-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lfs0JOYd05MjI0bOCMxR7pAhJqb/+1fU4d6YWxwCkuvyI0jMZL5oRCHIXEi730vi LA0bFELPOQ5ti6oLqN9hRw== 0000086346-94-000003.txt : 19940404 0000086346-94-000003.hdr.sgml : 19940404 ACCESSION NUMBER: 0000086346-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: 2320 IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06666 FILM NUMBER: 94519849 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2122217500 MAIL ADDRESS: STREET 1: 1058 CLAUSSEN RDSTE 101 CITY: AUGUSTA STATE: GA ZIP: 30907 10-K 1 1993 10-K DOCUMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-2433 SALANT CORPORATION (Exact name of registrant as specified in its charter) 1114 Avenue of the Americas, New York, New York 10036 Telephone: (212) 221-7500 Incorporated in the State of Delaware Employer Identification No. 13-3402444 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share, registered on the New York Stock Exchange, and series B Warrants, registered on the American Stock Exchange. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229-405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 21, 1994, there were outstanding 13,516,479 shares of the Common Stock of the registrant. Based on the closing price of the Common Stock on the New York Stock Exchange on such date, the aggregate market value of the voting stock held by non-affiliates of the registrant on such date was $108,131,832. For purposes of this computation, shares held by affiliates and by directors and executive officers of the registrant have been excluded. Such exclusion of shares held by directors and executive officers is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. Documents incorporated by reference: The definitive Proxy Statement of Salant Corporation relating to the 1994 Annual Meeting of Stockholders is incorporated by reference in Part III hereof. TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Disagreements on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K SIGNATURES PART I ITEM 1. BUSINESS Introduction. Salant Corporation designs, manufactures, imports and markets to retailers throughout the United States a wide range of men's, as well as women's and children's, apparel and accessories, principally under internationally recognized brand names owned by the Company or licensed from others. (As used herein, the "Company" includes Salant and its subsidiaries.) The Company's products are sold through major department and specialty stores, major discounters and mass volume retailers. No one customer accounted for more than 6% of the Company's net sales during fiscal 1993. In addition, the Company receives royalty income from the licensing of certain of its owned trademarks and designs to other manufacturers. The Company also operates a chain of factory outlet stores, principally in the Northeast and the South, at which its own products and those of other apparel manufacturers are offered at discount prices. Salant Corporation ("Salant"), which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. Bankruptcy Court Cases. On June 27, 1990 (the "Filing Date"), Salant and its wholly owned subsidiary, Denton Mills, Inc. ("Denton Mills"), each filed with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") a separate voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") (Case Nos. 90-B-12037 (CB) and 90-B-12038 (CB)) (the "Chapter 11 Cases"). The Company's other United States subsidiaries on the Filing Date did not seek relief under the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills (the "Plan"). The Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Item 3. "Legal Proceedings" and in Note 2 to the financial statements. Obion Denton Division - Discontinued Operation Subsequently Retained. On March 10, 1993, the Company determined to restructure and sell its Obion Denton division, which manufactures and markets children's sleepwear under (i) the Company-owned trademark DR. DENTON, (ii) licensed names and likenesses of well- known children's characters, (iii) retailers' private labels, (iv) licenses from Major League Baseball and the National Football League, and (v) the licensed OSH KOSH B'GOSH trademark. As a consequence, the division was accounted for as a discontinued operation in the Company's financial statements for 1992 and the first three quarters of fiscal 1993. During 1993, the Company effected a comprehensive restructuring of the division's operations involving (i) the discontinuation of certain product lines which have historically produced inadequate gross profit margins, (ii) the elimination of the resulting excess manufacturing capacity and (iii) the reduction of the overhead costs of the restructured business. In March 1994, the Company concluded that the value of the division would be maximized by retaining and continuing to operate the division. The financial statements of the Company for all periods included in this report have been reclassified to treat the Obion Denton division (now known as the Salant Children's Apparel Group) as a continuing operation. Principal Product Lines. The following table sets forth, for fiscal years 1991 through 1993, the percentage of the Company's total sales contributed by each category of product:
Fiscal Year 1991 1992 1993 Men's Apparel and Accessories 71% 80% 82% Women's Apparel and Accessories 20% 12% 8% Children's Apparel and Accessories 9% 8% 10%
The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price and customer service. A significant factor in the marketing of the Company's products is the consumer perception of the trademark or brand name under which those products are marketed. Approximately 80% of the Company's net sales for 1993 was attributable to products sold under designer trademarks and other internationally recognized brand names and the balance was attributable to products sold under retailers' private labels. The following table lists the principal trademarks under which the Company's products are sold and the product lines associated with those trademarks. Trademarks used under license are indicated with an asterisk; all other listed trademarks are owned by the Company.
Trademark Product Lines THE BEATLES* Men's neckwear and suspenders DR. DENTON Children's sleepwear JOHN HENRY Men's dress shirts, neckwear, belts and suspenders; men's and boys' jeans LIBERTY OF LONDON* Men's dress shirts, neckwear, belts and suspenders MADE IN THE SHADE Women's junior sportswear MANHATTAN Men's dress shirts and sportswear OSH KOSH B'GOSH* Children's sleepwear PEANUTS* Men's dress shirts, neckwear and suspenders NINO CERRUTI* Men's dress shirts and neckwear PERRY ELLIS* Men's sportswear, dress shirts, neckwear, belts and suspenders; women's scarves; and boys' sportswear PERRY ELLIS AMERICA* Men's casual sportswear and women's scarves PORTFOLIO BY PERRY ELLIS* Men's sportswear, dress slacks, dress shirts, neckwear, belts and suspenders SAVE THE CHILDREN* Men's neckwear, suspenders and women's scarves THOMSON Men's dress slacks and dress shirts VERA Women's scarves WORLD WILDLIFE FUND* Men's casual slacks, shorts, shirts and sweaters, neckwear and suspenders During fiscal 1993, approximately 29% of the Company's net sales was attributable to products sold under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks; these products are sold through leading department and specialty stores. Products sold under the JOHN HENRY label accounted for approximately 13% of the Company's net sales during fiscal 1993; these products are marketed primarily through department and specialty stores. Products sold under the MANHATTAN label accounted for approximately 11% of the Company's net sales during fiscal 1993; these products are marketed primarily through major mass volume retailers. Products sold under the THOMSON label accounted for approximately 8% of the Company's net sales during fiscal 1993; these products are sold primarily through department and specialty stores. No other line of products accounted for more than 5% of the Company's net sales during fiscal 1993. Trademarks Owned by the Company and Related Licensing Income. The Company owns the DR. DENTON, JOHN HENRY, LADY MANHATTAN, MADE IN THE SHADE, MANHATTAN, THOMSON and VERA trademarks, among others. All of the significant brand names owned by the Company have been registered or are pending registration with the United States Patent Office. The Company has sought to capitalize on consumer recognition of and interest in its trademarks by licensing various of those trademarks to others. As of the end of 1993, licenses were outstanding to approximately 65 licensees to make or sell apparel products in the United States and in 30 other countries under the MANHATTAN, LADY MANHATTAN and JOHN HENRY trademarks, which produced royalty income, net of related expenses, of approximately $6.8 million in fiscal 1993. Products under license include men's sweaters, socks, pajamas, outerwear, activewear, swimwear, underwear, sportcoats, sportshirts, slacks, knit scarves, sunglasses, leather accessories, hats and gloves, and women's blouses and tops, lingerie, maternity wear, skirts and pants. The Company also licenses the VERA trademark and related designs in the United States to manufacturers of table linens and decorative bedroom, bath and kitchen accessories, and internationally to manufacturers of women's scarves. Trademarks Licensed to the Company. The name Perry Ellis and related trademarks are licensed to the Company under a series of license agreements with Perry Ellis International Inc. ("PEI"). The license agreements contain renewal options which, subject to compliance with certain conditions contained therein, permit the Company to extend the terms of such license agreements. Assuming the exercise by the Company of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015, the license agreement covering boys' sportswear will expire on December 31, 1994 and the license agreement covering women's scarves will expire on December 31, 2000. The Company also has rights of first refusal worldwide for any new licenses granted by PEI for men's and children's apparel and accessories. The Company is also a licensee of the trademarks THE BEATLES, DIFFA, LIBERTY OF LONDON, NINO CERRUTI, OSH KOSH B'GOSH, PEANUTS, SAVE THE CHILDREN, WORLD WILDLIFE FUND, DISNEY characters, BARNEY, and NINJA TURTLES for various categories of products, under license agreements expiring between 1994 and 2008. The agreements under which the Company is licensed to use trademarks owned by others typically provide for royalties at varying percentages of net sales under the licensed trademark, subject to a minimum annual royalty payable irrespective of the level of net sales. The Company anticipates that it will be able to extend the term of any material licenses when they expire. Design and Manufacturing. With limited exceptions, products sold by the Company's various divisions are manufactured to the designs and specifications (including fabric selections) of designers employed by those divisions. During fiscal 1993, approximately 27% of the products produced by the Company (measured in units) were manufactured in the United States, with the balance manufactured in foreign countries. Facilities operated by the Company accounted for approximately 67% of its domestic-made products and 31% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations, quotas and, in certain parts of the world, political instability. Although the Company's operations have not been materially affected by any of such factors to date, any substantial disruption of its relationships with its foreign suppliers could adversely affect its operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas which limit the amounts of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocations could adversely affect the Company's operations. As discussed in Item 2 - Properties, the Company has manufacturing facilities located in Mexico. The adoption of the North American Free Trade Agreement (NAFTA) is expected to benefit the Company by (i) reducing and/or eliminating United States Customs duties on merchandise manufactured in the Company's facilities in Mexico, (ii) eliminating quota levels on this merchandise, and (iii) eliminating restrictions on exporting merchandise from the United States for sale in both Mexico and Canada. Raw Materials. The raw materials used in the Company's manufacturing operations consist principally of finished fabrics made from natural, synthetic and blended fibers. These fabrics and other materials, such as leathers used in the manufacture of various accessories, are purchased from a variety of sources both within and outside the United States. The Company believes that adequate sources of supply at acceptable price levels are available for all such materials. No single supplier accounted for more than 5% of Salant's raw material purchases during fiscal 1993. Seasonality of Business. Although the Company typically introduces and withdraws various individual products throughout the year, the Company's principal products are organized into seasonal lines for resale at the retail level during the spring, fall and Christmas seasons. The Company's products are manufactured approximately one season in advance of the related retail selling season. Backlog of Orders. The Company does not consider the amount of its backlog of orders to be significant to an understanding of its business primarily due to increased utilization of EDI technology, which provides for the electronic transmission of orders from customers' computers to those of the Company. As of March 5, 1994, the Company's backlog of orders was approximately $100 million, slightly more than 16% greater than the backlog of orders of approximately $86 million that existed as of March 6, 1993. Employees. As of the end of fiscal 1993, the Company employed approximately 3,900 persons (a reduction of approximately 100 persons from the preceding year), of whom 2,900 were engaged in manufacturing operations and the remainder were employed in executive, marketing and sales, product design, engineering and purchasing activities and in the operation of the Company's factory outlet stores. Certain manufacturing employees are covered by collective bargaining agreements with various unions, which are in effect and expire between August 31, 1994 and July 31, 1997. The Company believes that its relations with its employees are satisfactory. Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a larger number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Some of the Company's competitors have greater financial resources than the Company. The Company is one of the nation's leading suppliers of men's dress shirts, sportswear, slacks, ties, belts and suspenders. The Company seeks to maintain its competitive position in the markets for its branded products on the basis of the strong brand recognition associated with those products and, with respect to all of its products, on the basis of styling, quality, fashion, price and customer service. Environmental Regulations. Current environmental regulations have not had, and in the opinion of the Company, assuming the continuation of present conditions, will not have a material effect on the business, capital expenditures, earnings or competitive position of the Company. ITEM 2. PROPERTIES The Company's principal executive offices are located at 1114 Avenue of the Americas, New York, New York 10036. The Company's principal properties consist of six domestic manufacturing facilities located in Alabama, Georgia, New York, Tennessee and Texas, three manufacturing facilities located in Mexico, and five distribution centers located in Georgia, New York, South Carolina and Texas. The Company owns approximately 1,467,000 square feet of space devoted to manufacturing and distribution and leases approximately 330,000 square feet of such space. The Company owns approximately 44,000 square feet of combined office, design and showroom space and leases approximately 202,000 square feet of such space. As of the end of 1993, the Company operated 57 factory outlet stores and one retail store, comprising approximately 184,000 square feet of selling space, all of which are leased. The Company believes that its plant and equipment are adequately maintained, in good operating condition, and will be adequate for the Company's present needs. The Company continues, however, to explore opportunities for additional production facilities in order to enable the Company to further reduce its manufacturing costs and to meet its future needs. ITEM 3. LEGAL PROCEEDINGS (a) Chapter 11 Cases. On June 27, 1990, Salant and Denton Mills each filed with the Bankruptcy Court a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the debtors' Third Amended Joint Plan of Reorganization (the "Plan"). The Plan was consummated on September 20, 1993. From that date through January 1, 1994, the Company made cash payments of $7.1 million, issued $111.9 million of new 10-1/2% senior secured notes, and issued 9.6 million shares of common stock in settlement of certain undisputed claims in the chapter 11 proceedings. Salant anticipates that an additional $9.4 million in cash and an additional 1.7 million shares of common stock ultimately will be distributed in connection with the resolution of all remaining claims. Provisions for such distributions have been made in the consolidated financial statements for the year ended January 1, 1994. As further described in Note 5 to the financial statements, upon consummation of the Plan, the Company recorded an extraordinary gain of $24.7 million relating to the settlement of indebtedness pursuant to the Plan. The process of resolving claims is continuing and, pursuant to the Plan remains under the jurisdiction of the Bankruptcy Court. Significant Disputed Claims. (i) IRS Claim. By proof of claim, as amended, the Internal Revenue Service of the United States of America (the "IRS") has asserted a claim (the "IRS Claim") against Salant in the Chapter 11 Cases of approximately $5.2 million. The IRS Claim included approximately $3.2 million of Excise Taxes, as discussed in section (ii) below; pursuant to an interim agreement, which has not yet been finalized in a formal written agreement, Salant will pay $100,000 to the IRS in full settlement of the Excise Tax claims. The balance of the IRS Claim seeks the payment of (a) income taxes that are claimed to be owing for prior tax periods; (b) withholding and FICA taxes for the tax period ending March 31, 1990; (c) interest and penalties with respect to those taxes; and (d) FUTA taxes for the period from January 1 through June 27, 1990. Without prejudice to the rights, claims and defenses of the Company and the IRS, the Company and the IRS agreed to expunge all claims and proofs of claim asserted and/or filed by the IRS other than the portion