Company's assets,
including accounts receivable and inventory.
The Amended Financing Agreement contains certain financial covenants
including covenants limiting the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company is also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions. In
the Waiver, dated February 4, 1997 (the "Waiver"), BNYF waived covenant
compliance with the net worth and quarterly minimum loss covenants through
December 31, 1996.
Interest on direct borrowings is payable monthly at an annual rate
equal to the higher of (i) The Bank of New York's prime rate (8.25% at
December 31, 1996) plus 0.5% (The Bank of New York prime rate plus 1.5% in the
event the Company's overadvance position exceeds the allowable overadvances)
or (ii) the Federal Funds Rate (8% at December 31, 1996) in effect plus 1%
(Federal Funds Rate in effect plus 2% in the event the Company's overadvance
position exceeds the allowable overadvances). There is an annual commitment
fee of 0.375% of the unused portion of the line, payable monthly, and letter
of credit fees equal to 0.125% of the outstanding letter of credit balance,
payable monthly. The Amended Financing Agreement requires the payment of
minimum service charges of $0.6 million per annum. In connection with the May
1996 Amendment, BNYF was paid a fee of $25,000, and additional fees of $10,000
per month through December 1996 were provided for, with BNYF agreeing to
provide specified levels of overadvances up to $10.0 million through the same
period. In connection with the Waiver, BNYF was paid a fee of $25,000.
Additionally, the Company agreed to issue warrants to purchase 125,000 shares
of the Company's common stock to BNYF at an exercise price of $.625 per share
(the market price per share on the date of approval of such warrants). The
Company may terminate the Amended Financing Agreement upon 90 days' prior
written notice at any time, subject to termination fees. BNYF may terminate
the Amended Financing Agreement after February 20, 1999, upon 60 days' written
notice to the Company.
Credit Support
Josephine Chaus has arranged for a letter of credit (the "Letter of
Credit") in various amounts since April 1994 in return for which BNYF has
increased the availability under the Amended Financing Agreement. In
consideration for credit support provided by Ms. Chaus to the Company prior to
February 1995, Ms. Chaus was granted 1,216,500 warrants (the "1994 Warrants"),
exercisable through November 22, 1999, at prices ranging between $2.25 and
$4.62 per share. As part of the negotiations with BNYF in connection with the
Amended Financing
8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Agreement, in February 1995 Josephine Chaus increased the Letter of Credit to
$10.0 million and extended its term to October 31, 1995 (the "February 1995
Increase/Extension"). In addition, in February 1995, Ms. Chaus provided a $5.0
million personal guarantee (the "$5.0 Million Guarantee"), to be in effect
during the Amended Financing Agreement's term. In September 1995, Ms. Chaus
further extended the term of the Letter of Credit to January 31, 1996 (the
"September 1995 Extension"). In consideration of her provision of the February
1995 Increase/Extension, the $5.0 Million Guarantee and the September 1995
Extension, a special committee consisting of disinterested members of the
Board of Directors of the Company (the "Special Committee") authorized the
issuance to Ms. Chaus of warrants (the "1995 Warrants") to purchase an
aggregate of 1,580,000 shares of Common Stock at prices ranging between $4.05
and $6.75 per share. The issuance of the 1995 Warrants was approved at the
1995 Annual Meeting of Stockholders. The issuance of the 1994 Warrants, the
warrants for the February 1995 Increase/Extension and the warrants for the
$5.0 Million Guarantee was recorded in fiscal 1995 at a value of $1.1 million,
and was included as a charge to interest expense with a corresponding increase
to additional paid-in capital. The issuance of the warrants for the September
1995 Extension was recorded in the second quarter of fiscal 1996 at a value of
$0.2 million, and was included as a charge to interest expense with a
corresponding increase to additional paid-in capital. Ms. Chaus received
warrant compensation for her provision of the $5.0 Million Guarantee only
through October 31, 1995. Thereafter, for each three month period of the $5.0
Million Guarantee, she has received cash compensation of $50,000, as
authorized by the Special Committee.
