<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended DECEMBER 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________________ to __________________.
Commission file number 1-9169
--------
BERNARD CHAUS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 13-2807386
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
1410 Broadway, New York, New York 10018
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 354-1280
------------------
---------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Date Class Shares Outstanding
----------- -------------- -------------------------
02/02/00 Common Stock, $0.01 par value 27,215,907
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited) PAGE
Condensed Consolidated Balance Sheets as of
December 31, 1999, June 30, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Operations for
the Quarters and Six Months ended December 31, 1999
and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended December 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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>
December 31, June 30, December 31,
1999 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
(Unaudited) ( * ) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 4,607 $ 6,208 $ 778
Accounts receivable - net 29,855 26,756 20,144
Inventories 18,488 18,806 17,739
Prepaid expenses 853 684 428
--------------- --------------- ---------------
Total current assets 53,803 52,454 39,089
Fixed assets - net 1,625 760 898
Other assets 338 270 540
--------------- --------------- ---------------
Total assets $ 55,766 $ 53,484 $ 40,527
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,973 17,499 12,259
Accrued expenses 4,952 4,625 3,224
Term loan - current 1,000 1,000 1,000
--------------- --------------- ---------------
Total current liabilities 20,925 23,124 16,483
Term loan 12,000 12,500 13,000
--------------- --------------- ---------------
Total liabilities 32,925 35,624 29,483
--------------- --------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
Authorized shares - 1,000,000; -- -- --
outstanding shares - none
Common stock, $.01 par value, 273 272 272
Authorized shares - 50,000,000;
issued shares - 27,278,177 at December 31,
1999 and 27,178,177 at June 30, 1999 and
December 31, 1998
Unearned compensation (214) -- --
Additional paid-in capital 125,472 125,224 125,224
Deficit (101,210) (106,156) (112,972)
Less: Treasury stock at cost -
62,270 shares at December 31, 1999, June
30, 1999 and December 31, 1998 (1,480) (1,480) (1,480)
--------------- --------------- ---------------
Total stockholders' equity 22,841 17,860 11,044
--------------- --------------- ---------------
Total liabilities and stockholders' equity $ 55,766 $ 53,484 $ 40,527
=============== =============== ===============
</TABLE>
*Derived from audited financial statements at June 30, 1999
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 43,482 $ 44,670 $ 96,694 $ 94,342
Cost of goods sold 34,376 34,967 73,325 70,847
----------- ----------- ----------- ----------
Gross profit 9,106 9,703 23,369 23,495
Selling, general and administrative expenses 7,883 8,404 17,178 18,105
----------- ----------- ----------- ----------
Income from operations 1,223 1,299 6,191 5,390
Interest expense, net 579 659 1,144 1,277
----------- ----------- ----------- ----------
Income before provision for income taxes 644 640 5,047 4,113
Provision for income taxes 13 14 101 84
----------- ----------- ----------- ----------
Net income $ 631 $ 626 $ 4,946 $ 4,029
=========== =========== =========== ==========
Basic earnings per share $ 0.02 $ 0.02 $ 0.18 $ 0.15
=========== =========== =========== ==========
Diluted earnings per share $ 0.02 $ 0.02 $ 0.18 $ 0.15
=========== =========== =========== ==========
Weighted average number of common shares
outstanding- basic 27,150,000 27,116,000 27,133,000 27,116,000
=========== =========== =========== ==========
Weighted average number of common and
common equivalent shares outstanding-
diluted 27,251,000 27,118,000 27,295,000 27,118,000
=========== =========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
December 31, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,946 $ 4,029
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 196 746
Provision for losses on accounts receivable 126 20
Non-cash compensation expense 36 --
Non-cash interest expense 14 16
Changes in operating assets and liabilities:
Accounts receivable (3,225) (2,875)
Inventories 318 (253)
Prepaid expenses and other assets (258) (156)
Accounts payable (2,526) (746)
Accrued expenses 327 (1,268)
--------------- ---------------
Net Cash Used In Operating Activities (46) (487)
--------------- ---------------
INVESTING ACTIVITIES
Purchases of fixed assets (1,055) (174)
Purchases of other assets -- (100)
--------------- ---------------
Net Cash Used In Investing Activities (1,055) (274)
--------------- ---------------
FINANCING ACTIVITIES
Principal payments on term loan (500) (500)
--------------- ---------------
Net Cash Used in Financing Activities (500) (500)
--------------- ---------------
Decrease in cash and cash equivalents (1,601) (1,261)
Cash and cash equivalents, beginning of period 6,208 2,039
--------------- ---------------
Cash and cash equivalents, end of period $ 4,607 $ 778
=============== ===============
Cash Paid for:
Taxes $ 155 $ 312
=============== ===============
Interest $ 1,100 $ 1,180
=============== ===============
Supplemental schedule of non-cash financing activities:
Issuance of restricted stock $ 250 $ --
=============== ===============
</TABLE>
5
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six Months Ended December 31, 1999 and December 31, 1998
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. All significant
intercompany balances and transactions were eliminated. Operating results for
the quarter and six months ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending June 30, 2000
or any other period. The balance sheet at June 30, 1999 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, 1999.
