Exhibit 10.2
 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THIS NOTE AND THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PROVIDED HEREIN.
 
SENIOR UNSECURED PROMISSORY NOTE
 
US$2,000,000.00
January 20, 2012
   

FOR VALUE RECEIVED, Bernard Chaus, Inc. , a New York corporation (“Chaus”), S.L.
Danielle Acquisition, LLC, a New York limited liability company (“SLDA”), and
Cynthia Steffe Acquisition, LLC, a New York limited liability company
(collectively with Chaus and SLDA, the “Companies”), hereby promise, jointly and
severally, to pay to the order of China Ting Fashion Group (USA), LLC, a New
York limited liability company (the “Holder”), the principal sum of Two Million
Dollars (US$2,000,000.00) together with compound interest on the outstanding
principal balance hereunder accrued from the date hereof at the rate and in
accordance with the terms and conditions set forth in Section 1 below.  All
payments hereunder shall be paid as set forth below, and each such payment shall
be made in lawful money of the United States of America payable to the order of
the Holder.  The principal amount hereof and all accrued but unpaid interest
thereon shall be paid in full to the order of the Holder on September 1, 2013
(the “Maturity Date”).
 
This Note, and that certain promissory note in the principal amount of
$10,000,000.00 made by the Companies in favor of the Holder as of the date
hereof (the “First Note”), are made pursuant to that certain Debt Restructuring
Agreement (the “Debt Restructuring Agreement”), dated as of the date hereof, by
and among the Companies and the Holder, to convert the Trade Debt (as defined
therein) on account of purchase of goods owing by the Companies to the Holder
into this Note and the Second Note.
 
The following is a statement of the rights of the Holder of this Note and the
terms and conditions to which this Note is subject, and to which the Holder, by
acceptance of this Note, agrees:
 
1.           Interest Computation and Payment.  Interest (the “Interest”) shall
accrue on the unpaid principal amount of this Note from the date hereof until
such principal amount is repaid in full at the rate of five and one quarter
percent (5.25%) per annum (each twelve (12) month period of this Note,
commencing January 31, 2012 shall be called herein a “Note Year”).  Interest
shall compound quarterly and shall be due or payable in accordance with the
payment schedule set forth in Section 1 below. All computations of the interest
rate hereunder shall be made on the basis of a 360-day year of twelve 30-day
months.  Accrued and unpaid (compounded) interest during each of the first two
(2) Note Years shall be paid semi-annually on each March 1 and September 1,
commencing March 1, 2012 and ending September 1, 2013.
 
2.           Principal Repayment.
 
The outstanding principal amount of this Note shall be due and payable in
accordance with the following schedule.
 
 

 
 

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(i)
Principal installments of $250,000.00 shall be due and payable on April 1, 2013
and July 1, 2013;

 
 
(ii)
The unpaid balance of the principal of this Note (in the amount of
$1,500,000.00), together with all accrued and unpaid interest, shall be paid in
full on the Maturity Date.

 
3.           Other Indebtedness.  Holder and Companies acknowledge and agree
that  simultaneously with this Note, the Companies have executed and delivered
to Holder the First Note, which shall rank pari passu with this Note. Holder and
Companies further acknowledge and agree that  the Companies have previously
incurred indebtedness  and obligations pursuant to that certain Second Amended
and Restated Factoring and Financing Agreement dated March 29, 2010 (the “CIT
Agreement”) entered into by and between the Companies and the CIT
Group/Commercial Services, Inc. (the “CIT Group” and, together with any
Successor Factor, “CIT”; for purposes hereof, a “Successor Factor” is any single
factor (or single syndicate of factors) or other single lender (or single
syndicate of lenders) that succeeds or refinances CIT Group and that provides
substantially similar financing to the Companies as CIT Group on terms that are
substantially similar to (or better to the Companies than) (i) the terms of the
CIT Agreement, or (ii) the terms offered by CIT Group upon the expiration of the
CIT Agreement or (iii) the overall economic terms that are then prevailing in
the market for similarly situated companies of size and nature comparable to the
Companies) (such indebtedness under the CIT Agreement, or under the financing
agreement with any Successor Factor, shall be referred to herein as the “CIT
Loan”).
 