In connection with the September 1995 Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the "July 1996 Option"), subject to the consummation of the Company's
November 1995 public offering of Common Stock. In January 1996, the Company
exercised the July 1996 Option to extend the Letter of Credit to July 31, 1996
(the "July 1996 Extension"). In consideration of her provision of the July
1996 Extension, the Special Committee authorized the issuance to Ms. Chaus,
warrants (the "1996 Warrants") to purchase an aggregate of 682,012 shares of
Common Stock at a price of $4.20 per share. The issuance of the 1996 Warrants
was approved by the stockholders of the Company at the 1996 Annual Meeting of
Stockholders. The issuance of the 1996 Warrants ($0.3 million) was recorded in
the second quarter of fiscal 1997, at a value of $0.3 million and was included
as a charge to interest expense with a corresponding increase to additional
paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed to extend
the Letter of Credit to January 31, 1997 (the "January 1997 Extension") and
additionally provided a collateralized increase of $5.0 million in the $5.0
million Guarantee to $10.0 million (the "$10.0 Million Guarantee"). In
connection with the January 1997 Extension, the Special Committee approved the
payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the "July 1997 Extension"),
increase the amount of the $10.0
9
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BERNARD CHAUS, INC. AND SUBSIDIARIES
Million Guarantee by $2.5 million to $12.5 million (the "$12.5 Million
Guarantee") and fully collateralize the $12.5 Million Guarantee. In connection
with the July 1997 Extension, the Special Committee approved the payment of
cash compensation to Ms. Chaus of $100,000 for each additional three month
period of the Letter of Credit as extended from January 31, 1997 to July 31,
1997. For her provision of the $12.5 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $125,000 for each three month period of the $12.5 Million
Guarantee.
Subordinated Debt
The Company has outstanding at December 31, 1996, $25.0 million of
subordinated notes payable to Josephine Chaus (the "Subordinated Notes"). In
connection with the Company's November 1995 public offering (see "--
Nautica(R) License Agreement"), Josephine Chaus extended the maturity date of
the Subordinated Notes (which were to mature on July 1, 1996) to July 1, 1998.
The Company has been unable to pay principal or interest, with certain
exceptions, under the Subordinated Notes as a result of covenants in the
Amended Financing Agreement (see "-- Amended Financing Agreement").
Nautica(R) License Agreement
In September 1995, the Company entered into a license agreement with
Nautica(R) Apparel, Inc. (the "Nautica(R) License Agreement"), pursuant to
which the Company has an exclusive license to arrange for the manufacture of,
market, distribute and sell a new women's career and casual sportswear line
under the Nautica(R) name. The Nautica(R) License Agreement runs through
December 31, 1999. The Company is required to devote at least $7.0 million to
the fulfillment of the Company's obligations under the Nautica(R) License
Agreement, including related capital expenditures. The Company's obligations
also include minimum royalty and advertising payments.
Under the Nautica(R) License Agreement, the Company was obligated to
raise $10.0 million in equity capital. On November 22, 1995, the Company
consummated an underwritten public offering of 5,750,000 shares of Common
Stock at a price of $3.00 per share. Net proceeds, after expenses and
commissions of $1.8 million, were $15.4 million.
Future Financing Requirements
At December 31, 1996, the Company had a working capital deficiency of
$22.1 million. The Company requires the availability of sufficient cash flow
and borrowing capacity to finance its Chaus product lines and to develop and
market its licensed Nautica(R) product lines. The Company expects to satisfy
such requirements through cash flows from operations, its line of credit under
the Amended Financing Agreement, continued credit support from Josephine Chaus
and additional sources of financing. In that regard, the Company has engaged
Lehman Brothers to explore various alternatives available to the Company.
However, there can be no assurances the Company will be successful in
obtaining additional sources of financing.
