<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 September 30, 1997
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 number)
incorporation or organization)
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
---- ----- ------------------
November 7, 1997 Common Stock, $0.01 par value 26,277,274
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1997, June 30, 1997 and
September 30, 1996 3
Condensed Consolidated Statements of Operations
for the Three Months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
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>
September 30, June 30, September 30,
1997 1997 1996
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 236 $ 330 $ 210
Accounts receivable, net 29,159 7,451 23,384
Inventories 22,549 23,746 20,997
Prepaid expenses and other current assets 565 568 755
--------- --------- ---------
Total current assets 52,509 32,095 45,346
Fixed assets-- net 1,157 1,295 1,764
Other assets 782 748 1,056
--------- --------- ---------
$ 54,448 $ 34,138 $ 48,166
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable-- banks $ 56,178 $ 37,756 $ 38,356
Accounts payable 19,003 19,825 19,942
Accrued expenses 5,822 5,393 5,776
Accrued restructuring expenses 1,383 1,850 64
--------- --------- ---------
Total current liabilities 82,386 64,824 64,138
Subordinated promissory notes 27,121 26,374 24,264
--------- --------- ---------
109,507 91,198 88,402
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value,
authorized shares -- 1,000,000;
outstanding shares -- none
Common stock, $.01 par value;
authorized shares -- 50,000,000;
issued shares -- 26,899,974 at
September 30, 1997, June 30, 1997
and September 30, 1996 269 269 269
Additional paid-in capital 65,463 65,463 65,463
Deficit (119,311) (121,312) (104,488)
Less: Treasury stock at
cost (622,700 shares) (1,480) (1,480) (1,480)
--------- --------- ---------
Total stockholders' deficiency (55,059) (57,060) (40,236)
--------- --------- ---------
$ 54,448 $ 34,138 $ 48,166
========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
For the Quarter Ended
September 30, September 30,
1997 1996
------------ ------------
(Unaudited)
Net sales $ 58,856 $ 48,010
Cost of goods sold 44,432 35,532
------------ ------------
Gross profit 14,424 12,478
Selling, general and
administrative expenses 10,051 10,255
------------ ------------
Income from operations 4,373 2,223
Interest and other income, net (3) 6
Interest expense (2,319) (1,838)
------------ ------------
Income before income taxes 2,051 391
Income taxes 50 30
------------ ------------
Net income $ 2,001 $ 361
============ ============
Net income per share $ 0.08 $ 0.01
============ ============
Weighted average number of
common and common
equivalent shares outstanding 26,277,000 26,838,000
============ ============
See accompanying notes to condensed consolidated financial statements.
4
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BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Quarter Ended
September 30, September 30,
1997 1996
------------ ------------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 2,001 $ 361
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 196 268
Provision for losses on accounts receivable 20 20
Deferred interest on
subordinated promissory notes 747 676
Changes in operating assets and liabilities:
Accounts receivable (21,728) (15,409)
Inventories 1,197 259
Prepaid expenses and other assets 8 (465)
Accounts payable (822) 2,507
Accrued expenses 429 (280)
Accrued restructuring expenses (467) (132)
-------- --------
Net Cash Used In Operating Activities (18,419) (12,195)
-------- --------
INVESTING ACTIVITIES
Purchases of fixed assets (73) (134)
Purchases of in-store fixtures (24) --
-------- --------
Net Cash Used In Investing Activities (97) (134)
-------- --------
FINANCING ACTIVITIES
Net proceeds from short-term bank borrowings 18,422 12,279
Net proceeds from exercise of options 0 13
-------- --------
Net Cash Provided By Financing Activities 18,422 12,292
-------- --------
Decrease in cash and cash equivalents (94) (37)
Cash and Cash Equivalents, Beginning of Quarter 330 247
-------- --------
Cash and Cash Equivalents, End of Quarter $ 236 $ 210
======== ========
Cash Paid for:
Taxes 7 13
Interest 1,483 996
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Quarters Ended September 30, 1997 and September 30, 1996
1. Summary Of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1998 or any other period. The balance sheet at June 30, 1997 has been derived
from the audited financial statements at that date. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
Net Income Per Share: Net income per share has been computed by
dividing the applicable net income by the weighted average number of common
shares outstanding and common stock equivalents, if applicable.
2. Inventories
Inventories (principally finished goods) are stated at the lower of
cost, using the first-in first-out (FIFO) method, or market. Included in
inventories is merchandise in transit of approximately $7.0 million at
September 30, 1997, $8.5 million at June 30, 1997 and $7.8 million at September
30, 1996.
3. New Financing Agreement
On October 10, 1997, the Company and BNY Financial Corporation, a
wholly-owned subsidiary of The Bank of New York ("BNYF"), entered into a new
revolving credit facility (the "New Revolving Facility") and a new term loan
facility (the "New Term Loan" and, together with the New Revolving Facility,
the "New Financing Agreement") which amended and restated in its entirety the
Company's February 1995 financing agreement with BNYF, as amended (the
"Old Bank Debt Agreement"). The New Financing Agreement amends certain
provisions of the Old Bank Debt Agreement and provides for maximum availability
of $81.0 million, and overadvances of up to $12.8 million. The New Financing
Agreement also amends certain financial covenants contained in the Old Bank
Debt Agreement. The New Financing Agreement provides for certain additional
events of default, among which are the default by Josephine Chaus, Chairwoman
of the Board, a principal stockholder of the Company and the owner of a
majority of the Company's Common Stock ("Josephine Chaus" or "Ms. Chaus"),
under the Bank Debt Put (as defined below), and the failure by the Company to
close all of its retail outlets by the end of January 1998.
6
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BERNARD CHAUS, INC. AND SUBSIDIARIES
The New Financing Agreement consists of two facilities: (i) the New
Revolving Facility which is a $66.0 million five-year revolving credit line
with a $20.0 million sublimit for letters of credit, and (ii) the New Term Loan
which is a $15.0 million term loan facility. Each facility matures on December
31, 2002.
Interest on the New Revolving Facility accrues at 1/2 of 1% above the
Prime Rate and is payable on a monthly basis, in arrears. Interest on the New
Term Loan accrues at an interest rate ranging from 1/2 of 1% above the Prime
Rate to 1 1/2% above the Prime Rate, which interest rate will be determined,
from time to time, based upon the Company's availability under the New
Revolving Facility. With the exception of warrants issued to BNYF (as discussed
below), the Company's execution of the New Financing Agreement did not require
the payment of any commitment, closing, administration or facility fees. The
New Financing Agreement provides for service charges and letter of credit fees
on substantially the same terms as those existing under the Old Bank Debt
Agreement. As part of the New Financing Agreement, BNYF's existing warrants
were extinguished, and BNYF received new warrants to purchase 500,000 shares of
the Company's Common Stock.
Amortization payments in the amount of $250,000 are payable quarterly
in arrears in connection with the New Term Loan. The first amortization payment
is due on March 31, 1998. A balloon payment in the amount of $10.25 million is
due on December 31, 2002. In the event of the earlier termination by the
Company of the New Financing Agreement, the Company will be liable for
termination fees initially equal to $2.8 million, and declining to $2.2 million
after October 8, 2000. The Company's obligations under the New Financing
Agreement are secured by a first priority lien on substantially all of the
Company's assets, including the Company's accounts receivable, inventory and
trademarks.
As an inducement to BNYF to enter into the New Financing Agreement,
Ms. Chaus has agreed with BNYF that she will purchase, at the option of BNYF, a
$2.5 million junior participation in the New Financing Agreement in the event
that (i) an event of default occurs under the New Financing Agreement prior to
May 15, 1998, or (ii) the Rights Offering is not consummated prior to May 15,
1998 (the "Bank Debt Put").
The New Financing Agreement contains financial covenants requiring,
among other things, the maintenance of minimum levels of tangible net worth,
working capital and maximum permitted loss (minimum permitted profit).
4. Proposed Restructuring of Indebtedness
In June 1997, the Company announced a proposed restructuring program
to be implemented by the Company. In September 1997, the disinterested members
of the Board of Directors of the Company unanimously approved the restructuring
plan (the "Restructuring") pursuant to which: (i) the Company will seek to
raise, through an offer of rights to subscribe ("Rights"), up to $20.0 million,
but not less than $12.5 million, of equity through a rights offering to all
shares of Common Stock of the Company (the "Rights Offering") of 13,977,270
shares of Common Stock of the Company (on a post stock split basis); (ii)
approximately $40.5 million of the Company's indebtedness to Ms. Chaus,
consisting of $28.0 million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5 million of
7
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BERNARD CHAUS, INC. AND SUBSIDIARIES
indebtedness which will be owed to Ms. Chaus, will be converted into Common
Stock of the Company; (iii) the New Financing Agreement (entered into on
October 10, 1997); and (iv) the Company will implement a reverse stock split of
the Company's Common Stock such that every ten (10) shares of Common Stock
would be converted into one (1) share of Common Stock. In addition, the
Company's retail outlet stores will be liquidated during the second quarter of
fiscal 1998. In connection with the Restructuring, BNYF has agreed that the
credit support, described above, heretofore provided by Ms. Chaus, will be
terminated once the New Financing Agreement becomes effective. Consummation of
the Restructuring is subject to the approval of certain aspects of the
Restructuring by the stockholders of the Company. Accordingly, until such
approval is obtained, there can be no assurances that the Restructuring will
occur or be consummated. It is presently contemplated that the Restructuring
will be consummated by January 31, 1998. Ms. Chaus, Chairwoman of the Board, a
principal stockholder of the Company, and the owner of a majority of the
Company's Common Stock, has advised the Company that she intends to vote her
shares in favor of all matters relating to the Restructuring, thereby assuring
stockholder approval of such matters.
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997 and the unaudited pro forma consolidated
capitalization of the Company after giving effect to the Restructuring as if
certain items had occurred at September 30, 1997. Such items include (i)
subordinated indebtedness owed and to be owed to Josephine Chaus, being
converted into Common Stock of the Company, (ii) as part of the Rights
Offering, the Company raising at least $12.5 million of equity (less expenses
of the Rights Offering of $0.5 million) from Ms. Chaus and/or other
stockholders, (iii) $12.5 million in respect of borrowings previously
guaranteed by Ms. Chaus being satisfied in full out of proceeds from a loan
made by BNYF to Ms. Chaus, and (iv) obtaining the New Term Loan in the amount
of $15.0 million.
As of
September 30, 1997
Actual Pro forma
------ ---------
Total Debt
Bank Debt $ 56,178 $ 16,678
Subordinated Promissory Notes 27,121 --
Term Loan -- 15,000
--------- ---------
Total debt 83,299 31,678
Total stockholders' deficiency (55,059) (3,438)
--------- ---------
Total capitalization $ 28,240 $ 28,240
========= =========
Although there can be no assurance, the Company believes that if the
Restructuring is consummated, the Company will have adequate resources to
operate its business assuming it meets its business plan.
8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
In the quarter ended September 30, 1997, net sales increased by $10.8
million or 22.6% as compared to the quarter ended September 30, 1996. This
sales increase was primarily due to an increase in sales at regular and
incentive prices of the Company's Chaus product lines. Units shipped increased
by approximately 21.6% with a nominal increase in the average selling price.
In the quarter ended September 30, 1997, gross profit increased by
$1.9 million as compared to the quarter ended September 30, 1996 as a result of
the increase in the Company's net sales. Gross profit as a percentage of net
sales decreased to 24.5% in the quarter ended September 30, 1997 from 26.0% in
the comparable quarter last year primarily due to lower gross profit percentage
associated with the Company's Nautica licensed product line and its retail
outlet stores, partially offset by an increase in its Chaus product lines.