4.           [INTENTIONALLY OMITTED].
 
5.           Affirmative Covenants of the Companies.  Each of the Companies
hereby agrees that, so long as this Note remains outstanding and unpaid, or any
other amount is owing to the Holder hereunder, the Companies will:
 
(a)           Corporate Existence and Qualification.  Take the necessary steps
to preserve its corporate existence and its right to conduct business in all
states in which the nature of its business requires qualification to do
business;
 
(b)           Books of Account and Record; Discussions.  (i) Keep proper books
of records and account in which full, true and correct entries in conformity
with generally accepted accounting principles of the United States, consistently
applied (“US GAAP”) and all requirements of law shall be made of all material
dealings and transactions in relation to the business and activities and (ii)
permit representatives of the Holder to visit and inspect any of its properties
and examine and make copies and abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties, and financial and other condition of the
Companies and their Subsidiaries (as defined below) with officers of the
Companies and with its independent certified public accountants.
 

 
 

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(c)           Financial Statements and Business Information.  Furnish the Holder
with (i) as soon as available, but in any event within 45 days after the end of
each fiscal year of the Companies, a copy of the audited or unaudited
consolidated balance sheet of the Companies, consolidated statements of income
and of cash flows for such year in accordance with US GAAP, setting forth in
each case in comparative form the figures for the previous year, reported on
without a “going concern” or like qualification or exception, or qualification
arising out of the scope of the audit, by independent certified public
accountants of nationally recognized standing, (ii) a certificate of independent
certified public accountants reporting on such financial statements; and (iii)
such business and financial information of the Companies as the Holder may
reasonably request, including, without limitation (x) the accountant’s
management practice letter and (y) annual cash flow projections in form
satisfactory to the Holder.
 
(d)           [INTENTIONALLY OMITTED].
 
(e)           Maintenance of Property; Insurance.  Keep all property (including
equipment and inventory) useful and necessary to the business in good working
order and condition, ordinary wear and tear excepted, and maintain with
financially sound and reputable insurance companies insurance on all its
material property in reasonable amounts and against such insurable risks as are
at all times reasonably satisfactory to the Holder.
 
(f)           Notice.  Promptly (but in no event more than three (3) Business
Days) give written notice to the Holder (i) of the occurrence of any Event of
Default, (ii) that the Companies have been served or received actual written
notice of any litigation or proceeding commenced or threatened in writing
against any of the Companies in an amount exceeding $250,000; (iii) of an event
of Change-of-Control (as defined below), and (iv) that the Companies (acting
through their respective officers, directors and senior employees) have actual
knowledge of any other development or event that has had or could reasonably be
expected to have a Material Adverse Effect.  As used herein, the term “Material
Adverse Effect” shall mean, with respect to Companies, any effect that is, or
would be reasonably likely to be, material and adverse to the assets (including
intangible assets), liabilities, business, operations, prospects, financial
condition or results of operations of Companies and their Subsidiaries taken as
a whole, other than (A) any effect resulting from changes after the date hereof
relating to the economy in general, including market fluctuations and changes in
interest rates, or to the Companies’ industry in general which do not have a
disproportionate impact on the Companies and their Subsidiaries compared to
other industry participants, (B)  any effect resulting from changes after the
date hereof in laws, rules or regulations, or interpretations thereof by
governmental entities which, in the sole opinion of the Holder, do not have a
disproportionate impact on the Companies and their Subsidiaries compared to
other industry participants, (C) any effect resulting from the occurrence of a
natural disaster or from changes after the date hereof in global or national
political conditions, including the outbreak of war or acts of terrorism which,
in the sole opinion of the Holder, do not have a disproportionate impact on the
Companies and their Subsidiaries compared to other industry participants, or (D)
any effect resulting from the announcement or consummation of this Note or the
transactions contemplated hereby.
 