Earnings Per Share: Basic earnings per share have been computed by dividing
the applicable net income by the weighted average number of common shares
outstanding. Diluted earnings per share has been computed by dividing the
applicable net income by the weighted average number of common shares
outstanding and common stock equivalents.
New Accounting Pronouncements: In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards requiring that derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at fair value. The statement requires that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement and requires that a company formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. In June 1999,
the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000. The Company is currently
evaluating the effect of this statement on its accounting and reporting.
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 $12.5 million at December 31, 1999,
$10.6 million at June 30, 1999 and $8.1 million at December 31, 1998.
6
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
3. Financing Agreement
The Company and BNY Financial Corporation ("BNYF"), a wholly owned
subsidiary of General Motors Acceptance Corp. ("GMAC"), entered into a financing
agreement in July 1991, which was amended and restated on several occasions.
On October 10, 1997, the Company and BNYF entered into a new revolving
credit facility (the "Revolving Facility") and a new term loan facility (the
"Term Loan" and, together with the Revolving Facility, the "Financing
Agreement"). The Financing Agreement consisted of two facilities: (i) the
Revolving Facility which was a $66.0 million five-year revolving credit line
with a $20.0 million sublimit for letters of credit, and (ii) the Term Loan
which was a $15.0 million term loan facility. On June 3, 1998, the Company and
BNYF amended the Revolving Facility to provide for a $45.5 million five-year
revolving credit line with a $34.0 million sublimit for letters of credit and
amended the Term Loan to provide for a $14.5 million term loan facility. Each
facility matures on December 31, 2002. At December 31, 1999, the Company had
availability of approximately $13.7 million (inclusive of overadvance
availability) under the Financing Agreement.
Interest on the Revolving Facility accrues at 1/2 of 1% above the Prime
Rate (8.5% at December 31, 1999) and is payable on a monthly basis, in arrears.
Interest on the 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
Revolving Facility.
Amortization payments in the amount of $250,000 are payable quarterly in
arrears in connection with the Term Loan. Six amortization payments have been
made resulting in a balance of $13.0 million at December 31, 1999. 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 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 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.
The Financing Agreement contains financial covenants requiring, among other
things, the maintenance of minimum levels of tangible net worth, working capital
and minimum permitted profit (maximum permitted loss). The Financing Agreement
also contains certain restrictive covenants which, among other things, limit the
Company's ability to incur additional indebtedness or liens and to pay
dividends.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended December 31, 1999 decreased 2.7% or $1.2
million as compared to the quarter ended December 31, 1998. The decrease was
primarily due to a decrease of $1.4 million associated with the Company's
Nautica licensed product line which was terminated in October of 1998, partially
offset by an increase of $0.2 million in sales of the Company's Chaus product
lines. The increase in sales in the Chaus product lines was due to an 11.9%
increase in units shipped, offset by a decrease of 10.1% in average selling
prices. Average selling prices of the Chaus product line decreased for the
quarter ended December 31, 1999 as compared to the same period last year as a
result of the highly promotional environment this holiday season.