Selling, general and administrative expenses decreased by $0.2 million
in the quarter ended September 30, 1997 as compared to the quarter ended
September 30, 1996, primarily due to decreases in payroll and payroll related
items by approximately $0.1 million, and decreases in other selling, general
and administrative expenses of approximately $0.1 million. As a percentage of
net sales, selling, general and administrative expenses decreased to 17.1% for
the quarter ended September 30, 1997 from 21.4% for the comparable quarter
ended September 30, 1996, because expenses remained relatively constant as
sales increased.
Interest expense in the quarter ended September 30, 1996 increased
$0.5 million as compared with the corresponding quarter of the prior fiscal
year primarily as a result of higher average bank borrowings.
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was $18.4 million in the quarter
ended September 30, 1997 as compared to $12.2 million in the quarter ended
September 30, 1996. The net cash used in operating activities resulted
primarily from increases in accounts receivable ($21.7 million), partially
offset by a decrease in inventory ($1.2 million) and net income ($2.0 million).
Old Bank Debt Agreement
The Company and BNYF (as defined below) entered into a financing
agreement in July 1991, which was amended and restated effective as of February
21, 1995 and further amended, effective as of September 28, 1995 (the
"September 1995 Amendment"), May 9, 1996 (the "May 1996 Amendment"), September
17, 1996 (the "September 1996 Amendment"), January 31, 1997 (the "January 1997
Amendment"), March 21, 1997 (the "March 1997 Amendment"), April 1, 1997 (the
"April 1, 1997 Amendment") and April 29, 1997 (the "April 29, 1997 Amendment")
9
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BERNARD CHAUS, INC. AND SUBSIDIARIES
(collectively, the "Old Bank Debt Agreement"). The Old Bank Debt Agreement
provided the Company with a $72.0 million credit facility for letters of credit
and direct borrowings, with a sublimit for loans and advances ranging between
$40.0 and $58.0 million. The amount of financing available was based upon a
formula incorporating eligible receivables and inventory, cash balances, other
collateral and permitted overadvances, all as defined in the Old Bank Debt
Agreement. At September 30, 1997, the Company had availability of approximately
$5.7 million (inclusive of overadvance availability) under the Old Bank Debt
Agreement. The Company's obligations under the Old Bank Debt Agreement were
secured by the Company's accounts receivable, inventory and trademarks.
The Old Bank Debt Agreement contained certain financial covenants
including covenants regarding the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company was also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions. In a Waiver,
dated May 5, 1997 (the "Waiver"), BNYF waived covenant compliance with net
worth, working capital and quarterly minimum profit requirement for the period
ended March 31, 1997.
Interest on direct borrowings was payable monthly at an annual rate
equal to the higher of (i) The Bank of New York's prime rate (8.50% at
September 30, 1997) plus 0.5% (The Bank of New York prime rate plus 1.5% in the
event the Company's overadvance position exceeded the allowable overadvances)
or (ii) the Federal Funds Rate (5.625% at September 30, 1997) in effect plus 1%
(Federal Funds Rate in effect plus 2% in the event the Company's overadvance
position exceeded the allowable overadvances). There was an annual commitment
fee of 0.375% of the unused portion of the line, payable monthly, and letter of
credit fees equal to 0.125% of the outstanding letter of credit balance,
payable monthly. The Old Bank Debt Agreement required the payment of minimum
service charges of $0.6 million per annum. In connection with the May 1996
Amendment, BNYF was paid a fee of $25,000, and additional fees of $10,000 per
month through December 1996 were provided for, with BNYF agreeing to provide
specified levels of overadvances up to $10.0 million through the same period.
In connection with the Waiver, BNYF was paid a fee of $25,000 and the Company
issued certain warrants to BNYF.
New Financing Agreement
On October 10, 1997, the Company and BNY Financial Corporation, a
wholly-owned subsidiary of The Bank of New York ("BNYF"), entered into a new
revolving credit facility (the "New Revolving Facility") and a new term loan
facility (the "New Term Loan" and, together with the New Revolving Facility,
the "New Financing Agreement") which amended and restated in its entirety the
Old Bank Debt Agreement. The New Financing Agreement amends certain
provisions of the Old Bank Debt Agreement and provides for maximum availability
of $81.0 million, and overadvances of up to $12.8 million. The New Financing
Agreement also amends certain financial covenants contained in the Old Bank
Debt Agreement. The New Financing Agreement provides for certain additional
events of default, among which are the default by Josephine Chaus, Chairwoman
of the Board, a principal stockholder of the Company and the owner of a
majority of the Company's Common Stock ("Josephine Chaus" or "Ms. Chaus"),
under the Bank Debt Put (as defined below), and the failure by the Company to
close all of its retail outlets by the end of January 1998.
10
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
The New Financing Agreement consists of two facilities: (i) the New
Revolving Facility which is a $66.0 million five-year revolving credit line
with a $20.0 million sublimit for letters of credit, and (ii) the New Term Loan
which is a $15.0 million term loan facility. Each facility matures on December
31, 2002.
Interest on the New Revolving Facility accrues at 1/2 of 1% above the
Prime Rate and is payable on a monthly basis, in arrears. Interest on the New
Term Loan accrues at an interest rate ranging from 1/2 of 1% above the Prime
Rate to 1 1/2% above the Prime Rate, which interest rate will be determined,
from time to time, based upon the Company's availability under the New
Revolving Facility. With the exception of warrants issued to BNYF (as discussed
below), the Company's execution of the New Financing Agreement did not require
the payment of any commitment, closing, administration or facility fees. The
New Financing Agreement provides for service charges and letter of credit fees
on substantially the same terms as those existing under the Old Bank Debt
Agreement. As part of the New Financing Agreement, BNYF's existing warrants
were extinguished, and BNYF received new warrants to purchase 500,000 shares of
the Company's Common Stock.
Amortization payments in the amount of $250,000 are payable quarterly
in arrears in connection with the New Term Loan. The first amortization payment
is due on March 31, 1998. A balloon payment in the amount of $10.25 million is
due on December 31, 2002. In the event of the earlier termination by the
Company of the New Financing Agreement, the Company will be liable for
termination fees initially equal to $2.8 million, and declining to $2.2 million
after October 8, 2000. The Company's obligations under the New Financing
Agreement are secured by a first priority lien on substantially all of the
Company's assets, including the Company's accounts receivable, inventory and
trademarks.
As an inducement to BNYF to enter into the New Financing Agreement,
Ms. Chaus has agreed with BNYF that she will purchase, at the option of BNYF, a
$2.5 million junior participation in the New Financing Agreement in the event
that (i) an event of default occurs under the New Financing Agreement prior to
May 15, 1998, or (ii) the Rights Offering is not consummated prior to May 15,
1998 (the "Bank Debt Put").
The New Financing Agreement contains financial covenants requiring,
among other things, the maintenance of minimum levels of tangible net worth,
working capital and maximum permitted loss (minimum permitted profit).
Credit Support
Josephine Chaus has arranged for a letter of credit (the "Letter of
Credit") in various amounts since April 1994 in return for which BNYF has
increased the availability under the Old Bank Debt Agreement. In consideration
for credit support provided by Ms. Chaus to the Company prior to February 1995,
Ms. Chaus was granted warrants (the "1994 Warrants"), exercisable through
November 22, 1999, to purchase an aggregate of 1,216,500 shares of Common Stock
at prices ranging between $2.25 and $4.62 per share. As part of the
negotiations with BNYF in connection with the Old Bank Debt Agreement, in
February 1995 Josephine Chaus increased the Letter of Credit to $10.0 million
and extended its term to October 31, 1995 (the "February 1995
Increase/Extension"). In addition, in February 1995, Ms. Chaus provided a $5.0
million personal guarantee (the "$5.0 Million Guarantee"), to be in effect
during the Old Bank Debt Agreement's term. In September 1995,
11
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BERNARD CHAUS, INC. AND SUBSIDIARIES
Ms. Chaus further extended the term of the Letter of Credit to January 31, 1996
(the "September 1995 Extension"). In consideration of her provision of the
February 1995 Increase/Extension, the $5.0 Million Guarantee and the September
1995 Extension, a special committee consisting of disinterested members of the
Board of Directors of the Company (the "Special Committee") authorized the
issuance to Ms. Chaus of warrants (the "1995 Warrants") to purchase an
aggregate of 1,580,000 shares of Common Stock at prices ranging between $4.05
and $6.75 per share. The issuance of the 1995 Warrants was approved at the 1995
Annual Meeting of Stockholders. The issuance of the 1994 Warrants, the warrants
for the February 1995 Increase/Extension and the warrants for the $5.0 Million
Guarantee was recorded in fiscal 1995 at a value of $1.1 million, and was
included as a charge to interest expense with a corresponding increase to
additional paid-in capital. The issuance of the warrants for the September 1995
Extension was recorded in the second quarter of fiscal 1996 at a value of $0.2
million, and was included as a charge to interest expense with a corresponding
increase to additional paid-in capital. Ms. Chaus received warrant compensation
for her provision of the $5.0 Million Guarantee only through October 31, 1995.
Thereafter, for each three month period of the $5.0 Million Guarantee, she has
received cash compensation of $50,000, as authorized by the Special Committee.
In connection with the September 1995 Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the "July 1996 Option"), subject to the consummation of the Company's
November 1995 public offering of Common Stock. In January 1996, the Company
exercised the July 1996 Option to extend the Letter of Credit to July 31, 1996
(the "July 1996 Extension"). In consideration of her provision of the July 1996
Extension, the Special Committee authorized the issuance to Ms. Chaus, of
warrants (the "1996 Warrants") to purchase an aggregate of 682,012 shares of
Common Stock at a price of $4.20 per share. The issuance of the 1996 Warrants
was approved by the stockholders of the Company at the 1996 Annual Meeting of
Stockholders. The issuance of the 1996 Warrants ($0.3 million) was recorded in
the third quarter of fiscal 1996, at a value of $0.3 million and was included
as a charge to interest expense with a corresponding increase to additional
paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed to extend
the Letter of Credit to January 31, 1997 (the "January 1997 Extension") and
additionally provided a collateralized increase of $5.0 million in the $5.0
Million Guarantee to $10.0 million (the "$10.0 Million Guarantee"). In
connection with the January 1997 Extension, the Special Committee approved the
payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the "July 1997 Extension"),
increase the amount of the $10.0 Million Guarantee by $2.5 million to $12.5
million (the "$12.5 Million Guarantee") and fully collateralize the $12.5
Million Guarantee. In connection with the July 1997 Extension, the Special
Committee approved the payment of cash compensation to Ms. Chaus of $100,000
for each additional three month period of the Letter of Credit as extended from
January 31, 1997 to July 31, 1997. For her provision of the $12.5 Million
Guarantee, the Special Committee approved an increase in the amount
12
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BERNARD CHAUS, INC. AND SUBSIDIARIES
of cash compensation payable to Ms. Chaus for her guaranty, to $125,000 for
each three month period of the $12.5 Million Guarantee.
Ms. Chaus previously entered into a deposit letter dated July 23, 1997
(the "July Deposit Letter") pursuant to which she provided $10.0 million in
cash collateral to secure the Bank Debt (as defined below) in substitution for
the letter of credit previously provided by her. The July Deposit Letter was
amended on October 10, 1997 to provide that the $10.0 million in cash
collateral shall be held as collateral to secure indebtedness under the New
Financing Agreement. Immediately prior to the consummation of the Rights
Offering (as defined below), and subject to the other conditions of the
Restructuring (as defined below) 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 agreement to
exercise her full $10.0 million subscription (the "Purchase Commitment") in
connection with the Rights Offering.