of the IRS Claim relating to such non-Excise Taxes. Salant is currently engaged in settlement discussions with the IRS. The Company has provided reserves for amounts which it deems to be appropriate for these claims and believes that these claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. (ii) Minimum Funding Contributions for Salant's Pension Plans. Under provisions of the Internal Revenue Code of 1986, as amended (the "Tax Code"), Salant is required to make minimum contributions to three defined benefit pension plans that it has sponsored: the Salant Corporation Retirement Plan (the "Retirement Plan"), the Salant Corporation Pension Plan (the "Pension Plan"), and the Manhattan Industries Employee Benefit Plan (the "Manhattan Plan"). To the extent that a required contribution has not been made, a plan has an accumulated funding deficiency. Salant did not make the entire minimum contributions to the Retirement Plan and the Pension Plan required for the plan years beginning December 1, 1983 and December 1, 1984. At Salant's request, however, the IRS waived the resulting funding deficiency and gave Salant 15 years to amortize the waived deficiency. The terms of the waiver provided that it would be retroactively null and void if Salant failed to make any future minimum contributions or amortization payments. As a result of the filing of the Chapter 11 Cases, Salant was prevented from making certain contributions to the Retirement Plan, the Pension Plan, and the Manhattan Plan by reason of the prohibition against the payment of pre-filing date debt. The amount of the missed contributions approximated $2.5 million. Due to changes in the rules concerning the waiver of funding deficiencies, Salant was ineligible to request a waiver for these missed contributions. As a consequence, the IRS has asserted that the Retirement Plan and the Pension Plan have accumulated funding deficiencies dating back to November 30, 1984 and that the Manhattan Plan has a deficiency for the plan year ending January 31, 1990. The unamortized amount of the earlier funding waivers is approximately $1.7 million. For each year that an accumulated funding deficiency exists, the Tax Code imposes an Excise Tax equal to 10% (increased from 5% in 1989) on the amount of the deficiency. If the deficiency is not corrected before the earlier of (a) the date of mailing of a notice of deficiency of the 10% tax or (b) the assessment of the 10% tax, the IRS may impose an Excise Tax equal to 100% of the accumulated deficiency. As discussed in section (i) above, the IRS has filed a proof of claim, as amended, in the amount of approximately $5.2 million, of which approximately $3.2 million was in respect of Excise Taxes and associated interest and penalties. Effective January 1, 1992, the plan year of each of the Pension Plan, the Retirement Plan, and the Manhattan Plan were changed to the calendar year. On March 1, 1992, the Manhattan Plan was merged into the Retirement Plan. Salant and the IRS reached an interim agreement with respect to the settlement of the Excise Tax claims which was read into the record on July 30, 1993 at a hearing before the Bankruptcy Court concerning the confirmation of the Plan. The interim agreement provides that its terms would be set forth in detail in a formal written agreement between Salant and the IRS, which formal written agreement has not yet been finalized. The basic terms of the agreement are that Salant will amortize the accumulated funding deficiencies in the Retirement Plan and Pension Plan with payments as follows: (1) $700,000 on the Consummation Date (which was paid on September 15, 1993); (2) $750,000 on February 28, 1994 (which was paid on that date); (3) $550,000 on February 28, 1995; and (4) a cash payment on each anniversary of the Consummation Date during the years 1995 through and including 2000 equal to the remainder of the aggregate funding deficiency (after giving effect to the payments provided in (1)-(3) above) divided by six, together with interest accruing on the outstanding balance from the Consummation Date. Upon the effective date of the formal written agreement, Salant will pay the IRS $100,000 in full settlement of the Excise Tax claims. (iii) Equity Committee Appeal. On August 6, 1993, the Official Committee of Equity Security Holders of Salant (the "Equity Committee") filed a notice of appeal in the United States District Court for the Southern District of New York. The Equity Committee appealed the portion of the Plan relating to the payment of certain compensation to Salant's Chief Executive Officer, Nicholas DiPaolo, which compensation became payable upon consummation of the Plan, but did not seek to overturn the confirmation of the Plan. On November 12, 1993, Salant moved to dismiss the appeal on the grounds that the Equity Committee lacks standing and mootness. Consideration of the Equity Committee's appeal is being deferred pending the resolution of Salant's motion to dismiss. (b) SEC Inquiry. As previously disclosed, an investigation was conducted by the Staff of the Securities and Exchange Commission (the "SEC") concerning the accuracy of certain statements in Salant's Annual Report (Form 10-K) for the year ended December 30, 1989, and its Quarterly Report (Form 10-Q) for the quarter ended March 31, 1990 (collectively, the "SEC filings"). The SEC investigation focused on management's belief, as stated in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section in the SEC Filings, that Salant's existing credit lines should be sufficient to meet its working capital requirements. Salant cooperated with the SEC Staff in connection with its investigation and has recently engaged in discussions with the SEC Staff regarding the resolution of the matters under investigation. The resolution of the investigation is not expected to have a material adverse impact on Salant's financial condition or results of operations. (c) Securities Litigation. On November 27, 1990, Mae Fischer ("Fischer"), an alleged purchaser of Salant's 13-1/4% Senior Subordinated Debentures due June 15, 1999 (the "Debentures"), instituted a purported class action suit in the United States District Court for the Southern District of New York, claiming that certain directors and officers of Salant violated the federal securities laws by issuing favorable public statements concerning the future profitability of Salant, which Fischer claims artificially inflated the market price of the Debentures between October 1988 and June 1990. Pursuant to Salant's bylaws, Salant is obligated to indemnify its directors and officers against expenses and any judgements or settlements entered against them in actions in which they are sued in their capacity as directors or officers. Salant was not named as a defendant in the suit, Fischer v. Tynan, et al., 90 Civ. 7587 (LBS), due to the pendency of the Chapter 11 Cases. Fischer sought an unspecified amount of damages for herself and on behalf of all persons who purchased the Debentures between October 18, 1988 and June 15, 1990. On April 30, 1992, Fischer also filed a proof of claim (the "Fischer Claim") in the Chapter 11 Cases on behalf of the same group of purchasers of the Debentures. On November 30, 1992, Fischer filed an amended complaint which contains essentially the same allegations, and seeks the same relief, as the original complaint. On January 15, 1993, the defendants filed a supplemental brief in further support of their motion to dismiss the amended complaint on the ground that, among other things, it fails to state a claim upon which relief can be granted. In addition, the defendants have opposed the plaintiff's motion for class certification, which was filed on June 22, 1992. On June 16, 1993, defendants' motion to dismiss the amended complaint was granted and Fischer's motion for class certification was dismissed. On July 16, 1993, Fischer filed a notice of appeal from the June 16, 1993 order with the United States Court of Appeals for the Second Circuit. During the pendency of the appeal, the defendants and Fischer reached an agreement to settle both the Fischer Claim and the appeal. Pursuant to the terms and conditions of the stipulation of settlement, Salant will issue and distribute a number of shares of Salant Common Stock, not to exceed 11,000 shares, to certain purchasers of the Debentures who sold at a loss during a circumscribed period. In addition, Fischer's counsel will receive $150,000 for their fees and expenses pursuant to the settlement. The stipulation of settlement, which is subject to a hearing and review by the Bankruptcy Court, was filed with the Bankruptcy Court on March 28, 1994. Upon final approval by the Bankruptcy Court, the Fischer appeal and the Fischer Claim will be deemed withdrawn with prejudice. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal year 1993, no matter was submitted to a vote of security holders of Salant by means of the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Salant's Common Stock is traded on the New York Stock Exchange (the "NYSE") under the ticker symbol SLT. The high and low sale prices per share of Common Stock (based upon the NYSE composite tape as reported in published financial sources) for each fiscal quarter for the 1993 and 1992 fiscal years are set forth below. The Company did not declare or pay any dividends during such fiscal years. Both (i) the indenture governing Salant's 10-1/2% Senior Secured Notes due December 31, 1998 (the "Senior Notes"), and (ii) the revolving credit, factoring and security agreement, dated September 20, 1993 (the "Credit Agreement"), with the CIT Group/Commercial Services, Inc. require the satisfaction of certain net worth tests prior to the payment of any cash dividends by Salant. The Credit Agreement permits the payment of cash dividends provided that no event of default has occurred, consolidated net worth of the Company exceeds $87 million after giving effect to such dividend, and the cumulative amount of dividends and distributions paid does not exceed the sum of (i) 50% of cumulative consolidated net income (subject to certain adjustments) after the Company has consolidated net worth of $87 million, and (ii) net proceeds from the issuance of capital stock. The Senior Notes have a similar test, which is no more restrictive than the Credit Agreement. As of January 1, 1994, Salant was prohibited from paying cash dividends by the most restrictive of these provisions. High and Low Sale Prices Per Share of the Common Stock
Fiscal Quarter High Low 1993 Fourth $ 8 3/8 $ 6 1/8 Third 11 3/8 7 1/2 Second 10 3/4 7 7/8 First 9 5/8 8 1/4 1992 Fourth $10 $ 6 1/4 Third 7 1/2 3 7/8 Second 8 1/8 5 First 7 3/4 2 7/8
On March 21, 1994, there were 1,096 holders of record of shares of Common Stock. All of the outstanding voting securities of the Company's subsidiaries are owned beneficially and (except for shares of certain foreign subsidiaries of the Company owned of record by others to satisfy local laws) of record by the Company. ITEM 6. SELECTED FINANCIAL DATA (Amounts in thousands except per share and ratio data)
Jan. 1, Jan. 2, Dec. 28, Dec. 29, Dec. 30, 1994 1993 1991 1990 1989 (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) For The Year Ended: Continuing Operations: Net sales $407,236 $415,641 $398,471 $411,680 $469,621 Income/(loss) from continuing operations 7,227 (5,986) (19,109) (43,872) (9,354) Discontinued Operations: Estimated loss on disposal, net of income taxes - (11,772) - - - Reversal of estimated loss on disposal, net of income taxes 11,772 - - - - Extraordinary gain 24,707 - - - - Net income/(loss)* 43,706 (17,758) (19,109) (43,872) (9,354) Income/(loss) per share from continuing operations before extraordinary gain $ 1.02 $ (1.73) $ (5.52) $ (12.68) $ (2.72) Income/(loss) per share from discontinued operations 1.65 (3.40) - - - Income per share from extraordinary gain 3.48 - - - - Net income/(loss) per share* 6.15 (5.13) (5.52) (12.68) (2.72) Cash dividends per share - - - - - At Year End: Current assets $148,472 $150,700 $150,332 $150,690 $186,146 Total assets 253,390 259,659 271,150 286,266 332,942 Current liabilities 45,871 55,286 38,568 25,693 126,002 Long-term debt 111,851 - - - 169,021 Deferred liabilities 16,766 2,462 5,833 5,835 21,371 Liabilities deferred pursuant to chapter 11 cases - 266,420 272,999 282,055 - Working capital 102,601 95,414 111,764 124,997 60,144 Current ratio 3.2:1 2.7:1 3.9:1 5.9:1 1.5:1 Shareholders' equity/(deficiency) $ 78,902 $(64,509) $(46,250) $(27,317) $16,548 Book value per share $ 5.34 $(18.62) $(13.37) $(7.90) $4.78
* Includes for the fiscal year ended January 1, 1994, a provision of $5,500 (77 cents per share; tax benefit not available) for restructuring costs principally related to the costs incurred in connection with the closure of certain unprofitable operations, including (i) inventory markdowns associated with those product lines and (ii) fixed asset write-downs at closed locations; for the fiscal year ended January 2, 1993, (a) a provision of $4,824 ($1.39 per share; tax benefit not available) for restructuring costs principally related to (i) the estimated costs to be incurred in connection with the closure of certain unprofitable operations, (ii) the rejection, pursuant to the Bankruptcy Code, of certain lease obligations, and (iii) the write-off of leasehold improvements, and buildings and equipment at closed locations, and (b) the write-off of certain intangible assets of $6,759 ($1.95 per share; tax benefit not available); for the fiscal year ended December 28, 1991, (a) a provision of $12,984 ($3.75 per share; tax benefit not available) for restructuring costs principally related to (i) the closure of substantially all the operations of the MI Group women's wear business, (ii) the closure of certain unprofitable retail factory outlet stores, (iii) the rejection, pursuant to the Bankruptcy Code, of certain lease obligations and (iv) an accrual for payment pursuant to a severance agreement with the previous chief executive officer of Salant, (b) the write-off of certain intangible and other assets of $6,587 ($1.90 per share; tax benefit not available) and (c) management fee income of $1,962 ($0.57 per share) as a result of a settlement of certain litigation; for the fiscal year ended December 29, 1990, a provision of $10,822 ($3.13 per share; tax benefit not available) for restructuring costs principally related to (i) the closure of the North American Garment Finishing operations, (ii) discontinuance of the Perry Ellis America garment dye program and (iii) the closing of 23 unprofitable retail factory outlet stores, net of a reversal of $5,000 accrued for lease obligations which were rejected in the chapter 11 case; and for the fiscal year ended December 30, 1989, a provision of $6,500 ($1.89 per share; tax benefit not available) for restructuring costs principally related to the closure of the Perry Ellis Portfolio for Women business and the transfer of the Perry Ellis Collection for Women business.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the consolidated results of operations and financial condition should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to provide additional information concerning the Company's financial activities and condition. Overview On June 27, 1990, Salant and Denton Mills filed petitions for relief under chapter 11 of the Bankruptcy Code. During the pendency of the Chapter 11 Cases, the Company (i) eliminated unprofitable businesses, (ii) reduced operating expenses, (iii) refocused its resources on its core menswear businesses, with particular emphasis on higher margin, branded product lines, (iv) incurred significant legal and other professional fees related to the administration of the Chapter 11 Cases, and (v) ceased to accrue interest on substantially all of its prepetition debt. The Plan was consummated on September 20, 1993. The Company believes that, upon completion of the claims resolution process, it will have issued, pursuant to the Plan, an aggregate of $111.9 million principal amount of new 10-1/2% Secured Notes due December 31, 1998 (the "Secured Notes") and 11.3 million new shares of common stock. For financial reporting and per share earnings purposes, the Secured Notes and common shares issued or expected to be issued were deemed to be outstanding from and after September 20, 1993. As a result of (i) the increase in interest expense due to the issuance of the Secured Notes pursuant to the Plan, (ii) the reduction in bankruptcy administration expenses following the consummation of the Plan and (iii) the increase in the number of common shares outstanding as a result of the Plan, the financial and per share results for the fiscal year ended January 1, 1994 are not indicative of the results that would have been reported had the Plan been consummated at the beginning of the 1993 fiscal year. In March 1994, the Company determined to retain and continue to operate its Children's Apparel Group (formerly referred to as the Obion Denton Division). During 1993, the Company effected a comprehensive restructuring of the division's operations involving (i) the discontinuation of certain product lines which have historically produced inadequate gross profit margins, (ii) the elimination of the resulting excess manufacturing capacity and (iii) the reduction of the overhead costs of the restructured business. The Company's financial statements for 1993 include the operating results of the Children's Apparel Group in continuing operations. Operating results for 1992 (which had reflected the Children's Apparel Group in discontinued operations) have been adjusted accordingly. The Company continues to explore opportunities to increase its presence in the dress shirt and sportswear categories. Results of Operations Fiscal 1993 Compared with Fiscal 1992 For the 1993 fiscal year, net sales were $407.2 million, a 2% decrease from net sales of $415.6 million in 1992. Excluding the net sales of product lines which ceased operations prior to 1993, net sales for fiscal 1993 increased by 1.2%. The Company's sales of dress shirts in 1993 increased over 1992. Based on industry statistics, which continue to reflect a general weakness in the U.S. dress shirt market, the Company believes that it has gained market share in this category. Management does not anticipate a significant improvement in the U.S. dress shirt market in the next six months. The Company has announced the introduction of wrinkle free dress shirts under several of its brand names for sale to consumers prior to Father's Day 1994. Gross profit in 1993 increased to $99.6 million, (24.5% of net sales) from $93.7 million, (22.5% of net sales) in 1992 as a result of increased gross profit margins in the men's Accessories Division (primarily neckwear), the Children's Apparel Group, the Stores division and the Thomson slacks division. These