The foregoing discussion contains forward-looking statements. Certain
important factors could cause actual results to differ materially from those
anticipated. Among these factors are
10
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BERNARD CHAUS, INC. AND SUBSIDIARIES
retail market conditions; consumer and customer acceptance of the Company's
products; BNYF's willingness to continue to support the Company; and Josephine
Chaus's willingness to continue to provide the Company with credit support and
the Company's ability to secure additional sources of financing.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Attached hereto as Exhibits are the following:
10.67 Amendment dated January 31, 1997 to the Financing Agreement
10.68 Waiver dated February 4, 1997 to the Financing Agreement
10.69 Consulting Agreement dated as of December 31, 1996 between the
Company and Michael Winter
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the
quarter ended December 31, 1996.
11
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERNARD CHAUS, INC.
(Registrant)
Date: February 14, 1997 By: /s/ Josephine Chaus
-------------------------
JOSEPHINE CHAUS
Chairwoman of the Board and
Office of the Chairman
Date: February 14, 1997 By: /s/ Andrew Grossman
--------------------------
ANDREW GROSSMAN
Chief Executive Officer and
Office of the Chairman
Date: February 14, 1997 By: /s/ Wayne S. Miller
---------------------------
WAYNE S. MILLER
Executive Vice President --
Finance and Administration and
Chief Financial Officer
12
<PAGE>
AMENDMENT NO. 5
TO
RESTATED AND AMENDED FINANCING AGREEMENT
THIS AMENDMENT NO. 5 ("Amendment") is entered into as of January 31,
1997, by and between BERNARD CHAUS, INC., a New York corporation ("Borrower")
and BNY FINANCIAL CORPORATION ("Lender").
BACKGROUND
----------
Borrower and Lender are parties to a Restated and Amended Financing
Agreement dated as of February 21, 1995 (as amended, supplemented or otherwise
modified from time to time, the "Financing Agreement") pursuant to which
Lender provided Borrower with certain financial accommodations.
Borrower has requested that Lender amend certain provisions of the
Financing Agreement and Lender is willing to do so on the terms and conditions
hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by
Lender, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Financing Agreement.
2. Amendment to Financing Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Financing Agreement is
hereby amended as follows:
2.1 Section 7(c)(v)(iii) is hereby amended in its entirety to provide as
follows:
"(iii) if termination occurs during the third year in which this
Agreement is in effect, you shall pay us $1,500,000;"
2.2 Section 8 is hereby amended by amending the definition of Applicable
Permitted Overadvance in its entirety to provide as follows:
"Applicable Permitted Overadvances" shall mean solely with respect to the
period commencing on the date hereof and ending on June 30, 1997, provided
that no Event of Default has occurred or is continuing (in which event the
Overadvance shall be immediately repaid in its entirety), the amounts set
forth below:
-1-
<PAGE>
December 6, 1996 through March 31, 1997 $15,000,000
April 1, 1997 through April 9, 1997 $ 9,500,000
April 10, 1997 through April 28, 1997 $12,000,000
April 29, 1997 through May 8, 1997 $10,750,000
May 9, 1997 through May 25, 1997 $13,000,000
May 26, 1997 through June 5, 1997 $13,500,000
June 6, 1997 through June 25, 1997 $15,000,000
June 26, 1997 through June 30, 1997 $13,750,000
July 1, 1997 and thereafter $ - 0 -
On July 1, 1997 and thereafter there shall be no further Applicable
Permitted Overadvances."
3. Conditions of Effectiveness. This Amendment shall become effective as
of January __, 1997, when and only when Lender shall have received four (4)
copies of this Amendment executed by Borrower and consented and agreed to by
Josephine Chaus as guarantor.
4. Representations and Warranties. Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Financing Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms all covenants, representations and warranties made in the
Financing Agreement to the extent the same are not amended hereby and
agree that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment.
(c) No event of Default or Default has occurred and is continuing or
would exist after giving effect to this Amendment.