Net sales for the six months ended December 31, 1999 increased by 2.5% or
$2.4 million as compared to the six months ended December 31, 1998. The increase
was due primarily to an increase in sales of the Company's Chaus product lines
of $6.6 million, partially offset by a decrease of $4.2 million in sales
associated with the Company's Nautica product line which was terminated in
October 1998. The increase in sales of $6.6 million or 7.3% in Chaus product
lines was due to an 18.3% increase in units shipped, partially offset by a
decrease of 9.4% in average selling prices. Average selling prices of the Chaus
product line decreased for the six months ended December 31, 1999 as compared
to the same period last year as a result of the highly promotional environment
this holiday season.
Gross profit for the quarter ended December 31, 1999 decreased $0.6 million
as compared to the quarter ended December 31, 1998. As a percentage of net
sales, gross profit decreased to 20.9% for the quarter ended December 31, 1999
from 21.7% for the quarter ended December 31, 1998. Gross profit for the six
months ended December 31, 1999 decreased $0.1 million as compared to the six
months ended December 31, 1998. As a percentage of net sales, gross profit
decreased to 24.2% for the six months ended December 31, 1999 from 24.9% for the
six months ended December 31, 1998. The decrease in gross profit for the quarter
and six months is primarily the result of increased customer discounts.
SG&A expenses decreased by $0.5 million for the quarter ended December 31,
1999 as compared with the quarter ended December 31, 1998. The decrease resulted
from the elimination of $0.8 million of expenses attributable to the Nautica
licensed product line which was terminated during the second quarter of fiscal
1999, partially offset by an increase of $0.3 million in operating expenses of
the Company's Chaus product lines.
SG&A expenses decreased by $0.9 million for the six months ended December
31, 1999 as compared with the six months ended December 31, 1998. The decrease
resulted from the elimination of $2.5 million of expenses attributable to the
Nautica licensed product line which was terminated during the second quarter of
fiscal 1999, partially offset by an increase of $1.6 million in SG&A expenses
attributable to the increased sales of the Company's Chaus product lines and
expenses related to the new marketing and advertising programs.
SG&A expenses as a percentage of net sales decreased to 18.1% for the
quarter and 17.8% for the six months this year from 18.8% and 19.2%,
respectively, for the comparable periods last year, indicating the Company's
ability to leverage its SG&A expenses.
8
<PAGE>
In connection with the termination of the Company's former Chief Executive,
Andrew Grossman, the Company became obligated to pay up to $1.66 million over a
period of 20 months in consideration of Mr. Grossman's agreement not to compete
for twelve months. Such amounts are charged to expense ratably over the
twelve-month non-competition period. In addition, the Company became obligated
to make bonus payments in an amount equal to 2.5% of net profits for fiscal
years 1999 and 2000, and the pro-rated portion of the fiscal year 2001 (i.e. 1/6
of such year). Such bonus payments are being expensed over the respective fiscal
years. The Company continued such payments until April 1999 when Mr. Grossman
commenced employment with another company. The company is currently involved in
an arbitration proceeding with Mr. Grossman in connection with a dispute as to
the amount, if any, of the remaining payments due to Mr. Grossman. The Company
is seeking a determination in such proceedings that Mr. Grossman is not entitled
to any further payments by reason of his having taken a position with another
women's apparel company and that, even if payments are due, they are subject to
offset by an amount equal to his post-severance salary and bonus.
Interest expense for the six months ended December 31, 1999 decreased by $0.1
million from the comparable period last year due to decreases in bank borrowings
and lower interest rates.
Net income for the six months ended December 31, 1999 increased to $4.9 million,
up 22.8% over last year's comparable period. Net income for the quarter and six
months ended December 31, 1998 includes a net loss of $1.9 million and $2.9
million, respectively, or a loss of $0.07 and $0.11, respectively, per diluted
share, associated with the licensed Nautica business which was discontinued in
the second quarter of fiscal 1999.
Financial Position, Liquidity and Capital Resources
General
Net cash used in operating activities was approximately $0.1 million for
the six months ended December 31, 1999 as compared to $0.5 million for the six
months ended December 31, 1998. Cash used in operating activities in the six
months ended in December 31, 1999, resulted primarily from an increase in
accounts receivable ($3.2 million) and a decrease in accounts payable ($2.5
million), offset by net income of $4.9 million. Cash used in investing
activities in the six months ended December 31, 1999 was for capital expenditure
of $1.1 million compared to $0.2 million in the previous year.
