Byline: Thomas J. Ryan

NEW YORK — Having learned its lesson from the expensive departure of former chief executive, Andrew Grossman, Bernard Chaus Inc. is putting stock options first in recruiting executives.
Nicholas DiPaolo, vice chairman and chief operating officer of the company since September, is negotiating a compensation package to include options to acquire between 10 percent and 12 percent of Chaus’s outstanding shares, according to Chaus’s just-released proxy statement.
DiPaolo, formerly head of Salant Corp., which produces Perry Ellis men’s apparel, will receive a below-market salary in lieu of the stock option grants, the proxy said. The options will be exercisable at the market price at the day of the grant, and vest in three years.
In light of the proposed option grants, Chaus will ask shareholders for approval to amend its 1997 stock option plan to increase the number of shares available for grant to 6.75 million from 2.71 million, as well as to increase the maximum number of options that can be awarded to one employee under the program to 4 million from 2.2 million.
Josephine Chaus, chief executive and co-founder, owns 18.8 million of Chaus’s shares, or a 68.1 percent stake, according to the proxy.
The better-priced women’s apparel firm said in the proxy that in the wake of Grossman’s exit, it moved last year to concentrate on stock options and bonuses in establishing compensation packages and in recruiting employees.
In joining Chaus in November 1994, Grossman, a former top executive at Jones Apparel, received a $6.2 million cash signing bonus, $1 million annual base salary and an annual bonus of 2.5 percent of Chaus’s yearly earnings. His position was terminated in December 1998, and Chaus became obligated to pay Grossman’s salary and bonus through the end of his contract that ran to September 2000. Chaus sought to stop payments in April 1999 after Grossman became chief operating officer of Giorgio Armani Corp U.S.A, but an arbitration panel in June of this year ruled in Grossman’s favor. Grossman left Armani last February.
The options granted under the 1997 option program are worthless at current market prices. Chaus noted in the proxy that as of June 30, 2.2 million options were outstanding under the option plan at a weighted average exercise price of $2.63 per share.
The proxy noted that Ivy Karkut received a sign-on bonus of $250,000 in joining the firm as president in November 1999. The former senior vice president of sales for the Tommy Jeans entered a three-year contract, with a $900,000 base salary the first year and $1 million the following two. She is also entitled to a bonus of 2.5 percent of Chaus’s net income if preestablished goals are met.
Karkut also received options to acquire 675,000 shares at an exercise price of $2.50 each, vesting over next four years, as well as 100,000 shares of restricted stock.
Karkut was the highest paid executive in Chaus’s year ended June 30, earning a $455,385 base salary plus the $250,000 signing bonus. Josephine Chaus earned a $525,000 base salary.
In its year ended June 30, Chaus’s earnings tumbled to $192,000 from $10.8 million, with the firm blaming the promotional selling climate. Sales slid 3.7 percent to $181 million from $187.9 million.
Shares of Chaus stopped trading on Oct. 5 at 50 cents.

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