(d) Borrower has no defense, counterclaim or offset with respect to
the Financing Agreement.
5. Effect on the Financing Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in
the Financing Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the
Financing Agreement as amended hereby.
(b) Except as specifically amended herein, the Financing Agreement,
and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect,
and are hereby ratified and confirmed.
-2-
<PAGE>
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Lender,
nor constitute a waiver of any provision of the Financing Agreement, or
any other documents, instruments or agreements executed and/or delivered
under or in connection therewith.
6. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all of
which taken together shall be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
BERNARD CHAUS, INC.
By: /s/ Wayne Miller
Name: Wayne Miller
Title: CFO
BNY FINANCIAL CORPORATION
By: /s/ Andrew Rogow
Name: Andrew Rogow
Title: SVP
CONSENTED AND AGREED TO:
/s/ Josephine Chaus
JOSEPHINE CHAUS
-3-
<PAGE>
Bernard Chaus, Inc.
800 Secaucus Road
Secaucus, New Jersey 07094
February 4, 1997
BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10036
Gentlemen:
Reference is made to the Restated and Amended Financing Agreement dated
as of February 21, 1995 (as same has been amended, supplemented or otherwise
modified, from time to time, the "Financing Agreement") by and between Bernard
Chaus, Inc. ("Borrower") and BNY Financial Corporation ("Lender"). All
capitalized terms not otherwise defined herein shall have the meanings given
to them in the Financing Agreement.
Borrower has failed to comply with the provisions of Sections 9(a)(vi)
and 9(a)(xvii) of the Financing Agreement for the second quarter of fiscal
year 1997 comprising the period from October 1, 1996 through and including
December 31, 1996 (the "Period") by failing to maintain: (i) Tangible Net
Worth for the Period not less than ($19,100,000) and (ii) Maximum Permitted
Loss for the Period not greater than $4,000,000.
Without in any way limiting any other rights of Lender under the
Financing Agreement, by signing below Lender agrees that Borrower's violation
of the (i) Tangible Net Worth covenant contained in Section 9(a)(vi) of the
Financing Agreement and (ii) Maximum Permitted Loss covenant contained in
Section 9(a)(xvii) of the Financing Agreement, each only as respects the
Period, is hereby waived, but only to the extent that the actual covenant
calculations to be prepared by Borrower do not reflect in any case breaches by
the Borrower of a magnitude greater than as reflected by the estimated
covenant calculations as prepared by Borrower and as attached hereto as
Exhibit 1.
Except as expressly waived or otherwise specifically provided herein, all
of the representations, warranties, terms, covenants and conditions of the
Financing Agreement shall remain unamended and unwaived and shall continue to
be and shall remain in full force and effect in accordance with their
respective terms. The waivers set forth herein shall be limited precisely as
provided for herein to the provisions expressly waived herein and shall not be
deemed a waiver of, amendment of, consent to or modification of any other term
or provision of
<PAGE>
the Financing Agreement or of any transaction or future action on the part of
Borrower requiring Lender's consent under the Financing Agreement.
This letter shall become effective upon receipt by Lender (i) four (4)
copies of this Waiver Letter executed by Borrower and agreed to by Josephine
Chaus as guarantor and (ii) the $23,000 waiver fee, which may be charged to
Borrower's loan account with Lender simultaneously with Lender's execution
below.
This letter may be signed in one or counterparts, each of which taken
together shall constitute one and the same agreement.
Very truly yours
BERNARD CHAUS, INC.
By: /s/ Wayne Miller
Its: CFO
AGREED AND ACKNOWLEDGED:
/s/ Josephine Chaus
JOSEPHINE CHAUS
AGREED AND ACKNOWLEDGED:
BNY FINANCIAL CORPORATION
By: /s/ Andrew Rogow
Its: SVP
<PAGE>
Exhibit 1
BERNARD CHAUS, INC.