On October 10, 1997, in substitution for 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 and secured the secured bank debt owing to BNYF by the Company (the
"Bank Debt"). The cash collateral was provided from the proceeds of a loan made
by BNYF to Ms. Chaus. 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, and
Ms. Chaus shall become subrogated to the rights of BNYF with respect to such
loan amount (the "Subrogated Loan"). Pursuant to the terms of the Subrogated
Loan, the Subrogated Loan will, immediately thereafter, be exchanged by
Ms. Chaus for shares of Common Stock of the Company. 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 July Deposit Letter and
the October Deposit Letter will be applied by BNYF to retire $22.5 million
of the Bank Debt.
Subordinated Debt
The Company had outstanding at September 30, 1997 $27.1 million of
subordinated notes payable to Josephine Chaus (the "Subordinated Notes"). In
connection with the Company's November 1995 public offering, Ms. Chaus extended
the maturity date of the Subordinated Notes (which were to mature on July 1,
1996) to July 1, 1998. The Company has been unable to pay principal or
interest, with certain exceptions, under the Subordinated Notes as a result of
covenants in the Old Bank Debt Agreement. The Subordinated Notes will, as part
of the Restructuring, be exchanged for equity.
Proposed Restructuring of Indebtedness
In June 1997, the Company announced a proposed restructuring program
to be implemented by the Company. In September 1997, the disinterested members
of the Board of Directors of the Company unanimously approved the restructuring
plan (the "Restructuring") pursuant to which: (i) the Company will seek to
raise, through an offer of rights to subscribe ("Rights"), up to $20.0
13
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
million, but not less than $12.5 million, of equity through a rights offering
to all shares of Common Stock of the Company (the "Rights Offering") of
13,977,270 shares of Common Stock of the Company (on a post stock split basis);
(ii) approximately $40.5 million of the Company's indebtedness to Ms. Chaus,
consisting of $28.0 million of existing subordinated indebtedness (including
accrued interest through January 15, 1998) and $12.5 million of indebtedness
which will be owed to Ms. Chaus, will be converted into Common Stock of the
Company; (iii) the New Financing Agreement (entered into on October 10, 1997);
and (iv) the Company will implement a reverse stock split of the Company's
Common Stock such that every ten (10) shares of Common Stock would be converted
into one (1) share of Common Stock. In addition, the Company's retail outlet
stores will be liquidated during the second quarter of fiscal 1998. The
proceeds of the Rights Offering will be used to repay amounts due under the New
Financing Agreement. Subject to stockholder approval, Ms. Chaus has agreed to
exercise her full $10.0 million Purchase Commitment and to subscribe for up to
an additional $2.5 million of Common Stock, if and to the extent that the
Company's other stockholders do not purchase at least that amount of stock in
the Rights Offering. As described above, it is anticipated that Ms. Chaus will
satisfy her $10.0 million Purchase Commitment through the contribution of funds
currently used as credit support for the Company's Bank Debt. In connection
with the Restructuring, BNYF has agreed that the credit support, described
above, heretofore provided by Ms. Chaus, will be terminated once the New
Financing Agreement becomes effective. Consummation of the Restructuring is
subject to the approval of certain aspects of the Restructuring by the
stockholders of the Company. Accordingly, until such approval is obtained,
there can be no assurances that the Restructuring will occur or be consummated.
It is presently contemplated that the Restructuring will be consummated by
January 31, 1998. Ms. Chaus, Chairwoman of the Board, a principal stockholder
of the Company, and the owner of a majority of the Company's Common Stock, has
advised the Company that she intends to vote her shares in favor of all matters
relating to the Restructuring, thereby assuring stockholder approval of such
matters.
Future Financing Requirements
At September 30, 1997, the Company had a working capital deficiency of
$29.9 million. The Company requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and to develop and
market its licensed Nautica product lines. The Company expects to satisfy such
requirements through cash flow from operations, borrowings under the New
Financing Agreement and proceeds from the Rights Offering.
Although there can be no assurance, the Company believes that if the
Restructuring is consummated, the Company will have adequate resources to
operate its business assuming it meets its business plan.
The foregoing discussion contains forward-looking statements which are
based upon current expectations and involve a number of uncertainties,
including continuation of the favorable trend in the Company's sales, retail
market conditions, consumer acceptance of the Company's products, stockholder
approval of certain matters related to the Restructuring and consummation of
the Restructuring.
14
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Attached hereto as Exhibits are the following:
10.80 Agreement dated October 10, 1997, between the Company and
BNY Financial Corp. issuing 125,000 warrants to purchase
Common Stock of the Company.
10.81 Agreement dated October 10, 1997, between the Company and
BNY Financial Corp. issuing 375,000 warrants to purchase
Common Stock of the Company.
10.82 Executive Employment Agreement dated October 28, 1997,
between the Company and Lynn Buechner.
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 1997.
15
<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: November 13, 1997 By: /s/ Josephine Chaus
-------------------------------------
JOSEPHINE CHAUS
Chairwoman of the Board and
Office of the Chairman
Date: November 13, 1997 By: /s/ Andrew Grossman
-------------------------------------
ANDREW GROSSMAN
Chief Executive Officer and
Office of the Chairman
Date: November 13, 1997 By: /s/ Bart Heminover
-------------------------------------
BART HEMINOVER
Vice President -- Corporate Controller
16
<PAGE>
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THIS AGREEMENT AND (i) PURSUANT TO A REGISTRATION STATEMENT
UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXTENSION FROM REGISTRATION UNDER
THE ACT BUT ONLY UPON THE HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL ACCEPTABLE TO THE COMPANY,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF
THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
October ___, 1997
BERNARD CHAUS, INC.
For good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged by Bernard Chaus, Inc., a New York corporation,
with its principal office at 1410 Broadway, New York, New York 10018 (the
"Company"), BNY Financial Corporation (the "Holder" or "BNY"), of 1290 Avenue
of the Americas, New York, New York 10104, subject to the terms and conditions
of this Warrant, is hereby granted the right to purchase, at the initial
Purchase Price at any one or more times from the date hereof until 5:00 p.m. on
December 31, 2002, in the aggregate, one hundred twenty five thousand (125,000)
shares of Common Stock of the Company, $.01 par value (the "Shares").
<PAGE>
This Warrant initially is exercisable at a price(1) (the "Purchase
Price") per Share payable in cash, by certified or official bank check in New
York Clearing House funds or other form of payment satisfactory to the Company,
subject to adjustment as provided in Section 5 hereof.
1. Exercise of Warrant. The purchase rights represented by this
Warrant are exercisable at the option of the Holder hereof, in whole or in
part, at one or more times during any period in which this Warrant may be
exercised as set forth above. The Holder shall not be deemed to have exercised
its purchase rights hereunder until the Company receives written notice of the
Holder's intent to exercise its purchase rights hereunder along with payment
for the purchased Shares. The written notice shall be in the form of a duly
executed Subscription Form a form of which is attached hereto and made a part
hereof. Less than all of the Shares may be purchased under this Warrant.
2. Issuance of Certificates. Upon the exercise of this Warrant, the
issuance of certificates for Shares underlying this Warrant which are purchased
shall be made forthwith (and in any event within ten (10) business days after
the Company's receipt of written notice and payment for the purchased Shares
specified in Section 1 above) and such certificates shall be issued in the name
of the Holder hereof.
3. Restriction on Transfer and Registration Rights. Neither this
Warrant nor any Shares issuable upon exercise hereof have been registered under
the Securities Act of 1933, as amended (the "Act"), and neither may be sold or
transferred in whole or in part unless the Holder
- -----------------
(1) equal to the average NYSE trading price of one share of Common
Stock of the Company during the thirty days following the consummation of the
Restructure Transaction (as such term is defined in the Second Amended and
Restated Financing Agreement dated as of October 9, 1997 between the Company
and the Holder)
2
<PAGE>
shall have first given prior written notice to the Company describing such sale
or transfer and furnished to the Company an opinion, satisfactory to counsel
for the Company as determined by such counsel in its sole discretion, to the
effect that the proposed sale or transfer may be made without registration
under the Act; provided, however, that the foregoing shall not apply if there
is in effect a registration statement with respect to this Warrant or the
Shares issuable upon exercise hereof, as the case may be, at the time of the
proposed sale or transfer. Upon exercise, in part or in whole, of this Warrant,
each certificate issued representing the Shares underlying this Warrant shall
bear a legend to the foregoing effect. The Holder shall have such rights to
request the Company to register all or any of the Shares issuable upon exercise
of this Warrant as set forth in Annex B hereto (the "Registration Rights")
subject to the terms of Annex B.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial Purchase Price
shall be $_____ per Share. The adjusted Purchase Price shall be the price which
shall result from time to time from any and all adjustments of the initial
Purchase Price in accordance with the provisions of Section 5 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the
initial Purchase Price or the adjusted Purchase Price, as the case may be.
5. Adjustments of Purchase Price and Number of Shares. The Shares
subject to this Warrant and the Purchase Price thereof shall be appropriately
adjusted by the Company in accordance with the Statement of Rights to Warrants
included in Annex A hereto.
6. Replacement of Warrant. Upon receipt by the Company of (i) evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in case of such
3
<PAGE>
loss, theft, destruction or mutilation, and (ii) an indemnity or other security
reasonably satisfactory to it in its sole discretion, and upon reimbursement to
the Company of all expenses incidental or relating thereto, and in the event of
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of this Warrant.
7. Notices to Warrant Holder. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company.
8. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first
page of this Warrant or to such other address as the Company may
designate by notice to the Holder.
9. Successors. All the agreements contained in this Warrant shall bind
the parties hereto and their respective heirs, executors, administrators,
distributees, permitted successors and assigns. The Holder may assign this
Warrant without the Company's prior written consent provided that the Holder
complies with the provisions of this agreement and applicable securities laws.
Any attempted assignment in violation of the preceding sentence shall be void
and of no effect.
4
<PAGE>
10. Headings. The headings in this Warrant are inserted for purposes
of convenience only and shall have no substantive effect.
11. Law Governing. This Warrant is delivered in the State of New York
and shall be construed and enforced in accordance with, and governed by, the
laws of the State of New York, without giving effect to conflicts of law
principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its corporate name by, and such signature to be attested to by, a duly
authorized officer as of the date first above written.
BERNARD CHAUS, INC.
By: /s/ Josephine Chaus
-------------------------------
Its: Chief Executive Officer
------------------------------
ATTEST:
/s/ Andrew Grossman
- ------------------------------
5
<PAGE>
ANNEX A
STATEMENT OF RIGHTS TO WARRANTS
AND
FORMS OF SUBSCRIPTION AND ASSIGNMENT
(a) Adjustment to Purchase Price and Number of Shares. In case, prior
to the expiration of this Warrant by exercise or by its terms, the Company
shall issue any shares of its Common Stock as a stock dividend or subdivide the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Purchase Price per
share of the Shares of Common Stock purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately reduced and the
number of shares at that time purchasable pursuant to this Warrant shall be
proportionately increased; and conversely, in the event the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the then applicable
Purchase Price per share of the shares of Common Stock purchasable pursuant to
this Warrant in effect at the time of such action shall be proportionately
increased and the number or shares of Common Stock purchasable pursuant to this
Warrant shall be proportionately decreased. If the Company shall, at any time
during the term of this Warrant, declare a dividend payable in cash on its
Common Stock and shall, at substantially the same time, offer to its
stockholders a right to purchase new Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all Common Stock
so issued shall, for the purpose of this Warrant, be deemed to have been issued
as a stock dividend.