(g)           [INTENTIONALLY OMITTED].
 

 
 

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(h)           Further Assurance. Deliver any and all such further documents and
take any and all such other actions as may be reasonably necessary or
appropriate to carry out the intent and purposes of this Note and to consummate
the transactions contemplated herein.
 
6.           Negative Covenants of the Companies.  Each of the Companies hereby
agrees that, so long as this Note remains outstanding and unpaid, or any other
amount is owing to the Holder hereunder, the Companies shall not, and shall not
permit any of the Affiliates or Subsidiaries to, directly or indirectly:
 
(a)           Indebtedness.  Except for (1) Permitted Indebtedness, as defined
under the CIT Agreement (without giving effect to clauses (g) and (h) of such
definition, and including only any non-material changes made to such definition
after the date hereof); (2) Indebtedness to CIT; and (3) Junior Debt (as defined
below), incur or suffer to exist or guarantee any Indebtedness of the Companies.
The term “Indebtedness” shall mean (A) all indebtedness of the Companies for
borrowed money or for the deferred purchase price of property or services,
including any type of letters of credit (except for letters of credit issued in
accordance with the current terms of the CIT Agreement, including any
non-material changes made to such terms after the date hereof), but not
including obligations to trade creditors incurred in the ordinary course of
business having a payment due date of not longer than 90 days past the invoice
date, (B) all obligations of the Companies evidenced by notes, bonds, debentures
or other similar instruments, (C) purchase money indebtedness hereafter incurred
by the Companies to finance the purchase of fixed or capital assets, including
all capital lease obligations of the Companies in accordance with US GAAP, which
do not exceed the purchase price of the assets funded, except for purchase money
indebtedness and capital leases not exceeding $350,000 in the aggregate in any
fiscal year, (D) all guarantee obligations of the Companies in respect of
obligations of the kind referred to in clauses (A) through (C) above that the
Companies would not be permitted to incur or enter into, (E) all obligations of
the kind referred to in clauses (A) through (D) above that the Companies are not
permitted to incur or enter into that are secured and/or unsecured by (or for
which the holder of such obligation has an existing right, contingent or
otherwise, to be secured and/or unsecured by) any Lien on property (including
accounts and contract rights) owned by the Companies, whether or not the
Companies have assumed or become liable for the payment of such obligation, and
(F) Disqualified Stock (which means any capital stock which by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the incurrence of any event (i) matures or is mandatorily
redeemable for any reason, (ii) is convertible or exchangeable for Indebtedness
or capital stock that meets the requirements of clauses (i) and (ii), or (iii)
is redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Maturity Date.  The term “Junior Debt” shall mean
Indebtedness that specifically by its terms ranks junior (as to priority of
payment) to this Note and the First Note by providing, in each and any case,
that: (i) the principal of such Indebtedness will not be paid unless and until
the full and prior satisfaction in full of this Note and the First Note; and
(ii) the interest payable thereon only accrues (and is not payable in cash) or,
if such interest is payable periodically, pursuant to then prevailing interest
rates for similarly situated companies of size and nature comparable to the
Companies, the principal thereof does not, in the aggregate, exceed the Loan
Cap.  The term “Loan Cap” shall mean US$1,000,000 or such amount greater than
US$1,000,000 to which the Holder has given its consent in writing.
 

 
 

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(b)           Liens.  Subsequent to the date of this Note, create, incur, assume
or suffer to exist any Lien upon any of its property, whether now owned or
hereafter acquired, to secure any Indebtedness of the Companies, except (i)
Liens on assets of the Companies securing the CIT Loan, and (ii) Permitted
Encumbrances, as defined under the CIT Agreement (except that the term “Lender”
in clause (a) thereof is deemed to mean “Holder” hereunder) and including only
any non-material changes made to such definition after the date hereof,
including but not limited to Purchase Money Liens, as defined under the CIT
Agreement  and including only any non-material changes made to such definition
after the date hereof.  As used herein, the term “Lien” refers to any mortgage,
deed of trust, pledge, hypothecation, assignment, security interest, lien
(whether statutory or otherwise), charge, claim or encumbrance, or preference,
priority or other security agreement or preferential arrangement held or
asserted in respect of any asset of any kind or nature whatsoever including any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code (the “UCC”) or comparable law of any jurisdiction.
 