COVENANT CALCULATION
QUARTER ENDED DECEMBER 31, 1996
Tangible Net Worth
- ------------------
As calculated: Equity ($44,504,000)
Subordinated debt 24,957,000
Goodwill & intangible assets 0
-------------
Calculated Tangible Net Worth ($19,547,000)
=============
Minimum required:
Tangible Net Worth ($19,100,000)
=============
Working Capital
- ---------------
As calculated:
Current Assets $26,970,000
Current Liabilities 49,104,000
-------------
Working Capital ($22,134,000)
=============
Minimum required:
Working Capital Minimum $22,500,000)
=============
Net Loss
- --------
As calculated: $4,268,000
=============
Minimum required loss: $4,000,000
=============
<PAGE>
EXHIBIT I
CHAUS
January 31, 1997
Mr. Andy Rogow
BNY FINANCIAL CORPORATION
1290 Avenue of the Americas, 3rd Floor
New York, NY 10104
RE: FINANCING AGREEMENT BETWEEN US, ORIGINALLY EXECUTED BY
YOU ON SEPTEMBER 24, 1991, AS RESTATED AND AMENDED
EFFECTIVE AS OF JULY 1, 1992, AS AMENDED AND SUPPLEMENTED
AS OF FEBRUARY 21, 1993, AND AS RESTATED AND AMENDED
SEPTEMBER 17, 1996 (THE "FINANCING AGREEMENT")
Dear Andy:
As detailed by the attached calculations, Bernard Chaus, Inc. is not in
compliance with the following covenants:
9(a)(vi) Our "Tangible Net Worth" is greater than $(19.1) million.
--------
9(a)(xvii) Our "Maximum Permitted Loss" for the quarter is greater that
--------
$4.0 million.
We hereby request a waiver of gross revenues for the second quarter of
fiscal year 1997, the period from October 1, 1996 through and including
December 31, 1996. Thank you in advance for your cooperation and assistance in
this matter.
Very truly yours,
BERNARD CHAUS, INC.
/s/ Wayne Miller
Wayne E. Miller
Chief Financial Officer
WEM:mj
<PAGE>
CONSULTING AGREEMENT
--------------------
Consulting Agreement (this "Agreement"), dated this 31st day of December,
1996, by and between Bernard Chaus, Inc. (the "Company"), a New York
corporation and Michael Winter (the "Consultant").
W I T N E S S E T H
-------------------
WHEREAS, the Consultant is currently a party to an Employment Agreement
with the Company, dated December 14, 1995 (the "Employment Agreement"); and
WHEREAS, the Consultant intends to resign as an employee under the
Employment Agreement and the Company desires to retain the Consultant as a
consultant to the Company as provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the Company and the Consultant
hereby agree as follows:
1. RESIGNATION FROM EMPLOYMENT; TERMINATION OF EMPLOYMENT AGREEMENT.
Effective as of January 1, 1997, the Consultant resigns from his position
as President - Nautica Division and shall cease to be an employee of the
Company as of that date and the Employment Agreement is hereby terminated as of
such date. No covenants shall survive the termination of the Employment
Agreement, including without limitation non-compete, non-solicitation and
confidentiality covenants. The termination shall be deemed by mutual consent.
From and after the date of commencement of the Term hereof, the rights and
obligations of the parties shall be governed by this Agreement.
2. TERM. This Agreement shall commence on January 1, 1997 and shall
terminate on September 30, 1997 (the "Term").
3. SERVICES.
(a) The Consultant agrees that during the Term, he will serve as a
consultant to the Company and in such capacity, perform such services as
the Chief Executive Officer or the Board of Directors of the Company may,
from time to time, reasonably request in connection with the marketing,
merchandising and sales of the Nautica Division of the Company and such
other projects as are mutually agreed to by the Consultant and the
Company. The Consultant shall report to the Chief Executive Officer of
the Company. The Consultant shall be available at such times and places
as are reasonably requested by the Company.