improvements more than offset reduced gross margins in the Company's dress shirt and denim based businesses. The increased gross profit margin in the men's Accessories Division was largely a result of the outstanding consumer acceptance of the Company's novelty neckwear, produced under the PEANUTS, SAVE THE CHILDREN, BEATLES and WORLD WILDLIFE FUND labels. The Company, however, cannot predict whether the demand for such products will continue at the current rate or, if such demand does not continue, whether the Company will be able to develop other products which will offset any reduction in the gross profit of the novelty neckwear lines. Selling, general and administrative expenses for the 1993 fiscal year amounted to $76.9 million, or 18.9% of net sales, a decrease of $1.1 million from the 1992 fiscal year, when such expenses represented 18.8% of net sales. Earnings before interest, taxes, depreciation, amortization, bankruptcy administration expenses and restructuring charges ("EBITDA") was $37.6 million, compared to $31.1 million in 1992, an increase of 21%. The Company believes that EBITDA is helpful in understanding cash flow from operations that is available for debt service, taxes and capital expenditures. EBITDA should not be considered as an alternative to net earnings as an indicator of the Company's operating performance or to cash flow as an indicator of liquidity. In fiscal year 1993, the Company recorded a $5.5 million provision for restructuring, which included $5.0 million related to the restructuring of the Salant Children's Apparel Group. In fiscal year 1992, the Company recorded division restructuring costs of $4.8 million, which included (i) the estimated costs to be incurred in connection with the restructuring of certain unprofitable operations, (ii) the rejection, allowable under chapter 11, of certain lease obligations and (iii) the write-off of leasehold improvements, buildings and equipment at closed locations. Also, in fiscal year 1992, the Company wrote off the unamortized portion of the excess of cost over net assets acquired related to the Obion Denton and Vera Sportswear divisions in the amount of $6.8 million. Bankruptcy administration expenses decreased to $8.9 million during fiscal year 1993 from $12.9 million during fiscal year 1992, primarily as a result of the consummation of the plan of reorganization on September 20, 1993. Net interest expense (interest expense less interest income) increased to $7.6 million in fiscal year 1993 from $3.1 million in fiscal year 1992 as a result of interest incurred subsequent to September 1993 on the Secured Notes issued pursuant to the Plan. Interest expense for 1994 and subsequent years will include approximately $11.7 million per annum related to the Secured Notes. For the 1993 fiscal year, the Company reported income from continuing operations before extraordinary gain of $7.2 million, or $1.02 per share (based on a weighted average of 7,104,000 common shares outstanding), compared to a loss from continuing operations of $6.0 million, or $1.73 per share, (based on a weighted average of 3,460,000 common shares outstanding) for the 1992 fiscal year. For the 1993 fiscal year, net income was $43.7 million, or $6.15 per share, compared to a net loss of $17.8 million, or $5.13 per share, in 1992. Net income for 1993 included (i) a credit of $11.8 million, or $1.65 per share, resulting from the reversal of a reserve which had been recorded in 1992, for the estimated loss on the previously planned disposal of the Children's Apparel Group, and (ii) an extraordinary gain of $24.7 million, or $3.48 per share, resulting from the cancellation of indebtedness pursuant to the Plan. The net loss for 1992 included the provision for the reserve of $11.8 million, or $3.40 per share, related to the estimated loss on the previously planned disposal of the Children's Apparel Group. In connection with the Company's reorganization, as of January 1, 1994, 9,612,000 shares of its common stock had been issued to creditors, resulting in approximately 13,100,000 shares outstanding as of that date. Upon completion of the claims resolution process, approximately 1,681,000 additional shares are expected to have been issued to creditors and are included in the weighted average used for purposes of the earnings per share calculations. The weighted average number of shares outstanding during the 1993 fiscal year (based upon the total number of common shares outstanding, including those which the Company estimates will ultimately be issued pursuant to the Plan) was 7,104,000, which (i) treats as issued on September 20, 1993 all common shares (11,300,000 shares) expected to be issued pursuant to the Plan, and (ii) gives effect to 465,000 common share equivalents relating to outstanding stock options. Inflation and Recent Legislation Management believes that the rate of inflation over the past three years has not had a material impact on Salant's operating results. The adoption of the North American Free Trade Agreement (NAFTA) is expected to benefit the Company's business by (i) reducing and/or eliminating United States Customs duties on merchandise manufactured in Company-owned facilities in Mexico, (ii) eliminating quota levels on this merchandise, and (iii) eliminating restrictions on exporting merchandise from the United States for sale in both Mexico and Canada. Fiscal 1992 Compared with Fiscal 1991 The financial statements for all periods presented have been reclassified to present the Salant Children's Apparel Group as a part of continuing operations. For the 1992 fiscal year (ended January 2, 1993), Salant recorded net sales of $415.6 million, an increase of 4.3% from net sales of $398.5 million for the 1991 fiscal year. Excluding the net sales of product lines which ceased operations prior to 1992, the net sales increase from 1991 to 1992 was 13.6%. The increase in net sales was attributable to significant sales increases achieved by the Company's Perry Ellis menswear, Manhattan Shirt, Texas Apparel men's and boys' jeans, Thomson slacks and Made in the Shade women's junior sportswear divisions, partially offset by reductions in sales at the Obion Denton, Stores and Vera Scarves divisions. Gross profit increased to $93.7 million (22.5% of net sales) in fiscal year 1992 from $92.5 million (23.2% of net sales) in fiscal year 1991. The reduction in gross profit as a percentage of net sales was primarily the result of increased costs to the Company of imported merchandise, particularly men's dress shirts, which could not be recovered through increases in the Company's selling prices. The Company believes that during 1992, reductions in gross profit as a percentage of net sales were experienced by a significant number of companies in the apparel industry. Selling, general and administrative expenses for the 1992 fiscal year amounted $78.1 million, or 18.8% of net sales, a decrease of $9.2 million (10.5%) from the 1991 fiscal year, when such expenses represented 21.9% of net sales. The reduction in selling, general and administrative expenses for the 1992 fiscal year is primarily attributable to (i) cost savings achieved through the consolidation and restructuring of certain operations, (ii) reduced rent expense as a result of the rejection, allowable under chapter 11 of the Bankruptcy Code, of certain leases which were replaced by new leases with more favorable terms, and (iii) continued reductions in overhead costs at all divisions and all levels of management. Royalty income (net of related expenses) in fiscal year 1992 was $6.4 million. During fiscal year 1991, royalty income (net of related expenses) was $7.7 million, which included approximately $2.0 million of royalty income earned in prior years but received during 1991 upon the settlement of certain litigation with Perry Ellis International Inc., the Perry Ellis licensor. In fiscal year 1992, the Company recorded, in its results from continuing operations, division restructuring costs of $4.8 million as described above in the comparison of 1993 and 1992 operating results. In fiscal year 1991, the Company recorded, in its results from continuing operations, division restructuring costs of $13.0 million, which included (i) the estimated costs (including inventory markdowns) of the closure of substantially all of the operations the MI Group women's wear business, (ii) the estimated costs (including inventory markdowns) of the closure of certain unprofitable retail outlet stores, (iii) a provision for estimated claims arising from the rejection of certain leases and (iv) an accrual for payments pursuant to a severance agreement with the previous chief executive officer of the Company. In fiscal year 1992, the Company wrote off the unamortized portion of the excess of cost over net assets acquired related to the Obion Denton and Vera Sportswear divisions in the amount of $6.8 million. In fiscal year 1991, the Company wrote off other assets of $6.6 million, which included (i) unamortized deferred debt expense of $3.6 million related to the financing arrangements entered into in connection with the acquisition of Manhattan Industries, Inc. and (ii) unamortized leasehold interests at a closed facility. Bankruptcy administration expenses increased to $12.9 million during fiscal year 1992 from $6.9 million during fiscal year 1991, primarily as a result of a significant increase in activity relating to the Company's emergence from chapter 11. These expenses consisted primarily of outside legal counsel, consulting and other similar expenses. Net interest expense (interest expense less interest income) declined to $3.1 million in fiscal year 1992 from $5.3 million in fiscal year 1991. The decline resulted from a reduction in average borrowing levels and a lower average Prime Rate. Subsequent to the Filing Date, the Company ceased accruing interest on pre-Filing Date obligations, with immaterial exceptions. For the 1992 fiscal year, the Company incurred a loss from continuing operations of $6.0 million, or $1.73 per share, compared to a loss of $19.1 million, or $5.52 per share, for the 1991 fiscal year. For the fiscal year 1992, the Company incurred a net loss of $17.8 million, or $5.13 per share, compared to a net loss of $19.1 million, or $5.52 per share, in fiscal year 1991. The net loss in 1992 reflected an estimated loss of $11.8 million on the planned disposal of the Obion Denton division. Liquidity and Capital Resources Upon consummation of the Plan, the Company issued $111.9 million principal amount of Secured Notes, made cash payments of approximately $7.1 million and issued approximately 9.6 million shares of common stock in settlement of claims arising from the Chapter 11 Cases. The Company estimates that an additional $9.4 million in cash and an additional 1.7 million shares of common stock will have been distributed upon the complete resolution of all remaining claims arising from the Chapter 11 Cases. Provisions for such distributions have been made in the consolidated financial statements for the period ended January 1, 1994. On September 20, 1993, concurrent with the consummation of the Plan, the Company entered into a two year revolving credit, factoring and security agreement (the "Credit Agreement") with The CIT Group/Commercial Services, Inc. ("CIT") to provide seasonal working capital financing, including direct borrowings and letters of credit, up to an aggregate of $120 million (subject to an asset based borrowing formula). Interest on direct borrowings is charged monthly at an annual rate of one-half of one percent in excess of the prime rate of Chemical Bank (6% at January 1, 1994). As collateral for borrowings under the Credit Agreement, Salant has granted to CIT a security interest in substantially all of the assets of the Company. As of January 1, 1994, the Company had fully repaid its direct borrowings from CIT and held cash and marketable securities of approximately $2.2 million. On that date the Company had approximately $37.3 million of letters of credit outstanding and $31.1 million in unused availability under the Credit Agreement. The increase of one quarter of one percent in the prime rate at Chemical Bank, announced in March 1994, is estimated (assuming no further change) to raise interest expense for the Company during 1994 by approximately $100 thousand. The Credit Agreement contains numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock of all or a substantial part of the assets of another person, selling property, making capital expenditures, and paying cash dividends. In addition, the Company is required to maintain minimum levels of working capital and stockholders' equity and to satisfy a ratio of total liabilities to stockholders equity, a fixed charge coverage ratio, and a maximum cumulative net loss test. At January 1, 1994, the Company was in compliance with all financial covenants as indicated below:
Covenant January 1, 1994 Level Actual Level Working Capital $ 85.0 million $102.6 million Stockholders' Equity $ 60.0 million $ 78.9 million Liability/Equity less than 3.25 2.21 Fixed Charge Ratio greater than 1.5 4.89 Maximum Loss $(10.0) million Positive-Income
The Company is also required to reduce its indebtedness (excluding outstanding letters of credit) to $20 million or less for fifteen consecutive days during each twelve month period commencing February 1, 1994.The Company has already complied with this covenant for the period February 1, 1994 through January 31, 1995. Pursuant to the Plan, the Company emerged from chapter 11 with long-term debt consisting of $111.9 million of Secured Notes that mature on December 31, 1998. The Secured Notes require no mandatory prepayments but are subject to redemption, at any time, in whole, or from time to time, in part, at the Company's option, at a premium to the principal amount thereof. The premium on redemption declines annually from 8.4% in 1994 to 2.1% in 1997. The indenture governing the Secured Notes contains covenants restricting, among other things, the incurrence of indebtedness and the payment of dividends, which covenants are less restrictive than similar covenants in the Credit Agreement. The net decrease in cash during the year amounted to $500 thousand as compared to a $10 million net decrease in cash in the prior year. Net cash provided by operating activities increased to $22.9 million in 1993 from $5.4 million in 1992, principally as a result of increased income from continuing operations and a decrease in inventories as compared to a significant increase in inventories in 1992. Capital expenditures amounted to $8.2 million, which included expenditures relating to new offices and showrooms for the Perry Ellis Division, the acquisition of a dress shirt manufacturing facility in Andalusia, Alabama and the opening of 20 new factory outlet stores, as compared to $3.9 million in 1992. Capital expenditures for 1994 are anticipated to be less than the amount expended in 1993. Also during 1993, $15.9 million of prepetition secured debt was repaid as compared to $12.5 million in 1992. The Company's business is seasonal in nature. As a result, the Company's working capital requirements increase significantly during the first three quarters of each year. Salant's principal sources of liquidity, both on a short-term and a long-term basis, are cash flow provided by operations and borrowings under the Credit Agreement. Based upon its analysis of its consolidated financial position, its cash flow during the past twelve months, and its cash flow anticipated from future operations, Salant believes that its future cash flow, together with the funds available under the Credit Agreement, will be adequate to meet its seasonal working capital and capital requirements for the next twelve months. There can be no assurance, however, that future developments and general economic trends will not adversely affect the Company's operations and, hence, its anticipated cash flow. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To the Board of Directors and Stockholders of Salant Corporation: We have audited the accompanying consolidated balance sheets of Salant Corporation and subsidiaries as of January 1, 1994 and January 2, 1993, and the related consolidated statements of operations, shareholders' equity/deficiency and cash flows for the years ended January 1, 1994, January 2, 1993 and December 28, 1991. Our audits also included the financial statement schedules listed in the index at Item 14(a)(2). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Salant Corporation and subsidiaries as of January 1, 1994 and January 2, 1993, and the results of their operations and their cash flows for the years ended January 1, 1994, January 2, 1993 and December 28, 1991 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, on July 30, 1993 the Bankruptcy Court entered an order confirming the plan of reorganization which became effective on September 20, 1993. Under the plan of reorganization, the Company is required to comply with certain terms and conditions as more fully described in Note 2. As discussed in Note 13 to the financial statements, the Company changed its method of accounting for income taxes effective January 3, 1993 to conform with Statement of Financial Accounting Standards No. 109. /s/ Deloitte & Touche New York, New York March 11, 1994 Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
Year Ended January 1, January 2, December 28, 1994 1993 1991 Net Sales $407,236 $415,641 $398,471 Cost of goods sold 307,651 321,988 306,008 ------- ------- ------- Gross Profit 99,585 93,653 92,463 Selling, general and administrative expenses 76,938 78,069 87,244 Royalty income, net of related expenses 6,801 6,370 7,742 Division restructuring costs (Note 4) 5,500 4,824 12,984 Write off of other assets (Note 8) - 6,759 6,587 Bankruptcy administration expenses 8,861 12,878 6,949 ------- ------- ------- Income/(loss) from continuing operations before interest, income taxes and extraordinary gain 15,087 (2,507) (13,559) Interest expense, net (Notes 10 and 11) 7,607 3,096 5,272 ------- ------- ------- Income/(loss) from continuing operations before income taxes and extraordinary gain 7,480 (5,603) (18,831) Income taxes (Note 13) 253 383 278 ------- ------- ------- Income/(loss) from continuing operations before extraordinary gain 7,227 (5,986) (19,109) Discontinued operations (Note 3): Estimated loss on disposal - (11,772) - Reversal of estimated loss on disposal 11,772 - - Extraordinary gain (Note 5) 24,707 - - ------- ------- ------- Net income/(loss) $ 43,706 $(17,758) $(19,109) ======= ======= ====== Earnings/(loss) per share: Income/(loss) per share from continuing operations before extraordinary gain $ 1.02 $ (1.73) $ (5.52) Income/(loss) per share from discontinued operations 1.65 (3.40) - Extraordinary gain 3.48 - - ------ ------ ------ Net income/(loss) per share $ 6.15 $ (5.13) $ (5.52) ====== ====== ====== Weighted average common stock outstanding 7,104 3,460 3,459 ====== ====== =======
