EXHIBIT 10.2
 

 
SUPREME COURT OF THE STATE OF NEW YORK
 
NEW YORK COUNTY
 

 
 
KENNETH BRAUN, individually and on behalf of all others similarly situated,
 
Plaintiff,
 
-against-
 
JOSEPHINE CHAUS, PHILIP G. BARACH, HARVEY M. KRUEGER, ROBERT FLUG, DAVID
STIFFMAN, BERNARD CHAUS, INC. and CAMUTO CONSULTING, INC.,
 
Defendants.
 
 
Index No.  652663/2011
 
 
 
 
 

 
MEMORANDUM OF UNDERSTANDING
 
IN THE BERNARD CHAUS, INC. SHAREHOLDER LITIGATION
 
This memorandum of understanding (“MOU”) contains essential terms of a
settlement (“Settlement”) agreed to in principle between defendants Josephine
Chaus, Philip G. Barach, Robert Flug, Bernard Chaus, Inc. (collectively, “Chaus”
or “Company”) and Camuto Consulting Inc. (“Camuto”) (collectively,
“Defendants”), and plaintiff in the action Braun v. Chaus, Index No. 652663/2011
(the “Action”) and Dr. Barry Berkowitz (“Berkowitz”) on behalf of themselves as
well as members of the putative classes alleged in the Action (collectively
“Plaintiffs”).
 
WHEREAS, promptly following the execution and delivery of this MOU, the Company
will enter into an Agreement and Plan of Merger (as amended, restated or
otherwise modified from time to time, the “Merger Agreement”), providing for,
among other things, the merger of certain entities into the Company pursuant to
the terms and conditions of the Merger Agreement (the “Merger”);
 
WHEREAS, as of the date hereof, Plaintiffs beneficially own certain shares of
capital stock of the Company (such shares, or any other voting or equity
securities of the Company acquired hereafter during the term of this Agreement,
including but not limited to shares acquired by the Plaintiffs pursuant to the
exercise of options (whether now held or granted after the execution of this
MOU) to acquire the common stock of the Company, being referred to herein
collectively as the “Shares”);
 

 
 

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WHEREAS, on September 15, 2011, Camuto Consulting, Inc. (“Camuto”) made an offer
(the “Offer”) to take the Company private which contemplated, amongst other
things, a payment to the non-affiliated shareholders of the Company, such as
Plaintiffs, of $0.13 per share;
 
WHEREAS, after receipt of the Offer, the board of directors of the Company
formed a special committee of disinterested, independent directors (the “Special
Committee”) to consider and negotiate the terms of any transaction effecting the
Offer and any other transaction proposals received by the Company;
 
WHEREAS, following the public announcement of the Offer, Berkowitz, on his own
behalf and on behalf of certain other shareholders, contacted the Company to
express their opinion that the Offer was inadequate;
 
WHEREAS, also following the public announcement of the Offer, the Action was
commenced by Complaint filed on September 28, 2011, alleging among other things
that the Offer was inadequate;
 
WHEREAS, on October 26, 2011, the Company received a letter from counsel for Dr.
Berkowitz and others demanding discussions with the Company, the Special
Committee and Camuto concerning the Offer and threatening legal action if their
demand was not met;
 
WHEREAS, Berkowitz was actively involved in the negotiations between the Company
and Camuto concerning the Offer, and during such negotiations and while this
Action was pending, Camuto amended their Offer to include a payment to the
non-affiliated shareholders of the Company of $0.21 per share (the “Additional
Shareholder Consideration”);
 
WHEREAS, as a condition to enter into the Merger Agreement, certain investing
parties have required that the Company and Plaintiffs execute and deliver this
Agreement;
 

 
 

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WHEREAS, counsel for Plaintiffs and counsel for Defendants thereafter engaged in
arm’s length discussions and negotiations concerning a possible settlement of
the Actions based on the Additional Shareholder Consideration and potentially
any negotiated changes to the Preliminary Proxy as defined below;
 
WHEREAS, defendants Harvey M. Krueger and David Stiffman no longer serve on the
Board of Directors of Bernard Chaus, Inc. and thus are not parties to this
agreement and the Action will be voluntarily discontinued and dismissed as to
such defendants; and
 
WHEREAS, in order to induce the parties to enter into the Merger Agreement, the
Company and the Releasing Shareholders are willing to enter into this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree, severally and not jointly, as follows:
 
1.           Berkowitz represents and warrants that he beneficially owns, and
has voting and dispositive power over, 5,038,846 Shares.
 
2.           Defendants shall provide Plaintiffs with a copy of the Preliminary
Proxy Statement on Schedule 14A (the “Preliminary Proxy”), relating to the
Transaction before filing with the United States Securities and Exchange
Commission (the “SEC”) for Plaintiffs’ review, and consider in good faith any
changes to the Preliminary Proxy proposed by Plaintiffs.
 