(b) Recapitalization. In case, prior to the expiration of this Warrant
by exercise or by its terms, the Company shall be recapitalized by
reclassifying its outstanding Common Stock, (other than a change in par value
to no par value), or the Company or a successor corporation shall consolidate
or merge with or convey all or substantially all of its or of any successor
corporation's property and assets to any other corporation or corporations (any
such other corporations being included within the meaning of the term
"successor corporation" hereinbefore used in the event of any consolidation or
merger of any such other corporation with, or the sale of all or substantially
all of the property of any such other corporation to, another corporation or
corporations), then, as a condition of such recapitalization, consolidation,
merger or conveyance, lawful and adequate provision shall be made whereby the
Holder of this Warrant shall thereafter have the right to purchase, upon the
basis and on the terms and conditions specified in this Warrant, in lieu of the
Shares of Common Stock of the Company theretofore purchasable upon the exercise
of this Warrant, such shares of stock, securities, property or assets of the
other corporation (including, without limitation, cash) as to which the Holder
of this Warrant would have been entitled had this Warrant been exercised
immediately prior to such recapitalization, consolidation, merger or
conveyance; and in any such event, the rights of the Warrant Holder to any
adjustment in the number of Shares of Common Stock purchasable upon the
exercise of this
6
<PAGE>
Warrant, as hereinbefore provided, shall continue and be preserved in respect
of any stock which the Warrant Holder becomes entitled to purchase.
(c) Dissolution. In case the Company at any time, while this Warrant
shall remain both unexpired and unexercised, shall sell all or substantially
all of its property, other than as provided in subsection (b) above or
dissolve, liquidate or wind up its affairs, lawful provision shall be made as
part of the terms of any such sale, dissolution, liquidation or winding up, so
that the Holder of this Warrant may thereafter receive upon exercise hereof in
lieu of each Share of Common Stock of the Company which it would have been
entitled to receive, the same kind and amount of any securities or assets as
may be issuable, distributable or payable upon any such sale, dissolution,
liquidation or winding up with respect to each share of Common Stock of the
Company; provided, however, that in any case of any such sale or of
dissolution, liquidation or winding up, the right to exercise this Warrant
shall terminate on a date fixed by the Company. Such date so fixed shall be no
earlier than 3 P.M. New York City Time, on the forty-fifth (45th) day next
succeeding the date on which notice of such termination of the right to
exercise this Warrant has been given by mail to the registered Holder of this
Warrant at its address as it appears on the books of the Company.
(d) No Fractional Shares. Upon any exercise of this Warrant by the
Warrant Holder, the Company shall not be required to deliver fractions of one
Share, but adjustment in the Purchase Price payable by the Warrant Holder shall
be made in respect of any such fraction of one Share on the basis of the
Purchase Price per Share then applicable upon exercise of this Warrant.
(e) Notices. In the event that, prior to the expiration of this
Warrant by exercise or by its terms, the Company shall determine to take a
record of its stockholders for the purpose of determining stockholders entitled
to receive any dividend, stock dividend, distribution or other right that may
cause any change or adjustment in the number, amount, price or nature of the
securities or assets deliverable upon the exercise of this Warrant pursuant to
the foregoing provisions, the Company shall give at least ten (10) days' prior
written notice to the effect that it intends to take such record to the
registered Holder of this Warrant at its address as it appears on the books of
the Company, said notice to specify the date as of which such record is to be
taken, the purpose for which such record is to be taken, and the effect which
the action which may be taken will have upon this Warrant.
(f) Registered Owner. The Company may deem and treat the registered
Holder of the Warrant at any time as the absolute owner hereof for all
purposes, and shall not be affected by any notice to the contrary.
(g) Status. This Warrant shall not entitle any Holder hereof to any of
the rights of a stockholder, and shall not entitle any Holder hereof to any
dividend declared upon the Common Stock unless the Holder shall have exercised
the within Warrant and purchased the Shares of
7
<PAGE>
Common Stock prior to the record date fixed by the Board of Directors for the
determination of holders of Common Stock entitled to exercise any such rights
or receive said dividend.
(h) No Adjustment for Small Amounts. Anything in the Statement of
Rights to Warrants to the contrary notwithstanding, the Company shall not be
required to give effect to any adjustment in the Purchase Price unless and
until the net effect of one or more adjustments, determined as above provided,
shall have required a change of the Purchase Price by at least ten cents, but
when the cumulative net effect of more than one adjustment so determined shall
be to change the actual Purchase Price by at least ten cents, such change in
the Purchase Price shall thereupon be given effect.
8
<PAGE>
ASSIGNMENT
(To Be Executed By the Registered Holder
to Effect a Transfer of the Within Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
the right to purchase Common Stock evidenced by the within Warrant, to the
extent ______ of shares of Common Stock, and does hereby irrevocably constitute
and appoint __________________________________________________________________
______________________________________________________________________________
to transfer the said right on the books of the Company, with full power of
substitution.
Dated: _________________ , 19__.
---------------------------
(Signature)
- ------------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the case of the within Warrant in every particular,
without alteration or enlargement, or any change whatsoever and must
be guaranteed by a bank, other than a savings bank or trust company,
having an office or correspondent in New York, or by a firm having
membership on a registered national securities exchange and an office
in New York, New York.
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Bernard Chaus, Inc.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____(1) shares of Common Stock of Bernard Chaus, Inc. and
herewith makes payment of $_____ therefor, and requests that the certificate or
certificates for such shares be issued in the name of and delivered to the
undersigned.
Dated
--------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face
of the Warrants)
--------------------------------------
(Address)
- -------------
(1) Insert here the maximum number of shares or, in the case of a
partial exercise, the portion thereof as to which the Warrant is being
exercised.
10
<PAGE>
ANNEX B
REGISTRATION RIGHTS
(a) If, at any time prior to December 31, 2002 the Company proposes to
register any of its securities for its own account under the Securities Act of
1933, as amended, (the "Securities Act") (other than securities to be issued
pursuant to a stock option or other employee benefit or similar plan and other
than in connection with a business combination transaction), the Company shall,
promptly give written notice (the "Registration Notice") to BNY of the
Company's intention to effect such registration. If, within 15 days after
receipt of such notice, BNY submits a written request to the Company specifying
the number of shares of Common Stock which it will receive upon exercise of the
Warrant and which it proposes to sell or otherwise dispose of, (the "Subject
Stock") the Company shall include the Subject Stock in such registration
statement. Notwithstanding anything herein to the contrary BNY shall not be
entitled to require the Company to include the Subject Stock in a registration
statement more frequently than twice during the term hereof. BNY when
requesting inclusion of the Subject Stock in any such registration statement,
may in its discretion delay exercise of the Warrant and notify the Company that
it will exercise its Warrant as to the Subject Stock immediately upon the
registration statement becoming effective or for delivery upon closing of a
related offering. The Company will use its reasonable best efforts in good
faith to effect promptly (but in no event later than one hundred and twenty
(120) days after the receipt from BNY of the request to register the Subject
Stock, provided, however, that such period shall be extended for up to sixty
(60) additional days in the event of a material development that shall hinder
the Company from effecting such registration) the registration of the Subject
Stock. The Company shall keep each registration statement covering any Subject
Stock in effect for a period of not less than 90 days following the
effectiveness of such registration statement (except for an underwritten
offering which is closed sooner) and maintain compliance with each applicable
federal and state law and regulation. Notwithstanding the foregoing, if the
offering of the Company's securities pursuant to such registration statement is
to be made by or through underwriters, the Company shall not be required to
include Subject Stock therein if and to the extent that the underwriter
managing the offering advises the Company in writing that such inclusion would
materially adversely affect such offering.
(b) In connection with any offering of shares of Subject Stock
registered pursuant to this Annex B the Company (i) shall furnish to BNY such
number of copies of each registration statement, each prospectus and each
preliminary prospectus, and of each amendment and supplement to any thereof as
BNY may reasonably request in order to effect the offering and sale of the
Subject Stock to be offered and sold, but only while the Company shall be
required under the provisions hereof to cause the registration statement to
remain current and (ii) take such action as shall be necessary to qualify the
shares covered by such registration statement under such blue sky or other
state securities laws for offer and sale as BNY shall request; provided,
however, that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it shall
not then be qualified or to file any
11
<PAGE>
general consent to service of process in any jurisdiction in which such a
consent has not been previously filed or subject itself to taxation in any
jurisdiction in which the Company is not already subject to taxation. The
Company shall enter into an underwriting agreement (the "Agreement") with a
managing underwriter or underwriters selected by it containing representations,
warranties, indemnities and agreements then customarily included by an issuer
in underwriting agreements with respect to secondary distributions and BNY
agrees as a condition to participation in such offering to make such
representations and warranties with respect to information as to it as selling
stockholder, and as to its holdings, which is furnished in writing to the
underwriter for use in the registration statement as are customary and
appropriate and to otherwise reasonably cooperate with the Company in
connection with any registration statement with respect to the Subject Stock.
In connection with any offering of Subject Stock registered pursuant to this
Annex B, the Company shall furnish to the underwriter, at the Company's
expense, unlegended certificates representing ownership of the Subject Stock
being sold in such denominations as requested and instruct any transfer agent
and registrar of the Subject Stock to release any stop transfer orders with
respect to such Subject Stock.
(c) Upon receipt of notice from the Company to suspend sales to permit
the Company to correct or update a registration statement or prospectus, BNY
will not (until a receipt of a notice to the contrary) effect sales of Subject
Stock included in any registration statement. The obligations of the Company
with respect to maintaining any registration statements current and effective
shall be extended by a period of days equal to the period that such suspension
is in effect.
(d) In connection with any registration pursuant to this Annex B all
expenses of registration shall be borne by the Company (unless contrary to the
federal securities laws or the laws of any state where the Subject Stock is to
be offered), provided, however, in connection with any such registration, BNY
shall be obligated to pay any and all underwriter's commissions and filing fees
incurred by the Company, to the extent that such fees and commissions would not
have been so incurred in the absence of the registration of such Subject Stock.
Under no circumstances shall the Company have any liability for any fees and
expenses of underwriters, counsel, accountants or other agents of BNY with
respect to any registration statement filed pursuant hereto, including but not
limited to the costs of any investigations by or on behalf of BNY of the
accuracy and completeness of such registration statement or related to the
furnishing of information by BNY in connection with such registration
statement.
(e) For a period of ninety (90) days from and after the effective date
of any registration statement filed pursuant hereto in which any of the Subject
Stock is included, the Company shall from time to time amend or supplement the
registration statement and the prospectus used in connection therewith as may
be necessary to permit such sale and disposition and to the extent necessary in
order to keep such registration statement effective and such prospectus current
under the Securities Act so that neither the registration statement nor the
prospectus contains any untrue statement as to any material fact, omits any
statements necessary to make the statements contained therein not misleading.