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
January 1, January 2, 1994 1993 Current assets: Cash and cash equivalents $ 2,157 $ 2,701 Accounts receivable net of allowance for doubtful accounts of $2,266 in 1993 and $3,788 in 1992 (Notes 10 and 11) 37,382 38,899 Inventories (Notes 6 and 10) 104,513 105,147 Prepaid expenses and other current assets 4,420 3,953 ------- ------- Total current assets 148,472 150,700 Property, plant and equipment, net (Notes 7 and 11) 27,493 28,998 Other assets (Notes 8, 11 and 13) 77,425 79,961 ------- ------- $253,390 $259,659 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY) Current Liabilities: Accounts payable $ 21,777 $ 20,869 Reserve for business restructuring (Note 4) 2,038 17,703 Accrued salaries, wages and other liabilities (Note 9) 22,056 16,714 ------- ------- Total Current Liabilities 45,871 55,286 Long term debt (Note 11) 111,851 - Deferred Liabilities (Note 16) 16,766 2,462 Liabilities Deferred Pursuant to Chapter 11 Cases - 266,420 Commitments and Contingencies (Notes 10, 11, 13, 14, 15 and 17) Shareholders' Equity/(Deficiency) (Notes 2 and 15): Preferred stock, par value $2 per share: Authorized 5,000,000 shares; none issued in 1993 and 1992 - - Common stock, par value $1 per share: Authorized 30,000,000 shares; 15,016 3,698 issued and issuable-15,015,266 shares in 1993; issued-3,697,915 shares in 1992 Additional paid-in capital 106,726 17,702 Deficit (40,461) (84,167) Excess of additional pension liability over unrecognized prior service cost adjustment (Note 14) (986) (353) Accumulated foreign currency translation adjustment 221 225 Less - treasury stock, at cost - 234,300 shares (1,614) (1,614) ------- ------- Total Shareholders' Equity/(Deficiency) 78,902 (64,509) ------- ------- $253,390 $259,659 ======= =======
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIENCY) (Amounts in thousands, except number of shares)
Excess of Additional Pension Liability Over Unrecog- Cumulative Total nized Foreign Share- Common Stock Add'l Prior Currency Treasury Stock holders' Number Paid-In Service Translation Number of Equity/ of Shares Amount Capital Deficit Cost Adjustment Shares Amount (Deficiency) Balance at December 29, 1990 3,692,915 $ 3,693 $ 17,686 $(47,300) $ - $ 218 234,300 $ (1,614) $(27,317) Net loss (19,109) (19,109) Excess of additional pension liability over unrecognized prior service cost adjustment 172 172 Foreign currency translation adjustments 4 4 --------- ------- ------ ------- ----- ---- ------- ------ ------- Balance at December 28, 1991 3,692,915 3,693 17,686 (66,409) 172 222 234,300 (1,614) (46,250) Stock options exercised 5,000 5 16 21 Net loss (17,758) (17,758) Excess of additional pension liability over unrecognized prior service cost adjustment (525) (525) Foreign currency translation adjustments 3 3 --------- ------ ------- ------- ---- ---- ------- ------ ------- Balance at January 2, 1993 3,697,915 3,698 17,702 (84,167) (353) 225 234,300 (1,614) (64,509) Stock options exercised 24,095 24 90 114 Shares issued and issuable in settlement of claims 11,293,256 11,294 88,934 100,228 Net Income 43,706 43,706 Excess of additional pension liability over unrecognized prior service cost adjustment (633) (633) Foreign currency translation adjustments (4) (4) ---------- ------- ------- ------- ----- ----- ------- ------ ------- Balances at January 1, 1994 15,015,266 $ 15,016 $106,726 $(40,461) $ (986) $ 221 234,300 $ (1,614) $ 78,902 ========== ======= ======= ======= ===== ===== ======= ====== =======
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended January 1, January 2, December 28, 1994 1993 1991 Cash Flows from Operating Activities Income/(loss) from continuing operations $ 7,227 $ (5,986) $(19,109) Adjustments to reconcile income/(loss) from continuing operations to net cash provided by operating activities: Depreciation 5,681 6,505 7,211 Amortization of intangibles 2,464 2,664 2,717 Write-off of other assets - 6,759 6,587 Write-down of fixed assets 2,095 - - Amortization of other assets - - 1,200 Change in operating assets and liabilities: Accounts receivable 1,517 (1,756) (2,372) Inventories 634 (14,533) (401) Prepaid expenses and other current assets (249) 3,789 (1,378) Other assets 48 (150) (77) Accounts payable 240 8,682 6,464 Accrued salaries, wages and other liabilities 5,932 2,150 6,693 Reserve for business restructuring (3,042) (2,076) - Deferred liabilities 397 409 1,510 Liabilities deferred pursuant to chapter 11 - (1,100) - ------- ------- ------- Net cash provided by operating activities 22,944 5,357 9,045 ------- ------- ------- Cash Flows from Investing Activities Capital expenditures, net (8,154) (3,917) (2,880) Proceeds from sale of assets 795 1,550 - ------ ------- ------- Net cash used in investing activities (7,359) (2,367) (2,880) ------- ------- ------- Cash Flows from Financing Activities Repayment of pre-petition secured debt $(15,940) $(12,526) $(10,850) Exercise of stock options 65 21 - Other, net (254) (522) 176 ------- ------- ------- Net cash used in financing activities (16,129) (13,027) (10,674) ------- ------- ------- Net decrease in cash and cash equivalents (544) (10,037) (4,509) Cash and cash equivalents - beginning of year 2,701 12,738 17,247 ------- ------- ------- Cash and cash equivalents - end of year $ 2,157 $ 2,701 $ 12,738 ======= ======= ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,847 $ 3,831 $ 3,919 ======= ======= ======== Income taxes $ 206 $ 430 $ 122 ======= ======= ======== Conversion of accounts payable, accrued expenses, long-term debt and deferred liabilities to liabilities deferred pursuant to chapter 11 cases $ 1,515 $ 1,503 $ 1,794 ======= ======= ======== Conversion of liabilities deferred pursuant to chapter 11 cases to accounts payable and deferred liabilities $ 10,249 ======= Issuance of long-term debt $111,851 ======= Issuance of common stock $100,228 =======
See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts in Thousands of Dollars Except Share and Per Share Data) Note 1. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Consolidated Financial Statements include the accounts of Salant Corporation ("Salant") and subsidiaries (collectively, the "Company"). Significant intercompany balances and transactions are eliminated in consolidation. On June 27, 1990 (the "Filing Date"), Salant and one of its subsidiaries, Denton Mills, Inc. ("Denton Mills"), filed separate voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills (the "Plan"). The Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Note 2. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 1993 and 1991 fiscal years were comprised of 52 weeks, while the 1992 fiscal year was comprised of 53 weeks. Reclassifications Certain reclassifications were made to the 1992 and 1991 financials statements to conform with the 1993 presentation. Cash and Cash Equivalents The Company considers cash on hand, deposits in banks and short-term investments as cash and cash equivalents for the purposes of the statements of cash flows. Short-term investments consist of certificates of deposit maturing within three months of issuance. These investments are readily convertible to cash and are stated at cost, which approximates market. Inventories Inventories are stated at the lower of cost (principally determined on a first-in, first-out basis for apparel operations and the retail inventory method on a first-in, first-out basis for outlet store operations) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated or amortized over their estimated useful lives, or for leasehold improvements, the lease term, if shorter. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. The annual depreciation rates used are as follows:
Buildings 3.3% - 5.0% Machinery, equipment and autos 10.0% - 33.3% Furniture and fixtures 10.0% - 20.0% Leasehold improvements Over the life of the asset or the term of the lease, which- ever is shorter
Other Assets The excess of cost over net assets acquired, trademarks and license agreements are being amortized over periods from 25 to 40 years. Leasehold interests are being amortized over the remaining lives of the leases, principally 18 years. Fair Value of Financial Instruments For financial instruments including cash and cash equivalents, accounts receivables and payable, and accruals, it was assumed that the carrying amount approximated fair value because of their short maturity. Long-term debt, which was recently issued at the market rate of interest, also approximates the fair value. Earnings/(Loss) Per Share Income/(loss) per share is based on the weighted average number of common shares (based upon the Company's estimate of the number of shares which will have been issued under the Plan by the final resolution of all claims - see Note 2) and common stock equivalents outstanding. Loss per share for 1992 and 1991 did not include common stock equivalents, as their effect would have been anti-dilutive. Revenue Recognition Revenue is recognized at the time the merchandise is shipped. Retail factory outlet store revenues are recognized at the time of sale. Note 2. Consummation of the Plan of Reorganization From the Consummation Date through January 1, 1994, pursuant to the Plan, the Company made cash payments of $7,128, issued $111,851 of new 10-1/2% senior secured notes and issued 9.6 million shares of common stock to creditors in settlement of certain claims in the chapter 11 proceedings. Salant anticipates that an additional $9,425 in cash and an additional 1.7 million shares of common stock ultimately will have been distributed to creditors by the time all remaining claims have been resolved. Provisions for such distributions have been made in the consolidated financial statements for the year ended January 1, 1994. As further described in Note 5, upon consummation of the Plan, the Company recorded an extraordinary gain of $24,707 relating to the settlement of indebtedness pursuant to the Plan. Note 3. Discontinued Operations Subsequently Retained In March 1993, the Company adopted a formal plan to restructure and sell the Salant Children's Apparel Group (formerly the Obion Denton division) which manufactures children's sleepwear. As a consequence, the division was accounted for as a discontinued operation for fiscal 1992 and the first three quarters of fiscal 1993. In March 1994, the Company concluded that the value of the division would be maximized by retaining the Salant Children's Apparel Group as part of its continuing operations. As a result, the Salant Children's Apparel Group's net assets and results of operations for all periods presented have been reclassified from discontinued operations to continuing operations. In the fourth quarter of 1992, the Company recorded an $11,772 provision for the estimated costs to restructure the division and to accrue for expected operating losses during the phase-out period through December 1993. In the fourth quarter of 1993, the 1992 charge was reversed and the Company recorded a provision of $5,000 for restructuring costs, including (i) the costs of closure of certain unprofitable product lines, (ii) inventory markdowns associated with those product lines, and (iii) fixed asset write-downs at closed locations. The following is a summary of certain selected financial data for the Salant Children's Apparel Group during the period in which it was reported as a discontinued operation.
January 2, 1993 Total assets $ 28,818 Total liabilities 49,315
Year Ended Year Ended January 2, 1993 December 28, 1991 Net sales $ 35,442 $38,081 Operating loss (12,365) (5,899) Operating losses of $750 related to January and February 1993 were included in pre-measurement date losses shown in the loss from discontinued operations in the 1992 financial statements. These amounts have been reclassified to operating losses from continuing operations in 1992.
Note 4. Restructuring Costs In the fourth quarter of fiscal 1993, the Company recorded a $5,500 restructuring reserve, of which $5,000 related to the restructuring of the Salant Children's Apparel Group, as more fully described in Note 3. In the fourth quarter of fiscal 1992, the Company recorded a $4,824 restructuring reserve, which included (i) the estimated costs to be incurred in connection with the restructuring of certain unprofitable operations, (ii) the rejection, allowable under chapter 11, of certain lease obligations and (iii) the write-off of leasehold improvements, buildings and equipment at closed locations. In fiscal 1991, the Company recorded division restructuring costs of $12,984, which included (i) the estimated costs of the closure of substantially all of the operations of the MI Group women's wear business, (ii) the estimated costs of the closure of certain unprofitable retail factory outlet stores, (iii) a provision for estimated claims arising from the rejection of certain leases and (iv) an accrual for payments pursuant to a severance agreement with the previous chief executive officer of the Company. Note 5. Extraordinary Gain In September 1993, the Company recorded an extraordinary gain of $24,707 consisting of (i) an extraordinary gain of $45,974 from the settlement and anticipated settlement of claims arising from the chapter 11 proceeding for less than their full amount and (ii) an extraordinary loss of $21,267 arising from the settlement in lieu of accrued interest and fees in respect of the Company's bank debt during the pendency of the Company's chapter 11 cases. Note 6. Inventories
January 1, January 2, 1994 1993 Finished goods . . . . . . . . . . . $ 60,686 $ 59,803 Work-in-process. . . . . . . . . . . 27,661 25,221 Raw materials and supplies . . . . . 16,166 20,123 ------- ------- $104,513 $105,147 ======= =======
Note 7. Property, Plant and Equipment
January 1, January 2, 1994 1993 Land and buildings . . . . . . . . . $15,748 $ 14,764 Machinery, equipment, furniture and fixtures . . . . . . . . . . . 39,055 44,651 Leasehold improvements . . . . . . . 6,280 4,479 Property held under capital leases . 1,345 1,343 ------- ------- 62,428 65,237 Less accumulated depreciation and amortization . . . . . . . . . 34,935 36,239 ------- ------- $27,493 $28,998 ======= =======
Note 8. Other Assets
January 1, January 2, 1994 1993 Excess of cost over net assets acquired, net of accumulated amortization of $9,572 in 1993 and $7,735 in 1992 . . . . $57,698 $59,535 Trademarks and license agreements, net of accumulated amortization of $2,577 in 1993 and $2,091 in 1992 . . . . 16,585 17,071 Leasehold interests, net of accumulated amortization of $682 in 1993 and $540 in 1992. . . . . . . . . . . . . . 1,761 1,903 Other. . . . . . . . . . . . . . . . 1,381 1,452 ------- ------- $77,425 $79,961 ======= =======
In the fourth quarter of 1992, the Company wrote off other assets of $6,759, which consisted of the unamortized portion of the excess cost over net assets acquired related to the Salant Children's Apparel Group and Vera Sportswear division. In the fourth quarter of 1991, the Company wrote off other assets of $6,587, which included the write-off of (i) unamortized deferred debt expense of $3,590 related to fees and expenses incurred in connection with the acquisition of Manhattan Industries, Inc. ("Manhattan") in 1988, (ii) unamortized trademarks of $2,612 resulting from an inactive licensing program, and (iii) unamortized leasehold interests of $385 resulting from the closure of a facility. Note 9. Accrued Salaries, Wages and Other Liabilities
January 1, January 2, 1994 1993 Accrued salaries and wages . . . . . . . $ 6,045 $ 5,666 Accrued pension and retirement. . . .. . 1,444 459 Accrued royalties. . . . . . . . . . . . 1,301 1,025 Accrued professional fees. . . . . . . . 375 2,143 Accrued interest . . . . . . . . . . . . 3,839 - Other accrued liabilities. . . . . . . . 9,052 7,421 ------ ------- $22,056 $ 16,714 ====== =======
Note 10. Post-Consummation Financing and Factoring Agreements On September 20, 1993, the Company entered into a two year revolving credit, factoring and security agreement (the "Credit Agreement") with The CIT Group/Commercial Services, Inc. ("CIT") to provide seasonal working capital financing, including direct borrowings and letters of credit, of up to $120,000 (subject to an asset based borrowing formula). As of January 1, 1994, $31,100 was available under this facility. Interest on direct borrowings is charged monthly at an annual rate of one-half of one percent in excess of the prime rate of Chemical Bank (6% at January 1, 1994). As collateral for borrowings under the Credit Agreement, the Company granted to CIT a security interest in substantially all of the assets of the Company. As of January 1, 1994 and January 2, 1993, there were no direct borrowings. As of January 1, 1994, letters of credit outstanding under the Credit Agreement were $37,256. As of January 2, 1993, letters of credit outstanding under the previously existing financing agreement were $39,678. The weighted average interest rate on borrowings under these financing agreements for the years ended January 1, 1994 and January 2, 1993 was 6.8% and 7.5%, respectively. The Credit Agreement contains numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock of all or a substantial part of the assets of another person, selling property, incurring capital expenditures, and paying cash dividends. In addition, the Company is required to maintain minimum levels of working capital and stockholders' equity and to satisfy a ratio of total liabilities to stockholders' equity, a fixed charge coverage ratio and a maximum cumulative net loss test. At January 1, 1994, Salant was in compliance with all financial covenants. Note 11. Long-Term Debt On September 20, 1993, Salant issued $111,851 principal amount of 10 1/2% Senior Secured Notes (the "Secured Notes") due December 31, 1998. The Secured Notes bear interest from September 1, 1993 and may be redeemed at any time prior to maturity, in whole or in part, at the option of the Company, at a premium to the principal amount thereof plus accrued interest. The premium on redemption declines annually from 8.4% in 1994 to 2.1% in 1997. The Secured Notes are secured by a first lien (subordinated to the Credit Agreement to the extent of $15,000) on certain accounts receivable, certain intangible assets, the capital stock of Salant's subsidiaries and certain real property of the Company, and by a second lien on substantially all of the other assets of the Company. The Secured Notes contain various restrictions pertaining to future indebtedness, the purchase of capital stock and the payment of dividends. Under the most restrictive of these provisions, the Company currently may not purchase or redeem any shares of its capital stock, or declare or pay cash dividends. Note 12. Segment Information The Company operates within one industry segment, the business of manufacturing and marketing apparel. The Company sells its products to retailers, including department stores, specialty stores, national chain stores and mass volume retailers, throughout the United States. As an adjunct to its apparel manufacturing operations, the Company operates 57 factory outlet stores and 1 retail store in various parts of the United States. Foreign operations are not significant. Note 13. Income Taxes The provision for income taxes consists of the following:
January 1, January 2, December 28, 1994 1993 1991 Current: Federal . . . . . . . $ - $ - $ - State . . . . . . . . 32 29 94 Foreign . . . . . . . 221 354 184 ------ ------- -------- $ 253 $ 383 $ 278 ====== ======= ========
The effective tax rate differed from the statutory rate for the year ended January 1, 1994 due to differences in tax treatment relating to the bankruptcy and other items. The effective tax rate differed from the statutory rate in the years ended January 2, 1993 and December 28, 1991 because no tax benefit was available with respect to losses incurred in those years. The following is a reconciliation of the tax provision/(benefit) at the statutory Federal income tax rate to the actual income tax provision:
1993 1992 1991 Income tax provision/ (benefit), at 34% $2,543 ($1,905) ($6,403) Loss producing no current tax benefit 1,905 6,403 Utilization of net operating loss carryforward (2,543) State, local and foreign taxes 253 383 278 ----- ----- ----- Income tax provision $ 253 $ 383 $ 278 ===== ===== =====
Effective January 3, 1993, the Company adopted Financial Accounting Standards Board Statement No. 109 ("SFAS No. 109"), "Accounting for Income Taxes". This statement supersedes SFAS No. 96 "Accounting for Income Taxes" which was adopted by the Company in 1988. Under SFAS No. 109, the Company is required to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Adoption of SFAS No. 109 had no cumulative effect on earnings or effect on income tax expense for the year ended January 1, 1994, as the Company recognized a net deferred tax asset of $64,364, offset in full by a valuation allowance as of the date of adoption. The tax effects of significant items comprising the Company's net deferred tax asset as of January 1, 1994:
Deferred tax liabilities: Differences between book and tax basis of property $ (6,564) ------- Deferred tax assets: Reserves not currently deductible 17,517 Operating loss carryforwards 45,341 Tax credit carryforwards 2,936 Expenses capitalized into inventory 4,935 ------- 70,729 Valuation Allowance (64,165) ------- Net deferred tax asset $ - =======
At January 1, 1994, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $116,000, which can be used to offset future taxable income, expiring from 1999 to the year 2007. Approximately $51,000, which arose from the acquisition of Manhattan, will offset goodwill when utilized. The implementation of the Plan, together with transactions that have occurred within the three-year period preceding the consummation of the Plan, have caused an "ownership change" for federal income tax purposes on the date the Plan was consummated. As a result of such ownership change, the use of the NOLs to offset future taxable income may be limited by the requirements of section 382 of the Internal Revenue Code of 1986, as amended. The annual limit under section 382 would be approximately $7,200 or approximately $108,000 over a fifteen year carryover period. If the Company utilizes the special bankruptcy exception of section 382(l)(5), the operating loss (which is not subject to an annual limitation) would be approximately $89,000. In addition, the Company realized cancellation of indebtedness income of approximately $917 upon consummation of the Plan and the NOLs will be reduced or limited accordingly. In addition, at January 1, 1994, the Company had available investment tax and other credits which expire between 1994 and 1999, of which $1,986 will reduce goodwill and the balance will reduce income tax expense when utilized. The Company's utilization of these credits may be limited in the same manner as the Company's utilization of its NOLs as described above. On June 27, 1990, the date of the filing of the Chapter 11 cases, the Internal Revenue Service (the "IRS") was in the process of examining the tax returns of Manhattan (acquired in April 1988) for the years ended January 31, 1982 through January 31, 1986 and January 31, 1988. The IRS has filed amended proofs of claim (the "IRS Claim") with the Bankruptcy Court in the aggregate amount of $5,201 which includes $2,010 of income and withholding taxes, interest and penalties thereon, and unemployment taxes (the "Income Tax Claim") through the filing date of the Chapter 11 Cases. Without prejudice to the rights, claims and defenses of the IRS and the Company, at the confirmation hearing with respect to the Plan, the Company and the IRS agreed to expunge all claims and proofs of claims asserted and/or filed by the IRS other than the portion of the IRS Claim relating to such taxes. The IRS Claim also includes $3,191 for excise taxes (the "Excise Tax Claim") arising from the failure of Salant to have met minimum funding obligations for its defined benefit pension plans and penalties associated therewith. Pursuant to a settlement reached with the IRS (which is subject to final IRS approval), the Excise Tax Claim (plus any associated penalties) has been reduced to $100, which is payable upon the execution of the definitive settlement agreement. Provisions for such distributions to the IRS in settlement of the Income Tax Claim and the Excise Tax Claim have been made in the consolidated financial statements for the year ended January 1, 1994. Note 14. Employee Benefit Plans Pension and Retirement Plans The Company has several defined benefit plans for virtually all full-time salaried employees and certain nonunion hourly employees. The Company's funding policy for its plans is to fund the minimum annual contribution required by applicable regulations. The Company also has a nonqualified supplemental retirement and death benefit plan covering certain employees. The funding for this plan is based on premium costs of related insurance contracts. Pension expense includes the following components:
1993 1992 1991 Service cost-benefit earned during the period. . . . . . $ 1,183 $1,101 $ 1,083 Interest cost on projected benefit obligation . . . . . . . . . 2,555 2,419 2,254 Return on assets . . . . . . . (2,008) (2,162) (1,420) Net amortization . . . . . . . 169 647 107 ------ ----- ----- Net periodic pension cost. . . $ 1,899 $2,005 $2,024 ====== ===== =====
The reconciliation of the funded status of the plans at January 1, 1994 and January 2, 1993 is as follows:
January 1, January 1, January 2, January 2, 1994 1994 1993 1993 Accumulated Plan Accumulated Plan Plan Assets Plan Assets Benefits Exceed Benefits Exceed Exceed Accumulated Exceed Accumulated Plan Assets Plan Benefits Plan Assets Plan Benefits Actuarial present value of benefit obligation Vested benefit obligation. $(30,670) $(710) $(26,918) $(603) Nonvested benefit obligation . . (680) - (884) - ------- ---- ------- ---- Accumulated benefit obligation . . $(31,350) $(710) $(27,802) $(603) ======= ==== ======= ==== Projected benefit obligation . . . $(36,068) $(710) $(32,111) $(603) Plan assets at fair value. . 25,155 785 22,478 710 ------- ---- ------- ---- Projected benefit obligation in (excess of)/less than plan assets (10,913) 75 (9,633) 107 Unrecognized net obligation at date of initial application, amortized over 15 years . . . . . . . . . 985 - 1,223 - Unrecognized net (gain)/loss . . . 1,928 (160) 467 (305) Unrecognized prior service cost. . 37 - 196 - Recognition of minimum liability under SFAS No. 87. . . . . (1,420) - (1,050) - ------- ---- ------- ---- Accrued pension cost . . . $ (9,383) $ (85) $ (8,797) $(198) ======= ==== ======= ====
Assumptions used in accounting for defined benefit pension plans are as follows:
1993 1993 1992 1992 1991 1991 Non- Qualified Non- Qualified Non- Qualified Qualified Plans Qualified Plans Qualified Plans Plan Plan Plan . . . . . . . . . . Discount rate. . . . . 7.5% 7.5% 8.0% 8.0% 8.0% 8.0% Rate of increase in compensation levels . N/A 5.5% N/A 6.0% N/A 6.0% Expected long-term rate of return on assets 12.0% 8.0% 12.0% 8.0% 12.0% 8.0%
Assets of the Company's qualified plans are invested in directed trusts. Assets in the directed trusts are invested in common and preferred stocks, corporate bonds, money market funds and U.S. government obligations. The nonqualified supplemental plan assets consist of the cash surrender value of certain insurance contracts. During 1992, each of the retirement plans was amended to change the plan year to the calendar year, effective January 1, 1992, resulting in each of the plans having a short plan year, ending December 31, 1991. One of the plans, the Manhattan Industries, Inc. Employees' Benefit Plan was merged into the Salant Corporation Retirement Plan, effective as of March 1, 1992. The Company also contributes to certain union retirement and insurance funds established to provide retirement benefits and group life, health and accident insurance for eligible employees. The total cost of these contributions was $5,060, $4,769 and $5,064 in 1993, 1992 and 1991, respectively. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union administered plans are not determinable from information available to the Company. Long Term Savings and Investment Plan Salant sponsors the Long Term Savings and Investment Plan, under which eligible salaried employees may contribute up to 15% of their annual compensation, subject to certain limitations, to a money market fund, a fixed income fund and/or an equity fund. Salant contributes a minimum matching amount of 20% of the first 6% of a participant's annual compensation and may contribute an additional discretionary amount in cash or in the Company's common stock. Prior to March 1, 1992, the Company's contributions were made in the Company's common stock, and additional contributions were based on earnings per share. In 1993, 1992 and 1991 Salant's aggregate contributions to the Plan amounted to $208, $163 and $55, respectively. At the end of 1991, the Manhattan Salary Savings Plan was amended to change the plan year to the calendar year, effective January 1, 1992, resulting in the plan having a short plan year, ending December 31, 1991. The Manhattan Salary Savings Plan was merged into the Long Term Savings and Investment Plan, effective March 1, 1992. Note 15. Stock Options, Warrants and Shareholder Rights On September 20, 1993, pursuant to the Plan, the Company adopted the 1993 Stock Plan under which options or awards may be granted to directors and key employees of the Company for the purchase of an aggregate of 600,000 shares of the Company's common stock. The 1988 and 1987 Stock Plans authorized the Company to grant stock options or stock awards aggregating 1,200,000 shares of Salant common stock to officers, key employees and, in the case of the 1988 Stock Plan, directors. The 1993, 1988 and 1987 Stock Plans authorized such grants at such prices and pursuant to such other terms and conditions as the Stock Plan Committee may determine. Options may be nonqualified stock options or incentive stock options and may include stock appreciation rights. Options expire no later than ten years from the date of grant and become exercisable in varying amounts over periods ranging from four months to five years from the date of grant. The following table summarizes stock option transactions during 1991, 1992 and 1993:
Shares Price Range Options outstanding at December 29, 1990 . . 998,777 $1.00-15.125 Options granted during fiscal 1991 . . . . . 421,500 $1.625-2.75 Options surrendered or cancelled during fiscal 1991. . . (440,052) $1.00-12.875 --------- Options outstanding at December 28, 1991 . . 980,225 $1.00-15.125 Options granted during fiscal 1992 . . . . . 197,000 $2.25-8.75 Options exercised during fiscal 1992 . . . . (5,000) $1.00 Options surrendered or cancelled during fiscal 1992. . . (121,985) $2.25-12.875 --------- Options outstanding at January 2, 1993 . . . 1,050,240 $1.00-15.125 Options granted during fiscal 1993 . . . . . 392,000 $6.69-10.69 Options exercised during fiscal 1993 . . . . (24,095) $1.00-5.875 Options surrendered or cancelled during fiscal 1993. . . (55,371) $2.25-12.875 --------- Options outstanding at January 1, 1994 . . . 1,362,774 $1.00-15.125 ========= Options exercisable at January 1, 1994 . . . 766,614 $1.00-15.125 =========
At January 1, 1994, there were 337,141 shares of Salant common stock reserved for future grants of stock options or stock awards. Pursuant to the Plan, the Company issued 2,371,182 Salant B Warrants (the "Warrants") to holders of the Company's common stock immediately prior to the consummation date. Each Warrant expires three years from the date of issuance and entitles the registered holder thereof to purchase one share of common stock of the Company at prices of $16 during the first year after issuance, $18 during the second year after issuance and $20 thereafter. No Warrants were exercised in 1993. In addition, warrants outstanding which entitled the holders to purchase an aggregate of 325,000 shares of Salant common stock at prices ranging from $12 to $16.75 expired during 1993. No warrants were exercised in 1993, 1992 or 1991. The Company has a shareholder rights plan (the "Rights Plan"), which provides for a dividend distribution of one right for each share of Salant common stock to holders of record at the close of business on December 23, 1987. The rights will expire on December 23, 1997. With certain exceptions, the rights will become exercisable only in the event that an acquiring party accumulates 20 percent or more of the Company's voting stock, or if a party announces an offer to acquire 30 percent or more of such voting stock. Each right, when exercisable, will entitle the holder to buy one one-hundredth of a share of a new series of cumulative preferred stock at a price of $30 per right or upon the occurrence of certain events, to purchase either Salant common stock or shares in an "acquiring entity" at half the market value thereof. The Company will generally be entitled to redeem the rights at three cents per right at any time until the 10th day following the acquisition of a 20 percent position in its voting stock. In July 1993, the Rights Plan was amended to provide that an acquisition or offer by Apollo Apparel Partners, L.P., or any of its subsidiaries, will not cause the rights to become exercisable. As of January 1, 1994, there were 4,071,097 shares of Common Stock reserved for the future issuance of stock options, stock awards and warrants. Note 16. Deferred Liabilities
January 1, January 2, 1994 1993 Lease obligations. . . . . . . . . . . . $ 1,688 $1,215 Deferred pension obligation. . . . . . . 8,300 1,247 Liability for chapter 11 claims settlements. . . . . . . . . . . . . . 6,778 - ------ ------ $16,766 $ 2,462 ====== ======
Note 17. Commitments and Contingencies (a) Lease Commitments The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 1999. Certain of the leases contain renewal options. Rental payments under certain leases may be adjusted for increases in taxes and operating expenses above specified amounts. In addition, certain of the leases for outlet stores contain provisions for additional rent based upon sales. In fiscal years 1993, 1992 and 1991, rental expense was $5,773, $6,686 and $8,513, respectively. As of January 1, 1994, future minimum rental payments under noncancellable operating leases (exclusive of renewal options, percentage rentals, and adjustments for property taxes and operating expenses) were as follows:
Fiscal Year 1994. . . . . . . . . . . . . . . $ 5,098 1995. . . . . . . . . . . . . . . 4,704 1996. . . . . . . . . . . . . . . 4,170 1997. . . . . . . . . . . . . . . 3,312 1998. . . . . . . . . . . . . . . 2,465 Thereafter. . . . . . . . . . . . 4,682 ------ Total . . . . . . . . . . . $24,431 ======
(b) Legal Contingencies/Significant Disputed Claims (1) Chapter 11 Cases. On June 27, 1990, Salant and Denton Mills each filed with the Bankruptcy Court a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court confirmed the Plan. The consummation of the Plan took place on September 20, 1993. On August 6, 1993, the Official Committee of Equity Security Holders of Salant (the "Equity Committee") filed a notice of appeal in the United States District Court for the Southern District of New York. The Equity Committee appealed the portion of the Plan relating to the payment of certain compensation to Salant's Chief Executive Officer, Nicholas DiPaolo, which compensation became payable upon consummation of the Plan, but did not seek to overturn the confirmation of the Plan. On November 12, 1993, Salant moved to dismiss the appeal on the grounds that the Equity Committee lacks standing and mootness. Consideration of the Equity Committee's appeal is being deferred pending the resolution of Salant's motion to dismiss. (2) SEC Inquiry. As previously disclosed, an investigation was conducted by the Staff of the Securities and Exchange Commission (the "SEC") concerning the accuracy of certain statements in Salant's Annual Report (Form 10-K) for the year ended December 30, 1989, and its Quarterly Report (Form 10-Q) for the quarter ended March 31, 1990 (collectively, the "SEC Filings"). The SEC investigation focused on management's belief, as stated in those filings in the Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") section in the SEC Filings, that Salant's existing credit lines should be sufficient to meet its working capital requirements. Salant cooperated with the SEC Staff in connection with its investigation and has recently engaged in discussions with the SEC Staff regarding the resolution of the matters under investigation. The resolution of the investigation is not expected to have a material adverse impact on Salant's financial condition or results of operations. (3) Securities Litigation. On November 27, 1990, Mae Fischer ("Fischer"), an alleged purchaser of Salant's 13-1/4% Senior Subordinated Debentures due June 15, 1999 (the "Debentures"), instituted a purported class action suit in the United States District Court for the Southern District of New York, claiming that certain directors and officers of Salant violated the federal securities laws by issuing favorable public statements concerning the future profitability of Salant, which Fischer claims artificially inflated the market price of the Debentures between October 1988 and June 1990. Pursuant to Salant's bylaws, Salant is obligated to indemnify its directors and officers against expenses and any judgments or settlements entered against them in actions in which they are sued in their capacity as directors or officers. Salant was not named as a defendant in the suit, Fischer v. Tynan, et al., 90 Civ. 7587 (LBS), due to the pendency of the Chapter 11 Cases. Pursuant to the terms and conditions of the stipulation of settlement, Salant will issue and distribute a number of shares of Salant Common Stock, not to exceed 11,000 shares, to certain purchasers of the Debentures who sold at a loss during a circumscribed period. In addition, Fischer's counsel will receive $150 for their fees and expenses pursuant to the settlement. The stipulation of settlement, which is subject to a hearing and review by the Bankruptcy Court, was filed with the Bankruptcy Court on March 28, 1994. Upon final approval by the Bankruptcy Court, the Fischer appeal and the Fischer Claim will be deemed withdrawn with prejudice. (c) Employment Agreements The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $6,274 in 1994, $1,909 in 1995 and $918 in 1996. In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 18. Quarterly Financial Information (Unaudited)