3.           Defendants will provide to Plaintiffs additional reasonable
discovery as agreed by the parties to investigate the claims asserted in the
Action and confirm the fairness and reasonableness of the Settlement.  The
parties agree to conduct said confirmatory discovery as promptly as possible,
and will accomplish the discovery within 30 days of the signing of this MOU.
 
4.           The parties agree that the Additional Shareholder Consideration
represents valuable and fair benefits to the alleged Class, and that such
increase in compensation to the unaffiliated shareholders was agreed during the
pendency of the Action and while Berkowitz was participating in the related
discussions.  Plaintiffs and their counsel believe that the MOU provides a fair,
reasonable and adequate settlement based upon the claims asserted in the Action
and considering the risks, uncertainty and inherent delays associated with
litigation.  It is contemplated that this MOU will be ultimately replaced by a
“Stipulation of Settlement” to be prepared by the parties and submitted to the
court for approval.  The Stipulation of Settlement will include terms proposing
the certification of a non-opt out Class.
 

 
 

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5.           In consideration of the benefits provided to the members of the
putative classes, Plaintiffs agree to the dismissal with prejudice and without
costs (except as otherwise specifically provided herein) of the Action and of
all claims pending in the Action against Defendants following final court
approval of the Stipulation of Settlement.
 
6.           The Stipulation of Settlement will be subject to, among other
things, the satisfactory completion of confirmatory discovery and the parties’
negotiation of any proposed changes to the Preliminary Proxy or Plaintiffs’
confirmation that they do not have any objection to the Preliminary Proxy.  The
Stipulation of Settlement will include a general release (in a form acceptable
to the Defendants) to all of the Defendants in the Action, and their counsel,
agents, affiliates, family members and others, of all claims, including all
claims that were brought or could have been brought in the Action, arising out
of or relating to any of the allegations that are the subject of the Action,
including all claims arising out of the institution, prosecution, or resolution
of the Action.
 
7.           The Stipulation of Settlement will include a release by Defendants
to the named Plaintiffs and their counsel, agents, affiliates, family members
and others of all claims, including all claims arising out of the institution,
prosecution, or resolution of the Action.
 
8.           The release of claims contemplated in Paragraphs 6 and 7 will not
include claims by the parties to enforce the terms of the Settlement.
 
9.           The Defendants shall be responsible for providing notice of the
Settlement to all settlement class members who will be bound by the release
specified in Paragraph 6, and the Company shall pay all reasonable costs and
expenses incurred in providing that notice, with the understanding that such
notice shall be effected by mail and internet publication, or such other method
or methods as the Court deems appropriate.  It is hereby agreed that notice by
mail and internet publication is a reasonable and adequate method of providing
notice to the putative class members.
 

 
 

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10.           Plaintiffs shall prepare and Defendants shall cooperate in
finalizing a joint stipulation and proposed order promptly after the execution
of the MOU allowing Berkowitz to intervene as a plaintiff in the Action pursuant
to CPLR 1013, and for his counsel, Giskan Solotaroff Anderson & Stewart to
appear as additional class counsel.
 
11.           Plaintiffs and their counsel intend to petition the court for an
award of fees and expenses in connection with the Action.  Any award to
Plaintiffs’ counsel for fees and expenses shall be determined by the Court, or
by a later agreement of the Plaintiffs and Defendants (subject to approval of
the Court or courts).  Defendants shall not object to or oppose any application
for fees and expenses made by Plaintiffs’ counsel in the Action, provided that
such application is for an award no more than the amount of $75,000.  Plaintiffs
shall not make any application, or otherwise seek, counsel fees and expenses in
the Action, in excess of $75,000.  The parties acknowledge and agree that Chaus
or its successor(s) in interest shall cause to be paid on behalf of the Chaus
directors and the Company, any fees and expenses awarded by the Court to
Plaintiffs’ counsel.  Subject to the terms and conditions of this MOU, and the
terms and conditions of the Stipulation of Settlement contemplated hereby, the
Company shall, within the later of ten (10) business days after the latest date
on which any final and non-appealable order has been entered and/or an appeal
therefrom can be taken: (i) approving the Stipulation of Settlement,
(ii) awarding attorneys’ fees and/or expenses to Plaintiffs’ counsel; or
(iii) dismissing the Action with prejudice (“Fee Payment Date”), pay the amount
of such award to Giskan Solotaroff Anderson & Stewart, as agent for Plaintiffs’
counsel for distribution to and among Plaintiffs’ counsel.  Plaintiffs and their
counsel agree not to appeal any order entered in the Action dismissing or
otherwise resolving the Action.
 
12.           Defendants shall not be liable for, and shall not be required to
make, any other payments in connection with the Action other than as provided
above.
 

 
 

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13.           The approval of the fees and expenses in the negotiated amount or
any other amount shall be in the sole discretion of the Court, and shall not be
a condition of the resolution of the Action, including dismissal with prejudice,
agreed herein.  Any order or proceedings related to such application for fees
and expenses, or any appeal related thereto, shall not operate to terminate the
Stipulation of Settlement or affect the releases therein.  The finality of the
Stipulation of Settlement and the dismissal of the Action with prejudice shall
not be conditioned on any ruling by the Court or any other court concerning any
application for fees or expenses herein.
 