(c)           Amendments.  Amend its charter documents, including, without
limitation, its articles of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder.
 
(d)           Fundamental Changes.  Enter into an agreement with respect to, or
consummate, a Fundamental Transaction, unless an Event of Default is not then in
existence or would result from the consummation thereof, and the Companies, or
other successors or surviving entities resulting from such Fundamental
Transaction (A) continue to have or assume all liabilities and obligations of
the Companies under this Note, the First Note and the Debt Restructuring
Agreement, all on terms reasonably satisfactory to the Holder; (B) have a
Tangible Net Worth and Net Working Capital upon  the consummation of such
Fundamental Transaction  which are equal to or greater than the Tangible Net
Worth and Net Working Capital of such Company (or Companies, as the case may be)
immediately prior to the consummation of such Fundamental Transaction, all set
forth in financial statements certified by a nationally recognized firm of
auditors in the United States; (C) are not subject to any then existing material
contingent liabilities, claims, litigation or any pending governmental or
regulatory investigations; (D) continue to have or assume all liabilities and
obligations under that certain manufacturing exclusivity agreement by and
between the Company and the parent of the Holder dated as of July 24, 2009 (the
“Exclusivity Agreement”), all on terms reasonably satisfactory to the Holder;
(E) have given (i) to the Holder prompt prior notice of (which, if adequate time
exists, Companies shall use their best efforts to give not less than fifteen
(15) days prior to) the consummation thereof and (ii) all documents and
agreements requested by the Holder to confirm the assumption of all liabilities
and obligations of the Companies under this Note, the First Note, the Debt
Restructuring Agreement, and the Exclusivity Agreement; (F) the boards of
directors of the Companies have determined in good faith, that such Fundamental
Transaction, under the then current circumstances and taken as a whole, is in
the best interests of the Companies and is not materially disadvantageous to the
Holder; (G) have ensured that such Fundamental Transaction does not alter
materially the nature of the business of the Companies, which is defined for
these purposes as the design, production, importation, distribution and sale of
apparel, accessories and related business; and (H) continue to focus primarily
on the United States market.  The term
 

 
 

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“Fundamental Transaction” shall mean any of the following transactions: (i) any
Company , directly or indirectly, in one or more related transactions effects
any merger or consolidation of such Company with or into another Person, (ii)
any Company, directly or indirectly, effects any sale, lease, license,
assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct
or indirect, purchase offer, tender offer or exchange offer (whether by any
Company or another Person) is completed pursuant to which holders of the
Company’s common stock (“Common Stock”) are permitted to sell, tender or
exchange their shares for other securities, cash or property and has been
accepted by the holders of 33% or more of the outstanding Common Stock,
including a potential “going private” transaction as proposed by Camuto
Consulting, Inc., (iv) any Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property or (v) any Company, directly or indirectly, in one
or more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person (or
group of Persons) whereby such other Person or group acquires more than 33% of
the outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination).  The term “Net Working
Capital” means current assets (not including cash or cash equivalents) less
current liabilities, all determined in accordance with US GAAP.  The term
“Tangible Net Worth” means the value of the total assets of the Companies
(including leaseholds and leasehold improvements and reserves against assets,
but excluding goodwill, patents, trademarks, trade names, organization expense,
unamortized debt discount and expense, capitalized or deferred research and
development costs, deferred marketing expenses, and other like intangibles, and
monies due from affiliates, officers, directors, employees, shareholders,
members or managers) less the value of the total liabilities of the Companies,
including but not limited to accrued and deferred income taxes, but excluding
the non-current portion of all Indebtedness that is junior to the obligations of
the Companies under this Note and the First Note, all determined in accordance
with US GAAP.
 