Fiscal year ended January 1, 1994(b) Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales. . . . . . . . . . . . $407,236 $113,010 $113,251 $85,918 $95,057 Gross profit . . . . . . . . . . 99,585 28,535 28,441 20,520 22,089 Income/(loss) from continuing operations . . . . 7,227 2,859 4,446 (488) 410 Discontinued Operations: Reversal of estimated loss on disposal . . . . 11,772 11,772 - - - Extraordinary gain . . . . . . . 24,707 - 24,707 - - Net income/(loss). . . . . . . . 43,706 14,631 29,153 (488) 410 Income/(loss) per share from continuing operations (a) $1.02 $0.19 $0.83 $(0.12) $0.10 Income per share from discontinued operations reversal (a). . . . 1.65 0.77 - - - Income per share from extraordinary gain(a) 3.48 - 4.63 - - Net income/(loss) per share (a) 6.15 0.96 5.46 (0.12) 0.10
Fiscal year ended January 2, 1993 (b)
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales. . . . . . . . . . . . $415,641 $105,034 $127,619 $91,181 $91,807 Gross profit . . . . . . . . . . 93,653 23,870 28,360 19,924 21,499 Income/(loss) from continuing operations (5,986) (12,133) 6,065 55 27 Discontinued operations: Estimated loss on disposal . . (11,772) (11,772) - - - Net income/(loss). . . . . . . . (17,758) (23,905) 6,065 55 27 Income/(loss) per share from continuing operations (a). . . $(1.73) $(3.50) $1.60 $0.02 $0.01 Loss per share from discontinued operations (a) . . . . . . . . (3.40) (3.40) - - - Net income/(loss) per share(a) . (5.13) (6.90) 1.60 0.02 0.01
Reference is made to Notes 3, 4 and 8 concerning fourth quarter adjustments during the fiscal years ended January 1, 1994 and January 2, 1993. (a) Income/(loss) per share of common stock is computed separately for each period. The sum of the amounts of income/(loss) per share reported in each period differs from the total for the year due to the issuance of shares in 1993 and, when appropriate, the inclusion of common stock equivalents. (b) Information provided for the first, second and third quarters of 1993, and the fourth quarter of 1992 has been adjusted for the reclassification and retention of the Salant Children's Apparel Group. See Note 3 for additional information. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Proxy Statement of Salant Corporation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Financial Statements The following financial statements are included in Item 8 of this Annual Report: Independent Auditors' Report. . . . . . . . . . . . . Consolidated Statements of Operations . . . . . . . . Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Shareholders' Equity/(Deficiency) . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Notes to Consolidated Financial Statements. . . . . . Financial Statement Schedules The following Financial Statement Schedules for the fiscal years ended January 1, 1994, January 2, 1993, and December 28, 1991 and are filed as part of this Annual Report: Schedule VIII - Valuation and Qualifying Accounts and Reserves. . . . . . . . . . . . . . . . . . . . Schedule IX - Short-Term Borrowings . . . . . . . . . Schedule X - Supplementary Income Statement Information . . . All other schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. SALANT CORPORATION AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (1) (2) Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions at End of Period Expenses -- Describe --Describe of Period Description YEAR ENDED JANUARY 1, 1994: Accounts receivable allowance for doubtful accounts $ 3,788 $ 94 $ - $ 1,616(A) $ 2,266 Reserve for business restructuring $ 5,931 $ 5,500 $ - $ 9,393(B) $ 2,038 Reserve for loss on disposal of discontinued operations $11,772 $ - $ - $11,722(D) $ - YEAR ENDED JANUARY 2, 1993: Accounts receivable allowance for doubtful accounts $ 4,709 $ 2,867 $ - $ 3,788(A) $ 3,788 Reserve for business restructuring $ 8,007 $11,757 $ - $13,833(B) $ 5,931 Reserve for loss on disposal of discontinued operations(E) $ - $11,772(C) $ - $ - $11,772 YEAR ENDED DECEMBER 28, 1991: Accounts receivable - allowance for doubtful accounts $ 4,332 $ 1,904 $ - $ 1,527(A) $ 4,709 Reserve for business restructuring $ 1,937 $12,984 $ - $ 6,914(B) $ 8,007
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. (C) Charged to discontinued operations. (D) Reversal of estimated loss on disposal of discontinued operation. (E) Included in reserve for restructuring on the balance sheet. SALANT CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS
Column A Column B Column C Column D Column E Column F Maximum Average Weighted Weighted Amount Amount Average Balance Average Outstanding Outstanding Interest Category of Aggregate at End Interest During During Rate During Short-Term Borrowings of Period Rate the Period the Period(1) The Period(2) (000's omitted) YEAR ENDED JANUARY 1, 1994 - 6.8% $ 48,700 $ 20,892 6.8% Payable to Factor YEAR ENDED JANUARY 2, 1993 Payable to Factor - 7.5% $ 38,818 $ 16,184 7.5% YEAR ENDED DECEMBER 28, 1991 Payable to Factor - 9.9% $ 35,300 $ 15,517 9.9%
NOTES: (1)Average amount outstanding during the period is computed by dividing the total of daily outstanding principal balances by 365. (2)Average interest rate for the year is computed by dividing the actual short-term interest expense by the average short-term debt outstanding. SALANT CORPORATION AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For Each Year in the Three-Year Period Ended January 1, 1994 (000's omitted)
Column A Column B Charged To Costs And Expenses Continuing Operations ITEM 1993 1992 1991 Advertising $6,532 $7,351 $6,768 ===== ===== ===== Royalties $8,565 $8,000 $9,192 ===== ===== =====
Amounts for maintenance and repairs, preoperating costs and similar deferrals, taxes other than payroll and income taxes are not presented inasmuch as such amounts are less than 1% of net sales. Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended January 1, 1994. Exhibits
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton 7/28/93. Mills, Inc., dated 5/12/93. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated 7/28/93. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. 7/28/93. 3.27 Form of Bylaws, as amended, of Exhibit 19.2 to Quarterly Report on Salant Corporation, effective Form 10-Q for the quarter ended 7/10/91. 6/29/91. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report 12/8/87 between Salant on Form 8-K dated 12/8/87. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. 7/29/93. 4.3 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated 9/20/93, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial 10/02/93. Services, Inc. 4.5 Indenture, dated as of Exhibit 10.34 to 9/20/93, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior 10/02/93. Secured Notes due December 31, 1998. 4.6 Warrant Agreement dated Exhibit 10.35 to as of September 20, 1993, Quarterly Report on between Salant Corporation Form 10-Q for the and Bankers Trust Company, quarter ended 10/02/93. as Warrant Agent. 10.1 Deferred Compensation Exhibit (19)(j) to Annual Report Administration Plan, as amended on Form 10-K for fiscal year and restated, effective as of 1982. 5/30/82.* 10.2 Salant Corporation Retirement Exhibit (19)(a) to Quarterly Plan, as amended and restated, Report on Form 10-Q for the effective 12/1/84.* quarter ended 8/30/86. 10.3 Amendment No. 1 to Salant Exhibit 19.8 to Annual Report on Corporation Retirement Plan.* Form 10-K for fiscal year 1987. 10.4 Amendment No. 2 to Salant Exhibit 19.1 to Annual Report on Corporation Retirement Plan.* Form 10-K for fiscal year 1989. 10.5 Salant Corporation Pension Plan, Exhibit (19)(b) to Quarterly Report as amended and restated, on Form 10-Q for the quarter ended 8/30/86, for effective 12/1/84.* fiscal year 1987. 10.6 Amendment No. 1 to Salant Exhibit 19.9 to Annual Report Corporation Pension Plan.* on Form 10-K for fiscal year 1987. 10.7 Amendment No. 2 to Salant Exhibit 19.2 to Annual Report Corporation Pension Plan.* on Form 10-K for fiscal year 1989. 10.8 Letter of 8/20/86 to John P. Exhibit (19)(a) to Annual Report MacDonald of Fried, Frank, on Form 10-K for fiscal year 1986. Harris, Shriver & Jacobson from the Internal Revenue Service in respect of the Salant Corporation Retirement Plan and Salant Corporation Pension Plan. 10.9 Salant Corporation Long Term Exhibit (19)(c) to Annual Report Savings and Investment Plan, as on Form 10-K for fiscal year 1985. amended and restated, effective 1/1/85.* 10.10 Amendment One to Salant Exhibit 19.10 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1987. and Investment Plan.* 10.11 Second Amendment to Salant Exhibit 19.6 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1988. and Investment Plan.* 10.12 Third Amendment to Salant Exhibit 19.3 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1989. and Investment Plan.* 10.13 Fourth Amendment to Salant Exhibit 19.4 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1989. and Investment Plan.* 10.14 Salant Corporation 1987 Stock Exhibit 19.2 to Annual Report on Form 10-K for Plan. fiscal year 1987. 10.15 Salant Corporation 1987 Stock Exhibit 10.12 to Form S-2 Plan Agreement, dated as of Registration Statement filed 6/13/88, between Salant 6/17/88. Corporation and Nicholas P. DiPaolo. 10.16 Salant Corporation 1988 Stock Exhibit 19.3 to Annual Report on Plan. Form 10-K for fiscal year 1988. 10.17 First Amendment, effective Exhibit 19.1 to Quarterly Report as of 7/25/89, to the Salant on Form 10-Q for the Corporation 1988 Stock Plan. quarter ended 9/30/89. 10.18 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.19 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.20 Employment Agreement, dated as of Exhibit 19.4 to 12/31/90, between Herbert R. Annual Report on Aronson and Salant Corporation.* Form 10-K for fiscal year 1990. 10.21 Letter Agreement, dated 6/30/92, Exhibit 19.1 to Quarterly amending the Employment Report on Form 10-Q for Agreement, dated as of 12/31/90, the quarter ended 10/3/92. between Herbert R. Aronson and Salant Corporation.* 10.22 Employment Agreement dated as of Exhibit 19.1 to Annual Report on 7/1/91, between Joseph G. Form 10-K for fiscal year 1990. Salloum and Salant Corporation.* 10.23 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.24 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.25 Employment Agreement Exhibit 10.32 to dated as of 6/01/93, Quarterly Report on between Todd Kahn and Form 10-Q for the Salant Corporation.* quarter ended 7/8/93. 10.26 Form of Agreement between Included as Exhibit Salant Corporation and P-11 to Exhibit 1 Apollo Apparel Partners, L.P. to Form 8-A dated 7/28/93. 10.27 Employment Agreement, dated Exhibit 10.36 to as of 9/20/93, between Quarterly Report on Salant Corporation and Form 10-Q for the Nicholas P. DiPaolo.* quarter ended 10/2/93. 10.28 Employment Agreement, dated Exhibit 10.37 to as of 7/30/93, between Quarterly Report on Salant Corporation and Form 10-Q for the John S. Rodgers.* quarter ended 10/2/93. 10.29 Employment Agreement, dated Exhibit 10.38 to as of 7/30/93, between Quarterly Report on Salant Corporation and Form 10-Q for the Richard P. Randall.* quarter ended 10/2/93. 10.30 Letter Agreement, dated Exhibit 10.39 to 8/13/93, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the 7/1/91, between Joseph G. quarter ended 10/2/93. Salloum and Salant Corporation.* 10.31 Letter Agreement, dated Exhibit 10.40 to 11/1/93, amending the Letter Quarterly Report on Agreement, dated 8/13/93 and Form 10-Q for the the Employment Agreement, quarter ended 10/2/93. dated 7/1/91, between Joseph G. Salloum and Salant Corporation.* 10.32 Employment Agreement dated as of 12/21/93, between Elliot M. Lavigne and Salant Corporation.* 10.33 Agreement, dated as of 9/22/93, between Nicholas P. DiPaolo and Salant Corporation.* 10.34 Forms of Salant Corporation 1993 Stock Plan Directors' Option Agreement.* 21 List of Subsidiaries of the Company
* denotes management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SALANT CORPORATION Date: March 31, 1994. By /s/John S. Rodgers Executive Vice President, Senior Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. Signature Title /s/Nicholas P. DiPaolo Chairman of the Board, Nicholas P. DiPaolo President and Chief Executive Officer (Principal Executive Officer); Director /s/Richard P. Randall Senior Vice President, Richard P. Randall Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) /s/John S. Rodgers Executive Vice President, John S. Rodgers Senior Counsel and Secretary; Director /s/Craig M. Cogut Craig M. Cogut Director /s/Ann Dibble Jordan Ann Dibble Jordan Director /s/Stanley R. Klion Stanley R. Klion Director /s/Harold Leppo Harold Leppo Director /s/Bruce Roberts Bruce Roberts Director /s/Marvin Schiller Director Marvin Schiller /s/Edward M. Yorke Edward M. Yorke Director SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 1994 SALANT CORPORATION EXHIBIT INDEX
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton 7/28/93. Mills, Inc., dated 5/12/93. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated 7/28/93. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. 7/28/93. 3.2 Form of Bylaws, as amended, of Exhibit 19.2 to Quarterly Report on Salant Corporation, effective Form 10-Q for the quarter ended 7/10/91. 6/29/91. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report 12/8/87 between Salant Corporation on Form 8-K dated 12/8/87. and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. 7/29/93. 4.3 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated 9/20/93, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial 10/02/93. Services, Inc. 4.5 Indenture, dated as of Exhibit 10.34 to 9/20/93, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior 10/02/93. Secured Notes due December 31, 1998. 4.6 Warrant Agreement dated Exhibit 10.35 to as of September 20, 1993, Quarterly Report on between Salant Corporation Form 10-Q for the and Bankers Trust Company, quarter ended 10/02/93. as Warrant Agent. 10.1 Deferred Compensation Administration Exhibit (19)(j) to Annual Report Plan, as amended and restated, on Form 10-K for fiscal year 1982. effective as of 5/30/82.* 10.2 Salant Corporation Retirement Plan, Exhibit (19)(a) to Quarterly Report as amended and restated, effective on Form 10-Q for the quarter 12/1/84.* ended 8/30/86. 10.3 Amendment No. 1 to Salant Exhibit 19.8 to Annual Report on Corporation Retirement Plan.* Form 10-K for fiscal year 1987. 10.4 Amendment No. 2 to Salant Exhibit 19.1 to Annual Report on Corporation Retirement Plan.* Form 10-K for fiscal year 1989. 10.5 Salant Corporation Pension Plan, as Exhibit (19)(b) to Quarterly Report amended and restated, effective on Form 10-Q for the quarter ended 8/30/86, for 12/1/84.* fiscal year 1987. 10.6 Amendment No. 1 to Salant Exhibit 19.9 to Annual Report on Corporation Pension Plan.* on Form 10-K. 10.7 Amendment No. 2 to Salant Exhibit 19.2 to Annual Report Corporation Pension Plan.* on Form 10-K for fiscal year 1989. 10.8 Letter of 8/20/86 to John P. Exhibit (19)(a) to Annual Report MacDonald of Fried, Frank, on Form 10-K for fiscal year 1986. Harris, Shriver & Jacobson from the Internal Revenue Service in respect of the Salant Corporation Retirement Plan and Salant Corporation Pension Plan. 10.9 Salant Corporation Long Term Exhibit (19)(c) to Annual Report Savings and Investment Plan, as on Form 10-K for fiscal year 1985. amended and restated, effective 1/1/85.* 10.10 Amendment One to Salant Corporation Exhibit 19.10 to Annual Report on Long Term Savings and Investment Form 10-K for fiscal year 1987. Plan.* for fiscal year 1987. 10.11 Second Amendment to Salant Exhibit 19.6 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1988. and Investment Plan.* 10.12 Third Amendment to Salant Exhibit 19.3 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1989. and Investment Plan.* 10.13 Fourth Amendment to Salant Exhibit 19.4 to Annual Report on Corporation Long Term Savings Form 10-K for fiscal year 1989. and Investment Plan.* 10.14 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.15 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of 6/13/88, Registration Statement filed between Salant Corporation and 6/17/88. Nicholas P. DiPaolo. 10.16 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.17 First Amendment, effective Exhibit 19.1 to Quarterly Report as of 7/25/89, to the Salant on Form 10-Q for the Corporation 1988 Stock Plan. quarter ended 9/30/89. 10.18 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.19 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.20 Employment Agreement, dated as of Exhibit 19.4 to 12/31/90, between Herbert R. Annual Report on Aronson and Salant Corporation.* Form 10-K for fiscal year 1990. 10.21 Letter Agreement, dated 6/30/92, Exhibit 19.1 to Quarterly amending the Employment Agreement, Report on Form 10-Q for dated as of 12/31/90, between the quarter ended 10/3/92. Herbert R. Aronson and Salant Corporation.* 10.22 Employment Agreement dated as of Exhibit 19.1 to Annual Report on 7/1/91, between Joseph G. Salloum Form 10-K for fiscal year 1990. and Salant Corporation.* 10.23 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.24 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.25 Employment Agreement Exhibit 10.32 to dated as of 6/01/93, Quarterly Report on between Salant Corporation Form 10-Q for the and Todd Kahn.* quarter ended 7/8/93. 10.26 Form of Agreement between Included as Exhibit Salant Corporation and P-11 to Exhibit 1 Apollo Apparel Partners, L.P. to Form 8-A dated 7/28/93. 10.27 Employment Agreement, dated Exhibit 10.36 to as of 9/20/93, between Quarterly Report on Salant Corporation and Form 10-Q for the Nicholas P. DiPaolo.* quarter ended 10/2/93. 10.28 Employment Agreement, dated Exhibit 10.37 to as of 7/30/93, between Quarterly Report on Salant Corporation and Form 10-Q for the John S. Rodgers.* quarter ended 10/2/93. 10.29 Employment Agreement, dated Exhibit 10.38 to as of 7/30/93, between Quarterly Report on Salant Corporation and Form 10-Q for the Richard P. Randall.* quarter ended 10/2/93. 10.30 Letter Agreement, dated Exhibit 10.39 to 8/13/93, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the 7/1/91, between Joseph G. quarter ended 10/2/93. Salloum and Salant Corporation.* 10.31 Letter Agreement, dated Exhibit 10.40 to 11/1/93, amending the Letter Quarterly Report on Agreement, dated 8/13/93 and Form 10-Q for the the Employment Agreement, quarter ended 10/2/93. dated 7/1/91, between Joseph G. Salloum and Salant Corporation.* 10.32 Employment Agreement dated as of 12/21/93, between Elliot M. Lavigne and Salant Corporation.* 10.33 Agreement, dated as of 9/22/93, between Nicholas P. DiPaolo and Salant Corporation.* 10.34 Forms of Salant Corporation 1993 Stock Plan Directors' Option Agreement.* 21 List of Subsidiaries of the Company