14.           This MOU and the Stipulation of Settlement are conditioned upon
non-opt out class certification, final approval of the terms of the Stipulation
by the appropriate court, and dismissal of the Action with prejudice and the
absence of any appeal thereof by Plaintiffs.  Defendants agree that the Actions
may be maintained as a class action, solely for the purpose of effectuating the
Stipulation of Settlement and the non-opt-out settlement of all the claims
alleged in the Action.  In the event the Stipulation of Settlement does not
become final for any reason, Defendants reserve the right to oppose class
certification in any subsequent proceedings.  Berkowitz hereby covenants and
agrees that so long as the approval of the Merger Agreement is recommended by
the Company’s Board of Directors, at any meeting of the shareholders of the
Company, however called, including any adjournment or postponement thereof, or
in connection with any shareholder written consent, he shall, in each case to
the fullest extent that he is entitled to vote thereon or consent thereto:
(i) appear at each such meeting or otherwise cause all of the Shares to be
counted as present thereat for purposes of calculating a quorum; and (ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be
delivered) a written consent covering, all of his shares in favor of the
adoption of the Merger Agreement and the approval of the Merger; and (iii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be
delivered) a written consent covering, all of the shares against any alternative
takeover proposal, action, agreement or transaction that is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or adversely affect the Merger or the other transactions contemplated by the
Merger Agreement or this MOU or the performance by the Company of its
obligations under the Merger Agreement or this agreement, including: (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries (other than the
Merger); (B) a sale, lease or transfer of a material amount of assets of the
Company or any of its subsidiaries or a reorganization, recapitalization or
liquidation of the Company or any of its Subsidiaries; (C) an election of new
members to the board of directors of the Company; (D) any material change in the
present capitalization or dividend policy of the Company or any amendment or
other change to the Company’s certificate of incorporation or bylaws; or (E) any
other material change in the Company’s corporate structure or business.  Except
as set forth herein, Berkowitz shall not be restricted from voting in favor of,
against or abstaining with respect to any matter presented to the shareholders
of the Company.
 

 
 

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15.           Neither this MOU nor any of the terms of the settlement shall be
deemed to constitute an admission of the validity of any claim against any or
all of the Defendants, or the liability of any or all of the defendants, and
they may not be used in any proceeding for any purpose (other than to enforce
and effectuate the terms of the settlement).
 
16.           Each of the Defendants has denied and continues to deny that he or
it has committed any act or omission giving rise to any liability and/or
violation of law, rule or regulation.  Defendants are entering into this
settlement to eliminate the burden and expense of further
litigation.  Defendants believe they have meritorious defenses to the Action.
 
17.           Plaintiffs continue to believe that they have raised meritorious
claims, but also believe that the relief resulting from the Stipulation of
Settlement will benefit the Company’s shareholders and allow them to make a
fully informed decision with respect to the acquisition proposal.  This MOU may
be executed in counterparts, including by signature transmitted by
facsimile.  Each counterpart when so executed shall be deemed to be an original,
and all such counterparts together shall constitute the same instrument.
 
18.           The terms of this MOU and the settlement shall be binding upon the
parties and inure to the benefit of the successors, assigns, executors,
administrators, heirs and legal representatives of the parties hereto, provided,
however, that no assignment by any party shall operate to relieve such party of
its obligations hereunder.
 

 
 

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AGREED TO ON MARCH 29, 2012
 
 
Brower, Piven
A Professional Corporation
 
 
 
/s/ David A.P. Brower                                                        
David A.P. Brower, Esq.
Brian C. Kerr, Esq.
488 Madison Avenue
Eighth Floor
New York, New York 10022
Attorneys for Plaintiff Kenneth Braun
 
 
 
 
Dechert LLP
 
 
 
 
/s/ Gary J. Mennitt                                                      
Gary J. Mennitt, Esq.
Jason O. Billy, Esq.
1095 Avenue of the. Americas
New York, New York  10036
Attorneys for Defendants
Josephine Chaus and Bernard Chaus, Inc.
 
 
Pryor Cashman LLP
 
 
 
/s/ Richard S.
Frazer                                                             
Richard S. Frazer, Esq.
7 Times Square
New York, New York 10036
Attorneys for Defendants
Philip G. Barach and Robert Flug
 
 
Robinson & Cole LLP
 
 
 
/s/ Katherine
Smith                                                              
Katherine Smith, Esq.
855 Third Avenue, Suite 2800
New York, New York 10022
Attorneys for Defendant
Camuto Consulting Inc.
 
GISKAN SOLOTAROFF ANDERSON & STEWART LLP
 
 
 
/s/ Oren S. Giskan                                                             
Oren S. Giskan, Esq.
11 Broadway, Suite 2150
New York, New York 10004
Attorneys for Dr. Barry Berkowitz