(e)           Disposition of Property.  Sell, lease, pledge (except for Liens
permitted hereunder), or otherwise dispose of or encumber any material
properties or assets of any Company including, without limitation, any business
permits or intellectual property rights, except in the ordinary course of
business consistent with past practice, or in a transaction with any of the
other Companies or pursuant to a potential “going private” transaction as
proposed and participated in by Camuto Consulting, Inc. (“Camuto”) or an
Affiliate of Camuto.
 
(f)           Restricted Payments. (i) Make any loans or advances to any of the
executive officers, directors, or employees, consultants or Affiliates of the
Companies, except in the ordinary course of business consistent with prior
practice; or (ii) declare or pay any cash dividend on, or make any payment on
account of the purchase, redemption, defeasance, retirement or other acquisition
of any  Equity Securities of any of the Companies (as defined below); or (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for any value, any Indebtedness of the Companies
that is subordinated
 
 
 
 

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(in right of payment) to this Note and the First Note except a payment of
interest permitted under Section 6(a); whether now or hereafter outstanding, or
make any other distribution in respect thereof either directly or indirectly,
whether in cash or property or in obligations of any of the Companies in any
fiscal year  (all such payments and other actions set forth in these clauses (i)
through (iii) above being collectively referred to as “Restricted Payments”),
unless, at the time of and after giving effect to such Restricted Payment, (A)
no Event of Default has occurred and its continuing or would occur as a
consequence of such Restricted Payment; (B) such Restricted Payment is made no
more frequently than once in each period of four consecutive fiscal quarters;
(C) (a) prior to the Maturity Date, such Restricted Payment (together with any
Restricted Payments made under the First Note) does not exceed $500,000 in each
period of four consecutive fiscal quarters. The term of “Equity Securities”
shall mean shares of common stock, preferred stock, warrants, options,
convertible notes and any other interests or securities of the Companies, either
in their own right or issued in exchange for, upon conversion or in substitution
of, or otherwise in respect of such securities.
 
(g)           Investment. Make any advance, loan, extension of credit (by way of
guaranty or otherwise) or capital contribution to, or purchase any equity
interests, bonds, notes debentures or other debt securities of, or any assets
constituting a significant part of a business unit of, or make any other
investment in any Person or entity, except for (i) extensions of trade credit in
the ordinary course of business, (ii) a “Permitted Investment” defined under the
CIT Agreement at the date hereof and including only any non-material changes
made to such definition after the date hereof, and (iii) as consented to in
writing by Holder, which consent shall not be unreasonably withheld, delayed or
conditioned.
 
(h)           Transactions with Affiliates.  Enter into any transaction,
including any purchase, sale, lease or exchange property, the rendering of any
service or the payment of any management, advisory or similar fees, with any
Affiliates of the Companies, unless the terms of such transaction are comparable
to the terms of a similarly transaction effected at an arm’s length.  As used
herein the term “Affiliate” means, to as to any Person or any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.  For purposes of this definition, “control” of a
Person means the power, directly or indirectly, either to (x) vote 25% or more
of the securities having ordinary voting power for the election of directors (or
Persons performing similar functions) of such Person or (y) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
 
(i)           [INTENTIONALLY OMITTED].
 
(j)           [INTENTIONALLY OMITTED].
 
(k)           [INTENTIONALLY OMITTED].
 
(l)           Accounting.  Change any method of accounting or accounting
principles or practices by the Companies.
 