* denotes management contract or compensatory plan or arrangement. EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Birdhill, Limited, a Hong Kong corporation Carrizo Manufacturing Co., S.A. de C.V., a Mexican corporation Clantexport, Inc., a New York corporation Denton Mills, Inc., a Delaware corporation Frost Bros. Enterprises, Inc., a Texas corporation Manhattan Industries, Inc., a Delaware corporation Manhattan Industries, Inc., a New York corporation Manhattan Industries (Far East) Limited, a Hong Kong corporation Maquiladora Sur S.A. de C.V., a Mexican corporation Sea Isle Sportswear Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation EX-99 2 EXHIBIT 10.32 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of December 21, 1993 (this "Agreement"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation"), and ELLIOT M. LAVIGNE (the "Employee"). WHEREAS, the Employee and the Corporation are now parties to an Employment Agreement dated as of May 1, 1991(the "Prior Employment Agreement"), which expires by its terms on April 30 1994, and the Employee and the Corporation wish to cancel such Agreement and enter into a new employment agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto agree as follows: Section 1. Certain Definitions. When used in this Agreement, the following terms shall have the following meanings (such meanings will be applicable to both the singular and plural forms of the terms defined): "Affiliate" shall mean any natural person, firm, corporation, partnership or other legal entity that, directly or indirectly, controls, is controlled by or is under common control with, the Corporation. "Fiscal Year" shall mean the fiscal year of the Corporation. "PEM" shall mean the Perry Ellis Men's Division of the Corporation. "Person" shall mean any natural person, corporation, partnership, trust, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. Section 2. Prior Employment Agreement. The Prior Employment Agreement is hereby cancelled by mutual consent. Section 3. Nature of Employee's Services. The Corporation agrees to employ the Employee and the Employee agrees to serve the Corporation as Executive Vice President - Marketing, of the Corporation and Chairman of PEM, or with such other corporate title as may be designated, from time to time, by the Chief Executive Officer of the Corporation. The Employee shall perform such services and duties as shall be assigned to him or delegated to him, from time to time, by the Board of Directors of the Corporation (the "Board of Directors"), the Executive Committee of the Board of Directors or the Chief Executive Officer of the Corporation during the Employment Period (as hereinafter defined). The Employee's duties shall include, without additional compensation, the performance of similar services for any subsidiaries of the Corporation. The Employee agrees that, except as otherwise provided herein, he shall devote substantially all of his business time, attention and energy to the business of the Corporation and its subsidiaries in the advancement of the best interests of the Corporation and its subsidiaries. The Employee will perform his duties hereunder principally in the metropolitan New York area. During the Employment Period it shall not be a violation of this Agreement for the Employee to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions and (c) subject to Section 12 hereof, manage personal investments, so long as such activities do not interfere with the performance of Employee's responsibilities as an employee of the Corporation in accordance with this Agreement. Section 4. Term of Employment. The term of the Employee's employment hereunder shall become effective on January 3, 1994 and, unless terminated earlier pursuant to Section 10 hereof, shall terminate on December 31, 1996 (the initial term of the Employee's employment being hereinafter referred to as the "Basic Term"), except that, commencing on the expiration date of the Basic Term, and on each anniversary thereafter, the term of employment may be extended for an additional year on the terms set forth in this Agreement if, not later than 120 days preceding the expiration date of the Basic Term or each succeeding year-to-year extension of the term of employment pursuant to this Section 4 (together, the Basic Term and the cumulative year-to-year extensions of the term of employment are hereinafter referred to as the "Employment Period") the Corporation shall have given written notice to the Employee that it wishes to extend the term of employment (the "Extension Notice"), and the Employee shall accept the extension of the term of employment within 30 days from the date the Extension Notice was sent by the Corporation to the Employee. Section 5. Annual Compensation. Subject to the terms hereof, the Corporation agrees to pay to the Employee, subject to all applicable laws and requirements, including, without limitation, laws with respect to withholding of federal, state or local taxes: (a) Salary. An annual salary at the rate of $475,000 per year during the first Fiscal Year of the Basic Term, $550,000 per year during the second Fiscal Year of the Basic Term and $600,000 per year during the third fiscal year of the Basic Term and the balance of the Employment Period, subject to increase (after the expiration of the Basic Term), from time to time, in the discretion of the Board of Directors (the "Salary"), payable in equal semi-monthly installments. (b) Corporate Incentive Compensation. Corporate incentive compensation, payable in accordance with the Corporation's customary practices for executive employees, based upon the schedule comparing the Corporation's performance during each Fiscal Year which ends within the Employment Period to operating targets for each such Fiscal Year, which schedule is set forth in Exhibit 1 hereto. (c) PEM Bonus. The Corporation agrees to pay to the Employee in respect of each Fiscal Year during the Employment Period, commencing with the Fiscal Year of the Corporation ending on or about December 31, 1993, an annual bonus during the Employment Period in an amount equal to five (5%) per cent of the Pre Tax Income of PEM. The following principles shall apply in calculating the Pre Tax Income of PEM which term shall mean the aggregate income of PEM before provision for the following: (i) all Federal, State and local income taxes thereon; (ii) all royalty income (iii) all foreign income and (iv) all income received from Perry Ellis International, Inc. In calculating such Pre Tax Income, all items of income and deductions shall be determined in accordance with generally accepted accounting principles applied on a consistent basis in a manner consistent with their application to other divisions and subsidiaries of the Corporation, subject, however, to the provisions of the following subparagraphs: (i) There shall be excluded from income: all extraordinary or nonrecurring items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than from business interruption; non-recurring gains or losses including, without limitation, gains or losses on the termination of any employee benefit plans or gains or losses realized on the sale of quota or other intangibles. (ii) Deductions from income shall include all fixed charges and reasonable provisions for depreciation, amortization and obsolescence, inventory write-offs and the salary and bonus payable to the Employee hereunder. Interest shall be charged and deducted in calculating the Pre Tax Income of PEM. Interest on all funds provided or advanced to PEM shall be charged at the same rate as the Corporation charges interest expense to its other divisions. (iii) Deductions shall be made from income in determining the Pre Tax Income of PEM for the fair value of all services provided by the Corporation for PEM whether obtained from third parties or provided by employees of the Corporation. For purposes of calculating any bonus payable to the Employee during the Employment Period, Pre Tax Income shall continue to be reduced by the amount of the royalties that would have been payable by PEM (and the Corporation) to Perry Ellis International, Inc. at the respective royalty percentage rates in effect on December 31, 1990 (for example, 6% of net sales on men's dress shirts) not withstanding that such royalty percentage rates have been reduced as part of a settlement of certain outstanding differences between the Corporation and Perry Ellis International, Inc. (d) Minimum Compensation . Provided that the Employment Period has not terminated pursuant to Section 10(d) hereof, the Employee shall receive a minimum compensation (inclusive of the bonuses set forth in Sections 5(b) and 5(c) hereof) for each Fiscal Year of the Employment Period of $910,000. (e) Payment of Bonuses. Each bonus, including the bonuses set forth in Section 5(b) and 5(c) hereof, shall be paid by the Corporation to the Employee within ninety (90) days after the end of the Fiscal Year for which such bonus is payable. If the employment of the Employee is terminated (other than pursuant to Section 10(d) hereof) or if the Employment Period terminates on a day other than the last day of a Fiscal Year, the bonus amount payable shall be the amount to which the Employee would have been entitled had his employment continued for all of that Fiscal Year, prorated by the proportion that (x) the number of days from the beginning of such Fiscal Year to the date of termination of the Employment Period bears to (y) 365. Section 6. Stock Options. The Corporation shall grant to the Employee nonqualified stock options to purchase 100,000 shares of common stock, par value $1.00 per share (the "Common Stock"), of the Corporation pursuant to the Corporation's 1987 Stock Plan, 1988 Stock Plan and/or 1993 Stock Plan at such time as shares of Common Stock become available. The stock options shall be subject to the terms and conditions set forth in the Corporation's 1987 Stock Plan, 1988 Stock Plan and/or 1993 Stock Plan, as the case may be, and an agreement or agreements to be entered into, pursuant to the applicable plan or plans, between the Corporation and the Employee. Such agreement or agreements will provide, among other things, that the purchase price per share of Common Stock subject to the options will be an amount equal to the Fair Market Value (as such term is defined in the Corporation's 1987 Stock Plan, 1988 Stock Plan and/or the 1993 Stock Plan, as the case may be) of the Common Stock on the date the options are granted and that the options will vest with respect to 33-1/3% of the shares of Common Stock subject to the options upon each of the first three anniversaries of the date on which the options are granted. Section 7. Loans to Employee. (a) Prior Loan. Employee is presently indebted to the Corporation in the amount of $450,000 as evidenced by a Promissory Note, dated May 1, 1991 (the "Old Note"). Interest is payable by the Employee on the entire unpaid principal balance of the Old Note at the prime rate in effect from time to time at Manufacturers Hanover Trust Company plus one and one half (1- 1/2%) percent per annum. The Corporation agrees that it will not demand payment on the Old Note prior to the earlier to occur of; (i) March 1, 1994; or (ii) the date that the Employee is no longer employed by the Corporation. The Corporation and the Employee acknowledge that the planned Pre Tax Income budget for PEM for the 1991, 1992 and 1993 fiscal years was as follows: 1991 - $ 8,574,000 1992 - $ 11,181,000 1993 - $ 15,291,000 $ 35,046,000 (i) If PEM achieves total Pre Tax Income for the three Fiscal Years 1991, 1992 and 1993 of at least 90% of $35,046,000, but not more than 94% of $35,046,000, the Corporation agrees on March 1, 1994, to forgive $150,000 of the principal indebtedness of the Old Note; (ii) If PEM achieves total Pre Tax Income for the three Fiscal Years 1991, 1992, and 1993 of more than 95% of $35,046,000, but not more than 100% of $35,046,000, the Corporation agrees on March 1, 1994 to forgive $200,000 of the principal indebtedness of the Old Note; (iii) If PEM achieves total Pre Tax Income for the three Fiscal Years 1991, 1992 and 1993 of at least $35,046,000 but not more than 105% of $35,046,000, the Corporation agrees, on March 1, 1994, to forgive the entire principal amount of the Old Note plus all interest accrued thereon and to pay to the Employee a super achievement bonus of $150,000; (iv) If PEM achieves total Pre Tax Income for the three Fiscal Years 1991, 1992 and 1993 of more than 105% of $35,046,000, but not more than 110% of $35,046,000, the Corporation agrees, on March 1, 1994, to forgive the entire principal amount of the Old Note plus all interest accrued thereon and to pay to the Employee a super achievement bonus of $175,000; and (v) If PEM achieves total Pre Tax Income for the three Fiscal Years 1991, 1992 and 1993 of, more than 110% of $35,046,000, the Corporation agrees, on March 1, 1994, to forgive the entire principal amount of the Old Note plus all interest accrued thereon and to pay to the Employee a super achievement bonus of $250,000. (b) New Loan. Simultaneously with the execution of this Employment Agreement, the Corporation is advancing the Employee an additional $750,000 and the Employee is executing a Demand Promissory Note (the "New Note") payable to the order of the Corporation. Interest is payable by the Employee on the entire unpaid principal balance of the Note at the prime rate in effect from time to time at Chemical Bank plus one and one half (1-1/2%) percent per annum. The Corporation agrees that it will not demand payment on the New Note prior to the earlier to occur of; (i) December 31, 1996; or (ii) the date that the Employee is no longer employed by the Corporation. If the Corporation's total operating income (before amortization of intangibles and after reserve for contingencies)("Operating Income"), as shown on its audited financial statements for the three Fiscal Years 1994, 1995, and 1996 ("Actual Operating Income") is greater than the sum of (i) the aggregate amount of Operating Income provided for in the Corporation's annual business plan for each of those Fiscal Years and (ii) the outstanding principal of and accrued interest on the New Note (together, the "Overachievement"), the Corporation shall forgive such portion of the outstanding principal of and accrued interest on the New Note to the extent of the Overachievement. The Corporation shall apply any Overachievement to the accrued and unpaid interest on the New Note before applying funds to the outstanding principal. For purposes of this Section 7(b), Actual Operating Income shall be calculated without giving effect to unusual or nonrecurring items of income or expense. Notwithstanding any provisions to the contrary, the Employee must be employed by the Corporation at the end of the 1996 Fiscal Year for the Corporation to forgive any portion of the outstanding principal of and accrued interest on the New Note; provided, however, that in the case of a termination pursuant to Sections 10(b) or 10(c) hereof, the Corporation shall forgive such portion of the outstanding principal of and accrued interest on the New Note to the extent of the Overachievement for the three year period, prorated by the portion that the number of months of employment completed by the Employee during such three year period bears to thirty-six (36); and provided, further, that if the Corporation terminates the Employment Period prior to the end of the 1996 Fiscal Year without cause, the Corporation shall forgive the entire outstanding principal of and accrued interest on the New Note. Section 8. Employee Benefit Plans. The Employee shall, during the Employment Period, be eligible to participate in and receive benefits under and in accordance with the provisions of any pension plan, welfare plan or other similar plan or policy of the Corporation maintained for the benefit of its employees (together, the "Benefit Plans") in which he now participates, and the Employee shall be entitled to continue to participate in such plans (or any successors thereto) during the Employment Period, to the extent permitted by the respective terms thereof. In the event any new Benefit Plan is established which is in addition to, and not an alternative to, any Benefit Plan in which the Employee now participates, the Employee shall be entitled to participate in such Benefit Plan to the extent permitted by the terms thereof. The Corporation will not take any action directed solely at the Employee, with respect to the Benefit Plans or the Employee's participation in the Benefit Plans, that results in a material adverse change from the benefits the Employee now enjoys. The Corporation shall have the right, however, to make changes in Benefit Plans applicable to its senior executives or employees generally and the Employee agrees that such changes shall also be applicable to the Employee. Section 9. Expenses. Subject to compliance by the Employee with such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Corporation, the Employee is authorized to incur reasonable expenses in the performance of his duties hereunder in the furtherance of the business of the Corporation and its subsidiaries, and the Corporation shall reimburse the Employee for all such reasonable expenses. Section 10. Termination. (a) Termination Date and Termination of Rights and Obligations. On the earlier of (i) the date of expiration of the Employment Period or (ii) the date on which termination of employment becomes effective pursuant to subsections (b) through (d) of this Section 10 (the "Termination Date"), the Employee's salary and other rights under this Agreement shall terminate, provided, however, that the Corporation shall pay to the Employee his Salary and benefits accrued prior thereto. (b) Death of Employee. In the event of the death of the Employee, the Employment Period shall terminate on the