Employment Agreement between Bernard Chaus, Inc. and David Panitz (Chief Operating Officer)

  BERNARD CHAUS, INC. 530 Seventh Avenue 18th Floor New York, NY 10018 October 18, 2004 Mr. David Panitz c/o Bernard Chaus, Inc. 530 Seventh Avenue 18th floor New York, New York 10018 Dear Mr. Panitz: We are pleased to offer you employment with Bernard Chaus, Inc. (the "Company"), effective as of October 18, 2004 (the "Commencement Date), on the terms set forth below: POSITION: Chief Operating Officer reporting to the chief executive officer of the Company. 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. SALARY: $375,000 per year, payable in intervals consistent with the Company's payroll practices. Increases in salary shall be considered by the Compensation Committee of the Board of Directors (the "Compensation Committee") from time to time, in its sole discretion. TERM: Three years from the Commencement Date, unless employment is terminated for any reason prior to such date. ANNUAL BONUS: You shall be entitled to participate in the Company's incentive plan for senior management. You shall receive a guaranteed bonus of $75,000 for the fiscal year ending June 30, 2005 (the "Guaranteed Bonus"). The Guaranteed Bonus shall be paid on September 30, 2005, unless you are terminated for Cause or your employment terminated by reason of your voluntary termination or your death or Disability (as defined below) prior to such date. Commencing with the fiscal year ending June 30, 2006, a target (the "Target") shall be set by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"), in its sole discretion, which, if achieved, would entitle you to a bonus (the "Target Bonus") as follows: 20% of Salary if Target is achieved 15% of Salary if at least a percentage of Target specified by the Compensation Committee, in its sole discretion, is achieved. Up to 50% of Salary is the Target is exceeded by a percentage to be specified by the Compensation Committee, in its sole discretion. The Target Bonus for a particular fiscal year shall be payable to you on September 30 following such fiscal year ended June 30, but only if you are employed by the Company on June 30 of such fiscal year; provided, however, that if your employment shall be terminated by the Company without Cause (as defined below) other than as a result of your death or disability, prior to the end of a fiscal year, the pro rated portion of the Target Bonus for such year (based  Mr. David Panitz 10/18/04 Page 2 upon the number of months of the fiscal year which elapsed before the termination date) shall be paid to you on September 30 following such fiscal year. AUTOMOBILE ALLOWANCE: $1,000 per month, plus reimbursement of parking expenses. OPTIONS: Immediately following the approval by the shareholders of the Company at the Annual Meeting scheduled for November 10, 2004 (the "Initial Option Date"), of an increase in the number of shares authorized for grant under the Company's 1998 Stock Option, as amended (the "Plan"), the Company shall grant to you options to purchase 300,000 shares of the Company's Common Stock (the "2004 Options"), pursuant to the terms hereof, provided, that you are employed with the Company on the Initial Option Date. In addition, the Compensation Committee will establish a program under which you can be granted additional options over the three year Term to purchase up to an additional 300,000 shares of the Company's Common Stock, if you meet specified targets as determined by the Compensation Committee, in its sole discretion ("Target Options"). The exercise price of the 2004 Options, if any, shall be the closing price of the Company's Common Stock on the Initial Option Date, as quoted on the Over the Counter Bulletin Board. The exercise price of the Target Options, if any, shall be the closing price of the Company's Common Stock on the date of grant of each Target Option , as quoted on the Over the Counter Bulletin Board. The 2004 Options shall vest in three equal annual installments on the anniversary dates of the Option Date and shall otherwise be subject to the terms of the Plan. Vesting and other terms of the Target Options shall be as determined by the Compensation Committee, in its sole discretion. The 2004 Options and the Target Options, are collectively referred to herein as the Options. In the event of a Change of Control (as defined below), during the Term, any unvested Options then held by you shall vest immediately. In the event your employment is terminated by the Company without Cause, other than due to your death or disability, you shall have thirty (30) days from the termination date to exercise vested Options. In the event of termination for any other reason, all unvested Options shall be forfeited and you shall have thirty (30) days from the termination date to exercise vested Options, except that if the termination is the result of your death or Disability, you shall have ninety (90) days from the termination date to exercise all of your vested Options. TERMINATION BENEFITS: In the event your employment is terminated by the Company without Cause, prior to the end of the Term, whether following a Change in Control or otherwise, but other than as a result of your death or Disability, you shall be entitled to receive non-competition payments equal to one year base salary. In addition, if the termination occurs prior to the payment of the Guaranteed Bonus, or Target Bonus for the applicable fiscal year, as the case may, you shall also be paid the Guaranteed Bonus or Target Bonus, as the case may be, on the dates and to the extent set forth above under the caption "Annual Bonus" above. In addition, the Company shall make the COBRA payments on your behalf necessary to continue your medical coverage for a period not to exceed twelve months following the date of such termination without Cause. Your non-competition payments shall be payable in twelve monthly installments, and together with your Guaranteed Bonus or Target Bonus, if any, and entitlement to COBRA payments, shall constitute full satisfaction of your rights against the Company for termination of your employment. Your non-competition payments and COBRA payments described in this paragraph 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 by the Company for Cause or as a result of your voluntary  Mr. David Panitz 10/18/04 Page 3 resignation from the Company or your death or disability, you shall be paid only your accrued salary and benefits through the date of termination, and you shall have no further rights under this Agreement. CAUSE: Conviction of or plea of guilty or nolo contendere to a felony; negligence or willful misconduct in performing your duties; failure to comply with this Agreement in any material respect; failure to comply with any material written policy of the Company; failure to carry out lawful and defined responsibilities assigned by management or the Board of Directors, or commission of fraud, theft against or embezzlement from the Company. CHANGE OF 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. DISABILITY: Your inability to report to work and to perform your regular job functions for a period of ninety consecutive days or one hundred twenty days in any twelve month period of the Term due to a physical or mental condition. 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 thereafter equal to one year from the date of your termination of employment. 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 for any reason, you will not, directly or indirectly, 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 for purposes consistent with the business of the Company or for the benefit of the Company, and you will not, directly or indirectly, use for your own account any of such information. If you are compelled by operation of law or by court order or subpoena to disclose any confidential information concerning the Company or its business, you will provide the Company with notice as soon as practicable after you become aware of such requirement and cooperate with the Company at its expense in seeking a protective order to preserve the confidentiality of the information to the greatest extent practicable. 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. You agree to waive the posting of any bond, which may otherwise be required for the Company to obtain such injunction. WITHHOLDING TAXES: All compensation hereunder, shall be subject to applicable withholding taxes.  Mr. David Panitz 10/18/04 Page 4 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, 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. Sincerely, Bernard Chaus, Inc. By: /s/Josephine Chaus Accepted and Agreed to as of the date set forth above: /s/David Panitz - --------------- David Panitz