 
 

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7.           Events of Default.  The occurrence of any of the following events
shall constitute an event of default under this Note (each, an “Event of
Default”):
 
(a)           Non-Payment.  The Companies shall default in the payment of the
principal of, or accrued interest on, this Note as and when the same shall
become due and payable, whether by acceleration or otherwise; or
 
(b)           Default in Covenants.  The Companies shall default the observance
or performance of the affirmative or negative covenants or agreements set forth
in this Note or  the Debt Restructuring Agreement; or
 
(c)           [INTENTIONALLY OMITTED]; or
 
(d)           Judgment or Decrees.  One or more judgments or decrees shall be
entered against any of the Companies or its Affiliates involving in the
aggregate a liability (to the extent not paid or fully covered by insurance as
to which the relevant insurance company has not declined coverage) of
$1,000,000.00 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; or
 
(e)           Cross-Default.  The declaration by a creditor of any default or
event of default (after giving effect to any applicable grace or cure periods)
under any instrument or agreement evidencing any Indebtedness of any of the
Companies (but not including accounts payable of any of the Companies incurred
in the ordinary course of business and having terms of payment not greater than
90 days after the invoice date) having in any one instance a then current
principal amount in excess of $250,000.00, including the CIT Loan and the First
Note (to avoid any doubt, a declared material uncured default under the
Exclusivity Agreement will constitute a cross-default of this Note and the First
Note pursuant to this Section 7(e), but not including a default that arises
solely from the failure of Chaus to make payment thereunder within 45 days as
currently provided in Section 8 thereof; provided, that after the date
hereof,  the parties hereto will enter into good faith negotiations to reach a
mutual agreement with respect to the 45-day payment term, upon which mutual
agreement (including, among others, if so agreed, a potential mutual agreement
to retain the 45-day payment term), an uncured failure of Chaus to make the
payment within the period that is agreed upon will constitute a cross-default
under this Note and the First Note); or
 
(f)           Cessation of the Business.  Cessation of the Companies’ business
or the calling of a meeting of the creditors of any of the Companies for
purposes of compromising the debts and obligations of such Company; or
 
(g)           Failure to Meet Obligations.  The general, ongoing and material
failure of any of the Companies to meet its debt obligations as all such
indebtedness shall become due; or
 
(h)           Change-of-Control.  Ariel Chaus and Josephine Chaus, individually
or collectively and with their Affiliates and immediate family members
(including family trusts), shall cease to have the power, directly or
indirectly, to vote or direct the voting of their equity
 

 
 

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interests in Chaus in excess of 50% (determined on a fully diluted basis) of the
ordinary voting power of Chaus; or
 
(i)           Key Man Departure.  Thirty (30) days shall have elapsed after
Ariel Chaus shall cease to be employed by  the Companies for any reason; or
 
(j)           Bankruptcy Event. A bankruptcy event shall be deemed to have
occurred with respect to any of the Companies upon (i) the commencement by any
of the Companies (including their subsidiaries, meaning an entity in which more
than 50% of its  equity shall be held by any of the Companies, the
“Subsidiaries”) of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceedings under the United States Bankruptcy Code, 11
U.S.C. §101 et seq., or other similar law of the United States or of state law
now or hereinafter in effect (each a “Bankruptcy Law”); (ii) the commencement
against any of the Companies (including any Subsidiary), of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding
under any Bankruptcy Law by creditors of any of the Companies, provided that
such default shall not be deemed an Event of Default if such proceeding is
controverted within ten (10) days and dismissed and vacated within thirty (30)
days of commencement, except in the event that any of the actions sought in any
such proceeding shall occur or such Company (or Subsidiary) shall take action to
authorize or effect any of the actions in any such proceeding; (iii) application
or written consent by any of the Companies to appoint a receiver, trustee,
liquidator or other custodian of the Companies or any part thereof, (iv) any
general assignment for the benefit of creditors; or (v) an order, judgment or
decree entered by any court of competent jurisdiction and continuing unstayed
and in effect for a period of 90 days that adjudicates any of the Companies’
bankrupt or insolvent, or grants a petition or relief seeking reorganization of
such Companies under any Bankruptcy Law, or appoints a receiver, trustee or
liquidator of such Companies or all or substantially all of any other assets of
such Companies.

