By  on November 15, 2010

Kenneth Cole Productions Inc. will sell its 16 percent equity stake in Bernard Chaus Inc. back to Chaus by the end of the year, five months before termination of the company’s license for the Kenneth Cole New York women’s sportswear collection.

The firms agreed to the early termination of the license last month. Kenneth Cole will take the line in-house.

The license, initially set to expire in June 2012, was initiated in June 2005, when KCP purchased 6 million shares of Bernard Chaus stock for $1 a share.

The termination agreement calls for Chaus to buy back KCP’s shares, according to Chaus’s definitive proxy, filed last week with the Securities and Exchange Commission. An earlier SEC filing indicated that KCP also would pay Chaus a termination fee, the amount of which wasn’t specified, and assume “certain of our liabilities associated with our performance under the KCP license agreement.”

Officials at Chaus and KCP declined to comment.

Kenneth Cole merchandise accounted for more than half of the $101.2 million in volume rung up by Chaus in the year ended July 3. The company’s annual report last month noted, “If we are unable to replace the revenue from this license agreement in a timely manner or incur significantly higher costs to do so, the termination could have a material adverse effect on our business.” The document later said that Chaus’ liquidity and financial condition could be affected.

However, the annual report also pointed out that Chaus is “currently in advanced negotiations with a third party to enter into a new licensing agreement” but that there could be no guarantee a deal would be consummated or that such an arrangement would be sufficient to offset the loss of the KCP-related revenue.

Last year, Chaus reduced its net loss to $6 million from $9.6 million in the previous year as sales declined 10.7 percent to $101.2 million.

Chaus shares, which are traded over-the-counter, were most recently at 6 cents, putting the value of KCP’s investment at about $360,000, $5.64 million less than the initial $6 million investment.

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