(b) The Consultant shall devote as much time to the performance of
his obligations hereunder as reasonably required, in the judgement of the
Chief Executive Officer in consultation with the Consultant, to the
business and commercial success of the Company; provided, however, that
nothing contained herein shall prevent the Consultant from accepting
<PAGE>
another engagement or full-time position and the Consultant shall be permitted
to perform the services required hereunder in a manner which does not
interfere with his ability to fulfill the commitments of such other engagement
or position.
(c) The Consultant shall not be required to travel in connection
with his services to be performed hereunder.
4. COMPENSATION AND BENEFITS.
In consideration of the services provided by the Consultant
hereunder, the Company shall pay the Consultant compensation of $41,666
per calendar month, payable on the fifteenth day of each calendar month,
if such day is a business day in the State of New York, otherwise on the
next business day thereafter, during the Term of this Agreement. It is
hereby agreed that, notwithstanding anything herein to the contrary, each
monthly payment to be made by the Company to the Consultant shall be
decreased by $656.48 to reimburse the Company for certain personal
expenses of the Consultant which were previously advanced by the Company,
less all monies owed by the Company to the Consultant, the net aggregate
sum of which is $5908.32. Each monthly payment to be made hereunder shall
be in the amount of $41,009.52.
5. OTHER EMPLOYMENT.
(a) The Consultant shall be free to render full-time or part-time
advisory, consultant or any other professional services to other
employers, whether as an employee, consultant or otherwise.
(b) Any compensation the Consultant receives from such other
employment or consultancy services shall not be offset against the
payments to be made to the Consultant by the Company hereunder.
6. BENEFITS.
(a) Pursuant to the requirements of COBRA, the Consultant's covered
dependents, if any, are eligible to continue health insurance coverage
for eighteen (18) months from the date of the Consultant's resignation of
employment from the Company. The Company shall bear the Consultant's
COBRA expense during the Term hereof. After the Term hereof, the
Consultant, at his sole expense, which is currently approximately $469.70
per month, shall be eligible to continue COBRA coverage for the remaining
nine (9) months. The Consultant hereby acknowledges that he has received
the requisite COBRA information and is hereby electing to continue his
health coverage with the Company until he revokes such election by
providing the Company with reasonable prior written notice of such
revocation.
(b) The Consultant shall have thirty (30) days from the termination
of this Agreement (i.e., until October 31, 1997) to exercise his 125,000
vested stock options ("Options") granted to him pursuant to the Company's
1986 Stock Option Plan, as amended (the "Option Plan") and his Employment
Agreement. The exercise price is in the agreement(s) evidencing the grant
of such Options. Should the Consultant wish to exercise such Options, the
2
<PAGE>
Consultant should contact Wayne S. Miller.
(c) The remaining 375,000 of the Consultant's Options which will not
have vested in accordance with the Option Plan on or before September 30,
1997, shall be forfeited on such date.
7. CERTAIN COVENANTS
(a) Confidentiality
The Consultant agrees not to use, disclose or make accessible to any
other person, firm, partnership, corporation or any other entity any
Confidential Information (as herein defined) pertaining to the business
of the Company except when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority
over the business of the Company, or by any administrative body or
legislative body (including a committee thereof) with jurisdiction to
order the Company to divulge, disclose or make accessible such
information. For purposes of the Agreement, "Confidential Information"
shall mean non-public information concerning the Company's financial
data, statistical data, strategic business plans, product development (or
other proprietary product data), customer and supplier information,
information relating to governmental relations, discoveries, practices,
processes, methods, trade secrets, marketing plans and other non-public,
proprietary and confidential information of the Company, that, in any
case, is not otherwise generally available to the public and has not been
disclosed by the Company to others not subject to confidentiality
agreements.
(b) Non-Solicitation.
The Consultant agrees that during the Term and for a period of nine
(9) months thereafter, without the prior written consent of the Company,
he shall not, on his own behalf or on behalf of any person or entity,
directly or indirectly, hire or solicit the employment of any employee
who was employed by the Company at any time during the one (1) year
period immediately preceding such date of hiring or solicitation by the
Consultant.