12
<PAGE>
(f) In the case of any offering registered pursuant to this Annex B,
the Company agrees to indemnify and hold harmless BNY and each controlling
person of BNY within the meaning of Section 15 of the Securities Act, and the
directors and officers of BNY, against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under the
Securities Act or any other statute or common law or otherwise, and to
reimburse them, from time to time upon request, for any legal or other expenses
reasonably incurred by them in connection with investigating any claims and
defending any actions, insofar as any such losses, claims, damages, liabilities
or actions shall arise out of or shall be based upon (i) any untrue statement
or alleged untrue statement contained in the registration statement relating to
the sale of such Subject Stock in any preliminary prospectus or in any
prospectus or in any supplement or amendment to any of the foregoing of a
material fact, or the omission or alleged omission to state therein a material
fact required to be stated or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or (ii)
any failure or omission on the part of the Company to comply with any provision
of the Act and the rules and regulations of the Securities and Exchange
Commission (or other Federal agency at the time charged with administration of
the Securities Act) applicable to such offering; provided, however, that the
indemnification agreement contained in this paragraph (f) shall not apply to
such losses, claims, damages, liabilities or actions which shall arise from the
sale of Subject Stock if such losses, claims, damages, liabilities or actions
shall arise out of or shall be based upon any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement
or omission shall have been made in reliance upon and in conformity with
information furnished in writing to the Company by BNY specifically for use in
connection with the preparation of the registration statement or any
preliminary prospectus or prospectus contained in the registration statement or
any amendment thereof or supplement thereto provided further, however, that the
indemnification agreement contained in this paragraph (f) shall not apply to
such losses, claims, damages, liabilities or actions to the extent that they
arise out of or are based upon any untrue statement or omission made in any
preliminary prospectus if (i) BNY failed to send or deliver a copy of the final
prospectus with or prior to the delivery of written confirmation of the sale by
BNY to the person asserting the claim from which such damages arise, and (ii)
the final prospectus would have corrected such untrue statement or such
omission; provided further, that the Company shall not be liable to BNY in any
such case to the extent that any such damages arise out of or are based upon
any untrue statement or omission in any prospectus if (x) such untrue statement
or omission is corrected in an amendment or supplement to such prospectus, and
(y) having previously been furnished by or on behalf of the Company with copies
of such prospectus as so amended or supplemented, BNY thereafter fails to
deliver such prospectus as so amended or supplemented prior to or concurrently
with the sale of a Subject Stock to the person asserting the claim from which
such damages arise.
(g) In connection with any registration statement in which BNY is
participating, BNY will indemnify, to the extent permitted by law, the
underwriters, the Company and its directors and officers against any losses,
claims, damages, liabilities and expenses resulting solely by reason of any
untrue statement of a material fact or any omission of a material fact
necessary to make the statements therein not misleading, in the registration
statement or any prospectus or
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preliminary prospectus or any amendment or supplement thereto, but only to the
extent that such untrue statement is contained in, or such omission is omitted
from, information so furnished to the Company by BNY in writing; provided,
however, that BNY shall not be liable in the aggregate for any amounts
exceeding the product of the sale price minus the Purchase Price per share of
Subject Stock of BNY sold in such registered offering and the number of shares
of Subject Stock sold pursuant to such registration statement or prospectus by
BNY.
(h) Each party indemnified under paragraph (f) or (g) of this Annex B
shall, promptly after receipt of receipt of the commencement of any action
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party to so notify an indemnifying
party of any such action shall not relieve the indemnifying party from any
liability in respect of such action which it may have to such indemnified party
on account of the indemnity agreement contained in paragraph (f) or (g) of this
Annex B, unless the indemnifying party was prejudiced by such omission, and in
no event shall relieve the indemnifying party from any other liability which it
may have to such indemnified party. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may desire to assume the defense thereof
through counsel satisfactory to the indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under paragraph (f) or (g) of this Annex B for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation (unless
such indemnified party reasonably objects to such assumption on the grounds
that there may be defenses available to it which are different from or in
addition to such indemnifying party in which event the indemnified party shall
be reimbursed by the indemnifying party for the expenses incurred in connection
with retaining separate legal counsel).
(i) Nothing in paragraph (f) or (g) of this Annex B shall prevent the
indemnified party from retaining counsel of its own choosing, at its own
expense, to defend or cooperate in the defense or investigation of any claim in
respect of which indemnification is available hereunder. No indemnifying party
will consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
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THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THIS AGREEMENT AND (i) PURSUANT TO A REGISTRATION STATEMENT
UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER
THE ACT BUT ONLY UPON THE HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL ACCEPTABLE TO THE COMPANY,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF
THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
October __, 1997
BERNARD CHAUS, INC.
For good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged by Bernard Chaus, Inc., a New York corporation,
with its principal office at 1410 Broadway, New York, New York 10018 (the
"Company"), BNY Financial Corporation (the "Holder" or "BNY"), of 1290 Avenue
of the Americas, New York, New York 10104, subject to the terms and conditions
of this Warrant, is hereby granted the right to purchase, at the initial
Purchase Price of $1.0625 per share, at any one or more times from the date
hereof until 5:00 p.m. on December 31, 2002, in the aggregate, three hundred
seventy five thousand (375,000) shares of Common Stock of the Company, $.01 par
value (the "Shares").
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This Warrant initially is exercisable at a price of $1.0625 (the
"Purchase Price") per Share payable in cash, by certified or official bank
check in New York Clearing House funds or other form of payment satisfactory to
the Company, subject to adjustment as provided in Section 5 hereof.
1. Exercise of Warrant. The purchase rights represented by this
Warrant are exercisable at the option of the Holder hereof, in whole or in
part, at one or more times during any period in which this Warrant may be
exercised as set forth above. The Holder shall not be deemed to have exercised
its purchase rights hereunder until the Company receives written notice of the
Holder's intent to exercise its purchase rights hereunder along with payment
for the purchased Shares. The written notice shall be in the form of a duly
executed Subscription Form a form of which is attached hereto and made a part
hereof. Less than all of the Shares may be purchased under this Warrant.
2. Issuance of Certificates. Upon the exercise of this Warrant, the
issuance of certificates for Shares underlying this Warrant which are purchased
shall be made forthwith (and in any event within ten (10) business days after
the Company's receipt of written notice and payment for the purchased Shares
specified in Section 1 above) and such certificates shall be issued in the name
of the Holder hereof.
3. Restriction on Transfer and Registration Rights. Neither this
Warrant nor any Shares issuable upon exercise hereof have been registered under
the Securities Act of 1933, as amended (the "Act"), and neither may be sold or
transferred in whole or in part unless the Holder shall have first given prior
written notice to the Company describing such sale or transfer and furnished to
the Company an opinion, satisfactory to counsel for the Company as determined
by such counsel in its sole discretion, to the effect that the proposed sale or
transfer may be made without registration under the Act; provided, however,
that the foregoing shall not apply if there is in effect a registration
2
<PAGE>
statement with respect to this Warrant or the Shares issuable upon exercise
hereof, as the case may be, at the time of the proposed sale or transfer. Upon
exercise, in part or in whole, of this Warrant, each certificate issued
representing the Shares underlying this Warrant shall bear a legend to the
foregoing effect. The Holder shall have such rights to request the Company to
register all or any of the Shares issuable upon exercise of this Warrant as set
forth in Annex B hereto (the "Registration Rights") subject to the terms of
Annex B.
4. Price.
4.1. Initial and Adjusted Purchase Price. The initial
Purchase Price shall be $1.0625 per Share. The adjusted Purchase Price shall be
the price which shall result from time to time from any and all adjustments of
the initial Purchase Price in accordance with the provisions of Section 5
hereof.
4.2. Purchase Price. The term "Purchase Price" herein shall
mean the initial Purchase Price or the adjusted Purchase Price, as the case may
be.
5. Adjustments of Purchase Price and Number of Shares. The Shares
subject to this Warrant and the Purchase Price thereof shall be appropriately
adjusted by the Company in accordance with the Statement of Rights to Warrants
included in Annex A hereto.
6. Replacement of Warrant. Upon receipt by the Company of (i) evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in case of such loss, theft, destruction or mutilation, and
(ii) an indemnity or other security reasonably satisfactory to it in its sole
discretion, and upon reimbursement to the Company of all expenses incidental or
relating thereto, and in the event of mutilation upon surrender and
cancellation of this Warrant, the Company will make and deliver a new Warrant
of like tenor, in lieu of this Warrant.
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<PAGE>
7. Notices to Warrant Holder. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company.
8. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first
page of this Warrant or to such other address as the Company may
designate by notice to the Holder.
9. Successors. All the agreements contained in this Warrant shall bind
the parties hereto and their respective heirs, executors, administrators,
distributees, permitted successors and assigns. The Holder may assign this
Warrant without the Company's prior written consent provided that the Holder
complies with the provisions of this agreement and applicable securities laws.
Any attempted assignment in violation of the preceding sentence shall be void
and of no effect.
10. Headings. The headings in this Warrant are inserted for purposes
of convenience only and shall have no substantive effect.
11. Law Governing. This Warrant is delivered in the State of New York
and shall be construed and enforced in accordance with, and governed by, the
laws of the State of New York, without giving effect to conflicts of law
principles.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its corporate name by, and such signature to be attested to by, a duly
authorized officer as of the date first above written.
BERNARD CHAUS, INC.
By: /s/ Josephine Chaus
------------------------------
Its: Chief Executive Officer
-----------------------------
Attest:
/s/ Andrew Grossman
- ------------------------------
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ANNEX A
STATEMENT OF RIGHTS TO WARRANTS
AND
FORMS OF SUBSCRIPTION AND ASSIGNMENT
(a) Adjustment to Purchase Price and Number of Shares. In case, prior
to the expiration of this Warrant by exercise or by its terms, the Company
shall issue any shares of its Common Stock as a stock dividend or subdivide the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Purchase Price per
share of the Shares of Common Stock purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately reduced and the
number of shares at that time purchasable pursuant to this Warrant shall be
proportionately increased; and conversely, in the event the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the then applicable
Purchase Price per share of the shares of Common Stock purchasable pursuant to
this Warrant in effect at the time of such action shall be proportionately
increased and the number or shares of Common Stock purchasable pursuant to this
Warrant shall be proportionately decreased. If the Company shall, at any time
during the term of this Warrant, declare a dividend payable in cash on its
Common Stock and shall, at substantially the same time, offer to its
stockholders a right to purchase new Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all Common Stock
so issued shall, for the purpose of this Warrant, be deemed to have been issued
as a stock dividend.
(b) Recapitalization. In case, prior to the expiration of this Warrant
by exercise or by its terms, the Company shall be recapitalized by
reclassifying its outstanding Common Stock, (other than a change in par value
to no par value), or the Company or a successor corporation shall consolidate
or merge with or convey all or substantially all of its or of any successor
corporation's property and assets to any other corporation or corporations (any
such other corporations being included within the meaning of the term
"successor corporation" hereinbefore used in the event of any consolidation or
merger of any such other corporation with, or the sale of all or substantially
all of the property of any such other corporation to, another corporation or
corporations), then, as a condition of such recapitalization, consolidation,
merger or conveyance, lawful and adequate provision shall be made whereby the
Holder of this Warrant shall thereafter have the right to purchase, upon the
basis and on the terms and conditions specified in this Warrant, in lieu of the
Shares of Common Stock of the Company theretofore purchasable upon the exercise
of this Warrant, such shares of stock, securities, property or assets of the
other corporation (including, without limitation, cash) as to which the Holder
of this Warrant would have been entitled had this Warrant been exercised
immediately prior to such recapitalization, consolidation, merger or
conveyance; and in any such event, the rights of the Warrant Holder to any
adjustment in the number of Shares of Common Stock purchasable upon the
exercise of this Warrant, as hereinbefore provided, shall continue and be
preserved in respect of any stock which the Warrant Holder becomes entitled to
purchase.
6
<PAGE>
(c) Dissolution. In case the Company at any time, while this Warrant
shall remain both unexpired and unexercised, shall sell all or substantially
all of its property, other than as provided in subsection (b) above or
dissolve, liquidate or wind up its affairs, lawful provision shall be made as
part of the terms of any such sale, dissolution, liquidation or winding up, so
that the Holder of this Warrant may thereafter receive upon exercise hereof in
lieu of each Share of Common Stock of the Company which it would have been
entitled to receive, the same kind and amount of any securities or assets as
may be issuable, distributable or payable upon any such sale, dissolution,
liquidation or winding up with respect to each share of Common Stock of the
Company; provided, however, that in any case of any such sale or of
dissolution, liquidation or winding up, the right to exercise this Warrant
shall terminate on a date fixed by the Company. Such date so fixed shall be no
earlier than 3 P.M. New York City Time, on the forty-fifth (45th) day next
succeeding the date on which notice of such termination of the right to
exercise this Warrant has been given by mail to the registered Holder of this
Warrant at its address as it appears on the books of the Company.