Financing Agreement
The Company and BNY Financial Corporation ("BNYF"), a wholly owned
subsidiary of General Motors Acceptance Corp. ("GMAC"), entered into a financing
agreement in July 1991, which was amended and restated on several occasions.
On October 10, 1997, the Company and BNYF entered into a new revolving
credit facility (the "Revolving Facility") and a new term loan facility (the
"Term Loan" and, together with the Revolving Facility, the "Financing
Agreement"). The Financing Agreement consisted of two facilities: (i) the
Revolving Facility which was a $66.0 million five-year revolving credit line
with a $20.0 million sublimit for letters of credit, and (ii) the Term Loan
which was a $15.0 million term loan facility. On June 3, 1998, the Company and
BNYF amended the Revolving Facility to provide for a $45.5 million five-year
revolving credit line with a $34.0 million sublimit for letters of credit and
amended the Term Loan to provide for a $14.5 million term loan facility. Each
facility matures on December 31, 2002. At December 31, 1999, the Company had
availability of approximately $13.7 million (inclusive of overadvance
availability) under the Financing Agreement.
9
<PAGE>
Interest on the Revolving Facility accrues at 1/2 of 1% above the Prime
Rate (8.5% at December 31, 1999) and is payable on a monthly basis, in arrears.
Interest on the 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
Revolving Facility.
Amortization payments in the amount of $250,000 are payable quarterly in
arrears in connection with the Term Loan. Six amortization payments have been
made resulting in a balance of $13.0 million at December 31, 1999. 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 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 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.
The Financing Agreement contains financial covenants requiring, among other
things, the maintenance of minimum levels of tangible net worth, working capital
and minimum permitted profit (maximum permitted loss). The Financing Agreement
also contains certain restrictive covenants which, among other things, limit the
Company's ability to incur additional indebtedness or liens and to pay
dividends.
License Agreement with Nautica
In September 1995, the Company entered into a license agreement (the
"Nautica License Agreement") with Nautica Apparel, Inc. ("Nautica"), a leading
name in men's apparel, pursuant to which the Company obtained an exclusive
license to design, contract for the manufacture of and market a new women's
apparel line under the Nautica brand name. Effective October 1998, the Company
and Nautica agreed to terminate the Nautica License Agreement.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. In June 1999, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company is currently evaluating the effect of this statement on
its accounting and reporting.
Year 2000 Compliance
Pursuant to the Company's Year 2000 Plan, the Company's information
technology ("IT") and non-IT systems have been upgraded and tested for Year 2000
compliance. As of February 1, 2000, there have been no business interruptions
related to the Year 2000 issue. The Company will continue to monitor its
systems. In some cases, the Company's computer systems are linked to its major
customers and it has virtually no computer interfaces with its vendors. Although
the Company has not experienced any Year 2000 related issues with its customers
and vendors, the Company will continue to monitor these relationships and
develop contingency plans, if needed, should any issues be identified.
10
<PAGE>
Future Financing Requirements
At December 31, 1999, the Company had working capital of $32.9 million. The
Company's business plan requires the availability of sufficient cash flow and
borrowing capacity to finance its product lines. The Company expects to satisfy
such requirements through cash flow from operations and borrowings under the
Financing Agreement. The Company believes that it has adequate resources to meet
its needs for the foreseeable future.
The foregoing discussion contains forward-looking statements which are
based upon current expectations and involve a number of uncertainties, including
the Company's ability to maintain its borrowing capabilities under the Financing
Agreement or an alternative facility, retail market conditions and consumer
acceptance of the Company's products.
11
<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:
10.82 Employment Agreement dated November 5, 1999 between the Company
and Ivy Karkut.
27 Financial Data Schedules
(b) The Company filed no reports on Form 8-K during the quarter ended
December 31, 1999.
12
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERNARD CHAUS, INC.
(Registrant)
Date: February 11, 2000 By: /s/ Josephine Chaus
-----------------------------
JOSEPHINE CHAUS
Chairwoman of the Board,
Chief Executive Officer
Date: February 11, 2000 By: /s/ Barton Heminover
-----------------------------
BARTON HEMINOVER
Vice President - Finance
13
<PAGE>
BERNARD CHAUS, INC.