(c) Nondisparagement
The Consultant and the Company each agree that, except as may be
required by law, neither will at any time in the future, either directly
or indirectly, engage in, any Disparaging Conduct. For purposes of this
Agreement, "Disparaging Conduct" shall mean the publication by the
Consultant or the Company, orally or in writing, of any negative or
disparaging statements, comments, or remarks regarding the other or in
the case of the Company, any of its respective subsidiaries, affiliates,
directors, officers, or employees, as the case may be.
The Company shall issue a press release (the "Press Release"),
substantially in the form of Exhibit A hereto, in connection with the
Consultant's resignation. The Company shall provide a letter of reference
(the "Letter of Reference") for the Consultant, substantially in the form
of Exhibit B hereto. In responding to inquiries regarding Mr. Winter's
employment, the
3
<PAGE>
Company shall make statements consistent with the Press Release and the
Letter of Reference.
(d) Confidentiality of Agreement
The Consultant and the Company (other than as required as a matter
of public disclosure under the securities laws) each agree not to
disclose the terms of this Agreement or to otherwise provide a copy of
this Agreement to anyone (other than to professional advisors and as may
be required by applicable law and the Consultant's new employer should
such employer request a copy hereof.)
(e) Acknowledgments Respecting Confidentiality, Nondisparagement and
Nonsolicitation Covenants
With respect to the covenants made by the Consultant and the Company
and set forth in this Section (individually a "Covenant" or collectively
the "Covenants"), the Consultant and the Company each acknowledge and
agree that:
(i) the Covenants are in addition to any rights they may have
at law or at equity; and
(ii) the Covenants are reasonable Covenants under the
circumstances, and if, in the opinion of any court of competent
jurisdiction, any Covenant is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify
such provision or provisions of such Covenant as to the court shall
appear not reasonable and to enforce (A) the remainder of the
Covenant as so amended and (B) the other Covenants. Each agrees that
any breach of any Covenant contained in this Section 7 would
irreparably injure the non-breaching party. Accordingly, each agrees
that the non-breaching party, in addition to pursuing any other
remedies it may have in law or in equity, may obtain an injunction
against the breaching party from any court having jurisdiction over
the matter, restraining any further violation of this Section 7.
8. INDEPENDENT CONTRACTOR. The relationship of the Consultant to the
Company established by this Agreement is that of an independent contractor,
and nothing contained in this Agreement shall be construed to: (a) give the
Consultant the power to (i) direct or control any activities of the
Company, or (ii) create or assume any obligation on behalf of the Company
for any purpose whatsoever; (b) constitute the Consultant as an employee
of the Company or entitle the Consultant to participate in any employee
benefit plans or fringe benefit plans made available to the Company's
employees; or (c) constitute the Consultant as an agent of the Company.
9. RETURN OF DOCUMENTS.
(a) Promptly following execution of this Agreement, the Consultant
shall immediately deliver to the Company all plans, designs, drawings,
specifications, listings, manuals, memoranda, projections, minutes,
records, notebooks, computer programs and similar repositories of or
containing Confidential Information, including all copies, then in the
4
<PAGE>
Consultant's possession or control or available from persons outside the
Company receiving such documents from the Consultant, whether prepared by
the Consultant or others. At such time, the Consultant shall not retain
any copies or abstracts of any such documents.
(b) Promptly upon termination of this Agreement, the Consultant
shall immediately deliver to the Company all plans, designs, drawings,
specifications, listings, manuals, memoranda, projections, minutes,
records, notebooks, computer programs and similar repositories of or
containing Confidential Information, including all copies, then in the
Consultant's possession or control or available from persons outside the
Company receiving such documents from the Consultant, whether prepared by
the Consultant or others. Upon such termination, the Consultant shall not
retain any copies or abstracts of any such documents.