8.           Remedies and Rights Upon An Event of Default.
 
(a)           Acceleration.  So long as such Event of Default has occurred and
is continuing: (i) for a period of five (5) Business Days (as defined below) in
the case of non-payment under Section 7(a), or (ii) for a period of thirty (30)
calendar days in the case of events under  Section 7(b) that arise out of a
default in the observance or performance of the affirmative covenants set forth
in Section 5 (and the event which would constitute such Event of Default, if
curable, has not been cured), by written notice to the Companies from the
Holder, all obligations of the Companies under this Note shall be immediately
due and payable without presentment, demand, protest or any other action nor
obligation of the Holder of any kind and Holder may exercise any remedies that
the Holder may have at law or in equity.  If an Event of Default specified in
Section 7(j) above occurs, the principal of, and accrued interest on, all this
Note shall automatically, and without any declaration or other action on the
part of the Holder, become immediately due and payable.  As used herein, the
term “Business Day” shall mean any day on which banking institutions in New
York, New York are open for business other than Saturday or Sunday or any
federal holiday.  Such acceleration may be rescinded and annulled by Holder at
any time prior to payment hereunder and the Holder shall have all rights as a
holder of this Note
 

 
 

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until such time, if any, as the Holder receives full payment hereunder.  No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
 
(b)           Other Remedies.  So long as such Event of Default has occurred and
is continuing, the interest rate on this Note shall accrue at an interest rate
equal to 8.25% per annum.  In connection with such acceleration described in
Section 8(a), the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind (except as provided in
Section 8(a)), and the Holder may immediately after expiration of any applicable
cure or grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law, including, but not
limited to the Bankruptcy Law and laws of the State of New York, or, to the
extent that the laws of any other jurisdiction shall govern such enforcement
remedies, as adopted by such other jurisdiction.
 
(c)           [INTENTIONALLY OMITTED].
 
9.           [INTENTIONALLY OMITTED]
 
10.           Mutilated, Destroyed, Lost or Stolen Note.  In case this Note
shall become mutilated or defaced, or be destroyed, lost or stolen, the
Companies shall execute and deliver a new note of like principal amount in
exchange and substitution for the mutilated or defaced Note, or in lieu of and
in substitution for the destroyed, lost or stolen Note.  In the case of a
mutilated or defaced Note, the Holder shall surrender such Note to the
Companies.  In the case of any destroyed, lost or stolen Note, the Holder shall
furnish to the Companies: (i) evidence to its satisfaction of the destruction,
loss or theft of such Note and (ii) such security or indemnity as may be
reasonably required by the Companies to hold the Companies harmless.
 
11.           Waiver of Demand, Presentment, etc.  The Companies hereby
expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or intent
to accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereunder, regardless of and without
any notice, diligence, act or omission as or with respect to the collection of
any amount called for hereunder.  The Companies agree that, in the event of an
Event of Default, to reimburse the Holder for all reasonable costs and expenses
(including reasonable legal fees of one counsel) incurred in connection with the
enforcement and collection of this Note.
 
12.           Payment.  All payments with respect to this Note shall be made in
lawful money of the United States of America at the address of the Holder as of
the date hereof or as designated in writing by the Holder from time to
time.  The receipt by the Holder of immediately available funds shall constitute
a payment of principal and interest hereunder and shall satisfy and discharge
the liability for principal and interest on this Note to the extent of the sum
represented by such payment.  Payment shall be credited first to the accrued
interest then due and payable and the remainder applied to principal.
 
13.           Prepayment.  The unpaid principal amount of this Note may, at any
time and from time to time, be voluntarily paid or prepaid in whole or in part
without penalty or premium.
 

 
 

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14.           Assignment.  The rights and obligations of the Companies and the
Holder of this Note shall be binding upon, and inure to the benefit of, the
successors and permitted assigns of the parties hereto.  The Holder may not
assign, pledge or otherwise transfer this Note or any interest therein without
the prior written consent of the Companies, except that such assignment may be
made freely to any Affiliate of the Holder.  The Companies may not assign this
Note and the obligations arising out of this Note to a third party without the
prior written consent of the Holder, including through a transaction resulting
in an event of Change-of-Control under Section 7(h) or a Fundamental Change
under Section 6(d).
 