1410 Broadway
New York, New York 10018
November 5, 1999
Ms. Ivy Karkut
137 East 36th Street
Apt. 7G
New York, NY 10016
Dear Ms. Karkut:
We are pleased to offer you employment with Bernard Chaus, Inc. (the
"Company") commencing November 29, 1999 (the "Commencement Date"; if employment
commences on a day other than November 29, 1999, the Commencement Date shall be
the actual date of commencement), on the terms set forth below:
POSITION: President (reporting to Chief Executive Officer and Board of
Directors). You shall devote all of your business time and
attention to the business and affairs of the Company
consistent with your position with the Company.
TERM: November 29, 1999 through November 29, 2002
SALARY: $800,000 per year from the Commencement Date through June
30, 2000; $900,000 per year from July 1, 2000 to June 30,
2001; $1,000,000 per year from July 1, 2001 to November
29, 2002.
CASH SIGN-ON $250,000 payable in cash within thirty (30) days of the
BONUS: Commencement Date.
RESTRICTED STOCK: Common stock of the Company ("Common Stock") valued
at $250,000 (valued based on the closing price of the
Common Stock on the Commencement Date (the "Commencement
Date Price")), subject to forfeiture if you cease to be
employed by the Company (except by reason of a termination
by the Company without cause) on or prior to July 1, 2000.
Such forfeiture restrictions shall be lifted on July 1,
2000.
ANNUAL BONUS: For each fiscal year of the Company during the term, if
profit goals established by the Board of Directors for such
year are achieved, 2 1/2 % of net income of Company as
determined in accordance with Company's audited financial
statements. Your minimum bonus for fiscal year ending June
30, 2000 shall be $250,000. Each annual bonus shall be
payable within thirty (30) days of completion of the audit
if you were employed at the end of the applicable fiscal
year.
<PAGE>
Ms. Ivy Karkut
November 5, 1999
Page 2
BOARD MEMBERSHIP: You will be nominated to serve as a member of the Board of
Directors during each year of the term of this Agreement.
You will be deemed to have resigned if your employment is
terminated for any reason.
TRAVEL: You will be expected to travel to key accounts of the
Company throughout the United States. You may travel first
class at your discretion.
AUTOMOBILE
ALLOWANCE: $2,000 per month.
BENEFITS: Participant in the Company's 401(k) plan. Health insurance,
including family coverage (with a deductible not to exceed
$1,000 per plan year). Dental coverage up to $5,000 per plan
year (self-insured; no deductible). Eye care up to $2,500
per plan year (self-insured; no deductible). Term life
insurance equal to two (2) times base salary, subject to
your being in good health and not rated an insurance risk
based upon any past medical history at the time the
insurance is obtained. Long-term disability coverage equal
to 60% of salary, up to a maximum of $10,000 a month.
Coverage under the Company's directors and officers
liability insurance policy and other policies available to
executive officers of the Company generally, including the
Executive Medical Plan which covers your deductibles,
premiums, co-payments and most other amounts not covered
under the basic health insurance plan with current plan
limits up to $10,000 per occurrence and $100,000 annually,
per person.
VACATION: Four weeks paid vacation, not to be taken more than two
weeks at a time and not to be carried over from year to year
OPTIONS: Options for 675,000 shares (approximately 2 1/2% of the
outstanding shares) of Common Stock at an exercise price
equal to the Commencement Date Price; options to vest in
equal annual increments of 25% a year over four years. The
option grant (to the extent an amendment of the Company's
Stock Option Plan is required to increase the number of
shares available for grant thereunder) shall be subject to
shareholder approval. In the event your employment is
terminated without cause, any options which would have
vested at the anniversary of the Commencement Date next
following the date of termination shall vest immediately,
any unvested options shall be forfeited and you shall have
thirty (30) days from the termination date to exercise
vested options. In the event of termination for any other
reason, other than a change in control, all unvested options
shall be forfeited and you shall have thirty
<PAGE>
Ms. Ivy Karkut
November 5, 1999
Page 3
(30) days from the termination date to exercise vested
options. All options shall vest immediately upon a change in
control. Your options shall otherwise be subject to the
terms of the Company's Stock Option Plan.