(d) No Fractional Shares. Upon any exercise of this Warrant by the
Warrant Holder, the Company shall not be required to deliver fractions of one
Share, but adjustment in the Purchase Price payable by the Warrant Holder shall
be made in respect of any such fraction of one Share on the basis of the
Purchase Price per Share then applicable upon exercise of this Warrant.
(e) Notices. In the event that, prior to the expiration of this
Warrant by exercise or by its terms, the Company shall determine to take a
record of its stockholders for the purpose of determining stockholders entitled
to receive any dividend, stock dividend, distribution or other right that may
cause any change or adjustment in the number, amount, price or nature of the
securities or assets deliverable upon the exercise of this Warrant pursuant to
the foregoing provisions, the Company shall give at least ten (10) days' prior
written notice to the effect that it intends to take such record to the
registered Holder of this Warrant at its address as it appears on the books of
the Company, said notice to specify the date as of which such record is to be
taken, the purpose for which such record is to be taken, and the effect which
the action which may be taken will have upon this Warrant.
(f) Registered Owner. The Company may deem and treat the registered
Holder of the Warrant at any time as the absolute owner hereof for all
purposes, and shall not be affected by any notice to the contrary.
(g) Status. This Warrant shall not entitle any Holder hereof to any of
the rights of a stockholder, and shall not entitle any Holder hereof to any
dividend declared upon the Common Stock unless the Holder shall have exercised
the within Warrant and purchased the Shares of Common Stock prior to the record
date fixed by the Board of Directors for the determination of holders of Common
Stock entitled to exercise any such rights or receive said dividend.
(h) No Adjustment for Small Amounts. Anything in the Statement of
Rights to Warrants to the contrary notwithstanding, the Company shall not be
required to give effect to any adjustment in the Purchase Price unless and
until the net effect of one or more adjustments, determined as above
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<PAGE>
provided, shall have required a change of the Purchase Price by at least ten
cents, but when the cumulative net effect of more than one adjustment so
determined shall be to change the actual Purchase Price by at least ten cents,
such change in the Purchase Price shall thereupon be given effect.
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<PAGE>
ASSIGNMENT
(To Be Executed By the Registered Holder
to Effect a Transfer of the Within Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(Name)
- -------------------------------------------------------------------------------
(Address)
the right to purchase Common Stock evidenced by the within Warrant, to the
extent ____ of shares of Common Stock, and does hereby irrevocably constitute
and appoint __________________________________________________________________
______________________________________________________________________________
to transfer the said right on the books of the Company, with full power of
substitution.
Dated: _____________________ ,19__.
-----------------------------
(Signature)
- -------------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the case of the within Warrant in every particular,
without alteration or enlargement, or any change whatsoever and must
be guaranteed by a bank, other than a savings bank or trust company,
having an office or correspondent in New York, or by a firm having
membership on a registered national securities exchange and an office
in New York, New York.
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Bernard Chaus, Inc.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____(1) shares of Common Stock of Bernard Chaus, Inc. and
herewith makes payment of $____ therefor, and requests that the certificate or
certificates for such shares be issued in the name of and delivered to the
undersigned.
Dated:
------------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrants)
------------------------------------------
(Address)
- -------------
(1) Insert here the maximum number of shares or, in the case of a partial
exercise, the portion thereof as to which the Warrant is being
exercised.
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<PAGE>
ANNEX B
REGISTRATION RIGHTS
(a) If, at any time prior to December 31, 2002 the Company proposes to
register any of its securities for its own account under the Securities Act of
1933, as amended, (the "Securities Act") (other than securities to be issued
pursuant to a stock option or other employee benefit or similar plan and other
than in connection with a business combination transaction), the Company shall,
promptly give written notice (the "Registration Notice") to BNY of the
Company's intention to effect such registration. If, within 15 days after
receipt of such notice, BNY submits a written request to the Company specifying
the number of shares of Common Stock which it will receive upon exercise of the
Warrant and which it proposes to sell or otherwise dispose of, (the "Subject
Stock") the Company shall include the Subject Stock in such registration
statement. Notwithstanding anything herein to the contrary BNY shall not be
entitled to require the Company to include the Subject Stock in a registration
statement more frequently than twice during the term hereof. BNY when
requesting inclusion of the Subject Stock in any such registration statement,
may in its discretion delay exercise of the Warrant and notify the Company that
it will exercise its Warrant as to the Subject Stock immediately upon the
registration statement becoming effective or for delivery upon closing of a
related offering. The Company will use its reasonable best efforts in good
faith to effect promptly (but in no event later than one hundred and twenty
(120) days after the receipt from BNY of the request to register the Subject
Stock, provided, however, that such period shall be extended for up to sixty
(60) additional days in the event of a material development that shall hinder
the Company from effecting such registration) the registration of the Subject
Stock. The Company shall keep each registration statement covering any Subject
Stock in effect for a period of not less than 90 days following the
effectiveness of such registration statement (except for an underwritten
offering which is closed sooner) and maintain compliance with each applicable
federal and state law and regulation. Notwithstanding the foregoing, if the
offering of the Company's securities pursuant to such registration statement is
to be made by or through underwriters, the Company shall not be required to
include Subject Stock therein if and to the extent that the underwriter
managing the offering advises the Company in writing that such inclusion would
materially adversely affect such offering.
(b) In connection with any offering of shares of Subject Stock
registered pursuant to this Annex B the Company (i) shall furnish to BNY such
number of copies of each registration statement, each prospectus and each
preliminary prospectus, and of each amendment and supplement to any thereof as
BNY may reasonably request in order to effect the offering and sale of the
Subject Stock to be offered and sold, but only while the Company shall be
required under the provisions hereof to cause the registration statement to
remain current and (ii) take such action as shall be necessary to qualify the
shares covered by such registration statement under such blue sky or other
state securities laws for offer and sale as BNY shall request; provided,
however, that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it shall
not then be qualified or to file any general consent to service of process in
any jurisdiction in which such a consent has not been previously filed or
subject itself to taxation
11
<PAGE>
in any jurisdiction in which the Company is not already subject to taxation.
The Company shall enter into an underwriting agreement (the "Agreement") with a
managing underwriter or underwriters selected by it containing representations,
warranties, indemnities and agreements then customarily included by an issuer
in underwriting agreements with respect to secondary distributions and BNY
agrees as a condition to participation in such offering to make such
representations and warranties with respect to information as to it as selling
stockholder, and as to its holdings, which is furnished in writing to the
underwriter for use in the registration statement as are customary and
appropriate and to otherwise reasonably cooperate with the Company in
connection with any registration statement with respect to the Subject Stock.
In connection with any offering of Subject Stock registered pursuant to this
Annex B, the Company shall furnish to the underwriter, at the Company's
expense, unlegended certificates representing ownership of the Subject Stock
being sold in such denominations as requested and instruct any transfer agent
and registrar of the Subject Stock to release any stop transfer orders with
respect to such Subject Stock.
(c) Upon receipt of notice from the Company to suspend sales to permit
the Company to correct or update a registration statement or prospectus, BNY
will not (until a receipt of a notice to the contrary) effect sales of Subject
Stock included in any registration statement. The obligations of the Company
with respect to maintaining any registration statements current and effective
shall be extended by a period of days equal to the period that such suspension
is in effect.
(d) In connection with any registration pursuant to this Annex B all
expenses of registration shall be borne by the Company (unless contrary to the
federal securities laws or the laws of any state where the Subject Stock is to
be offered), provided, however, in connection with any such registration, BNY
shall be obligated to pay any and all underwriter's commissions and filing fees
incurred by the Company, to the extent that such fees and commissions would not
have been so incurred in the absence of the registration of such Subject Stock.
Under no circumstances shall the Company have any liability for any fees and
expenses of underwriters, counsel, accountants or other agents of BNY with
respect to any registration statement filed pursuant hereto, including but not
limited to the costs of any investigations by or on behalf of BNY of the
accuracy and completeness of such registration statement or related to the
furnishing of information by BNY in connection with such registration
statement.
(e) For a period of ninety (90) days from and after the effective date
of any registration statement filed pursuant hereto in which any of the Subject
Stock is included, the Company shall from time to time amend or supplement the
registration statement and the prospectus used in connection therewith as may
be necessary to permit such sale and disposition and to the extent necessary in
order to keep such registration statement effective and such prospectus current
under the Securities Act so that neither the registration statement nor the
prospectus contains any untrue statement as to any material fact, omits any
statements necessary to make the statements contained therein not misleading.
(f) In the case of any offering registered pursuant to this Annex B,
the Company agrees to indemnify and hold harmless BNY and each controlling
person of BNY within the meaning of
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Section 15 of the Securities Act, and the directors and officers of BNY,
against any and all losses, claims, damages or liabilities to which they or any
of them may become subject under the Securities Act or any other statute or
common law or otherwise, and to reimburse them, from time to time upon request,
for any legal or other expenses reasonably incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon (i) any untrue statement or alleged untrue statement contained in the
registration statement relating to the sale of such Subject Stock in any
preliminary prospectus or in any prospectus or in any supplement or amendment
to any of the foregoing of a material fact, or the omission or alleged omission
to state therein a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (ii) any failure or omission on the part of the Company to
comply with any provision of the Act and the rules and regulations of the
Securities and Exchange Commission (or other Federal agency at the time charged
with administration of the Securities Act) applicable to such offering;
provided, however, that the indemnification agreement contained in this
paragraph (f) shall not apply to such losses, claims, damages, liabilities or
actions which shall arise from the sale of Subject Stock if such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission shall have been
made in reliance upon and in conformity with information furnished in writing
to the Company by BNY specifically for use in connection with the preparation
of the registration statement or any preliminary prospectus or prospectus
contained in the registration statement or any amendment thereof or supplement
thereto provided further, however, that the indemnification agreement contained
in this paragraph (f) shall not apply to such losses, claims, damages,
liabilities or actions to the extent that they arise out of or are based upon
any untrue statement or omission made in any preliminary prospectus if (i) BNY
failed to send or deliver a copy of the final prospectus with or prior to the
delivery of written confirmation of the sale by BNY to the person asserting the
claim from which such damages arise, and (ii) the final prospectus would have
corrected such untrue statement or such omission; provided further, that the
Company shall not be liable to BNY in any such case to the extent that any such
damages arise out of or are based upon any untrue statement or omission in any
prospectus if (x) such untrue statement or omission is corrected in an
amendment or supplement to such prospectus, and (y) having previously been
furnished by or on behalf of the Company with copies of such prospectus as so
amended or supplemented, BNY thereafter fails to deliver such prospectus as so
amended or supplemented prior to or concurrently with the sale of a Subject
Stock to the person asserting the claim from which such damages arise.
(g) In connection with any registration statement in which BNY is
participating, BNY will indemnify, to the extent permitted by law, the
underwriters, the Company and its directors and officers against any losses,
claims, damages, liabilities and expenses resulting solely by reason of any
untrue statement of a material fact or any omission of a material fact
necessary to make the statements therein not misleading, in the registration
statement or any prospectus or preliminary prospectus or any amendment or
supplement thereto, but only to the extent that such true statement is
contained in, or such omission is omitted from, information so furnished to the
Company by BNY in writing; provided, however, that BNY shall not be liable in
the aggregate for any amounts
13
<PAGE>
exceeding the product of the sale price minus the Purchase Price per share of
Subject Stock of BNY sold in such registered offering and the number of shares
of Subject Stock sold pursuant to such registration statement or prospectus by
BNY.