last day of the calendar month within which such death shall have occurred. (c) Disability of Employee. The Corporation shall have the right to terminate the Employment Period, upon written notice to the Employee, if the Corporation determines that the Employee has been disabled (either mentally or physically) so as to be unable to substantially perform his duties hereunder for a period of two months or more. (d) Termination for Cause. The Corporation shall have the right to terminate the Employment Period, upon written notice to the Employee, if the Employee (i) engages in conduct which is determined by a court to constitute a felony or act of moral turpitude or (ii) commits any act of willful misconduct, malfeasance or gross negligence that is injurious to the Company or (iii) breaches this Agreement. Section 11. Covenant Not to Compete. The Employee covenants and agrees that he will not, at any time during the Employment Period (determined without giving effect to any termination of employment), whether as owner, principal, agent, partner, officer, employee, independent contractor, consultant, shareholder, licensor or otherwise, alone or in association with any other Person, either directly or indirectly, carry on, be engaged or take part in, render services to or own, share in the earnings of, or invest in the stocks, bonds or other securities of, or be interested in any way in any business competing with or similar to any of the businesses of the Corporation or its subsidiaries without the prior written consent of the Board of Directors, provided that the Employee may hold a passive investment in a business which is competitive with or similar to any of the businesses of the Corporation if the investment is in securities which are listed on a national securities exchange and the investment in any class of securities does not exceed 1% of the outstanding shares of such class or 1% of the aggregate outstanding principal amount of such class, as the case may be. Section 12. Restrictions on Investments. The Employee covenants and agrees that he will not, at any time during the Employment Period, whether as owner, principal, officer or shareholder, alone or in association with any other person, either directly or indirectly, invest in the stock, bonds or other securities (the "Securities") of any public company (other than a Fortune 500 Company) if such investment in the Securities exceeds 2% of the outstanding shares of such class or 2% of the aggregate outstanding principal amount of such class or is convertible into 2% or more of the outstanding shares of such company without the prior written consent of the Board of Directors. Section 13. Non-Disclosure Covenant. The Employee further agrees that during the Employment Period and thereafter without limit, he will not, either directly or indirectly, communicate or divulge to any person, firm or corporation other than the Corporation and its subsidiaries, any information (except that which is generally known to the public) relating to the business, customers and suppliers, or other affairs of the Corporation or its subsidiaries ("Confidential Information") except (a) for the purpose of, or in connection with, the advancement of the business of the Corporation or (b) in the event that the Employee is required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar legal process) to disclose Confidential Information, and the Employee is compelled to disclose such Confidential Information or else stand liable for contempt or suffer other censure, penalty or violation in a court proceeding. In the event that the Employee is required to disclose such Confidential Information in the circumstances described in Section 13(b), the Employee will either (i) give the Corporation at least ten days' written notice (or shorter, but prompt, notice to the extent the Employee is required to respond to legal process in fewer than ten days) so that the Corporation may seek an appropriate protective order or (ii) make such disclosure to a court under seal. Section 14. Indemnification. On the same terms and conditions applicable to other officers of the Corporation, the Corporation shall continue to indemnify the Employee against all liability and loss with respect to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or any of its subsidiaries or Affiliates, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that he did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding any other provision of this Agreement, the Corporation's obligation to indemnify the Employee shall survive the expiration of this Agreement, provided that in the event that the Employee is terminated pursuant to Section 10(d) hereof, the Corporation shall have no obligation to indemnify the Employee under this Section 14 against any liability, loss or expense arising from conduct that constitutes grounds for the Corporation to terminate the Employment Period pursuant to Section 10(d) hereof. Section 15. Automobile. During the Employment Period, the Corporation will provide the Employee with an automobile allowance in the amount of $680 per month. Section 16. Vacations. The Employee shall be entitled to paid vacations in accordance with the policies of the Corporation in effect from time to time, but no less than four weeks in any of the Fiscal Years during which the Employee is employed. To the extent the Employee does not use the full vacation period during a Fiscal Year, the unused balance shall accrue and be carried over into subsequent Fiscal Years; provided, however, that such unused balance may be carried forward only with the consent of the chief executive officer of the Corporation and, in any event, no more than an aggregate of two weeks of unused vacation time may be carried forward from one Fiscal Year to the next Fiscal Year. Section 17. Successors and Assigns. In the event that the Corporation shall at any time be merged or consolidated with any other corporation or shall sell or otherwise transfer substantially all of its assets or business to another corporation or entity, the provisions of this Agreement shall be binding upon and inure to the benefit of such corporation or entity surviving or resulting from such merger or consolidation or to which such assets or business shall be so sold or transferred; provided, however, that nothing contained in this Section 17 shall in any way limit, or be construed to limit, the obligations to the Employee, under this Agreement, of the Corporation or the Corporation's successors or assigns. This Agreement shall not be assignable by the Employee. Section 18. Notice. Any notice or other communication which is required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, transmitted by telecopy or five (5) days after being mailed by registered or certified mail, postage prepaid, return receipt requested, to such party at the address shown below: If to the Corporation, care of the following: Salant Corporation 1114 Avenue of the Americas New York, New York 10036 Attention: Todd Kahn, Esq. If to the Employee, then to the following: Mr. Elliot M. Lavigne 24 Sutton Place Engelwood, New Jersey 07631 Each party may, by notice to other party, change the above address. Section 19. Entire Agreement; Amendments. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements (including, without limitation, the Prior Employment Agreement) and understandings as to the employment of the Employee. No amendment, waiver, modification or discharge of any of the terms of this Agreement shall be valid unless in writing and signed by the party against which enforcement is sought. Section 20. Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. Section 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 22. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. Section 23. Arbitration. The Employee and the Corporation agree that any dispute of any kind, nature or description between the parties hereto, with respect to, relating to or arising out of the Employee's employment with the Corporation or the terms of this Agreement, shall be submitted to arbitration before the American Arbitration Association in New York, New York in accordance with its rules then in effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SALANT CORPORATION By: /s/ Nicholas P. DiPaolo Nicholas P. DiPaolo Chairman of the Board, President and Chief Executive Officer /s/ Elliot M. Lavigne Elliot M. Lavigne Exhibit 1 INCENTIVE COMPENSATION SCHEDULE If the Corporation's operating income (before amortization of intangibles), as shown on its audited financial statements for any Fiscal Year during the Employment Period ("Actual Annual Operating Income"), is equal to or greater than 90% and less than 95% of the amount of operating income (before amortization of intangibles and after the reserve for contingencies) provided for in Salant's annual business plan for that Fiscal Year ("Planned Annual Operating Income"), the Employee shall receive a cash bonus equal to 10% of his Salary at the end of the applicable Fiscal Year ("Annual Salary"). If the Corporation's Actual Annual Operating Income is equal to or greater than 95% and less than 100% of Planned Annual Operating Income, the Employee shall receive a cash bonus equal to 25% of his Annual Salary. If the Corporation's Actual Annual Operating Income is equal to or greater than 100% of Planned Annual Operating Income, the Employee shall receive a cash bonus equal to 50% of his Annual Salary. For each full five percentage points (after rounding to the nearest 1/100th of a percent) by which the Corporation's Actual Annual Operating Income exceeds 100% of Planned Annual Operating Income, the Employee shall receive an additional cash bonus equal to 10% of his Annual Salary. Actual Annual Operating Income shall be calculated without giving effect to unusual or nonrecurring items of income or expense. EX-99 3 EXHIBIT 10.33 AGREEMENT AGREEMENT dated as of September 22, 1993, by and between Nicholas P. DiPaolo ("Employee") and Salant Corporation, a Delaware corporation ("Salant"). WHEREAS, pursuant to the Employment Agreement, dated September 20, 1993, between Employee and Salant (the "Employment Agreement"), the Employee is currently the Chairman of the Board of Directors, Chief Executive Officer and President of Salant; WHEREAS, the Board of Directors of Salant has determined that it would be in the best interest of Salant to have an option to extend the Basic Term (as defined in the Employment Agreement) of the Employee (the "Option"); WHEREAS, pursuant to certain conditions contained in this Agreement, the Employee desires to give Salant the Option. NOW THEREFORE, in consideration of the respective premises, mutual covenants and agreements of the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. The Option. Subject to the terms and conditions of this Agreement, the Employee hereby grants to Salant the option to extend the Basic Term under the Employment Agreement for a period of one year, commencing on January 1, 1995 and ending on December 31, 1995 (the "Additional Year"). In consideration for the Option, Salant hereby agrees to guarantee that it will fully comply with all of the terms and conditions provided for in the Employment Agreement, including without limitation, Section 4 of the Employment Agreement. The Employee shall receive an annual salary at the rate of $625,000 per year for the Additional Year. All of the other terms and provisions of the Employment Agreement in effect immediately prior to the commencement of the Additional Year shall remain in effect without modification during the Additional Year. Section 2. Ability to Exercise the Option. The Option granted hereunder shall be exercisable and binding on the Employee only if (i) at the time immediately prior to the commencement of the Additional Year, Salant is in full compliance with all of the terms and conditions provided for in the Employment Agreement, including without limitation, Section 4 of the Employment Agreement, and (ii) Salant has notified the Employee in writing on or before July 1, 1994 of its intention to exercise the Option. Section 3. Notice. Any notice or other communication which is required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, transmitted by facsimile or five (5) days after being mailed by registered or certified mail, postage prepaid, return receipt requested, to such party at the address shown below: If to Salant, care of the following: If to the Employee, then to the following: Salant Corporation Mr. Nicholas P. DiPaolo 1114 Avenue of the Americas 8-01 Plymouth Drive New York, New York 10036 Fair Lawn, NJ 07410 Attention: Todd Kahn, Esq. Each party may, by notice to other party, change the above address. Section 4. Entire Agreement; Amendments. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings as to the Option. No amendment, waiver, modification or discharge of any of the terms of this Agreement shall be valid unless in writing and signed by the party against which enforcement is sought. Section 5. Successors and Assigns. In the event that Salant shall at any time be merged or consolidated with any other corporation or shall sell or otherwise transfer substantially all of its assets or business to another corporation or entity, the provisions of this Agreement shall be binding upon and inure to the benefit of such corporation or entity surviving or resulting from such merger or consolidation or to which such assets or business shall be so sold or transferred; provided, however, that nothing contained in this Section 5 shall in any way limit, or be construed to limit, the obligations to the Employee, under this Agreement, of Salant or Salant's successors or assigns. This Agreement shall not be assignable by the Employee. Section 6. Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. Section 7. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. For purposes of any action or proceeding involving this Agreement, Salant and the Employee hereby submit to the jurisdiction of all federal and state courts of competent jurisdiction sitting within the area comprising the Southern District of New York. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SALANT CORPORATION By: \s\ John. S. Rodgers John S. Rodgers, Esq. Executive Vice President, Senior Counsel and Secretary \s\ Nicholas P. DiPaolo Nicholas P. DiPaolo EX-99 4 EXHIBIT 10.34 FORM OF INITIAL GRANT OF DIRECTOR OPTION AGREEMENT SALANT CORPORATION 1993 STOCK PLAN NONSTATUTORY STOCK OPTION AGREEMENT THIS AGREEMENT, made as of [DATE] (the "Grant Date"), between Salant Corporation, a Delaware corporation (the "Company"), and [NAME] (the "Optionee"). WHEREAS, the Company has adopted the Salant Corporation 1993 Stock Plan (the "Plan") in order to provide additional incentive to selected key employees and directors of the Company and its Subsidiaries; and WHEREAS, the Plan provides for the grant of a Director Option to the Optionee as provided herein; NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby makes an Initial Grant of a Director Option (the "Option") to the Optionee to purchase all or any part of an aggregate of 1,000 whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement and the Plan. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistence with, and subject to, the terms of the Plan (the provisions of which are incorporated herein by reference); and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $[PRICE] per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten years from the Grant Date; provided, however, that the Option may be earlier terminated as provided in Section 8 of the Plan. 4. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of Optionee's service as a director of the Company or any Subsidiary. 5. Withholding of Taxes. Whenever shares of Stock are to be issued pursuant to this Agreement, the Company shall require the recipient of the Stock to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to issuance of the certificate for shares of Stock. 6. Grantee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 7. Modification of Agreement. Subject to the provisions of the Plan, this Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, administrators and successors. 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and Company for all purposes. SALANT CORPORATION By__________________________ Nicholas P. DiPaolo Attest: __________________________ ____________________________ [NAME] ____________________________ ____________________________ Address ____________________________ Social Security Number FORM OF ANNUAL GRANT OF DIRECTOR OPTION AGREEMENT SALANT CORPORATION 1993 STOCK PLAN NONSTATUTORY STOCK OPTION AGREEMENT THIS AGREEMENT, made as of [DATE] (the "Grant Date"), between Salant Corporation, a Delaware corporation (the "Company"), and [NAME] (the "Optionee"). WHEREAS, the Company has adopted the Salant Corporation 1993 Stock Plan (the "Plan") in order to provide additional incentive to selected key employees and directors of the Company and its Subsidiaries; and WHEREAS, the Plan provides for the grant of a Director Option to the Optionee as provided herein; NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby makes an Annual Grant of a Director Option (the "Option") to the Optionee to purchase all or any part of an aggregate of 300 whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement and the Plan. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistence with, and subject to, the terms of the Plan (the provisions of which are incorporated herein by reference); and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $[PRICE] per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten years from the Grant Date; provided, however, that the Option may be earlier terminated as provided in Section 8 of the Plan. 4. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of Optionee's service as a director of the Company or any Subsidiary. 5. Withholding of Taxes. Whenever shares of Stock are to be issued pursuant to this Agreement, the Company shall require the recipient of the Stock to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to issuance of the certificate for shares of Stock. 6. Grantee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 7. Modification of Agreement. Subject to the provisions of the Plan, this Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding uponany successor to the Company. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, administrators and successors. 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and Company for all purposes. SALANT CORPORATION By__________________________ Nicholas P. DiPaolo Attest: __________________________ ____________________________ [NAME] ____________________________ ____________________________ Address ____________________________ Social Security Number -----END PRIVACY-ENHANCED MESSAGE-----