TERMINATION
BENEFITS: In the event your employment is terminated by the Company
without cause, other than due to your death or disability
and other than following a change in control, you shall be
paid, in full satisfaction of your rights against the
Company for termination of your employment, non-competition
payments equal to two years' base salary, payable in
twenty-four monthly installments, if such termination occurs
in the first twelve months of the term, and twelve months'
base salary, payable in twelve monthly installments, if such
termination occurs during the remainder of the term. As
further non-competition payments, your automobile allowance
and medical insurance will also remain in effect during the
period of monthly installments of non-competition payments
that are made to you. The foregoing payments shall terminate
immediately upon your acceptance of a position as employee
(including self-employment) or consultant with another
entity, and you agree to provide immediate notice to the
Company of your acceptance of any such position. In the
event your employment is terminated due to cause, your death
or a disability which prevents you from performing your
duties for three consecutive months or 180 days within any
two year period, you shall be paid only through the date of
termination.
CAUSE Conviction of or plea of guilty or nolo contendere to a
felony; gross negligence or willful misconduct in performing
your duties resulting in material harm to the Company or
material diminution in the value of the Common Stock;
failure to comply with this Agreement in any material
respect or failure to carry out responsibilities assigned by
management or the Board of Directors after, in either case,
notice of such failure and a 30 day cure period; commission
of fraud, theft against or embezzlement from the Company.
CHANGE IN CONTROL: The Company shall be merged or consolidated with an
unaffiliated entity resulting in a change in a majority of
the Board of Directors or the Company shall have sold
substantially all of its assets to an unaffiliated entity;
the acquisition by any person or group of beneficial
ownership (as such terms are defined under Regulation 13D of
the rules and regulations adopted under the Securities
Exchange Act of 1934, as amended) of more than 50% of the
Company's then outstanding common stock resulting in a
change in a majority of the Board of Directors.
<PAGE>
Ms. Ivy Karkut
November 5, 1999
Page 4
CHANGE IN CONTROL
BENEFIT: All options accelerated upon a change in control and, in the
event your employment is terminated without cause (other
than due to death or disability) by the Company during the
term of this Agreement following a change in control, you
shall also be entitled, in lieu of the termination benefits
set forth above, to a lump sum payment equal to two year's
base salary.
NON-COMPETITION: You agree not to compete with the business of the Company
directly or indirectly, whether as principal, manager,
agent, employee, consultant, investor, advisor or
representative, during the term of your employment and for a
period equal to the period of payment of termination or
change in control benefits; if your employment is terminated
for cause, the non-competition period shall be two years
from such termination. The foregoing will not prohibit a
passive investment by you in a public company not exceeding
2% of any class of equity securities of such company.
NON-SOLICITATION
PERIOD: You agree that, for one year after the termination of your
employment, you will not solicit or hire any persons who
were employed or acting as a consultant to the Company
during the one year period prior to the termination of
your employment.
CONFIDENTIALITY: You agree that you will, during and after the end of the
term of your employment, keep confidential all non-public
information concerning the Company or its business, except
in the business of and for the benefit of the Company, and
you will not, directly or indirectly, use for your own
account any of such information.
REMEDIES: As you can understand, since we have to be protected, the
Company will be entitled, in addition to other remedies,
to obtain an injunction against any potential or actual
violations of your non-competition, non-solicitation or
confidentiality agreements.
WITHHOLDING TAXES: All compensation hereunder shall be subject to applicable
withholding taxes.
GOVERNING LAW: New York
REPRESENTATION: You represent that your execution of this letter and your
performance of your obligations hereunder will not violate
the terms of any agreement,
<PAGE>
Ms. Ivy Karkut
November 5, 1999
Page 5
arrangement, or understanding, order or decree to which you
are a party or by which you are bound.
Please indicate your acceptance of the terms of this offer letter by your
signature below. Once signed by both parties, this offer letter shall be binding
on both parties. We look forward to your joining the Company.
Sincerely,
Bernard Chaus, Inc.
By: _________________________
Josephine Chaus
Chief Executive Officer
Accepted and Agreed to
as of the date set forth above:
_______________________
Ivy Karkut
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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