10. NOTICES. For the purposes of this Agreement, notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other, provided that all
notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice of
change of address shall be effective only upon receipt.
11. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns, and the term the
"Company" as used herein shall include its successors and assigns. The
terms "successors and assigns" as used herein shall mean a corporation or
other entity acquiring all or substantially all the assets and business
of the Company (including this Agreement) whether by operation of law or
otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Consultant, his heirs,
beneficiaries or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall be binding upon and inure to
the benefit of the Consultant, his heirs, beneficiaries and legal personal
representatives.
12. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Consultant and the Company. No waiver by any
party hereto at any time of any breach by any other party hereto or compliance
with any condition or provision of this Agreement to be performed by such
other party, shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No
agreement or representation, oral or otherwise, express or implied, with
respect to the subject matter hereof has been made by any party which is
not expressly set forth in this Agreement.
13. GOVERNING LAW. This Agreement shall be governed by and
construed and
5
<PAGE>
enforced in accordance with the laws of the state of New York without
giving effect to the conflict of law principles thereof.
14. SEVERABILITY. The provision of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. ENTIRE AGREEMENT AND EFFECT ON OTHER AGREEMENTS. This Agreement
constitutes the entirety of the agreement between the parties, and supersedes
all prior agreements, understandings and arrangements, oral or written
(including the Employment Agreement), between the parties on the subject
matter hereof. The payments and benefits provided to the Consultant under this
Agreement are in lieu of all other salary or benefit continuation benefits to
which the Consultant may otherwise be entitled under all other agreements,
plans, policies, practices and arrangements (including the Employment
Agreement).
16. SURVIVAL. The provisions of Sections 7, 9, 10, 11, 12 13, 14,
15 and 16, shall survive the termination of this Agreement.
17. NO ADMISSION. The execution of this Agreement shall not be
construed as an admission of a violation of any statute or law or breach of
any duty or
18. TAXES. The parties acknowledge and agree that the Company will
not and shall not be obligated to make, and that it is the sole responsibility
of the Consultant to make, all periodic filings and payments required to be
made in connection with withholding taxes, estimated taxes or any other
federal, state or local taxes, payments or filings required to be made or
paid in connection with the monthly payments made to the Consultant
hereunder.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Consultant has executed this Agreement
as of the date set forth above.
BERNARD CHAUS, INC.
By:/s/ Andrew Grossman
Name: Andrew Grossman
Title: Chief Executive Officer and Office
of the Chairman
/s/ Michael Winter
Michael Winter
7
<PAGE>
EXHIBIT A
---------
PRESS RELEASE
-------------
The Company announced that Mr. Winter has resigned from his position as
President of the Nautica division, effective as of December 31, in order to
form a consulting firm. Mr. Grossman will be assuming the day-to-day
operations of the Nautica division. During the transition period, Mr. Winter
will be acting as a consultant to the Company.
8
<PAGE>
EXHIBIT B
---------
FORM OF LETTER OF REFERENCE
---------------------------
Bernard Chaus, Inc.
1410 Broadway
New York, N.Y. 10018
[Date]
[Name of Prospective Employer]
[Address of Prospective Employer]
Re: Michael Winter
--------------
Dear [Name of Contact at Prospective Employer]:
It is our understanding that Michael Winter is being considered for a
position with your company. He has asked that we provide you with a letter of
reference. Mr. Winter is an experienced and dedicated executive. He worked
very hard for our organization and brought his talents and energy to bear in
participating in launching the Nautica women's wear division and in the
overall operation of the business of Bernard Chaus, Inc. During his tenure,
Mr. Winter hired and helped to build a strong support staff and developed and
cultivated important industry relationships. Mr. Winter left our organization
voluntarily to form a consulting firm. His departure was amicable. We wish him
well in his future endeavors.
BERNARD CHAUS, INC.
By:____________________
Name:
Title:
9
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<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
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