(h) Each party indemnified under Paragraph (f) or (g) of this Annex B
shall, promptly after receipt of notice of the commencement of any action
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party to so notify an indemnifying
party of any such action shall not relieve the indemnifying party from any
liability in respect of such action which it may have to such indemnified party
on account of the indemnity agreement contained in Paragraph (f) or (g) of this
Annex B, unless the indemnifying party was prejudiced by such omission, and in
no event shall relieve the indemnifying party from any other liability which it
may have to such indemnified party. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may desire to assume the defense thereof
through counsel satisfactory to the indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under Paragraph (f) or (g) of this Annex B for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation (unless
such indemnified party reasonably objects to such assumption on the grounds
that there may be defenses available to it which are different from or in
addition to such indemnifying party in which event the indemnified party shall
be reimbursed by the indemnifying party for the expenses incurred in connection
with retaining separate legal counsel).
(i) Nothing in Paragraph (f) or (g) of this Annex B shall prevent the
indemnified party from retaining counsel of its own choosing, at its own
expense, to defend or cooperate in the defense or investigation of any claim in
respect of which indemnification is available hereunder. No indemnifying party
will consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
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EXECUTION COPY
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of October __, 1997, by and between
BERNARD CHAUS, INC., a New York corporation (the"Company"), and LYNN BUECHNER
(the "Executive") (hereinafter collectively referred to as "the parties").
WHEREAS, the Company desires to employ the Executive as President of
its Nautica Women's Division and the Executive is willing to be so employed by
the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to so employ the Executive and the Executive is willing to render services on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements of the parties contained herein, the parties hereby agree as
follows:
1. Term. The initial term of employment under this Agreement shall be
for the period commencing on October 27, 1997 (the "Commencement Date") and
ending on the third anniversary of the Commencement Date (the "Initial Term");
provided, however, that upon the expiration of the Initial Term, this Agreement
shall be automatically extended for a period of one year and again for
successive one-year periods on each anniversary thereof, unless either the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended.
2. Employment.
(a) Position. The Executive shall be employed as the
President of the Company's Nautica Women's Division, provided, however, that if
the License Agreement (as defined below) is materially modified, terminated,
expires or is not renewed the Executive shall be employed by the Company in
such executive positions with a division of the Company of reasonably
comparable status and responsibilities as may be determined by the Board. The
Executive shall perform the duties, undertake the responsibilities and exercise
the authority customarily performed, undertaken and exercised by persons
employed in any of such executive capacities. The Executive shall report
directly to the Chairperson of the Board and the Company's Chief Executive
Officer. The "License Agreement" shall mean that certain agreement dated as of
September 6, 1995 by and between the Company and Nautica Apparel, Inc.
(b) Obligations. The Executive agrees to devote her full
business time and attention to the business and affairs of the Company. The
foregoing, however, shall not preclude the Executive from serving on corporate,
civic or charitable boards or committees or
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managing personal investments, so long as such activities do not interfere with
the performance of the Executive's responsibilities hereunder.
3. Compensation.
(a) Compensation. The Company agrees to pay or cause to be
paid to the Executive during each year of the Initial Term of this Agreement
(a) an annual base salary at the rate of four hundred thousand dollars
($400,000) (the "Base Salary") and (b) an amount equal to the greater of (i)
two percent (2%) of "Net Sales" (as hereinafter defined) in excess of $24
million (or a pro-rata portion of $24 million for the fiscal year in which
occurs the termination of the Executive's employment hereunder based on the
number of days elapsed in such fiscal year of termination) of the Company's
Nautica Women's Division for each fiscal year of the Company and (ii) one
hundred thousand dollars ($100,000) ("Net Profit Participation"). Each year of
the Initial Term, commencing with the first day of the second year of the
Initial Term, the Company shall increase the Base Salary by twenty-five
thousand dollars ($25,000). Such increase in the Base Salary shall, from and
after the effective date of the increase, constitute the "Base Salary" for
purposes of this Agreement. Base Salary shall be payable in equal installments
not less frequently than semi-monthly and otherwise in accordance with the
Company's customary practices applicable to its executives. "Net Sales" for any
fiscal year shall mean the Company's Nautica Women's Division sales at standard
after discounts, allowances and returns. If the License Agreement is
terminated, materially amended, expires or is not renewed, the Executive and
the Company shall establish a bonus arrangement for the Executive's behalf that
is substantially equivalent on an economic basis as that set forth above.
Subject to Sections 8(b)(iii) and 8(c)(iii) below, for the Company's
fiscal year ending June 30, 1998, the Net Profit Participation shall be
calculated by multiplying the Net Profit Participation otherwise calculated
based on the full fiscal year by a fraction, the numerator of which is the
number of days of such fiscal year on which the Executive was so employed and
the denominator of which is 365. The Net Profit Participation shall be paid
promptly after the determination of the amount thereof, which determination
shall be made not later than 90 days following the end of such fiscal year.
(b) Sign-on Bonus. As additional compensation for services to
be rendered, the Company shall pay to the Executive on the Commencement Date, a
sign-on bonus of one hundred and fifty thousand dollars ($150,000) (the
"Sign-on Bonus") in cash. In the event the Executive voluntarily terminates her
employment other than for Good Reason (as hereinafter defined), or breaches any
of the provisions of Section 9 below, or if the Company terminates the
Executive's employment for Cause (as hereinafter defined) in each case, prior
to the first anniversary of the Commencement Date, the Executive shall promptly
pay back to the Company in cash the Sign-on Bonus. For purposes of this
Agreement, "Good Reason" means (i) the failure to continue the Executive as
President of the Company's Nautica Women's Division or such other capacity as
contemplated by Section 2 hereof; (ii) the assignment to the Executive of any
duties materially inconsistent with the Executive's positions, duties,
authority, responsibilities
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and reporting requirements as set forth in Section 2 hereof; (iii) a reduction
in or a material delay in payment of the Executive's total cash compensation
and benefits from those required to be provided in accordance with the
provisions of this Agreement; (iv) the Company, the Board or any person
controlling the Company requires the Executive to be based outside of the New
York City metropolitan area, other than on travel reasonably required to carry
out the Executive's obligations under this Agreement or (v) the failure of the
Company to obtain the assumption in writing of its obligation to perform this
Agreement by any successor to all or substantially all of the business or
assets of the Company upon a merger, consolidation, sale or similar
transaction; provided, however, that "Good Reason" shall not include (A) acts
not taken in bad faith which are cured by the Company in all respects not later
than 30 days from the date of receipt by the Company of a written notice from
the Executive identifying in reasonable detail the act or acts constituting
"Good Reason" (a "Preliminary Notice of Good Reason") or (B) acts taken by the
Company by reason of the Executive's physical or mental infirmity which impairs
the Executive's ability to substantially perform the duties under this
Agreement. A Preliminary Notice of Good Reason shall not, by itself, constitute
a Notice of Termination.
4. Stock Options. On the 30th day following the consummation of the
Company's proposed rights offering as described in the Company's Form 10-K
dated October 14, 1997 (the "Restructuring"), the Company shall grant to the
Executive options (the "Stock Option") to acquire a number of shares of the
Company's common stock that has an aggregate fair market value on such date
equal to four hundred thousand dollars ($400,000). The Stock Option shall vest
with respect to twenty percent (20%) of the shares subject thereto on each of
the first five anniversaries of the grant date subject to continued employment,
and shall have a term of ten years. Fair market value (for purposes of the
first sentence of this Section 4) and the per share exercise price of the Stock
Option shall be equal to the average fair market value of the Company's common
stock during the 30-day period immediately following consummation of the
Restructuring (the "30 Day Average"); provided, however, that the per share
exercise price of the Stock Option shall not be less than the fair market value
of such stock on the date of grant. In the event that the per share exercise
price of the Stock Option exceeds the 30 Day Average (the "Excess"), the number
of shares subject to the Stock Option shall be increased by the quotient of (x)
the product of the number of shares subject to the Stock Option without regard
to this sentence multiplied by the Excess, divided by (y) the per share
exercise price of the Stock Option. The vesting provisions of the Stock Option
shall be governed by the terms of the stock option plan (the "Plan") to be
adopted by the Company in connection with the Restructuring; provided, however,
that the vesting terms of the Stock Option shall be no less favorable than the
vesting terms of options granted in connection with the Restructuring to any
other senior executive of the Company other than Andrew Grossman or which may
be granted to any such employee within the six (6) months following the
Restructuring; and provided, however, that the Stock Option shall vest upon a
"change in control" (as defined in the Plan).
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<PAGE>
5. Executive Benefits.
(a) General. The Executive shall be entitled to participate
in all employee benefit plans, practices and programs maintained by the Company
and made available to senior executives generally and as may be in effect from
time to time. The Executive's participation in such plans, practices and
programs shall be on the same basis and terms as are applicable to senior
executives of the Company generally.
(b) Automobile. The Company shall pay the Executive $2,000
per month on a gross basis, i.e., pre-tax, subject to applicable withholding
taxes, to be used as an automobile allowance.
6. Other Benefits.
(a) Expenses. The Executive shall be entitled to receive
prompt reimbursement of all out-of-pocket expenses reasonably incurred by her
in connection with the performance of her duties hereunder, including, without
limitation, all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided the
Executive submits documentation for the reimbursement of such expenses in
accordance with the policies and procedures established by the Company for its
executives.
(b) Office and Facilities. The Executive shall be provided
with an appropriate office in the Company's New York City headquarters and with
such secretarial and other support facilities as are commensurate with the
Executive's status with the Company and adequate for the performance of her
duties hereunder.
(c) Vacation. The Executive shall be entitled to four (4)
weeks paid vacation in each full twelve month period during the Initial Term,
such vacation to be taken at such time or times as are consistent with the
requirements of the Company's business and performance of the Executive's
duties and responsibilities hereunder. Unused vacation time may be accumulated
and carried forward to a subsequent year.
7. Termination. The Executive's employment hereunder may be terminated
under the following circumstances:
(a) Disability. The Company shall be entitled to terminate
the Executive's employment after having established the Executive's Disability.
For purposes of this Agreement, "Disability" means a physical or mental
infirmity which prevents the Executive from substantially performing her duties
under this Agreement for a period of at least six (6) months in any 12 month
calendar period.
(b) Termination by the Company. The Company shall be entitled
to terminate the Executive's employment for "Cause" as hereafter provided or
without Cause. For
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purposes of this Agreement, "Cause" shall mean that the Executive (1) willfully
and continually fails to perform those duties with the Company set forth in
this Agreement (other than a failure resulting from the Executive's incapacity
due to physical or mental illness); (2) performs the duties hereunder with the
Company in a grossly negligent manner; (3) commits one or more acts of willful
misappropriation from the Company; or (4) is indicted, pleads guilty or nolo
contendere or is convicted of an act which is defined as a felony under federal
or state law.
The Executive shall be given written notice by the Board of a proposed
termination for Cause, such notice to state in detail the particular act or
acts or failure or failures to act that constitute the grounds on which the
proposed termination for Cause is based. The Executive shall be entitled to a
hearing before the Board or a committee thereof established for such purpose
and to be accompanied by legal counsel. Such hearing shall be held within 15
days of notice to the Company by the Executive, provided the Executive requests
such hearing within 30 days of the written notice from the Board of the
termination for Cause. If after such a hearing the Company determines to
terminate the Executive for Cause or the Executive does not request such a
hearing, the termination date shall be the date on which written notice was
provided to the Executive by the Board.
(c) Termination by Death. The Executive's employment shall
terminate by reason of her death.
(d) Expiration of Term. The Executive's employment shall
terminate upon expiration of the Initial Term or any extension thereof.