15.           Waiver and Amendment.  Any provision of this Note, including,
without limitation, the due date hereof, and the observance of any term hereof,
may be amended, waived or modified (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Companies and the Holder.
 
16.           Notices.  All notices, demands, approvals, consents, requests and
other communications to be sent to the Companies or the Holder pursuant to the
terms hereof shall be deemed to have been properly given or served, if
personally delivered, sent by recognized messenger or next day courier service
(e.g., Federal Express), or sent by United States mail, or by facsimile
transmission to the addresses or facsimile numbers listed below, and will be
deemed received, unless earlier received: (a) if sent by express, certified or
registered mail, return receipt requested, when actually received or delivery
refused; (b) if sent by messenger or courier, when actually received or refused,
provided it is received or refused on the same Business Day; (c) if sent by
facsimile transmission, on the date sent, with confirmation of receipt; (d) if
delivered by hand, on the date of delivery or refusal; and (e) if sent by
first-class mail, seven days after it was mailed, unless returned to sender for
any reason by the United Stated Postal Service, but not at the request of the
addressee.  Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall be deemed to be
receipt of the notice, demand or request sent.

 
(a)
if to Companies to:

Bernard Chaus, Inc.
530 Seventh Avenue,
New York, New York, 10018
Attention: President
Fax Number: (212) 869-7667
 
with a copy (which shall not constitute notice) to:
 
 
Sills Cummis & Gross, P.C.

 
30 Rockefeller Plaza, 29th Floor

 
New York, New York 10112

 
Attention: Michael B. Goldsmith, Esq.

 
Fax Number: (212) 643-6500

 

 
 

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And

 
 
Dechert LLP

 
1095 Avenue of the Americas

 
New York, New York  10036-6797

 
Attention: Martin Nussbaum, Esq.

 
Fax Number (212) 698 3599

 
(b)
if to Holder to:

525 7th Avenue, Suite1606
New York, New York,  10018
Fax Number: (212) 716-1605
 
with a copy (which shall not constitute notice)to:
 
Ellenoff Grossman & Schole LLP
150 East 42nd Street, 11th Floor
New York, NY 10017
Attention: Lawrence A. Rosenbloom Esq.
Fax Number: (212) 370-7889
 
17.           Governing Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York, USA, excluding that body of
law relating to conflicts of laws.
 
18.           Consent to Jurisdiction.  Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Note (whether brought against a party hereto
or its respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced exclusively in the state and federal courts sitting
in the City of New York.  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, New York for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of this Note, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and sufficient service
of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.  THE
COMPANIES AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER (INCLUDING THEIR RESPECTIVE
AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES) HEREBY IRREVOCABLY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN
 

 
 

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ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
 
19.           Severability.  If one or more provisions of this Note are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Note, and the balance of this Note shall be interpreted as if such
provisions were so excluded and shall be enforceable in accordance with its
terms.
 
20.           Headings.  Section headings in this Note are for convenience only,
and shall not be used in the construction of this Note.
 
[Signature Page Follows]

 
 

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IN WITNESS WHEREOF, the Companies have caused this Note to be issued as of the
date first above written.
 

 
BERNARD CHAUS, INC.
               
By:
s/ Josephine Chaus       
Name:  Josephine Chaus 
     
Title:   Chief Executive Officer
               
S.L. DANIELLE ACQUISITION, LLC
             
By:
s/ Josephine Chaus       
Name:  Josephine Chaus 
     
Title:   Chief Executive Officer
               
CYNTHIA STEFFE ACQUISITION, LLC
             
By:
s/ Josephine Chaus        
Name:  Josephine Chaus 
     
Title:   Chief Executive Officer
             
Received and Accepted:
         
CHINA TING FASHION GROUP (USA), LLC
             
By:
s/ Hung Yi Ting      
Name:  Hung Yi Ting
     
Title:    Director of Oceanroc Investments Ltd., the
                   sole member of China Ting  Fashion Group (USA), LLC