(e) Notice of Termination. Any purported termination by the
Company or by the Executive shall be communicated by a written Notice of
Termination to the other two weeks prior to the Termination Date (as defined
below). For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination of employment shall be effective without such Notice
of Termination.
(f) Termination Date. "Termination Date" shall mean in the
case of the Executive's death, the date of death, or in all other cases, the
date specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least 30 days from the date
the Notice of Termination is given to the Executive.
8. Compensation Upon Termination.
(a) If during the Initial Term or any extensions thereof, the
Executive's employment is terminated by the Company for Cause or the Executive
terminates her employment (including giving notice not to extend the term of
this Agreement), the Company's
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sole obligation to the Executive shall be to pay the Executive the following
amounts earned hereunder but not paid as of the Termination Date: (i) Base
Salary, (ii) reimbursement for out-of-pocket expenses incurred in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company through the Termination Date, (iii)
any earned compensation which the Executive had previously deferred (including
any interest earned or credited thereon), (iv) unpaid Net Profit Participation
for fiscal years prior to the year of termination, and (v) accrued vacation pay
for the fiscal year of termination without regard to any carryover vacation
time from prior fiscal years (collectively, "Accrued Compensation"). The vested
portion of the Stock Option shall remain exercisable for a period of 90 days
from the Termination Date, and will be extinguished thereafter if not exercised
within such period, and the unvested portion of the Stock Option shall be
canceled.
(b) If the Executive's employment is terminated by the
Company other than for Cause, by reason of the Company's written notice to the
Executive of its decision not to extend the term of this Agreement or by the
Executive for Good Reason, the Company's sole obligation hereunder shall be as
follows:
the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive
the Base Salary for the longer of the remainder of the Initial Term or a period
of one (1) year from the Termination Date (subject to offset pursuant to
Section 8(e) below);
(iii) the Company shall pay the Executive an amount
equal to the pro-rated Net Profit Participation as calculated pursuant to
Section 3(a) of this Agreement based on the Company's performance and the
number of days elapsed in the fiscal year in which the termination occurs
through the date of termination; and
(iv) the Stock Option will immediately vest and be
exerciseable with respect to the shares subject thereto scheduled to vest
through the next two succeeding scheduled vesting dates, and the option shall
remain exercisable for 90 days after termination. The unvested portion of the
Stock Option shall be canceled.
(c) If the Executive's employment is terminated by the
Company by reason of the Executive's death or Disability, the Company's sole
obligation shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall pay the Executive the Base
Salary for a period of one (1) year from Termination Date;
(iii) the Company shall pay the Executive an amount
equal to the pro-rated Net Profit Participation as calculated pursuant to
Section 3(a) of this Agreement
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based on the Company's performance and the number of days elapsed in the fiscal
year in which the termination occurs through the date of termination; and
(iv) the Stock Option will immediately vest with
respect to the shares subject thereto scheduled to vest through the next
succeeding scheduled vesting date and the option shall remain exercisable for
one (1) year following the Termination Date. The unvested portion of the Stock
Option shall be canceled.
(d) During the period the Executive is receiving salary
continuation pursuant to Section 8 (b)(ii) or 8(c)(ii) hereof, the Company
shall, at its expense, provide to the Executive and the Executive's
beneficiaries medical and dental benefits substantially similar in the
aggregate to those provided to the Executive immediately prior to the date of
the Executive's termination of employment; provided, however, that the
Company's obligation with respect to the foregoing benefits shall be reduced to
the extent that the Executive or the Executive's beneficiaries obtain any such
benefits pursuant to a subsequent employer's benefit plans.
(e) If the Company is obligated pursuant to Section 8(b)(ii)
to continue to pay the Base Salary for a period of more than one (1) year, such
obligation shall be reduced for periods after the expiration of the one (1)
year period following termination by an amount equal to all amounts received by
the Executive in connection with any other employment (including
self-employment) with respect to periods on and after the first anniversary of
the date of termination.
9. Employee Covenants.
(a) Unauthorized Disclosure. The Executive shall not, during
her employment by the Company and thereafter, make any Unauthorized Disclosure.
For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure
by the Executive without the prior written consent of the Board to any person,
other than an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of duties as an executive of the Company or as may be legally
required, of any information relating to the business or prospects of the
Company or any of its affiliates (including, but not limited to, any
confidential information with respect to any of the Company's or any of its
affiliates' customers, products, methods of distribution, strategies, business
and marketing plans and business policies and practices); provided, however,
that such term shall not include the use or disclosure by the Executive,
without consent, of any information known generally to the public (other than
as a result of disclosure by her in violation of this Section 9(a)).
(b) Non-Competition. During the Non-Competition Period, the
Executive shall not, directly or indirectly, without the prior written consent
of the Company, own, manage, operate, join, control, be employed by, consult
with or participate in the ownership, management, operation or control of, or
be connected with (as a stockholder, partner, or otherwise), any business,
individual, partner, firm, corporation, or other entity that is engaged,
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directly or indirectly, in the manufacturing of Women's Better Apparel;
provided, however, that the "beneficial ownership" by the Executive after
termination of employment with the Company, either individually or as a member
of a "group," as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than two percent (2%) of the voting stock of any
publicly held corporation shall not be a violation of Section 9 of this
Agreement.
The "Non-Competition Period" means the period the Executive is
employed by the Company plus one (1) year thereafter unless the termination is
by the Company without Cause or by the Executive for Good Reason.
(c) Non-Solicitation. During the No-Raid Period, the
Executive shall not, either directly or indirectly, alone or in conjunction
with another party, solicit away from the employ of the Company any person who
is an employee of the Company, its subsidiaries and/or affiliates.
The "No-Raid Period" means the period the Executive is employed by the
Company plus one (1) year thereafter.
(d) Remedies. The Executive agrees that any breach of the
terms of this Section 9 would result in irreparable injury and damage to the
Company and its affiliates for which the Company and its affiliates would have
no adequate remedy at law; the Executive therefore also agrees that in the
event of said breach or any threat of breach, the Company shall be entitled to
an immediate injunction and restraining order to prevent such breach and/or
threatened breach and/or continued breach by the Executive and/or any and all
persons and/or entities acting for and/or with the Executive, without having to
prove damages, and to all costs and expenses, including reasonable attorneys'
fees and costs, in addition to any other remedies to which the Company and its
affiliates may be entitled at law or in equity. The terms of this paragraph
shall not prevent the Company and its affiliates from pursuing any other
available remedies for any breach or threatened breach hereof, including, but
not limited to, the recovery of damages from the Executive. The Executive and
the Company further agree that the covenants in this Section 9 are reasonable
and that the Company would not have entered into this Agreement but for the
inclusion of such covenants herein. Should a court determine, however, that any
provision of the covenants is unreasonable, either in period of time,
geographical area, or otherwise, the parties hereto agree that the covenant
should be interpreted and enforced to the maximum extent which such court or
arbitrator deems reasonable.
The provisions of this Section 9 shall survive any termination of
this Agreement, and the existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 9; provided, however, that this
paragraph shall not, in and of itself, preclude the Executive from defending
herself against the enforceability of the covenants and agreements of this
Section 9.
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10. Limitation of Payments.
(a) Notwithstanding anything contained in this Agreement to
the contrary, to the extent that the payments and benefits provided under this
Agreement and benefits provided to, or for the benefit of, the Executive under
any other Company plan or agreement (such payments or benefits are collectively
referred to as the "Payments") would be subject to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Payments shall be reduced (but not below zero) if and
to the extent necessary so that no Payment to be made or benefit to be provided
to the Executive shall be subject to the Excise Tax (such reduced amount is
hereinafter referred to as the "Limited Payment Amount"). Unless the Executive
shall have given prior written notice specifying a different order to the
Company to effectuate the foregoing, the Company shall reduce or eliminate the
Payments, by first reducing or eliminating the portion of the Payments which
are not payable in cash and then by reducing or eliminating cash payments, in
each case in reverse order beginning with payments or benefits which are to be
paid the farthest in time from the Determination (as hereinafter defined). Any
notice given by the Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
(b) The determination of whether the Payments shall be
reduced to the Limited Payment Amount pursuant to this Agreement and the amount
of such Limited Payment Amount shall be made, at the Company's expense, by an
accounting firm selected by the Company which is one of the six largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation, to the Company and the
Executive within ten (10) days of the date of termination of the Executive, if
applicable, or such other time as requested by the Company or by the Executive
(provided the Executive reasonably believes that any of the Payments may be
subject to the Excise Tax).
11. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors and assigns and the Company shall
require any successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. The
term "the Company" as used herein shall include any such successors and assigns
to the Company's business and/or assets. The term "successors and assigns" as
used herein shall mean a corporation or other entity acquiring or otherwise
succeeding to, directly or indirectly, 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 Executive, the Executive's
beneficiaries or legal representatives,
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except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal personal
representative.
12. Arbitration. Except with respect to the remedies set forth in
Section 9(d) hereof, if in the event of any controversy or claim between the
Company or any of its affiliates and the Executive arising out of or relating
to this Agreement, either party delivers to the other party a written demand
for arbitration of a controversy or claim then such claim or controversy shall
be submitted to binding arbitration. The binding arbitration shall be
administered by the American Arbitration Association under its Commercial
Arbitration Rules. The arbitration shall take place in New York, New York. Each
of the Company and the Executive shall appoint one person to act as an
arbitrator, and a third arbitrator shall be chosen by the first two arbitrators
(such three arbitrators, the "Panel"). The Panel shall have no authority to
award punitive damages against the Company or the Executive. The Panel shall
have no authority to add to, alter, amend or refuse to enforce any portion of
the disputed agreements. The Company and the Executive each waive any right to
a jury trial or to petition for stay in any action or proceeding of any kind
arising out of or relating to this Agreement. In connection with an award or a
judgment by an arbitrator, judge or similar person with respect to any disputed
issue arising under this Agreement, the prevailing party on such issue shall
receive reasonable attorneys' fees from the other party reasonably attributable
to such issue.
13. Fees and Expenses. The Company shall pay the legal fees reasonably
incurred by the Executive in connection with the negotiation and execution of
this Agreement, payable upon submission of the billing statement or paid
receipt for such services rendered by the Executive's counsel.
14. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or three (3) days after mailing if sent by registered
or certified mail, return receipt requested, postage prepaid, or upon receipt
if overnight delivery service or facsimile is used, addressed as follows:
To the Executive: Ms. Lynn Buechner
200 East 64th Street
New York, New York 10021
With a Copy to: Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: John J. Butler, Esq.
Facsimile Number: (212) 682-0200
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To the Company: Bernard Chaus, Inc.
1410 Broadway
New York, New York 10018
Attention: Chairperson of the Board
Facsimile Number: (212) 921-4619
With a Copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Howard B. Adler, Esq.
Facsimile Number: (212) 859-4000
15. Settlement of Claims. Except as set forth in Section 8(e) above,
the Company's obligation to make the payments provided for in this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive or others.
16. 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 Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, 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 representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
17. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of law principles thereof.
18. Severability. The provisions 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.
19. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, if any, understandings and arrangements, oral
or written, between the parties hereto with respect to the subject matter
hereof.
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20. Representations. The Executive represents and warrants to the
Company that no agreement, other commitment or law limits in any way the
Executive's ability to negotiate, enter into or fully perform her obligations
under this Agreement. The Executive shall indemnify and hold harmless the
Company and its affiliates from any breach of such representation and warranty.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
BERNARD CHAUS, INC.
By: /s/ Josephine Chaus
-----------------------------------
Name: Josephine Chaus
Title: Chief Executive Officer
Date: October 28, 1997
/s/ Lynn Buechner
-----------------------------------
Lynn Buechner
Date: October 23, 1997
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
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